Cryptocurrency Might be a Path to Authoritarianism – The Atlantic

Extreme libertarians built blockchain to decentralize government and corporate power. It could consolidate their control instead.

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            • All overheen town, the parking meters are disappearing. Drivers now pay at a central machine, or with an app. It’s so convenient I sometimes leave behind to pay entirely—and then suffer the much higher price of a parking toegangsbewijs. The last time that happened, I wondered: Why can’t my car pay for its own parking automatically?

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              It’s technically possible. Both my car and my smartphone know my location via GPS. My phone already couples to my car via Bluetooth. An app could prompt mij to pay for parking upon arrival.

              Or imagine this: My car, which is already mostly a pc, comes in an agreement to lease time from a parking loterijlot, which is managed by another laptop. It “signs” this contract just by injecting the lotsbestemming and occupying a parking space. Te exchange, the car transfers a puny amount of Bitcoin, the currency of choice for computers, into the parking lot’s wallet.

              With computers treating the entire process, I’d never even be able to leave behind to pay for parking. The only way to fail would be for my car to run out of Bitcoin, te which case the parking loterijlot has effortless recourse: Because my car’s ignition is managed by a rekentuig, the parking lotsbestemming could just shut my voertuig down.

              Scripts like this are possible when blockchain—the digital transaction record originally invented to validate Bitcoin transactions—gets used for purposes beyond payment. Te certain circles, the technology has bot hailed for its potential to usher te a fresh era of services that are less reliant on intermediaries like businesses and nation-states. But its boosters often overlook that the opposite is identically possible: Blockchain could further consolidate the centralized power of corporations and governments instead.

              Ter his book Radical Technologies, the urban designer Adam Greenfield calls cryptocurrency and blockchain the very first technology that’s “just fundamentally difficult for otherwise slim and very capable people to understand.” I wasgoed relaxed when I read this, because I have bot pretending to understand cryptocurrencies—digital money based te code-breaking—for years. Bitcoin is hard to capture because it’s almost like a technology from an alien civilization. It’s not just another toneel or app. Making sense of it very first requires deciphering the political assumptions that inspire it.

              Bitcoin is an expression of extreme technological libertarianism. This schoolgebouw of thought goes by many names: anarcho-capitalism (or ancap for brief), libertarian anarchy, market anarchism. Central to the philosophy is a distrust of states te favor of individuals. Its adherents believe society best facilitates individual will te a free-market economy driven by individual property owners—not governments or corporations—engaging ter free trade of that private property.

              Anarcho-capitalism is far more extreme than Silicon Valley’s usual brand of technological individualism. For one, the tech sector’s libertarianism is corporatist ter its leaned, and amenable to government, if te a strongly diminished capacity. And Silicon Valley takes a broader treatment to the liberating capacity of technology: Facebook hopes to connect people, Google to make information more accessible, Uber to improve transit, and so on.

              The ancap worldview only supports sovereign individuals engaging ter free-market exchange. Neither states strafgevangenis corporations are acceptable intermediaries. That leaves a sparsely set table. At it: individuals, the property they own, the contracts into which they come in to exchange that property, and a market to facilitate that exchange. All that’s missing is a means to process exchanges te that market.

              Ordinarily, money would be sufficient. But currency troubles market anarchists. The central banks that control the money supply are entities of the state. Financial payment networks like Visa are corporations, which aren’t much better. That’s where Bitcoin and other cryptocurrencies come in the picture. They attempt to provide a technological alternative to currency and banking that would avoid tainting the unspoiled individualism of the ancap ideal.

              This makes Bitcoin’s vormgeving different from other technology-facilitated payment systems, like PayPal or Apple Pay. Those services just provide a more convenient laptop interface to handelsbank accounts and payment cards. For anarcho-capitalism to work ter earnest, it would need to divorce transactions entirely from the traditional monetary system and the organizations that run it. Central banks and corporations could interfere with transactions. And yet, if individuals alone maintained currency records, money could be used fraudulently, or fabricated from lean air.

