Financial Freedom and Democracy Depend on the Public Discourse around Blockchain Evolving. Fast.

There is no denying that public blockchains (cryptocurrencies) remain a controversial topic for regulators, mainstream investors, and most businesses. Major developments over the past two weeks require everyone set their emotions aside and take a critical look at what has been, until now, a mostly harmless, energy-wasting technological experiment.

Two news stories dropped recently that seem unrelated on the surface, but should scare absolutely everyone concerned with data privacy and financial freedom in any form:

1. Coinbase, the trusted US gateway for entering cryptocurrency markets, acquired a blockchain analytics company called Neutrino just as Texas began discussing a bill to require crypto users to verify their IDs.

2. Facebook is said to be in talks with major cryptocurrency exchanges about listing its token this year.

So what’s the big deal? Why the alarmist tone?

These two developments represent cryptocurrency shifting from a speculative marketplace for early adopting tech nerds to a serious threat to economic security being embraced by global corporations. Let’s dive in to these developments and see why they triggered the alarm.

The Exchange Opportunity

In order to understand what is happening with Coinbase, it’s important to understand two key characteristics of cryptocurrencies that represent a substantial opportunity for exchanges:

1. Bitcoin and Ethereum are pseudonymous — Since you are entering and exiting the digital currency ecosystem at exchanges, your identity can be traced to your account at these gateways.

2. Balances are public — You can search any Bitcoin or Ethereum address and/or transaction, then trace its entire history.

Combining these two concepts, exchanges clearly have a major opportunity — since they are the gatekeepers tagging your name to your pseudonymous account, if an exchange were to build out its analytical capabilities, it could reconstruct the entire transaction history of its users on these public blockchain networks.

Taking this one step further, imagine this analytical arm of the exchange collecting publicly available data, as well as information from data breaches at other exchanges, and feeding it into their model. This firm would start to have a very accurate map of every transaction on the network, ever. Making matters worse, once an account is tied to an owner, the analytics arm of this exchange could continue to track all of these users and their transactions into the future. If states like Texas actually do pass bills requiring crypto users to verify their IDs to access digital coins, then the business model for exchanges becomes all the more appealing.

How much do you think corporations would pay for access to a map of every financial transaction, ever?

It looks like Coinbase would love to find out. The largest US on-ramp to the cryptocurrency marketplace recently acquired Neutrino, a blockchain analytics firm focused on — you guessed it — tracing cryptocurrency transactions with publicly available information. David Morris at Breaker Magazine did an excellent piece recently on Neutrino, but in short, many of the founders have a dark history of involvement with a group of Italian hackers known for selling surveillance technology to authoritarian regimes.

This development is quite literally one of the darkest in the industry’s recent memory. As mentioned in my earlier piece, the ability to trace every transaction not only leads to a loss of privacy — it also enables discrimination.

Coinbase’s acquisition of these staff members has led to outcry on Twitter with #DeleteCoinbase going wild. Coinbase responded with a press release that every major “unbiased” cryptocurrency media outlet — from CoinDesk to The Block — unquestioningly re-published. Read the statement yourself and you’ll notice only vague references to a transition plan for certain unnamed staff. Keep an eye on how that develops.

Facebook: The Global State

When it comes to data security and privacy, Facebook is one of the worst offenders in history. There have been numerous documented cases of the company putting profit ahead of the privacy and security of customer data. Facebook sees value in this because they are incredibly effective at using data to map customer profiles and accurately predict interests, personalities, and so on — allowing them to make obscene amounts of profit while paying nominal fees for breaking a few rules along the way.

Facebook brought in US$16 billion in 2018. That’s more than the GDP of Sierra Leone and the Solomon Islands, combined.

Now, briefly stop thinking of Facebook as a company. Start looking at them as a global, stateless powerhouse of political and economic influence. A country without borders, so to speak.

Well, now, Facebook claims to be imminently launching their own cryptocurrency and they are looking for exchanges to list it.

A Corporate Social Credit System

In other words, Facebook is minting the first major, all digital global currency with no privacy guarantees whatsoever. This lack of privacy actually benefits Facebook and allows them to become an even more powerful global state. Crucial to this, Facebook has the data to create a social credit system since they have been tracking your life for over a decade, including but not limited to your social interactions, moods, health issues, attendance at parties (facial recognition in photos!), marketplace purchases, jobs, schools, messaging, groups you joined, pages you follow, and events you attended. In some instances, Facebook may have you on record since the moment you were born because of photos your parents posted.

Sure, there are credit agencies that track your credit in the USA by analyzing certain key data points. And yes, these systems are unjust and play a significant role in the opportunities afforded to one group or another. At minimum though, these ratings agencies are separate entities from the banks and businesses themselves that you wish to buy or borrow from.

In Facebook’s future, they control the money supply, the social rating system, and your personal data down to some very explicit details. If the headlines about China’s social credit system scare you, Facebook should REALLY TERRIFY you.

Are you a minority? Do you have a disability? Did you hold the door for an elderly person? Did you say something against the government? Do you check your email each day or do you ignore messages? Get ready for all of this information to feed in to one giant algorithm that decides your financial access with no intermediaries to act on your behalf when you are inevitably discriminated against.

Closing Thoughts

Combine the level of insight Facebook has into your personality and daily life, with the analytical capabilities of an exchange like Coinbase — and humanity is headed down a dark path towards a future where the actual money supply is controlled by corporations and we have no control over our own data. Journalists need to dig deeper on this stuff and push the real story. Enough of the scare tactics about price volatility. This space is truly evolving in ways that must be covered in a comprehensive manner.

Regulatory agencies need to wake up. Fast. Recall the blockchain is immutable and distributed across hundreds/thousands of nodes. We can’t delete this stuff. Once this can of worms is open, it can’t be closed. The risks to democracy, personal freedoms, and financial access are simply to great for this inarticulate, highly ambiguous, and sometimes outright dangerous regulatory approach to continue.