J Hickling: Bitcoin in the Crosshairs

One little-talked about aspect of Edward Snowden’s revelations are the implications for Bitcoin and other crypto currencies. Not surprising, perhaps. Aside from a few techies and young, alt-finance types, few people have heard of Bitcoin – let alone the other digital currencies that have sprung into existence in recent years.

For those active in Bitcoin trading though, the worry was obvious enough: as soon as NSA-operative Snowden was identified as the source of the leaks, the Bitcoin price fell sharply. It recovered, but the same price action occurred when the FBI shut down the clandestine online drug marketplace, Silk Road, earlier this month. Bitcoins worth around $3.6 million were seized in this operation, with the price dropping from $140 to around $110 as the news broke.

People with far more IT knowledge than myself will be able to pass informed comment on Bitcoin’s reliance on “SHA-256” – a hash function designed by the NSA and published by America’s National Institute for Standards and Technology. To my admittedly un-techie mind, this link between the currency of choice for anarcho-capitalists and the US national security apparatus is ironic – suggestive that the fortunes of this supposedly anonymous, state-less form of money may be closer tied to the whims of government than many of its fans are willing to admit.

No one knows whether the data crunchers at Fort Meade have a means of controlling Bitcoin – or worse, sabotaging it. Cryptography researcher Matthew Green of Johns Hopkins University sums up the state of play: “if you assume that the NSA did something to SHA-256 – which no outside researcher has detected – what you get is the ability, with credible and detectable action, they would be able to forge transactions. The really scary thing is somebody finds a way to find collisions in SHA-256 really fast without brute-forcing it or using lots of hardware and then they take control of the network.”

Government hostility to crypto currencies is obvious, considering the fundamental importance they attach to their legal tender privileges. Banks too have an incentive to make life difficult for any upstart cheap new payment system, and given the outsized influence they exert in the corridors of power, this shouldn’t be downplayed. As MIT’s Simon Johnson, a former IMF chief economist, pointed out in a recent speech: “There is going to be a big political backlash… The question is whether the people behind these currencies are ready for that and have their own strategy.”

But perhaps the biggest problem crypto currencies face isn’t so much the raw power of the government/central bank/big bank axis to destroy (though that could turn out to be all that matters). Rather it’s one of perceived respectability, and the influence that opponents can bring to bear using the soft power of media.

The Silk Road bust highlighted the link between illegal drugs and Bitcoin. Expect more talk from officials of other criminal activities linked to the virtual currency – the sale of child porn being one of the more disgusting activities detractors seem keen to link the currency to. Unfair this may be, but I think these casual guilt-by-association trickswill taint many people’s idea of what crypto currencies are, and the types of people who use them.

None of this should be taken to mean I am philosophically opposed to crypto currencies. Far from it. I too want to see a more decentralised, free market monetary system, based on sound money and rid of “too big to fail” banks. I just doubt that Bitcoin is the way of achieving this, given the force of political power stacked against it.

I also doubt government’s ability to create; but I certainly respect its power to destroy.

6 comments on “J Hickling: Bitcoin in the Crosshairs

  1. Rocco
    October 15, 2013 at 3:52 pm #

    Very good article, Mr Hickling.

    (Although, I think gold is still the thing for anarchists.)

    • James Hickling
      October 15, 2013 at 10:20 pm #

      Thanks

  2. Ben
    October 16, 2013 at 7:13 am #

    The Silk Road bust highlighted the link between illegal drugs and Bitcoin

    And of course no trade in illegal drugs is undertaken using US dollars, or sterling!

  3. right_writes
    October 16, 2013 at 8:22 am #

    “Government hostility to crypto currencies is obvious, considering the fundamental importance they attach to their legal tender privileges.”

    In a couple of months “the Fed” will be 100 years old, the establishment of this institution preyed on the lazy ignorance of the greater part of our population by stealing OUR MONEY, it then proceeded to magnify government power almost infinitely without anyone, save a few noticing.

    The result of this has been to impoverish real people, their dollar is now worth a couple of cents compared to its value in the early 20th century… It has led to wars, to boom and bust cycles, and some real hardship, so nothing that the NSA, or its equivalent elsewhere can do, surprises me.

    Interestingly the Bank of England did the same to this country a few hundred years earlier…

    Institutions like this, suck the life from a people, initially they lead to international domination and then they gradually become more corrupt and erode everything that we recognise and leave behind the empty vessel, dooming all that sail in her.

  4. right_writes
    October 16, 2013 at 8:40 am #

    NB: In the grand tradition of conspiracy theory 🙂 the video above used to be in two parts on YouTube… I could only find one part on Vimeo, the second part that talks about the establishment of the FED seems to have been majicked out of any usable existence.

  5. Brian Williams
    October 16, 2013 at 10:10 pm #

    Well, I’m rather glad if the whole stinking drugs thing goes down the crapper. I hope they kill Bitcoin dead.

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