As an old-school cypherpunk in the 1990s and one of the most active members of the E-gold community before this centralized precursor of Bitcoin got shot down, futurologist Vinay Gupta has been involved with digital currency for over fifteen years. He has also worked with the United States Departement of Defence on disaster relief and state failure issues, and helped develop CheapID, a genocide resistant biometric ID card for the NSA. He later turned his attention to global disaster prevention, and invented the Hexayurt: an open source dirt-cheap disaster relief shelter design which is used today in refugee camps and at festivals like Burning Man. Gupta has been appointed as the strategic advisor of the Ethereum communications team shortly before the publication of this interview, but he is probably best known within the Bitcoin-community for his interview-snippet from the upcoming IamSatoshi documentary, in which he discusses the politics of Bitcoin…

Vinay, first of all, you describe yourself as a “global resilience guru”. How resilient is Bitcoin?

Well, if the Internet goes away, Bitcoin goes away, right? So it’s vulnerable in the same way that civilization itself is vulnerable.

But if civilization breaks down, almost any store of value becomes useless very quickly. It’s not really clear that large piles of wealth sitting there actually exist without the state to protect them. That’s easy to see for copyright and patent, but the same is true for most other passive types of ownership, such as stocks, bonds or futures. And we could go further. I own the house I live in, but that house next door that I’m renting to you? The reason it’s mine, is because the state says it is. The ability to do large scale capital accumulation without having to need a private army is basically an artefact of pre-existing law.

Some people prefer gold over Bitcoin, but even if you own a lot of gold, and civilization breaks down, you’ll need people to guard your gold. And in all probability the people guarding your gold will end up owning your gold. Either a little bit at the time by guarding it, or all at once by dis-intermediating you from the gold shed. So because of the need of physical force to protect it, you could argue that gold is actually more vulnerable than Bitcoin. Because if the Internet goes down and stays down, something so bad has happened that it’s probably gonna be machine guns on street corners.

What about Bitcoin’s resilience in regard to the state itself?

Right, resistance to state interference… That’s a really bold claim. I sort of need to see extraordinary evidence for things like that, because bluntly, the security state invented this stuff. It’s fundamentally their kit. Most of the mathematics, most of the algorithms, most of the hardware, the internet itself, all these things are spin-outs of defence projects.

And remember, we really tangled with these guys in the 90’s. Public key cryptography was regarded a weapon of war back then. The American government was really friggin’ pissed off at us, and did as much damage as they could within the law. Constant harassment, legal pressure, people lost their jobs… the whole thing was constantly on the verge of everybody ending up in jail as far as we could tell.

Note that that is no longer true…

Are you suggesting the cryptography underlying Bitcoin is compromised?

Making the jump to saying Bitcoin is compromised is too far. But if you don’t think of this within the very narrow parameters of cypherpunk history, if you put it in the larger scale of political struggle, then what did the US government do to every substantial opposition group? The American Indian movement: smashed with a hammer, you’ve probably never even heard of it. Black Panthers: smashed with a hammer, all that’s left are the Crips and the Bloods. US peace movement: people will tell stories about going to meetings, and a third of the attendees were spies from different agencies. State, federal, local, FBI, CIA, DEA…

You don’t need to be a rocket scientist to figure out that the government has the vast majority of the cards on the table when it comes to force, and they’re choosing to lay absolutely none of them on the crypto-community right now. Silk Road and all of the other drug trade sites that use Bitcoin would absolutely, without any shadow of a doubt, provide the legal reason for killing the Bitcoin-network and arresting everybody involved. Do everybody for drug trafficking, money laundering, all the rest of that stuff. But they’ve decided to better leave it up than to take it down.

So you’ve got to ask yourself: why?

Well… why?

I don’t know.

But the idea that we right now have a relatively small group of crypto-Jedi, that are so much better at this stuff than the people who invented it, and as a result are gonna bring peace and liberty for all on earth… Really?! I’m not buying it.

I don’t think Bitcoin is necessarily the existential threat to the existence of the state as Tim May’s old Cyphernomicon would have you believe it is. It is likely, however, that government without Bitcoin could very easily slide all the way into the establishment of total control over transactions by getting rid of cash and everything else.

