This piece was written September 2nd 2011. Now in 2017, with Bitcoin fulfilling it’s promise very quickly, the forces of anti-Bitcoin are ramping up their efforts to try and derail its spread using the last tool in their arsenal, all other efforts having failed to stop it. The lies, fud, smears, propaganda and journalism have not stopped Bitcoin from capturing everyone’s imagination. Now the final weapon is being readied; violence. This will also fail, leaving any country that goes along with “Plan ß” pauperised.
Bitcoin is not a threat. It is not dangerous. It is not “underground”. It is just another tool, like the telephone or WhatsApp. Failure to recognise this quickly will cause countries in thrall to Crony Capitalists to find their financial systems gutted and flayed alive simultaneously. There will be only one chance to capture the Bitcoin Brass Ring. If you fail to grasp it…
It is clear that the State is not going to quietly disappear into the night, and leave everyone to live as free men. Given that they still feel the need to preserve the illusion that they have the consent of the governed, we can expect any technology that threatens the State to come under legislative attack, after a carefully orchestrated series of media smears, hysterical news articles, straw man attacks and ‘real world’ examples of harm where Bitcoin is presented as an enabling factor.
Bitcoin has the potential to severely disrupt the ability of the State to steal money from people. Bitcoin is being built by developers who want to preserve the privacy and security of its users. If Bitcoin and systems like it become wildly popular, as popular as the internet itself, then this will mean that financial transactions will ‘go dark’ and the state will not be able to intercept, detect or steal money from citizens.
Email communications are routinely monitored by the state, both covertly and overtly. This eavesdropping could be stopped completely if the users of email encrypted their communications. The tools to do this are free and simple to use, and yet, mass adoption of encryption for email has not take off after over a decade of availability. Had encryption been built into email from its inception, privacy would have been the default for email.
The development of Bitcoin is being done with privacy in mind from the beginning. In order to make a Bitcoin transaction, a user must accept that her transactions have privacy features built in by default.
The mistakes and built in disadvantages and myriad security problems of email are not going to be repeated with Bitcoin, and if Bitcoin becomes as ubiquitous as email it will represent a significant step towards liberty for all people world-wide.
When the State is perturbed by new technological developments and sees them as a direct threat, they build a case for legislation either through a crisis, real or fabricated, or through an academic attack from its intellectual class.
The recently published paper, ‘Shadowy Figures: Tracking Illicit Financial Transactions in the Murky World of Digital Currencies, Peer-to-Peer Networks, and Mobile Device Payments’ by John Villasenor Cody Monk and Christopher Bronk is an example of an academic attack of this type:
The paper works from the premiss that the State has rights, that it has a right to control and steal from individuals, it has the sole right to define what money is and is not through its legal tender laws and that it also has the right to forbid people from transacting in anything other than the currency it issues.
In short, it works from a position that takes the State and its power as a given. It is an excrescence of members of the class of “opinion moulders” in society as described by Murray Rothbard; men who’s alliance with the State is based on a quid pro quo, where in return for spreading and reinforcing the idea among the masses that the State and its rulers are wise, good, sometimes divine, and at the very least inevitable, with no conceivable alternatives, the State incorporates the intellectuals as part of the ruling elite, granting them power, status, prestige, and material security.
Lets begin with the executive summary:
Almost no one would argue that governments do not have a right to track and trace digital financial transactions associated with activities such as terrorism and human trafficking. It is less clear, however, how governments can surmount the formidable technical and organizational challenges associated with detecting and monitoring these transactions. The solution will require a combination of self-regulation, government-industry collaboration, and change in both technology and culture within government agencies.
Actually, there are many people who argue that not only does the state have no right to track and trace digital financial transactions, but that the state does not have any rights at all. Only man has rights. The State (under the American system of government) has powers that are delegated to it by the people through a carefully crafted Constitution, enumerating and limiting those powers.
Using the standard fear-mongering terms of terrorism and human trafficking in relation to this gives you a foretaste of what is to come in this shabby publication. The State uses terrorism as a pretext to surveil everyone’s transactions, en masse, not just those of terrorists, who are now defined as essentially anyone who breathes air. This is the only explanation for the millions of Americans who are listed on the State’s despicable ‘No Fly List’, whose explicit purpose is to prevent acts of terrorism.
