Economics, Free Speech, Recommended

How Bitcoin Can Protect Free Speech in the Digital Age

Think about what happens when you buy a newspaper at a local cafe with cash. The shopkeeper takes your paper money, and gives you the item. They don’t know your name, address, phone number, email, or what you bought yesterday. They are not collecting any data about you. Until now, this level of financial privacy was perfectly normal.

Today, cash is disappearing. In the UK, just 42 percent of transactions are still performed using cash. In America, it’s down to 32 percent. In Sweden, 20 percent. And in South Korea, only 14 percent. In some urban areas—for example, Stockholm or Beijing—electronic and touchless payments are virtually everywhere. In an increasingly cashless world, citizens are losing their privacy and, by extension, their civil liberties.

When you buy a subscription to a political magazine like this one, you almost certainly do so with a credit card or through a platform like PayPal. These payment processors collect data about you that can be sold, leaked, hacked, or handed over to a curious government. When you make an electronic payment today, you necessarily reveal your identity and betray your privacy. Each time you make a digital transaction, your online footprint grows bigger, more telling, and more profitable. If I want to spy on you and understand your behavior, I’d prefer to see your credit card and bank statements than your social media accounts. Your financial behavior says more about you than your words.

In Hong Kong, pro-democracy demonstrators need to use the public transit system to get from home or office to protest point. If students use their traditional ID-linked “octopus cards” to use the metro system, school administrators or employers could obtain their transit data and see that they went to certain protests, leading to punishment. So this summer, Hong Kongers lined up in long queues to buy anonymous transit tickets with cash. Some also used cash to buy burner phones and SIM cards, to participate in Telegram groups without linking their messages to their identities. In this frontline modern conflict between authoritarianism and democracy, cash is playing a key role, along with facemasks, in helping citizens exercise their rights and hold their government accountable.

But what happens when cash disappears, as we know it will in the coming decades? Children born today will most likely not use hard currency in their daily adult lives. Paper money will eventually become a curiosity, a fossil from the pre-digital age. In this looming future, is a global financial surveillance state inevitable? The answer might be a tragic and certain yes, were it not for one extraordinary invention.

On October 31, 2008, in the middle of a global financial crisis, a pseudonymous individual or group of people going by the name of Satoshi Nakamoto released the Bitcoin white paper onto a cypherpunk message board, suggesting that a peer-to-peer digital cash system was possible. Several months later, on January 3, 2009, Satoshi launched the Bitcoin software into the world.

With the Bitcoin network, you can send money to anyone on earth, in minutes, without permission from a central authority. No one—not even a nation state like China or the United States—can censor your transaction. Addresses are pseudonymous, and with proper operational security, you can approximate the nature of a cash transaction and transfer funds to others in a way that is difficult to link to your identity. You don’t need an ID or a bank account to use Bitcoin, as the software is open source and permissionless. Anyone can receive Bitcoin from you at this very moment—all they need is a smartphone with internet access so they can download a wallet capable of receiving your transaction. Think about a Bitcoin wallet as a financial avatar.

In a world filled with increasing economic controls, instability, and surveillance, there are more than a few examples of how Bitcoin is changing the game. In China, citizens are buying Bitcoin as a confiscation-resistant and capital control-resistant store of value. To unpack: Bitcoin is a much better way to store money in extreme circumstances when compared to something like gold or fine art, which is clunky and hard to transport. Your Bitcoin isn’t stored anywhere physical, but rather lives on the internet, and can only be accessed with your private key. This password is something you can put on a USB stick, write down on a piece of paper, or even memorize in your head.

Inside Iran, individuals are circumventing sanctions with Bitcoin. Today, if you’re in London, for example, and want to send money to your family in Tehran, you don’t have many—if any—options given the banking restrictions. But with Bitcoin, you can send thousands of dollars to family in minutes, and then they can tap into Iran’s growing peer-to-peer Bitcoin marketplaces to exchange the Bitcoin you just sent them into fiat currency to buy what they need.

