National Cryptocurrencies – The end of Financial Privacy

National cryptocurrencies are slowly creeping their way into our lives. At present, Venezuela is the only country with a “functioning” national cryptocurrency as legal tender, but this only the beginning of a newly emerging trend. Russia, China, Estonia, Iran, and Turkey are just a few of the countries that have made their intentions of creating a national cryptocurrency public.

There’s no doubt that digitalization of money is inevitable. In fact, about 92% of all the money in the world exist in digital form, and digital payments are slowly replacing cash payments. Countries like Norway, Sweden, and Denmark are already planning to stop using cash altogether.

However, it is one thing to digitize money, but another to issue a national cryptocurrency. What does this newly emerging trend mean for our financial freedom and privacy?

The War We are Living

“Privacy is necessary for an open society in the electronic age. 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 reveal oneself to the world selectively.”
- CYPHERPUNK MANIFESTO
With the arrival of the Internet, the world reached a pivotal point in cultural inter-connectedness. In the 1960s the US Department of Defence funded the development of the ARPANET project – the inception of what we now call the World Wide Web. The first message was sent in 1969 from computer science professor Leonard Kleinrock’s laboratory at UCLA to the second network node at Stanford Research Institute.

During the late 1980s, the first ISP (Internet Service Provider) companies were created and, since then, the Internet hasn’t stopped scaling.

The introduction of the electronic mail, instant messaging, telephone and video calls over the Internet during the mid-90s had an all-embracing impact on the way we communicate and do business. The Internet gave us faster access to information than ever before and provided us with a platform to express ourselves through various blogs, forums, and social networks.

The consequences of this radical change in our lifestyles are many, and not all of them are positive. Internet addiction, coupled with attention span disorders, anxiety, and impairment of real-life relationships are just a number of them. However there’s one problem, above all, that should worry us the most – the end of privacy.



Image credits: Nick Slater

In the late 80s and early 90s cryptographers, concerned with government intrusion into our private lives, started developing ways to anonymize communication over the web by creating widely dispersed computer systems that cannot be shut down.

In 1993 an informal group of activists advocating for the proactive use of cryptography and the widespread use of privacy-enhancing technologies called Cypherpunks released a document known as the Cypherpunk’s manifesto. With it, they cement the core principle of the movement:

“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.”

This point in history can be considered as the beginning of an endless war to establish The Internet as a sovereign territory that exists outside and above the control of all state governments.
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The Internet is our Battleground; Our Minds – the Armaments of War

The Cypherpunk movement dates its origin back to David Chaum’s “Security without Identification: Transaction Systems to Make Big Brother Obsolete.“ Written in 1985, the ideas in this paper had a profound effect on the so-called ”rebel coders“ of the late 80s, and soon after it was published it became the pillar document – the primum movens that triggered an avalanche of anarcho-libertarian ideas in the following period.

The rebel coders acknowledged cryptography as a weapon that can greatly weaken the power of governments and cause sweeping social and political change. In 1992, the Cypherpunks mailing list comprising of many distinguished faces such as Julian Assange, Adam Back, Hal Finney, Nick Szabo, and Satoshi Nakamoto was started, and based on the freely shared ideas of this secretive community, numerous attempts to develop electronic currencies were made.

The first rudimentary weapon forged in the Cypherpunk arsenal was Adam Back’s Hashcash (1997). Adam’s paper is the conceptual predecessor of the PoW consensus algorithm and the first notable attempt to create an anonymous online transacting system.

Fast forward to 2004, Hal Finney published his paper “Reusable Proofs of Work” which borrowed from the principles of Back’s Hashcash. A year later, Nick Szabo’s legendary Bit gold proposal was published, creating the blueprint for the most powerful financial instrument of our era – Bitcoin.

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks“

In 2009, when Satoshi Nakamoto published the Bitcoin whitepaper, it was apparent that the cypherpunk movement directly or indirectly influenced it. Bitcoin was designed with a specific purpose in mind – to exist explicitly outside of any state control. Instead of state governments, Bitcoin is backed by mathematics. And if math is the language of God, then yes – In God we trust.

No longer do we need to trust intermediaries with our financial data. No longer do we need to be extorted by the banks for our freedom to exchange with one another. Bitcoin reinvented money, giving everyone on the planet access to a global, borderless financial system — no questions asked.

Traditional monetary systems have a pyramid structure – money flows from top to bottom, and those closest to the source benefit from this vertical “distribution” the most. Bitcoin aims to disrupt this rigged distribution of wealth by giving everyone a fair chance to participate in the process of creation, distribution, and monitoring of the currency.

The Sovereign’s Backlash

Bitcoin’s zeitgeist is slowly being turned on its head. The weapon we created is being pointed at us. To understand what is happening, first, we need to look at the backbone technology that facilitates Bitcoin transactions, which is commonly referred to as the blockchain.

This term commonly serves to describe a decentralized and immutable database, the contents of which are impossible (or very resistant) to change. Immutability makes the blockchain a perfect financial tool for tracking and maintaining ownership, managing identities, safeguarding transactional data, and many other possible applications.

Blockchains can be public or private, transparent and/or anonymous, centralized or decentralized but, regardless of the type, the blockchain is just a technological tool and, like any other tool, is neither inherently good or evil. The way it’s used, however, can be benevolent or malevolent.

In 2017, arguably the most significant year for crypto, several governments announced their plans to make use of this technology, and the indications are: they plan to use it for precisely the opposite purpose it was initially created for – Surveillance.

It will take years for these plans turn into reality but, as the Governor of People’s Bank of China would say, “the development of digital currencies is inevitable.”

