,

Bitcoin: On Behalf of the Future

The Review of Religions launches a brand new series from this edition called ‘current affairs’, discussing contemporary secular issues affecting the world today. In our first in the series, we look at how the Internet is undergoing rapid change through digital currencies that may profoundly affect the way we make our everyday financial transactions.

© Dudarev Mikhail | shutterstock.com
© Dudarev Mikhail | shutterstock.com

The Internet is undergoing a rapid ‘decentralisation’ movement, brought about by the Internet community to discourage control and unchecked power, being exercised online by big commercial entities. One such force in the decentralisation movement is Bitcoin, a software-run ‘cryptocurrency’ that runs on a peer-to-peer basis, free from centralised control in the form of interest, taxes, charges and account freezes. Although illustrative of some of the legal problems surrounding decentralisation online, Bitcoin is also a sign that the decentralisation movement is strengthening online. This article aims to outline the differences between centralisation and peer-to-peer decentralisation online, using Bitcoin as an illustration of the impact that the decentralisation movement online is having.

Centralisation and Decentralisation Online

The physical world is an unmistakably centralised one. From governments to the police, mobile telephone companies and postal services, our activities within a sphere are regulated, controlled and funnelled. Banks control the flow of money, gas companies control the flow of energy and traffic lights control the flow of traffic. In many ways this is a positive. It represents progress; no longer do people need to fend for their survival, gathering their own food, making their own clothes or building their own shelters. By delegating an individual’s needs to central organisations, people were able to develop and flourish. Centralisation has been at the heart of human endeavours since time immemorial, and this is especially the case with regard to our networks of communication. Post is sent through a postal provider, and telephone calls are sent through a centralised communications network (readers may remember when all calls were sent to a centralised ‘operator’, who would direct the calls to their destination).

The Internet, at its inception, did not function as a centralised communications network, but as an open, decentralised one, developed mainly for the free dissemination of ideas. In his seminal Declaration of the Independence of Cyberspace, John Perry Barlow famously wrote to the governments of the world, “On behalf of the future, I ask you of the past to leave us alone… You are not welcome among us. You have no sovereignty where we gather”.[1] Barlow’s 1996 vision, however, was to be short-lived. As the Internet developed, centralisation began to creep into the once utopic view of a decentralised network of communications.

In 2015, the modern Internet is almost totally unrepresentative of the self-governing independence that Barlow envisioned. It relies heavily on the centralised institutions such as Google, Facebook and Amazon to the same extent that in the physical world we rely on the postman to deliver our mail. Life online without these centralised hubs seems impossible. In fact, in 2012 Google experienced downtime for a few hours, causing global web traffic to plummet by around forty per cent,[2] showing just how central the website is to the operation of the Internet.

There do exist, however, decentralised systems within the Internet, most notably those that are peer-to-peer (network systems that run from computer to computer without going through a centralised body) such as file sharing on BitTorrent clients and currencies such as Bitcoin and Dogecoin. Peer-to-peer systems work by sharing the processing tasks usually reserved for the central institution amongst all users of the system. The systems are therefore able to operate without any centralised control.

Of course, this comes with its advantages and corollary disadvantages. One advantage is that network outages have little impact in the peer-to-peer world. If one peer goes offline, the remainder of the peers can delegate the processing tasks of the missing peer amongst themselves, creating little or no impact to the overall processing task of any other peers, depending on the number of peers within the system. However, the peer-to-peer system makes the enforcement of law (law being an essentially centralised form of control) exceptionally difficult. In the physical world, law enforcement agencies can focus on the body from which the illegal activity starts, in order to stop the activity. To use the example of the supply of illegal drugs; if the police arrest a drug user, they will not be successful in stopping the supply, as they have only stopped an end-user of the supply chain. If, however, they arrest the manufacturer or farmer, the supply of drugs will end. This is because in a centralised world, the supply chain functions as a pyramid, with one drug manufacturer selling to a number of suppliers, who have a network of dealers, that each have a number of customers.

In the peer-to-peer world, however, the network functions as a web, where every manufacturer is also a consumer. Law enforcement agencies therefore have to effectively control every user in order to control every manufacturer. In a decentralised Internet, every end user is also a manufacturer, just as ancestral man was the producer of his own food and shelter as well as its end user. This is the reason that many peer-to-peer networks have been able to effectively operate as hubs of illegal activity, such as file sharing of movies and music protected by copyright. In the decentralised peer-to-peer model, enforcement is almost impossible. This has led to great challenges being posed to the centralised institutions, not only challenges against their effectiveness, but sometimes, challenges against their very legitimacy.

