Disclaimer:
** This article is written from a perspective of a bitcoin supporter for over ten years, software engineer, and distributed network supporter. **
Cypherpunk Movement
In the 1970’s and 1980’s the use of encryption and cryptography was not widely available for the average person. It had been long reserved for military and spy agencies. This would change once the United States government publication on Data Encryption Standard were made public. This would begin to change the mindset of many and the would begin a slow beginning to the movement.
David Chaum’s paper in 1985, Security Without Identification, would be the technical roots of the cypherpunks. By the end of the 1980’s the cypherpunks had begun to resemble something like a movement, but there was still a lot of work ahead both on the legal and technical side. There would always be an uphill battle for the movement, whether legal, technical, or user adoption.
Cypherpunks advocate for the use of cryptography and strong encryption for privacy and anonymity. In 1992 the movement began a mailing list and some monthly events where some of the early members of this movement would meet, talk, and brainstorm. A Cypherpunk’s Manifesto was posted on March 9, 1993 by Eric Hughes. Eric would also be the cypherpunk who coined the motto “Cypherpunks write code”. It also important to note the cypherpunk movement is one that does encourage civil disobedience and to defy policies and laws that erode your privacy. The story of the cypherpunks is ever evolving and the evolution of software is ever evolving.
2007–2008
Prior to the Great Financial Crisis, banks were taking huge risks and issuing loans in such a way that was very predatory. This led to an influx in housing values as well as a fall in securities tied to real estate assets. The United States housing bubble began to burst, with the filing of bankruptcy of the Lehman brothers in September of 2008, and sprinkle in an international banking crisis and you got a recipe for disaster.
As this financial crisis kicked off, it had begun in 2006 with mortgage delinquencies rising and a list of other problems that were all coming to a head over years of lack of regulations and deregulation. As with all things, what goes up must come down. Housing prices and values had skyrocketed along with it the average person would be taking loans to which banks would provide knowing they could not reasonably pay back, this would blow up in the form of housing crash. Along with this, many hedge funds were liquidated, filed for bankruptcy, or received bailouts.
The bailouts and attempted salvaging giving by the United States governments and others to attempt to save the financial system led to many being extremely disgruntled with the system. Very few people were charged with any crimes and even less were convicted even though clearly crimes had committed and this would be a catalyst to a change. This change would be the culmination of years of evolution within an existing idea, just they could never get all of the pieces together the right way. Bitcoin, not the first in digital currencies and certainly not the last.
Bitcoin
Bitcoin began as a project in 2008, for the whitepaper(October 31st, 2008), published to the Cypherpunk mailing list by Satoshi Nakamoto(pseudonym) and January 3rd, 2009 the genesis block was forged. On January 9th, 2009 we saw the beginning of blocks being mined on the network and this is visible in any block explorer. Many have asked why the six day gap and much of that could be contributed as any actual software engineer knows, to life and experimentation. Bitcoin was not birthed of immaculate conception. This is visible from varying times from blocks 1–35 in the blockchain. The difficulty is at 1, however, many confuse this as if no other members on the network for about a year, which is inaccurate. The reason this difficulty is at 1 is because miners at the time were only able to self submit, meaning there was no accurate way of detecting difficulty. For those not familiar with self submission(solo mining), it is the process of submitting hashes for the current block to your own peer. This does not add to network difficulty and since mining pools did not exist at the time there was no accuracy in this information. This is also why there were many orphaned blocks during this time.
Over time there were changes to bitcoin in the first year, the evolution of no longer sending to IP address, the changes to allowing to sync without needing to do so from IRC. Also after the first year there would be huge changes in the overall performance and a growth in miners would begin to permit GPU mining and the inception of mining pools. But let’s not forget in year two bitcoin was hacked with VOI, Satoshi was warned. Also in 2010 , Satoshi would leave after this post. There was a series of events prior to the final post, one of which involved Wikileaks, and the first real use case of Bitcoin’s power.