For independent media or human rights groups, Bitcoin will become an increasingly important way to defy government control. For example, in Russia, when Vladimir Putin wants to shut down an NGO, he closes its bank account. But he cannot prevent you from receiving a Bitcoin payment. Likewise, a major Hong Kong activist organization is having its bank account closed down by HSBC. But there’s nothing Beijing can do to stop anyone from financing the Hong Kong protests with Bitcoin.

And in Venezuela, savvy entrepreneurs and students have been using Bitcoin as a lifeline and a way out of hyperinflation. Some are able to earn an income in Bitcoin from companies abroad by doing software work; others receive Bitcoin from family in the U.S. and use it like a savings account, relying on websites like LocalBitcoins to convert their Bitcoin into bolivares when necessary to buy what they need.

These are just a few examples, and more continue to surface. In the past few months, demand for Bitcoin has risen in Lebanon and Argentina, as those countries suffer through economic turmoil, high inflation, and banking controls. By some counts, the country in the world with the highest Bitcoin-per-capita ownership is Turkey, where citizens have to deal with a crashing lira and an unstable authoritarian leader. And in Palestine, individuals are starting to rely on Bitcoin to do international commerce and to receive money from family abroad.

True, in America and Europe, we don’t have the same kind of bank closures, steep inflation, and existential economic risk. But individuals and organizations have been de-platformed from payment processors like Patreon on the basis of their opinions. If you can’t publish your thoughts and earn income without needing to seek approval from political gatekeepers, then free expression and, by extension, democracy, will slowly die.

An important thing to understand is that Bitcoin is a “base” money, and directly competes with other base monies like gold or the U.S. dollar. Just as people invented payment mechanisms to scale the number of transactions possible with these monies (paper notes or Visa enabled a much higher volume of global commerce than gold bars or cash as second layer settlement solutions), technologists are inventing payment mechanisms to scale the number of transactions, improve the ease of use, and enhance the privacy of Bitcoin today.

One of these is Lightning, an open-source software project that uses similar encryption methods to the Tor Browser, making your Bitcoin payments even harder to surveil. Imagine, in the near future, going to Starbucks or buying something on Amazon with a touchless digital transaction that has the final settlement and anonymity features of a cash payment. Your daily financial activities could be private, and you could stop the growth of your digital footprint, making it harder for companies to exploit you and harder for governments to do illegal bulk surveillance. If Lightning matures properly (a big if, but a potential one), then it could take digital cash mainstream and make a serious dent in the advance of surveillance capitalism and mass state surveillance.

Before you say “the authorities would never allow that”—ask yourself, why not? Cash is still a key part of the world economy, and even today, there is a multi-billion dollar global gift card market. Legally and morally speaking, Bitcoin payments aren’t very different from payments made with gift cards bought with cash. So exercise caution when banks and governments say that Bitcoin is dangerous because it makes it harder for them to monitor your activity. After all, the average person’s daily transactions were, until very recently, private, and that was normal.

Consider how your daily life has digitized in the past 20 years and start thinking about how this trend will continue into the future. If we want to live in a world where we can buy things and subscribe to media and earn money and publish our thoughts without the fear of being spied on, then we are going to need a digital form of cash. Bitcoin is the foundation for that system.

 

Alex Gladstein is Chief Strategy Officer at the Human Rights Foundation, a non-profit that supports civil liberties in authoritarian societies. You can follow him on Twitter @gladstein

Photo by Clifford Photography on Unsplash

CORRECTION: This article originally stated that Bitcoin software was launched on January 8 not January 3. 

Comments

  1. Full disclosure, I am bitcoin ignorant, so the following claim has me confused. “The shopkeeper takes your paper money, and gives you the item. They don’t know your name, address, phone number, email, or what you bought yesterday.”

    Is not the Bitcoin traceable back to me? Do I not have to provide personal and bank account information when I purchase the Bitcoin? Since the transaction is via the internet doesn’t the merchant need to deliver the merchandise to an address or the information to an email account? When I place a cellphone call, no one really knows but there is a record that government could ultimately trace back to me. Couldn’t the same be said of any bitcoin transaction if the government chose to pursue those records? In short I don’t understand the anonymity benefit claim.

