Wendy McElroy’s Introduction to “The Satoshi Revolution”

“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” — R. Buckminster Fuller

The revolution of 2009 went unnoticed by most people because it was peaceful, orderly and profoundly technological. In 2009, Satoshi Nakamoto released open source software by which peer-to-peer transfers of digital wealth, called bitcoins, flashed over an immutable and transparent ledger, called the blockchain.

A new model challenged the existing reality and peacefully rendered it obsolete. Instead of toppling a government only to have another rise in its place, the new model rendered all governments irrelevant through a new technology and a private currency unlike anything seen before. Bitcoins move seamlessly through a world without states or borders, obeying only the command of individuals who choose to deal with each other. Immune to currency manipulation and inflation, they do not serve the powerful elites at the expense of average people; it is a people’s currency. Transfers are pseudonymous with substantial privacy provided by encryption algorithms and hash functions. The blockchain is immutable and visible to all which makes it immune to corruption.

In an instant, the world changed forever.

Liberty versus Power

Individuals had the long-missing weapon of self-defense that was necessary to win what the Austrian economist Murray Rothbard (1926-1995) called “the great conflict which is eternally waged between Liberty and Power.” Individuals had a viable private currency that allows them to become their own banks, to self-bank. At last, a path led away from the manipulated fiat and corrupt financial institutions that caused a global and devastating financial crisis just two years before – the global financial crisis of 2007-2008. It was a path to financial autonomy.

In his massive work Conceived in Liberty (Volume 2), Rothbard offered a broader view of the importance of the “liberty of the individual.” It is not only “a great moral good in itself” but also “the necessary condition for the flowering of all the other goods that mankind cherishes: moral virtue, civilization, the arts and sciences, economic prosperity.” Without a private currency and banking system – that is, a system controlled by Liberty and not by Power – human potential itself was hobbled.

Until Bitcoin, however, few prerequisites of liberty received as little attention as the need for a private currency and a private banking system that was accessible to every individual. People have marched and died under banners reading “Freedom,” “Truth” and “Justice.” But no banner has read “private money” even though nothing is so important to liberty.

(Note: Money has three traditional uses; it is a medium of exchange, a store of value and a unit of account. Currency refers to money in circulation as a medium of exchange.)

Economic autonomy is the bedrock of freedom without which the exercise of other rights becomes problematic. Freedom of speech is beside the point to a man who is starving to death. Freedom of association rings hollow to a waitress who has to endure customers’ abuse in order to feed her children. Due process is irrelevant to someone who cannot afford the medicine necessary to live another day. The fundamental need of every human being is to provide for themselves. Freedom follows, as do “moral virtue, civilization, the arts, and sciences.”

The political vision of the individual or the team known as Satoshi Nakamoto flew under the general radar for years. Developed by crypto-anarchists and not backed by gold or governments, no authority took notice because they did not take Bitcoin seriously. They do now. Banks and businesses now eagerly adopt and adapt the blockchain because they recognize its incredible power as a tool. Patents are issued in what was once an entirely open-source community. Traders are arrested for not being licensed. An exchange is raided by the Department of Justice for not filing the required paperwork on American citizens. Governments rush to regulate the currency in an attempt to control not only its profits but also the danger Bitcoin poses to them.

Rothbard observed, “liberty has always been threatened by the encroachments of power, power which seeks to suppress, control, cripple, tax, and exploit the fruits of liberty and production.” Power does so because it has always been threatened by the encroachment of liberty.

Satoshi Nakamoto’s vision of individual freedom through financial autonomy is under assault on several fronts. The criticisms include:

• Cryptocurrencies are merely financial instruments. Calling them weapons of self-defense in a battle between Liberty and Power is anarchist nonsense.
• Only criminals need this depth of financial privacy. Users of unregulated cryptocurrencies are drug dealers, tax evaders, sex traffickers and the like.
• Without regulation, massive fraud is inevitable.

Those are among the ‘sticks’ used to discredit cryptocurrencies; none are valid. The most dangerous attack, however, is the ‘carrot’: the promise of respectability.

The cryptocurrency community wants the blockchain and its currencies to be widely accepted. Some want to expand freedom on an individual-by-individual basis until liberty wins the world. Others believe their holdings and investments will soar in value as governments and institutions become users. And respectability is viewed as the key to increasing value.

