We must protect our ability to transact privately online

A question we often get when talking to policymakers and congressional staff is whether cryptocurrency is anonymous. And if it is, what can be done to address it? The implication is that anonymity is a bad thing.

Given that typically we are being asked about Bitcoin or Ethereum, the simple answer to the question is that no, they are not anonymous and that law enforcement routinely exploits the transparency of these blockchains in prosecutions. That answer, however, avoids addressing the implication that anonymity is bad. It’s not.

What is often referred to disparagingly as “anonymity” is really the ability of individuals to keep information about themselves private. This is an ability that can be put to both good uses and bad. It’s how one uses that power that can be said to be good or bad, however, not the technology that lets one retain one’s privacy. Indeed, not only is privacy-preserving technology like encryption and cryptocurrency neutral in character, in an increasingly surveilled and intermediated world, a case can be made that their use is overwhelmingly socially beneficial.

That’s what we begin to do in a new paper published today, The Case for Electronic Cash: Why Private Peer-to-Peer Payments are Essential to an Open Society. With the advent of privacy-preserving cryptocurrencies like Grin, Monero, and Zcash, and the prospect of privacy-preserving features being added to Bitcoin itself, it’s important that we being to explain why electronic cash is a tool that should not only be tolerated, but fostered and celebrated. From the introduction:

In a world without cash (a bearer and peer-to-peer form of money) all transactions must be necessarily intermediated by financial institutions. Intermediated transactions are by their nature subject to surveillance and control. If third-party financial institutions must be part of all transactions, then they will be privy to the intimate details of everyone’s financial life. They can also choose to disallow certain transactions and potentially even certain persons from transacting.

Intermediation has many benefits, including efficiency and convenience. Used responsibly, the information gleaned from the privileged position of financial intermediary can also allow one to better extend credit, prevent fraud, and help the authorities fight crime. But as this paper will show, it can also be abused spectacularly by corporations and governments. If there is no way to avoid intermediation, then individuals will have no way to preserve their privacy or their autonomy.

Cash is an ancient technology that allows us to avoid intermediation and thus to preserve the values necessary for the individual liberty and human dignity. While we are a long way from a cashless and completely intermediated existence, at least in the United States, this paper will also show that there is a concerted effort to eliminate cash that has been quite successful in other parts of the world.

This paper will argue that cash is essential to an open society. It is an escape valve in our increasingly intermediated and therefore surveilled world. We do not argue that cash should be the only option for transactions, or even the option one should choose most of the time. But it should be an option. Without it, there is no choice but to have one’s every purchase be watched and recorded and the information used without one’s consent. Without cash there is no exit—no chance for the kind of dignity-preserving privacy that undergirds an open society.

Cash is also necessary to retain agency and autonomy. Autonomy can be understood as the power to make decisions for oneself without interference from others. It’s the ability to try things one’s way, to succeed and be rewarded, or to make mistakes and learn from them. As with personal privacy, without individual autonomy there can be no meaningful open society.

It is therefore imperative that we preserve our ability to use it. Yet that is not enough. As we move to an increasingly online world in which physical cash is not practical for many transactions, we must also develop and foster electronic cash that is as privacy-preserving and permissionless as physical cash. While this will have costs as well as benefits, we argue that the way to address the costs is not to prohibit electronic cash, but instead to regulate its use no differently than physical cash for which there is a robust regime.

You can read the entire paper here, and expect more from us shortly on the policy and legal questions raised by privacy-preserving cryptocurrency.