The Breakdown - Is Bitcoin a Trojan Horse for Freedom?

Episode Date: June 13, 2021

This week’s “Long Reads Sunday” presents a reading of Human Rights Foundation CSO Alex Gladstein’s piece “Bitcoin Is a Trojan Horse for Freedom.”  NLW contextualizes the piece with this week’s landmark legislation out of El Salvador and the concerns some international observers have about that country’s president.  -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.io and produced and distributed by CoinDes. What's going on, guys? It is Sunday, June 13th, and that means it's time for Long Reads Sunday. And this week, there was really only one choice in my mind for this reading. We've spent most of the week talking about discussing, thinking about exploring El Salvador making Bitcoin legal tender. Now, if there is one down note in that, or at least cautious note, it has to do with President Naib Buckele. On the one hand, there is no denying how popular he is, how effectual he has been in his short time in power.

There is also no denying that the politicians that came before him and the institutions he inherited have a multi-decade history of corruption going back all the way to the civil war that tore apart El Salvador throughout the 80s. Still, there are concerns that some in the international community have around what they see as autocratic or authoritarian tendencies. Buckele showing up in the assembly building with soldiers to try to put pressure to vote through a security law. Buckele removing judges who didn't agree with him. Now, I gave my perspective on this a couple of shows ago. But of course, if you looked on Twitter, many were looking to Alex Gladstein, the chief strategy officer for the Human Rights Foundation, to what he thought.

Over and over, his take has been that no, we shouldn't ignore those things, but we should also acknowledge how different a move it is to adopt a system that is not controllable, rather than some new fiat standard, which would be highly manipulable for the government. Indeed, Gladstein pointed to a piece of his written before this whole El Salvador situation even came up from April of this year called Bitcoin is a Trojan Horse for Freedom. So that is what we're going to read today. Bitcoin is a Trojan horse for freedom. While Bitcoin is powerful number-go-up technology that appeals to self-interest, it's also creating fortresses against authority in cyberspace. In book two of Virgil's epic poem, the Aeneid, one of the most iconic plotlines of classical

mythology unfolds with trickery and subterfuge. The Greek forces, having failed to capture the city of Troy after a decade-long siege, attempt an ultimate attack on their enemy, not by strength, but by guile, through a clever plan hatched by Ulysses. In the fields outside of Troy's impregnable walls, the Greek army departs but leaves behind a massive wooden horse. A lone-remading soldier leads the Trojans to believe that the horse is a tribute to Minerva, the goddess of war and strategy, and is an apology for the blood that the Greeks spilled. The Trojans think their rival has sailed off and surrender, and despite warnings from Cassandra and Laakouan, who gives us the famous

saying, beware of Greeks bearing gifts, they bring the horse into the city as a trophy of victory. Blinded by zeal, they think it will make them invincible. Little did they know the horses packed with armed soldiers, who, under cover of night, slip out and open the gates for their comrades waiting outside, who had hidden their fleet behind an island in the nearby sea. The Greeks sacked the city in Troy Falls, defeated from the inside by its new treasure. Thousands of years later, the Trojan horse has been popularized in computer science as a malicious program disguised as a helpful update, but it is also an effective metaphor for how Bitcoin stealthily co-ops actors who do not care about or do not like freedom to promote it anyway. The meme begins with wealthy individuals, corporations,

and soon governments which see Bitcoin as glittering digital gold. Out of self-preservation and greed, they are incentivized to buy, mine, or one-day tax this new prize, to accumulate the soundest money and gain an advantage over their rivals. Bitcoin does, after all, on its exterior, look very appealing. It is the best-performing financial asset in the world over the past 12 years. Bitcoin's trillion-dollar success is attracting interest from the rich and powerful, everywhere from Wall Street to Beijing to Silicon Valley. In the last year, Bitcoin FOMO has seeped into the minds of professional investors, corporate treasury managers, and even sovereign wealth funds who do not want to get left behind. As a recent Bloomberg headline announced,

Bitcoin is displacing gold as an inflation hedge. The article shows how value is demonstrably flowing out of gold and into Bitcoin. Companies like Tesla and Square star among a growing group of dozens, adding the new currency to their balance sheets. Nidig is introducing the multi-trillion dollar insurance industry to Bitcoin as a hedge against declining yields. As Micro Strategy CEO, Michael Saylor says, Bitcoin is the hardest money in acts over time like a one-way street. Just as no Argentine wants to cash out their U.S. dollars back into pesos, ultimately few will want to cash out their Bitcoin back into dollars. It is early days, but it is hard to overstate the eventual impact Bitcoin will have, not just on the $10 trillion gold market, but the $20,000

