Crypto-Anarchist Smuggler: A Lot of the Cryptocurrency Politics Is Not About Privacy, but About Economics
There is a little bit of confusion when it comes to cryptocurrency users, crypto-anarchists and cypherpunks. Are these terms even closely connected these days? What do the old school crypto-anarchists think about the situation the crypto-industry has found itself in? Do they still stick with Bitcoin and what they think about other big global trends?
Crypto-Anarchy in a Nutshell
Lily: Hi, Smuggler. You call yourself a crypto-anarchist. Could you explain how you came up with the idea of becoming a crypto-anarchist and what crypto anarchy actually means?
Smuggler: How I became a crypto-anarchist? I have no clue. It just happened over the years. I’ve been active in the scene for over twenty years, and it started by reading a few books and ending up on a mailing list on the Internet. And then I was a part of the Invisible IRC Project. It developed over time. So there was no defining moment, I would say, “this is where I became a crypto-anarchist.”
Lily: What does crypto-anarchism mean?
Smuggler: Relatively simple, using cryptographic technology to undermine rulership and, specifically, undermine the ability of rulers to observe your actions and to attribute deeds to a person. The question of crypto anarchy is the question of confidentiality and anonymity for me.
Lily: Why does privacy matter, and why does it matter for you personally?
Smuggler: Knowledge is power. This is an often repeated mantra. The moment I know how do you work, what you do, how you feel, I know how to deal with you effectively, even if you don’t agree. So I can manipulate you, I can predict you, I can put you into situations where you don’t want to be.
But the worst thing about not having privacy is that you have to always conform to the expectations of the outer world. If you don’t have privacy, you’re always behaving like society in the state expects, because you’re afraid of punishment, you’re afraid of being exiled, you’re afraid of being not liked.
Privacy is actually a way for you personally to get rid of all the expectations and to make your own decisions: how you want to act, how you want to think, what you want to do.
So, that’s why privacy is important, privacy frees you from all the other people.
Lily: But does a law-abiding citizen have anything to hide?
Smuggler: You’re wearing clothes right now, I’m pretty sure. So why do you wear clothes? Because, among other things, you want to protect your private body. You have locks on your door, even if you don’t expect your parents, for example, to get in, you know. But you don’t want your mom, your dad, whatever, see what you have in your bedroom. Or you have a password for your phone, even though you’re sure that there’s nothing on it that is a real problem. We all have things we want to protect.
If you have nothing to hide, then you’re, firstly, a really boring person. But secondly, to quote Edward Snowden, it’s like not caring about freedom of speech because you have nothing to say. You know, if you have nothing to say that doesn’t mean that you shouldn’t have freedom of speech.
When it comes to privacy, even if you’re boring as fuck, you should still be able to hide that you’re boring as fuck. That’s why I need privacy.
Lily: Is privacy protection a losing game today?
Smuggler: It’s becoming much harder because we were tricked into behaviors that are against our own interests. We’re sold a bag of goods, products being designed in a way that we think we have to use them, and we are unable to control what they’re doing with our data. And we still use them because it’s convenient.
Crypto-Anarchism in a Democratic Society
Lily: You know, some people believe that transparency of the financial operations of individuals is a key element of democracy, while others insist that it’s a major violation of privacy, whereas cash is an essential component of an open society. What is your opinion on this matter?
Smuggler: I think that anybody who thinks that having to control the “demos” in democracy strengthens democracy is just another totalitarian dictator.
The interesting thing in a democracy is that people are transferring power to the state so that the state can act in their name. It means that after this transfer of power it’s actually not the people that have the power anymore, but it’s the state that has the power. The moment the state can use surveillance and “transparency” against the individual people, the whole bargain has turned around. It’s not a democracy, because it’s not the “demos” that is actually ruling anymore, but it’s the rulers that have once been elected, that are now able to manipulate, observe and shape the population.