              To solve thesis problems, Bitcoin is backed by mathematics instead of state governments. The Bitcoin “blockchain” is a collective, digital record of all the transactions (or “blocks”) that have everzwijn bot exchanged. Every transaction contains a cryptographic record of the previous succession (the “chain”) of exchanges. Each one can thus be mathematically verified to be valid. The community of Bitcoin users does the work of verification. To incentivize the onerous work of cryptographically verifying each transaction ter the chain that precedes it, the protocol awards a bounty—in Bitcoin of course—to the very first user to validate a fresh transaction on the network. This is the process known spil “mining”—a confusing and aspirational name for what amounts to computational accounting.

              There’s a loterijlot more detail that I am omitting. But the key to Bitcoin is that the network distributes copies of one common record of all Bitcoin transactions, against which individuals verify fresh exchanges. This record is the blockchain, which is sometimes also called the “distributed ledger”—a much more elucidating name. This is the missing factor that’s supposed to permit the hypothetical anarcho-capitalist techno-utopia to flourish.

              At least, that’s the theory. Te practice, Bitcoin and other cryptocurrencies don’t truly meet the ancap ideal. Perhaps it’s an unlikely purpose, imagining the end of both nation-states and corporations is even stiffer than imagining the end of capitalism itself. Greenfield speculates ter his book that Bitcoin wasgoed never meant to be a store of value, like state-backed currency, but only a medium for exchange “between parties who would presumably proceed to hold the bulk of their assets ter some other currency.”

              Anarcho-capitalism might seem fringe and unacquainted to most people, but at least it helps explain the rationale behind cryptocurrency and blockchain. Unluckily, those topics become even more confusing when Bitcoin and its kin get used te ways incompatible with their original inspiration—which turns out to be most of the time.

              Spil a medium for exchange, Bitcoin is relatively limited. Some retailers, many tech-oriented, accept the currency for purchases, but it remains best known spil a means to buy black-market goods on darknet exchanges like Silk Road. (The fact that such uses were illicit ter the very first place, the anarcho-capitalist would point out, is precisely the reason individual freedom-fighters should request a decentralized market unbeholden to governments.)

              But Bitcoin’s success has accidentally undermined its viability. Each Bitcoin transaction adds more encrypted gegevens to the blockchain, requiring increasingly more rekentuig power to verify (and to earn the associated commission). More computing power means more energy cost to run and cool the machines, which requires more capital and physical infrastructure to support. Those rising costs inspire centralization. Adam Greenfield tells mij that two Chinese giants can control overheen half of the global Bitcoin mining operations. If they collaborate, a majority-control of the blockchain could permit them to manipulate it. That’s precisely the risk a decentralized currency wasgoed meant to avoid.

              More often, Bitcoin has bot used spil a financial muziekinstrument instead of a currency. From tulips to tech start-ups, market capitalism is pliable enough to turn anything into a tradable security or futures commodity. Bitcoin hype has made it appealing for speculators certain to transfer their gains back into more stable state currencies, albeit its volatility makes it a difficult case either spil a store of value or a medium of exchange.

              The same hype driving cryptocurrency speculation has also attracted banks, governments, and corporations—exactly the authorities it wasgoed designed to circumvent. Financial services firms have taken an rente te cryptocurrency. Federal Reserve chair Janet Yellen has called for the Fed to leverage blockchain. Canada has bot experimenting with a blockchain-backed version of its national currency, called CAD-Coin. Future cryptocurrencies operated by banks or governments might love more productive use than Bitcoin.

              But those futures also undermine cryptocurrency’s ancap aspirations. Corporations and governments re-centralize control, for one. But also, they undermine the discretion and anonymity that accompanies free trade te the ancap fantasy. When the local or central bankgebouw manages the cryptocurrency toneelpodium, it also gets a record of every transaction that takes place te that economy. One doesn’t need to be an anarchist to surmise potential downsides of that situation. Picture China mandating state cryptocurrency, tying the country’s proposed social credit system to that ledger. Or imagine if the North Carolina State legislature determined to punt all food stamp vouchers te crypto form to better manage their future use.

