Bitcoin as an Anti-Authoritarian Force: Crypto can provide a transnational state-resistant payment system for dissidents

Evaluating the thesis that Bitcoin (and crypto more generally) is an anti-authoritarian force and can help undermine tyranny by providing a state-resistant payment rail.

Summary

Claim Steel-Manned

Subclaim 1: A state-resistant transnational payment rail is desirable

Not everyone lives in a stable liberal democracy. Sometimes it’s necessary to circumvent the state, when laws are unjust or regimes are corrupt.

A global supranational payment system which is censorship resistant against nation state actors would allow parties from any jurisdiction to move value anonymously and with no controls. Via such a payment system, individuals living under oppressive regimes as well as those resisting the regime could receive money and funding from anywhere in the world.

Nonviolent resistance and civil disobedience have some very notable success stories and are an important part of the arc of “moral universe bending towards justice”:

  • Abolitionist movement
  • Civil rights movement
  • Nelson Mandela
  • LGBT movement
  • Gandhi's non-cooperation movement
  • Anti Vietnam-war protests

Subclaim 2: Crypto can provide a state-resistant transnational payment rail

Blockchain technology can provide us with this censorship-resistant global payment rail.

There are examples of crypto being used as a form of, or to facilitate, disobedience: Edward Snowden and Sci-Hub.

  • Snowden speaks on the infosec conference circuit and likely receives all his speaker fees via bitcoin which he converts into Russian rubles.
  • Sci-Hub pirates every scientific paper from Elvesier, Wiley, and other academic publishers and hosts a PirateBay style mirror site in which researchers can bypass paywalls and download paper. The server is run by one woman in Russia, Alexandra Elbakyan, who takes crypto donations. She is seen as a folk hero giving knowledge to the world and advancing science.

Evidence of claim being made

ALJAZEERA. ‘Crypto Provides Fix for Some in Crisis-Hit Afghanistan’, 21 March 2022. https://www.aljazeera.com/news/2022/3/21/crypto-provides-fix-for-some-in-crisis-hit-afghanistan:

Digital currencies and their decentralised architecture, impervious to international sanctions, are allowing a handful of young Afghans to avoid the worst of the crisis.

Lyn Alden [@LynAldenContact] (2022) Twitter. Available at: https://twitter.com/LynAldenContact/status/1529084598268968962 (Accessed: 14 September 2022).

People from Nigeria, Ethiopia, Senegal, Togo, Venezuela, and Afghanistan keep telling me here in person how they use bitcoin to deal with authoritarian bank control or persistent inflation that continually wrecks their savings. While westerners on Twitter say it’s useless.

Lyudmyla Kozlovska quoted in Aderinokun, Ire. et al. ‘21 Human Rights Advocates Write to Congress about Bitcoin’s Humanitarian Benefits’, 21 June 2022. https://www.financialinclusion.tech/

For me, Bitcoin is not just technology. It has literally saved the lives of my friends and many Ukrainians. Without it, we would not have been able to raise money so quickly to pay for protective equipment for soldiers in the early days of the Russian invasion.

Tapscott, Alex. ‘Commentary: Bitcoin Offers Freedom from Political Repression—and That’s a Key to Its Future’. Fortune, 18 February 2021. https://fortune.com/2021/02/18/bitcoin-censorship-political-repression-deplatforming-china-belarus-russia-nigeria-crypto/.

Bitcoin is censorship-resistant. In other words, government cannot throttle, control or monitor your behavior as they can in the legacy financial world.

Evaluation

Subclaim 1: An unregulated transnational payment rail is desirable

From the perspective of civil society a global supranational payment system which is censorship resistant against nation state actors is not desirable. The world already struggles with an excess of offshore tax evasion and dark money flows, as evidenced by the recent Panama Paper leaks.

