The coming digital anarchy
By Matthew Sparkes, Deputy Head of Technology THE TELEGRAPH
Bitcoin is giving banks a run for their money. Now the same technology threatens to eradicate social networks, stock markets, even national governments. Are we heading towards an anarchic future where centralised power of any kind will dissolve?
The rise and rise of Bitcoin has grabbed the world’s attention, yet its devastating potential still isn’t widely understood. Yes, we all know it’s a digital currency. But the developers who worked on Bitcoin believe that it represents a technological breakthrough that could sweep into obsolescence everything from social networks to stock markets… and even governments.
In short, Bitcoin could be the gateway to a coming digital anarchy – “a catalyst for change that creates a new and different world,” to quote Jeff Garzik, one of Bitcoin’s most prolific developers.
It’s already beginning. We used to need banks to keep track of who owned what. Not any more. Bitcoin and its rivals have proved that banks can be replaced with software and clever mathematics.
And now programmers of a libertarian bent are starting to ask what else we don’t need.
Imagine driverless taxis roaming from city to city in search of the most lucrative fares; a sky dark with hovering drones delivering your shopping or illicit drugs. Digital anarchy could fill your lives and your nightmares with machines that answer to you, your employers, crime syndicates… or no one at all. Nearly every aspect of our lives will be uprooted.
To understand how, we need to grasp the power of the “blockchain” – a peer-to-peer ledger which creates and records agreement on contentious issues with the aid of cryptography.
A blockchain forms the beating heart of Bitcoin. In time, blockchains will power many radical, disruptive technologies that smart people are working on right now.
Until recently, we’ve needed central bodies – banks, stock markets, governments, police forces – to settle vital questions. Who owns this money? Who controls this company? Who has the right to vote in this election?
Now we have a small piece of pure, incorruptible mathematics enshrined in computer code that will allow people to solve the thorniest problems without reference to “the authorities”.
The benefits of decentralised systems will be huge: slashed overheads, improved security and (in many circumstances) the removal of the weakest link of all – greedy, corruptible, fallible humans.
But how far will disruptive effects reach? Are we rapidly approaching a singularity where, thanks to Bitcoin-like tools, centralised power of any kind will seem as archaic as the feudal system?
If the internet revolution has taught us anything, it’s that when change comes, it comes fast.
Funny money
Let’s start with digital currency. Right now, in the wake of an unprecedented financial crisis, it’s easy to understand the appeal of a new money that lies beyond the grasp of banks and governments.
No treasury can print more Bitcoins and inflate away the value of your savings, or recklessly lend them out for years to people with no chance of meeting repayments, eventually bringing the whole system crashing down. The rules of Bitcoin are set in digital stone.
It all began with a paper written by someone calling himself “Satoshi Nakamoto” and quietly published via a cryptography mailing list in 2008. It laid out a plan for a form of money based on “cryptographic proof instead of trust".
Nakamoto described a way of keeping a ledger of all transactions – the blockchain – to prove who owned what. It was a breakthrough which solved a longstanding computer science problem: how to run a complex system with no central control.
Bitcoin has no bank to maintain security, record ownership or handle transactions. None is needed.
The true identity of Satoshi has never been revealed, although rumours abound: a lone academic, a group of disgruntled, anarchist programmers working in the financial sector, the CIA…
What is known is that the number of coins in circulation is finite, limited to 21 million. The plan is immutable: around 13 million are already in existence and the last ones will be released in 20 years or so.
Critics who say Bitcoin is nothing but zeros and ones in a computer file and therefore can’t hold value miss the point that their bank balance is, similarly, nothing but a number on a computer.
The pound is worth something only because people decide to place value in it. If that consensus broke down, then – as in Weimar Germany – a wheelbarrow full of £20 notes couldn’t buy you a cup of coffee. Sterling is a famously stable currency – but just occasionally we’re brought up with a jolt. For example, in 2007 Northern Rock was forced to go cap-in-hand to the Bank of England. A few customers rushed to withdraw their money, then a few more… and soon there was panic. Loss of faith. Shades of Weimar, or even Zimbabwe.
If national currencies can fall victim to a chain-reaction erosion of faith, why should a new currency not experience the same phenomenon in reverse?
Last year Cyprus horrified citizens when it announced that it would seize up to 60 per cent of all savings over €100,000 to save its struggling banks. Suddenly Bitcoin seemed less risky and transaction volumes soared as people poured cash into the digital currency to keep it out of government coffers.
This same land grab could not happen with Bitcoin. There is no central power with the ability to skim off the top.
