What problems are cryptocurrencies good at solving? In 2017, entrepreneurs and fortune 500 companies alike were rushing to integrate cryptocurrency tech into their businesses, only to realize that traditional centralized databases are generally faster, cheaper, and easier to manage, thus making the latter the superior solution to most problems. But the question remains: What is cryptocurrency tech uniquely useful for? This was a question I was forced to consider first-hand when developing the Ultranet, the first censorship-resistant private marketplace that launched last week. My conclusion, which I cover in this article, is that platforms based on cryptocurrency tech are uniquely good at one thing in particular: not being shut down, a property known more formally as “censorship-resistance.” And in this post I will argue that cryptocurrency tech is the right solution to a particular problem if and only if censorship-resistance is required. Notably, I will also argue that common benefits people typically attribute to cryptocurrency tech, like privacy, open-source collaboration, and the ability to create and track digital assets are actually all things that centralized solutions do just as well, and that these properties only become a competitive advantage for cryptocurrency tech when coupled with censorship-resistance.

What is Censorhip-Resistance?

Simply put, a database is censorship-resistant if it is resistant to being shut down and resistant to having its data tampered-with. For example, Bitcoin and the Ultranet meet arguably the highest bar for censorship-resistance because everyone who uses the software stores a replicated copy of all the data, and as long as a single computer somewhere in the world is running the software, all that data is preserved. Additionally, these networks enforce strict rules through consensus that prevent their data from being tampered with. For example, you can’t print yourself free money with Bitcoin and you can’t mess with another merchant’s listings on the Ultranet, even though anyone can technically run a machine on these networks.

The fact that these networks are “unpermissioned,” meaning anyone in the world can spin up a machine and serve a copy of all of the data, is the key to their censorship-resistance, and distinguishes cryptocurrency platforms like Bitcoin and the Ultranet from so-called “permissioned” networks like those run by the major platform monopolies (e.g. Google, Amazon, Baidu, Alibaba, etc…). To elaborate, Amazon’s machines are managed and configured meticulously by a select group of engineers, whereas Bitcoin and the Ultranet don’t require any such configuration or centralization of control. This makes a database like the one that serves Amazon far easier to take down and/or corrupt than the one that powers Bitcoin or the Ultranet. In particular, to take down Amazon, all one needs to do is apply pressure to the small group of people and/or machines that are known to be running the service, whereas to take down Bitcoin or the Ultranet one must generally play a difficult game of “whack-a-mole” against every random person on the internet who decides to run an instance of the software. This is not to say that it is necessarily impossible to shut down the latter, but hopefully it’s obvious that it is significantly harder (hence why they’re referred to as “censorship-resistant” not “censorhip-proof”).

When Is Censorship-Resistance Useful?

The answer may seem obvious, but censorship-resistance is useful when something is at risk of being shut down. If we take this to be the sole benefit of cryptocurrency tech, as I argue later, then the technology’s applicability is vastly narrower than that of traditional centralized databases. And indeed, I think this is precisely what people had to learn the hard way after the crypto mania in ~2017 subsided (and what some people are still learning even today).

However, although not as broadly-applicable as centralized databases, I would argue that the role of cryptocurrency tech in our society is still extremely important because it is uniquely capable of producing tools that can fight oppression. A good case study of this is Bitcoin. Although opinions on Bitcoin can be mixed, I think it is safe to say that it would have been shut down fairly quickly after launching by the authorities were it not censorship-resistant (and indeed, other efforts like eGold and Liberty Dollar were shut down swiftly before Bitcoin). However, because Bitcoin was able to resist the initial attempts to shut it down, it now presents, in my view, one of the most powerful checks on the US’s dollar hegemony that exists today, and I view that as a very positive thing for society.

Similarly, the Ultranet, as the first private censorship-resistant marketplace, is a platform where all listings, orders, ratings, and all other marketplace data will persist as long as a single machine somewhere in the world is running the software, thus making it robust in the face of political turmoil or unfair trade practices implemented by hostile nation-states.

But Then Won’t Cryptocurrencies Be Used Exclusively for Bad Things?

First, it depends on what one means by the term “bad.” For example, it’s often the case that what one nation labels as “freedom-fighting” is labeled by another nation as “terrorism.” Sometimes, these labels can be grey even within a single nation, for example in a dictatorship where the incumbent legitimately sees the opposition as undermining a nation’s natural order. As such, it generally seems more correct to say that cryptocurrencies increase “freedom” in a broad sense, which strengthens the voice of all actors, “good” and “bad.” Nevertheless, at some level, one can ask the question: will cryptocurrency tech cause society to devolve into anarchy? My answer is a firm “no” for two reasons.

Bad actors can still be caught and prosecuted. In a country with rule of law, bad actors who abuse cryptocurrency platforms can still be caught and prosecuted. For example, if someone uses Bitcoin to launder money and the government finds out, then that person can be apprehended and convicted of a crime through due process. The only thing that cryptocurrency tech does is weaken a centralized power’s ability to blanket-ban an activity by attacking a centralized choke-point (e.g. as was the case with eGold or Liberty Dollar), in the same way the right to bear arms (the second amendment of the constitution) makes it harder for a government to coerce an unarmed population. While one could argue this could result in an increase in the cost to find and prosecute people who abuse a platform, it also provides a check on governments and platform monopolists that try to oppress their people/users through the censorship of information, and I would argue that the value of the check far exceeds the increased criminal prosecution cost. A great case study of this is Tor, the dominant anonymous web browser. Tor is sometimes criticized in countries like the US for enabling illicit activity, yet it is actually funded by the US government precisely because it supports freedom of information in other countries all over the world (i.e. because the value of the check on centralized power generally exceeds the cost of making it harder to hunt down criminals).

