A society’s political freedom is intimately linked to its economic freedom. Whether it’s supporting a political party, attending a protest rally, or boycotting a private company, these expressions of political will depend on our ability to make decisions about our money. In a very real sense, limiting people’s economic freedom is tantamount to limiting their political freedom. As Ayn Rand put it: “Political freedom cannot exist without economic freedom.”
As governments around the globe race towards developing their own cryptocurrencies, it could give them unprecedented control over how we spend our money. We must all be wary of the potential this may hold for our civil liberties.
Digital money and the double-spend problem
An underappreciated feature of physical money (the notes and coins in your wallet) is that its owner can only spend it once. Whenever you use cash, the person receiving the fruits of your labour can be certain of one thing: once you hand over your cash, you can’t spend it elsewhere. This may sound blindingly obvious, but it’s a challenge that has flummoxed digital money since the opening of the very first online bank account.
As anybody who’s ever used a computer knows, making copies in the digital realm — whether pictures, videos, music or documents — is really easy. Until recently, digital money was no exception. Imagine if we could store digital money on our computers and send it directly to the person we are buying from. Our digital merchant faces a problem because they would not know whether they’re being paid with the original or just a copy. If it were only a copy, we would be free to spend that same digital money again and again. This is the “double-spend” problem.
To solve this, financial intermediaries (like banks) act as referees to stop double-spend from happening. They do this by subtracting the value of your credit card payment or online purchase from your bank balance (that is, your digital money). In this way, banks guarantee that money cannot be spent twice. With the development of cryptocurrencies, all that changed.
The rise of cryptocurrencies
On 31 October 2008, Satoshi Nakamoto (a pseudonym) published a nine-page document that would change money as we know it. In it, Nakamoto illustrated how a network of home computers owned by everyday people — connected through the internet and running very complicated mathematical functions — could be used to create a foolproof program that would solve the double-spend problem. For the first time, it would be possible to send digital money directly from one person to another safely and securely without needing financial intermediaries. Less than a year later the first public cryptocurrency, Bitcoin, was born and, with it, the dawn of a brave new world.
The post-crypto world promised a democratised financial system that would be cheap, instant and inclusive. There were also legitimate concerns that had to be considered. Allowing people to transact directly with one another meant that these interactions would happen out of sight of the watchful eyes of banks and the governments that regulate them. Regulators would be blind to attempts at tax evasion, money-laundering, fraud and a host of other illicit activities.
To make matters worse, governments would be powerless to stop any of these crypto transactions from taking place, an ironic testament to the inherent security built into cryptocurrencies like Bitcoin. This cryptocurrency feature was on full display recently when Russians poured their roubles into Bitcoin in an attempt to evade Western financial sanctions imposed on Russia after its invasion of Ukraine.
Not surprisingly, governments across the globe have taken steps to curtail the use of cryptocurrencies. By the end of 2021, a total of 51 countries had implemented a ban on the use of public cryptocurrencies. Instead, governments are working towards developing their own local cryptocurrencies. According to the Atlantic Council, a US-based think tank, nine countries have already launched their own cryptocurrencies. An additional 71 countries (including South Africa) are in the process of developing their own. Although a government-owned cryptocurrency appears to offer all the appeal of a public cryptocurrency backed by the oversight power of the state, it might also lead to a more dystopian future owing to a crucial difference between cryptocurrency and all other forms of money: its ability to be programmed.
Programming the future
Each cryptocurrency is a computer program that has been designed for a specific task. Some, like Bitcoin, are rudimentary and facilitate only the transfer of money (in the form of Bitcoins). Others, like Ethereum, are more complex and can accommodate a wider range of applications, like tracking the origin of diamonds or property ownership. The features of a cryptocurrency are what its programmer makes of it, and it’s here the devil lies.
A government could design its cryptocurrency with whatever features it deems necessary. It would allow states to control what money should be spent on, where it could be spent, when or even by whom. As noted by Tom Mutton, a director at the central bank of the UK, “There could be some socially beneficial outcomes from that, preventing activity which is seen to be socially harmful in some way.” In benevolent hands, this could be a powerful tool for good. Yet, as the author, Neil Gaiman, reminds us, “In the wrong hands, all tools are weapons.”
What might these wrong hands look like, and what might they do? Imagine a government faced with declining political support, a public purse depleted by years of corruption, and rising social tensions because of poor service delivery and persistent inequality. Is it impossible to imagine such a government abusing this power for politically expedient ends? Would it be tempted to block payments to its political rivals or pesky news organisations? Could it resist the urge to nationalise wealth to shore up ailing state coffers and curry favour with populist movements? Would it hesitate to quell any uprising against its abuses by locking protestors out of their money? This may sound like the ramblings of a conspiracy theorist. However, in a world in which governments can program money, this may soon be possible.
The line between good and evil
Whenever we create instruments of power, we assume that those we entrust these powers to have benign intentions. The problem with intentions is that they can never be known with certainty. Reflecting on his suffering in the Soviet gulags, Aleksandr Solzhenitsyn cautions us that the line separating good and evil passes not through states, classes or political parties, “but right through every human heart — and through all human hearts”. He continues, “This line shifts. Inside us, it oscillates with the years. And even within hearts overwhelmed by evil, one small bridgehead of good is retained. And even in the best of all hearts, there remains … an un-uprooted small corner of evil.”
Let’s not gamble our political freedoms on the naive hope that our leaders are the exception.