How Bitcoin could become its antithesis

[Mattasher]

First off let me say right away that I’m a newbie. I’ve known about Bitcoin for a few years, and have been watching from afar, but only recently decided to immerse myself in the technical details  — and equally important, the culture. I stayed away out of a suspicion that one of Bitcoin’s main claimed virtues (privacy) was oversold, and because I knew that it would hard for me to get into Bitcoin in a casual way.

What I’ve found so far is a an environment that’s far more complex and captivating then I’d imagined. It could help liberate the world from the chains of fait currency and the banking establishment, but it could also become a powerful tool for statist control. I’m sure this latter possibility is inconceivable to many within the space, but it would’t be the first time a vehicle of liberation spun around 180 degrees.

From what I can tell, the early adopters of Bitcoin skewed heavily libertarian, anarcho-capitalist, Rothbardian. As use of Bitcoin spreads to the general public, the culture surrounding it changes, becomes more mainstream. There’s a long history of online communities which, over time, became hostile to the original crowd and their laissez-faire ideals. Slashdot, Wired, Reddit. You can see the transition happening right now in the comments section at Zerohedge.

The reaction to the fall of MtGox shows that many Bitcoiners are now muggles (or matrix dwellers, if you prefer). These new users were raised on an intellectual diet of “market failure” and “much needed government regulation.” Their first instinct when things go wrong is to look for government to fix it. They’re comfortable with filing requirements, identity verification, withdrawal limits. They’re shocked to find out the BTC exchanges don’t have deposit insurance.

Here we get to an essential weakness of the protocol, at least so far as how it compares to the promised benefits. As a pseudonymous currency with a full public ledger of transactions, the privacy of everyone depends on the privacy of everyone else. Every single input and output from the real world to Bitcoin (every wire transfer you send to an exchange, every purchase of items shipped to your home), is a potential crack in the veil of privacy not just for you, but for everyone else.

I can see that developers are working on interesting technologies, like CoinJoin, which could be baked into the the protocol to enhance privacy. But right now, securing your privacy within Bitcoin requires additional, complicated steps (using tumblers, creating a new address for each transaction). The lessons from PGP email could not be more clear: if it’s a hassle, the vast majority of users won’t do it, which means that users of these privacy measures will be the ones who *really* need it. But because the defining feature of our new age is data interconnectivity, true privacy in can only come from increasing the amount of noise in the system, not decreasing the amount of signal. When the privacy of the network as a whole depends on individual users taking steps that make their lives more complicated, this privacy won’t survive.

Even if changes to the protocol make tracking harder by default, political changes could allow governments to view a nearly complete record of every BTC purchase and movement of funds. What’s going to happen if the IRS adds an addendum to the FBAR that requires you to list all of your public keys? What will happen when thousands of law-abiding citizens report their capital gains (and losses) from Bitcoin on their returns?

If your Bitcoin profits are turned into fiat and taxed to support the continued bailout of Wall Street, then nothing’s really changed. Bitcoin trading becomes one more acceptable way for people to make money that can be funneled back to the state and its favored groups.

Meanwhile, Bitcoin’s virtues compared to dealing with credit cards, in terms of lower transaction costs and reduced counter-party risk, could speed adoption among merchants, which in turn generates more data to connect buyers and sellers with public BTC addresses.  

Volatility, transaction malleability, exchanges gone bad… to me these seem like minor issues, taking the long view. They’re not why I’m still looking in from the outside, without a single satoshi to my name. These aren’t the reasons I decided to write this open letter to the Bitcoin developers and community at large.

I’m writing this because I’m worried that Bitcoin could become a far greater threat to fiscal independence than anything that’s come before. The history of the United States itself should serve as a warning. What began with a constitution to strictly restrain the government’s role, and a Bill of Rights as safeguard, is now a leviathan with effectively unlimited power. The massive economic surplus, fostered by the country’s laissez-faire roots, is now used to fund the largest welfare-warfare state the world has ever known.

[1715107220]

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[1715107220]

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[Luno]

you've got it nailed pretty accurately.