In a country with rule of law, bad actors who abuse cryptocurrency platforms can still be caught and prosecuted. For example, if someone uses Bitcoin to launder money and the government finds out, then that person can be apprehended and convicted of a crime through due process. The only thing that cryptocurrency tech does is weaken a centralized power’s ability to blanket-ban an activity by attacking a centralized choke-point (e.g. as was the case with eGold or Liberty Dollar), in the same way the right to bear arms (the second amendment of the constitution) makes it harder for a government to coerce an unarmed population. While one could argue this could result in an increase in the cost to find and prosecute people who abuse a platform, it also provides a check on governments and platform monopolists that try to oppress their people/users through the censorship of information, and I would argue that the value of the check far exceeds the increased criminal prosecution cost. A great case study of this is Tor, the dominant anonymous web browser. Tor is sometimes criticized in countries like the US for enabling illicit activity, yet it is actually funded by the US government precisely because it supports freedom of information in other countries all over the world (i.e. because the value of the check on centralized power generally exceeds the cost of making it harder to hunt down criminals). Good actors tend to outnumber bad. Almost as a rule, any technology that makes it easier for good actors to do business simultaneously makes it easier for bad actors to do business. The key, however, is that the benefit to society of decreasing the friction for good actors tends to vastly outweigh the cost of allowing bad actors the same benefit. Think about email, messaging apps, etc… and imagine how absurd it would be if we banned them because of the small amount of illegal activity that occurs on them. Again, even Tor is a great example of this since the amount of illicit traffic on it is completely dwarfed by the amount of legitimate traffic.

Why Privacy Doesn’t Count as a Cryptocurrency Benefit

People often argue that cryptocurrencies are “more private” than fiat currencies. But nothing about cryptocurrency tech makes it more amenable to implementing privacy features compared to implementing these features on a centralized database. Rather, cryptocurrencies’ censorship-resistance makes the privacy features more useful than on a centralized platform where such privacy features would be subject to regulatory scrutiny and the implementation of compliance protocols that would undermine the privacy added by such features.

For example, you could implement all of Bitcoin’s features on a centralized database. Just have people submit proof of work hashes to a centralized server, and have blocks tracked in a single unified SQL database hosted on Amazon Web Services. Nothing about this would diminish any of Bitcoin’s functionality; in fact, a centralized implementation like this would arguably be significantly easier to use because nobody would have to run a node other than the centralized operator. What it would diminish, however, is Bitcoin’s censorship-resistance, hence why I argue that censorship-resistance is actually the only “new” thing Bitcoin is really doing. Note that the exact same argument would apply to the Ultranet, Ethereum, Monero, etc…

Why “Open-Source Collaboration” Doesn’t Count as a Cryptocurrency Benefit

Some argue that cryptocurrencies give us a way to develop new apps more collaboratively than we could before. And while it is true that an open-source platform can be developed more collaboratively than one that is closed-source, there is nothing about cryptocurrencies that make them inherently more amenable to open-source development as far as the technology goes. As evidence, some of the most popular databases today like Postgres, MySQL, and even MongoDB are open-source and collaboratively-developed just like Bitcoin and the Ultranet. And Linux, arguably the most popular operating system in the world, was developed and refined by companies all over the world until it became so dominant in server infrastructure that Microsoft had to include it in its cloud offering as a first-class citizen. All this not even mentioning the plethora of web frameworks available for front-end development. Obviously it is great that Bitcoin and the Ultranet are completely open-source — but do they fundamentally more in terms of open-source collaboration than all of these examples?

Why “Digital Assets” Don’t Count as a Cryptocurrency Benefit

Some would argue that cryptocurrency tech gave us a fundamentally better way to create and track digital assets. But what, precisely, can cryptocurrencies track that a centralized alternative couldn’t? Indeed, a centralized database is perfectly capable of tracking digital assets globally, which is why basically every stock exchange and every bank ledger is implemented as a centralized system.

Generally, I would argue that the only time it might make sense to represent a digital asset as a cryptocurrency is when you’re worried about censorship. For example, Bitcoin, as we covered earlier, would have been shut down if it were not censorship-resistant. And in the case of cryptokitties, I would argue the only reason they became a phenomenon after Ethereum launched and not before is because the censorship-resistant nature of Ethereum allowed them to launch without having to worry as much about money transmission or securities regulation, and that this is at least partially what was preventing gaming companies from allowing their in-game assets to trade for money in the first place. The same argument is the one I would make with regard to any blockchain asset (or else I would argue it’s probably better-implemented on a centralized database).

So Where Should We Apply Cryptocurrency Tech Going Forward?

As I said early on, I think cryptocurrency tech should be used if and only if whatever you’re building is at risk of being shut down or censored. This was the case with Bitcoin and it’s also the case with the Ultranet. Moreover, I think this simple rule can serve as a great compass to determine which cryptocurrency projects are actually solving real problems and which are just trading off of marketing and hype. Should we be worried that cryptocurrencies will be relegated solely to nefarious pursuits? I don’t think so; rather, I see them as the only reliable check against centralized oppression that we have at our disposal today. A check not just against government oppression, but also oppression by a de facto oligarchy of platform monopolies (e.g. Google, Amazon, Baidu, Alibaba, etc…), whose power over us as their users and over government processes through lobbying has steadily grown to pose arguably the greatest threat we’ve yet seen to our individual sovereignty. And indeed, that’s precisely why I decided to create the Ultranet.

If you liked this post, it would mean a lot to me if you could share it on Twitter.