Unchained - Democracy in the Age of Cryptography - Ep.159

Episode Date: February 18, 2020

Santiago Siri, the cofounder and president of Democracy Earth, reads from his essay on how governance and identity change in the age of cryptography. Thank you to our sponsors!  Kraken: https://www.kraken.com CipherTrace: https://ciphertrace.com Crypto.com: https://crypto.com/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone, we've got another excellent essay on crypto for you this week. This one by Santiago Siri, co-founder and president of Democracy Earth. It starts by talking about how blockchains are increasingly becoming a technology with geopolitical relevance. I agree with him on this issue and think we're only really getting started here, and that this will actually become a huge impact of this technology. He then talks about how cryptography is shifting the balance of power from the nation's state to individuals. And then finish us the essay by talking about how important to centralized identity will be to the creation of democracies on the internet. It's a fascinating essay,

and if you are intrigued by the ideas in it, be sure to check out the interview I did with him and Glenn Weil, which I've linked to in the show notes. And now here's Santiago Siri on governance in the age of cryptography. Cipher trace cutting-edge cryptocurrency intelligence powers anti-money laundering, blockchain analytics, and threat Intel. Leading exchanges, virtual currency businesses, banks, and regulators themselves use ciphertrace to comply with regulation and to monitor compliance. Crypto.com, the crypto super app that lets you buy, earn, and spend crypto in one place. Get a metal MCO visa card with up to 5% back on all your spending. Download the crypto.com app today. Cracken is the best exchange in the world for buying and selling.

selling digital assets. It has the tightest security, deep liquidity, and a great fee structure with no minimum or hidden fees. Whether you're looking for a simple fiat on-ramp or futures trading, Cracken is the place for you. Democracy in the age of cryptography. Look at any review of the past decade and you will find Bitcoin standing strong as the one experiment that defined information technology for the past 10 years. Such is its global relevance that 2019 marked the first time both

the President of the United States of America and the President of the People's Republic of China refer to blockchains directly in their words. While Mr. Trump praised the might of the U.S. dollar as the leading global reserve currency, President Xi arguably contributed to hit the market hard when one of his speeches about blockchain technology,

inadvertently prompted BTC to go from a monthly low to a monthly high in less than one hour. Searches for the world blockchain on WeChat went from a 750,000 daily average, up to $9 million, impacting the price of Bitcoin on a 42% upward rally. The day she spoke was exactly 24 hours after Mark Zuckerberg testified to the U.S. Congress on the merits of his corporate cryptocurrency, Libra. The growing geopolitical relevance of these networks is hard to deny. The beginning of 2020 reminded us that Bitcoin is effectively signaling global risk when its price action shifted from bear to bull right after the government of the United

States assassinated Iranian General Kassim Soleimani. Bitcoin is what people turn to when the alternatives don't feel safe. Examples of events like this abound in its short decade-long history. Back in 2017, before Kim Jong-gun and Trump fell in love, when an intercontinental ballistic missile shot from North Korea landed in the Sea of Japan, Bitcoin started trading at a premium in South Korean exchanges. The rationale is simple. If you have to escape your country because of imminent war,

having your savings in a digital form that cannot be taken away and as something you can liquidate anywhere you go tends to be a clever idea. Just ask every Venezuelan that saw their gold confiscated at the airport when escaping persecution from Nicolas Maduro, another dictator with a keen interest in cryptocurrency. But even though a technology might express an ideology in its design, it still lacks something that is intrinsically human, judgment. Bitcoin is also often used by dictators and authoritarian regimes.

Venezuela became one of the first governments to effectively exploit proof of work for its own benefit. Maduro's agents were able to detect Bitcoin miners in the country by looking at the energy footprint in the electrical grid. Minors had to go into exile. There were several accounts of policemen showing up at facilities with a brick of cocaine and suggesting that in the next raid they would pretend to have found it there if operators didn't escape the country soon, leaving all of their hardware behind. A source once told me he's still tracking the Bitcoin address, holding a bribe to a Venezuelan authority.

monopolizing Bitcoin mining became the only reliable alternative for a government that remains under U.S. sanctions. Tropical dictators cannot even rely on Swiss banks since those are now obliged to comply with multilateral organisms. So it is not surprising that, in Caracas, a lot of the transactions reported by tools like local bitcoins that allow fiat to crypto exchanges have government officials as their top users. For its part, North Korea also learned how to weaponize Bitcoin when it launched one of the most widely spread ransomware attacks with the Wanna Cry virus. It hit public infrastructure like the National Health Service of the United Kingdom, preventing doctors from accessing patient files unless they made payments in BTC.

