Tag Archives: bitcoins

The Absolute Value of Crypto

Secrets have a value. How much, it is hard to say, perhaps invaluable would be a more apt description. Invaluable because a secret can mean the difference between life and death; that which can lead to victory or defeat in war. Secrets have an absolute economic value as well because it can truly mean the difference between life and death. Cryptography understands that the security of communication is essentially to life and death, and there is real value to both privacy and secrecy.

Bitcoin and other digital currencies are built on top of strong cryptography for this reason. This cryptography is strong enough to be considered unbreakable at this point in time, and most likely for the next several decades. Due to the mathematically assured, provable secrecy that bitcoin is built on top of, bitcoin creates additional value outside of the energy spent mining bitcoins by creating a cryptographically strong system of digital exchange. The ability to exchange through strong cryptography, and the secrecy it affords is part of what creates the economic value of bitcoin.

This value comes from the commodity that bitcoin is made from. Just as gold’s secondary values comes from its fungibility; the proof-of-secrecy function of bitcoin gives each unit their fungibility, which in turn creates secondary value. The provable mathematical security of bitcoin means the system is totally secure from legalized theft. No state, banker, or military general can steal your securely stored bitcoin; no matter how powerful they may be, or how many guns they have pointed at you.

A Very Short History of Crypto and War

Cesar’s Shift Cipher

Even before Julius Cesar first used his simple shift cipher for encoding his messages; ciphers, and stenography were wide used to conceal information throughout ancient history. These tactics of hiding information and keeping that information secret, or Crypto, developed as a tactic for war, and has had a large role within power struggles throughout the centuries.

As Napolian Bonaparte said, “The secret to war lies in communication.”

Over several millenia the developments of stenography and shift ciphers got better and better, as they were used for diplomatic and military purposes. A major advancement in the field occurred when poly-alphabetic ciphers, such as Vigenère cipher in 1553. Several centuries later the developments of cryptography were culminated in Kerchoff’s “La Cryptographie Militaire” in 1883, which are now surmised in Kerchoff’s principals.  This was a scientific manifesto on the military application of cryptography, and how to understand the security of cryptosystems and breaking them. Of these principals that Kerchoff established was the need to make the system based upon mathematical principals, and the supremacy of keeping the secret key secret, as if you do not, the system will be know by your adversary.

Just as in war you have an enemy, in crypto there is an adversary–an opponent that is seeking to compromise your system, and break it of its secrecy. If your secrecy is compromised, and if the secrecy of this communication is based upon life and death, you will die. This value of secrecy is absolute, and nation-state’s wars against one another accelerated the improvement of cryptography at a startling rate. This arms race in crypto ran parallel to the arms race for nuclear weapons in the 20th century, and was just as pivotal to its outcome.

The Mechanization of Cryptography for Advanced Warfare

Enigma Machine

The mechanization of ciphers with the rotor machines were developed in the early 20th century. It was the first true attempt to apply a more robust computational principals to ciphering with machines. The mechanization of ciphering reached its apex during WWII with the German enigma machine. In order for the Allies to break the encryption of the enigma, they had Alan Turing develop The Bombe. This was one of the first computers ever created in order to crack the code of the German enigma machines. These ciphers had become so complex, they now needed computers to help with the complex mathematical calculations to crack their code.

Like the wars that the empires throughout the ages have fought; at first their tools were rudimentary and crude, but developed with sophistication, technology, and scientific precision over the ages to what they are today. States now command weapons of mass destruction that can wipe out millions of people in a moment, and they use this as a token of power within the realpolitik of statecraft against other states.

This is called brinkmanship–the art of pushing dangerous scenarios for favorable outcomes on ones own terms. It is within this same vein of power that the tools of cryptography were developed as a means of war. We must ask ourselves: why has this technology been so zealously guarded, with so much human energy expended upon it?

Privacy and Secrets as Power

It is because within the realm of secrecy and privacy that people can organize independently, and outsmart stronger, more powerful enemies. Encryption is a weapon for the weak against the powerful, and a way for individuals to be given a mathematical assurance against the invasions of privacy, both for personal documents, and communications.  It is a mode of mathematically assured protection. One needs not to trust people with money or secrets any longer. Now they only need to trust the code upon which their secrets are hidden. That code is only mathematical, and is binary in nature.

From being built on top of this mathematical encryption technology that cryptocurrencies create a true use-value. Proof-of-secrecy creates both fungible, and security. These features, paired with the limited number of bitcoins, and computational and electrical energy that goes into creating bitcoin units, creates the total concept that gives bitcoin, and other digital currencies, their value. Bitcoin and other digital currencies give rise to a new mode of sovereign economic power. It is this economic force that over the coming decades will deconstruct, and depose of the old concepts of money, value, banking, exchange, protection, and finally the state itself.

The Digital Sovereign

Digital currencies are the economic power that will become the bases for a new way of organizing. This new form of power will create new social, economic, and political organizations which together will create a new superstructure of power I call the digital sovereign. Echoed in the sentiments of the declaration of independence of cyberspace, this is the process of creating a world that all may enter without privilege or prejudice accorded by race, economic power, military force, or station of birth. The digital sovereign is the space in which the civilization of the Mind will make itself victorious over the world of flesh and steel.

—

Next: Bitcoin and The Internet as Ideological Apparatuses

The Political Ramifications of Independent Money

Bitcoin is a radical new technology that we do not fully understand the impact of quite just yet, and most likely, we will not for years to come. As this economy grows, evolves, and has more market participants, the itching question is, how will this affect the political situations of the world? At first glance bitcoin may not seem like much at all, but when you look at bitcoin through the lens that it is independent wealth controlled by no nation-state, there are some interesting questions that are called into play.

