Nothing is sacred for retailers mining your every purchase (Image: Kirk Mastin/Getty)

If bitcoin-like currencies take off, might people power stop big firms from invading our privacy? A bold thought from crashing together two new books

AS THE second biggest discount retailer in the US, Target has more than 100 million customers. Each is assigned a unique identification number, allowing Target to track their purchases and tempt them with targeted advertisements.

The same data permits Target to perform a more startling feat: by correlating purchasing patterns with its online baby registry, the company can determine which products pregnant women typically buy each trimester. First come the vitamin supplements, then cotton balls and unscented soap. Just by studying these buying patterns without any knowledge of the person, Target can also accurately predict when a customer is pregnant.


“Just by studying buying patterns, US retailer Target can predict when a customer is pregnant”

For Target, this kind of consumer data mining is a marketing triumph. For Frank Pasquale, writing in The Black Box Society, it’s a travesty. Pasquale is a law professor at the University of Maryland, and he sees Target’s intrusion as part of a larger failing to protect privacy.

As he writes: “Important corporate actors have unprecedented knowledge of the minutiae of our daily lives, while we know little to nothing about how they use this knowledge to influence the important decisions that we – and they – make.”

These asymmetries surround us. Pasquale is equally outraged by the hidden systems used by credit agencies to determine people’s credit ratings, and the proprietary software human resources departments use to make hiring decisions. He also rails against the secrecy surrounding how Apple chooses its apps, and how Google’s search algorithms do their page ranking. All of these are what he calls “black boxes”, by which he means that they are constantly recording us while being inscrutable in their own right.

Given his sheer range of targets, Pasquale faces a formidable challenge in presenting a coherent argument. He attempts it by showing how powerless we are to prevent companies from collecting data about us, and how easily the information can be abused.

Many of the numerous cases he presents have received media attention: prospective employers who run background checks by scrutinising Facebook, for example, online retailers that tweak prices based on shoppers’ addresses, credit card companies hiking interest rates when they discover cardholders who seek marriage counselling, and banks that misrepresent risky investments to unsuspecting clients.

While grouping this together is a dramatic way to conjure a trend, defining abuse so broadly undermines any serious call to action. Yet Pasquale is undeterred, urging government regulation and demanding transparency about data collection so regulators can dictate how information may be used. From predictive marketing to predatory banking, the law professor’s remedy is legal action.

Pasquale does fleetingly acknowledge an alternative. Almost in passing, he mentions “digital self-protection” – his catch-all for everything from cyber-hygiene on Facebook to internet anonymity on Tor, an “onion network” that randomly relays deeply encrypted data through thousands of decryption nodes to prevent eavesdropping.

But he quickly rejects such measures as ineffective, inaccessible and/or potentially criminal. He writes: “I wouldn’t want so-called ‘cryptocurrencies’ hiding ever more money from the tax authorities and further undermining public finances.” For a book purporting to be about the interrelationship between privacy and technology, this is a disappointingly glib dismissal.

Admittedly, cryptocurrencies such as bitcoin aren’t easily understood, a problem that has contributed to their questionable reputation. But in Cryptocurrency, Wall Street Journal writers Paul Vigna and Michael J. Casey do an admirable job of setting things straight when they explain the technology to the uninitiated, and make a case for its importance.

More than just a new kind of money, cryptocurrency is a “force for transparency and accountability”, they write, with only slight hyperbole. “At its core, this technology is a form of social organization that promises to shift the control of money and information away from the powerful elites and deliver it to the people to whom it belongs.”

Though the principle of cryptocurrency predates bitcoin, the idea became viable only six years ago, when a person or group operating under the alias Satoshi Nakamoto posted a plan to a cryptography mailing list for an “electronic cash system”.

Nakamoto’s proposed system was peer-to-peer, meaning that it would use a decentralised computer network. Provocatively, there was to be no “trusted third party” so transactions would take place without the oversight of government or bank. Instead, everyone would be kept honest – and nobody would spend money they didn’t have – because all credit and debt would be tracked in an open ledger called the blockchain. All transactions between accounts would be known to everyone. Only the account holders would remain anonymous, controlling their accounts cryptographically.

“Nakamoto proposed that transactions could take place without oversight of government or bank”

Nakamoto’s plan worked well enough that there are more than 5 million bitcoin accounts globally, and hundreds of cryptocurrencies use variations on the bitcoin protocol. There has also been no shortage of scandal, such as the hacking of bitcoin exchange Mt. Gox and theft of bitcoins, and the shutdown of Silk Road, a bitcoin-based online emporium that specialised in illegal drugs. Vigna and Casey show in detail how such scandals have contributed to bitcoin’s notorious fluctuation in value, without having any impact on the trustworthiness of the blockchain ledger itself.

As financial writers, Vigna and Casey are most interested in how cryptocurrency can fix our global financial system, making the movement of money more efficient and curbing the power of banks. Yet, as they observe, the greatest cryptocurrency breakthrough is to free people from “the tyranny of centralized trust”. The blockchain concept can support anything from personal loans to retail sales to contractual agreements, always preserving personal privacy.

Bitcoin is still a small player in the global economy, and so-called blockchain 2.0 applications are fledgling, but that can change if we so choose, just as we can decide about government regulation of technology. And if cryptocurrency does transform the power dynamics of finance and commerce, many of the injustices and indignities raised by Pasquale could simply become irrelevant.

The Black Box Society: The secret algorithms that control money and information Frank Pasquale Harvard University Press

Cryptocurrency: How bitcoin and digital money are challenging the global economic order Paul Vigna and Michael J. Casey Bodley Head

This article appeared in print under the headline “Trapped in the machine”