This is also the pretext they are using as they are pulling off the pants of wheelchair bound 97 year olds at airports, looking for bombs in the diapers of infants and requiring banks to report on all transactions over arbitrary limits. No one who is in full possession of the facts of State surveillance under the guise of prevention of terrorism believes this line any more. These measures are solely and demonstrably designed for the control of the ordinary citizen.
Human trafficking is another straw man argument; anyone who is trafficking in human beings will quite sensibly be using cash to receive or make payments. This is the same bogus argument put forward when attempts were made to regulate cryptography in the 1990s; it was claimed that terrorists were using Steganograpy to hide messages in images. It was a completely false Hollywood movie plot of course, and the idea that human traffickers would take an electronic payment rather than large Euro notes or One Hundred Dollar bills is patently absurd. Once again, anyone who thinks even casually about this comes to the conclusion that these arguments for the legislation and control of digital money are weak at best.
This paper is littered with fallacious arguments:
While there is a wide spectrum of views regarding the right to digital privacy, almost no one disputes the notion that the right to digital financial privacy does not extend to providing an impenetrable legal shield for the online financial activities of terrorist groups, human traffickers, or drug cartels.
Once again, there are many people who argue that prohibition is immoral, and that the entire ‘War on Drugs’ is a fiasco and a disaster on every level.
To say, “almost no one disputes the notion that the right to digital financial privacy”, is a pure example of the appeal to belief fallacy. Just because many people believe something, you cannot infer that their beliefs are correct or that an act based upon them is justified.
The State is most certainly not justified in surveilling everyone’s transactions to intercept money and goods that do not involve crimes where there is a victim. The matter of prohibition is a perfect example of this.
Hawala and other informal value transfer systems long predate the advent of computers and the Internet, and, in more recent years, have been of concern to authorities because of their potential to be used for money laundering and terror financing
I will not address every instance of the straw man of terrorism or human trafficking in this publication.
Money laundering is a euphemism for transactions out of view of State surveillance. Any transaction that takes place outside of State control is essentially ‘Money Laundering’ according to the State. This means that, for example, people living in Greece, who are forbidden from making any transaction over €1500 in cash, even though the money is legitimately theirs and they are not engaging in any act that is defined as criminal activity by the State, is guilty of ‘Money Laundering’ by the mere fact that they are making a transaction above an arbitrary size.
What the authors of this paper are suggesting is that digital money systems, by virtue of their built in privacy mechanisms are de-facto money laundering systems because they deny the State the ability to surveil them. This is classic State reasoning, Kafkaesque and irrational, of the kind that is used to justify every predation and immoral piece of legislation that the State cares to write, from the laws prohibiting you from growing certain species of plant, to eminent domain, the innumerable different licenses, regulations and compulsions of all kinds and beyond.
tracing a specific suspect transaction that is intentionally buried “in the noise” can be like trying to find a pickpocket who just stole a wallet in a crowded market. The knowledge that the pickpocket is certainly among the hundreds of people within view is of little comfort if there is no practical ability to search every person in the market.
Its interesting that the authors use the analogy of a pickpocket when describing the act of a citizen making a transaction of their own money to another person over an anonymous network. It is the State of course, that is the pickpocket and thief, not the citizen minding her own business and transacting voluntarily and in private.
In l996, physician Douglas Johnson started spending his evenings writing software to create e-gold, a new digital currency that, though not issued by any government, would be fully backed by gold stored at various locations around the world. By 2001, there were nearly 300,000 e-gold customer accounts with an aggregate value of about $16 million.
Anyone who does not believe that the State is building a case to come after Bitcoin is deceiving themselves. They are already using the one size fits all pretext of terrorism to shut down minters of physical coins like the Liberty Dollar and this case along with the case of e-gold should be of interest to people who use Bitcoin. E-gold had assets worth 16 million dollars, and:
“Liberty Dollar coins and precious metals, currently valued at nearly $7 million.”
Bitcoin is worth 10 times the amount NotHaus’s gold was worth, so I’m sure it is receiving 10 times the destructive attention from our glorious overlords.
Bitcoin is bigger in dollar value than both e-gold and Liberty Dollar combined, and it is decentralised with no single company controlling it, unlike the e-gold and Liberty Dollar services. This academic paper is, I am quite sure, a direct result of this fact, and the fear that Bitcoin is sure to continue to grow in strength in every respect. This paper will be distributed widely among the State actors who will seek to understand Bitcoin within a framework of their own thinking and ideology.