The ecological function of dissent inside a complex society is not that the dissent immediately takes over. It’s that the dissent stabilizes the core within safe temperature parameters. With Bitcoin in the system, there’s every chance that if you really try and clamp down on society, more and more and more of the stuff will resort to Bitcoin, and it becomes harder and harder and harder to credibly lock the doors. You can imagine, for instance, how Bitcoin might have accelerated the fall of the Soviet Union if it had existed in the 1980s, just because it would have made the black market so much more powerful than the government in all kinds of ways.

So Bitcoin serves a protective function, a balancing function that didn’t exist before. And that does not require any extraordinary claims about its security against the NSA.

And the US government will be alright with this kind of re-balancing?

Well… Wall Street’s arrived. Wall Street on one side, Silk Road on the other. It’s the 1980’s all over again!

We need Wall Street?

I’m not saying we need Wall Street, but what I am saying is that the financial markets and the drugs guys have been in bed together for a very long time. And the fact that the current venue for that kind of thing actually happens to be Bitcoin, you know… the US government did not go around shooting everybody from Wall Street in the 1980s when it was cocaine and suitcases full of cash used to finance leveraged buyouts, now did it?

My suggestion for Bitcoin would be to integrate Wall Street as fast as humanly possible. Teach the Wall Street guys how to use proper cryptography, teach them how to use blockchains, teach them that the state is not always their friend, and teach them that they should be thinking about engineering around it. If Bitcoin is gonna drift into Wall Street, let’s teach them some of our bad habits. Let us make them like us, rather than us becoming like them.

Many bitcoiners would rather not see Wall Street involved at all, in order to preserve Bitcoin’s promise of freedom…

Well, that kind of utopian vision, unfortunately, is total horses*t for Bitcoin. There are three problems: natural monopolies, cartels, and power law distributions of wealth.

Bitcoin-mining is specialized by groups with heavy technological capability and enough financial strength to get custom hardware made. These miners have now pooled their computing power together because it evens out their earnings, effectively minimizing their risk. In the case of Ghash, this even puts them perilously close to the 51 point for control of the blockchain. This is cartel power.

Meanwhile, the distribution of bitcoins seems to replicate the current situation where 300 billionaires control the same amount of wealth as three billion poor people. This is partly because of early adopter dynamics and the increasing hardship of the mining process, but there’s also some evidence that power law distributions of wealth is just what happens in unregulated economies. This is a point many libertarians would argue against… but we’re doing the experiment right now, and there’s every indication that the basic structures of libertarian economics do push into that direction.

And then you have the Bitcoin Foundation, which is emerging naturally from the Bitcoin environment simply because it has established an economically efficient configuration. By paying the technical priesthood of Bitcoin known as the Core developers, the Foundation has created a huge amount of centralized power within a system that didn’t really start with any, which has now effectively turned it into a natural monopoly. And once you have a monopoly, it looks like a state. No wonder that the Bitcoin Foundation looks so frightening.If you don’t like the Bitcoin Foundation, you could start a new one, right?

Sure, absolutely. Just like you could start a new river Thames. Have a shovel. Start digging.

Look, every type of complex system needs indexing, and while decentralization is very resilient, it is also very expensive and inefficient. So indexes tend towards being singular. A single Yellow Pages, a single phone book… Two is much less useful than one, because with one it’s either in the book or it’s not.

Plus, complex systems often require centralized accountability in order to function properly. Get fifty people in a room, get them to organize some sort of task, somebody will wind up acting as a routing hub, that person now turns into a de facto leader.

“Natural” in natural monopoly doesn’t mean good, it just means that it’s an economically efficient configuration.

But we could start a new Bitcoin Foundation…

We could. But even if it is efficient, we’ll have replaced one corruptible structure with another corruptible structure.

“We’ve picked a new set of bureaucrats, and we’ve done so very carefully, they work for us. Today. Tick… tick… tick… Wow these guys are kind of jerks… Tick… tick… tick… Can we get rid of them? Maybe we should start a third Foundation!”