I think that transparency should always be for those people that are in power. If you’re a bureaucrat, if you’re a policeman, if you are a politician, then all you do should be transparent because the people that hired you, they have to be able to control you. But the reverse is not true. You’re not there to control the people that hired you.
If you think that democracy and transparency of the people come together, then you have misunderstood democracy. Democracy means that the people are private and that those that act in their names are transparent, not vice versa.
You know, politicians always care about their own privacy…
Lily: But do not allow this level of privacy to the people that they are supposed to be serving.
Smuggler: Yes, and I think that should give everybody a pause. What you observe there are the people that claim that they are ruling in the name of democracy, but in reality, they are acting like tyrants.
Any politician who goes about and says “I want privacy for my actions in office or in my private life, but on the other hand, I want to control all those people out there” is a tyrant. He shouldn’t be given any power, he should be removed from his position at once. But we don’t do that, because we got used to that. We think that those people know best, we have already accepted them as rulers and us just as the people waving at them.
In reality, we don’t have democracies anymore.
Lily: Don’t you think that state regulation and government surveillance in some ways increase the demand for cryptocurrency or other privacy-oriented solutions?
Smuggler: Of course. If nobody would be looking and nobody would be punishing, then we wouldn’t do a lot of things that we are doing now. I wouldn’t have to hide the content of my communication if everybody was a gentleman and not eavesdropping.
All those technological protections are there because there are people that are attacking us. Of course, all the activities by governments, by corporations, by a lot of parties that we don’t even know, all of that create demand for protection systems.
Lily: It is often said that Bitcoin is used by criminals. Would you agree that to some extent all of us could be called criminals considering that basically what we are doing today might be a crime in different jurisdictions of the world?
Smuggler: That’s the problem of positive law always. All of our countries have positive laws, which means they can redefine what a crime is any time in the future. It has nothing to do with Bitcoin even. Everything we do today can be against the will of the tyrants in the future Everything: if it’s Bitcoin if it’s cash if it’s having an interview like this. All of that can be a crime in the future. Nothing stops that, because we already have given up that there are limits to law. There aren’t any limits anymore.
I would say that we have to understand that the only thing that prevents us from being the victims of a future tyrant is to make sure that a future tyrant cannot know what we are doing today.
Crypto-Anarchism and Technological Advancement
Lily: Then what kind of technology might empower people to regain their privacy and preserve economic, digital or social freedom?
Smuggler: On the communication side we have things like Tor, we have VPNs, we have Signal, we have encrypted email, and so on. All these technologies already make it much harder for a future tyrant to know what we’re doing today.
But in the outside world face recognition cameras become an issue. Nobody cares about that right now, but when you look at Hong Kong, for example, where they are destroying cameras, they care. They know what’s coming to them. They’re wearing masks because they understand that the surveillance is not there to protect them, but to fight against them.
What can you do if you see a camera and you happen to run into it, that might help in the future? If you want to wear a mask, I think it’s a great idea. Make face recognition a little bit more problematic. If you want to pay with real physical cash, it’s still the least traceable transaction method there is. If you’re having to make transactions online don’t use Bitcoin, but also don’t use Klarna or wire transfer or credit cards. Use Monero if you can.
If you really want privacy don’t go the Bitcoin way because Bitcoin isn’t actually providing you privacy unless you really know what you’re doing and you have to put a real effort into that. Otherwise, it’s just a record for the future tyrant to use against you.
Lily: You mentioned Hong Kong. But it seems like revolution there happened without cryptocurrency, but with cash.
Smuggler: Exactly, and there’s a good reason for that. Cryptocurrencies today are neither private nor scalable. There’s this little thing that a lot of the cryptocurrency politics is not about privacy, but about economics. And I’m not an economic activist. I actually don’t give a shit if you have a central bank or not. What I care about is if you can have money that you own, that you control, that nobody knows about and you can make payments that are untraceable. Everything else, I don’t care.
