Episode Notes

Summary

This week we’re exploring the thesis that Bitcoin (and crypto more generally) is an anti-authoritarian force and can help undermine tyranny. Specifically, Bitcoin provides a privacy-friendly way to store or transfer funds in situations where the state is an adversary – for example, when opposing a repressive regime.

We will begin by steel manning this claim, before moving on to evaluate it. Our main points in critique of the claim are:

• The malign uses outnumber the benign
• Bitcoin is traceable
• Countries with the worst human rights records have very sophisticated surveillance software. Trying to undermine powerful nation states in this way is therefore fraught with risk for individuals.
• For most uses, Bitcoin must be cashed out by those in charge of the monetary supply, most often the very regime the transferor is seeking to circumvent.
• Forces people to move from the country. While that might be beneficial for the individual, will not help solve the overall problem.
• Crypto further enables and expands the scope of the shadow banking system.
• The argument for bitcoin as a hedge against authoritarianism suffers from fallacy of composition and selection bias.
• The rule of law must always take precedence.
• We shouldn't be building systems which have such vast negative externalities in all our lives.

We will conclude that Bitcoin and crypto generally is not an liberatory force in the world, nor a means to counter authoritarianism in any substantial manner. In fact, it is likely to largely amplify the worst parts of society’s existing corrupt power structures.

Steel manning the claim that Bitcoin is an anti-authoritarian force

• Not everyone lives in a stable liberal democracy. Sometimes it’s necessary to violate laws, when laws are unjust or regimes are corrupt. In such circumstances, Bitcoin can be used as a safe haven for one’s investments or a shield against government tyranny.
  • Nonviolent resistance and civil disobedience have some very notable success stories and are an important part of the arc of “moral universe bending towards justice”:
    • Abolitionist movement
    • Civil rights movement
    • Nelson Mandela
    • LGBT movement
    • Gandhi's non-cooperation movement
    • Anti Vietnam-war protests
• Examples of using crypto as a form of, or to facilitate, disobedience: Edward Snowden and Sci-Hub.
  • Snowden speaks on the infosec conference circuit and likely receives all his speaker fees via bitcoin which he converts into Russian rubles.
  • Sci-Hub pirates every scientific paper from Elvesier, Wiley, and other academic publishers and hosts a PirateBay style mirror site in which researchers can bypass paywalls and download paper.
    • Server is run by one woman in Russia who takes crypto donations. She is seen as a folk hero giving knowledge to the world and advancing science.
    • Is a violation of copyright laws, although the jurisdictional boundaries of this are somewhat gray considering Russia doesn’t respect US law.
    • Many feel that although this is an intellectual property crime, the predatory business models of Elvesier are somehow worse than this crime. And that Sci-Hub is a net benefit for humanity under a certain utilitarian calculus.

Analysis

2 preliminary principles to be noted:

• Any tool has to be evaluated on its actual and potential benefit and harm.
  • Asbestos (bury it), DDT (some uses), Internet (good clearly outweighs harms)
• You can’t solve people problems with technology solutions, especially problems related to (state) power (at best, they help a bit, at worst they distract us from the real work that needs doing).
  • Analogy: Rubber-hose crypt-analysis debate.
    • Rubber hose crypt-analysis = use force to make someone give up their private key (a malicious state could still just arrest you and pressure you to give up your private key) => no matter how good your cryptography, you are still vulnerable to the state.
    • Cryptography does not “solve” oppressive regime problem. At best, crypto helps you during a period of resistance and effort to change the overall regime. The vision of (old-school) crypto-libertarians is mistaken – we still need a “good” state.
      • See: The Best Defense Against Rubber-Hose Cryptanalysis ; https://xkcd.com/538/

Evaluation:

