Here’s the video of Wassim’s talk from CoinfestUK last month at Manchester Conference Centre. Thanks to the organisers.
ICYMI on In The Mesh, read the next parts there first.
This article is the third in a four-part series by Matt ฿ (@MattoshiN) and Wassim Alsindi (@parallelind) on the use of Bitcoin and the technology stack built atop it to assist those living under oppressive regimes or in conflict zones, and those seeking to flee them. Read the first and second instalments.
Bitcoin is, above all, agnostic. It serves anything, and anyone, with no regard for who users are or what their intents might be, provided they play by the rules — rules, not rulers. What one may see in the network, protocol and currency is a context-dependent Rorschach test: one person’s rat poison is another’s meal ticket. While legacy financial institutions are fuelling a wave of social media deplatformings through the ever-expanding Operation Chokepoint, Bitcoin rises to prominence as a tool for the marginalised, ostracised, oppressed and forgotten. It enables any human to develop a parallel means to transact and store wealth and, as time goes on, the ways and means of using Bitcoin grow in variety and quality. There is no doubt that volatility in BTC-fiat crossrates make external measures of cryptocurrency value vary wildly, and obviously downside risk is not helpful especially when you are putting your life on the line. On the other hand, when national currencies undergo hyperinflationary events Bitcoin can be one of few accessible havens of relative stability. As of today, stablecoins are not the answer.
Freedom means everyone can use it, regardless of your opinion on their motivations, political leanings or priorities. Guerrilla and outsider organisations of all flavours and persuasions will be early adopters of decentralised technologies, and there’s nothing that can be done about that. The precautionary principle doesn’t work in permissionless environs and there is no ‘off switch’ — a feature, not a bug.
Bitcoin heralds a new age of ‘extreme ownership’ — or at least, provides the option for individuals to truly exercise sovereignty over their wealth. When used correctly, it is both unseizable and uncensorable. In the digital age, few things are more important than ensuring that wealth can be stored and transmitted without custodians or other third parties keeping personally identifiable information, blacklisting recipients or otherwise denying/reversing transactions. While physical cash offers individuals a degree of anonymity in their day-to-day exchanges, the push towards digital payments threatens this privacy by creating digital footprints that could be exploited for the purposes of surveillance.
How an individual ‘experiences’ Bitcoin is entirely up to them. On one end of the spectrum are those who have no need for true possession — consider speculators that rely on custodial exchanges or wallets. On the other are power users seeking granular control for maximising their privacy and financial self-sovereignty — functions like coin control, UTXO mixing or operating a fully validating node. Evidently, the further towards this end of the spectrum they tend, the more the value proposition of Bitcoin becomes apparent.
The appeal of Bitcoin today is undoubtedly rooted in the ease of its trust-minimised, rapid and global transfer, paired with the change-resistance and (algorithmically enforced) scarcity that precious metals have historically exhibited. Where faith in centrally-issued fiat currencies requires that participants entrust governments with maintaining monetary legitimacy and purchasing power, faith in a cryptocurrency network’s continued healthy function merely requires that participants act in their own self-interest — consensus is driven by active nodes. Indeed, you’ll have a hard time garnering support for an upgrade that would endanger the wealth of others such as inflating the money supply or sacrificing security for convenience. However, no system is infallible, and it’s foolhardy to overlook some potentially dangerous attack vectors executable in various manners. Everything from eclipse attacks — which geographically or otherwise target individual or grouped subsets of nodes so as to obscure and alter their view of the canonical blockchain — to state-sponsored 51% attacks and mass deanonymisation efforts which could vastly undermine the security and credibility of the network.
Fungibility and privacy are linked concepts — an asset’s fungibility preserves the privacy of the individual holding it. Assets such as gold and fiat cash are considered highly fungible, as it’s near impossible to distinguish between units of the same type. Conversely, something like a rare painting would be non-fungible, on account of its uniqueness. Functionally — for the most part — Bitcoin appears to be fungible: the vast majority of merchants will indiscriminately accept payments regardless of the provenance of coins.
Upon closer examination however, the situation is less rosy. As the protocol relies on a public ledger to keep track of the movement of funds, this provides a rich source of information for the intrepid data miner looking to perform analyses and potentially deanonymise users. “Blockchain analytics” companies (and their governmental clientele) have been known to track the propagation of UTXOs through the network that have passed through a given address or that have interacted with ‘blacklisted’ entities.