  2. @Farris

    I’ll throw out a guess and say it has something to do with private encryption being considered too good for governments to crack at this time.

    But who knows whether 20 years from now, the Federal Bureau of the Democratic Party won’t discover a way to uncover old transactions.

  3. @Morgan

    You’re probably correct. I understand anonymity when it comes to transferring Bitcoin to Hong Kong protestors but when the protestors purchase train tickets with the Bitcoin those tickets have to be delivered or picked up. Couldn’t the government just see who purchased train tickets from the rail company with Bitcoin? Not trying to be argumentative, just trying to comprehend.

  4. I’ll admit I don’t know every detail about bitcoin, but I know enough to say this: yes, an actually anonymous, well-designed virtual currency could be useful. Bitcoin isn’t that, for multiple reasons. It uses a public ledger, so once someone connects your wallet to your actual identity, they know every transaction you ever made from that wallet; and linking you to your wallet shoulnd’t be that hard unless you and all your trading partners are very very careful and conscientious. Also, nothing keeps despotic governments from making the very use of Bitcoin a crime, so once you’re exposed, you’ll be on the hook for multiple counts, and so will your partners.

    Second, Bitcoin is terrible from a technical perspective. The idea is to keep multiple public copies of a record of every transaction ever - and this is something you want to roll out for everyday use by billions of people? Storage is cheap, but it’s not that cheap.

    Likewise, the energy consumption is designed to keep rising. The energy consumed by one transaction is enough to supply an American household with electricity for several weeks - again, terrible as is right now, and not something you want to roll out to pay for every bus ticket in the world.

    Bitcoin is terrible from an economic perspective as well. It has strictly limited supply built into the very foundation of its concept. With increasing use, that mean built-in deflation. Every economics student can explain to you why deflation is terrible for something that is meant to actually be used as a currency.

    So, anonymity in payments for goods and services - great. Bitcoin as it is - not great.

  5. @MorganFoster @Farris

    Actually, as the number of users of Bitcoin scales, so does the size and complexity of the network that supports it- exponentially. The Tor software that supports it, I believe- if my history on this is correct, was actually developed by US Naval SIGINT, intent on developing a network that was incapable of being cracked, both in terms of identity and location. Brute force attacks become increasingly futile over time- the only real prospect for overcoming the difficulties of breaching Bitcoin are by using agents masquerading as vendors or sellers or possibly by identifying inherent preexisting weaknesses in the structure of the internet, or the ubiquitous hardware that supports it.

    However, there is one massive drawback to Bitcoin that makes it flawed as a currency. Because it is used as a speculative currency and an investment, more so than any equivalent national currency it is incredibly susceptible to financial attack. A disproportionate number of people who buy Bitcoin are investors. They are also often people who have invested a lifetime of savings or borrowed- so are inherently incapable of protecting their investment from the type of ‘fire sale’ that speculative investors tend to like to run periodically against the less aggressively protected currencies, as well as commodities.

    For this reason, I would not use Bitcoin unless it your only option. It can suffer incredibly volatile peaks and troughs in price, and only really makes sense as an investment, if you are a professional investor who can afford to keep their money tied up in an asset and not access it for a long time… Worse than that, if it ever suffered a loss of confidence to the extent that investors decided to scrap their sunken costs, you could lose all your money.

    That being said, although I don’t personally follow it- i believe it suffered a huge fall in price a while back, so if you have the resolve of a professional gambler and can walk away from easy money with the reassuring knowledge that you have made good returns, then it might be worth looking at in greater detail- but as soon as people start saying again that it’s a really good investment, it’s time to start thinking about grabbing your coat and exiting the market…

  6. The use of a piece of paper for a unit of exchange is one for which we have long habits. We know that the value of the piece of paper will not change quickly. We know that the value is supported by the government.

