|
|
By Gabriel Custodiet
In 2009, the pseudonymous Satoshi set Bitcoin into motion. He would quickly disappear into the ether, relinquish all control of the project, and never be heard from again.
Satoshi released a self-perpetuating digital organism that has within it a scarce resource programmed to enact strong ownership via encryption, easy and permanent sending back and forth, anti-inflation, and a public ledger of all transactions that is about as tamperproof a system as one could hope to develop. All of this, crucially, not requiring trust for the first time in human history.
Looking back with 20/20 hindsight, Bitcoin was a simple concept. Encryption and peer-to-peer transmission of data—as seen in torrenting—had been well-established digital revolutions. Satoshi took these, added some thoughtful scarce resource characteristics, and mixed it all with the brilliant idea of a consensus system whereby any computer could run the Bitcoin software alongside a full copy of its ledger to participate in the Bitcoin system. These node-runners—of which you can easily be one—uphold the Bitcoin consensus rules and serve as record-holders of all transactions. They are Bitcoin. Bitcoin has no center or owner or origin: it is these individual computers spread around the world agreeing what Bitcoin is at any given time.
The benefits of such a censorship resistant and trustless system became obvious. Wikileaks used Bitcoin when the cowardly PayPal refused to do its sole job. Darknet markets such as the Silk Road used Bitcoin to transact outside of the state, with permanence and anonymity, and without the need to trust anyone. As a digital scarce good, Bitcoin proved itself for years. Unfortunately, the Bigs would start to notice.
A dollar price attached itself to Bitcoin. Soon the cypherpunk audience became diluted by those trying to make a quick buck. Traditional banking enveloped crypto to cater to these people. Centralized crypto exchanges and “investment services” requiring KYC (know your customer) information replaced a pseudonymous peer-to-peer project. Holding onto bitcoin (“hodling”) became more important than spending, ironically reducing the likelihood of finding someone willing to accept this “revolutionary” scarce good. Big investors encouraged compliance and KYC adoption to protect their wealth. And in early 2024 the launch of a Bitcoin ETF signaled that the new majority of Bitcoin participants were in love with an imitation of financial freedom. Assuming they were not just interested in pure gambling.
Institutionalized Bitcoin cannot necessarily harm the system, but it can tie real identities to a previously-pseudonymous ledger. Bitcoin addresses will always be random strings of characters, but the banking institutions know who is behind many of them: as does a subpoena. Furthermore, given the transparency of Bitcoin’s ledger, surveillance is capable beyond single transactions: a chunk of bitcoin can be traced endlessly in all future transactions, as well as into the past. The blockchain has become difficult to engage with anonymously as more bitcoin tied to public identities—albeit as imposed by external observers—has entered the blockchain.
Enter Samourai Wallet, who tried to solve this problem. Two men with strong personalities and principles developed and ran a wallet and service that allowed users to collaborate on constructing Bitcoin transactions with other users anonymously, of which the communication between users was coordinated by their “whirlpool” server. I send bitcoin to a pool of participants and a transaction is initiated whereby five chunks of bitcoin are spit out at the end—to five separate participants—of equal amounts. In other words, in one self-custodial transaction any deterministic links of who owns which bitcoin are broken. The cycle can continue as long as you want to participate. In other words: Samourai Wallet used the transparency of the blockchain against itself to create immense confusion for any onlookers.
Despite following FINCEN guidance to the letter of the law—i.e. custody was never taken—the two Samourai Wallet creators were thrown into prison in April of 2024 for conspiracy to commit money laundering and conspiracy to run an unlicensed money transmitting business. (Note the allegations of “conspiracy” and not of performing said act.) They had been running the wallet for around a decade, including having it on the Google Play Store—Google would, oddly, not seem to be implicated at all in all of this. Moreover, Samourai Wallet was brilliantly designed to never take custody. It is simply free and open-source software that allows individuals to voluntarily interact with one another: perfectly within the ethos of Bitcoin and U.S. law as it currently stands.
It is difficult to say what justification the Department of Justice feels it has to prosecute the two developers. A couple offhanded remarks on Twitter and the fact that compensation was taken for running the service (again: not custody of funds), and a deep misunderstanding of Bitcoin technology seems the obvious explicit answer. More likely this is an attack on those who wish to use freedom technology as they see fit. The Founding Fathers would have applauded Samourai Wallet; today’s U.S. government has arrested them.
As of mid-July, 2024 the legal process is still only beginning and there has been no definitive advancement. More about the patent absurdity of the Samourai Wallet situation can be read in the excellent article here.
These arrests did not occur in a vacuum.
Influential Bitcoiner Roger Ver, “Bitcoin Jesus,” was arrested around the same time and is facing extradition from Spain to the USA for alleged tax crimes pertaining to his bitcoin stash. Ver renounced his U.S. citizenship in 2014.
On 12 March 2024 Swedish-Russian citizen Roman Sterlingov was convicted in a U.S. court for allegedly running a mixing service (mixing services take custody unlike coinjoins) called Bitcoin Fog. However, the supposed main proof of Sterlingov’s ownership involves a combination of IP addresses and forensic data derived from the Bitcoin blockchain. Such data was provided by a blockchain surveillance company called Chainalysis which has never showed how its forensics work and whose methods have been widely criticized by those who understand blockchain probabilities.
A Dutch court in May of 2024 sentenced a co-founder of Tornado Cash—a crypto joining service that did not take custody—to five years in prison, saying that the service did not “pose any barrier for people with criminal assets who want to launder them,” or in other words, Tornado Cash created something that could be used by criminals. Could we not say the same of any privacy software, or even encryption itself: indeed any privacy tool whatsoever? Insane.
In June of 2024 the SEC sued Consensys, the company that runs the Ethereum-centered MetaMask wallet/service, over allegations that it has failed to register as a broker, re-igniting the debate about whether crypto is a commodity or a security. Lawfare and regulatory confusion is a quite effective means to slow down a movement.
Stepping back, you can see now that blood is in the water. These lawfare attacks on privacy and freedom advocates using cryptocurrencies to escape the real dangers everyday people face—governments and their corporate lackeys—show all evidence of being correlated. It would seem to be a psychological attack designed to attack individuals and to send a message: to foster a chilling effect that is absolutely working. Many other services similar to or adjacent to the aforementioned services have started to shut down or cease operations in the USA.
About Gabriel Custodiet
Gabriel hosts the Watchman Privacy Podcast where he discusses in detail a wide range of privacy and freedom tactics. He has written multiple books and recently created a privacy tutorial series called Escape the Technocracy. Everything can be found at watchmanprivacy.com.