Crypto facilitates tax evasion

Today there already exists an enormous shadow banking space which facilitates the creation of credit and movement of money through jurisdictions with questionable money controls and loose enforcement of policy. Many wealthy individuals avail themselves of this transnational network of trusts and shell companies to avoid paying taxes in their country of residence, opting to instead hide their money abroad in opaque financial structures set up in island nations like the Bahamas or Cayman Islands.

The incorporation of crypto into the shadow banking system, which is already happening, is providing even easier access for disreputable individuals to avoid taxes and to expand their holdings abroad. Instead of offshore shell companies, these individuals will use stablecoins and cryptoassets to hide their money from tax authorities.

From the public interest perspective none of this setup is desirable, since it allows the already wealthy to avoid paying taxes and supporting public goods and the welfare state which supports people with less resources than wealthy individuals. Crypto thus exacerbates wealth inequality and allows individuals to circumvent the rule of law and undermine the entire social contract of democracy.

Crypto facilitates dark money flows

For every one Alexandra Elbakyan or Edward Snowden there are a thousand arms dealers, cartels, human traffickers, money launderers, and warlords who would also use crypto for far less benign purposes.

Subclaim 2: Crypto can provide a state-resistant transnational payment rail

Even if a blockchain-based state-resistant transnational payment rail were desirable, blockchain is not an effective way of achieving this.

In his whitepaper Bitcoin, Currencies, and Fragility, Nassim Taleb rebukes the "safe haven from tyranny" thesis:

By its very nature, bitcoin is open for all to see. The belief in one’s ability to hide one’s assets from the government with a public blockchain easily triangularizable at endpoints, and not just read by the FBI but also by people in their living rooms, requires a certain lack of financial seasoning and statistical understanding — perhaps even a lack of minimal common sense. For instance a Wolfram Research specialist was able to statistically detect and triangularize "anonymous" ransom payments made by Colonial Pipeline on May 8 in 2021 — and it did not take long for the FBI to restore the funds. We can safely assume that government structures and computational power will remain stronger than those of distributed operators who, while distrusting one another, can fall prey to simple hoaxes

[..] The slogan "Escape government tyranny hence bitcoin" is similar to advertisements in the 1960s extolling the health benefits of cigarettes.

The massive power asymmetries of authoritarian regimes and their control over both traditional payment rails and domestic implies that dissidents attempting to use crypto assets to circumvent repression or capital controls will find it very difficult to move assets or cash out. Without the capacity to cash out, the efficacy of their actions is fundamentally limited to external geographic regions outside of the authoritarian regimes. Since no action can be effected internal to the regime this refutes the argument that crypto assets are an effective tool for dissidents.

This is best evidenced by the Canadian convoys in 2022 which attempted to take international donations in crypto assets and found themselves and their accounts frozen by both banks and Canadian crypto exchanges which blocked transactions under illicit financing laws. This made using the donations to purchase supplies impossible and undermined the crypto assets narrative.

The complete ban of crypto assets by the People's Republic of China also does not lend credibility to the thesis that crypto assets are outside the remit of authoritarian controls and their restriction on capital movement and controls over domestic money services business.

Conclusion

The claim being evaluated here is that a) a transnational state-resitant payment system is desirable, and b) crypto can provide this. We find this claim to fail on both points.


Full Analysis

Steel-Man

  • Not everyone lives in a stable liberal democracy. Sometimes it’s necessary to violate laws, when laws are unjust or regimes are corrupt. In such circumstances, Bitcoin can be used as a safe haven for one’s investments or a shield against government tyranny.
    • Nonviolent resistance and civil disobedience have some very notable success stories and are an important part of the arc of “moral universe bending towards justice”:
      • Abolitionist movement
      • Civil rights movement
      • Nelson Mandela
      • LGBT movement
      • Gandhi's non-cooperation movement
      • Anti Vietnam-war protests
    • Examples of using crypto as a form of, or to facilitate, disobedience: Edward Snowden and Sci-Hub.1
      • Snowden speaks on the infosec conference circuit and likely receives all his speaker fees via bitcoin which he converts into Russian rubles.
      • Sci-Hub pirates every scientific paper from Elvesier, Wiley, and other academic publishers and hosts a PirateBay style mirror site in which researchers can bypass paywalls and download paper.
        • Server is run by one woman in Russia who takes crypto donations. She is seen as a folk hero giving knowledge to the world and advancing science.
        • Is a violation of copyright laws, although the jurisdictional boundaries of this are somewhat gray considering Russia doesn’t respect US law.
        • Many feel that although this is an intellectual property crime, the predatory business models of Elvesier are somehow worse than this crime. And that Sci-Hub is a net benefit for humanity under a certain utilitarian calculus.