dollar art and collectible market, the $100 trillion stock market, the $225 trillion real estate market, and the $250 trillion bond market over the coming decades. But Bitcoin is not just number go-up technology. Hidden behind the eye-popping gains is powerful freedom go-up technology that its new adopters are, knowingly or not, pushing forward. NGU and FGU are inextricable. Bitcoin's decentralized digital cash did not emerge from Y Combinator, but rather was the holy grail of cypherpunks, a group of civil liberties advocates concerned about how personal freedoms could survive the great electronic transformation of society. Their goals were to separate money

from governments and corporations, check the growth of the global surveillance state, and preserve human rights in an increasingly digital age. Satoshi Nakamoto's greatest trick was to animate these aspirations into something that looks like and functions as digital gold. So while, yes, Bitcoin gives anyone, regardless of their nationality, status, wealth, gender, race, or beliefs, access to the best savings technology on the planet? It also gives them unstoppable, programmable money that cannot be debased or censored and that fights surveillance and confiscation. Dissidents, democracy protesters, opposition leaders, and independent journalists worldwide are beginning to realize this. From Minsk to Lagos to Los Angeles to Buenos Aires. World leaders speak petty words about human rights, but when they get right

down to brass tax, the platitudes are swept aside. As a reminder of this cold reality, refer to the dictators on the UN Human Rights Council or the Financial Action Task Force. The list of House corporate names sponsoring the 2022 Genocide Olympics, or the roster of Wall Street icons who attended Saudi Arabia's Davos in the Desert. As human rights activists well know, it can be hard to effectively promote freedom in a society that willingly sells morals out for profit. Bitcoin sneaks in and rewires the system from the inside, aligning profit-seeking with permissionless financial liberation. But who conjured this horse and dragged it to the city gates? This time, it was not a plotting army camped outside Wall Street. Satoshi's creation spreads, not by force, but by voluntary

choice. The financial establishment is simply beginning to like the way it looks. It promises great riches, and that is no mirage. It will continue to deliver. But most of the elites do not realize what they are bringing into the inner sanctum. In a world of increasingly centralized control and social engineering, Bitcoin provides a check by empowering the individual at the expense of the authority. Yes, billionaires and dictators can buy a lot of Bitcoin, but they cannot control the system as they can with fiat money. Unlike the dollar, euro, or yuan model, They cannot tweak issuance, censor transactions, make special rules or bailouts for the aristocracy, or perform mass-remote confiscation or debasement.

Of course, governments and corporations will try to hijack Bitcoin for their own ends. Some already have. The Block Size War is a book that chronicles the attempts of Chinese billionaires and Silicon Valley Titans to forcibly transform Bitcoin from a freedom tool into a retail payment mechanism. These attempts failed because the network lacks a single point of control. And Bitcoin is more clever than any Trojan horse that Virgil or Homer could have imagined. In this plotline, each individual can custody their Bitcoin by moving it to an address they control with a set of digital keys. Unlike in 1933, when the U.S. government was able to seize the gold of citizens with Executive Order 6102 by attacking points of custody,

that does not work if hundreds of thousands or even millions of Americans are holding their keys. The adoption process is creating millions of new fortresses in cyberspace, all more secure than Troy. Looking for the best way to unlock your crypto's liquidity? Nexo.io is exactly what you need. borrow against her digital assets at just 6.9% APR, earn passive income with yields of up to 12%, and swap between more than 100 market pairs with the Instant Nexo Exchange. Try the Nexo wallet app to get the whole 360 degrees of crypto banking. Get started at nexo.io. That's nexo.io to get started today.

The ancient Greeks and Romans would appreciate the irony of Megacorp's and governments willingly and even enthusiastically, letting the one thing that can erode their growing power into their city games. Number go up is one hell of a drug. In some ways, Bitcoin has succeeded so far by hiding behind its strangeness. Just as the Trojans were baffled by the monstrous horse standing outside their city gates, the establishment has balked at Bitcoin. It has gone from zero to 60,000 with most people on Earth not batting an eye. Less than 2% of humans have adopted it. But more than that, it seems, have mocked it. Even today, in April 2021, virtually all top economists, political scientists, diplomats, and central bankers, still dismiss Bitcoin is something that will not work or is not worth their time. This dismissal has allowed Bitcoin to grow largely unfettered, and now the horse has been rolled inside the city.

