With some autocratic regimes now using digital money for economic control and surveillance, can the original promise of cryptocurrency endure?
Ten years ago, bitcoin was introduced as the first open-source, decentralised, peer-to-peer cryptocurrency. The idea of money perpetrates every level of our lives. We trust that someone will accept our money in exchange for goods and services almost everywhere we go. Society relies on banks and governments for this, but since the 2008 financial crisis shook people’s faith in these institutions, the system is being questioned more and more. The architects of bitcoin designed it to solve challenges created by conventional currencies.
Digital currencies reconstruct the idea of money and place faith in technology instead of centralised institutions. Bitcoin was the first cryptocurrency and is still the biggest, but since it was created, alternatives have come along. All of them have the same basic idea: they use a blockchain, a shared public record of transactions, to create and track digital tokens, and these can only be made and shared according to the agreed-upon rules of the network.
Most cryptocurrencies are designed to resist censorship, as they are not controlled by any single actor, and it’s very difficult to alter the rules of the system. Bitcoin was designed to behave like cash. With cash, you transact without an intermediary. Likewise, with bitcoin, you send it directly to the person you’re paying, much like handing someone a banknote. In contrast, with a typical digital transaction, a middleman – Mastercard, for example – can see every transaction you make. This data creates an opportunity for surveillance or even censorship.
Unlike centralised payment systems like PayPal, bitcoin is resistant to censorship. This should mean that a government or corporation cannot not block a transaction or ban a person from using bitcoin. Bitcoin’s decentralised architecture means that nobody has the power to block anyone’s use of the system, just as no single person can shut down the internet.
Bitcoin’s designers made it very hard to cheat or change the system’s core properties. Instead of an central actor controlling the system like a central bank, bitcoin is based on decentralised trust. The integrity of the system builds over time through the interactions of validating computers across the bitcoin network, which together must reach consensus on the bitcoin monetary system (for instance, how many bitcoins exist and who owns them).
Now, however, an ideological contest is materialising around digital money in some countries around the world. In Venezuela, facing a currency devoid of worth, some locals are turning to bitcoin as a stable store of value and means of exchange. At the same time, Venezuela’s government last year introduced its own digital currency, the petro. This is controlled by the state and enables the government to directly track citizens’ financial activity.
Thus, in contrast to its original promise, digital currency can be used as a means of surveillance and autocratic control. Venezuela is typical of a larger struggle playing out amid the transition from physical cash to entirely digital transactions. Will the move to digital money expand economic freedom, allow people to transact with whomever they choose, and shield people from economic oppression and undemocratic abuses? Or will it become a catalyst of control?
Venezuela’s petro in is in fact not a cryptocurrency. It is centrally controlled, its value is unclear, and its circulation is arbitrary. It runs on state-operated servers using a technology called the Fatherland System, developed by the Chinese telecom giant ZTE with support from Russia. Fatherland was developed as a national ID system but has emerged as an instrument to monitor and track financial activity. Many Venezuelan pensioners saw the autocratic regime swap their bolivares for petros. With the government determined to trace every transaction made with the currency, this has resulted in an even greater erosion of citizens’ economic agency.
China is also thinking about launching its own digital currency. Again, in contrast to cryptocurrencies like bitcoin, this would increase Beijing’s control over the financial system and the lives of the people. According to patents filed by China’s central bank, consumers and businesses would use mobile phone wallets to swap yuan for the new digital currency. Transactions with the currency would require disclosure of what and who is involved, allowing the government to track every transaction.
However, simultaneously, an increasing number of people in countries with low economic freedom are using cryptocurrency. In addition to Venezuela, such nations as Belarus, Kazakhstan, Egypt, Chile and Argentina are seeing activity in this regard. Most of the transactions are small, suggesting that the users are everyday citizens rather than corporations or governments. As the crisis in Venezuela has worsened, local bitcoin transactions in bordering countries also spiked.
There are several challenges to be overcome for cryptocurrency to become a source of freedom rather than oppression, and numerous agents are now tackling these challenges. One issue is privacy. Cryptocurrencies are frequently assumed to be anonymous, but they are not. Every bitcoin transaction for example is recorded and can be viewed by anyone on the network. Names are not recorded, but bitcoin addresses are. These can be traced, and if the owner of a bitcoin address is discovered, their transactions can be figured out.
A second challenge is that using cryptocurrency necessitates an internet connection. China and other states already heavily censor the internet. If a government desired to block web use to keep people from using cryptocurrency, it could likely do so. In addition, cryptocurrency, even bitcoin, is still hard to use, particularly for people with not much exposure to technology.
The era of digital money has arrived. Physical cash may cease to exist in developed societies within decades. Many people take for granted that they can use money privately without interference. But this may not long be the case for many. Governments aiming to increase social control see the shift to digital money as a way to tighten their grip and fence in financial systems. Thus, here, cashless societies may become surveillance societies.
However, on the other hand, engineers and designers are aiming to realise the original promise of cryptocurrency. They are seeking to create a framework for digital money that can protect people from abuse, with the anti-surveillance benefits of cash without sacrificing the parts of the modern economy that exist just on the web. With the economic power of autocratic regimes increasing and exploitation of personal data accelerating, the stakes are high. Can the shift to digital money advance a free and open future?