Right? No progress. Doesn’t work.

How about a “one bitcoin one vote” arrangement for Bitcoin-development, like you’ve suggested before, or a crowdfunding platform such as Mike Hearn’s Lighthouse?

“One bitcoin one vote” arrangements for Bitcoin could certainly dilute the natural monopoly of the Bitcoin Foundation, and a bounty-based scheme such as Lighthouse probably has similar dynamics in practice. These are both definitely better solutions than an unaccountable natural monopoly running the development process.

But they do make Bitcoin a society in which the rich can use their accumulated wealth to pay the costs of changing the rules of the game to favour them even further. That’s a problem if you want freedom. Winner-keeps-winning games eventually result in misery all the way along the long tail of poverty. Reify property as the core of politics, and you’ll eventually wind up as slaves again.

So you don’t really consider these solutions fair either?

What I’m saying is that we can’t even really define fair. So if we can’t define fair, and we’ve got a pretty hard time defining free, all that happens is that every time we build systems they run off the rails.

What a lot of these Bitcoin-kids don’t realize, is that they’re playing with nuclear weapons. They’re taking the full force of this creation, this mathematical lightsaber, and they’re swinging it around in a small room filled with young children. If you wind up in a situation where these guys win, where Bitcoin actually displaces the dollar and becomes the global reserve currency, every cut corner and every political error in their deep thinking will become the new chains that bind humanity. And the existing chains are only made out of the will of the state. These new chains are made out of mathematics, and they are a hell of a lot harder to break.

You sound pessimistic.

The primary function of Bitcoin, the long-term political value of this experiment more than any other single factor I can identify, is that it’s teaching realism to libertarians.

Libertarianism simply does not prevent the establishment of monopolies, cartels, or power-law distributions of wealth. Never has, never will. Libertarians needed to see that happen in order to understand that their ideology is actually not going to protect them against centralized power.

Now they will need to decide: did they want libertarianism, where property is used to divide everything? Or did they want anarchy, where it’s our inherent human nature that gives us freedom, not our property rights.

If these libertarians would be good enough to grow the hell up and become anarchists like normal people, then perhaps they would start to get serious about controlling centralized authorities rather than fantasizing that they will cease to exist.

How would you suggest we move forward?

First of all, what I would like to see, is a very serious, large scale, political analysis project, to really try and figure out what the hell is going on. We need to start out-thinking states and government agencies rather than just outbuilding them. We’ve gotten pretty good at this idea that with enough eyes all bugs are shallow – that’s the classic saying about open source security. But we now have a new set of security problems, which is not about finding bugs, but about analysing motives. So we need lots of eyes analysing motives, finding out whether or not we’re basically shooting ourselves in the foot here. I don’t see any reason why that shouldn’t be another large scale open source project, like Wikipedia. An open intelligence agency, that publicly does the risk and threat analysis, publishes the results, is open to feedback, and builds a realistic study of what kind of exposure we have to these bastards. Very much like STRATFOR, but for the open source community.

And the second priority – after integrating Wall Street – is taking all of the money that people are making in the Bitcoin system, and using it to build the friggin’ successor. Everybody thought Bitcoin was gonna bring them freedom and liberty, but what it has brought them are three different kinds of entrapment. Let’s take these lessons, and make a Bitcoin that is useless to Wall Street, that doesn’t automatically create a cartel of miners, and that doesn’t leave a power vacuum for development which some Foundation will fill.

And I want to emphasize: this is super clearly a social problem. Not a technical one. You need to build a social understanding that can finance the technical development in order to deliver the software you want. And make no mistake: a system that solves this problem effectively is a government.

I do believe this is entirely possible. In the same way that you’ve got the eBay mafia – a bunch of guys that got rich off inventing eBay and went on to build new amazing things – and the PayPal mafia – a bunch of guys that got rich of inventing PayPal and went on to build new amazing things – we’ve now got a huge Bitcoin mafia that’s got buckets full of money… So where are my amazing things? Go forth! Conquer! Go out and make the world amazing!