The Development of Cryptocurrencies: A Polanyian Perspective

Abstract

The emergence of cryptocurrencies was supposed to threaten established traditional currencies backed by the state. The discourse around them made them represent a critique of the operation of the monetary systems. The article analyzes cryptocurrencies development from its origin, adopting a Polanyian perspective, specifically the concepts of double movement and embeddedness. If the cryptocurrency project is successful, i.e. it is considered along with other monies, it would be disembedded from society since it would be ruled exclusively by the market. The complete commodification of money accompanies this process since cryptocurrencies are produced and sold only for profit. Because of their design, cryptocurrencies cannot be considered all-purpose money but only special-purpose money since they only fulfill, at best, one of the functions of money; they have also become crypto-assets characterized by the rapid growth in their market capitalization and the violent changes in their value. The state’s reaction to the development of cryptocurrencies can be interpreted as a symptom of society trying to defend itself from the pernicious effects of the free market. By issuing initiatives and warnings to regulate or even ban cryptocurrencies, especially by financial institutions and other private entities, it tried to limit their pernicious effects on the financial system and the economy. Also, the Central Bank Digital Currency (CBDC) projects can be interpreted as a way for the state to protect society from the disembeddedness of money since these instruments could take away some of the private institutions’ power. In this way, the article offers the hypothesis that the appearance of cryptocurrencies and the state’s reaction conform to the Polanyian double movement.