Towards a Better World or a New Lambo? Is Crypto Living Up To Its Initial Idealism?Sep 10, 2018, 4:57PM
We look at the underlying philosophy behind cryptos and analyze how crypto culture has evolved from libertarian idealism to Lambos and FUD.
Contrary to common perception, blockchain, the underlying technology of Bitcoin, is not an entirely new technology. In some senses, cryptography is as old as time, and while some argue that the cryptographic roots of Blockchain and Bitcoin as we understand them, go back about half a century to research conducted by the US government for the sole use of military and spy agencies, the truth is that up until the 2000s, the road to Bitcoin had many forks and diverging paths. Until the cypherpunk movement took hold and directly resulted in Bitcoin, it is difficult to find any consensus as to the roots of the philosophy and technology that led to today's worldwide cryptocurrency market.
One place to begin is in 1981 when Dr. David Chaum, developer of eCash, founder of DigiCash, and one of the pioneers in the field of cryptography published a paper proposing anonymous digital communications which laid the groundwork for a good deal of the research and programming development of the 80s and 90s in cryptography. It also helped spawn the cypherpunk movement.
Chaum's proposals as well as the work of other computer scientists and cryptographers, paved the way for three individuals (a mathematician, Eric Hughes, a businessman, Timothy May, and a computer scientist, John Gilmore) to launch the cypherpunk movement in 1992. Cypherpunks advocated the widespread use of strong cryptography and privacy-enhancing technologies as a route to social and political change. The subsequent development of 3 crucial technologies - Pretty Good Privacy (PGP) Encryption, Open Source software, and Peer to Peer (P2P) sharing - was critical for realizing the cypherpunk agenda.
Once anonymous communication as a philosophy had taken root, it was only a matter of time before cypherpunk programmers turned their attention to the notion of anonymous currency transactions. The early attempts at creating an anonymous transaction system were small in scope and had diverging intentions. Dr. Adam Back created Hashcash in 1997 as an anti-spam mechanism. His protocols remain fundamental to Bitcoin mining today. In 1998, Wei Dai published a proposal for B-Money introducing what is now known as Proof Of Stake (POS). Then, American computer scientist Nick Szabo, one of the best-known cryptographers in the cryptosphere, introduced the concept of BitGold in 2005, which, while it never took off, is widely considered to be the precursor to Bitcoin. Szabo's idea for BitGold was a completely decentralized digital currency based on Hal Finney’s Reusable Proof of Work concept. All of these developments and many more led to the creation of Bitcoin in 2008 by the person(s) under the pseudonym Satoshi Nakamoto.
Cypherpunk: Underlying Motivations
The motivations and philosophy behind the Cypherpunk movement are best described in their 1993 manifesto:
Privacy is not secrecy. A private matter is something one doesn't want the whole world to know, but a secret matter is something one doesn't want anybody to know. Privacy is the power to selectively reveal oneself to the world. An anonymous transaction system empowers individuals to reveal their identity when desired and only when desired; this is the essence of privacy. We cannot expect governments, corporations, or other large, faceless organizations to grant us privacy out of their beneficence. We must defend our own privacy if we expect to have any. We must come together and create systems which allow anonymous transactions to take place. We the Cypherpunks are dedicated to building anonymous systems. We are defending our privacy with cryptography, with anonymous mail forwarding systems, with digital signatures, and with electronic money.
The cypherpunk community of the 90s held this belief in the individual's right to privacy as the highest ideal. This is fundamentally related to the notion that society functions best with minimal government interference. These libertarian views form the core political philosophy of the movement that led to the formation of Bitcoin. Such a worldview stems from a shared belief that governments and corporate establishments represent an ever-growing evil constantly seeking to extends its power, reach, and scope of influence under the guise of ‘security’. Only through strong cryptography and privacy in communication and asset transfers can people protect themselves and their interests from the overreach of governments and corporations. Cypherpunks also believed cryptography, peer-peer communication, and the right to privacy would revolutionize the way people interact with each other, thereby contributing to widespread social evolution.
In the decades since the inception of the cypherpunk movement, the libertarian thread has become more extreme and anarchistic. This was particularly true of the political moment out of which Bitcoin was created. The 2008 financial collapse, which for many was the direct result of Wall Street cronyism and government allegiance to banks over people. By 2008, distrust of state power had grown to new heights. Bitcoin was initially in large part a direct manifestation of this philosophy in the technological realm. Blockchain provided a way to circumvent state and corporate intermediaries and the first real way for sovereign individuals to enter into contracts and to exchange assets in a true peer-to-peer manner. Bitcoin represented a feasible way around government control of currency, which has long been the primary stumbling block for anarchists looking to excise themselves from state control. Bitcoin could eliminate, or at least minimize dependence on the current centralized financial system. Initially, it also provided anonymity and freedom from state taxes. Through Bitcoin, the pure individualist component of libertarian anarchism was preserved, which played a huge role in its early adoption. Among the most famous initial use cases was on the Silk Road, an illicit drug marketplace.
