On bitcoins and privacy.

I’ve never purchased bitcoins.  Which might seem odd.  The motivation for bitcoins dovetails with several of my political beliefs.  But not all.

For instance, I think most chemicals should be legalized.  The U.S. prescription drug system, because it inflates drug prices, arguably makes people less healthy.  Not everyone can afford medication.  Given that the purpose of this system is to keep people healthy — ensuring that those taking prescription drugs are guided by a trained professional — if it’s not working, it ought to be scrapped.

There is, of course, a solid motivation for requiring a prescription for opiates.  Many people have troubles with impulse control.  And for antibiotics: their use, especially incorrect use, makes them work less well for everyone else in the future.  But most of our other restrictions seem unnecessary.  In the realm of recreational drugs, it seems pretty clear that psilocybin mushrooms, and even marijuana, would result in far less harm to non-users than alcohol does.

At the same time, I believe in gun control laws.  Which might seem a little strange — both drug prohibitions and gun control are instances of the government declaring certain possessions to be illegal — except that it’s much easier to hurt somebody else with a gun than a pill.  To my mind, only laws against compounds like GHB — which does have legitimate uses, but is often weaponized against others — are equivalent to gun restrictions.

On the whole, though, I am in favor of a currency that enables drug purchases.  Especially if an inability to regulate consumption caused our government to repeal some of its current slew of minority-cudgeling prohibitions.  It’s a bit tricky, though, to enable one form of civil liberties (buying drugs) from others (buying guns & hiring hit men).

But the main reason why I never purchased bitcoins is that I couldn’t understand them.  I learned enough to be able to describe roughly how I thought they worked, but, based on what other people were doing, it seemed pretty clear that either I or other people were suffering from some fundamental misunderstandings.  Because my education included only the barest smattering of computer science, I assumed it was me who was mistaken.

Well, maybe not.

The first confusing aspect of bitcoins is their meteoric appreciation.  A significant portion of this rise was speculative, the way the price of Beanie Babies skyrocketed despite a lack of intrinsic value.  If you think someone will buy an object from you for twenty dollars next week, why not pay fifteen for it today?  If that person thinks another sucker down the line will pay thirty in two weeks, then of course they’ll pay twenty next week!

The problem being, of course, that eventually the suckers have all the Beanie Babies they need.  Or bitcoins.  Or tulips.  What have you.

There is a sensible reason for appreciation.  The current (and eventual) quantity of bitcoins is fixed, which means that, if the currency is working well and many people would like to use it, prices have to become smaller.  If prices (in bitcoins) drop by half, then the supply of bitcoins doubles!  More people can participate in the market.  Of course, since the real-world prices of Canadian medication, or LSD, or murders, or fake i.d.s, will be unchanged, then the conversion rate between bitcoins and dollars has to double.

Because bitcoin transactions can use fractional amounts of money (down to the nearest millionth), then, if the currency survives, I’d expect this sort of change to happen eventually.  This deflation interacts strangely with existing holdings (people who bought in early are suddenly much wealthier), so I’d expect these changes to happen very slowly.  Not to fuel the orders-of-magnitude appreciation we’ve seen.

The other aspect of bitcoins that always confused me is (was?) their supposed anonymity.  Your name is not attached to the account.  But, your ownership is preserved.  I’m out of my depth here, but the way I think the system works is, everyone involved in the system maintains a record of every transaction, and ownership is determined by majority vote.  If most computers involved claim that XXX paid YYY two bitcoins for a service, then those two bitcoins are now owned by YYY.

This transaction log is referred to as a “blockchain.”  Here’s a visual:

Which puzzled me.  I simply could not understand how it would be possible to maintain both ownership rights of an ethereal entity like a bitcoin, something you can never see or touch or smell, and also make the system anonymous.  The “blockchains” log everything you’ve ever done with your currency!  To me, that sounded far less anonymous than any physical currency.

So it was with a sense of grim satisfaction that I read John Bohannon’s recent Science news article, “Why criminals can’t hide behind Bitcoin.”  Because, indeed, it is possible to map bitcoin ownership to specific IP addresses (this is akin to a mailing address for any device connected to the internet — not quite the same as knowing a person’s name, but if the feds know a criminal lives at Harbor Hill in East Hills, NY, they’re close to closing in).

Part of the explanation for this seems to be that the people who know about any transaction first are those involved in the transaction.  And part seems to be that, as with any puzzle, solving one section — identifying a few initial addresses — makes it easier to untangle the rest.

If you’re looking for absolute secrecy, bitcoins might not be for you.

Of course, plenty of people are working on other supposedly secretive forms of computer currency.  A developer for the new bitcoin replacement “ShadowCash” (software dudes are not always known for beautiful language, although I’ll admit that “java” is fun to say) is quoted in Bohannon’s article: “I don’t feel people have the right to know, unless disclosed, how much cash is in my wallet, just like I don’t feel anyone should know what conversations I’m having with anyone.”

Now, I’m gung-ho for (nonviolent) civil liberties, but obviously I disagree.  Wealth is not like speech — it is a semi-limited resource that comes from others.  Furthermore, the two fundamental functions of modern governance are protecting property rights (your ownership of a house, for instance, or the money in your wallet) and civil liberties (your getting to be alive).

If I decide to go on the warpath and conquer your home, the government can’t very well intervene unless they have a record that this home is in fact yours and not mine.  Which raises sundry other questions — what chain of events through history led to it being yours? — but unless all these cryptocurrency advocates are as childishly violent as Mr. Ulbricht (creating a platform for U.S. citizens to purchase imported pharmaceuticals seems fine.  Hiring hit men is not), methinks they have a fundamental misunderstanding as to the way ownership works.