Posted by: Evan Faggart August 13, 2014
The decentralization that cryptography and it’s application to online networks has brought about has been simply amazing. Using this technology, entire online communities can be formed where the participants, as long as they implement proper cyber-security, are completely anonymous, untraceable by a government or anyone who may be snooping around.
These online, decentralized communities have mostly centered around the illicit drug trade, with marketplaces arising on the DarkNet that allow individuals to buy drugs anonymously. The most popular of these drug marketplaces was Silk Road, which was infamously raided by the United States Federal Bureau of Investigation in late 2013. However, since the Silk Road raid, many other drug marketplaces have have started taking measures to further increase the security of their websites, making it harder for the legal authorities to bust their operations and thereby further protecting their customers. In fact, we are even starting to see the possibility of completely decentralized markets. OpenBazzar, formerly known as Dark Market, seeks to create an entirely decentralized marketplace, not just a centralized website operating on a peer-to-peer distribution network. If OpenBazzar ends up being successful, the implications for the future of anonymous exchange could be grand.
Although these drug markets do not appear to adhere to any political ideology or any kind of philosophy on the surface, there is indeed an underlying libertarian philosophy that is present in these drug markets. These DarkNet markets, whether they know it or not, are promoting the principles of individual liberty; by selling drugs that have been outlawed by the world’s governments, these enterprises are promoting the freedom of choice and economic liberty. The fact that most, if not all, of these businesses are not concerned with philosophy and ideology, only making money, is of particular interest. Their purely profit-driven actions serve to confirm efficacy of the free market. Individuals exchanging with one another do not have to be driven by some higher moral values in order to make the free market work. Self-interested action perpetuates the free market and creates external benefits that improve the wellbeing of all people involved in the economy. Not everyone needs to be a Ross Ulbricht in order to make the free market work.
We are starting to see the great things that decentralization can bring to the online world, even if all we have currently is the P2P Tor network on which these drug markets operate. But what if decentralization were to be applied to the physical realm? What kinds of changes would that bring to our global society? With increased decentralization in all aspects of society, digital and physical, our communities are becoming more free and voluntary. The most obvious impact that decentralization can have on our world is in the liberation of the banking system from the control of governments.
The exchanges on the DarkNet drug markets take place solely in terms of crypto-currency, the most popular one being Bitcoin. Crypto-currencies are very interesting because they are both a currency and a monetary infrastructure bundled together into the currencies’ respective protocols. Bitcoin is not simply a different form of the US dollar or the Euro, it is a monetary system that is entirely decentralized, free from the control of some central regulatory agency. Bitcoin is a digital currency that is mined by using computing power to solve algorithms, sent through an online payment system—the blockchain—where it is recorded on a public ledger, and stored in a digital wallet. The Bitcoin system is decentralized, pseudonymous, and trustless. You can send and receive payments without revealing your identity and without having to trust a faceless banker that has the final say over your money.
We can clearly see the potential that this kind of advancement in monetary technology has in terms of overhauling the existing, centrally controlled monetary systems. Bitcoin’s instant, virtually costless transactions will make sending and receiving money faster and easier than it has ever been in history. Additionally, the fact that Bitcoin is entirely digital and can be stored on computers offers the potential to make banking extremely less expensive than it currently is. In fact, physical banks could be rendered obsolete altogether.
But the cost-effectiveness of Bitcoin is not the important part of its possibilities for changing banking. The main benefit of Bitcoin is not lowering banking costs, but fundamentally changing banking as we know it.
The world’s banking systems are currently operated as massive institutions covered with red tape and shrouded in bureaucracy. On top of that, they are all controlled by a central bank, the final authority on a country’s monetary policy. The central banks are created by the governments and are politically independent; essentially, they answer to no one. They are rarely held accountable for their actions. Governments use these central banks as an unlimited supply of money, selling the bank treasury securities—debt—in exchange for new money, created out of thin air. Governments use this power to fund their welfare-warfare states, so that they can maintain their power over the citizens indefinitely.
And this act of money printing does not go without consequence. Ever since the advent of central banking, inflation has been a universal truth in global society. Prices have gone up and the common man is left holding the bag. Additionally, these massive injections of inflation into the economy are responsible for essentially every economic crisis that has happened in the world since the beginning of central banking.
But decentralized currency can change all that. With something like Bitcoin, individuals can use their smartphones as banks. There is simply no need to use a third party in monetary transactions when using Bitcoin. Also, its peer-to-peer nature makes it impossible for any central bank to control. So, if something like Bitcoin were to ever become widely accepted by the general population, the central banks would die and governments would no longer have a monopoly on the issuance of money and the regulation of its supply. Banks in general would no longer wield such a devastating power over individuals. The inherently fraudulent fractional reserve banking system would be a thing of the past, a relic of history.
If Bitcoin were to become widely accepted, banks would no longer be the large, intimidating physical structures they are today, and they would not serve the same purpose either. Bitcoin banks would likely be a server housing center with a front-end designated for customer service. The primary function of a Bitcoin bank would be to issue credit. Because of the nature of Bitcoin, these banks would not be able to lend out more than they had in their reserves; thus, there could not be any inflationary credit expansion that is created by the current fractional reserve banking system.. Furthermore, these banks would not be used as a place to store your bitcoins for safekeeping. Rather, they would be a place to store your bitcoins so that you can profit from the interest accrued from keeping them with the bank. Unlike our current banking systems, there would be no semblance of safety when depositing your bitcoins into your account. The whole purpose of a Bitcoin bank would be to lend your money out so that you can earn interest on your deposit. Therefore, you would be assuming a definite risk when making a deposit into a Bitcoin bank. There is no way the banks would be able to get around that fact, Bitcoin would force them to be honest.
With a system of honest credit issuance, and P2P technology that allows individuals to act freely with relatively small risk of being caught by governments, DarkNet markets could actually become mainstream. Imagine if all online business were done on a platform such as OpenBazzar. Individuals would be able to get secure credit to start a business without having to worry about an economic bubble suddenly popping as the result of dishonest credit expansion. People could buy and sell anything they wanted, not just drugs, without having to wrestle with the tangled web of government regulations and restrictions. Small businesses would actually be able to compete with their older, larger counterparts and so major corporations would have to continually improve their customer service in order to stay in business.
The above scenario is in sharp contrast to the current state of things; old money can always be found in bed with government, persuading it to wipe out new competitors with strict regulatory legislation. This kind of cronysim absolves businesses of their responsibility to satisfy customers and provide them with quality goods and services at reasonable prices. Plus, people are forced to live under arbitrary rule—the government decides what is moral and what we can or cannot do to our bodies.
Such a banking system as the one described above would make the business world free to adequately satisfy the demands of the market, which in turn would truly make our society freer and more voluntary. We would no longer be duped into giving our money to inherently fraudulent banking systems that operate under the guise of keeping your wealth secure. And with an honest banking system, we would see real economic growth rather than a successive chain of unsustainable bubbles that always end in mass poverty and suffering. Lastly, Governments would no longer have a monopoly over the money supplies of their respective countries. As a result, they would not be able to create business cycles or wage endless wars. Money would finally be in the control of the people who transact with one another voluntarily, not some government that gets its way through terrorism and brute force.