You can expect that every trick in the book is going to be used to retard the growth of Bitcoin. You will see smears thrown at it that will include terrorism, human trafficking, and drug dealing (as we have already seen in this paper) but also expect child porn and paedophillia to be used to taint these systems. For those who are not persuaded by hysteria, the financial news networks are busy telling their viewers that Bitcoin is to be avoided at all costs. None of these attacks are logical or rational of course.
While e-gold was backed by actual gold, Bitcoin is fully virtual, backed only by the confidence of the people who use it for transactions. A governmental entity attempting to shut down Bitcoin servers in its territory would almost certainly find that even more servers would spring up, Hydra-like, in other parts of the world. As of July 23, 2011, there were approximately 6.9 million Bitcoins trading at a value of more than $13 per Bitcoin, corresponding to a total supply of over $90 million.
And here we have another problem which this paper does not address; Bitcoin is not money. This will be the first counter argument tilted against any attack by the State against a high profile company that trades in Bitcoins. E-Gold and Liberty Dollars had one thing in common; they both traded in objects that are demonstrably money, and which are in fact, better money than the Federal Reserve Notes that are legal tender in the United States.
Bitcoin is different in that it is not money, but is a protocol, like TCP/IP. I predict that this will be a successful argument, because if it falls, then the financial regulators will be given the power to regulate the resale of any good or service for which a token or recipt is issued simply because money is exchanged for goods and services.
If the State was staffed by actors who were rational, they would not be attacking these services; they would immediately accept them all as payment for taxes. In this way, they would ensure that whatever happens and whatever systems come to pass, they will have a stake in them and a stream of revenue. By trying to stamp out digital currencies, refusing to accept them and trying to force people to use their worthless and inflating fiat currencies, they will end up being starved of cash as people switch from bad currencies issued by central banks to digital money transfer systems.
The potential Achilles heel of Bitcoin — that each server in the network contains a complete record of all transactions — will almost certainly be addressed in future systems that distribute transaction information so that no single server or small collection of servers contains a complete transaction record. It is also possible to envision systems in which the transaction records are not only distributed, but evanescent, so that even the collective information stored on all the servers in the system at any given time would not enable a complete reconstruction of transaction history.
This is essentially what we have been saying; Bitcoin as a brand may or may not not succeed, but for certain if it does not, an improved successor in a following iteration is bound to be created. Solid Coin is one of the first challengers in this respect. They claim that their client software and network, which are a fork of the open source Bitcoin source code, is superior to Bitcoinand are not afraid to trumpet this claim.
For individuals using any digital system properly, the loss of a small working balance is not a deal breaker. When a digital money transfer network collapses and a new replacement network emerges, whatever fiat or non fiat currency you have to hand and wish to transmit can be sent through the new system. The companies that facilitate exchanges could be wiped out, but they will quickly be replaced by successors since some of the software suites used to run exchanges are open source software. This means that the digital money economy can survive multiple crashes no matter what the causes of those crashes are. The need for people to transact at a distance with very low fees is so great that it will never be possible to get rid of this idea, no matter what the inconvenience of a crash means in terms of short term losses.
It is statistically inevitable that some fraction of the more than 300 million transactions performed using M-PESA in 2010, and of the much larger number of transactions that will be performed in 2011 and future years, will not be legitimate. And some fraction of those, in turn, may involve payments that bear on American national security or law enforcement concerns.
The paper goes on to describe M-PESA and its spectacular growth, and then claim that a small fraction of the 300 million transactions performed in that system will be ‘of concern’ to American national security or law enforcement.
This is not the problem of anyone in the world other than the U.S. Government, and if Ron Paul becomes president, it will no longer be the concern of the U.S. Government.
We must remember when we read these words that the phrase ‘law enforcement concerns’ means prohibition and the bogus ‘war on terror’ both of which are entirely illegitimate. In absentia of these two rationale, there is no concern of any kind when we talk about what the un-banked are doing in the middle of what most Americans would consider to be “nowhere”. These are artificially created problems looking for solutions, and they should be rejected by all right thinking people on principle.
And, the 2008 financial crisis illustrated that the economic picture constructed by the organs of the U.S. government tasked with financial and commercial measurement, oversight, and regulation can have significant blind spots. These examples illustrate that the barriers to observing financial activity can be organizational as well as technological. Accordingly, successfully addressing the complexities of illicit financial transactions in cyberspace will require structural and technological steps taken by regulatory, intelligence, and law enforcement agencies, as well as the private sector.