Unfortunately, “respectability” is becoming a synonym for “state sanctioned” when the two terms should be viewed as antonyms. Bitcoin was needed precisely because governments and their associated institutions were looting the wealth of the average person through currency manipulation, inflation, obstructive regulation, taxes and other financial sleight-of-hand. They shut people out of prosperity through licensing, patents, artificial credit and investment restrictions, monopolies and other self-serving obstacles. Governments are the problem; they are not the solution and they never will be. They are the Power side of “the great conflict which is eternally waged” for Liberty. State sanction should mean “shame” and not “respectability.”

An added insult is the clear implication that freedom is not respectable, that freedom and respectability are in conflict with each other. This is a false dichotomy. The opposite is true. Nothing is more respectable than the sight of human beings dealing peacefully and honestly with other to mutual advantage. What governments contribute is violence or the threat of it.

The stakes are high for both Liberty and Power. Bitcoin offers individuals a chance to privatize their own wealth, which amounts to nothing less than privatizing their own lives. In doing so, Bitcoin announces to governments and financial institutions that they could lose their monopoly on wealth, without which they are impotent.

Power’s attempt to centralize and dominate digital currencies may be doomed to fail because of the technology’s inherent decentralization, but a great deal of harm can be inflicted along the way. The technology cannot be stopped but individuals using it can be imprisoned and ruined. The surest protection against the damage is to champion anew Satoshi Nakamoto’s original vision of Bitcoin. Those who share it will be lucky enough to relive the revolution.

The Bloodless Revolution

It is the quintessential image of political revolution. Starving peasants storm the Bastille because oppression has driven them beyond the limits of human endurance. But what if that image is wrong? Or woefully incomplete? What if the most revolutionary force in the world is not hunger and despair but hope and opportunity?

The phenomenon that captures Satoshi’s vision is called “the revolution of rising expectations.” The term became popular after World War II had destabilized governments across the globe; especially in the Third World, people came to believe that change for the better was possible. The “revolution of rising expectations” refers to a situation in which an increase in prosperity or freedom makes people believe they can create a better life for themselves and for their families. And, so, they demand it.

It is a truth that Power has long known. Downtrodden people obey because they believe there is no other option; no other action is likely to better their lives. Greyness, conformity, and fear empower totalitarian regimes that quash any sparkles of nonconformity or creativity because they express individual choice and cannot be controlled. The same is true of hope. Hopeful people reach out to control their own lives because they glimpse freedom or greater prosperity which are two sides of one coin. This explains an observation made by the nineteenth-century sociologist Alexis de Tocqueville (1805-1859); namely, the French Revolution was strongest in those areas where the standard of living had been steadily improving.

The concept of “rising expectations” may also explain why social revolt often brews in places of opportunity rather than ones of oppression. For example, revolutions flow from privileged university students who believe change is possible and within their grasp. Revolutionary leaders notoriously come from the upper or middle classes and do not share the victimhood of the truly oppressed whom they claim to represent. In fact, the downtrodden often refuse to work for social change. Marx called them the “lumpenproletariat” and scorned this category of society for not understanding its own class interest well enough to rise up.

The main problem with most revolutions is that they end badly. The rebellion starts out or turns violent and is commandeered by forces no less tyrannical than the ones being toppled.

The Satoshi revolution does not run this risk. It is entirely peaceful. Bitcoin does not directly confront governments or corrupt institutions; it sidesteps and obsoletes them. By improving the lives of individuals, Bitcoin is profoundly revolutionary. The mere act of producing goods and services increases freedom because it also produces choices and makes people long to expand them. The Satoshi revolution is one of rising expectations. It is one of hope and opportunity.

What is Satoshi Nakamoto’s vision?

Peer-to-Peer

Bitcoin solved the “trusted third party” problem.

Satoshi Nakamoto’s original white paper, “Bitcoin: A Peer-to-Peer Cash System” (October 2008), explained, “What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”  The proper role of a trusted third party is to enable transactions between two participants by authenticating them and providing other services like escrow.

Trusted third parties present problems. One is inherent. The word “trusted” implies that it is not always possible for the participants to verify if the third party operates on behalf of itself or on behalf of them. If verification were always possible, then the need for trust would not arise.

