Bitcoin Is To Credit Cards What The Internet Was To The Fax Machine: So Much More

Many are still seeing bitcoin as just a currency, as just a transaction mechanism. Its underlying technology is far more than that. It has the ability to reduce governments to spectators rather than arbiters, the power to make wars cost-inefficient, and the power to decentralize power itself.

The past three weeks have carried a bitcoin special on Liberties Report, starting out with examining the bitcoin currency itself, moving on to looking at the power of the underlying blockchain technology, and finally discussing how much power in society rests with controlling the ledger and the implications of disrupting that.

Parts one, two, and three –

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Transcripts:

Part One

Good evening, and welcome to Liberties Report week 47. Tonight’s a bitcoin special, the first of three parts, where we’ll go over why most people are focusing on the wrong thing with regards to the nascent cryptocurrency.

Most people, when they discuss bitcoin, appear to discuss its exchange rate. And sure – it has been an excellent investment, increasing its value by five orders of magnitude since 2009. Whatever amount you put in then, now has five more zeroes after it. There are few – if any – investments that can match.

And yet, bitcoin’s relevance as an investment pales for its relevance in every other aspect. The exchange rate frankly doesn’t matter. Not any more than its ability to provide enough value to the people who want to use its value.

What matters is that one person or a group of people using a Japanese-sounding name solved a very hard problem in 2008 that made it unnecessary to have a trusted party – like a bank – to keep track of the economy. Instead, the economy could be a group knowledge, the same way a language works – a phenomenon where nobody and everybody is responsible for maintaining the group knowledge of its changing nature.

So they built a bank that had no central point of control, but where everybody was aware of all the accounts all the time instead – just like everybody speaking a language share the knowledge of the words and their meanings.

I did my first bitcoin transaction early 2011. It was: – on a Sunday, – value of cup of coffee, – to a friend on the other side of the planet, – instant, – no fees, – nobody able to track, prevent, seize, – no blockades applied, – did not log on to a bank; did not identify at all.

When you use bitcoin for the first time like this, that’s when the penny really drops. You feel like you’ve just jumped 40 years into the future.

When you do this, you realize that the notion of a distributed economy is going to just dropkick today’s financial sector and banking as a concept. Bitcoin is going to do to banks what email did to the postal services.

And in such a system, just like you can’t point a gun at somebody and have them change the meaning of a word in a language, you can’t point a gun at somebody and have them change what or how much somebody owns – and that’s entirely regardless of whether that gun is legal or illegal.

Yes, that means law enforcement can no longer seize money. Nor prevent transactions. Nor apply any kind of blockade on the national or individual level.

Some people in law enforcement have complained to me that our elected representatives are unable to make laws that regulate such an economic system. I counter with the observation that a parliament is equally unable to legislate about a language, and yet, a language is arguably very democratic. How could it be seen as undemocratic if the state of the economy shifts from one form – the commandable – to another – the state of a language, the shared group knowledge?

I predict that this will be a hard pill to swallow for many – that it’s not a matter of whether bitcoin is legal or illegal, but that it’s already outside the realm of what can be described as legal or illegal, just like a language.

The next step, of course, is the realization that if the government can’t see or seize funds or transactions, they can’t see or seize an individual’s wealth or income. That means future taxation is completely up in the air at this point.

And when taxation is up in the air, or even jeopardized, that’s when the heavy government boots come in. But the government is used to fighting against single actors; this time, it’s fighting against an agreement. The government is going to try to apply violence against something as elusive as a language.

It won’t be successful, but it won’t be pretty, either. And besides, it’s just the first step in the developments to come. To be continued in parts two and three.

I’m Rick Falkvinge, and this is Liberties Report. Visit our sponsor, Private Internet Access. Good night.

Part Two

Good evening, and welcome to Liberties Report week 48 – part two of our bitcoin special series.

In part 1, we discussed how bitcoin is decentralized, and what that means in terms of not being able to regulate it by force. Like a language, bitcoin is effectively an agreement between millions of people – and agreements do not have a central point of control, nor a single point of failure, which a nation-state government could exploit to attack it in order to safeguard its own central-bank currency as preferential.

In effect, we are seeing another war of planned economy vs. market economy play out, only in the currency sphere. On one side, we have central banks who insist on running a planned economy; on the other side, we have a nascent market economy where there is no such thing as a central point of control for a store of value and unit of exchange.

We have seen multiple times in history how well planned economies are able to compete with market economies, and the answer in short is “not at all”. The difference in perspective would be that central banks would not consider themselves a planned economy; it’s just the people who have become aware of an alternative who realize that they are.