• For every one Alexandra Elbakyan or Edward Snowden there are a thousand arms dealers, cartels, and warlords who would also use crypto for far less benign purposes.
  • Even if you have an optimistic view of the human condition, we live in a world of scarcity with vast Malthusian struggle that pushes people into mind states of violence and crime out of desperation (North Korea, etc).
  • Cross-border Illicit financing enables many undesirable things in this world.
    • Human trafficking
    • Extranational arms sales
    • Money laundering
    • Drug sales
  • There is an inescapable evil and bleak brute reality to the human condition in 2022 that we can’t just ignore. As technologists we should build and design technologies which try to minimize and disincentivize evil things because that’s how progress is slowly achieved.
• Bitcoin isn't as private as people might think.
  • Nassim Taleb on Bitcoin being traceable. If you’re going up against even a mildly sophisticated actor, it won’t really work because the ledger is public.
    • “By its very nature, bitcoin is open for all to see. The belief in one’s ability to hide one’s assets from the government with a public blockchain easily triangularizable at endpoints, and not just read by the FBI but also by people in their living rooms, requires a certain lack of financial seasoning and statistical understanding — perhaps even a lack of minimal common sense. For instance, a Wolfram Research specialist was able to statistically detect and triangularize "anonymous" ransom payments made by Colonial Pipeline on May 8 in 2021 — and it did not take long for the FBI to restore the funds. We can safely assume that government structures and computational power will remain stronger than those of distributed operators who, while distrusting one another, can fall prey to simple hoaxes”
    • [..] The slogan "Escape government tyranny hence bitcoin" is similar to advertisements in the 1960s extolling the health benefits of cigarettes.
• Trying to undermine powerful nation states is fraught with risk for individuals.
  • The massive power asymmetries of authoritarian regimes and their control over both traditional payment rails and domestic implies that dissidents attempting to use crypto assets to circumvent repression or capital controls will find it very difficult to move assets or cash out.
  • Countries with the worst human rights records have very sophisticated surveillance software (Saudi Arabia, Russia, China) they use to monitor and control information and money flow.
  • Local crypto exchanges are forced to comply with domestic KYC-equivalent laws, which may be directly reported to the government.
    • Cf info on Binance and Russia (re Navalny) which came out recently.
• Without the capacity to cash out the Bitcoin, the efficacy of their actions is fundamentally limited to external geographic regions outside of the authoritarian regimes.
  • This is best evidenced by the Canadian convoys in 2022 which attempted to take international donations in crypto assets and found themselves and their accounts frozen by both banks and Canadian crypto exchanges which blocked transactions under illicit financing laws. This made using the donations to purchase supplies impossible and undermined the crypto assets narrative.
  • This could be solved by a hyper-bitconization world, but see our previous episodes for why such a world is neither desirable nor possible.
• Forces dissidents to move external to a country. Which may be good for individuals, but fundamentally doesn’t change the regime and may only embolden it.
• Crypto further enables and expands the scope of the shadow banking system and tax haven system that oligarchs, dictators and strong men use to hide their wealth abroad. This strengthens their ability to do illicit financing for war crimes, terrorism, and evading sanctions.
  • Panama papers give us a clear indication of the ubiquity of dark money flows and their use by the world’s worst leaders.
  • Some estimates put $60 trillion dollars in shadow banking and offshore trusts.
  • North Korea funds its concentration camps and nuclear program with crypto stolen from crypto hacks.
    • Axie Infinity hack. Source: https://www.bbc.co.uk/news/world-asia-60281129
  • In El Salvador, bitcoin is being co-opted by the regime as a means of enabling more government corruption.
  • The incorporation of crypto into the shadow banking system, which is already happening, is providing even easier access for disreputable individuals to avoid taxes and to expand their holdings abroad. Instead of offshore shell companies, these individuals will use stablecoin and crypto assets to hide their money from tax authorities.
  • From the public interest perspective none of this setup is desirable, since it allows the already wealthy to avoid paying taxes and supporting public goods and the welfare state which supports people with less resources than wealthy individuals.
    • Crypto exasperates wealth inequality and allows individuals to circumvent the rule of law, undermining the entire social contract of democracy.
    • We need to dismantle the offshore structures that enable billionaires and oligarchs to strangle democracy, not create more of them.
• The argument for bitcoin as a hedge against authoritarianism suffers from a Keynesian fallacy of composition and selection bias. It might be a net good for small groups of individuals, but in aggregate the existence of a supranational payment system for illicit money flows is a vast negative for the world.
  • Composition fallacy: If someone stands up out of their seat at a football match, they can see better. Therefore, if everyone stands up, they can all see better.
    • Relates back to our episode on the free rider problem.
  • Crypto, the episode with Cory Doctorow noted, is very readily comparable to asbestos. It’s not a net good when there are better things to use that don’t have vast negative externalities.
  • We can empathize with the plight of refugees, while still recognizing that some solutions to their plight might cause more harm than good to the world.
• Political science argument: The rule of law must always take precedence. Optimistically: Protest and dissent will always find a way to exist and triumph when the cause is righteous, just as has always happened in history.
• Utilitarian argument: We shouldn’t be building systems to wholesale undermine the rule of law in their very design when those systems have such vast negative externalities in all our lives.

Conclusion

• Jackson Palmer (creator of dogecoin) gave a powerful critique of the crypto ecosystem as an industry-insider in a tweet storm.
  • “After years of studying it, I believe that cryptocurrency is an inherently right-wing, hyper-capitalistic technology built primarily to amplify the wealth of its proponents through a combination of tax avoidance, diminished regulatory oversight and artificially enforced scarcity.”
  • “Despite claims of “decentralization”, the cryptocurrency industry is controlled by a powerful cartel of wealthy figures who, with time, have evolved to incorporate many of the same institutions tied to the existing centralized financial system they supposedly set out to replace.”
  • “The cryptocurrency industry leverages a network of shady business connections, bought influencers and pay-for-play media outlets to perpetuate a cult-like “get rich quick” funnel designed to extract new money from the financially desperate and naive.”
• Bitcoin and crypto generally is not an liberatory force in the world, nor a means to counter authoritarianism in any substantial manner. In fact, it is likely to largely amplify the worst parts of society’s existing corrupt power structures.

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