Anarchy and Currency

-- By KevinHoung - 11 May 2015

Introduction

“Anarchism stands for the liberation of the human mind from the dominion of religion and liberation of the human body from the coercion of property; liberation from the shackles and restraint of government. It stands for a social order based on the free grouping of individuals…” – Emma Goldman

Any mention of Anarchy immediately crafts an image of disorder, violence, and chaos within one’s mind. Whether through movies, music, or television, anarchy is often associated with negative sentiments. However, anarchy is often misunderstood. According to Kant, anarchy was a stateless form of society based on the freedom of individuals to associate. Anarchy was a reaction to the perceived immorality inherent in state power. Similarly, the rise in the popularity of Bitcoins is arguably a reaction to the recent global recession and the destabilization of currencies tied to state fortunes. The Telegraph once described Bitcoin as “the gateway to a coming digital anarchy.” This article serves to introduce Bitcoins and investigate whether such a characterization is fair and accurate.

The Man Behind the Curtain

Nearly half a decade ago on January 3, 1999, Satoshi Nakamoto would revolutionize the world of digital currency. Partially a reaction to the global financial crisis, it only took Nakamoto a year to write the code underlying Bitcoin, hoping the new digital currency would be “impervious to unpredictable monetary policies as well as to the predations of bankers and politicians.”

Follow the Bitcoin

Bitcoin has grown to become the most widely used and recognizable digital currency in the world, but it was not the first. The idea of a digital currency has been attractive for its many advantages, one of which is its lack of production costs. Tangible currency, or state-operated currency, requires labor, metal, paper, ink, and presses to mint coins and bills. U.S. pennies and nickels actually cost more to produce than they are worth. On the other hand, digital currencies require no natural resources as inputs, only the electricity to maintain servers. Yet even these costs are spread out among the Bitcoin users on the network, thereby reducing costs to a negligible point.

In order to be practical on a large scale, Bitcoin utilizes cryptography to legitimize and track its transactions. Bitcoin encrypts each transaction and identifies the sender and receiver of digital currency only by a string of numbers, thereby protecting anonymity. Secrecy however is sacrificed since Bitcoin posts a public record of every coin’s movement across the network. As part of the coding, Bitcoin posts a public record of transactions in order to legitimize every transaction. When A sends a bitcoin to B and it is posted publicly, it prevents the same bitcoin from being spent by the same person, A, a second time. This process of communal encryption is referred to as the bitcoin “blockchain,” and remains Nakamoto’s greatest innovation in digital currencies.

By design, Nakatomo created Bitcoin privately so that there is neither a single company nor country that controls the supply of bitcoins. The software is set to slowly release twenty-one million bitcoins in the next twenty years to bitcoin “miners.” Miners set up complex computers to solve algorithms used to encrypt and verify the bitcoin blockchain, and in return they receive bitcoins as payment for their work. Even more astounding, the Bitcoin code adjusts the difficulty of its algorithms so that bitcoins are produced at a rate predetermined by Nakamoto.

For digital currency to become practical though, Bitcoin has struggled to obtain popular acceptance. However, if you recognize or have heard of bitcoins it is most likely due to its utilization and dependence by criminal enterprises such as “Silkroad.” Created in 2011, Silkroad was an underground marketplace for users to buy and sell illegal goods anonymously, usually drugs. Silkroad was designed as a “deepnet” site that is unsearchable through the Uniform Resource Locator (URL), and instead is only open to users using The Onion Router (Tor). Similar to VPNs, Tor offers users some amount of anonymity when browsing the internet. Bitocin was instrumental to Silkroad’s success since now browsing and financial transactions became anonymous. Since Bitcoin automatically encrypts the sender and receiver’s names, now you had an illegal marketplace where users could not only browse anonymously (Tor) but could purchase and sell anonymously as well (Bitcoin).

The F.B.I. eventually shut down Silkroad, but only after Silkroad generated sales revenue of over 9.5 million bitcoins, what at the time of seizure was valued at $1.2 billion dollars. With the current market cap of Bitcoin, $5 million USD, Silkroad was generating over 20% of the bitcoin transactions in the world.

Is Bitcoin Still Relevant?

There is no doubt that Bitcoin commands a significant presence in the world of digital currency, but will a currency that protects anonymity be widely adopted in the world? With increasing evidence of state surveillance and intrusion into private life, Bitcoin threatens “big brother” on an unprecedented sale. Imagine a world where only cash is used. As Silkroad proved, anonymity brings with it abuses by criminal organizations. However, anonymity, as an element of privacy, is highly prized as well. Furthermore, the fact Bitcoin is decentralized and uncontrolled by any government minimizes the potential for abuse and surveillance on its users, unlike private companies who act as proxy for government surveillance.

However, the largest argument in favor of government surveillance has always been the apathy of citizens towards personals freedom and their perceived need for “convenience.” Ironically, it is in this regard that Bitcoin may finally achieve widespread adoption. In a globalized world and constantly moving workforce, currency exchange is often tedious and time consuming. Having an anarchical currency that acts without regards to state borders would promote the most valuable principle of our dispirited world, convenience. Though apathy will likely lead to the loss of many personal freedoms it may also unintentionally result in the popularization of anonymous digital transactions.

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