The rise of National Cryptocurrencies



Image credits: Nick Slater

Only nine years after Satoshi published the Bitcoin whitepaper, cryptocurrencies have exploded in popularity. In 2017 Bitcoin was the fifth most-searched word on Google and its demand is growing at an exponential rate.

As of now, there are more than 1500 different crypto tokens on the market; granted, not all of them will survive and make any difference to the world, but many already have and, in time, many others will. Up until recently, governments around the world adopted the “wait-and-see” regulatory approach regarding the stochastic cryptocurrency expansion.

The underlying purpose of this approach is to let a novel phenomenon unfold while paying close attention to the direction it’s taking and the problems it solves or creates.

While the wait-and-see and sandboxing strategies are widely regarded as the most commonsensical regulatory approach to the “problem,” it looks like they are increasingly being abandoned, and a new strategy is taking their place. Russia, Venezuela, Estonia, Denmark, China, Canada, Iran and several other countries have revealed their intention to develop their own national cryptocurrencies — each with their own agenda.

Venezuela, for example, released the Petromoneda in February 2018 as a means of circumventing U.S sanctions and accessing international financing. The Russian national cryptocurrency – the CryptoRuble is set to launch in the middle of 2019, and from what we know, it will act as a legal currency tied to the ruble and, like the Petromoneda, instead of decentralized mining it will be issued, tightly controlled, and monitored by the government.

Like the Russians, the Chinese government is looking to create a national digital currency. The aim? Total control over the money flow in and out of the country. Now, you might be thinking, why is this bad? After all, national cryptocurrencies will further familiarize the general public with cryptos.

They will enable the central banks to issue and distribute money –  disintermediating the commercial banks – and thus lowering the cost of transactions and creating more accessible money services.

In addition, because national cryptocurrencies will utilize blockchain technology, they will decrease the possibility of frauds, counterfeiting and money laundering. Furthermore, the adoption of national cryptocurrencies will increase the speed of international payments – permitting a lot of trades and quicker economic processes. Impressive, isn’t it?

Well… Not really.

The Dark Side of National Digital Currencies

“Cryptocurrencies combine convenience and freedom of cash with the potential of total control of all operations… If the government wants to introduce some control on operations done via crypto on its territory, it does make a lot of sense to issue its own cryptocurrency.”
- ARTEM DUVANOV -DIRECTOR OF MOSCOW EXCHANGE GROUP'S NATIONAL SETTLEMENT DEPOSITORY
The term “national cryptocurrency” is an oxymoron. The colloquial use of the word “cryptocurrency” entails a currency that is digital, decentralized and distributed – nothing alike national cryptocurrencies. In fact, national cryptos, through the use of blockchain technology, grant the government full control over the money flow. Unrestricted access to transactional data written on an immutable ledger is a recipe for disaster.

Are you not Convinced? Let’s Look at the Chinese Social Experiment.

To put things in perspective, we’ll take a step back and examine the slow and steady development of the Chinese totalitarian state.

In 2014, the State Council of China published a document called “Planning Outline for the Construction of a Social Credit System.“ The document, although it went seemingly unnoticed at the time, contains a radical idea that looks like it came straight out of a Black Mirror episode.

Namely, the Chinese government plans to launch a Social Credit System that purposes to assess the overall social integrity of its 1.3 billion residents. By 2020 the System will be mandatory, and the behavior of every single citizen and legal entity will be rated and ranked.

Low-ranking people and legal entities will have restricted access to banks, the Internet, restaurants, social-security benefits, eligibility for a mortgage or a job, and almost any imaginable service provided by the state.

Now, imagine a world where this Social Credit System is complemented by a fully-implemented and fully-adopted national cryptocurrency. Imagine yourself being born in a world where every single transaction you make, from the day you’re born until the day you die is recorded on an immutable ledger.

Every single UTXO recorded on the blockchain contains a hash pointer to previous transactions and, as a result, all of your transactional activity can readily, within minutes (assuming a sufficient tracking system is at place), be traced back to your very first transaction in the system.

You buy a piece of gum – it’s recorded; you buy a porno movie, a house, medication, a gift – it’s recorded. Permanently. You operate a small business or you’re the CEO of a big corporation? All of your operations on the market are now under direct supervision and control from the government.

You made a purchase 15 years ago that’s currently being regarded as unethical? Forget about running for political office. National cryptocurrencies make financial surveillance an integral part of the system — a default modus operandi. The concept of national cryptocurrency makes Orwell’s 1984 sound like a fairy tale.

The Big Brother State Must Never Happen



Image credits: Lloyd Wheeler

“In keeping silent about evil, in burying it so deep within us that no sign of it appears on the surface, we are implanting it, and it will rise up a thousand fold in the future. When we neither punish nor reproach evildoers, we are not simply protecting their trivial old age, we are thereby ripping the foundations of justice from beneath new generations.”
- ALEKSANDR SOLZHENITSYN
Our inability or unwillingness to react to or be aware of threats that arise gradually has cost us dearly in the past, and if you think that the level of privacy erosion that is currently underway in China cannot happen to the western world, take a look at the information Google and Facebook have on you.

When the Cypherpunks started sharing cryptographic knowledge, the NSA and other spy agencies issued warnings and even threatened with legal action if they dare to publish cryptographic research openly. Despite the impediments, the crypto rebels prevailed, and cryptography seized to be the privilege of governments and, instead, it became public good.

Today, we’re probably facing the biggest threat to financial privacy in history. National cryptocurrencies, if realized, will give the Big Brother unprecedented power. The only weapon we have against this attack on our freedoms are decentralized, distributed, open-source, anonymous cryptocurrencies such as Monero, Z-cash, Dash, and others.

We need to bring glory to the sovereign individual and take “money” into our own hands.

Featured image by Nick Slater