However, in this second part, let’s take a closer look at the underlying technology of bitcoin – the so-called blockchain. In 2008, a person or a group of people using the name Satoshi Nakamoto published a paper, which solved a very difficult problem – how to make a group of people agree on a set of continuously changing data, like a set of accounts with changing balances. The solution was to have 51% of the involved people agree on the dataset, and communicate that 51% were in agreement by showing superior processing capability over the minority. This may sound like an obvious solution, but technically, it was a really hard nut to crack.

And so, blockchain technology was used to create a decentralized currency. However, that was – is – just one application of blockchain technology. It can be used to track any asset, and it’s easy to predict that it will be used to track all assets because of the technology’s cost-efficiency and accuracy in doing so.

This has enormous implications.

Let’s look at the origins of the nation-state government. Its first function was civil arbitration – to settle disputes, and do so by right of force, by the “might makes right” principle. Soon, it was established that the nation-state government owned and controlled the ledger of assets – it was controlling who owned what, and importantly, was therefore also able to change who owned what. While the initial function of this would have been to enforce civil arbitration, it rapidly expanded to collecting taxes without consent – after all, if the nation-state government can move assets from one citizen to another citizen, it also capable of moving assets from one citizen to itself.

With assets tracked by blockchain technology instead, the nation-state governments are about to lose this ability. They are about to lose control of the ledgers – they are being reduced to spectators of the ledger, just like everybody else has been a spectator of the ledgers under control of the governments for the past couple of centuries.

After all, if you control who owns what in society, you effectively control that society. You could change ownership of everything and anything, including changing ownership of things to yourself. Coincidentally, this is exactly what governments have been doing with taxation.

With blockchain technology, the concept of taxation is therefore completely up in the air. Governments are no longer able to see somebody’s income nor wealth, and therefore, can’t base taxes on those factors. More importantly, they can’t seize money by authority or force for taxation – seizing funds and assets requires cooperation by their rightful owner, which is a complete game-changer.

(Specifically, a government can no longer go to a citizen’s bank and seize funds straight out of their bank account. They can’t get resources by approaching a complicit third party, like a bank. They actually need to seize funds straight from the owner in question, and can’t do so without that owner’s cooperation – voluntary or forced.)

Let’s look at Cyprus as one example of this, where the government didn’t even collect taxes this way – it simply confiscated bank savings to save itself. That’s another lesson right there, by the way: a government will always save itself before it saves its citizens, and given a choice, the government itself always comes first.

What happened on Cyprus was that the government was effectively looking down from the top of a cliff; they were at the end of their road. It needed a way to save itself, but would not get emergency loans unless it showed some effort to fix the problem in part by itself. So what it did was to swoop in to one of the country’s banks and just take – confiscate – a rather large portion of people’s savings if they exceeded a minimum amount. You’ll see this rewritten as a “tax”, a “levy”, or other nicer words; it wasn’t. Taxes and levies follow laws established by a legislative body. This was an executive decision, better known as a confiscation, or if you like, a lawful theft. Or rather robbery, actually, since it was backed by threat of violence if you didn’t comply. Lawful robbery, mind you. Which goes to show a number of the many, many problems with such a procedure.

Nevertheless, world leaders applauded the Cyprus initiative rather than being rightfully horrified, and it’s now being established as a template for dealing with future crises of that type.

Of course, bitcoin users were not affected by the Cyprus confiscations, nor will they be affected when the Cyprus confiscations are used as a template elsewhere in the future. This should be more of a concern to today’s governments than they’re letting on.

For let’s look at what’s in the pipeline with blockchain technology:

We have self-arbitrating contracts with Ethereum technology. Normally, when you draft a contract, if you later disagree with the other party, you would go to a judge and ask them to settle the dispute. Imagine if the contract was able to automatically and independently settle that dispute for you? That’s Ethereum, built on blockchain technology.

You’ll notice that this strikes directly at the heart of the nation-state government. As already noted, civil arbitration is the foundation that the entire modern nation-state rests on, and that function is now seeing itself getting outcompeted on its home field by somebody else that simply does the job better.

Next, we have incorporation and equity with Counterparty technology. Obviously, you’d hear people snicker about which courts would possibly recognize incorporation with a technology they can’t even spell – but that’s before you remember that these companies don’t use the governmental courts in the first place: they use self-arbitrating contracts.

Third in the pipeline, you can find things like land registry and social services with the future BitNation technology.