Analysis

2 preliminary principles to be noted:

  • Any tool has to be evaluated on its actual and potential benefit and harm.
    • Asbestos (bury it), DDT (some uses), Internet (good clearly outweighs harms)
  • You can’t solve people problems with technology solutions, especially problems related to (state) power (at best, they help a bit, at worst they distract us from the real work that needs doing).
    • Analogy: Rubber-hose crypt-analysis debate.
      • Rubber hose crypt-analysis = use force to make someone give up their private key (a malicious state could still just arrest you and pressure you to give up your private key) => no matter how good your cryptography, you are still vulnerable to the state.
      • Cryptography does not “solve” oppressive regime problem. At best, crypto helps you during a period of resistance and effort to change the overall regime. The vision of (old-school) crypto-libertarians is mistaken – we still need a “good” state.

Evaluation:

  • For every one Alexandra Elbakyan or Edward Snowden there are a thousand arms dealers, cartels, and warlords who would also use crypto for far less benign purposes.
    • Even if you have an optimistic view of the human condition, we live in a world of scarcity with vast Malthusian struggle that pushes people into mind states of violence and crime out of desperation (North Korea, etc).
    • Cross-border Illicit financing enables many undesirable things in this world.
      • Human trafficking
      • Extranational arms sales
      • Money laundering
      • Drug sales
    • There is an inescapable evil and bleak brute reality to the human condition in 2022 that we can’t just ignore. As technologists we should build and design technologies which try to minimize and disincentivize evil things because that’s how progress is slowly achieved.
  • Bitcoin isn't as private as people might think.
    • Nassim Taleb on Bitcoin being traceable. If you’re going up against even a mildly sophisticated actor, it won’t really work because the ledger is public.
      • “By its very nature, bitcoin is open for all to see. The belief in one’s ability to hide one’s assets from the government with a public blockchain easily triangularizable at endpoints, and not just read by the FBI but also by people in their living rooms, requires a certain lack of financial seasoning and statistical understanding — perhaps even a lack of minimal common sense. For instance, a Wolfram Research specialist was able to statistically detect and triangularize "anonymous" ransom payments made by Colonial Pipeline on May 8 in 2021 — and it did not take long for the FBI to restore the funds. We can safely assume that government structures and computational power will remain stronger than those of distributed operators who, while distrusting one another, can fall prey to simple hoaxes”
      • [..] The slogan "Escape government tyranny hence bitcoin" is similar to advertisements in the 1960s extolling the health benefits of cigarettes.
  • Trying to undermine powerful nation states is fraught with risk for individuals.
    • The massive power asymmetries of authoritarian regimes and their control over both traditional payment rails and domestic implies that dissidents attempting to use crypto assets to circumvent repression or capital controls will find it very difficult to move assets or cash out.
    • Countries with the worst human rights records have very sophisticated surveillance software (Saudi Arabia, Russia, China) they use to monitor and control information and money flow.
    • Local crypto exchanges are forced to comply with domestic KYC-equivalent laws, which may be directly reported to the government.
      • Cf info on Binance and Russia (re Navalny) which came out recently.
  • Without the capacity to cash out the Bitcoin, the efficacy of their actions is fundamentally limited to external geographic regions outside of the authoritarian regimes.
    • This is best evidenced by the Canadian convoys in 2022 which attempted to take international donations in crypto assets and found themselves and their accounts frozen by both banks and Canadian crypto exchanges which blocked transactions under illicit financing laws. This made using the donations to purchase supplies impossible and undermined the crypto assets narrative.
    • This could be solved by a hyper-bitconization world, but see our previous episodes for why such a world is neither desirable nor possible.