Trusting another human being with your wealth is a risky business even if you know the other person well. When the third party is a huge impersonal institution, such as a government or a bank, the risk soars. Institutions function according to their own self-interest and preservation. In the free market, the self-interest of businesses, like Fedex, is to serve their customers in order to avoid losing them to the competition. Government and other monopolies, like the banking system, have no similar constraint because people are forced to deal with them; there is no real competition. If a ‘customer’ needs a bank account or a credit card, he is trapped into accepting terms of service that benefit the monopoly, not him.

Agents of the third party do not need to be openly dishonest or vicious because their intentions do not matter. Politicians, civil servants, and bankers may truly believe they provide a valuable service that promotes the public good. They may smile pleasantly and attempt to be helpful. This does not influence the content of what they produce. The situation is akin to a man who works at a tuna cannery and announces one day that he intends to make candy bars instead. As long as he follows the cannery’s rules and uses its machinery, he will produce a can of tuna and not a chocolate bar. As long as monopolies follow their own rules, the resulting product will deny freedom and fairness to their ‘customers’.

The intentions are rarely honorable, however. Trusted third-party monopolies are notoriously corrupt and avaricious or else they would not become monopolies that kill choice and competition. And, yet, how can people function in commerce and international finance without an intermediary?

Satoshi Nakamoto solved the problem with simple elegance. Bitcoin allows individuals to deal directly with each other on a peer-to-peer basis that requires no third party; the transfers cannot be arbitrarily reversed and so the two parties need not trust or know each other. Bitcoin is a “trustless” currency in the best sense of that word because trust becomes irrelevant. Since everyone can maintain their own wallets, the need to use a ‘reliable’ storage facility (that is, a bank) is also eliminated. Each user becomes a self-banker with wallets being secured by private keys that prevent prying eyes and prying fingers.

Decentralization

Economists scrutinize the characteristics that constitute a good currency such as widespread acceptance, durability, and fungibility. But the most important characteristic is often ignored; namely, who controls it? Who decides what is a valid currency and the rules by which it circulates? On the extremes, there are two alternatives. The currency is under the centralized control of an authority or it is under the decentralized control of the individual.

In a primitive society where shells are the medium of exchange, the matter would probably be determined by the people trading or by a general consensus. The overall dynamic may resemble conventional centralization because a large number of people would act similarly and abide by the same rules. But it is actually an expression of decentralization because every individual is a decision maker who can withdraw his consent at any time. That’s the defining feature of decentralization; the individual can withdraw consent and switch to another currency without being punished.

Modern society is said to need an entirely different paradigm because its complexity requires coordination. Advanced societies, it is argued, need coerced centralization through which decision-making is monopolized by governments who create the currency, eliminate competition, define how it circulates and use it to control society through practices such as inflation. Scofflaws are severely punished because coerced centralization is based on violence rather than consent.

Besides the immorality of using violence against peaceful individuals, there are at least two other objections to coerced centralization. The first was sketched earlier. Government and allied institutions act in their own self-interest for their own enrichment and preservation, not in the interest of individuals.

The second objection is empirical and utilitarian. In his 1974 Nobel Memorial Lecture “The Pretence of Knowledge”, the classical liberal economist Friedrich Hayek (1899-1992) explained, “The recognition of the insuperable limits to his knowledge ought…to teach the student of society a lesson in humility which should guard him against becoming an accomplice in men’s fatal striving to control society — a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.”

No one has enough information about the millions and millions of daily transactions to effectively centralize or control them. Even if it were possible to do so, human beings and circumstances are unpredictable; what was true yesterday will not be true today. In short, Hayek believed social engineering destroyed rather than created society because it imposed ignorance instead of allowing individuals who know their own self-interest to act accordingly. A healthy society is the result of human action but not of human design.

One argument for centralization is inevitably heard. If every individual pursues his own self-interest, then chaos will ensue. The opposite is true. The English philosopher Herbert Spencer (1820-1903) argued persuasively against the notion that social order was manufactured by coordination through law. Instead, order sprang naturally from “the spontaneous cooperations of men pursuing their private ends.”

Spencer contrasted two forms of order: soldiers marching in military tandem; and, spontaneous order. The latter can resemble chaos. Consider a large department store during the Christmas rush. A person looking down on the scene with a God-like perspective would see people rushing about in different directions and sometimes bumping into each other. He would see shoppers pick up an item only to put it down again; they would unfold clothing only to leave it in a clumsy heap on top of a stack. Store clerks would race back and forth to answer questions or cash people out. The scene appears anarchistic in the bad sense.

