Blockchain exploring privacy pundit in search of surveillance-free satoshis.
The money printers go “BRRR,” debasement of the US dollar continues, and Bitcoin’s leading narrative is undoubtedly one of censorship-resistant digital gold. But while the ‘Big Brothers of Blockchain’ surmount unprecedented surveillance measures, can Bitcoin fulfill its role as Sound Money?
I’m sure if you’re reading this, you’ve very likely seen some visualisation of the demise in purchasing power of the US dollar. They all do one thing really well; demonstrate what Sound Money is certainly NOT. Among other notable events, Executive Order 6102 by Franklink D. Roosevelt is arguably the most significant.
Not only does it mark the beginning of an endless decline, it was a pivotal moment in the enforcement of fiat currency, making it illegal to hold gold coins, bullion, or certificates. The infinite printing into oblivion began and debasement of the dollar hasn’t worked out well for fiat when it comes to storing value.
That’s where the concept of Sound Money is prominent and yet when you go looking for its essential traits you’ll notice a lot of inconsistencies. There seems to be a long list of hotly debated features but the general consensus is that Sound Money should be: verifiable, fungible, portable, durable, divisible, and scarce, in order to serve as a unit of account, medium of exchange, and store of value.
A few examples of potential candidates through time include gold, Bitcoin, and even Rai Stones, which were the currency of the Yapese people in the islands of Micronesia. These large stones were shaped into discs and varied in size greatly. Some could be lifted with one hand, while others took a group armed with a strong bamboo pole threaded through the center eyelet.
But what’s most interesting about this primitive currency is that it’s possibly the earliest example of an open and distributed ledger. These large publicly visible stones were left in their place while the community of holders would openly agree to who owned what. They would gather to confirm new transactions and balance the ledger collectively in their heads. Indeed similar to Bitcoin, but with so many features necessary to a classification as Sound Money, I’ve sought to narrow the definition down to a single sentence.
“An instrument for the protection of civil liberties against despotic inroads on the part of governments.”
The works of Ukranian Ludwig von Mises, who was one of the foremost Austrian school economists, have shaped the principle of sound money. As he stated in The Theory of Money and Credit, “It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments.”
What springs to mind sounds more like a weapon than a unit of account. But in our world of fiat money and the control it has over society, Sound Money is certainly an instrument for our own protection. I find it really interesting when comparing fiat, gold and Bitcoin, against the traits of money, that one trait stands out more than others: fungibility.
Both gold and fiat are commonly considered to be very fungible. And yet, it’s a trait that is the subject of an ongoing debate around Bitcoin, and whether it is mutually interchangeable or not. I think it’s important to strip back to basics and understand why it’s important for Sound Money, or any money for that matter, to be interchangeable in such a way. Especially Bitcoin, when one of the longest running, and often referenced memes is that “1 BTC equals 1 BTC.” So is it true? And if so, why does it matter?
Let’s start with an economy as its the field on which money is at play. According to Ray Dalio of Bridgewater Associates: an economy is quite simply the sum of it’s transactions. So with that analogy in mind let’s take a look at Bitcoin.
Bitcoin is the sum of its unspent transactions for that is where the value is stored, that’s what we reference for the unit of account, and when we transact in the Bitcoin economy, it’s the medium of exchange — the UTXO. Each and every UTXO has a couple of immutable truths, namely an amount and a complete history of transactions tracing all the way back to the coinbase (not Coinbase the company) transactions.
Unlike a US bank note, Bitcoin comes complete with a cryptographically verifiable record of each and every time it changed hands. So how about the fungibility of a UTXO? How does one compare to another? Perhaps your Bitcoin has a questionable history, or maybe you’re lucky enough to be holding an unspent coinbase with no history at all — a Virgin Coin.
These holy coins have traded at a premium ever since regulatory oversight came onto the scene and began blacklisting ‘tainted’ coins. For example, would you trade me a virgin Bitcoin for another that was knowingly associated with nefarious activity? Would you trade it one-to-one? Likely not! This is perfectly demonstrated by the market who’ve even been met with services who specialise in selling untainted coins at a premium.
It’s when you start to consider Bitcoin as UTXOs, as opposed to coins, that you realise the importance of fungibility. Especially when the investment theses of most is based upon the store of value promised by so-called Sound Money.
So what makes these untainted coins so highly sought after when you can obfuscate transaction histories with coinjoins, mixers, and chain hopping through exchanges? Well it’s likely connected to the growing list of companies we shall refer to as the Big Brothers of Blockchain.
We could spend an entire day just digging into one of these companies, their origin stories, how they got off the ground, who’s behind them, and so on. But we are better served borrowing an analogy that explains why “once proud bitcoiners” were compelled to choose lucrative government contracts, authoritarian regime, and the antithesis to the cypherpunk roots of cryptography.