This is of course, completely ridiculous. The causes of the 2008 financial crisis were and are well understood by students of the Austrian School of Economics, and were predicted, repeatedly on television. There were no ‘blind spots’ save in the eyes of the Keynesians and the slavish apologists for the Federal Reserve. Note also, how apologists for the State use the prefix ‘cyber’ when they are talking about things on the Internet they do not like and ‘digital’ when they are describing things they perceive as beneficial.
The economic pictures constructed by organs of the U.S. Government are nothing more than fairy tales. Take for instance the way that unemployment is measured. It is a fact that the way the counting is done has been deliberately manipulated to massage the numbers downwards. The website Shadow Stats specialises in presenting honest data rather than the skewed numbers generated by political needs of the State.
To claim that digital currencies make calculation difficult for government is absurd. If calculation is so critical for the State, they should force the Federal Reserve to publish ‘M3’, the number that describes the money supply, and they would not use statistics to lie about the true state of the economy. All of this is, of course, separate from the fact that the State has no legitimate purpose in generating these numbers and using them to engineer society in the first place.
The private sector has no interest in crippling their products so that the state can gain back door access to them and their customer’s data. Burdening them with these proposals is anti-business, anti-progress and anti-liberty and is illegitimate.
In addition to fostering self-regulation within the various industry sectors involved in the movement of money, the U.S. government should establish an interagency government/industry working group or expand the charter of an existing group to focus specifically on emerging financial threats.
These measures will not work to ameliorate the artificial problem of ‘financial threats’. Since all of the software, both in terms of clients, servers and exchanges are open source, any attempt to poison a digital currency will immediately cause a fork. Solid Coin is a perfect example of this; they have forked Bitcoin in advance of any threat from the State, based solely on the casually spoken words of Gavin Andressen at the first Bitcoin conference.
Should any involvement by law enforcement actually be confirmed, or the Bitcoin source go closed, Solid Coin will gain tremendous momentum. Digital currency sees the State as damage and routes around it, to re-purpose a venerable phrase. Like a physicist trying to know the location and energy of a quantum particle at the same time, any attempt to touch these systems will be self defeating.
Another set of relatively low-tech but still useful solutions pertains to systems that can monitor the premises where MMT agents conduct business. Digital image and video recording is now routinely used in venues as diverse as banks, stores, and taxis. A properly designed system could aim to ensure that cash could only be accepted or disbursed when both the agent and the person providing or accepting the cash were on video.
And here we have an example of the mindset of the State, and in this case, the rancid anti-Americanism that is at the heart of many thinkers in the U.S.A. All people are presumed guilty. You have no right to privacy. Surveillance should be universal and pervasive. All financial transactions should be treated as suspicious by default.
Look at the list in this section; they even approve of surveillance in taxis as a method of eliminating financial privacy. This is as far away from the American dream as it is possible to get, and people do not want the sort of world that the authors of this paper envision as necessary. This is why Bitcoin, E-gold, the Liberty Dollar and systems like it are popping up all over the place. If the State was legitimate and a force for good, there would be no need for people to spend their time developing currencies whose central feature is to get your money out of the clutches of the State. In fact, this might go some way to explaining why email was developed without encryption built in (apart from the fact that it pre-dates modern fast processor and the Public Key Cryptography systems that were developed after the advent of email). In the 1960s people’s faith in government had not been shaken to its core. Nowadays of course, there is little faith in the State; it is widely and correctly understood to be a malevolent and destructive force for evil.
For the United States to ensure its national and financial security, the ability to understand the massive flow of digital information that is the global financial system today, from micro to macro, and from baht to Bitcoins, is of fundamental importance. Where once the numbered Swiss bank account, the wire transfer to a shell corporation, or, as in All the President’s Men, a paper bag containing $25,000 in cash were primary means for covert financial activity, the Internet and mobile phone networks are the potential setting for a vastly expanded set of new, digital avenues for conducting hidden transactions.
Given the rate of change of the digital landscape, any set of solutions constructed based on a single snapshot in time will quickly become obsolete. However, by creating the collaborations, regulatory frameworks, and technologies that reflect today’s more fluid and diverse financial transaction environment, government and industry will be better positioned to address illicit transactions today and to adapt to address those of the future.
The conclusion of this paper amounts to wishful thinking. The jig is up for the State in its present form. They are going to have to adapt radically and philosophically if they are going to remain as the arbiters of anything at all.