Lily: Bitcoin was born from the efforts of cypherpunks, who were always more interested in censorship-resistant global payment systems rather than in new digital gold or store of value. What are your thoughts regarding that? Is it a problem that now Bitcoin is not a payment system but a store of value?
Smuggler: Firstly, I would like to disagree with what you said. The writings and activities of the cypherpunks have always been about anonymous payments, not censorship-resistant payments. And Bitcoin is by far not the first digital currency that comes from the cypherpunk era. We had a whole host of other systems before Bitcoin came along. What Bitcoin adds to the equation is that there’s no institutional entity that you have to trust with the “economics” of the system, When it comes to the privacy of the system, or when it comes to censorship resistance, we had much better systems before that.
Bitcoin is king right now because of economic interests and not of interests of privacy or censorship resistance because we already had that before, and much better, actually.
Lily: Which ones, for example?
Lily: DigiCash, you mean?
Smuggler: Yes. David Chaum wrote a paper about Ecash, and Ecash is like a number of electronic cash methods, that are untraceable, unlinkable, extremely fast, etc. And we had multiple instantiations of that. We had DigiCash, we had Lucre, we had Ecash, and so on, and so on, there’s like a dozen of those systems created in the 1990s and early 2000s, long before Bitcoin came around.
Lily: But the reason why DigiCash failed was that it was centralized money, wasn’t it?
Smuggler: Yeah, but is it a question of censorship and privacy? No, Bitcoin is not a censorship-resistant or “privacy-oriented” system. What it does is takes away the issuer risk, and one of those issues risks is the “government risk” as being shut down, and number two is that it gives monetary control to the user. Those are the two things that make Bitcoin special, so to speak, when it comes to properties.
DigiCash failed not because it was centralized, but because it went bankrupt. Nobody wanted to use it. That was the reason.
Lily: Do you have any idea how this problem could be fixed, how people could be convinced to use DigiCash?
Smuggler: No, because I’m actually not a marketing person. And there’s this little issue that when it comes to what people use, what the market selects, it’s not always going to be the objectively best thing. There are things like peer pressure, social networks, etc., that come into the selection of a platform.
Facebook, for example, is by far not the best social media that exists but it’s the biggest one, it’s the winner of the social media market. Not because it’s such a great product, but because of network effects, because of marketing, because of propaganda, and so on.
The same is true for other technologies. For example, Tor is not the best tool to anonymize your communication. But it’s still the leader of the pack. Or when it comes to cryptocurrencies or, to be exact, when it comes to digital anonymous payments, cryptocurrencies are not the best solution, but it’s a solution that was selected by the market.
Lily: Then what would be the best solutions for truly anonymous transactions?
Smuggler: Well, I’m actually giving a talk about that topic tomorrow, but I actually think that distributed digital bearers systems are the better solution. They are much faster than any cryptocurrency. We’re talking about thousands of transactions per second. They scale to Visa size transaction records. They are extremely cheap, far cheaper than any cryptocurrencies. They need less power and they don’t need as much storage. They’re provably anonymous and untraceable. And they’re much simpler to understand, the technology behind distributed DBCs is far simpler than any cryptocurrency. And they’re distributed, there’s no single point of failure, there’s a group of people that has to fail for a system like that to go down.
Lily: You also mentioned Monero. When Schnorr signatures will be implemented into Bitcoin, will we have any use case for Monero?
Smuggler: Schnorr signatures alone don’t mean much. A Schnorr signature alone is not in any way private. You have to have accumulated signatures. Specifically, you have to have ring signatures over Schnorr, and only then you can use it to say: okay, I didn’t sign that transaction. So it’s much more than only having Schnorr signatures.
Secondly, I think there’s a good reason to use Monero even if Bitcoin would have all of that. The main reason is I’m an extreme enemy of monocultures. And technological monocultures are the problem, I’m absolutely not a Bitcoin maximalist. I think that Bitcoin maximalism is a form of dictatorship that is basically targeted at protecting your own assets.
