Bitcoin: Dangerous to Surveillance State

By Hack This Zine, V.13
Fall 2011

https://hackbloc.org/svn/htz/HTZ13_DRAFT_READ.pdf

BitCoin is an online crypto-currency, computer program, and peer-to-peer network that has been called “the most dangerous open-source project ever created”. Politicians, bankers, and police alike have become terrified that people may be able to untraceably send money to each other through the internet. For those in control of the financial and political systems, this is scary and not without reason: the system they depend on to keep them at the top of the pyramid may very well be replaced by one written by some rebel programmers. So what is this crypto-currency and why should anybody care? Let’s take a look. This article is targeted towards an audience that isn’t technically savvy so please keep reading even if you have no idea what cryptography, peer-to-peer networking, or distributed hash tables are.

Bitcoin, unlike traditional payment methods such as cash, debit cards, or Paypal is decentralized, censorship-proof, provides strong anonymity, and can easily traverse large geographical areas without incurring significant transfer fees. You have hopefully heard about the banking blockade that is currently taking place against Wikileaks. Currently PayPal, Visa, MasterCard, and Bank of America are all refusing to allow their customers to send money to the organization[blockade]. Paypal in particular has a long history of suspending accounts and stealing hundreds of thousands of dollars for no reason from organizations such as Cryptome, Tortoise SVN, a Katrina relief fund, Courage to Resist/Bradley Manning Support Network, and Minecraft just to name a few [paypalfreeze]. BitCoin is one example of a technology that can prevent this type of situation from happening in the future.

So, how is Bitcoin different than current online payment systems? Let’s take a quick look at some of the things that make it so unique and useful for activists.

About Bitcoin Anonymity

In the past couple of years, we’ve seen a number of organizations such as local copwatch programs, groups that support political prisoners, and online news sites for activists start to accept donations through Paypal (and consequently debit/credit cards). This nice as it allows groups and causes to quickly and easily receive money from all over the world. Unfortunately, we’re also taking quite a hit in terms of security.

In the same ways that email communication and Facebook give the state an incredible tool for mapping and supressing social movements, so do our current methods of sending money to each other. If your area is lucky enough to have a fundraiser for your favourite political prisoner, then you can just donate cash but chances are this may not be the case and the organizers of this event are probably sending the money via bank wire or paypal anyways. The FBI, Department of Homeland Security, and other organizations in charge of repressing dissent know the biggest threat to U.S. power comes from decentralized, leaderless, geographically dispersed groups of people who we call activists, dissidents and revolutionaries. These types of threats are most easily countered by finding important nodes in the network, and removing them. To do this requires a detailed map of the social network. When you see the police coming down on a comrade or an organization in your movement, this is because their social network intelligence has lead them to believe that they are the ‘key players’ whose removal will deal a below to the movement’s effectiveness. Often times their analysis of who/what is important and difficult to replace is true and the data they use to reach that conclusion is given to them by our poor security culture, the methods through which we communicate, and how we send money.

Bitcoin transactions provide you with payment anonymity. There is no central site or organization with whom you must register or send the transaction through. Instead, you simply run the BitCoin software which creates a pseudononymous address for you on the network which is randomly generated and looks something like this: (1QFnuvD5jK6JMVG4PtDv4GUmDrCnpBRShq). Your address is like your bank account, anybody can send and receive money to it. You can create as many addresses as you like which can each have their own BitCoin balances. This identity is not associated with your real name unless you post it on your Facebook or somewhere else that would be. This is comprable to the name you would use on a web forum or a chat room.

Each BitCoin spent is uniquely tracked through the network, so if you receive a bitcoin or send a BitCoin, anybody can see that transaction. This has to be part of the network to insure that any individual bitcoin isn’t spent twice. Since your real identity is not tied to your BitCoin address, this shouldn’t theoretically be a problem.

So let’s take an example: At a large demonstration, a bunch of people are arrested and a group which we’ll call the Defense Committee quickly forms to raise some legal fees. They set up a website with some information on how to donate. Some people live close enough to the events such as parties, fundraisers, and skate nights they are putting on to simply go there and donate cash. Since there is so much repression going on, the group needs to solicit money from outside their local area so they set up a Paypal account. Over 800 people donate a little under $10,000 which covers most if not all of the legal fees (yay!). A couple days after the legal fees have been paid, Agent Smith comes along and decides to see just who donated all this money. He asks Paypal who happily hands the information with no or barely any legal justification and he now has a list of everybody who donated. He has just been given a powerful tool for mapping the social networks of these dedicated activists which he can use to launch campaigns of repression against them. He also has the justification he needs to perform additional surveillance on these individuals who otherwise may not have even appeared on the radar. These are the same reasons that informants attempt to become administrators on mailing lists, get people’s cell phone records, take video cameras to protests, and become treasurers for fundraising groups: so that they can map out who are the ‘key players’ and neutralize them.

