It is said time and time again that Bitcoin is censorship resistant money. It has been repeated ad nauseam to the point of losing its meaning. In fact, I would argue most people repeating this sacred creed, has no idea what it means, and doesn’t actually believe Bitcoin should be censorship resistant money. What does censorship resistant money mean? What further improvement does Bitcoin need to fulfill this prophecy?

Let’s define what censorship resistance means. Before we begin, I must issue a trigger warning to all the government cultists out there. Censorship resistant money means you can spend your Bitcoin anywhere, without anyone’s approval. Most people, at face value, will agree this is a desirable property of Bitcoin. Let’s dig a little deeper before we agree. If your Bitcoin transaction is subject to extortion, regulation, or surveillance of any kind, then it is not censorship resistant. Sure, you can send one Bitcoin on-chain without anyone’s approval, but if a social condition of sending that one Bitcoin is giving the government 30% of it, then is Bitcoin really censorship resistant? Additionally, you can send a business one Bitcoin, but if the service is subject to one thousand different regulations, then again, how censorship resistant is that Bitcoin? The government isn’t stealing the Bitcoin on-chain, but a social condition of you using the Bitcoin is that the government gets a certain percentage and must approve of the transaction. This is where Bitcoin’s property of censorship resistance breaks down — When payments exit the blockchain and enter the real world. This is the problem we must solve

Before we go further, please ask yourself some important questions: Do you believe in censorship resistant money? If Bitcoin transactions are still subject to extortion/regulation, then what differentiates Bitcoin from fiat? If you do believe in censorship resistant money, and wish to see that vision manifest in reality, it is important you keep reading. Bitcoin by itself cannot fulfill the censorship resistant prophecy. It requires an additional layer to achieve that end goal.

Centralized businesses are the crucial chokepoint where Bitcoin’s advantageous properties begin to break down. Bitcoin works as intended when Alice sends money to Bob, Bob sends to Charley, but when Charley sends money to Walmart, or any other centralized business, he quickly realizes Bitcoin is not censorship resistant. The transaction with Walmart will be subject to extortion, regulation, and in the future will likely require KYC/AML of some kind in order to be accepted. How can Bitcoin overcome this barrier?

Centralized businesses are prone to censorship because a large amount of economic value is routed through one central location. This creates a honeypot such that the marginal value returned from extortion exceeds the marginal cost. In order to avoid being shut down, the centralized business pays ransom to the mafia and abides by all of its rules. We have already seen this with Bitcoin-related businesses like Coinbase and Shapeshift, and will soon see this with any centralized business accepting Bitcoin. The only way to circumvent this censorship is to reroute around the centralized business entirely. Or in other words, for Bitcoin to work as censorship resistant money, we must create a scalable network of peer-to-peer trade.

Peer-to-peer trade is censorship resistant because in order to censor trade, the mafia must surveil every individual in the peer-to-peer economy. Peer-to-peer trade has already proven to be censorship resistant on a grand scale. We all engage in peer-to-peer trade on a daily basis. When a mother makes dinner for her family, this is a trade. She does not pay ransom on the value of her time cooking the dinner to the mafia. Another example, when the mother hires a babysitter down the street to watch over her kids one night, she does not pay ransom on the transaction as it is impossible for the mafia to surveil the trade. While most people believe in the cult of government, they intuitively act against it every chance they get. Even the most devout socialist chooses not to pay extortion when the opportunity presents itself. If we build a scalable framework of peer-to-peer trade, you will soon find that very few people actually believe in government. Most people, intuitively believe they have a right to trade without interference in their personal life, despite what they vote for.

If you have followed along with me to this point, the obvious question remains: Is it possible to build a scalable network of peer-to-peer trade? If you believe this to be impossible, or are otherwise curious, consider the following argument:

Problem — Why are We Dependent on Centralized Business?

The core value proposition of all businesses can ultimately be reduced down to maintaining trust/reputation. For example, Subway is not really in the business of selling subs. Subway sells a trusted brand, that happens to make subs. Anyone can make a sub. The value does not come from the sub itself, but rather comes from you trusting Subway’s reputation to give you exactly what you are demanding. This same concept can be applied to most businesses. Uber does not sell taxi rides, they sell trust in getting a taxi ride. AirBnb does not sell housing, they sell trust in securing safe housing. Anyone can sell a taxi ride, anyone can sell housing, but not anyone can provide assurance that you will get exactly what you paid for. This is how businesses make money, selling trust. This very reason is why we are dependent on centralized businesses. We have not solved how to facilitate trust absent a centralized business. If we solve decentralized trust, then we no longer have a dependency on the centralized business. Without the centralized business, the mafia has no means of enforcing its arbitrary rules/censorship. Thus, it can be concluded that solving decentralized trust is the barrier to censorship resistant trade/money.

Solution — Decentralized Reputation

Many will assert that decentralized trust/reputation is impossible. That may have been true before the discovery of the blockchain. The blockchain gives us the necessary infrastructure to facilitate decentralized trust. It’s quite simple really. Instead of registering your identity with a centralized business like Uber, AirBnb, YouTube, Facebook, Subway, etc, you will register your identity to a Bitcoin address. This special Bitcoin address will only designate your identity, it will not be used for payments. This Bitcoin address will serve as your immutable reputation across all trade. For every trade, the individual will be staking his entire lifetime of identity on it. The cost of negative reputation from defrauding one trade, in most cases, will exceed the value returned. Additionally, on this Bitcoin address, trusted third parties can attest to skills claimed, real world identity, and a number of other possibilities. The key distinction is that trusted parties are subject to open competition.

Solution — Matchmaking

After establishing decentralized identity, the next step is decentralized matchmaking. Matchmaking is rather simple. Now that the individual owns his identity, he can port his identity into any application. He is no longer held hostage to the walled garden network effects to the likes of Uber, eBay, AirBnb, Facebook, etc. He can simultaneously broadcast trade requests to all competing matchmakers. This makes it nearly impossible for centralized companies to monopolize the network effect.

There are a number of additional layers and corresponding counterarguments for this model which I will not bore you with in this article. If you are interested in discussing further how this system works I am happy to do so here. We could really use your help.

In any event, if you believe censorship resistance is the defining characteristic of Bitcoin, it is important we solve the problem of scaling peer-to-peer trade. Without it, Bitcoin cannot really be used in any meaningful capacity which differentiates itself from fiat. It will still be subject to the same extortion, surveillance, and control, as its fiat counterpart. At which point we must ask ourselves, will the Bitcoin experiment have failed?