And all the arguments that are made there: oh, Bitcoin is the oldest and Bitcoin hasn’t been hacked and whatever, it’s all fine and dandy, but what you really want is you want to have multiple areas of innovation, and you want to have a distribution of everything.
If people come around and say “we all want to do Bitcoin, but we’re also for decentralization” that is a little bit mental in my opinion. If you really want decentralization for security reasons, please use multiple currencies.
Crypto-Anarchism and Cashless Society
Lily: What are your thoughts regarding a cashless society? When we look at certain countries like South Korea or Nordic countries or even China, we see that more and more transactions are going to credit cards or mobile payment systems. And China is a really remarkable case, because just in a few years, the cash there has been completely eliminated, and people just moved to use WeChat Pay or Alipay. And you have probably heard about the Chinese social score credit system. And if cash could be eliminated, what kind of consequences might it have for society?
Smuggler: I think there’s quite a number of consequences. Number one is, we don’t know any technology, other than cash, that is settlement-less. So whenever you’re using anything but cash, you rely on something third out there to exist. It’s even true with Bitcoin, it doesn’t work without the Bitcoin network out there.
I think that cashless societies are inherently vulnerable to things going wrong. If the power is down, if the internet is down, you’re basically doomed. I actually experienced that a couple of years ago when I was caught in a blizzard in the US. Gas stations didn’t have the ability to sell us gas anymore, because they only were able to accept credit cards. I was standing there with a pack of hundred-dollar bills and they wouldn’t accept it because they were already cashless and I was cash-full. For me it would have been no problem to say: “hey, here’s $100, fill up my tank.” But they were already vulnerable to power and the internet breaking down.
Number two is that there’s an interesting thing with digitalization, where your physical place doesn’t matter as much. This also means that if you want to pickpocket people in the digital age you can do that from China while your victims are all over the world. That’s very different for cash. You actually have to go to the person, reach into the pocket and get out the cash. So what you have is you’re vulnerable to scalable attacks. Physical pickpocketing is not scalable but everything digital is scalable.
So, if you find an attack against Bitcoin, WeChat, whatever, you can scale that attack to take all the money there is. A cashless society is a risky bet on “in the future, everything is going to be safe and sound and existing.” But we know from everything that’s not true. Systems fail all the time, systems are hacked all the time. So we’re making a really stupid bet in going cashless.
Lily: I have another example. Germany is a sort of opposite country. Up until recently, you couldn’t pay with anything but cash there. Why do some countries seem to be going swiftly to be cashless and why Germany is still opposing that trend?
Smuggler: I think that one of the things that are interesting about German culture is a living memory of things going wrong. Be it in political ways or in technological ways. And Germany is not a society that praises innovation for innovation’s sake.
There are a lot of countries that think that just because something is new, it must be better. In Germany, there’s a certain conservatism to it. And I think that is one of the big reasons why card payments are less popular in Germany. Or have been, it’s turning around right now.
There’s another thing that is interesting in that, a cultural aspect that is frugality. German people have been trying to be frugal. You can’t spend money that you don’t have. And credit cards and digital payments make it difficult to know how much money you still have. And so people said: “I’d rather go to the ATM every week, withdraw a few hundred euros and then pay in cash, and then I at least know how much money I still have.”
So, it’s the cultural aspect of knowing that things can go wrong on the system level, that things can go wrong on a personal level and not being fanboys to innovation.
Crypto-Anarchism and Transnational Corporations
Lily: You also mentioned Facebook. Speaking about Libra, if people start using corporate money, what would happen with their payment data?
Smuggler: Firstly, I’m not so sure how privacy-problematic Libra is actually going to be if it’s ever going live. There are a lot of people who believe they’re going to track everything, and that’s why Bitcoin is better. But let’s face it, every major exchange today has to know who you are. The ledger is open. It’s already an open system, it’s a completely tracked system. Unless you’re paying a lot of effort to making it anonymous again.
