This academic article, authored by Professors Mark Copelovitch (University of Wisconsin, Madison) and Thomas B. Pepinsky (Cornell University), represents a rigorous political economy analysis of cryptocurrency's role in a global system of sovereign states. By applying established monetary theories to digital assets, the paper moves beyond technical jargon to address a fundamental power struggle: whether cryptocurrency serves as a speculative tool for the existing order or a revolutionary force destined to dismantle state sovereignty. Ultimately, the authors conclude that while crypto currently complements fiat currency, its most radical proponents view it as a weapon to sever the state-money nexus, potentially transforming the Westphalian world order into a system of "Sovereign Networks."

Article name

The Political Economy of Shitcoins (and Other Varieties).

Who wrote this article?

The paper was written by Mark Copelovitch, Professor of Political Science and Public Affairs at the University of Wisconsin – Madison, and Thomas B. Pepinsky, Professor of Government and Public Policy at Cornell University.

Best quote

The future of cryptocurrency is a battle over the future of sovereign authority itself... The next global superpower will be a Sovereign Network. The next America will be on-chain.

Key takeaways

  • Four-Fold Demand Typology: The authors categorise crypto based on its perceived value. This ranges from "Shitcoins" (purely speculative/no value) and "Digital Gold" (intrinsic store of value) to "Replacement for Fiat" (both instrumental and intrinsic value held by techno-libertarians).

  • The risk for human labour: The paper compares human labour in a crypto-economy to horses during the rise of fossil fuels. While technology initially "complemented" horses, it eventually rendered them obsolete. The authors suggest a similar risk for human labour if crypto fully automates the financial "plumbing" of society.

  • Digital Gold Standard Trap: Bitcoin functions like a digital gold standard. However, the authors argue this is inherently unstable because a fixed supply prevents states from using counter-cyclical monetary policy (printing money) during crises, which would likely lead back to state intervention.

  • Hegemony and the Dollar: Despite crypto's rise, the authors highlight "full spectrum" dollar dominance. Crypto often inadvertently reinforces the dollar's power, as the most successful stablecoins are pegged to the USD, thereby increasing demand for US-denominated assets.

What's in the article?

This article explores the systemic tension between decentralised digital assets and the Westphalian state (i.e. the modern state). It aims to solve a specific puzzle: how can we categorise the chaotic world of "shitcoins," NFTs, and CBDCs into a coherent political framework? To answer, the researchers utilise historical data on exchange rate regimes and current banking claims to show how financial globalisation has set the stage for a crypto intervention.

The core of the paper describes three potential "Worlds":

World 1 sees crypto as a complement to fiat, where it thrives as a private asset class but remains under state regulation. World 2 envisions crypto replacing fiat as the reserve standard, a scenario the authors find unlikely due to the "Mundell-Fleming" constraints on policy autonomy (i.e., crypto issuers must choose between three incompatible goals: permissionless architecture, control over currency supply, and a stable exchange rate with fiat currency). World 3 is the most radical: the "Flippening," where sovereign networks replace nation-states as the primary political unit.

By analysing the "supply side" (mining protocols) and the "demand side" (user beliefs), the article identifies how techno-libertarian billionaires such as Peter Thiel and Elon Musk use crypto as an ideational tool to diminish state power. Interestingly, the research suggests that "Central Bank Digital Currencies" (CBDCs) are actually a state defence mechanism designed to co-opt blockchain technology while maintaining sovereign control over the money supply.

Why should you read this article?

This paper represents a paradigm shift for political scientists and economists who have previously dismissed crypto as a mere "scam." It demonstrates that the most significant impact of crypto is not the technology itself, but the ideational shift it represents regarding who has the right to issue money. Therefore, understanding crypto is essential for anyone studying the future of international relations and global power.

Who is this article for?

This article is a valuable resource for international political economy scholars, financial regulators, and digital asset strategists seeking an evidence-based framework to understand the geopolitical stakes of the blockchain revolution.