These attacks are more common than most assume. Any bitconer who has been, been around long enough has received a call from a family member or friend, pleading for help after having their computers hijacked by this type of malware. The point here is not whether Bitcoin is good or bad for the world. The benefits are certainly there when contrasting it with legacy banking and fiat money. But simply reminding that unaccountable censorship resistance does not necessarily translate into utopia. Some would argue that criminals using Bitcoin also means that the technology is working as expected.

But we should expect more from a technology that has severe political implications. All this is far from being a novelty in the gears of history. Technology development always led to the emergence of new political orders. Benedict Anderson, in his famous essay, imagined communities, ties the rise of the nation state to the printing press, a technology that allowed humans to stop writing in the language of power, Latin, and use their own vernacular idioms instead. From the printing of new books written with folk words,

nearby villages began to link by cultural proximity. In this way, new communities were formed and the knowledge of reading and writing previously reserved only for priests and monks became democratized. Today, we can argue that a similar process is taking place in the digital realm, as it's clear that new communities are already developing around competing cryptographic protocols trying to conquer power in cyberspace. But this time, people unite not by linguistic proximity,

but by what rather seems to be a common ground of ideological mindsets. And ideology is inherently adversarial. Every thesis will breed its antithesis. The Internet itself is a direct consequence of international politics. It was built as a military strategy in the midst of a bipolar geopolitical era. What led to the creation of its protocols was a need to protect state secrets in case a nuclear attack was ever able to target a strategic point in the country. Researchers of the American military,

pleaded for decentralization in order to create a primitive network known as ARPANET in the late 1960s. DARPA, the Defense Advanced Research Projects Agency, figured that storing information over peer-to-peer networks instead of central mainframes would help protect American secrets, rendering any nuclear attack from the Soviets literally pointless. Going even further back, cyber. was already the battleground of ideological clash when Alan Turing's machines decrypted Nazi messages, an event that might deserve even more credit than the atomic bomb regarding the end of the war. As a new decade dawns, we can expect the relevance of cyberspace to grow as nation states compete to control the protocols that define wealth and sovereign rights. In the same way, the rise of the printing press led to several political revolutions around the world,

we can expect profound changes of similar nature as digital networks define what we can do, and, even more importantly, who we are. Cryptography as a tool for liberation. In spite of their apparent ideological differences, both Marxist and libertarian traditions view Bitcoin as a mechanism catalyzing societal change. The works of Karl Marx on communism in the 19th century, and the Libertarian Bible, the sovereign individual, rumored to be gifted by Peter Thiel to anyone who visited his home in San Francisco, both attempt to identify an inner mechanism in history. Marxists put a focus on class struggle as the main driver of historical processes.

By expanding history forward from the French Revolution onwards, Communists expect a day of egalitarian rule emerging after a final revolution where the workers of the war. world unite in order to create a classless society. Written in 1996, the book from James Dale Davison and William Rees-Mugh on the rise of personal sovereignty applies an information theoretic approach to capitalist society and claims that history is primarily driven by increasing returns on violence. Whenever a new technology appears that gives an advantage in force to a subset of society over all the rest, that minority ends up conquering power. Discovering gumpowder in a world of blades or quantum computing in a world of silicon can be clear examples of this idea.