Part of this radical change will be to address what exactly is meant by, “the United States to ensure its national and financial security”. What exactly is the United States financial security? The U.S. is a nation of people; if their money is secure, i.e. not being inflated away by the Federal Reserve, and they can transact locally and at a distance for next to nothing, what is the problem?
The problem is that the authors are not talking about the people of United States and their financial security; they are talking about the State, the Federal Government, and its financial security. In plain English, they are referring only to the Federal Government’s ability to levy taxes and collect them.
Digital currencies and peer to peer transactions are a direct threat to the Federal Government and its ability to tax. This is the only threat that they are truly concerned with; all of the other threats they list here are statistically insignificant compared to the trillions of dollars that could potentially be lost to them in a peer to peer digital currency world.
The statistical probability of being affected by terrorism is less than many daily fatal occurrences, like death from bee stings or anaphylactic shock from adverse food reactions. I do not even need to quote car accident statistics or even lightning strikes, or alcohol, or pharmaceutical related deaths, all of which happen at greater frequencies than terrorism by orders of magnitude.
Terrorism is not a pretext for trying to stop the future from being summoned. As for human trafficking and crimes against children, as ghastly and reprehensible as these crimes are, are mercifully exceedingly rare and should not be used to destroy the tools, systems and free society that entrepreneurs and the creative are building.
It is completely inhuman, illegitimate, immoral and unethical to attempt to suppress and destroy people’s rights. In the 21st century, we have the tools, the understanding and the will to build the systems that will forever repudiate the claims of the State that it was ever needed to make everything run smoothly. Digital currencies like Bitcoin are only one tool in this movement, the writings of Murray Rothbard, Lew Rockwell, Ron Paul and the distribution systems that spread these ideas are the main ways that this revolution is taking place. No doubt, in private, the authors of this piece would call for the internet itself to be permanently and entirely shut down for the sake of ensuring the ‘security of the United States’. It is this irrational, un-American thinking that is behind the recent discovery that Justin Raimondo has been under F.B.I surveillance, simply because he writes articles.
It is a great tragedy that so many Americans have lost touch with the idea of what America was meant to be. Apart from that tragic loss, its interesting to note that this paper is concerned not with the plight of the poor in the ‘third world’ and the unbanked billions who have no access to capital. They are not concerned with the human suffering that could be lessened by the new technologies that are being developed. They are only concerned with themselves, and their own narrow parochial interests, that are borne out of a fundamental misunderstanding of the proper role of government and what people’s rights are.
Its up to every person who can think and write and run software to refute these fallacious arguments, to use the new systems at whatever level they can and to spread the ideas of liberty. We simply must not let these wrong headed statist arguments go unchallenged.
I have refrained from explicitly detailing the thinking behind the assertions I’ve made in this piece that claim or infer that we do not need the State, that the State is illegitimate on its face, and that it has no rights in and of itself. I will leave it to the reader to visit the Ludwig Von Mises Institute website for the background, evidence and proof that these are all facts. There are posts on this Blog that go into that in detail also. You can’t go far wrong by reading Lew Rockwell’s blog for a complete rundown of these ideas and links to many scholars and philosophers. If you want to understand the basics of all of this, you should buy and read Murray Rothbard’s ‘For a New Liberty‘ which is also available for free. To understand money and how the State has interfered in it to its near total destruction, you need to read ‘What has government done to our money‘, also by Murray Rothbard.
With these tools in your hands you will be able to understand and prove to yourself that everything I have said in this piece is true, and why the paper that I have debunked is as wrong as something can be wrong.
It is incumbent upon you to demonstrate that you are not a part of the coercion and violence that the paper critiqued here espouses, and that you are willing to live with other human beings without them. If you are willing to co exist peacefully with your fellow man, then you should reject the basic premiss of this scandalous paper and its fallacious reasoning. If you do not, then you must concede that you are a violent person, that you approve of the coercion and violence of the State, and that the ends justifies the means.
Libertarians are willing and able to co exist with you. They are non violent; the very heart of their philosophy is that they can never initiate force against anyone. The measure and test of the ethical basis and morality of your philosophy should be whether or not you can co exist with others as the Libertarians can.
Many of you reading this will believe in democracy. You will use that word interchangeably with ‘fair’, ‘just’, ‘ethical’ and ‘good’. It is none of those things. I put it to you that your society cannot survive as it is without coercion and violence, and that it is doomed to failure because it is based on coercion and violence.
Donate Bitcoin to this address, for more of these insightful and prescient articles!