[franky1]

privacy is not a default bitcoin setting. bitcoin is just a currency. just like fiat. you can either use a credit card at a store and know your bank can see everything you buy. or you can spend extra time going to an ATM getting out banknotes and limiting the information you give.

i can think of dozons of ways to become anonymous, but not everyone cares or wants it as standard. anonymity was the silk roads promotional material.

no matter what drama occurs due to users of bitcoin. EG users making bad scripts on their websites, which delay paying other users, thefts, scams. in the end bitcoins are simply changing ownership from one person to another. whether its done illegally as just mentioned or done legitimately through purchasing normal products. the funds just move ownership. this does not affect bitcoin in one bit. it only affects users of bitcoin.

these emotional users which you call muggles, will either learn to use bitcoin properly and understand it. or they will move away from bitcoin. either way bitcoin will continue with them or without them. and as that happens the general intellect of bitcoin users will increase overtime.

even if bitcoin only had 2 users in the whole world. bitcoin would continue for atleast 100 years. so i too do not care about the daily drama. i see the long view of bitcoin. and i feel the smart merchants do aswell.

bitcoin itself will continue as it is, unaffected. but the services layered ontop of it will change, grow, prosper or if not smart, fail. but bitcoin will continue.

[Sheldor333]

If you wrote all of this the congratulations, it is a very insightful article on bitcoin. Keep on writing.

[rat]

1. privacy was never overstated; just loosely referred to. it's more private than a centralized system. want privacy? use cash. it will always have a purpose.

2. the founder(s) political opinions are worthless. what was the political affiliation of the guy who invented the wheel?

3. you generalize the whole community as a bunch of basement-dwelling fat nerds like mark karpeles, who want to privatize the profits - and socialize the losses.

4. you have made a bunch of assumptions about the future based on a bunch of what-ifs?

5. you stated that you have no dog in the fight - because you don't own any coins. maybe if you had some, and were invested in it, you would see things a bit diffrently.

6. it's not about bitcoin. if governments started to use a similar protocol for money monitoring - we the people could create our own.

7. your concerns are old, have been addressed before, and are becoming tiresome.

8. and you said it yourself - you're a noob.


and most importantly: the constitution of the US did not become a weapon of the establishment. by circumventing it - it has become useless.
 

[Mattasher]

Hi rat,

1. I don't know your experience, but privacy was overstated to me. I head the term "as private as cash" or "digital cash" on several occasions.

2. I suspect these political views aren't worthless to the founders themselves, nor are other fellow-believers indifferent to what their tool becomes.

3. "basement-dwelling fat nerds"?

4. I like to consider possible scenarios before investing in something, and see what others have thought about these. Fuck me, right? Speaking of which: 7. I looked through hundreds of messages here for discussion about these issues, do you have links?

1. privacy was never overstated; just loosely referred to. it's more private than a centralized system. want privacy? use cash. it will always have a purpose.

2. the founder(s) political opinions are worthless. what was the political affiliation of the guy who invented the wheel?

3. you generalize the whole community as a bunch of basement-dwelling fat nerds like mark karpeles, who want to privatize the profits - and socialize the losses.

4. you have made a bunch of assumptions about the future based on a bunch of what-ifs?

5. you stated that you have no dog in the fight - because you don't own any coins. maybe if you had some, and were invested in it, you would see things a bit diffrently.

6. it's not about bitcoin. if governments started to use a similar protocol for money monitoring - we the people could create our own.

7. your concerns are old, have been addressed before, and are becoming tiresome.

8. and you said it yourself - you're a noob.


and most importantly: the constitution of the US did not become a weapon of the establishment. by circumventing it - it has become useless.
 

[CoinCube]

For a first post this is an impressive summary.
I put a link to this post in the Economic Devastation thread.

https://bitcointalk.org/index.php?topic=355212.msg5385656#msg5385656

[AnonyMint]

I quoted the excellently written OP in my thread which raised many of the same concerns.

Note the OP has an error where he thinks CoinJoin could solve the problem even if was built-in by default.

https://bitcointalk.org/index.php?topic=439357.msg5355485#msg5355485

...

In reality, Bitcoin only gives you a degree of anonymity.  It gets you out of the scope of the NSA casually fishing through bank records to find likely names/addresses of people, but if somebody REALLY wants to find you, sooner or later, they will.  The more you interact with or trade with people, the more traces you leave.