When technology is mobile and transactions occur on cyberspace, the sovereign individual warns, governments will no longer be able to charge more for their services. According to this thesis, cryptography is a modern tool of, liberation, the gum powder that is transitioning or civilization from nation states to personal liberty. Similar to bitcoins are waiting for hyper-bitonization today, Bolsheviks thought the revolution in Russia was just a stepping stone for the real revolution that would inevitably happen on wealthy industrial Europe. Communism, after all, should be a consequence of the class contradictions embedded in advanced capitalist societies, or so the

claimed. The revolutionary appeal of communism ended up being stronger in poorer countries like Cuba or Vietnam that had nothing to lose but their change to America. The revolution never happened in wealthy nations. The capitalist side of the world used the welfare state as an antidote against the communist threat, that is, when it wasn't imposing dictatorships in proxy states. This landscape might be similar to the challenges faced by modern cryptography. High inflation countries with corrupt institutions have nothing to lose by embracing Bitcoin and Ethereum as tools able to disrupt their entire central banking stack. Meanwhile, in wealthy nations, Wall Street is quickly commercializing everything about crypto. After all,

capitalism also likes to sell Che Guevara t-shirts at a profit. In the same way, the welfare state prevented structural revolutionary change, Libra, or Sarmes, some other kind of fake cryptocurrency will try to prevent the specter that is haunting the world today. Cryptography. Before there was ever a debate on the legal status of blockchains, encryption was already criminalized by the United States of America. Cryptographic technology is formally listed under category 13 of the official US munitions list. This means, among other things, that you cannot stretch. across American borders, either software or hardware, that is used to encrypt or decrypt information

with capacity beyond a certain threshold. This has the same legal status as having a gun in your luggage. In 1993, the programmer of encryption software PGP was arrested at an airport with charges of munitions export without a license for having the PGP software in a floppy disk on his handbag. These technological guns are everywhere. Back in 2002, the PlayStation 2 required a special permit for commercialization from the military, since it was forbidden to distribute computers with more than one gigaflop of processing capacity in U.S. territory. From a defense perspective, cryptography is an inherently defensive weapon rather than one able to inflict damage on others, since its function is primarily protecting information.

Because of its legal status as a weapon, it can be argued that using cryptographic software or carrying hardware wallets is likely to be protected under the Second Amendment. Cryptography, after all, is far more useful than rifles or guns in defending people against the abuses of a state that has nuclear warheads and a panopticon. The fact that humans are able to carry secrets in their minds is what makes these systems possible. And as they say in the mafia, three people can keep a secret only when two of them are dead.

Secrets are safest if they are carried by one individual rather than by many who risk leaking it. As long as the state provides constitutional guarantees to prevent extracting secrets through torture or other means, factual power will always reside in the holder of the secret. If in the future a nation state would ever try to build reserves on Bitcoin, the dissemination of the seed phrase that controls the wallet holding those coins would become as relevant as the nuclear codes are for a commander-in-chief today. An old joke says that hackers are the opposite of terrorists. While the latter blow-up matter, the former do so the same but with information.

Avoiding the ideological biases that each might trigger, the consistent pattern of the US government going after information technologists like Julian Assange, Edwards Nodden, Ross Ulbricht, or Aaron Schwartz, just to name a few, cannot be denied. Recently, Ethereum researcher Virgil Griffith was added to this list after allegedly daring to execute a cryptocurrency transaction happening between the two Koreas. As a U.S. citizen, he now faces charges for going against sanctions imposed by his own government, even though the alleged transaction was intended to occur in a currency that is not recognized by his country's jurisdiction. Another notorious case is the New Zealander Kim.com, who has never set foot in the USA in his entire life. Yet, he was served an extradition request from the U.S. government due to copyright law infringement. how far the hand of the U.S. government can extend becomes clear when we judge the boundaries to which some of these prominent hackers have been restricted to.

Bitcoin itself was a defiant political act as a child of the 2008 crash. Far from being the first experiment of a currency via cryptographic means, it was the one that caught on because it was birthed at the right moment in history. Politics is nothing but what you do and say in a given moment in time, Venezuelan activist Julio Koko once told me. Satoshi Nakamoto's political intentions are clearly expressed in the content encoded in the Genesis block, in which Satoshi refers to yet another bank bailout happening during those turbulent days. An enraged, occupied generation in the streets of Wall Street,

planted the seats of the first Bitcoin software installs within their crowd. But remaining politically naive about the powers that will dare control this network alongside others like Ethereum and even the Internet itself can put many of our conquered freedoms at risk. Today's episode is brought to you by Cracken. Cracken is the best exchange in the world for buying and selling digital assets. With all the recent exchange hacks and other troubles, you want to trade on an exchange you can trust. Cracken's focus on security is utterly amazing.