When it comes to Libra, I’m not actually sure how bad for privacy Libra would actually be. But I do think that Libra would be enormously bad for cryptocurrencies.
Smuggler: Because most people are not activists. Most people don’t care that much for central banks. For them, it doesn’t really matter if something is distributed or permissionless. What they want to do is payments and they want to have a good user experience. They don’t want the system to fail, they don’t want the price to go up and down twice a day by 5%, all those things are what normal people don’t want. And for them, a system like Libra is much more attractive.
If Libra is ever rolled out on a massive scale it will have billions of fans, and it will be immediately the biggest manager of wealth on the planet. And it will make absolute economic sense to use Libra.
But then the question is, why exactly do I need Bitcoin again? If I’m able to send payment within seconds from Prague to Kuala Lumpur via Libra, why do I need Bitcoin?
There are a lot of people who think that as soon as people are used to digital payment systems they’re all going to come to Bitcoin. And I actually think it’s the reverse. It’s when everybody is used to digital payment systems, all of them are leaving Bitcoin.
Lily: What are your thoughts on TON, the digital currency of Telegram?
Smuggler: I have a hate-love relationship with Telegram. What I really like about Telegram is how sneaky they are. And Telegram has managed to almost release TON without too many people in politics and finance getting too concerned.
They have a 3–5 hundred million user base, and if they roll out TON widely, that will probably be a pretty big game-changer for a lot of people and for a lot of markets. But they’re doing it so sneaky and quietly that all the politicians don’t even know what’s happening.
Lily: Do you expect that some kind of war emerges between the state and corporations?
Smuggler: It’s already happening. The thing between states and corporations is that it’s a constant dance of “coopetition.” Sometimes you cooperate and sometimes you compete and sometimes you blow each other up. That’s always going on but I think that in the long run, states are not the best competitors in that field.
Technology is in favor of different kinds of structures. Networks are more powerful than hierarchies with current technology. The world will look very different in the future. I’m not sure if it’s going to be run by corporations or by people or by states. It’s probably going to be a constant mixture of all of that. There’s no easy description of the world of the future.
Crypto-Anarchism and Nation State-less World
Lily: Is it possible to have a world without a state? Like, a real crypto-anarchist utopia?
Smuggler: I think it is possible, but I don’t know, how. I think that there are really many questions that are unanswered. I don’t think that we have the slightest clue yet how to do a crypto-anarchist world or society. We have to learn and experiment a lot before we can do it. But my hunch is that it’s possible.
Lily: How is crypto-anarchism different from other types of anarchism?
Smuggler: I would say that every other anarchism is trying to deal with rulership in different aspects.
They’re trying to undermine punishment, they’re trying to undermine legislation, they’re trying to undermine the creation of hierarchical systems and so on. They are all reactive to what was already there. And they are in a constant fight with existing institutions.
Crypto anarchy is trying to make all those opponent institutions inconsequential. Crypto anarchy correctly applied doesn’t care what laws exist and it doesn’t care how the state, police or prisons are organized. Because cryptoanarchy removes the attribution of observation apart from the state. No ruler can rule without being able to see.
Crypto-Anarchism and Anonymity
Lily: What is the future of anonymous transactions, if crypto-anarchist ideas are implemented?
Smuggler: Good question. I don’t think that there is a good answer to that. I don’t know what it will look like. Because I don’t think that we’re in the business of selecting the best solutions. And I have no clue how to predict what the people are going to do. We will see.
Lily: Okay, and the last question. Do you always wear this mask, and how long have you been wearing this mask and hiding your face?
Smuggler: I usually wear a mask at conferences, where there is media and stuff like that. I sometimes wear it at parties, I sometimes wear it in public if I have to make sure that I’m not recognized.
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