In short, don't depend on bitcoin to keep you out of jail if you're breaking the law.  It isn't designed for that.  It is meant to keep you out of reach of "fishing expeditions", not a concerted law enforcement effort.

Coint taint is the biggest flaw to Bitcoin fungibility.

Now imagine the government tax and law enforcement authorities crack down in the coming years (and the G20+NSA are announcing this intent) wherein they say if you can't provide the identity of whom your purchased your coins from and sold your coins to, then all tax and criminal liability from the time of mining until the future is all yours. Because there is no way for you to otherwise prove that you didn't buy the coin from yourself and sell it to yourself.

So with that very simple ruling, the governments can at-will force all anonymous coin holders (past and present) to be revealed, because nobody is going to accept a coin without identity history any more.

You could still try to find someone to accept your anonymous coins, but since most users are not anonymous, your effort to find such vendors and market for your anonymous coins will become untenable.

This is why the only way I can see to keep fungibility (without losing anonymity entirely) is to make most of the users anonymous, and that includes all their IP addresses when they transact.

CoinJoin and Dark Wallet won't do this.

And Tor is not strong enough, as it can be foiled with timing analysis by an entity that can see all packets, such as the NSA.

So the reality is that Bitcoin will be the government coin. You see how easily the U.S.A. government effectively controlled the outcome of Mt.Gox.

[Mattasher]

Thank you for the compliment. To clarify I don't think CoinJoin or any other technique, by itself, would solve the anonymity problem. You are correct that any time you have well documented transfers flowing in and out, protecting privacy within the black box is going to be extremely difficult. Cash is (mostly) anonymous because everyone uses it all the time; the herd (noise) obscures the individual (signal).

I quoted the excellently written OP in my thread which raised many of the same concerns.

Note the OP has an error where he thinks CoinJoin could solve the problem even if was built-in by default.

https://bitcointalk.org/index.php?topic=439357.msg5355485#msg5355485

[/quote]

[AnonyMint]

Am I correct to assume that you are either a programmer or an engineer? Feel free to answer me in private message if you don't want to divulge publicly. I can delete this post if you wish.

[btc4ever]

agree with everything the OP says.  Have had these same thoughts myself.

For those that care about privacy and fungibility it is important to support efforts such as zerocoin, darkwallet, darkcoin, etc.  To my mind, the cryptocurrency that will win in the end (or at least be amongst the winners) is the one that offers the most privacy, and that means private transactions by default ( high noise to signal ) rather than something users have to opt into.

[AnonyMint]

The narrative is even more sinister than the OP.

Most Bitcoin will be clawed back due to widespread theft

[bitjoint]

Nice piece of writing... but it doesn't have to be black or white, in fact I think that what we will see in the future is a wide range of greys, with more to less privacy.

It's like the napster case, where you have a disruptive technology (P2P) for music and files distribution that evolved into out-of-the-system solutions with more privacy (like uTorrent, piratebay , etc) and inside-the-system solutions with less privacy, like Spotify which works closely with fb but also gives you music "for free". Both are P2P based, both are great, and most importantly: they give users a choice.

You should never try to impose on the rest of the world YOUR choice, just tell them that they have alternatives. Liberty is about having choice.

[Bit_Happy]

welcome to the forum 

First off let me say right away that I’m a newbie. I’ve known about Bitcoin for a few years, and have been watching from afar, but only recently decided to immerse myself in the technical details  — and equally important, the culture. I stayed away out of a suspicion that one of Bitcoin’s main claimed virtues (privacy) was oversold, and because I knew that it would hard for me to get into Bitcoin in a casual way.

What I’ve found so far is a an environment that’s far more complex and captivating then I’d imagined. It could help liberate the world from the chains of fait currency and the banking establishment, but it could also become a powerful tool for statist control. I’m sure this latter possibility is inconceivable to many within the space, but it would’t be the first time a vehicle of liberation spun around 180 degrees.

From what I can tell, the early adopters of Bitcoin skewed heavily libertarian, anarcho-capitalist, Rothbardian. As use of Bitcoin spreads to the general public, the culture surrounding it changes, becomes more mainstream. There’s a long history of online communities which, over time, became hostile to the original crowd and their laissez-faire ideals. Slashdot, Wired, Reddit. You can see the transition happening right now in the comments section at Zerohedge.