The success of Bitcoin for transacting on the Silk Road and other dark web marketplaces arguably gave birth to a new cryptocurrency industry, one that would not remain uniformly devoted to any founding philosophy. Soon, the marketplace was full of alternatives (called altcoins), each emphasizing a new feature or theme and each informed by a different economic, political, and social philosophy.
Bitcoin, which in 2010 traded for $0.01, crossed the $1000 mark in late 2013, though it later crashed by 80%, in January of 2017 Bitcoin hit the $1000 mark again, and proceeded to hit an all-time high of over $19k by the end of the year. The crazy growth at the end of 2017 gave birth to a media frenzy; cryptocurrencies were projected as a get rich quick scheme to investors. The market was flooded with new cryptocurrency projects and ICOs every day. This was ground zero for the change in the culture of the crypto community. The initial group of cypherpunks at the core of the movement were now joined by wealth seekers, institutional investors, and regular joes of all stripes.
For many in the expanded cryptosphere, in 2018, cryptocurrencies no longer represent an attempt to overthrow the legacy banking systems. They are instead a financial instrument of speculation. Millennials with no tech knowledge looking to make a quick buck see cryptos as a potential easy road to financial prosperity. Institutional investors see it as an untapped opportunity to make spectacular gains and to adapt the new industry to the shape of their own very powerful institutions. Bitcoin’s success in some sense has become its worst enemy.
Cryptocurrency has been a vehicle for massive wealth creation for some. This combined with the fact that blockchain technology has a steep technical learning curve - concepts like POW, POS, SHA-256, etc. are not easy to make sense of has meant that cryptos have attracted those merely seeking wealth rather than those with revolutionary technological ideals. This, according to many, has given rise to a superficial focused on short-term profits and gambling rather than on how the technology could revolutionize countless industries and liberate individuals from the overreach of intermediaries such as banks and governments. To many, crypto culture is now a superficial meme culture, with words like HODL, Moon, and Lambo thrown around more frequently than discussions about development and technology. In this climate, social media has proven to be a breeding ground for FUD, scams, ICO frauds, and deceptions in the form of pump and dump schemes and exit scams preying on the naive. Propaganda against competing projects became commonplace and turf wars, such as that between Bitcoin and Bitcoin Cash post hard fork, were a constant theme.
What followed the peak of December 2017 was a market crash of disastrous proportions in 2018 that saw what had become an $800 billion industry crumple to $200 billion over the next 9 months. The volatility was compounded by crypto bans in several countries, the labeling of Bitcoin as a bubble and Ponzi scheme, massive market manipulation, and the emergence of crypto derivatives and other controversial investment tactics of the traditional banking world. Crypto communities are routinely splitting as certain factions wish to pursue the founding ideals and others have no issues trading off decentralization for faster transactional speed or scalability. It is an understatement to say that the founding ethos of cryptocurrency is in jeopardy due to the money-minded culture that has engulfed the community.
Future Repercussions: Centralization?
The greatest immediate repercussion of this cultural change may well be reflected in the recent loss of $600 billion in the market value of cryptos. Is it the greed and the chasing of quick gains that has enabled market manipulation to take place on such a large scale? Are fake projects emerging at such a high rate because prospective investors lack the basic technical/project related knowledge to know the difference? The current situation could foreshadow a scary future for cryptocurrencies. The lack of foresight of investors and the willingness of so many to speculate on hypotheticals rather than investing in the potential of the underlying technology to have longterm fundamental transformative effects are dangerous trends. That traditional financial institutions are benefitting from the current state of things in the cryptosphere is perhaps the worst kept secret. This all points to more and more centralization of cryptocurrency projects and mining pools, a process already well underway in some cases. For instance, Bitmain alone reputedly controls 80% of the BTC hashrate.
Crypto centralization could fuel the worst nightmares of every libertarian anarchist. It isn’t an overreach to suggest that the use of blockchain and global digital currency to reinforce rather than disrupt central control could give the state powers far more authoritarian and frightening than anything mankind has ever seen. The potential for blockchain to become the ultimate tool for corporate or state control cannot be denied. After all, didn’t the potential emancipating power of the internet lead to the likes of Google and Facebook wresting unprecedented control over communication? Numerous scandals later, their hidden agendas and questionable, at best, use of user data have been laid bare. Some at the more conspiracy theory end of the spectrum believe that Bitcoin was actually a creation of the NSA/MI6 to help usher in the New World Order. A Reddit post, for instance, put together a narrative of how the Bilderberg Group, the Federal Reserve, and MasterCard took over Bitcoin.
Control over the money supply has been history's most common incentive for wars. The battle at the core of the cryptosphere could well get much nastier than it already has. Far from the social revolution it promised at the outset, the crypto community risks reinforcing the power of the institutions it was meant to disrupt if a reckoning does not take place.
Disclaimer: information contained herein is provided without considering your personal circumstances, therefore should not be construed as financial advice, investment recommendation or an offer of, or solicitation for, any transactions in cryptocurrencies.