  • Forces dissidents to move external to a country. Which may be good for individuals, but fundamentally doesn’t change the regime and may only embolden it.
  • Crypto further enables and expands the scope of the shadow banking system and tax haven system that oligarchs, dictators and strong men use to hide their wealth abroad. This strengthens their ability to do illicit financing for war crimes, terrorism, and evading sanctions.
    • Panama papers give us a clear indication of the ubiquity of dark money flows and their use by the world’s worst leaders.
    • Some estimates put $60 trillion dollars in shadow banking and offshore trusts.
    • North Korea funds its concentration camps and nuclear program with crypto stolen from crypto hacks.
    • In El Salvador, bitcoin is being co-opted by the regime as a means of enabling more government corruption.
    • The incorporation of crypto into the shadow banking system, which is already happening, is providing even easier access for disreputable individuals to avoid taxes and to expand their holdings abroad. Instead of offshore shell companies, these individuals will use stablecoin and crypto assets to hide their money from tax authorities.
    • From the public interest perspective none of this setup is desirable, since it allows the already wealthy to avoid paying taxes and supporting public goods and the welfare state which supports people with less resources than wealthy individuals.
      • Crypto exasperates wealth inequality and allows individuals to circumvent the rule of law, undermining the entire social contract of democracy.
      • We need to dismantle the offshore structures that enable billionaires and oligarchs to strangle democracy, not create more of them.
  • The argument for bitcoin as a hedge against authoritarianism suffers from a Keynesian fallacy of composition and selection bias. It might be a net good for small groups of individuals, but in aggregate the existence of a supranational payment system for illicit money flows is a vast negative for the world.
    • Composition fallacy: If someone stands up out of their seat at a football match, they can see better. Therefore, if everyone stands up, they can all see better.
    • Crypto, the episode with Cory Doctorow noted, is very readily comparable to asbestos. It’s not a net good when there are better things to use that don’t have vast negative externalities.
    • We can empathize with the plight of refugees, while still recognizing that some solutions to their plight might cause more harm than good to the world.
  • Political science argument: The rule of law must always take precedence. Optimistically: Protest and dissent will always find a way to exist and triumph when the cause is righteous, just as has always happened in history.
  • Utilitarian argument: We shouldn’t be building systems to wholesale undermine the rule of law in their very design when those systems have such vast negative externalities in all our lives.

Conclusion

  • Jackson Palmer (creator of dogecoin) gave a powerful critique of the crypto ecosystem as an industry-insider in a tweet storm.
    • “After years of studying it, I believe that cryptocurrency is an inherently right-wing, hyper-capitalistic technology built primarily to amplify the wealth of its proponents through a combination of tax avoidance, diminished regulatory oversight and artificially enforced scarcity.”
    • “Despite claims of “decentralization”, the cryptocurrency industry is controlled by a powerful cartel of wealthy figures who, with time, have evolved to incorporate many of the same institutions tied to the existing centralized financial system they supposedly set out to replace.”
    • “The cryptocurrency industry leverages a network of shady business connections, bought influencers and pay-for-play media outlets to perpetuate a cult-like “get rich quick” funnel designed to extract new money from the financially desperate and naive.”
  • Bitcoin and crypto generally is not an liberatory force in the world, nor a means to counter authoritarianism in any substantial manner. In fact, it is likely to largely amplify the worst parts of society’s existing corrupt power structures.

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Footnotes

  1. More examples in e.g. here https://twitter.com/LynAldenContact/status/1529084598268968962 though note connection with crypto-advocate Alex Gladstein.