There’s an entire class of coins which offer varying degrees of privacy within their protocols and address a niche that Bitcoin inherently lacks. In life-and-death situations, linking a BTC transaction or an address to a real world identity can have grave consequences in locations where authorities are hostile. On the other hand, if Bitcoin was as private as Monero or Zcash, then its monetary soundness would be dependent on cryptographic assumptions holding true. An example of such a situation is the recently disclosed vulnerability in Zcash which arose from cryptographic errors which — although complex to exploit — would have allowed an adversary to surreptitiously inflate the supply in the secret “shielded pool”.
Despite the transparent nature of Bitcoin’s ledger, it can be used privately. Whilst the protocol doesn’t incorporate strong guarantees itself at present, this is set to change with the implementation of improvements such as Confidential Transactions, MAST, Taproot and Schnorr signatures. Externally coordinated obfuscation techniques are in use today, most commonly CoinJoin implementations such as JoinMarket and ZeroLink. These allow users to pool and jointly transact multiple inputs so that a degree of plausible deniability is assured, as observers cannot map outputs to specific inputs.
Recent development of more sophisticated CoinJoin transaction types such as Pay-to-Endpoint (also known as PayJoin/Stowaway) and Ricochet, have proven the shortcomings of chain analytics capabilities as they are understood today. One cautionary note is that although we have many separate techniques for improving Bitcoin transaction privacy, interactions between these elements are not necessarily widely understood. As a result, there are non-zero probabilities of critical information leakage or failure of certain processes and users should not assume that all tools have been tested thoroughly in combination. For example sending mixed UTXOs from a CoinJoin wallet into a Lightning node may lead to deanonymisation given that Lightning node IDs are public.
Since the Bitcoin protocol has displayed such admirable resilience and uptime in the past 10 years, authorities at the local, regional, national or global scales can only try to apply pressure to the “soft” interfaces between the network and the wider world such as exchanges, merchants, miners, hardware and software vendors. Inconsistent laws arising from governments’ knee-jerk reactions towards Bitcoin are an ongoing reality.
Ensuring regulators are in possession of independent tools and information sources will minimise misunderstandings leading to arbitrary bans, restrictions, licenses, fines, jail or seizure. Even upstream infrastructure such as ISPs, domain registrars and payment intermediaries are coming under increasing pressure. One aspect of particular concern is the conflation of Bitcoin with tokens, ICOs or other blockchain projects raising funds via regulatory arbitrage. China now apparently requires the registration of cryptocurrency nodes with authorities. Where persons or businesses operating cryptocurrency enterprises are kept under close watch by corrupt officials, they are at risk of extortion or kidnap.
Another front on which there is work to be done is on the fungibility of bitcoin UTXOs themselves. As mentioned above, there is a growing industrial niche providing analytical services to governments and businesses submitting to state compliance procedures. Though they may oversell their capabilities to clients, it is known that exchanges supply information to them. One attempt to deanonymise identifiers on a network such as Bitcoin has involved attempting to use metadata such as browser fingerprinting, language preferences, node and web client IP addresses for location and to link these to particular addresses or UTXOs. Even a small part of the user graph being deanonymised has wider potential implications, due to the public nature of the ledger as discussed above. Know-Your-Customer and Anti-Money Laundering laws (KYC/AML) collectively constitute the greatest privacy risk to individuals using Bitcoin today.
Dusting is also a potential chain analysis technique which takes advantage of poor coin selection in wallets by sending tainted UTXOs to target addresses and tracking their propagation. This vector primarily targets merchants (exchanges and other economic nodes) as individual users can easily circumvent such attacks by marking dust UXTOs as unspendable. The mechanism of transaction itself is also important to recognise in light of the recent OFAC sanction of addresses linked to Iranian nationals. How is any entity going to stop people interacting with sanctioned addresses in a push system?
