It turns out that cryptocurrency does not, in fact, guarantee anonymity. Users' digital identities can, with some effort, be connected to their real identities. Furthermore, in a final irony, the revolution that started Bitcoin could end up destroying whatever vestiges of privacy remain in modern financial markets. As technology becomes more pervasive, it threatens to give large corporations and the government better insight into our financial lives and more control over how we spend our money.
Bitcoin's reputation as a tool for shady business is perhaps overblown. While it has played a role in allowing hackers to obtain payment money for ransomware attacks, this requires a higher level of technical sophistication than most common criminals. The use of Bitcoin in transactions that once fueled the "Dark Web" where illicit and undesirable trade takes place has been drastically reduced. The Russian government can barely count on bitcoin to evade sanctions imposed for its war in ukraine โ after all, international transaction payments still need to be settled in real money, like dollars or euros.
Still, the ability to conduct secure and somewhat private financial transactions helps explain the growing appeal of cryptocurrencies. That is largely thanks to its innovative blockchain technology. A blockchain is, in effect, a digital ledger of transactions or property records. The bitcoin block chain contains a publicly visible record of all bitcoin transactions: the dates and amounts, as well as the digital, but not real, identities of the transacting parties.
These e-books are kept on a large number of computers around the world and are synced in real time, making them tamper-proof and secure. Any attempt to mess with a ledger on one or even a few computers would be quickly detected and rejected by the rest of the network. This technology could soon be adapted for a wide range of more conventional uses, including buying a home and keeping digital records of public records. The blockchain allows such transactions to be executed securely without the involvement of intermediaries such as settlement attorneys or bankers.
As a result, many large corporations are trying to cash in, some of which have dubious records when it comes to protecting personal information. Meta, formerly Facebook, had plans to issue its own cryptocurrency, ostensibly to make the world a better place by giving everyone easy access to a low-cost payment system. However, under pressure from government regulators who were suspicious of his intentions, Meta was forced to close the project. in the meantime Amazon and PayPal They are reportedly considering developing cryptocurrencies. (Amazon founder Jeff Bezos owns The Washington Post.) Imagine these companies, already pervading our lives, now with a window into every aspect of our social and business existence.
As various forms of crypto enter the mainstream, governments are taking notice. President Biden's Recent executive order on digital assets attempts to control the Wild West aspects of this technology by bringing it under regulatory oversight.
The offshoots of bitcoin technology are also setting the stage for central banks to issue their own digital currencies. The central banks of China, Japan and Sweden They are already experimenting with this. The US Federal Reserve has been slower, but is now considering options for a digital dollar. That would provide a free and convenient digital payment system for the masses, even those without a bank account or credit card. Tax evasion and counterfeiting would become more difficult, and the use of currency for money laundering, terrorist financing, and other nefarious activities would be reduced.
But these advantages have conditions. Electronic transactions leave a digital trail that cannot be easily erased. Through the use of cryptographic tools, the identities of parties transacting using electronic money can be masked, but a central bank would always have the option of unraveling those identities if it suspected that their money was being used for illicit purposes. Even with privacy protections in place, transactions using a central bank's digital currency would ultimately be auditable and traceable.
And deeper changes in the nature of money could be underway. Electronic currency offers possibilities that cash cannot. For example, in an economic crisis, a government could dole out digital money with expiration dates, ensuring that it is spent rather than saved and thus stimulates the economy. This could make economic policy more effective, but would take some key decisions out of the hands of households in favor of government-led outcomes.
It is now technologically feasible for a central bank to offer digital currency accounts similar to bank accounts that would not pay interest or charge fees, but would give everyone in an economy easy access to a digital payment system. The downside is that this could give central banks and ultimately governments greater visibility into our financial transactions.
These risks could be mitigated through careful design. For example, the Federal Reserve could manage the payment infrastructure for its digital currency and let banks and other private companies provide payment services to customers and businesses. This could preserve some confidentiality in transactions, since the central bank would have access to the identities of the transacting parties only when it suspects a crime. But it is not hard to imagine governments and central banks playing much more direct and intrusive roles in managing payments, allocating credit, and engineering specific outcomes.
Thats not all. The digital โsmart moneyโ that replaces cash could become an instrument of government control, with authoritarian regimes using it as a surveillance tool and even ostensibly benevolent governments possibly using it to further social goals: preventing its use to buy ammunition, abortion services or pornography, for example. This perspective may seem dystopian, except that it has become clear that even in an open democracy like the United States, with many barriers against corporate and government overreach, longstanding norms of privacy and confidentiality are surprisingly fragile. There are few regulations governing the collection and use of our data that Meta sucks from its Facebook, Instagram, and WhatsApp platforms, for example (just try restricting WhatsApp's access to the full set of contacts on your phone).
Bitcoin's blockchain technology will help create better digital payment systems, automating a wide range of transactions and democratizing finance. But in an ironic twist, the true (and potentially dark) legacy of bitcoin could be the erosion of confidentiality, the wider prevalence of government-run payment systems, and increased intrusion by big business and the government into financial systems, and in operation. of the society.