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There is a 50% off atom listing event on February 12, 2020. Sign up on the crypto.com exchange now. Will the world follow France and advocate banning privacy coins? Will government-backed stable coins become the new fiat? Are distributed and peer-to-peer exchanges just a flash in the pan? The answer is maybe. Virtual currencies can flourish and create a new, private, and more versatile economy. But that grand vision can't happen without keeping crypto clean.

And that requires support of governments and accountability for bad actors. Privacy enhanced compliance using cryptographic controls has the potential to preserve anonymity without compromising legitimate investigations. CipherTrace is working on this vision of the future. Sign up to stay up to date on the Privacy Enhanced Compliance Initiative and receive authoritative crypto-aML reports quarterly. www.w.cifertrace.com slash keep crypto clean. Decentralized identity is redefining what it means to be human.

The one vulnerability being exploited across all systems is identity. Edward Snowden said at the Web 3 Summit via video conference during the summer of 2019, in Berlin. Legacy identity mechanisms verify humans by implementing practices that require disclosing personal and private information to an identifier. Eventually, identity monopolies emerging in the marketplace gain Orwellian capacities that risk the legitimacy of any governance system. If the state is the monopoly on violence as Max Weber once defined it, then the surveillance state is the monopoly on identity. The congressional hearings of Mark Zuckerberg

mark one of the most iconic moments in modern politics. If Facebook broke democracy as we knew it, it is a direct consequence of the limitations the web protocols had regarding privacy and identity. Facebook's coup didn't begin with Cambridge Analytica and Trump's election, but was a rather gradual process that ended up impacting the propaganda strategies of every major politician in the West. When Obama was elected for the first time in 2008, he already had

Facebook co-founder Chris Hughes leading his social media strategy and nobody complained. By having either a phone number or an email address as the last resource for legitimacy online, big tech companies raised to index this by earning the trust of consumers with free services. Restricting identity to a one-dimensional pointer in a database is all it takes to enable surveillance as we know it. However, the emergence of blockchains also poses a risk if personal information ends up living on an immutable ledger without any possibility of modification or deletion. If fascism took form under a democratic country, then having private data persist forever, might not be a good idea.

Rethinking what it means to be human in cyberspace needs to take all of this into account. Bitcoin's original white paper description of one CPU, one boat, shaped the entire industry to think governance as centered around machines, not people. A fundamental right to privacy bent early blockchain design towards anonymity, but the lack of a robust notion of identity,

renders all crypto-governance practices into plutocracies. Power is always relative to stake ownership, even if stake consists of mining rigs. This inequality only empowers large holders. They are the only ones able to swing upgrade choices according to their own interests. A situation similar to pre-revolutionary France, when only property and slave owners held the right to vote. While a shareholder vote might make sense within a private entity, more skin in the game does not always correlate with the best interests of an organization. As investors holding diverse portfolios know, sometimes they can go against assets they hold for another to thrive.

This problem worsens when it comes to public goods coordinating actors with incompatible interests such as miners, users and developers. It is in this type of context that democratic systems become valuable. Fitalic Buterin pointed out that in American liberal democracy, there's this conflict between one-person-one-vote systems and one-dollar-one-vote ones, but in reality, it is all in a spectrum. When conflict within a constituency deepens, the one-person-one-vote route becomes more relevant. democracy matters more when the stakes are high and as risks increase so does the need for legitimacy in a decision-making process. Easy choices are rarely brought to a vote, so democracies need to sort out context of deep disagreements in a way that the losers agree to the result.