Bitcoin power
Bitcoin’s power was first demonstrated in 2010, by Wikileaks. It was during the banking embargo placed on them that bitcoin was accepted. This was demonstrating the censorship resistant power of bitcoin. This was also would be the topic of the last thing that Satoshi would comment on via bitcointalk. Keep in mind that during this time the world was much different, and regardless of how you may see it now, things were not the same a decade ago.
There was an embargo against donating to Wikileaks, to prevent supporters using PayPal, Mastercard, and Amazon to donate to the organization. This would pave the way for accepting bitcoin as Julian Assange recognized the true power of censorship resistant digital money. There are also a number of other interesting things going on at this time with Anonymous and others. This time more and more were worried about privacy and the Tor usage was on the rise. Satoshi would disappear and in the following year we would see the rise of darknet markets, which it is important to note Silk Road was not the first or the last of these markets. It became more widespread known thanks to sensational media coverage. Once it became known about, it grew to be seen as an amazing marketplace thanks to the merging of technology gaining attraction at the time.
During this time the bitcoin community was mostly comprised of cypherpunks, developers, and anarchist types. Then we also saw one of the first bitcoin exchanges, Mt. Gox in summer 2010, which used to be a platform for buying and selling Magic: The Gathering cards. Roger Ver at this time(2011) was also getting involved in bitcoin, and contrary to what you may feel about him now he did do quite a bit on getting more people involved in bitcoin. Now that would change later, but I will not be getting over into forks and other issues in this article. After the news of the Silk Road hit every local news in the country for drug buying and selling, everyone got their second dose of hearing about bitcoin. Bitcoin at this point was gaining traction but perception to most was that it was used to be disobedient to controlling systems, which is back to the ethos of the cypherpunks.
Bitcoin price had long been just aspirations to see price gains, and after the 2013 run and crash many thought bitcoin price was going to be permanently low. A number of factors led to this notion, Silk Road bust, Mt. Gox, and other factors of how regulations would begin to be imposed had severely impacted the price and overall view of bitcoin. During this lull of a lot of bitcoin price action from 2014 through 2017 we would see the creation of many altcoins, services working to add bitcoin as payment options, but we would encounter our greatest enemy to bitcoin, KYC.
KYC Adoption
Many services and exchanges started requiring KYC because of legal pressures or as a secondary monetization channel. As with most applications we use on our devices they sell our data and use this as a way of profiting off of the use when the application or service is free. Many exchanges have tried to circumvent regulations by operating in regions that do not require KYC or they try to circumvent this with another currency for the trading pairs and models. This has led to a number of large exchanges now becoming KYC and requiring it to withdraw when requesting your bitcoin or other cryptocurrency to be exchanged into the fiat currency you request. KYC and Anti-Money Laundering Laws have created a number of issues for exchanges and the users of the exchanges. There are also a number of non exchange services that are attempting to normalize the use of KYC. This poses problems for the user, regardless of whether it is a perceived issue or an actual issue for the user it does exist. Understand that all sats, are able to be tracked with time if they are not used with mixers such as Whirlpool.
Mixers or CoinJoins do solve some serious problems with the privacy associated with bitcoin as it is transparent and psuedo-anonymous it is not private by design. This distinction is important and has led to a number of arrests over the years, IRS problems, and issues with people tracking down an individual via their wallet and usage. Many are not privy to understanding just how much information is available to anyone with the internet on tracking down your bitcoin usage, purchases, spending, and to whom. It is also important to note that there is also a large number of exchanges now freezing withdrawals and deposits coming from CoinJoins.
