FUD#2 Rise of the Orwell: Digital Currency Ushers in the Dystopian Future

FUD stands for Fear, Uncertainty, Doubt. In this series of blog posts titled FUD we will discuss Feasible yet Unlikely Destinations in blockchain.

I have borrowed the name of the dystopian cryptocurrency “The Orwell” from Erik Townsend and his podcast ‘Macrovoices’ which, while not typically about cryptocurrency, I highly recommend.

A New Hope: The Promise of Decentralized Money
The global financial crisis of 2008 caused a worldwide collapse of trust in legacy financial systems and governments. Mega banks,financial institutions, and government regulators participated in widespread fraud and market manipulation in Sub-Prime Mortgages which initially netted these companies millions of dollars.

When the pyramid scheme collapsed, world governments and central banks bailed out the "Too Big to Fail" organizations by printing more money and loaning it to the banks. This “Quantitative Easing” rescued the legacy financial institutions and "stuck the bill" (loan) to the US taxpayer.

How did Quantitative Easing hurt the average citizen? The answer is two-fold.

First, money created by quantitative easing was used by the US government to buy around $2 trillion of bad corporate debt. That is $2 trillion dollars of debt that will be passed directly to the US taxpayer.

Second, everytime fiat currency is minted it loses value. In part this is because there is no asset backing the value of fiat currency, it is only backed by the promise that the government will accept it as currency. Since the currency cannot be traded for a fixed amount of gold (which would make it a gold backed currency) or other peg, any increase in the supply of a currency causes a decrease in the currency’s relative value. In other words, printing more money makes it less scarce and therefore less valuable.

Social movements like Occupy Wall Street arose due to the consequences of the 2008 Financial Collapse and subsequent Great Recession. These movements protested the government bailouts of large corporations and subsequent deflation of fiat currencies, seeing them as Orwellian and plutocratic. In opposition to this abuse of power favoring the rich, Satoshi Nakamoto created Bitcoin.

Bitcoin and other digital currencies promise Decentralized, Democratic money free from government control. Should another financial collapse happen no one can mint more Bitcoin and thus deflate its value. Bitcoin, the first cryptocurrency, is rightfully nicknamed “Digital Gold.” Let’s discuss why.

Gold is valuable because of its scarcity. It is difficult to find and cannot easily be created like paper, crops, or automobiles. The amount of gold on earth today is the same amount there was 10,000 years ago. Gold is also divisible, portable, durable, uniform, and most importantly, widely accepted as valuable. reference

Many cryptocurrencies, Bitcoin especially, share and improve upon these properties. Bitcoin is scarce, there will never exist more than 21 million Bitcoin making it finite, just like gold. Bitcoin is durable, uniform, and divisible like gold as well. Most importantly though, Bitcoin is far more functional than gold.

Using gold as a currency is incredibly difficult due to transportation costs: it is heavy and requires constant supervision to prevent theft. Gold can also be diluted with other, less valuable materials in a way that is hard to detect. It is also near impossible to buy or sell goods in exchange for gold since gold is not easily divisible and there is no market demand to do so. Meanwhile Bitcoin is increasingly being adopted as a form of payment, is highly “portable,” and cannot be stolen unless the user gives away their private key.

Cryptocurrency’s promise is freedom from financial tyranny. Governments and central banks will continue to push capital controls at the expense of the average citizen. Cryptocurrency, with its anti-sovereignty properties, acts as a store of value free from government intrusion and fat cat monetary policy.

Big Brother Strikes Back: The Rise of the Orwell
Governments are waking up to the anti-sovereignty properties of cryptocurrency. The more democratic societies seem to laud the democratization of money and are making sensible regulations to protect from fraud and theft. More Orwellian governments, however, are levying heavy handed and draconian legislation or even outright bans on cryptocurrencies.

Many people expect governments will soon produce their own state-backed cryptocurrency. Countries like China, India, and Estonia have actively broadcast the idea and the former two appear to already be working on the project.Welcome to the true Orwellian future brought about by the creation of ‘The Orwell,’ the soon-to-be created state backed cryptocurrency allowing the government to track every transaction made on the network.

