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Why Cryptocurrencies Matter [Opinion]
After telling friends and family what I do for a living, I’m often asked, “Why cryptocurrency?” And it’s gotten me thinking: what is it about this space that I find so fascinating, so promising, and so important?
Of course there are a number of good explanations. There’s the obvious fact that cryptocurrencies are new and exciting from a technological point of view. Distributed networks are building censorship resistance; encryption is facilitating trustless online transactions; and blockchains are revolutionizing countless industries across the globe—even if the technology still needs work before realizing its full potential.
Then there’s the other obvious fact: that cryptocurrency is a multibillion dollar industry offering the prospect of lucrative financial returns. While 2018 has certainly put a damper on this side of the crypto industry, hope for the next bull run still lingers in the mind of every cryptocurrency enthusiast, myself included.
But these superficial characteristics are not enough to explain my interest in cryptocurrencies. If I wanted to write about technology, why not quantum computing, AI, genetic engineering or space travel? If I wanted to make money, then why not take the traditional finance route, which offers incredible wealth and significantly less risk?
The truth is that, while the obvious facts still matter, the real reason I and so many others care about this space is the unique set of principles that lie at the heart of cryptocurrency and cryptocurrency alone. What I think many outside of the crypto industry fail to appreciate is that cryptocurrency is more than technology, and it’s more than money. It is a concerted effort to reintroduce two basic principles that have been forgotten in the digital age:
- Individuals have a right to privacy.
- Decentralized power is preferable to centralized power.
These two beliefs are the foundation upon which nearly every cryptocurrency is built, and they do a decent job of summarizing what is unique about cryptocurrency compared to other fintech industries. What’s particularly interesting about these principles is that they transcend political lines: two individuals can agree with both of the above statements for very different reasons. This contributes to cryptocurrency’s widespread appeal, and is a big part of why cryptocurrency enthusiasts are so passionate about the space.
The remainder of this article will take a closer look at the philosophical underpinnings of cryptocurrency’s two most basic principles. Where did they come from? What reasons do we have to believe them? And how can we convince people outside of the cryptosphere to believe them too?
The Cypherpunk Ethos and the Right to Privacy
No group has played a bigger role in the creation of modern cryptocurrencies than the Cypherpunks. It’s a term you’ve probably seen thrown around in cryptocurrency circles, but maybe never heard a good definition of what it means. The most influential description of the Cypherpunk ethos comes from Eric Hughes’ A Cypherpunk Manifesto (1994), which describes the Cypherpunks as an ideologically motivated group of computer programmers who use cryptography to promote digital privacy.
For Hughes and other Cypherpunks, “privacy” is defined as “the power to selectively reveal oneself to the world.” This power is essential in order for individuals to have a personal life that remains separate from their public one. It’s something we often take for granted in our face-to-face interactions, while simultaneously giving it up altogether in many of our interactions online.
Early discussions about privacy on the Internet tended to focus on naive children making poor choices, first by interacting with strangers in shady chatrooms, then by revealing too much personal information on their publicly viewable MySpace profiles. In retrospect, our concerns were far too narrow.
Only in recent years have we begun to realize how much of our personal data has been collected by tech companies like Facebook and Google. I say “begun to realize” because we still have not fully come to terms with it, and we still have many unanswered questions. Most obviously, what these companies actually do with our data remains somewhat of a mystery: we know that they sometimes sell it to advertisers and other vague entities, but it’s hard not to wonder what Mr. Zuckerberg and Mr. Pichai still haven’t told us.
Indeed, social media companies are a major concern, but they are arguably not the worst offenders with regard to privacy, only because it is still possible to remain anonymous on social media. The arena in which privacy has been completely cast aside on the Internet is in online payments.
Prior to the advent of cryptocurrencies, the only options one had for making payments on the Internet were banks and Paypal, both of which require users to complete know your customer (KYC) requirements which eliminate the possibility of privacy.
Cypherpunks recognized this problem back in the early 90s. “When my identity is revealed by the underlying mechanism of [an online] transaction,” writes Hughes, “I have no privacy. I cannot here selectively reveal myself; I must always reveal myself.”
The Cypherpunk solution to the above problem was to create “anonymous transaction systems.” It might sound unusual in the Internet age to think of anonymous payments, as we’ve become so accustomed to revealing our personal information in many everyday purchases; but people have been making “anonymous” payments for millennia in the form of cash, coins or trade. Such systems are anonymous in that they do not require you to reveal your identity in order to make a purchase. For example, if you buy something with cash at the store, the clerk won’t ask for your name and address—which is handy if you’d prefer some purchases to be private.
The Cypherpunk influence is clear in the Bitcoin white paper, in which Satoshi describes Bitcoin as “a peer-to-peer electronic cash system.” And true to the cypherpunk emphasis on privacy, bitcoin allows two parties to transact with one another without having to trust each other, and without having to reveal their identities to anyone.
Cryptocurrency enthusiasts generally resonate with the Cypherpunk ethos, but I’ve found when speaking to people outside the cryptocurrency industry that the right to privacy is not always taken very seriously. Many people are not particularly concerned about sharing their online payment histories with their payment providers. Nor are they concerned that such data might be compromised as it was in the notorious Equifax hack.
