Crypto and the survival constraint
Not a monetary revolution
It was not so long ago that one could still hear the argument that cryptocurrencies would bring about a redistribution of power in the financial system. The problem, the argument goes, is the excessive power of intermediaries, so we should build financial patterns that cut out intermediaries, thereby giving the power of financial self-determination to the decentralized masses.
The argument was always wrong, but for an interesting and, I think, unappreciated reason: the power of intermediaries doesn't come from an inadequate payments technology; it comes rather from the obligation to pay itself. This obligation, surprisingly, gives rise both to the power of intermediaries and to a centralized financial structure. Crypto has offered many interesting ideas, but it has not sought to weaken the obligation to pay, and so it can never succeed at weakening the power of intermediaries.
The survival constraint
Hyman Minsky is best known for his work on financial instability. At the core of this work is a simple idea, which Minsky dubbed the survival constraint: you have to pay your debts. In our capitalist system, that is, economic relations are conducted using financial obligations, which are honored by paying in money in the agreed amount at the agreed time. In his dissertation, where he used this name for it, Minsky was thinking about businesses, for whom "survival" means continuing to operate. But he also applied the idea (if not the phrase) when thinking about the cash constraints faced by households, where survival may not be so figurative.
It is helpful to have a name for the survival constraint, because without a name, the idea that debts must be paid can pass unnoticed, so implicit is it in a world governed by debts. In fact, as the late David Graeber pointed out in his Debt: the first 5,000 years, the survival constraint binds rather tightly in our own time. Humanity's experience, Graeber argued, says that the systematically unpayable debts of the periphery should be recognized and written off.
Centralization is not an accident
The survival constraint is what gives creditors power over debtors, for example the power to take recourse through the legal system in order to collect payment. Such power, surprisingly perhaps, also creates a special benefit for centrality: it means that a centralized creditor, who is well positioned to collect payment from many others, is for that reason also well positioned to issue liabilities which can serve as a means of payment, or in other words to issue money. The liabilities are good money because the assets are good credit.
Lending and payment show up together, that is, because of the survival constraint. It is a bank's portfolio of loans that ensures it will be able to issue deposits; because it can create deposits that serve as money, a bank is able to lend when it wants to. This also makes centrality stable: what is at the center stays at the center.
The crypto case for decentralization wrongly supposes that financial technologies that make it possible to avoid intermediaries will make it common to avoid intermediaries, so taking power from them. But, crypto or no, creditors still gain from their ability to intermediate. They have power, in particular the power to ease the survival constraint, or to choose not to. When big moneyed interests want to put billions into Bitcoin and DeFi, they don't stop being big moneyed interests.
In other words
In other words, crypto never made the case for the weakening of the survival constraint. For all of its proposals of new ways to think about payment and exchange, accounting and consensus, crypto did not suggest that there were debts that should not be paid, and that a healthy monetary system should occasionally sweep them away, not one by one in bankruptcy court but all at once, in one fell swoop. If anything it proposed the opposite: claims recorded in a permanent ledger, cryptographically immutable, the outcome of consensus without trust.
So crypto is a wave of monetary novelty, but not a revolution, because it never challenged the principle that really matters.