What the Davos establishment thought was just NGU Tech was also FGU Tech. This alignment of incentives is sorely needed in a world that depends too often on altruism and empathy. Take the global struggle for human rights. The international business community mostly overlooks the Chinese Communist Party's Uyghur gulags, subjugation of Hong Kong, staggering surveillance state, and colonization of Tibet. In this scenario, self-interest and freedom are in conflict. To save profits, companies, celebrities, athletes, and heads of state sacrifice morals in either cave to Beijing's demands or keep silent about its brutality. Even philanthropists are failing on freedom. The effective altruism movement, for example,

completely ignores civil liberties. With Bitcoin's self-interest and freedom are aligned. Even if one has zero altruism, as one buys or minds Bitcoin, they drive up the network's security model and make a more robust freedom tool for everyone else. Refreshingly, Bitcoin does not care about one's intentions. It enables greater liberty and empowerment not by some obvious humanitarianism, but by each participant's honest self-preservation. And this dynamic continues to expand. For instance, Bitcoin exchanges today are not adopting the Lightning Network for privacy reasons. They are adopting it to reduce fees. But they are spreading the freedom tech anyway as they popularize a way to transact off-chain on an onion-routed second layer. On the horizon, a Bitcoin

upgrade called cross-input signature aggregation, or Sig-AG for short, could incentivize exchanges to engage in collaborative spends, which would fluster the surveillance state. Again, corporations will not push this privacy improvement for moral reasons, but to improve their bottom line. This is Bitcoin's game theory, transforming greed into freedom. Tesla-stacking Bitcoin does not just help Tesla. It increases Bitcoin's global network effect, driving up the interest in price, attracting more developers and improving UX, increasing the number of miners in strengthening network security, and multiplying new hodlers in a giant positive feedback loop. To recap, Bitcoin will continue to gain worldwide adoption because of its effectiveness as digital gold, but hidden within the prize Trojan horse

is a remarkable freedom technology. At this point, the reader may think Bitcoin proponents must be saying, quiet in the back, keep the noise down. We just need to last a few more hours until midnight, and then we can pop ourselves out of this horse and let the rest of our army into Troy. But it is already too late. There's nothing the Trojans can do. Authoritarian regimes will inevitably want to stack sats. Some already have found Bitcoin as a helpful tool to escape sanctions, including Venezuela, Iran, and North Korea. But over time, the officials tasked with storing and spending the Bitcoin will learn what it is, money the government cannot control. And they will share that knowledge with others, trickling it down through society. Just like Trojan Horse

computer viruses, Bitcoin will infect authoritarian regimes, appearing helpful at first but proving debilitating over time. Some miss this and misinterpret the Trojan Horse allegory. A small but influential course of American critics say Bitcoin is an enemy of free society like the United States, and that it is unpatriotic or even treasonous. In reality, Bitcoin will be a lot more difficult for authoritarian, closed societies like China to deal with than open ones like America. We already have property rights, checks and balances, and free speech, all values that Bitcoin reinforces. But these three things are diametrically opposed to what the Chinese Communist Party is trying to achieve. Bitcoin will, over time, erode the control that tyrannies like the CCP have over their citizens.

And given that Bitcoin checks arbitrary power in the surveillance state, it may help steer open societies in a better direction too. Today, tens of millions of people already own Bitcoin. They're happy about the value it gives, and the value it will continue to provide. They own a piece of digital real estate on a board that cannot be expanded, but most do not read the fine print. They do not see the newspaper headline buried in the Genesis block, or notice details like Satoshi Nakamoto's chosen birth date, or study the history of the cypherpunks. At its core, Bitcoin was built to break us free from the existing system. It is the red pill, and all adopters are going to play a part in the revolution, whether they want to or not.

Many authoritarian may already realize what is concealed in Bitcoin's Trojan horse. There are plenty of Cassandras saying, we need to do. stop this thing. But just like the kingdoms of lore, these words will fall on deaf ears. The prize glitters too brightly. All right. So back to NLW again for just a second. I think the context is obvious here, but just to spell it out a little bit more. We have on the one hand all over the world this massive rise in interest in central bank digital currencies. And there's a ton of reasons for that. The old system of the way that money moves around the world is well old. It's tired. It's slow. It's not any of the things, any of the benefits that a truly digital system could have.

CBDCs are a likely inevitable evolution of cash and fiat money, and not just because they improve convenience in the system. There will also be more tools than ever before for central banks to tweak monetary policy to change it on a person-by-person level. CBDCs will also bring with them more opportunity than ever before for financial surveillance. This will be instituted and implemented in the name of AMLKKH. YC regimes and fighting crime. But the net effect is that governments are going to know a lot more about their citizens' financial behaviors than ever before, including free and open societies.

When Alex Gladstein talks about the remarkable and surprising nature of President Buckelé's decision to implement Bitcoin rather than some CBDC, this is what he's talking about. The authoritarian's playbook wants more control, not less control over monetary systems. He wants more visibility, not less visibility into what citizens are doing. Now, some will have decided that the direction that Buccelli on is firmly set. Others will completely write off these moves as someone who's just cleaning house from an old corrupt regime. Those who find themselves open to the possibility of many future outcomes for President Buckele will note with interest this particular decision, and will cheer, I think, that even if this decision was not an intentional push towards a more free and

open society, it will likely have that effect regardless. Anyways, guys, I hope you had an amazing weekend. It has been such a wild week in Bitcoin history. I appreciate you hanging out. I appreciate you listening. Until tomorrow, be safe and take care of each other. Peace.