The reaction to the fall of MtGox shows that many Bitcoiners are now muggles (or matrix dwellers, if you prefer). These new users were raised on an intellectual diet of “market failure” and “much needed government regulation.” Their first instinct when things go wrong is to look for government to fix it. They’re comfortable with filing requirements, identity verification, withdrawal limits. They’re shocked to find out the BTC exchanges don’t have deposit insurance.

Here we get to an essential weakness of the protocol, at least so far as how it compares to the promised benefits. As a pseudonymous currency with a full public ledger of transactions, the privacy of everyone depends on the privacy of everyone else. Every single input and output from the real world to Bitcoin (every wire transfer you send to an exchange, every purchase of items shipped to your home), is a potential crack in the veil of privacy not just for you, but for everyone else.

I can see that developers are working on interesting technologies, like CoinJoin, which could be baked into the the protocol to enhance privacy. But right now, securing your privacy within Bitcoin requires additional, complicated steps (using tumblers, creating a new address for each transaction). The lessons from PGP email could not be more clear: if it’s a hassle, the vast majority of users won’t do it, which means that users of these privacy measures will be the ones who *really* need it. But because the defining feature of our new age is data interconnectivity, true privacy in can only come from increasing the amount of noise in the system, not decreasing the amount of signal. When the privacy of the network as a whole depends on individual users taking steps that make their lives more complicated, this privacy won’t survive.

Even if changes to the protocol make tracking harder by default, political changes could allow governments to view a nearly complete record of every BTC purchase and movement of funds. What’s going to happen if the IRS adds an addendum to the FBAR that requires you to list all of your public keys? What will happen when thousands of law-abiding citizens report their capital gains (and losses) from Bitcoin on their returns?

If your Bitcoin profits are turned into fiat and taxed to support the continued bailout of Wall Street, then nothing’s really changed. Bitcoin trading becomes one more acceptable way for people to make money that can be funneled back to the state and its favored groups.

Meanwhile, Bitcoin’s virtues compared to dealing with credit cards, in terms of lower transaction costs and reduced counter-party risk, could speed adoption among merchants, which in turn generates more data to connect buyers and sellers with public BTC addresses.  

Volatility, transaction malleability, exchanges gone bad… to me these seem like minor issues, taking the long view. They’re not why I’m still looking in from the outside, without a single satoshi to my name. These aren’t the reasons I decided to write this open letter to the Bitcoin developers and community at large.

I’m writing this because I’m worried that Bitcoin could become a far greater threat to fiscal independence than anything that’s come before. The history of the United States itself should serve as a warning. What began with a constitution to strictly restrain the government’s role, and a Bill of Rights as safeguard, is now a leviathan with effectively unlimited power. The massive economic surplus, fostered by the country’s laissez-faire roots, is now used to fund the largest welfare-warfare state the world has ever known.

[James-Cryptonomics]

This is a masterpiece - keep up the good work.

[Mattasher]

I have a background in programming and took some CS classes at the U. At this point the language I know best is R. The profile here is under my real name, add a .com to see my personal website and read my "about" page. 

Right now I'm putting together a proposal for a startup in the DAC space and will be investing heavily with both my time and money. I've been watching the world of digital cash for a long time, since the days of DigiCash and Flooz (yup, best name ever). I thought that once I dug into the details of the Bitcoin I'd want to do something directly related. However, I'm more and more convinced that while the technology and ideas behind Bitcoin and the "alts" are the future, the giant blockchain record of every BTCX will one day seem more like a burden than a tool of liberation. 

Am I correct to assume that you are either a programmer or an engineer? Feel free to answer me in private message if you don't want to divulge publicly. I can delete this post if you wish.

[AnonyMint]

Ah yes as I expected, you are very mathematical. You might find the last 2 articles on my blog interesting:

http://unheresy.com/

I am interested to hear more about your Digital Autonomous Corporation concept.

Please don't assume that the public ledger can't be unconflated from the identity of the owners of the coins. I understand your skepticism on that point. The deck does appear to be stacked against us. Keep your eye on new altcoins.

I have an email address, antithesis@c__lp_g_.com