Bitcoin: Challenging the Legitimacy of Financial Centralisation

© PeshkovaI | shutterstock.com
© PeshkovaI | shutterstock.com

Bitcoin is one of the world’s first cryptocurrencies, an all-digital unit of currency that uses encryption to secure transactions and to control the supply of new units of coins. Like other peer-to-peer networks online, Bitcoin works on an entirely decentralised basis. Without connections to banks or the monetary policy of any country, Bitcoin has exploited the unenforceable nature of the decentralised web to create a currency that cannot be controlled by banks, where accounts cannot be frozen and there is no interest, no account charges, and no overdraft. The currency is digitally encrypted, and therefore transactions require a certain amount of computer processing power to decrypt, to ensure the smooth running of the system. This decryption is done by peers of the system (this is the peer-to-peer aspect of the currency), and is known as mining. Mining is the only way to mint new Bitcoins, and the software (which is entirely open-source and free) contains limits to the number of Bitcoins that can be mined for the foreseeable future, to control supply and demand and ensure stability in the value of Bitcoins. Nobody, including the creator, can create more Bitcoins. An algorithm, rather than a human-run banking authority, controls the supply of the coins.

Bitcoins can be mined by anyone—mining software exists online, for free, to allow people to start using the processing power of their own computers and graphics cards to contribute to the peer-to-peer decryption of coins. It is an entirely open currency accessible by all. As such, Bitcoin’s popularity has skyrocketed since its creation. During the financial crises in Greece and the Mediterranean, the decentralised nature of Bitcoins made them a ripe investment for citizens concerned with the stability of their banks, and whether or not the centralised governmental authorities would freeze their accounts. As of today, the value of a single Bitcoin is measured at over $350USD,[3] and many shops now accept Bitcoin as payment, and many exchanges will change Bitcoins into other currencies.

Despite the cryptocurrency’s marked popularity, and its acceptance as a store of value and method of payment, economists are still refraining to label Bitcoin as a currency to the same level as the Sterling or the US Dollar, for a number of reasons. As a decentralised currency, there is a worry about the security and stability of Bitcoin. Its value has been known to rise and fall dramatically, without either a value ceiling or a floor, which other currencies have due to their parallel value with, for example, the amount of gold owned by a country (also known as the ‘gold standard’). However, Bitcoin has been able to function as a store of value, and many shops and online charitable organisations accept donations and payments in Bitcoins, which can be readily exchanged for domestic currencies.

The new renaissance of decentralisation of the Internet, otherwise known as the ‘redecentralised’ Internet, has grown strong because of a sentiment against the overwhelming control that centralised institutions have over society. For example, the Bitcoin foundation website proudly claims that it can help protect against the “most prevalent frauds like chargebacks or unwanted charges”, frauds perpetrated by the centralised institutions themselves. Increased centralised control over banks and currency has enabled a few to profit from the need of the many. Peer-to-peer currencies such as Bitcoin may not be the answer to that problem, but they certainly pose the question of the legitimacy of those centralised authorities, by providing a store of value that cannot be regulated by one central governmental body. In this sense the digital currency is transformative, and its security and fungibility have enabled it to change the way in which many companies accept payments, without regulation, without large levies or commissions, and without going through a centralised system. John Berry Barlow’s Declaration of Independence for Cyberspace addressed governments “on behalf of the future”. Perhaps that was a future in which the challenges posed by decentralised systems online were finally addressed by our traditional, centralised institutions. Perhaps it was one in which peer-to-peer networks successfully push back against excessive and previously unstoppable governmental control. Perhaps that these futures are ones that, thanks to the decentralisation movement, may soon become a reality.

Mubarak Waseem studied Law at King’s College London, where he graduated with an LL.B in 2014. His interests are in technology, comparative religion, and the intersection between law and theology & ethics.

 

DID YOU KNOW?

  • Over 60,000 online retailers now accept virtual currencies such as Bitcion.
  • In November 2013 the first ever U.S. Congressional hearing on virtual currencies was held.
  • In August 2014 Chancellor
    of United Kingdom George Osbourne announced government measures to explore the potential of online currencies such as Bitcoin.
  • The use of Bitcoin has been linked to illegal activities although growing popularity has seen supporters push for more mainstream acceptance.

 

 

Endnotes

1. John Perry Barlow, “A Declaration of the Independence of Cyberspace,” February 8, 1996. https://projects.eff.org/~barlow/Declaration-Final.html.

2. “Google Outage: Internet Traffic Plunges 40%,” Sky News, accessed December 3, 2014. http://news.sky.com/story/1129847/google-outage-internet-traffic-plunges-40-percent.

3. Value on xe.com, as of 3 Dec 2014, 1XBT = 379.408USD.

 

Add Comment

Click here to post a comment