Let me start by saying that Bitcoin is silly, and I think it’s more of a speculative asset than a currency due to built-in deflationary pressure. Okay, with that out of the way…
Andrea Peterson has a post up at Washington Post’s “The Switch”, arguing that Bitcoin isn’t a big deal because it just replicates the anonymity of cash. Andrea Peterson is completely wrong here – Bitcoin and other digital currencies are a big deal precisely because they just replicate the anonymity of cash. She notes that it is marginally more convenient than cash because transfers are speedy and reliable. Economists call these inconveniences of cash “transaction costs”. The potential for digital currencies to be a very huge deal is because they are anonymous and hard-to-trace, like cash, but with none of the huge transaction costs. To see why this matters, let’s step into the world of Breaking Bad.
Much of the entire dramatic tension of the show revolved around the transaction costs of cash. Walter White made meth and sold it in very large quantities for simply staggering sums of money – that he couldn’t use. Cash is worthless unless it can be effectively laundered – transacting in large amounts of cash is an excellent way to get the FBI to pay you a visit. So while he can launder enough money through his car wash to pay his bills, it piles up quickly – one needs an enormous, mostly-cash business in order to launder the millions of money he is hauling in. Like, for example, a fried-chicken chain. In real life, casinos are a favored venue. So Walter ends up with a gigantic pile of money, which he can’t spend, use or transfer. The end of the series is driven by his increasingly desperate drive to figure out a way to get this money to his children after he’s gone.
It’s easy to imagine how his story would be different with a cashlike digital currency. Simply convert the cash into Bitcoin (or what have you) and it’s laundered right there. It can then be stashed away in his children’s name anonymously, and when they come into their inheritance then they can spend it anonymously or figure out some way to launder it further into clean American digital dollars. Most of the drama of the last season wouldn’t have needed to happen!
The fact is that cashlike digital currencies would be a huge boon to criminals and tax cheats and a huge headache for governments across the world. On the upside, it’d also be a gigantic pain in the butt to authoritarian states everywhere. But it’s precisely that “cashlike” nature that would make them immensely important – not a reason why they should be shrugged aside.
Today the Washington Post ran a story that should (but won’t) finally make government spying a household issue. Under the name PRISM, the NSA has had a direct line into the servers of leading internet companies – Google, Facebook, Skype, and others. For years, they have been able to tap into virtually all the information that these companies have collected about people, using cross-connections and logins to track people across the entire internet. The Post is somewhat unclear on whether the actual content is being collected, or metadata – for example, an email’s timestamp and destination is metadata, whereas the actual subject line and text are the content itself.
This is not only unconstitutional, but very obviously and blatantly unconstitutional. The Fourth Amendment to the US Constitution reads in full as such:
The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.
Emails and Facebook data very clearly count as “papers and effects”, reading their data without their consent is obviously a “search”, and pulling indiscriminately from all web traffic is an extremely unreasonable search. Somehow I doubt that the NSA got warrants either. Their justification is that certain statistical signifiers are used to indicate at least 51% certainty that a target isn’t American – though of course even when they’re spying on foreigners they end up pulling tons of data on Americans as well (e.g., emails sent from Americans to the targets).
To state the obvious: this is illegal behavior from the NSA and horrifyingly shameful behavior from Silicon Valley. With all their self-righteous talk of privacy and user protection, this is craven and disgusting behavior from companies that aspire to be trusted partners for all Americans. As for the NSA, those responsible should be fired and preferably jailed.
On the bright side, it’s kind of funny that it turns out all the conspiracy theories about the NSA have turned out to be correct. For many years, kooky nuts have insisted that the NSA has been watching every electronic communication in America. It generally focuses on the ECHELON system (the NSA sure seems to be fond of all-caps names, incidentally) but it turned out to be called PRISM. Responsible adults generally respond by pointing out that such a vast conspiracy would be impossible to keep secret, and furthermore would be so obviously illegal that the NSA’s lawyers would steer clear. Well, the responsible adults were wrong and the kooks were right.