Authoritarian governments want to monitor every single transaction within their country. Typical reasons they give are combating terrorism, prosecuting tax dodgers, fighting money laundering, and crushing mafias. Unfortunately governments routinely abuse their authority in order to silence dissent and maintain their position of power.

These governments hate cash and private transactions because they are secret. In the near future these governments will mint their own Orwell coin, a state backed digital currency giving the government financial omnipotence and omniscience.

With the Orwell no transaction will be free from the government’s view. The government will know the balance of every wallet as well as the owner of that wallet. At their will, the government will be able to freeze wallets, rescind funds, and perhaps even reverse transactions with ease.

This is because unlike Bitcoin which is designed to be trustless, decentralized, and democratically verified, The Orwell will be the exact opposite. It will be verified on state run nodes with transactions broadcast to state run servers. The Orwell will be the most centralized form of money to ever exist.

A recent article in the Wall Street Journal article verifies these concerns quoting a Chinese authority saying a goal of China’s monetary regulation is to ensure that “the source and destination of every piece of money can be tracked.” Chilling.

Shadows of the Empire: How To Implement The Orwell
So how would Big Brother go about creating The Orwell?

First it would have to develop an infrastructure allowing all citizens access to The Orwell blockchain. This would likely require state wide internet access and distribution of internet ready devices to transact with.

Second it would ban all forms of currency other than the Orwell. We would see enacted the criminalization (with hefty penalties) of holding or using paper money, non-Orwellian cryptocurrency, or gold. Any business found transacting in an unauthorized way would be crushed and any person using cash, jailed.

The government would broadcast high profile punishments to discourage anyone from trying to dissent. Internet traffic would be heavily monitored to restrict the use of unauthorized currencies.

Financial institutions would be forced to convert all reserves into Orwell’s and prevent customers from excessive transfers of foreign currencies. It would be a monumental task that only the largest, wealthiest, most technologically capable and nationalistic country could achieve. Can it possibly succeed? This is uncertain but one thing does seem certain, The Orwell is coming.

The Crypto community is currently quite idealistic. “But why would anyone accept this? There would be a revolt!” they say. It thinks the rest of the world is like them in their distrust of centralization, belief in the human right of privacy, and other general libertarian, Cypherpunk views.

Regrettably much of the world does not share this view. A large amount of people simply trust the government to protect them and another large group of people are too lazy to care. Think of the throng of people who say “If you’re doing nothing wrong you have nothing to hide” in response to recent government spying. It is entirely possible the Orwell could exist with minimal dissent from the populace.

Other strategies to quash cryptocurrencies, especially Bitcoin, would be to seize all mining operations in the country. This would be especially poignant in China which currently dominates Bitcoin hashing power. Government seizure of all mining operations could even be used to 51% attack the system resulting catastrophe for the still young cryptocurrency. See our previous FUD article.

Return of the Cypherpunk
The hurdles to financial dominance are high with numerous resistance points. Interestingly businesses would undoubtedly voice the largest protest to The Orwell. There are good reasons for business to want privacy, not just nefarious ones.

If the government knew the balance of every business it could use this information to unfairly negotiate business deals. Also, some businesses may wish to conduct operations or support causes that clash with the desires of the government (such as supporting certain human rights issues). In an Orwellian system these businesses would risk account freezes, seizure of funds, and reversal of transactions. Businesses would either have to completely conform to government ideals or leave the country.

Blocking non-Orwell based transactions would also prove extremely difficult, if not impossible. Recently plans were announced to broadcast Bitcoin worldwide via satellite. Should continuous, worldwide access to the Bitcoin blockchain via satellite come to fruition it may well prove impossible to stop.

Finally, it’s a tale as old as time that anything a government tries to ban ultimately fails. Societies evolve and while sometimes they step backwards, they typically move forward. Remember, there were times when these things were illegal: women voting, blacks voting, interracial marriage, slaves running away from their owners, gay marriage, alcohol, owning gold, sedition, and so on.

It’s unclear what the future holds for digital cash but one thing is certain, it’s about to get very interesting.

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