We can see that these are services that compete head-on with services that are provided by governments today, which is why the mid-term future will be very interesting. Things we have taken for granted will turn out to be not so at all.

If bitcoin forces the question why we needed a central bank in the first place – as it has done – then blockchain technology as a larger concept is starting to force the question exactly why we need a central government. That’s a question that hasn’t been asked, that hasn’t even been possible to ask. It’s necessary to be able to answer that question, and more importantly, to do so with credibility. We’re in for a lot of changes.

In part three of this bitcoin analysis, we will take a closer look at how the power is all about the ledger, and how blockchain technology changes that dynamic completely.

I’m Rick Falkvinge, and this is Liberties Report. Visit our sponsor, Private Internet Access. Good night.

Part Three

Good evening, and welcome to Liberties Report week 49, part three in our three-part series explaining why Bitcoin and the Blockchain are so thoroughly disruptive.

In part one, we looked at bitcoin as such, as a market meta-economy rather than a planned meta-economy: when the tokens that maintain the economy are themselves subjected to market forces, that gives such a meta-economy the same structural advantage as market vs. planned has demonstrated in all other areas.

In part two, we looked closer at bitcoin’s underlying blockchain technology, and how it can be used to maintain a ledger of public accounts – not just financial accounts, but any accounts, and how this will challenge the nation-state governments at their core business in pure market cost-efficiency. We also observed that governments, having lost control of the financial ledger, will no longer be able to seize funds without the owner’s cooperation – voluntary or forced – and what a game-changer that is.

In this part three, we will take a closer look at just how central to power this concept of a ledger really is, and what profound effects it will have when nobody is able to command and control it as they have been.

When you abstract the concept of a ledger a bit, and step away to see the big picture, you can see that it’s about control. And most conflicts in humanity have been about that control.

Take land registry, for example, like we’ve discussed. Imagine for a moment that land registry is maintained on the blockchain – who owns what plot of land, and that there’s general consensus, even between nations, that this is the authoritative ledger. Imagine so much was built on this assumption that it was simply the holder of truth.

Such a development, which is likely in the long term, has quite a few implications. For one, you would not see an abuse of the governmental court system by interested parties trying to seize land – say, for fossil fuel extraction purposes. Courts would not have authority over the blockchain, or at least not the authority they hold today, as blockchain does not lend itself to changing ownership of a token by somebody else than that token’s previous owner.

But it goes far beyond courts. Remember how we established that control of the ledger was crucial to power? Most conflicts have been about not just control of a particular ledger, but fights about which ledger to use. In the past, when a country invaded a neighbor, that government’s ledgers became null and void overnight as a new government was established with blank ledgers – or more commonly, ledgers filled in to benefit the invading nation and its citizens rather than whomever the previous government supported as rightful owner.

Thus, we can observe that most conflicts – from the small neighborhoodly all the way up to wars among nations – can be described as control of the ledger.

Now, then, imagine what happens when the ledger does not lend itself anymore to being be controlled by force or threat of force as it is today, due to a fundamentally changed nature, when it is a shared agreement – and that agreement has so much else built on top of it, that you just can’t yank that agreement away – sort of like how a language works, as we observed before?

The consequence of that is that a plot of land doesn’t change owner because your belligerent neighbor parks a squadron of tanks on the plot of land. Warfare as we know it, using violence to fight over which ledger to use, becomes not cost-efficient. (And just for the record, warfare has almost always been about financial advantage or resource advantage – demonizing the enemy has been the scapegoat and the superficial reason to convince teenagers to go out and die.) It’s when these pieces fall into place that you start to realize the scale of the long-term consequences of bitcoin technology.

It’s hard to see really disruptive technologies for how they can be used to their potential. The generation inventing a new technology tend to be restricted in their mindset to seeing what thing of old it replaces, rather than seeing the new technology on its own merits. It’s usually the next generation, the people who grew up without even seeing the thing of old, that take full advantage of the new technology. Sometimes even the generation after that, as was the case with electricity, for example.

When the Internet arrived at scale, there were people who were expressing concerns it might replace the fax machine. It turned out to be a little more than that, once it was seen on its own merits rather than on the merits of what it replaced.

When bitcoin arrived, it was seen as a better banking system and a cheaper credit card. It has the potential to be a little more than that, once it is seen on its own merits rather than what it’s replacing. And yet – the things mentioned in this series: self-arbitrating contracts, replacing courts, even replacing wars – that’s just technologies that are in the pipeline already. That’s the Internet technology equivalent of 1992.

