The Satoshi Revolution – Chapter 4: Crypto. A New Paradigm of Privacy and ID (Part 2)

Crypto. A New Paradigm of Privacy and ID

The Satoshi Revolution: A Revolution of Rising Expectations.
Section 2 : The Moral Imperative of Privacy
Chapter 4: When Privacy is Criminalized, Only Criminals will be Private
by Wendy McElroy

Crypto. A New Paradigm of Privacy and ID (Chapter 4, Part 2)

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[A]ll those who used their knowledge in a bid to enact social change saw cryptography as a tool to enhance individual privacy and to shift power from big, central institutions to the human beings who live in their orbit.

–Paul Vigna, Business Reporter at Wall Street Journal

Cryptocurrencies bypass central banks by privatizing the issuance of money and  its transfer across borders. The globe should erupt in applause at the return of financial control to the individuals who produce wealth. Finally, financial justice.   

But a global party over currency freedom would be inadequate because it would overlook another revolutionary aspect of crypto. Cryptocurrencies and the blockchain are a new paradigm of privacy that will replace the old one as surely as the new currency broke the death grip of central banks. Revolutionary forms of “identity” verification, like blind signatures, have redefined the concept of privacy and returned it to the free market where sharing information advances individuals…but only when and if the individual consents. (See earlier discussion of blind signatures.)  They forge a vision that is uniquely suited to the preservation of freedom in the digital age.

The focus on crypto as a remedy for government surveillance is understandable. Privacy has been nationalized by governments that twist the definition of “identification” to serve their own elitist goals. Government documentation is now the only way most people can prove their identities in order to access the basic necessities of modern life. In most Western nations, undocumented people cannot board a plane or train, or drive a car. They cannot open a bank account, acquire a credit card, access medical care, cash a check, take a regular job, attend school, get married, rent a video (let alone an apartment), or buy a house. They are second-class citizens to whom the government denies the opportunity to advance through labor, education, entrepreneurship, or other merit. Government has made identification into a prerequisite of modern life.

Meanwhile, those who are “identified” become vulnerable. Their bank accounts are frozen, health care denied, credit cards canceled, wages garnished, records subpoenaed, and get arrested. In a fully nationalized ID  and reporting system, the government knows who everyone is, what everyone thinks and possesses, and where to find them. The nationalization of privacy is a lynchpin of totalitarianism. No wonder the government’s appetite is so voracious. No wonder  those who resist the onslaught on privacy are presumed to be criminals on that basis alone. As Phil Zimmermann, the creator of Pretty Good Privacy, stated, “If privacy is outlawed, only outlaws will have privacy.”

Society was not always this way. It does not need to be so in the future. Just as cryptocurrencies allow individuals to bypass central banks, they provide a path to shape entirely non-governmental identification systems.

The need is urgent. It is not merely that nationalized privacy is a powerful tool of government oppression, there is also a crying free-market need for privacy and identification systems.

Free-Market ID

Most people flatly accept the government’s narrow, antiquated and self-serving view of what constitutes privacy; it is the ability to protect of personal data – an ability and “protection” of which the government lays an absolute claim of jurisdiction. Free-market ID is the antithesis of government or social control, as its very definition indicates. It goes far beyond the verification of an individual’s identity or address. Indeed, it may not even include a traditionally-valid name or address.

To appreciate the new paradigm of privacy offered by cryptocurrencies, a tour of the past benefits of free-market ID is valuable.

When commerce was conducted on the barter level, people personally knew or had reliable information about the individuals with whom they directly traded. Then commerce expanded to include complex exchanges with total strangers; direct barter was replaced by indirect exchange, which often required some trust. A bedrock of trust has always been the ability to answer the question, “Who am I dealing with?” Past a primitive organization of society, therefore, there has always been a need for identification.

To appreciate the scope and the advantages free-market ID, consider a widespread method of identification from centuries ago that is making a comeback: letters of introduction and recommendation. The dynamic: Person A carried letters of identification to Person C, to whom he or she is a stranger. The letters had been written by Person B, whom Person C knew and respected. In short, Person B vouched for the identity of the letter bearer.  

This is the first and most basic service rendered by free-market ID: authentication. There are a myriad of reasons that would make people want to verify their identities. They could be picking up packages, confirming a reservation, joining a club, voting, or applying for a job.

The free-market function of authenticating identities can be easily provided by  businesses that run background checks and issue their own ID cards. Market incentives would make those businesses meticulously careful about the accuracy of documents. If nothing else, someone who was defrauded by accepting a fraudulent or careless one could sue. Even if the business prevailed in court, its reputation would be damaged or ruined. And free-market ID companies would live or die on the basis of reputation.

Governments have monopolized the authentication function of ID and distorted it to serve the purposes of authority alone. That is, the people being IDed do not request the “service”; it is required of them and, then, it is used as a weapon against them. Private ID still exists in bastardized form. Employers issue private ID to employees, financial institutions give customers cards that access their accounts. But such privatization is illusory. Before an employer or a financial institution can issue any ID, the “beneficiary” must be screened by government requirements, such as the provision of a tax number. The recipients of “private” ID  are monitored through reporting requirements.