The lack of a reliable human identity protocol is the missing element preventing democracy from, happening on the internet today. But to keep our privacy on the internet, identity needs to be thought under a new lens, as a spectrum rather than as a single discrete value. The fact that blockchains greatly reduce the cost of generating new addresses can help change how we describe digital personhood moving forward. The challenges of building a protocol able to define humans are many. It should be able to prevent fake identities.

appearing to be unique users and resist being tricked by artificial intelligence. The goal of it would be to construct a set of cryptographic keys, each of which is owned by a different person, and which would enable them to compose multiple personas according to their privacy needs. An identity consensus of this kind would not only deliver applications like borderless democracies, but also universal basic income mechanisms and portable reputation scores leading to a social blockchain able to address society at large. The Internet has already proven to be a reliable alternative to those that have seen their finances suffer from incompetent governments. The next step in that historical progression

is building substitutes to the governments themselves with a better model for citizenship and human rights. According to the United Nations, we live under a status quo that is a excluding over 70 million refugees more than ever before in history, and a study from the World Bank found that 1.1 billion invisible people exist that do not have an identity document today, and because of that, they can't access to vital services. During the last DEF CON conference held in Osaka, a group of researchers held the first Proof-Humanity meetup

to discuss current projects addressing decentralized identity. The consensus was that any relevant attempt to formalize human identity will inevitably be attacked by powerful actors while lacking formal human identity risks leaving the whole crypto economy under tyrannical power structures. Ongoing experiments range from using indicators of the social graphs available on the blockchain, describing the relations between addresses to synchronous tuning tests that are hard for machines but easy for. for humans to perform. Human identity is hard because it is intersubjective, the product of combining objective facts with subjective agreements about those facts.

Intersubjectivity is what Habermas described as the place where mutual understanding happens. Californian philosopher John Surly agrees by claiming that all institutional reality exists in intersubjective space. This means that what defines our humanity can consist of objective facts like the biological attributes described by our genome, but who gets to decide what is or isn't human cannot be left to a single big brother or a subjective authority. Constructing an intersubjective agreement able to constantly verify the verifiers is the kind of Byzantine problem

that a protocol built for human identity must address. During the first pilots we run at Democracy Earth, the non-profit organization I co-founded back in 2015 to research digital democracy, we quickly discovered that whoever had control over the voter registry could strongly influence an election by delaying access to certain participants while benefiting others, a pattern that is not uncommon in every election,

process seen today anywhere in the world. Identity being granted from a single authority always runs the risk of political manipulation and voter exclusion. A new kind of consensus, able to verify the right to use a technology rather than verifying an identity per se might hold the key to create a system of personhood that can be adopted across all cultures. A democracy does not need to know who you are. It only needs to prevent you from voting twice. As the blockchain economy grows, the resolution of tools able to estimate

the probability of an address belonging to a unique human will improve. An example of this can be seen with distributed autonomous organizations, a set of smart contracts opening participation to human input. If these entities are egalitarian in their distribution of voting rights, the probability of a blockchain address belonging to a single human can be estimated. The tricky element is that humans can be fooled or corrupt. So any identity consensus will inerently require governance able to adapt against new threats. The advancement of artificial intelligence and deep neural networks

makes this whole problem even more urgent. Deep fakes can be perceived as fun memes to poke fan at during electoral campaigns today, but if Moore's Law continues the trend of reducing computation costs, a scenario where everyone has the capacity to deep fake everyone else could easily lead to a very unstable reality. The need for cryptographic signatures over any kind of media we produce will become a requirement in order to keep the signal-to-noise ratio high on the internet. This reminds me of a video I shot almost five years ago when my daughter was born and used it to compose her birth certificate with the Bitcoin blockchain. By simply storing a hash of that video file in a Bitcoin transaction,

the blockchain will forever certify the contents present in that visual proof. Roma was born in San Francisco and I'm Argentine by blood, but in the video I made it clear that she is first and foremost a citizen of Earth. In a future that is not far from today, how these signatures prove who we are will define what citizenship means under a brave new republic being born out of cyberspace. Santiago City, year 11. Thanks so much for joining us today. To learn more about Santiago and Democracy Earth and to read his essay at Unchainedpodcast.com,

check out the show notes inside your podcast player. Whether you're feeling this crypto winter or the other kind of winter, keep yourself warm with some unchained t-shirts, hats, mugs, and stickers, which you can find at shop.unchainedpodcast.com. Again, that's shop.com. Unchained is produced by me, Laura Shin, with help from Fractual Recording, Anthony Yun, Daniel Ness, Josh Durham, and the team at CLK transcription. Thanks for listening.