For the most part, many of the existing issues will become less of an issue over time as the Bitcoin network and the ecosystems built around it mature. The reduction of hashpower aggregation in certain regions such as the West of China makes it increasingly difficult for a malicious (private or state-sanctioned) actor to commandeer dangerous amounts, more skin in the game from cryptocurrency businesses contributing to a state’s GDP and tax coffers makes the budgetary penalty for nations greater should they consider outright bans on cryptocurrencies or adversarial mining and advances in cryptography hardens Bitcoin’s privacy preserving potential.
In the final part of this series the myriad tools, techniques and strategies to transact using Bitcoin in contexts where personal privacy and freedom are under threat will be explored.
Thanks to Yuval Kogman, Alex Gladstein, Richard Myers, Elaine Ou and Adam Gibson for helpful feedback.
Wassim Alsindi directs research at independent laboratory Parallel Industries, analysing cryptocurrency networks from data-driven and human perspectives. Find him at www.pllel.com and @parallelind on Twitter.
Images by Kevin Durkin for In The Mesh
It depends on the question. For those most in need of value preservation and freedom of transaction, the risks likely far outweigh the benefits.
This is a brief aside from our “Reaching Everyone” article series on In The Mesh, by Matt ฿ (@MattoshiN) and Wassim Alsindi (@parallelind) on the use of Bitcoin and the technology stack built atop it to assist those living under oppressive regimes or in conflict zones, and those seeking to flee them.
There is no doubt that volatility in BTC-fiat crossrates make external measures of cryptocurrency value vary wildly, and obviously downside risk is not helpful especially with those in straightened circumstances, or even with their lives on the line. On the other hand things like this might happen:
Could so-called “stablecoins” be the answer to the volatility dilemma? Well, stable with respect to what, and how to maintain price consistency? Broadly, there are three current models:
1) Central issuing authority. Confidence in value is faith-based with censorship risk — such as JPM’s upcoming offering. Additional risks with undercollaterisation.
2) Asset-backed with trusted custodian. Price maintenance depends on faith in the underlying assets and transparency of auditing. Examples include Tether or gold-backed products.
3) Algorithmic mechanisms seem like worthy but very much unproven experiments. Until tested at scale and over significant periods of time, these are no place for people on the margins to place their wealth. DAI and Basis (RIP) are examples of this approach. Additional risks arise from regulatory burden, if the stability process is deemed to be security-like and centralised oracles reporting external prices. Front-running may be an additional issue with DAI as MKR (MakerDAO’s parent token) holders would be diluted in the event of a peg failure, with more sophisticated holders jumping ship at first signs of trouble. This may resemble the Cantillon Effect playing out backwards?
There is considerable base protocol and smart contract risk for platform-issued tokens such as stablecoins, especially as the current predominant stablecoin token “hosting” platform Ethereum prepares to undergo transition to ETH1.X and ETH2.0 with some combination of ProgPoW, hybrid PoW/PoS, PoS, the bewilderingly diverse Plasma family of state channels, new virtual machines, sharding and/or state rent. Contrast this with Bitcoin’s conservative development philosophy and aversion to rapid changes in network function largely pushing innovation into “second layers” such as Lightning Network and sidechains.
Anatomy of a stablecoin. pic.twitter.com/R9njRdKVsS— Parallel Industries ꙮ (@parallelind) February 23, 2019
Using a Stablecoin today largely redistributes risk from price volatility to technological, regulatory and/or custodial uncertainty, not necessarily a wise trade for someone with few other options compared to physical cash. Privacy is also an issued with almost all these systems, which either require some element of AML/KYC or use networks with inherently poor privacy. Historically, no stablecoin has ever defended its peg over a period of years. Stablecoins are still an experiment, no place to deal with matters of life or death. As the crowded retinue of competing fiat-pegged products grows ever larger, more concepts from traditional finance such as demurrage, censorability, discounts on par or interest are being proposed or experimented with.
"Perishable USD" or "Punishable USD" ? Stablecoins getting wacky.https://t.co/Isq9A2kCLA— Parallel Industries ꙮ (@parallelind) October 28, 2018
Even major currencies such as the British Pound have failed to maintain agreed trading ranges against well resourced adversaries, what chance a smart contract or non-native blockchain token with limited resources has to balance price, supply and demand through the various phases of cryptocurrency’s wild market cycles remains to be seen.
For people outside the most developed nations, or those whose human rights are under risk stablecoins do not deliver the goods, at least in the present day.