              Even if Bitcoin’s utility and value might decline, the distributed ledger offers potential uses beyond elementary currency exchange. Ter theory, any internet-connected device could participate ter verified, distributed transactions.

              Greenfield offers a plain example: the German startup, which “gives connected objects an identity, the capability to receive payments, inject into ingewikkeld agreements and transact without intermediary.” The simplest device is a physical padlock that is connected to the internet. Networked locks are nothing fresh, thanks to the internet of things. But a blockchain-backed connected lock offers some extra capabilities. A distributed-ledger lock could come in into a “smart contract,” an agreement whose terms are implemented directly ter code. If fastened to an AirBnB rental, such a lock could be programmed to automatically release when a smartphone belonging to a pre-paid renter approaches. Likewise, it could be programmed to cease to unlatch after that tenant’s contract had terminated—or perhaps it could cut off the power or internet service if a sensor inwards the property determined that its occupants were cavorting too loudly, or rifling through unauthorized cabinets.

              Kik, a startup that makes a messaging app popular among teenagers, offers a more latest example of distributed-ledger tech ter act. The company recently announced plans to introduce its own cryptocurrency, called Kin. Kik will automatically dole out Kin spil prizes for developers who build apps on its toneelpodium, like stickers or talk bots. Kik’s CEO, Ted Livingston, introduced the stir spil nothing brief of emancipation from the oppression of ad-driven content platforms like Facebook and YouTube: “a cryptocurrency for an open future.”

              Kin is built atop a podium called Ethereum, which is based on the same distributed ledger spil Bitcoin. But Ethereum uses that technology to express a different opzicht of the ancap monster: contracts. For libertarians, contracts exist to facilitate market exchange, so clever contracts are always backed by currency (Ether, te Ethereum’s case). If Bitcoin is digital money for people, Ether is digital money for computers. It determines how to spend itself via software automation.

              Why tout a private, distributed-ledger currency spil an smeris of liberation when it amounts to a complicated, software-backed, company-town store? One reaction: It could give the workers a stake te the company store. Ter the world of cryptocurrency, this is known spil an ICO or Initial Coin Suggesting. ICOs incentivize the use of an unproven toneelpodium, like Kik’s, by distributing an initial batch of cryptocurrency to early adopters. Te theory, that value will increase if the toneelpodium becomes popular, creating a valuable base investment for its initial users.

              Ter the extremist libertarian aspiration, wise contracts would permit anonymous actors to trade anything whatsoever ter an untraceable way, via unregulatable markets. Instead, actual wise contracts, ICOs, and distributed ledger-backed devices mostly offerande fresh ways to interface with the private technology industry. For example, ter Brooklyn, a solar microgrid startup called Transactive sells clean energy to a community via Ethereum. And Toyota just announced a partnership with MIT to develop distributed ledger-based infrastructure for future autonomous voertuig services.

              On that gevelbreedte, the anarcho-liberatarians share something ter common with the plain-vanilla technolibertarians: a belief te the wisdom and righteousness of a fully computational universe. My hypothetical smart-contract parking peettante, Toyota’s future blockchain-backed rideshare system,’s blockchain lock, Kik’s Kin, Transactive’s solar grid—all are just technology companies liking the capitalization and publicity spoils of the latest hot trend. They might become more than that, of course. But ter order to do so, something horrifying has to toebijten very first.

              Consider an off-the-cuff example of wise contracts from an Ethereum advocate:

              An individual wants to purchase a huis from another person. Traditionally there are numerous third parties involved te the exchange including lawyers and escrow agents which makes the process unnecessarily slow and expensive. With Ethereum, a chunk of code could automatically transfer the huis ownership to the buyer and the funds to the seller after a overeenkomst is agreed upon without needing a third party to execute on their behalf.

              It sounds so effortless. Who needs real-estate agents, closing attorneys, assessors, mortgage brokers, title insurers, municipal tax authorities, and all the surplus? Just transfer some Ether after the computers jiggle palms.