The Bootleggers and Baptists concept was derived by “observing that regulations are supported both by groups that want the ostensible purpose of the regulation, and by groups that profit from undermining that purpose.” For much of the 20th century, Baptists and other evangelical Christians rallied behind Sunday closing laws to restrict the sale of alcohol. Bootleggers illegally sold alcohol anyway, and would attract more business if legal sales were indeed restricted.
Regulatory economist Bruce Yandle, who coined the term wrote, “Such a coalition makes it easier for politicians to favor both groups. … the Baptists lower the costs of favor-seeking for the bootleggers, because politicians can pose as being motivated purely by the public interest even while they promote the interests of well-funded businesses. … [Baptists] take the moral high ground, while the bootleggers persuade the politicians quietly, behind closed doors.”
Now consider the Panopticon, Jeremy Bentham’s design for the perfect prison, but in place of cell blocks imagine UTXOs. Blockchain surveillance firms are exploiting governmental tendency to overlook the right to privacy in favour of the congressional oversight of total surveillance.
They are tapping into the infinite funding available to use blockchain as the building blocks for a digital panopticon, where as each UTXO is discovered it is perpetually observed by Big Brother and his compliance alliance. Their surveillance, much like in a prison system, is meant to change behaviours. Effectively holding each UTXO accountable for its past to alter its future.
Technologies for surveillance are in their infancy, but they’re funded by governments, instructed by international think tanks, and driven by people who understand blockchain intimately. As blockchains grow, so do the datasets that feed the heuristics and train the models that make increasingly accurate guesses about on-chain activity. It’s corporate behemoths versus small cohorts of open source developers with very little funding in comparison.
As you venture out, beyond the walls of the digital panopticon, Big Brothers of Blockchain follow. These big data companies are combining their knowledge of blockchain technology with the exploitative data practice of the multi-billion dollar tech giants, who are all products of surveillance capitalism.
With governments, KYC enforcing crypto exchanges, and financial institutions as their clients, the BBB are acting on behalf of those that Bitcoin was conceived to rebel against. UTXOs good and bad, are flagged as tainted, blacklisted, and rejected by those crypto market participants who have already fallen under the regulatory hammer. Knowing the catch-all surveillance approach preferred by governments, and even the gross overreach of numerous anti-encryption bills, you’re probably safest to expect assumptions of guilt.
It’s anyone’s guess what goes on behind the closed doors of these blockchain exploring spy agencies, but we know for sure that surveillance does NOT equal Sound Money. When you’re one unspent transaction away from censorship you’re potentially equidistant from going to zero. Bitcoin’s leading narrative as censorship-resistant e-gold, the hardest currency ever known, and promises of Sound-Money-grade store-of-value are at stake.
In order to protect Bitcoin so it can remain fungible, we can learn from people like Steve Mann, who coined the term sousveillance. Derived from two contrasting french words, “sur” meaning above, and “sous” meaning below, it’s essentially the practice of surveilling the surveillers.
Fortunately we have some of the greatest minds contributing to counter-surveillance for Bitcoin, and even the less technical bitcoiners can rally behind these changemakers with the practice of sousveillance. As Sun Tzu said in The Art of War, “If you know the enemy and know yourself, you need not fear the result of a hundred battles.”
I’ve been fortunate to work alongside privacy researchers (RingCT staking anyone?) at Veil Project and am greatly inspired by the likes of the Human Rights Foundation funding open source contributions of developers saying no to surveillance. But I’ve realised that preserving the fungibility of Bitcoin isn’t just a technical problem… It’s very much a people problem.
Worse still, the improper privacy practices of one user can adversely affect the privacy (and fungibility) afforded by many others. In an effort to raise awareness, educate others, and hopefully inspire the community, I’m really proud to announce my free resource — Have I Been Known?
HIBK allows you to check if you have a bitcoin address that is likely known to surveillance, by analysing recent transactions for ‘privacy gotchas’ and showing relevant obfuscation tools based on results. It’s pretty simple and all you need to do is:
- Paste bitcoin (BTC) address
- Check transactions for privacy gotchas
- Discover obfuscation resources
My ‘bitcoin surveillance check‘ is a static site hosted on GitHub Pages and everything is open source. API requests, responses, and privacy analysis all take place locally in the browser. If you couldn’t already tell, I’ve taken my inspiration from the amazing Have I Been Pwned. While I’ve been very careful to make this a privacy preserving endeavour (no tracking scripts or any nonsense like that), using a VPN is advised.
There have been some conspiracies floating around regarding HIBK, but just as I did on the BitcoinTalk forums (in-depth explainer), I encourage you to audit the source code, inspect the site with developer tools, use the test addresses provided, and leave feedback. Everyone’s welcome to contribute and my hopes for HIBK are to simply help promote Bitcoin privacy.
Most importantly, I implore you to join me in saying NO to surveillance, because like it or not, the Big Brothers of Blockchain are watching you…
PS. Thanks to whoever nominated me for a Noonie Award. Excited to be in the running for Hacker Noon Contributor of the Year (Regulation).