 Second, free-market IDs offered certification. Letters of introduction were often letters of recommendation, as well. They attested to the character, the station, and the specific abilities or talents of the bearer. Other forms of ID performed the same function: university degrees, endorsements from employers, membership in professional organizations, and financial statements from banks. The certifications allowed strangers to assess whether a bearer was qualified to occupy a job or to perform a particular task. Reputation offered a similar ID.

Today, government licensing and regulation have replaced the formerly free-market process of verifying credentials. Everything from neurosurgery to braiding dreadlocks requires a government license that substitutes for reputation and other forms of verifying worth. Those who believe no contradiction exists between government sanction and free-market reputation should consider: however impeccable a caregiver’s reputation may be, he or she cannot practice medicine without government permission. The two are incompatible. Indeed, those with licenses are the most vocal critics of free-market practitioners with whom they would be forced to compete.  

Third, in some cases, free-market IDs authorized specific actions. Letters of recommendation often assigned limited rights to the bearer. For example, an attorney’s firm might assign a limited power to a representative so that he or she could settle a case on the behalf of a client. Today, the tasks that can be authorized on the “free market” are strictly defined by government. The latter controls the process of implementing tasks, and it demands that results be filed with appropriate agencies. Indeed, government controls the most common form of assigning limited rights through ID. Law enforcement acquires the “right” to aggress against peaceful people by virtue of wearing badges.

Objections to Free-Market IDs.

Common objections to the free-market IDs arise. They are antiquated and unsuited to the modern world; they are not anonymous; as a means of  establishing widespread trust or reputation, they can be slow; and, they are not uniform. If examined, however, these objections turn into advantages.

Antiquated. Examples from the 19th and early 20th century may seem antiquated. Or, rather, some do and some do not. Letters of recommendation, in one form of another, have been updated and are still in widespread use; a job application that includes contact information for former employers is an example. The relevant point: the free market responds amazingly well to a surrounding society’s need for identification. It did so centuries ago, for centuries before that, and it will do so today; this is evidenced by blockchains that automatically verify digital transactions by accepting them. Bitcoin exemplifies the free-market’s adaptation on stilts.

No Anonymity. The primary purpose of early IDs was to verify identity, not to render anonymity. The sharing of information occurred at the request of the bearer and, to my knowledge, the data was not disclosed to other parties, such as government agencies. The current drive for anonymity derives from a desire not to share information because it will be disclosed to unwanted others, especially to government.

The defining feature of free-market privacy is the same as that of free-market currency: control is in the hands of the individual. Each person decides their own comfort levels on questions such as “privacy versus convenience.”  Even  decentralized exchanges now offer a sliding scale of choice to users, from open identification to anonymity.  

Slow to Establish Trust or Reputation. This may have been true in the past, when mail and people took weeks or months to travel. Everything moved slowly. But it is now a fast-moving world. Nevertheless, establishing a reputation on the basis of personal dealings and real-world achievements can be more gradual than waving a government piece of paper or badge in the air. Which is more real? Once established, which is the more resilient? The fact that establishing a reputation or a business may take time is hardly a criticism.

No uniformity. Another word for this condition is “diversity,” and it is an extreme advantage of free-market ID. Government ID is homogenized because the goal is to force everyone into the same mold, to enforce conformity to the same laws and reporting requirements. Uniformity furthers the goals of government and social control. When ID furthers the needs of individuals, then the form it takes is dictated by those needs. A driver may require a certification of competence in order to obtain a desired insurance policy. But he or she should not need to provide a tax number. Diversity indicates nothing so much as flexibility in the light of what is appropriate.


Cryptocurrencies offer a revolutionary approach to privacy, which gives control of personal data back to individuals. This aspect of the Satoshi Revolution is often overlooked: a paradigm shift is occurring.

The old paradigm is for authorities to coerce and to centralize vast quantities of data on and, then, to make a great flap over the security of that data. “Privacy” becomes a matter of how diligently the centralized authority guards the information that it warehouses and employs. Privacy is nationalized and becomes a matter of national security.

The new paradigm of privacy: individuals control their own personal data and use it for their own benefit. Consider what happens in the transfer of bitcoin. The participants decide if wish to identify publicly or to remain pseudonymous; they choose to go through an anonymizer, or not, and to use a different address for each transaction, or not. The blockchain doesn’t care. It authenticates the transaction, rather than the individuals, in much the same manner that vendors used to authenticate a gold coin without caring who handed it to them. In short, peer-to-peer crypto verifies transactions, not individuals. It is the privatization of privacy.

Cryptocurrencies are on the cusp of changing the landscape of personal transactions. When smart contracts become common practice, then verification of contracts and the authorization of their terms will be increasingly a matter of algorithms, not of bureaucratic permission. Technology will lead the way to freedom.

[To be continued next week.]

Thanks to editor/novelist Peri Dwyer Worrell for proofreading assistance.
Reprints of this article should credit and include a link back to the original links to all previous chapters

Wendy McElroy has agreed to ”live-publish” her new book The Satoshi Revolution exclusively with Every Saturday you’ll find another installment in a series of posts planned to conclude after about 18 months. Altogether they’ll make up her new book ”The Satoshi Revolution”. Read it here first.




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