Dear XYZ, Bitcoin

posted by Jonathan Logan on 2011.04.06, under Agorism, Blog, Probable Fiction

Dear XYZ,

good to hear from you.

It is fascinating how sudden a wide-spread reporting on Bitcoin swept the globe. My take on Bitcoin is not really trivial to present, so I will just give you a few points of thought. If you have questions on it, don’t hesitate to ask me.

1.) It is great to see a project that communicates so much criticism on state money. It is great to see people concerned about inflation in fiat currencies and central control. That alone, and the reach they have, makes it a positive thing for me.

2.) The technology is interesting from an engineering point of view and will find other areas in which it will be adapted and used for good things.

3.) One has to keep in mind that Bitcoin really consists of two major components: The money creation (through decentralized competitive ‘mining’), and the distributed ledger. Personally I am not a big fan of creating money through waste of resources and not be able to use money as a good (except for medium of exchange). It’s simply not as aesthetic as digging for silver to be used both as money as well as good for production. The part that IS extremely interesting is the distributed ledger. Since it makes control over the transaction clearing almost impossible even for larger attackers.

4.) I made a handsome amount of money to be among the first that had holdings in Bitcoin 😉


5.) The main problem so far, when it came to alternative moneys, has not been the money creating or accounting itself. But it was the transactions between digital money and legal tender currencies. Unless Bitcoin is accepted by major businesses, it will always be problematic to use it as a real alternative to legal tender. This means that Bitcoin has to be exchanged for other currencies constantly. That is the point where the state will crack down. Paypal has already closed accounts to Bitcoin exchangers, and more of a crackdown in that area will happen for sure.

Also, big companies – or rather most companies – will have a hard time getting away with dealing in Bitcoin since the tax authorities will simply run audits, and because even those companies have to exchange to purchase supplies. This is where most attacks on Bitcoin will happen – and they have already begun. If the value of Bitcoin can remain stable in such an environment is highly questionable. Be aware, this is not a problem of the technology – it is a problem of how business, accounting and markets function. It is a process problem, no tech problem.

6.) I am a little concerned when it comes to the marketing for Bitcoin. It is often portrayed as being anonymous, untraceable and secure against any kind of take-down. This is a misrepresentation. All transactions in Bitcoin are publicly traceable, for everyone. Essentially the problem is the same as for tracing information flow in terrorist groups – except that all the data you need is already publicly available. Also, Bitcoin is not really anonymous. It is pseudonymous. The ‘accounts’ (keys) used in transactions are publicly visible, and under certain conditions they are linkable.

The user himself has to assure the anonymity both technically (since Bitcoin does not protect the network communication) and on the process level, by making absolutely sure that keys/accounts are not linked when using exchanges for other currencies. This is not as easy as it sounds, because the current client implementation does not take care of these issues and it is almost out of control for the user to take these problems into account. Also, the marketing of Bitcoin is far too optimistic on this issue. I just hope that not too many people will find out the hard way.

7.) The question of Bitcoin being resilient against take-down. Here again I am a little pessimistic.

While governments are currently not using methods that can destroy Bitcoin, those methods are absolutely available to the government. It is trivial to block Bitcoin using Deep-Packet-Inspection, it is only a few systems you have to disconnect to make access to the network impossible to new users, and legally all nodes operate in a gray zone. One might argue that all these threats can be overcome by more technology, but all these methods will limit the use of the currency, and thus drive down the value.

If nodes can be persecuted, access hindered (not prevented), exchangers jailed, and corporations kept away from using it, this currency will not just fail but become a money-sink for newcomers. So, my outlook is not purely positive.

However, as I mentioned in point 2, the technology (especially the ledger) can serve as inspiration for the next step in the battle between people with computers and government. I am pretty sure that we will see quite a few new systems using the same technology for inter-bank messaging and clearing, black market stock exchanges using it for depot management, and millions of people being inspired to think of ways to conduct business without asking permission from the government.

The tax-base for governments will erode, the ability of governments to project force will erode. It has for a long time, and it will accelerate more. The future presents us essentially with only two options:

1.) Government running a massive crackdown on all kinds of technology, especially on Internet freedoms. National Internets, massive surveillance, automated punishment for use of ‘unlicensed’ technologies etc. We see this already in the actions of the US government against gambling websites, the Iranian government proposing a islamic-only sub-internet disconnected from the rest of the world, EU and Chinese experts discussing best-practice when it comes to censorship.

2.) Government as the forceful monopoly of ruling people’s lives disappears and we have to find new ways to work and live together. Technology, cryptoanarchy and strategies like the Second Realm destroy the state but also create new ways to live. This also is a growing trend, as can be seen with the increase of Agorism and things like Bitcoin. One should however realize that it is not technology that produces these changes, it is not technology that solves our problems. People drive change, people are the ones using technology one way or the other.

But technology is the big amplifier of human decisions. The choice of the future is laying in front of us. And it is pressuring us to take sides. It is that fundamental decision – for or against the state, for or against the future – that is the real exiting thing that is made visible in projects like Bitcoin.

And the time of decision is NOW, who doesn’t chose wisely today will loose.

And my bets are on the people of liberty, not the state and it’s minions.

— Jonathan