KYC to a third party poses a number of threats for your data and the security of your holdings of bitcoin or any other asset if you are not using privacy by design. You can also check OXT Research on transactions and begin to understand what tools are available for chainanalysis. The road ahead is very dangerous as many are now accepting with the concepts of KYC to “stack sats” with services that provide rewards at the cost of your information. This can be a great way of one to obtain bitcoin, however, the real devil is in the details going forward. Those sats are now KYC’ed and unless you are mixing properly you might as well just be sure to properly report. Bitcoin is supposed to be digital cash, we should treat it as such, if we are to rely on company’s to control our money, then why did we even go through the hoops and the struggles?
Software, what Bitcoin is
Software is computer code and data for a computer. Bitcoin is written
in the C++ Programming language. Software can be configured in a variety of ways and modified accordingly to your needs based on whatever that may be if you have access to the source code. You will also need to be concerned with the license, of the source code if you wish to modify, distribute, sell or brand as your own. Bitcoin ships with a very permissive open source license, the MIT license. This is part of the reason so many coins have forked the code base and shipped their own versions of bitcoin or bitcoin like software. The lightning network daemons and others are also under the MIT license. This allows for unhindered modification even for commercial use. This is where things get a little interesting.
There are a number of ways that code can be controlled, from known configuration models to even some at the server side if the server is hosting said service they can run configurations to change things and modify what you can or can not do. Take note as this applies with plenty of services you currently use. This is extremely noticeable with a number of other services and do not think bitcoin is immune from this. As currently discussed with regards to exchanges freezing assets that are using CoinJoins aka Mixing. This has serious implications over privacy and control of funds within Bitcoin. From a user perspective if you are using your own peer and your own wallet this will not apply to prevent you on how you send or receive, but if everyone is not doing this, it could prevent you from sending bitcoin to someone. It could also prevent you from being sent bitcoin from an individual who is using a custodial service in the future. Configuration and code does not care about your feelings, they control the network and processes, YOU DO NOT.
Bitcoin’s power will be eroded slowly, but surely, it is evident. Just take a look around and you can see the writing on the wall. If you do not then you are allowing your bag bias to blind you from the realities. Just like with everything we create or have good intentions with, we destroy because of greed. Bitcoin is no different. At the end of the day software can be changed and configurations can control the software and networks, do not think it can not.
Bitcoin is distributed?
Censorship resistance only applies when using your own node, it does not apply when relying on other peoples equipment and software. The same can be said about email, social media, or just about any type of services.This is why the argument has always been about distributed versus centralization, decentralized, or distributed networks. Decentralized implies that there is some grouping of services that may rely solely on a number of peers/nodes to process accept traffic and or to facilitate certain functions. Distributed networks imply that you must run the software yourself in order to full participate in the networks, there is a level of understanding on the technical side that is needed in order for the user to actively and safely be a part of that network.
This applies to Tor, Bitcoin, and i2p for example. It may not apply to using some distributed messaging applications as most attempt to simplify this flow for the user. As we simplify for the user there are compromises. These compromises result in loss of some freedoms for the user, this applies on each facet of the argument. Distributed model puts more responsibility on the individual, decentralized offsets some of those responsibilities, and centralized removes all responsibility from the user at the cost of the ownership of data for the user. This is very important to understand as we begin to really analyze the vectors against bitcoin that are not network related. The current community forgets bitcoin is still just software and is vulnerable to everything software is vulnerable to.
The Rise of Custodial Services
Bitcoin was started to combat controlling of financial system by institutions and banks.The belief was that in time that they would play a role with using it as a possibly another asset but at no point should they be able to control it or the use of bitcoin. Obviously that time is upon us, as recently PayPal has ultimately deployed the future model for most people that are outside of the
currently niche cryptocurrency community. Essentially it will act as a custodian and you can buy or sell bitcoin but you have no control over it. This will be the standard going forward regardless however you may feel. The harsh reality is this goes back to what bitcoin is, SOFTWARE.