    The value of a unit of Bitcoin is defined by what exactly? We don’t know. In fact, to the best of my knowledge, the value is simply defined by consensus. The value of Bitcoin goes up and down.

    In addition, if you store a lot of value in a Bitcoin vault, and die without disclosing the passcode, your heirs will not be able to recover your value.

    Until Bitcoin is defined and supported by a federal agency, I will not participate.

    Bitcoin value is determined partly by demand. This author is trying to gin up demand. I wonder if he has a large stake in Bitcoin that he is trying to inflate. Just as the “penny stock” market was susceptible to pimping and manipulation, the Bitcoin value is also able to be manipulated.

  7. Why is Quillette printing this Bitcoin garbage? The crypto-currency is a fun toy for techno-geeks, it will not and cannot be a substitute for real money.

    Bitcoin mining requires vast amounts of electricity, creating a new Bitcoin require enough electricity to run a small town. How is that going to scale up beyond a tiny niche market?

    The value of BitCoin has fluctuate between $20,000 and $3,000 in the past couple of years…it makes Venezuelan money look stable. How much of your wealth do you want to store in that?

    And the since there is no central authority, nobody who can read the ledger, it is very stealable (and tens of millions have been stolen) and there is no way to get yours back if they are stolen.

    The only way to fix those problems is with a central authority to manage issuance, and have access to the transaction ledgers. But then you can’t pretend it is anonymous anymore.

  8. Indeed, bitcoin is fully tracked and traced, which is why it works. If you couldn’t track/trace, it would be a free for all with everyone spending the same bitcoin repeatedly. You’d need to buy a bitcoin wallet using cash from a machine while wearing an ID-protecting outfit. And then you’d just be weird! After all, the shopkeeper, for a regular person, might keep records of your purchases if he so desired.

    Most credit card purchases only have an amount, not what was purchased.

    Few people today can escape the tracking that will only grow. It seems a lost cause for most of society that prefers a discount using a “preferred customer card” or “store app,” and they carry phones that track them everywhere…it seems they choose to give up privacy for convenience and benefits all the time.

    No matter how much we read about unsocial media, many continue to use it. People grumble about Walmart or Amazon, and yet use them all the time. People grumble about our food choices, how we travel, what our garbage output is, climate pollution, etc., yet these are all routinely ignored.

  9. No, encryption has nothing to do with it…that’s done to ensure the bitcoin transaction isn’t tampered with, not to keep it private. By definition, your transaction is added to multiple public ledgers, fully traceable to the wallets that given and receive them. But like credit cards, there’s no details on what was purchased, though the merchant and/or buyer may keep these together.

  10. Funny, because most fiat currencies are priced by markets, just like bitcoin. The days when governments controlled the price of their currency are mostly over, at least in free nations.

  11. Bitcoin’s autonomy from any state is definitely appealing, but is also a reason for strong state resistance to its adoption, which could continue to cripple it.

    I see people arguing about the privacy implications, so let’s be very clear: Everything is tracked, but it’s unhackable. Meaning, if you and you alone have your credentials, you have privacy, but if the state is able to compel you to turn over your credentials, they get everything.

    The philosophical question, then, is whether it’s a bad idea for such information to exist at all, even if it is kept private, due to the potential for the state to coerce it.

    The trouble with answering “yes” to that question is that having the information not exist makes it very, very easy to steal or otherwise defraud electronic transaction systems, which makes it virtually impossible to have electronic transactions at all.

  12. And that is a fairly ridiculous comment. During a period of extreme inflation, the value of a unit of paper/government currency may change quickly. At this time? No, it does not change quickly. I can buy a pound of butter for between USD 2 and USD 3. In 1 year, I expect that this will still be the case. For Bitcoin? It has fallen by 50% in this year alone. Next year? Who knows?