              But absent a global ancap revolution, those intermediaries are unlikely to vanish. Consider what would be required for distributed-ledger scripts like this one become reality. Wise contracts require computational intermediation everywhere. Non-computational devices like parking lots and voort locks and property deeds voorwaarde become connected to computers. People would have to become willing to use machines that inject into decentralized contracts with other machines absent intermediary protection of government, law, banking, and other legacy infrastructures.

              The problems with those old institutions are many. Te a widely collective tale of voter suppression te the 2016 election, Eddie Lee Holloway Jr., a 58-year-old Wisconsin man, couldn’t vote because the state’s fresh voter-ID law demanded that he demonstrate decent identification. But an error on his birth certificate prevented him from getting a fresh ID. Ter a future run by the distributed ledger, a single copy of Holloway’s identification would be securely stored on the blockchain, lightly verifiable when needed. For the tech evangelist, it offers a rational solution that would solve social ills by means of impartial technology. (On that note, blockchain-based digital IDs have also bot proposed for refugees.)

              It sure sounds good. But the script only works if the entire system of contemporary life becomes reasonably interconnected to make it possible. All the departments of public health and the DMVs and the voter registration venues—not to mention the parking spaces and the automobiles and the power grids and all the rest—would have to cohere around a common understanding, so that the machines could execute wise contracts on their behalf. This would require a finish reinvention of public and private life.

              A different reinvention is more likely. Instead of defanging governments and big corporations, the distributed ledger offers those domains enormous incentive to consolidate their power and influence. For people like Eddie Lee Holloway, Jr, who’s African American, that might mean even greater exclusion, spil the very institutions that locked him out of the voting booth might suppress his transformation into a digital-ledger citizen te the very first place.

              Or if not, other traumas might yet face citizens like Holloway ter a society run by blockchain. A mandated DNA-test could accompany citizens’ blockchainification, permitting their ethnic origins and medical predispositions to become affixed to an identity record. Financial assets would also be connected, thanks to an underlying cryptocurrency account through which they make debits and credits. Not to mention all the individual insights already consolidated by services like Facebook.

              Businesses might subscribe to this gegevens. Thanks to distributed ledger, it could be used to prevent their automated doors from opening for people whom a smart-contract risk-assessment service rates below a threshold of desirability. Left outside, privately-contracted security robots might deploy ledger-backed ID scanners to sweep loiterers from private property. Once delivered and booked into jails, brainy courts could automate sentences based on an automated assessment of future crime potential.

              And that’s just America. Imagine how a mature authoritarian state would fare under the rule of blockchain. Is this embarking to feel like a Black Mirror gig yet? For Adam Greenfield, the anti-authoritarian left has profoundly misunderstood the corner into which such an ambitious aspiration paints society. “I believe distributed ledger enables the zuigeling of central control they’ve never te their worst nightmares contemplated,” he tells mij. The irony would be tragic if it weren’t also so scaring. The invitation to convert distributed-ledger systems into the ultimate contraption of corporate and authoritarian control might be too excellent a temptation for human nature to forgo.

              If this sounds familiar, it’s because contemporary culture has bot here before. The existing, comparatively modest surveillance and control technologies ter use by Google, Facebook, and their ilk—whose influence on governance wij now know all too well—proliferated on the assumption that technology could make life better and more efficient. Nobody chose this life, exactly. People adopted technology ter sufficient numbers to permit industry, and the culture that goes after it, to conclude that the market had determined what wasgoed best.

              Likewise, Bitcoin’s triumph hinges mostly on the financial success of speculators who never had any intention of using it spil currency, and who emerge to have strip-mined it into oblivion te the process. Similarly, blockchain’s future seems tied to the short-term vision of investors and entrepreneurs willing to speculate on a hypothetical, distributed utopia without hedging against the consolidated autocracy it seems identically likely to realize. “This is what happens,” Greenfield says, “when very bright people outsmart themselves.”

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