Ian Bogost writes that Cryptocurrency Might be a Path to Authoritarianism. You should read the full article for full effect, but he says that “Extreme libertarians built blockchain to decentralize government and corporate power,” but he warns that blockchain could do the reverse and consolidate government control over our lives instead.
Bitcoin is hard to grasp because it’s almost like a technology from an alien civilization. …Making sense of it first requires deciphering the [alien] political assumptions that inspire it.
Bitcoin is an expression of extreme technological libertarianism. This school of thought goes by many names: anarcho-capitalism [or ancap], libertarian anarchy, market anarchism. Central to the philosophy is a distrust of states… Its adherents believe society [is] best …in a free-market economy driven by individual property owners—not governments or corporations—engaging in free trade of that private property.
Anarcho-capitalism is far more extreme than Silicon Valley’s usual brand of technological individualism… The ancap worldview only supports sovereign individuals engaging in free-market exchange. Neither states nor corporations are acceptable intermediaries. …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 enter the picture. They attempt to provide a technological alternative to currency and banking that would avoid tainting the pure individualism of the ancap ideal.
This makes Bitcoin’s design different from other technology-facilitated payment systems, like PayPal or Apple Pay. Those services just provide a more convenient computer interface to bank accounts and payment cards. For anarcho-capitalism to work in 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 thin air.
To solve these problems, Bitcoin is backed by mathematics instead of state governments. The Bitcoin “blockchain” is a shared, digital record of all the transactions (or “blocks”) that have ever been exchanged. …the key to Bitcoin is that the network distributes copies of one common record of all Bitcoin transactions, against which individuals verify new exchanges. This record is the blockchain, which is sometimes also called the “distributed ledger”….
But Bitcoin’s success has accidentally undermined its viability. Each Bitcoin transaction adds more encrypted data to the blockchain, requiring increasingly more computer 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 [fixed] costs inspire centralization. Adam Greenfield tells me that two Chinese giants can control over half of the global Bitcoin mining operations. If they collaborate, a majority-control of the blockchain could allow them to manipulate it. That’s precisely the risk a decentralized currency was meant to avoid.
…The same hype driving cryptocurrency speculation has also attracted banks, governments, and corporations—exactly the authorities it was designed to circumvent. Financial services firms have taken an interest in cryptocurrency. Federal Reserve chair Janet Yellen has called for the Fed to leverage blockchain. Canada has been experimenting with a blockchain-backed version of its national currency, called CAD-Coin. Future cryptocurrencies operated by banks or governments might enjoy 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 in the ancap fantasy. When the local or central bank manages the cryptocurrency platform, it also gets a record of every transaction that takes place in 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 decided to issue all food stamp vouchers in crypto form to better manage their future use.
…[The blockchain revolution of society] only works if the entire system of contemporary life becomes sufficiently 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 smart contracts on their behalf. This would require a complete 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, as the very institutions that locked him out of the voting booth might suppress his transformation into a digital-ledger citizen in the first place.
Or if not, other traumas might yet face citizens like Holloway in a society run by blockchain. A mandated DNA-test could accompany citizens’ blockchainification, allowing their ethnic origins and medical predispositions to become attached 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 personal insights already consolidated by services like Facebook.
Businesses might subscribe to this data. 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, smart 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. …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 kind of central control they’ve never in their worst nightmares contemplated,” he tells me. The irony would be tragic if it weren’t also so frightening. The invitation to transform distributed-ledger systems into the ultimate tool of corporate and authoritarian control might be too great a temptation for human nature to forgo.
There are several problems with the anarchist dreams for blockchain. First is that the technology doesn’t actually work very well yet. It is highly inefficient and that inefficiency means that hardly anybody doing legitimate transactions has an incentive to use it. Secondly, the main anarchist goal is to replace central banks like the Fed, because they are the main central planners of capitalism and ideologically anathema to libertarians because these government institutions actually control the value of money (inflation) and the rental price of money (interest rates) as well as being the only government agency that is directly responsible for keeping unemployment low. Unfortunately for libertarians, blockchain currencies like bitcoin are EXTREMELY bad at monetary policy. Nobody has figured how a blockchain currency could follow some sort of Taylor rule even in theory, and they fail worse than any monetary system in history to maintain stable prices in neither the short run (like most modern fiat currencies) or in the long run (like currencies under the gold standard) in which inflation should be close to zero.
A huge problem for libertarians is the fact that the distributed ledger of Bitcoin keeps track of every single purchase that you make. For the first time in history, blockchain technology makes it possible to accurately track every single transaction for every single person in the economy. That would be extremely useful for an authoritarian government. At the very least, it will be a very powerful tool for the taxman just like getting people to rely on banking is crucial for income taxation. There are workarounds, but governments will be extremely tempted to use this power of blockchain. At this point the identity of each bitcoin user can begin anonymously, but as soon as the government finds someone’s bitcoin identity, they immediately know the precise details of every transaction made using that identity.
Finally, and most importantly, there is a need for a monopoly on the legitimate use of violence in society. No anarchist has even come close to solving that problem. Everyone in every society is better off when violence is managed well, and capitalist society is no exception. Capitalism is dependent upon coercion because capital requires property rights. A property right is the right to exclude someone else from doing something which requires force. Capital is wealth and in every society that has wealth beyond a basic minimum of subsistence, government naturally assumes a monopoly on violence. We will always have government in every prosperous society. Prosperity requires coercion and blockchain doesn’t change need to manage coercion at all. If anything, new blockchain technologies will give governments even more power over the everyday economic affairs of ordinary people than governments have ever had before in all of history. This technological marvel can grant new superpowers to governmental and/or corporate central planners. Let’s hope that they manage these new capabilities for the benefit of most people rather than just the few at the top.