In my experience, such people are quite comfortable trusting the centralized third parties who make their payments possible. They either do not see any reasons why banks should not be trusted, they see the reasons but don’t find them compelling enough to explore alternatives, or, perhaps most commonly, they are willing to sacrifice some individual privacy in the name of safety/regulation/the common good: “Why would you need private transactions—unless you have something to hide?”
Ultimately this is why the right to privacy is the lesser of the two basic principles: because for many people, a transaction between you, your transaction partner, and your bank is private enough. But the types of people who are drawn to cryptocurrency tend to have stricter standards for privacy, standards that are based primarily on a belief that centralized power is inherently untrustworthy.
Decentralization: A Rallying Cry for Libertarians and Anti-Capitalists
A remarkable thing about cryptocurrencies is that they invite people to reevaluate their fundamental conceptions about how the world should work. For example, should governments and banks be in complete control of the money supply? It’s unlikely that this question would have been taken seriously 30 or 40 years ago, simply because there weren’t any viable alternatives to the existing system. With the advent of Bitcoin and other cryptocurrencies, however, many enthusiasts have begun to imagine new worlds without centralized money.
The desire for such a world is rooted in the second, and most important, principle of cryptocurrency: decentralized power is preferable to centralized power.
I was careful when writing this principle to make it very broad, so broad that it is likely to be agreed upon by almost everyone who reads it. Centralized power in its most extreme form is called tyranny, and there is nothing more universally despised than a tyrant.
Many of the most important structures in modern society are explicitly designed to prevent tyranny: democratic voting, governmental checks and balances, term limits, anti-trust laws, anti-discrimination laws, and progressive tax systems. I could go on and on, but the point is that nearly everyone recognizes that too much power cannot reside in one place, or else that power will likely be abused.
With these ideas in mind, I ask once again: Should governments and banks be in complete control of the money supply?
Cryptocurrency enthusiasts answer this question with a resounding “No.” Together, governments and banks have a duopoly on money, which gives them too much control over society as a whole.
As mentioned in the introduction, much of the power of this principle comes from the fact that it can be shared by individuals with completely opposite political leanings. Libertarians and anti-capitalists, for example, are likely to have clashing views on nearly every issue, but can still agree on decentralization.
Libertarians are in favor of decentralization because they are most interested in protecting the rights of individuals, including the rights to privacy, to free enterprise, and to self-defense. Given the focus on the individual, it makes sense that libertarians are generally distrustful of centralized power, as centralization always brings with it an implicit threat of coercion.
When it comes to the financial system, libertarians will argue that both the government and the banks have too much power. A favorite target of libertarians is the Federal Reserve and other central banks, which overtly manipulate a country’s money supply.
Libertarians point to the Fed and say that it is an affront to the free market and exerts too much power over individuals’ financial lives. Cryptocurrencies appeal to libertarian sensibilities because cryptocurrencies are capable of taking power away from the government and putting it back into the hands of individuals.
Anti-capitalists, by contrast, support cryptocurrencies and decentralization for entirely different reasons, usually emphasizing the power—and corruption—of banks rather than of governments. For the anti-capitalist, the ultimate goal is to produce a more equitable society in which resources are more widely distributed among all people. Government can be a valuable tool in bringing about this distribution; but banks consist of profit-minded “1 Percent-ers” who will happily cheat marginalized groups if it helps their bottom line.
For the anti-capitalist then, cryptocurrencies are valuable because they take power away from banks (and the wealthy people who run them) and redistribute that power across society.
The lines of thinking used by the libertarians and the anti-capitalists have almost nothing in common, yet decentralization of financial power is desired by both. It’s rare to find a principle that resonates with such a wide range of people while at the same time being so revolutionary. In my mind, this a strong indicator that there is truth in it.
Conclusion
Though crypto enthusiasts may disagree in profound ways, nearly everyone who cares about this industry shares a belief in two basic principles: individuals have a right to privacy, and decentralized power is preferable to centralized power. In its most favorable light—which admittedly is not the reality much of the time—the ultimate goal of cryptocurrency is to defend these principles in the digital age.
But is it all really necessary? In other words, do these principles really need defending?
If you’re reading this article, you likely live in a country with reasonably trustworthy financial systems. I for one am fortunate enough to live in the United States, which by global standards has incredibly fair institutions—even if it doesn’t always seem that way.
However, it’s important to never assume that stability and prosperity are permanent. A functioning society is a fragile thing, and hubris is a recipe for destruction.
The problem is not necessarily that our existing institutions are fundamentally broken, although many people would certainly agree with that statement. The problem is that we are all subject to those institutions whether we like it or not, and there’s a strong sense among us that the institutions are not always looking out for our best interests.
By providing individuals with privacy while simultaneously stripping power away from the nameless, faceless institutions that dominate society, cryptocurrencies offer a safeguard against tyranny in all its forms—and I cannot think of a more noble goal than that.
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