 Regulation is a moot point

There has been debate about the idea of regulation vs. no regulation and I really think that it is a moot point considering that as private individuals that own bitcoin, we are free to exchange with whom ever we please–no government required. Furthermore, people can protect their identity from any sort of interloping from the State, which means that Bitcoin is a truly free global commodity that cannot be stomped out by any government.

This is not to say that regulation will not effect the market, but rather, the market can exist, and has existed without regulation for the last several years. Moving forward, if there were to be anything that could seriously threatened bitcoin, or their users, there is nothing that is preventing bitcoin users from simply absconding their wealth into the internet, and turning up somewhere else in the world with it. With Bitcoin being recognized as private money in Germany, I see no reason for wealthy bitcoiners to consider tolerating any sort of regulatory intervention and losing a substantial portion of their wealth due to such interloping policies.

Our wealth is assured by math, our freedom is ensured by politics

With the imprisonment of Ross Ulbricht and the discussion of bitcoin red list, there is a very important principal being discussed, it is called a bill of attainder. This is the legal concept of a legislature declaring a group of people criminals or guilt of a crime by virtue of who they are, or how they are identified. What is important to understand is the possibility of having one’s wealth seized in a manner similar to how if you try to spend a forged $100 bill, the merchant won’t recognize the value of that money, they will just take it and turn it in to the authorities–and you will be out $100. By tainted coins that have been used ‘illicitly’ it calls into question the fungibility of all coins–something that would not be tolerated internationally. James Madison explained why bills of attainder are so dangerous in the Federalist #44 stating:

“Bills of attainder, ex post facto laws, and laws impairing the obligations of contracts, are contrary to the first principles of the social compact, and to every principle of sound legislation. … The sober people of America are weary of the fluctuating policy which has directed the public councils.  They have seen with regret and indignation that sudden changes and legislative interference, in cases affecting personal rights, become jobs in the hands of enterprising and influential speculators, and snares to the more-industrious and less-informed part of the community.”  —James Madison

This legal question has been answered–tainting bitcoin is illegal and unconstitutional. Bills of Attainder are prohibited on three occasions in the U.S. Constitution and also in all 50 State Constitutions. With that being said, things being illegal or unconstitutional has never stopped the government before, so there is no reason it would stop them now. The question is how far will both bitcoin-accepting business and individuals cooperate when various government agencies start tracking coins, their owners, and showing up at people’s doors, threatening them with grand juries, imprisonment, and violence for not cooperating? As much as I would like to think the government would be stonewalled, I also know that the FBI has a long and robust history of acting outside of the law in very illegal ways, and convincing people that cooperation is the only way. It will be interesting to see how governments treats our physical bodies when they cannot seize our wealth.

State Against State

The most important feature that bitcoin offers in terms of regulation, is how states are going to position themselves in what will eventually become a game of State against State. Most interestingly, the U.S. is the one nation that has the most to lose here, when you start to consider that bitcoin can very realistically challenge the dollar’s global reserve currency status. This is perhaps what we are already seeing with bitcoin’s dramatic rise in China, with their government remaining rather quiet on the issue. Perhaps they are exploring the idea of using digital currencies to weakening the United States Dollar’s death grip global commerce–it will be interesting to see.

The most important fact to bear in mind here is that bitcoin is superior for international commerce in totality. It is faster, cheaper, more secure, and has less oversight than any fiat currency or precious metal. This means that bitcoin is inherently economically superior to the USD as a reserve currency, and challenges the exorbitant privilege of United States. As bitcoin grows and incorporates itself in more and more markets, it is going to seriously challenge the worth of fiat money itself. States like Germany that choose to adopt a sensible policy will do well with their admission that they cannot control the currency, and to simply treat it as a private currency. States try to restrict and control bitcoin are just going to shoot themselves in the foot hamper their own commercial activity.

World Citizens Against States

The most powerful political ramification of bitcoin and digital currencies is that it creates a new class of international world citizens–a people who’s wealth and prosperity is not linked to that of boarders or territories. When we consider that 16 countries have inflation above 5% today, why would people ever choose to hold paper that is losing value everyday? When people discover there is a way to protect their wealth against the tyranny of inflation, I see no reason why they would not.

But this calls into question something that is clear for most bitcoiners today: Fiat money is garbage. The only reason it is useful is because the state forces us to use it. That does not make it better in any way, and perhaps it makes people very spiteful. Keynes understood this point, as we can see below:

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.  By this method, they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.  The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.  Those to whom the system brings windfalls . . . become ‘profiteers’, who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished not less than the proletariat.  As the inflation proceeds . . . all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless.

These ‘profiteers’ that Keynes speaks of are the bankers that today are richer than they ever have been, despite having caused the economic turmoil that we are all in today.  As we move into the future, the gap between the rich and the poor is just going to become more extreme. It is clear that the State has failed to protect its citizens from the destruction of state-sponsored capitalism, and it will be up to the people themselves to find the protection they need from both the State, and from their crony capitalist allies.

Once people come to understand that incredible gains they can personally have from using digital currencies, there will be very little reason to continue using fiat currencies. This will then push forward the crisis of confidence that we are already seeing with governments around the world. The final step to ensuring that these governments crumble into nothing, and that something else can be erected in their place, is when their money simply stops being accepted by people. Once that occurs, there is nothing these governments can do–they will have lost.

Conclusion

Bitcoin is not only a revolutionary technology; it is also an incredible empowering technology. For the first time in generations, there is a new tool that allows for people to make the choice if they want their governments to be in control of their wealth. Bitcoin allows for people to refuse to participate in the madness that has become our economic and political system. It offers us an exit from this corrupt system so that we may build a better, more equatable world where we can assure to one another, and our posterity that theft from the state shall never be some we will tolerate ever again.