Wassim Alsindi directs research at independent laboratory Parallel Industries, analysing cryptocurrency networks from data-driven and human perspectives. Find him at www.pllel.com and @parallelind on Twitter.
Recently re-uploaded to our YouTube Channel is a conversation Wassim had with Prof. Christian Seberino of Let’s Talk ETC podcast, following his appearance at the 2018 Ethereum Classic Summit. Among the topics covered were Wassim’s background, Forkonomy as an analytical lens to understand possible futures of blockchain-archtected networks and the Reaching Everyone initative to widen access to cryptocurrencies with particular emphasis on the economically and politically disadvantaged.
This conversation with In The Mesh was recently published on their website. Wassim Alsindi, director of research at Parallel Industries, is currently co-writing a series of articles In The Mesh in which he’s deep-diving into bitcoin and the potential for cryptocurrency to be leveraged to assist those living under authoritarian rule. If you’ve missed them, be sure to check out parts I and II and come back soon for the last two installments. Wassim’s take on everything “crypto” is incisive, studied, and worth listening to, and he has an interesting background, ranging from academe to experimental music. So we chatted with him to learn more about his background and get his perspective on some current trends in the cryptosphere.
When did you first hear about cryptocurrencies and what were your thoughts about it at that time?
My life before Bitcoin and cryptocurrencies was as an experimental musician and decentralised arts organisation founder, manager of interesting creative technology projects and festival curator. Whilst on a music tour around the US West Coast in 2012 we went to a friend-of-a-friend’s place in Silicon Valley, he opened his closet and said “check this out, I’m doing this thing called mining Bitcoin”. It took a while to be convinced, the idea sounded great but everything I could find online looked quite dubious — Mt. Gox, Bitcoinica, BitInstant and so on — and as I wasn’t a computer scientist or cryptographer the detailed discussions were beyond me. It wasn’t until 2014/5 during what may have been Bitcoin’s darkest days that I started to get really interested. The idea of natively digital money that isn’t controlled by anyone has obvious appeal, but surviving the Gox incident showed me that the technology had some serious resilience and could be a long-lived proposition.
Bitcoin and other coins have been losing financial value. How do you
see this turn of events and the claims that cryptocurrency is and always
was a “bubble”?
Well, the facts don’t lie, Bitcoin had a cycle bottom in 2015 at around $180 and two years later it was trading at a hundred times that price. As much as I favour Bitcoin’s characteristics and qualities as the first natively digital commodity and (in time) money, we do have to ask ourselves if that kind of price action is really sustainable or desirable. Volatility is acceptable in a commodity or speculative vehicle, but if people around the world are going to adopt it for monetary use we need to see some more price stability, increased liquidity and less friction in the conversion of our existing state monies to cryptocurrency. Was it a bubble? Probably. But not the first, and likely not the last either. So, are they bubbles or market cycles as a new asset is adopted, matures technically and becomes monetised? That is in the eye of the beholder.
Your interest in cryptocurrency seems to peak at times of others’ fear/panic. Why is that?
It’s somewhat of a cliché these days but I’ve been a technology researcher my whole adult life, so I really am here for the tech and the freedom. My interest has been steadily building over the years and having wrapped up previous commitments I have nothing better to do now. I don’t take pleasure in the bear market, it’s been very difficult for me and for Parallel Industries too. We’re operating on a shoestring, and the string keeps getting shorter every time the market takes a leg down. I had hoped to bootstrap the organisation on an open-source donations model but this seems very difficult at the moment — even organisations and developers who directly contribute to these protocols are struggling. All the same, every day that Bitcoin survives in the wild it gets stronger and more widely known. These days you don’t have to ask most people in the developed world if they’ve heard of it, they just want explanations and/or advice.
You’ve innovated a field of fork future studies, called forkonomy. How do you hope it will impact the crypto space?
The research area arose from a conversation with a Twitter friend who was monitoring hashrate on various networks using the Equihash algorithm. We noticed that a new coin (BTCP) had a much higher “market capitalisation” but a fraction of the hashrate of the project it had been borne from (ZCL). Due to the novel “fork-merge” operation used to generate the new ledger, a coin with an effective age greater that Bitcoin’s was created.