Let’s say that instead of PayPal, the defense committee prefers BitCoin and posts their BitCoin address online. Luckily for them, a number of people and groups in their movement are already familiar with BitCoin and send them a bunch of BitCoins (which they exchange for real cash from a BitCoin exchanger which we’ll get to in a bit). Agent Smith now has a problem on his hands: He has no idea how BitCoin works because it’s a new technology, which means his agency has probably never heard of it. He has to send a frantic email to somebody in another branch of the agency asking what the hell BitCoin is. After some investigation, he is able to see all the BitCoin addresses which sent BitCoin to the Defense Committee’s BitCoin address. Like many organizations, the Defense Committee encourages people to contact them for a “private” BitCoin address. Agent Smith has no idea what those addresses are or who sent BitCoins to them. He spends a couple days researching all these addresses and finds that only a couple of them have ever been posted online before and most of those happen to belong to other legal defense groups so he’s at a dead end there. In the end, Agent Smith is left pretty much empty-handed after exhaustive investigative work which he now decides he probably won’t even be doing in the future.

Lack of Intermediaries

When you wire money through a bank, use a credit card, or use an online payment system like Paypal, you usually pay a transaction fee in exchange for the service they provide you. Depending on which method you use to transfer money, the fees may be small or large and the general rule is that if your money has to cross national borders then the fees go up exponentially. You also end up paying an exchange rate so you can convert your money to some other currency.

With BitCoin, you transfer your money through the BitCoin network (which is run by volunteers and anybody who runs the BitCoin program) and there’s no mandatory fee for transfers. Transfers only take a few seconds but take longer for the network to “confirm” in the same way that you might have pending charges on your bank account/debit card. The lack of intermediaries also makes BitCoin extremely resistant to censorship and the ups and downs of many national economies. The latter feature is particularly useful if your country is financially unstable or in the middle of a political crisis. A BitCoin is a BitCoin and it will be worth the same amount no matter who you send it to or where you send it from. This also means you don’t have to trust your bank or its investment decisions.

BitCoin also can’t freeze your account, has no minimum balance or monthly fees, etc.

Actually Using Bitcoin

1. Download BitCoin

This step is pretty easy. Whether you’re on Windows, Linux, or Mac you can get BitCoin running in less than five minutes (think of how long it takes you to open a checking or paypal account if this seems like a long time). Download BitCoin from bitcoin.org.

2. Get Some BitCoins

Now that you have BitCoin set up and a BitCoin address, we need to get you some BitCoins. You can either buy BitCoins or have somebody give them to you. If you’re setting up BitCoin for an organization that is accepting donations, simply copy your “receiving address” onto your website, blog, or wherever you solicit donations from people. If you have no friends who use BitCoin yet but want to see what a transfer looks like, you can get some free BitCoins at the BitCoin Faucet https://freebitcoins.appspot.com/. You do not need to have the BitCoin program open to receive BitCoins. The network will remember the transaction and it will appear in your program when you start it next. If you don’t see a transaction you expect, keep waiting until the number of blocks at the bottom of the program stops going up. If you’re looking to buy things using BitCoin such as web hosting, pre-paid debit cards, or clothing then you’ll need to buy some BitCoins first. There are a number of places online (and in real life) that will sell you BitCoins which are called “exchangers”. They all offer a certain rate which is pretty close to the actual value of a BitCoin and cheaper in bulk. Depending on which exchanger you go with, you can buy BitCoins with cash, money orders, paypal, credit cards, or checks.

There’s a frequently updated list of currency exchangers at: https://en.bitcoin.it/wiki/Trade#Currency_exchanges. The big exchanges at the moment are Mt. Gox and BitCoin7 but there’s plenty of smaller ones, some of which may be physically near you such as the London BitCoin Exchange.

Since BitCoin is fairly new, the price of BitCoins isn’t incredibly stable at the moment so unless you’re trying to invest in them, just buy enough for whatever transaction you’ll be doing. Keep in mind that your BitCoin exchanger may record your IP address and your BitCoin address, removing much of the anonymity BitCoin
provides.

3. Convert Your BitCoins to Cash!

If you have BitCoins left over or just got a bunch of ‘em and want to turn them into your currency of choice, you’ll need to sell them. You can do this through the same exchangers that you bought them through.

Common Questions

Below are a couple common questions about BitCoin. There are a whole slew of myths out there, so please research them before dismissing this online payment system. For a list of a bunch more (or more technical explanations of the ones below), see https://en.bitcoin.it/wiki/Myths.

How Anonymous is BitCoin?

