A May 30th article in the Atlantic declared, “Cryptocurrency Might be a Path to Authoritarianism. Extreme libertarians built blockchain to decentralize government and corporate power. It could consolidate their control instead.”
The article distorts important points but it raises a valid concern. Namely, bitcoin and the blockchain have “attracted banks, governments, and corporations.” A digital currency under their control could be a stride toward a cashless society in which all white market transactions are tracked by avaricious banks, states and corporations. It could usher in unprecedented financial control.
No wonder savvy politicians like Putin are fascinated by cryptocurrencies…that is, as long as the stumbling block of pseudonymity can be removed. Putin has been meeting with the founder of Ethereum with the reported goal of making some form of ether Russia’s national cryptocurrency. Statists have awoken to the power of the blockchain which would make their usurpation of money and power more efficient.
Cryptocurrencies allow individuals to sidestep the state. Can states also use them to impose economic and social control on individuals? To some degree, of course they can. Technology is extremely adaptable. But converting bitcoin into a tool of the state encounters a stiff barrier. Government-issued currency (fiat) and the institutions attending it (central banks) are designed to serve the state and social control. Bitcoin is designed to serve individuals and freedom. The “square block in a round hole” problem arises.
Distortions within the article
The article’s main distortions should be addressed in order to set context.
The problem ascribed to Bitcoin is nothing new. Almost all technology can increase both individual freedom and state control. The printing press decentralized ideas and truth but the state used it to mass produce propaganda. Guns give individuals direct control over self-defense but the state used them to compel obedience. In most cases, the benefit to individuals far outweighs the benefit to the state.
The original developer and coders of Bitcoin were anarchists. They did not seek “to decentralize government,” as the Atlantic article states, but to render it irrelevant. The irrelevance of the state was designed into the core of Bitcoin’s protocol. Eliminating “both nation-states and corporations” may be impossible, as the article suggests, but this is not the goal of Bitcoin. Instead, it is a practical strategy or tool by which individuals can eliminate the need for states and corporations.
The Atlantic seems to assume that a currency is a currency is a currency. They all perform the same function. In one sense, that’s true. A free-market currency is an economic tool of exchange and anything people accept for goods and services is valid: sea shells, tulips, gems, commodities, metals, shark teeth… As an economist friend states, “If a dog eats it, it’s dog food.” Generally speaking, however, a ‘good’ currency has several characteristics including wide acceptance, low-to-no inflation, divisibility and durability. But the exchanging individuals remain the sole arbitrators of what is currency, good or poor.
Outside a free-market context, however, not all currencies perform the same function.
Whom Does Fiat Serve and How?
Statist goals are built into the dynamic of fiat currency. Fiat is currency issued by a central authority that artificially and unilaterally increases its volume at will. The inflation reduces the value of every unit of fiat in circulation and gradually increases the cost of goods. The first ones to receive the additional currency – that is, the state, the banks, the elite – benefit because prices have not yet responded by rising. Those who are last – the average person – suffers by having his wealth diluted even as his costs rise.
The root problem with conventional currency is all the trust that’s required to make it work. Satoshi Nakamoto said:
The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.
Fiat is a poor currency for most individuals because it includes hidden ‘fees’ such as inflation. To ensure that fiat is preferred, therefore, the state declares a monopoly on the issuance and validity of currency. Competition is either prohibited or absorbed through regulation.
Monopoly and inflation are common features of a currency that serves the state. Other common aspects include:
- Little to no transparency, as reflected in refusing to audit the Fed.
- A push for total transparency of those who use the system.
- Extreme centralization of monetary supply and policy.
- Few brakes on support for financial cronies, as in Obama’s bank bail-out.
- Currency value – that is, interest rates – set by bureaucrats.
- No accountability as the dearth of financial elites in prison proves.
Whom Does Bitcoin Serve and How?
Bitcoin was designed as a protocol and a transfer mechanism that allows individuals to avoid “trusted” third parties, such as central banks. Instead, individuals deal directly with each other in a manner similar to barter but which also preserves the advantages of currency. Bitcoin empowers and liberates individuals who no longer require the ‘services’ of the state. In short, it serves the individual.
The key features of bitcoin are antithetical to those of state currency. They include:
- The absence of monopoly.
- No inflation of the currency supply.
- Transparency with an open ledger and open source.
- Pseudonymity for users.
- Extreme decentralization of use.
- Associated institutions supported on a voluntary, individual basis.
- A free market currency value.
- Dramatically reduced need for accountability.
For the blockchain to truly serve the state, its current dynamic must morph into its mirror opposite.
Central banks exist to regulate the flow of money and financial information in order to benefit the state and themselves at the expense of individuals. They want to preserve the status quo while exploiting the advantages of blockchains and digital currencies. Only time and real-world applications will show whether a freedom tool can be used to strengthen statism, and to what extent.
Two central banking policies will be emphasized in the attempt to usurp Bitcoin: the claim of monopoly and the stripping of privacy from users. Monopoly will be enforced by regulation and by privileges extended to the compliant while harsh punishments confront the non-compliant. Privacy is likely to be stripped away by exchanges that mimic central banks and by smart money. The latter is digital currency that can be used in transactions only if specific embedded conditions are met. One condition will probably be the full disclosure of users’ identities and details of their transactions. This will give central banks control of assets and information flow, taking it from individuals. Traditional peer-to-peer exchanges will be pushed toward gray or black markets.
A confrontation between freedom and statism in this area may seem inevitable. The financial commentator Zero Hedge explained ‘why’. “Bitcoin’s success has promoted the conversation as to how central banks can keep up, and take advantage of the technology in order to keep their monetary games going and further kicking the ‘fiat currency can’ down the road. Central banks now want in on their own adulterated version of blockchain. It seems they have realized that they must embrace it in order to prevent their own demise.”
The secret to short circuiting the state’s usurpation may be to avoid the confrontation; after all, the state is likely to win. Ignore it instead. To the extent possible, pursue the original intent of Satoshi. Render the state irrelevant by finding ways to not need its services, to not need its presence in your life.
Are you prepared for governments to try to usurp blockchain technology? What is your plan of action or defense? Share your thoughts below!
Images courtesy of Shutterstock, bazaarbay.org, and notbeinggoverned.com
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