So we have been afforded a glimpse into a possible future of Bitcoin, albeit a nightmare scenario where the network has not achieved its goal of developing a transaction fee market before the mining subsidy attenuates. The goal is to find similar anomalies as they arise and relate them to the possible futures of major networks. Having spent some time as an experimental astrophysicist, I like to compare this idea with the stellar taxonomy of the Hertzsprung-Russell diagram which predicts the likely fates of stars based on their temperature and luminosity.
Still some way to go before we have a suite of robust and predictive analytical tools, we are very much in the alchemical phase of cryptocurrency.
has your background has made you sensitive to the potential uses of
cryptocurrencies by people living under oppressive regimes?
Without going into too much detail, the “political and humanitarian hacking” potential of decentralised technologies in general and Bitcoin in particular are very real for Iraqi diaspora such as myself. For those who were able to leave the country under Saddam’s rule as some of my family did, one of the hardest things was to move money or value from place to place. Bank accounts had been frozen, confiscations of gold and cash were commonplace at airports, bandits would patrol the desert regions close to frontiers looking for easy pickings and scholars’ international funding was withdrawn suddenly. Given the above, it is not hard to see promise in these nascent technologies to re-empower the individual and community at the expense of tyrants, institutions and nation-states. The fact that we can engineer tools, solutions and strategies for people living under oppression or conflict to have government-hard, unconfiscatable pseudo-monetary assets completely changes things for people in the most unfortunate and compromised situations.
What kinds of uses of cryptocurrency do you envision that can do the most for people in those situations?
I would say that only a handful of cryptocurrencies truly show the resilience (today or as future potential) to withstand these sorts of situations. These are the ones with sufficiently mature and dispersed networks that have a defined focus on immutability, privacy and censorship-resistance that also lack central points of failure such as conspicuous leaders, companies or foundations. Bitcoin, Monero and Ethereum Classic are the examples I have identified having deeply studied the cryptocurrency space for the past six and a half years. (Happy to hear of any more — please hit me up on Twitter, even if it is a smaller / newer network.) The uses are limited only by the ingenuity of the brilliant minds worldwide who do and will work on these issues, and that is what Reaching Everyone is really about — nothing more complicated than a non-profit, unorganised initiative to plant these seeds in curious minds: that we must not forget the rest of the planet as the fortunate ones create a new world of financial freedom. But we don’t have to get too hand-wringing about it — this is not about “Western guilt”. Incentives drive Bitcoin and everyone can act according to their own rational self-interests here. Furthermore, the less resources people have at hand, the more resourceful they tend to be. Anyone who has visited less wealthy countries can attest to this.
How did Reaching Everyone come to be?
The idea came about quite unexpectedly, despite all the above. Just over a year ago (December 2017) I was in London for a meeting with UK financial regulators as I have another project TokenSpace which has developed novel taxonomic frameworks to help see similarities and differences between cryptographic assets with the goal of preventing regulatory mis-steps. It just so happened that my much beloved Danish-Faroese friend and infamous radical experimental musician Goodiepal was performing with his band their annual Christmas show that evening. So I went along and found out that they had moved to Serbia and were raising funds for informal humanitarian work with refugees stuck in limbo there at the EU frontier. Among the biggest issues facing the people they had been helping were moving money internationally and exploitation / extortion by smugglers and mafia cartels. I simply put two and two together that cryptocurrency can provide at least a partial solution to these problems. I’m sorry that we haven’t been able to raise any money for the immediate cause but I hope we can still make a difference in the longer-term.
Your interests are wide-ranging and Parallel Industries seems to have a holistic view on the crypto world. What do you hope Parallel Industries will add most significantly in the near future to the crypto scene?
Indeed things are moving forwards quickly on multiple fronts, and as well as pushing ahead as much as possible with Reaching Everyone, I am trying to take a wider view of what I consider the ontological meta-stack as applied to radically decentralised technologies. The “TokenSpace” supra-taxonomy research project is very close to outputting a manuscript after over a year of work and I recently revisited “Forkonomy” in early 2019 having learned some new skills at the command line for node operation, mining and directly harvesting blockchain data. There is another project entitled “DAOs and Don’ts” which investigates insider asymmetries in P2P networks, though it is a daunting prospect to comprehend the task at hand due to the sheer volume of cases encountered.