This is the promise of bitcoin technology – or even a small part of the promise of bitcoin technology. It goes far, far beyond being a simpler credit card.

I’m Rick Falkvinge, and this is Liberties Report. Visit our sponsor, Private Internet Access. Good night.

Rick Falkvinge

Rick is the founder of the first Pirate Party and a low-altitude motorcycle pilot. He works as Head of Privacy at the no-log VPN provider Private Internet Access; with his other 40 hours, he's developing an enterprise grade bitcoin wallet and HR system for activism.

Discussion

  1. Werner

    You are too optimistic.

    Using blockchain for real world objects, like a land ledger, will not work. Because people will die without revealing their private keys to anybody, and society will have to be able to handle that. Would be a waste to have large land areas and buildings unused, and unknown who (or if anyone) owns them.

    1. Ninja

      Maybe if you attach the need of somebody using that piece of land for the ownership to be recognized and maintained in the blockchain? Maybe it will not work in the simple manner he explained but with some adaptations and tweaks? We shouldn’t be fast to rule something impossible that’s for sure.

  2. Jim Hansson

    what about membership and citizenship, could a new nation start where citizenship was kept on a blockchain and where the right to vote was determined by that blockchain, would other new nations follow?

  3. Ninja

    I don’t think it is feasible to use the same concept for land ownership unless land is not owned at all but rather assigned to. I like a few models in the world where nobody owns any property but rather rents from the Government or builds in Govt land for a few benefits and then starts renting it later when the investment is ‘paid’. Sure there’s still “the government” issue and it can still make you leave but it’s a much better solution than the current absurd speculation running amok in the real estate market. Still, once you have a bitcoin replace the current financial system we may see some rather interesting developments. I have no clue where this is going to lead but I hope for the best and I hope to see something during my lifetime.

  4. LennStar

    I wanted to comment, but have no youtube account. Nice to have a post here.

    Please try to speak a bit slower. Even I had problems in part 3 understanding you, and I am quite fluent.
    Also it makes thinking easier if you have time for it 😉

  5. JL

    Taxation is not an issue. Government can (and should) tax land values instead of income. You can´t bypass a land value tax using bitcoin. The land is where it is.

  6. […] Bitcoin Is To Credit Cards What The Internet Was To The Fax Machine: So Much More […]

  7. petval

    You don’t cover how will the society protect itself from corruption and organized crime. I can imagine how ledger can protect from corruption but racket and blackmailing for ‘protection’ as mafia does to small businesses is still possible: “We will burn your shop or kill your loved ones if you don’t sign this transaction” is not eliminated. Without a way how to seize such funds society will soon be fucked.

  8. Ingo

    A coin or a bitcoin is both a representation and a thing it self in one piece isn’t it? Either you have the thing AND it’s representation or not. But if you own a piece of land and some evidence of your ownership somebody else can seize just one of those. And if that one is stronger than you well… Your evidence of ownership may by fool proof but the stronger part who takes your land have the power to ignore it.

  9. Antimon555

    I commented on the previous post on Liberties Report, but that page was long dead and forgotten. I’ll copypaste the comment here.

    “I just saw your Liberties Report for week 48, and there’s only two possible outcome of all this.

    Either blockchain technology is destroyed, for example by hacking or computing power takeover (by quantum computers or hacking the blockchain network so that the distributed power goes to one place)

    Or Bitcoin and related technologies will be outlawed, most likely with punishments of decades in jail for as much as suspicion of using them. It sounds ridiculous, but I think you know it’s a very real possibility.

    The difference between Bitcoin and a language is that there is no record of who has been speaking to whom in a certain language. Say Swedish was outlawed, I wouldn’t fear whispering in Swedish when out of range of anything equipped with a microphone and an Internet connection. With Bitcoin, my sending or receiving address is stored permanently in the blockchain, and the only thing the government would have to do is to connect it to an IP address (which I’m not sure, but guess is stored too), check that with the ISP:s and arrest everyone in the household for interrogation.”

    Also I wrote a post on my blog (in Swedish) asking the question if the NSA can possibly have taken control of people’s mining equipment, using it to break crypto, since it is such huge computing power. I’ll translate it if someone asks. Please use that comment field or an e-mail to do so.
    http://integritetsnytt.wordpress.com/2014/10/29/kan-bitcoin-natverkets-berakningskraft-utnyttjas-av-nsa/

  10. […] Falkvinge described how the origins of modern nation-state governments lies in the power and duty to perform civil […]

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