As banks can hold cryptocurrency wallets, similar to what PayPal is doing the banks will roll out their own versions. I also wrote an article about this last year when I was privy to some information and given a demo. Now, they may hold and act as a custodian and PayPal is demonstrating what that will now be like. The user may buy or sell bitcoin but have no control over the sats that they may purchase. I have seen a lightning like implementation for banks, it is heavily censored and runs their own versions of the networks, this includes the ability to censor transactions. This is important to understand, the need for the institutions to control the flow from start to finish as they currently do with the fiat. Bitcoin will be easier for the masses to obtain but at the cost of the power of bitcoin. You may argue that they can not control your non KYC sats and to some level this is true, however, they can prevent merchants using their services from accepting your sats.
Banks and institutions are quite aware they can not control bitcoin users, as long as they are not in their system. However, as demand may increase through the custodial services offered by them they will accumulate through exchanges and end up killing off competition. With this they will create regulations and policies preventing the sale from miners to anyone other than to them with proper documentation. This will be seen as a good thing as the price will go up, for a while, however it will pervert and destroy the initial ideals and power of bitcoin. For some, the revolution of bitcoin will be their couple of hundred of dollar investment returns dividends, for more it will result in them again being under control of the very institutions and banks that was sought to be stopped with bitcoin.
One can argue that this simply will not happen, however, look at PayPal, now purchasing BitGo and looking into other options. Each company buying into bitcoin and being championed is further bolstering of this movement to a controlled bitcoin. They are riding on the fact that the maxis and cheerleaders welcome the attention in hopes of a little clout on Twitter. Which is ironic as even Jack Dorsey a big supporter of Bitcoin does not support a censorship resistant model and has been very clear about this. Understanding this attack surface has largely been ignored even when individuals such as myself and others have brought it to the public. Bitcoin will be controlled if this is not stopped, you can live in a pretend world to which you may deny this but it is approaching faster each passing day. There are only a few ways to combat this and many are not going to fight it as long as Number Go Up, they will see it as a net positive, even as it erodes the power of Bitcoin.
Closing
Cash is still king, regardless of what anyone thinks cash is still mostly used for criminal activity. Bitcoin and others may be used in some cyber crime
like ransomware, however there is a number of organizations that will refuse to switch to cryptocurrency. Price fluctuations impact the value and this poses problems when you are dealing with operational cost. Bitcoin and cryptocurrencies offer plenty of opportunities for individuals which is very important to it’s success. But we can not be naive as to think that software can not be manipulated via outside sources. As you process this remember, you were willing to sacrifice more and more for the opportunity for various other platforms at the cost of your freedom. Bitcoin is no different. The only way to combat this is to stop supporting institutions and banking to get involved, they will end up controlling it all as they accumulate and force others out. As the meme goes, money printer goes Brrrr! They can print to control and force regulations on miner operations, control who you can send and receive from and to, as well as control who has access to the sats without them being prevented from participating. It does not take as much now to make this possible as it did in 2009–2014, the stage is now set. What side will you be on?
I would also like to point out that this is not speculation, this is information directly available to everyone. You are seeing this all unfold daily with each passing day. The hard reality is that for some the revolution could be the price increase regardless of the sacrifice of the core values of bitcoin. I think it would be a great injustice to our society to allow this to happen, but if it were then everyone would begin moving to Monero, privacy by design and is being scrutinized and in some cases they want to outlaw. This is a great sign for the individual, be sure to watch all surfaces and vectors, be aware of other options. Remember software is a tool, use the right tool for the job and what works for you. Bitcoin was not the first digital currency and will not be the last. It did hit several things right and I still support it, just I am not blinded by bag bias to not see the writing on the wall. Remember what happened when we trusted banks, it started the downfall that led to the creation of bitcoin. Now, they are gaining control over it.
TL;DR: Banks were the inspiration to create bitcoin as they mismanage the economy and destroyed lives for many. Now, we are giving them bitcoin to control and perverse for their needs. Stop supporting that move and stop cheerleading for it. Only you can stop bitcoin from losing it’s power.
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