When used properly, BitCoin can provide you a very high degree of anonymity. The way it is configured by default, it provides you with more anonymity than any major payment system but you probably shouldn’t publicly do anything with it that would get you in hot water. There’s a good explanation of what anonymity it
provides and how it can be improved at https://en.bitcoin.it/wiki/Anonymity. There’s an article about an interesting study into the level of anonymity most BitCoin users have at http://www.newscientist.com/blogs/onepercent/2011/07/bitcoin-is-not-inherently-anon.html. If you want to maintain a high degree of
anonymity, you should use a “mixing service” and proxy your BitCoin connection but that’s beyond the scope of this article.

Can’t Anybody Just Make Fake BitCoins and Spend Them?

This simply isn’t true. BitCoins are made by doing very intensive computations (which become more and more difficult as the network grows). In the same way that counterfeiting money is extremely difficult, counterfeiting BitCoins is because of the cryptography used in it. The “minting” of BitCoins is done by part of the network who donate their spare CPU cycles in order to support it (called mining). In exchange, they get a small amount of BitCoins which often times is less than they spend on electricity and hardware. In other words, you can’t just make a bunch of BitCoins and spend them because you’d have to do the cryptography first which you can’t fake as it’s verified by the rest of the BitCoin network. The more computation that is done, the stronger the network will be.

BitCoin is a Giant Ponzi Scheme/Early Adopters are Unfairly Rewarded

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value while risking time and money. Late adopters profit from the usefulness of a stable and widely accepted p2p currency. The vast majority of the 21 million possible Bitcoins still have not been distributed. By starting to mine or acquire bitcoins today, you too can become an early adopter.

Isn’t BitCoin Illegal? Don’t People use BitCoin to do Illegal Things?

HELP! THE WORLD IS SCARY! If the in-game currency in World of Warcraft, Gold, and coupons become illegal then BitCoin will be as well. BitCoin is simply a commodity you can buy and sell just like precious metals, jewelry, or cardboard. Their value is determined by what others are willing to pay for them. People use BitCoin to do all sorts of things, the majority of which are legal. Of course people will do illegal things with BitCoin just like they do with cash, cell phones, or knives. Cash is actually more anonymous than BitCoin in many ways and less likely to get you caught. BitCoin also can’t be shut down as long as the internet still exists and is decentralized so the government trying to do so isn’t a huge issue.

Where can I spend BitCoin?

You can spend it at all sorts of places to buy things from web hosting to design services to music and books. Here’s a quick list of places that accept it: https://en.bitcoin.it/wiki/Trade

What happens if my computer crashes?

If you lose or have your “wallet” stolen, which is a file on your computer that BitCoin stores your information in, then you will indeed lose access to all of your BitCoins. This is why if you’re going to have a lot of them or use it frequently then you might want to consider making backups and securing your computer. You can also use an eWallet service, which is a site that runs BitCoin for you and holds your wallet. If you do this, make sure the service has a good reputation and is worthy of your trust.

Links and additional resources:

[paypalfreeze] Paypal Freezes Bradley Manning Support Network/Courage to Resist:
http://www.techdirt.com/articles/20110224/05013913241/
paypal-cuts-off-account-bradley-manning-support.shtml http://
tinyurl.com/5wl2kpr

Paypal freezes Katrina aid:
http://www.wired.com/science/discoveries/
news/2005/09/68788 http://tinyurl.com/5rysdn

Paypal freezes Cryptome:
http://www.theregister.co.uk/2010/03/10/cryptome_paypal/
http://tinyurl.com/3l9km97

Paypal freezes Minecraft:
http://notch.tumblr.com/post/1096322756/working-on-a-fridayupdate-
crying-over-paypal http://tinyurl.com/33zao5f

Paypal Freezes TortoiseSVN:
http://tortoisesvn.net/howpaypalscrewsopensourceprojects.html
http://tinyurl.com/2ckqdx2

[blockade] http://wikileaks.org/Banking-Blockade.html

Getting started with BitCoin:
https://en.bitcoin.it/wiki/Getting_started

Some BitCoin FAQs:
https://en.bitcoin.it/wiki/FAQ
http://bitcoinfaq.com/

A good discussion on the Anonymity of BitCoin:
https://bitcointalk.org/?topic=241.0

Reprinted with permission.

For further reading:
"Cryptocurrency", James Surowiecki, MIT Technology Review, October 2011
"The World's First Bitcoin Conference", Morgen E. Peck, IEEE Spectrum, October 2011
"An Analysis of Anonymity in the Bitcoin System", Fergal Reid and Martin Harrigan, September 30, 2011
"Easily Anonymous Bitcoins", Michael Hendricks, September 30, 2011
"Anonymizing Bitcoin", Andrew Badr, September 10, 2011
"Why Bitcoin is not as anonymous as most users think", Jacob Aron, July 26, 2011
"Bitcoin: A Technical Introduction" (video), Brian Warner, July 21, 2011
"Bitcoin: More Covert than it Looks", Thomas Lowenthal, July 14, 2011
"Bitcoin, gold and the demise of fiat money", Detlev Schlichter, June 30, 2011