  13. Bitcoin is insanely stupid.

    • Current transaction rate is limited to max 10 transactions per second (TPS). Just VISA handles up to 60.000 TPS. This TPS is built into the protocol and cannot scale by adding more computers. Processing a transaction therefore can take hours.
    • All transactions are stored in a shared ledger. This ledger contains every transaction ever. Currently it is at about 250 Gb. In principle all users should have this dataset to verify that new transactions are valid. Since this is unwieldy, people use wallets and, oh irony, and therefore place trust someone else to verify the integrity. A number of people already have been heavily burned by wallet operators being attacked.
    • The integrity of Bitcoin is maintained by miners. These idiot use inordinate amounts of energy to solve an incredibly dumb puzzle which only intention is to delay so the peer network gets a chance to decide which of the miner who’s transactions will be seen as valid. This validity is based on who can created the longest ledger. That is, during a period of time there can be multiple ledgers and it is not clear who won.
    • To be sure your money is not spent twice you must wait until the longest chain is clearly the winner, this can take hours.
    • The law of bitcoin is maintained in a protocol implemented in open source. If there are flaws (like number of TPS) then the code can only changed when all miners and users agree.
    • The protocol has many flaws that allow miners to game the system. For example, a miner can solve the dumb puzzle but keep silent and start working on the next dumb puzzle, which requires the result of the first dumb puzzle. When someone else finds the first solution, they quickly try to push their solution. Since they already started to work on result #2 they have a head start.
    • Miners decide which transactions become part of the ledger. Each transaction can leave some money on the table which is the free for the miner to take. That is, miners prioritize based on the amount of tip you’re willing to give. This can make transactions that have some urgency quite expensive, I’ve heard up to $50.
    • Miners are thought to be heavily concentrated in China.
    • Theoretically, a miner can control the network once it has 30% of the mining capacity. It is very likely some miners already have the capacity to take over the network. Not unlikely that this is the Chinese government.
    • If something goes wrong, there is no authority to appeal to. If you lose your private key, too bad. If someone steals your money, too bad.
    • Every transaction is recorded under a key. Although you can use different keys, the ledger allows someone to track money in minute detail. Once a key is coupled to a person, it is usually not that complex to trace the transactions to people. I.e. this is like money with your social security number on it.
    • The coin is designed to be deflationary by having a maximum amount of coins built in (21 million I recall). This will increase the value of the coin over time but will make it hard to use as a currency since the current value is purely driven by speculation.
    • To do something with your money in the real world you still need to go through exchanges. Again, a point of trust.
    • An anonymous currency might have privacy advantages but I shudder to think how it will be used by criminals.

    Overall bitcoin is the one of the most interesting technical designs I’ve seen in my life but the real world application is totally asinine because without some trust model it won’t work ever. Clearly a number of people will get quite rich on this but the majority will suffer in the end.

    There are some interesting developments in this area that can likely address the large number of shortcomings of bitcoin. However, for me I think money without a central authority has too many disadvantages. When someone stole my credit card I can call Amex and they help me out, if they not had called me even before I’d noticed. When a crisis like 2008 hits, isn’t it nice that the central bank can unilaterally step in?

    Some interesting links:
    https://blog.acolyer.org/2018/02/15/a-survey-on-security-and-privacy-issues-of-bitcoin/
    https://blog.acolyer.org/2018/02/13/sok-research-perspective-and-challenges-for-bitcoin-and-cryptocurrency-part-i/
    https://blog.acolyer.org/2018/02/14/sok-research-perspectives-and-challenges-for-bitcoin-and-cryptocurrency-part-ii/

  14. Someone can still capture that your phone connected to a server involved in the transaction. Also you and the shopkeeper will rely on software that could keep records. Finally you are most likely to use a Bitcoin service provider who will hold records of the transaction.

  15. Alex Gladstein, thanks for the article, I think we are definitely at the point at which crypto should interest all those who care about politics, not just coders and computer whizzes. You say Lightening network is a big if. BItcoin Cash (BCH) is a lot further ahead than Lightening network (which I believe remains 18 months off) and is demonstrating the capacity for the kind of vision you lay out here, particularly now that CashFusion has come online.

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