But the observer is actually witnessing a sophisticated version of spontaneous order by which all parties peacefully achieve their own goals without co-ordination. The store wants to sell its goods; the employees want to keep their jobs; the customers want gifts. What appears to be the scurrying of an ant hill is the conscious and goal-oriented behavior of individuals who unintentionally benefit each other. Without Christmas shoppers, the store might go bankrupt; the store clerks would lose their jobs; the shoppers would have fewer options. The ‘chaos’ viewed from above is the free-market working to satisfy the needs of people without central planning, without coordination.

Bitcoin is a similar dynamic. Its free-market decentralization depends upon a consensus from which everyone is free to withdraw without punishment. The participants do not require knowledge of transactions other than their own and they come at the blockchain from all directions. What may seem like chaos is a sophisticated form of order that works to everyone’s advantage.

Privacy

Bitcoin’s privacy is imperfect. It provides pseudo-anonymity rather than total anonymity but it does offer a strong layer of protection against abusive governments and other threats. And there are tools to increase this protection.

Privacy and freedom are intimately connected. Imagine a world in which income is not reported; how could taxes be collected or bank accounts frozen if the government doesn’t know what you have or where you have it? If the registration of life events like birth or school attendance were optional, how could the military draft your children or even know they exist? If no permission were required to open a business, how could it be regulated? The machinery of government is paralyzed without information about who you are and what you do. That’s why the government’s appetite for data is voracious. Knowledge is power.

Today, most people’s employment, financial, medical, military, educational, housing, marital, telephone, travel, Internet, automobile and family records are either stored by governments or easily accessed by them. Bitcoin offers a privacy haven based on algorithms. When one wallet sends payment to another, the public-private key is decoded by the public-private key of the recipient. The encryption shields the transaction from meddling or theft.

This is Satoshi Nakamoto’s vision: a peer-to-peer, decentralized and pseudonymous system of commerce and self-banking that enables the individual to avoid the corruption of the current system. It allows individuals to privatize their own lives. Few things short of Gutenberg’s printing press have offered such freedom and opportunity to the individual. This will remain true, however, only if the vision is sustained and not compromised by those who seek respectability through state sanction.

Conclusion

The introduction has focused on “the individual” but Bitcoin’s contribution to civil society is also immense. No one captured the dynamic of how uncoordinated self-interest benefits society better than the French Enlightenment philosopher Francois Marie Arouet de Voltaire (1694-1778).

In his Letters Concerning the English Nation, Voltaire explored why there was extreme religious toleration in the streets of London as compared to the streets of Paris. It was not due to laws or history. British laws strongly favored the Church of England and past persecution had prompted the Pilgrims to embark on a treacherous voyage to the New World. The key difference between England and France, Voltaire concluded, was the relatively free and respected commerce in which people dealt with each other solely for financial self-interest.

He declared, “Go into the Exchange in London, that place more venerable than many a court, and you will see representatives of all the nations assembled there for the profit of mankind. There the Jew, the Mahometan, and the Christian deal with one another as if they were of the same religion and reserve the name of infidel for those who go bankrupt. There the Presbyterian trusts the Anabaptist, and the Church of England man accepts the promise of the Quaker. On leaving these peaceable and free assemblies, some go to the synagogue, others in search of a drink; this man is on the way to be baptized in a great tub in the name of the Father, by the Son, to the Holy Ghost; that man is having the foreskin of his son cut off, and a Hebraic formula mumbled over the child that he himself can make nothing of; these others are going to their church to await the inspiration of God with their hats on; and all are satisfied.”

By enabling the free flow of commerce and wealth, Bitcoin enriches not only individuals but also civil society because financial freedom is both a cornerstone and a building block of tolerance. Some Bitcoin users choose anonymity while others openly advertise their identities. Some are rugged individualists while others are socialists. Differences of ideology, religion, race or lifestyle are irrelevant to the transactions and the continuing development of cryptocurrencies. People come together for their own profit whether they define profit in monetary terms or in terms of independence, freedom.

And all are satisfied.

“The Satoshi Revolution” is a series of live-web publish of Wendy McElroy of her new book Introduction to ”The Satoshi Revolution,” first published on Bitcoin.com.