Bitcoin isn’t the future

Because the need to link to my post ”Bitcoin + framtiden = falskt” have sometimes come up when commenting in English, here is a translation. Pardon my lousy English.

There’s a lot of talk about Bitcoin now. The exchange rate was recently over 1,000 dollars per Bitcoin.

One of many people who often write about Bitcoin being the future, is Rick Falkvinge. For example today [the ”today” when I wrote the original post]. The speed and the voluntary, low transaction fee are two often given reasons.

Bitcoin has many advantages, but it has also disadvantages, which I will write about here:

The anonymity that isn’t there

On many websites, in newspapers and on TV it is said that bitcoin is an anonymous type of transaction. That is true, since no personal information is needed to create an account. But the Bitcoin system is based on traceability.

All transactions are stored permanently in the ”block chain”, which is open for the public to look at. Everyone can see, citizen, business and intelligence agency alike, which bitcoins has been transferred, from what account they were transferred, to what account.they were transferred. The accounts are only identified by a random code, but if one has access to other information, such as what person had what IP address when the transaction was made, or a receipt , either a paper one or one online, that includes the account numbers, it is a trivial task to pair a certain transaction with a certain individual and a certain business, or with a certain pair of individuals.

Since every ”part” of a bitcoin has its own unique ID, one can trace exactly what money has gone where. If one sends a bitcoin around between twenty different accounts, and then to the payment receiver, it is still likely that the sender and receiver can be identified, since a constant sum has been moved around. Splitting it into parts of different sizes in every step is safer, but with the revelations of backdoors in lots of cryptography, it is likely that it’s still possible to track it.

Also, the most convenient way of paying in Bitcoin in a store, is with a smartphone. Both Google’s and Apple’s smartphones have time after time been proven to be about as leak-proof as a sieve. GPS positioning, user behaviour, wireless networks, and – as with all cell phones – positioning by the cellular grid. If this can be connected to the Bitcoin accounts, it’s full speed ahead for the surveillance people, both the ones in advertisement and the ones in the government’s service.

Cash wins here.

Regulation or ban

If bitcoin is widely accepted, and the problem with the lack of anonymity is solved, government regulation will be made instantaneously. When looking at regulation of the centralised digital payment solutions[from Sweden/EU perspective, I’m not sure how it is in the rest of the world], one can assume that making anonymous transfers with Bitcoin will become illegal, no matter if it’s technically possible or not, and because the responsibility is on citizens and not businesses, the punishment will be harsh.

If Bitcoin becomes big, many banks will go out of business since they will become unnecessary. The banks, that are mega businesses, will put an end to that through massive amounts of lobbying. Laws may be made, that completely prohibits the use of Bitcoin, and also in this case, very high penalties can be expected.

Governments also have an interest in banning Bitcoin if the anonymity is preserved, since it will be harder for them to get the taxes. And the bank lobbyists will blow that fact way up out of proportion.

When the first big country in the West, probably USA, prohibits or heavily regulates the use of Bitcoin, all others will quickly follow suit, and the Bitcoin value crashes to just about zero.

Hacking, with regards from the NSA

If regulation and bans would be unsuccessful, the NSA might have an ace up their sleeve. As mentioned, they have built backdoors, not in cryptography software, but in random number generators, so that cryptography from all software can be cracked.

Bitcoin is entirely based on cryptography.

Conclusion

Bitcoin is not a replacement for cash when anonymity is required, and because of how much one can find out about a person through what they buy and sell, anonymity is required for all transactions. The problem is just that the public hasn’t understood that yet, and probably won’t until it has an adverse effect on them. And by then, it’s too late. [link to page in Swedish]

Bitcoin may become illegal, and if that happens, all value in them will disappear. A reason as good as any, not to have too much value stored as Bitcoins.

If Bitcoin gets big, governments that can’t keep their noses out of peoples private lives will require that ID is registered everytime a transaction is made. As bad as todays systems, and with Bitcoin there is one more reason for them to abandon cash, and with it, all anonymity in transactions except for sheer goods-for-goods-or-services trading.

Bitcoin might be deliberately crashed by the NSA if it causes trouble for USA. Since USA is living on ”Monopoly money” it’s likely that Bitcoin will cause trouble for them. What is one plus one?

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