Neither are credit-fuelled binges possible. The smoke-and-mirrors system that banks use to magic money into existence when they create loans is not possible in a Bitcoin world.
This holds a lot of appeal. Financial Times columnist Martin Wolf recently called for banks to be stripped of this bizarre right to create money from thin air, claiming that it was the root cause of credit bubbles and busts such as the painful cycle we have just witnessed. In his view, they should be confined to only lending the amount they have taken as deposits from savers. It’s hard to argue against such a commonsense proposal.
It is perhaps no coincidence that Bitcoin emerged from the ashes of a savage recession. Although it is radical in many ways, it is also strictly conservative: no debt is possible, no complex derivatives, no untrustworthy middlemen. You either have coins, or you don’t.
The timing was impeccable, the perfect antidote to a financial system which can’t be trusted not to lead us into another round of boom and bust.
The old order: controlling the internet
The banks aren’t the only institutions whose future is threatened. The blockchain has the power to uproot a number of our most recognisable dot coms.
The internet, rife with accidental data leaks like eBay’s latest mishap and government eavesdropping, is crying out for anarchic disruption. Lack of trust in banks has become lack of trust in the guardians of cyberspace. There is a growing mood that nobody can be trusted with our money or our data.
We think of the internet as a libertarian free-for-all, a place where anything goes and governments fear to tread. But nothing could be further from the truth. The Internet was a US invention born out of the Department of Defence in the late 60s, and the American government keeps a firm grip on the reins to this day.
In the 90s maintenance of the internet was overseen by just one man: a computer scientist, on the payroll of the Department, called Jon Postel. Once the job outgrew him, the US government set up a nonprofit called the Internet Corporation for Assigned Names and Numbers (ICANN) to take over the task. It now keeps track of who owns which domain names and maintains various systems that underpin the internet and the World Wide Web.
ICANN presents itself as a friendly caretaker and security guard, with an altruistic motto: “One World. One Internet.” It operates under a mandate from the US government to run things in a “bottom up, consensus driven, democratic manner”. Its blog – yes, it has a blog – switches fluently from Silicon Valley gush (“this incredible journey”) to corporate jargon (“a multistakeholder approach to the future evolution of Internet governance”).
Since 2010, ICANN has opened four new offices – in Los Angeles, Washington DC, Brussels and (of course) Silicon Valley. As its website boasts: “The contemporary architecture of all four offices visually expresses ICANN’s organisational mandate for transparency through glass office and conference room walls and floor-to-ceiling windows that allow in natural light.”
But does ICANN’s operational transparency match that of its gleaming windows?
Its advisory committee of national governments, the World Bank, the World Trade Organisation and Interpol is often criticised for deciding important matters behind closed doors. And the most recent moves towards “transparency” seem designed to achieve the opposite. ICANN wants to restrict access to Whois, a facility that allows anyone to know who has registered a domain name on the internet. Instead, this information would be available to “appropriate” interested parties.
Put bluntly, the global machinery of the internet is operated by a conglomerate dominated by governments – and especially the US government.
Also, individual governments around the world have their own censorship tools. The crucial point is that censorship is a spectrum. Few of us would object to the UK’s practice of blocking child pornography – but what about the banning of file-sharing websites? Or the ham-fisted blocking of any information critical of an authoritarian regime?
Meanwhile, largely thanks to Edward Snowden, we’re waking up to the fact that the same governments which restrict what we can see are themselves able to peer into our private lives.
Documents leaked by Snowden revealed that the UK’s hi-tech spy agency GCHQ, based in Cheltenham, has captured images from private webcam conversations between people of no interest in any ongoing investigation – “unselected”, in their slightly chilling terminology.
Over a million webcam users were caught up in this fishing expedition. Many of these images turned out to be sexually explicit. They remain on file in Cheltenham.
The new order: unravelling the internet
America and Britain have the resources to create tools to pull off tricks like these themselves. Smaller countries turn to the private sector, which is only too delighted to help out. And this is where the game changes: from controlling the internet to unravelling it.
Andover is a mildly picturesque market town in Hampshire. It’s an unlikely setting for the offices of Gamma, a controversial internet security company that sells FinFisher, described by Bloomberg as “one of the world’s most elusive cyberweapons, which can secretly take remote control of a computer, copying files, intercepting Skype calls and logging every keystroke”.
In the aftermath of the Arab Spring, the BBC reported that it had seen documents in the looted headquarters of the Egyptian state security building that suggested Gamma software had been used in a five-month trial to target pro-democracy activists. The company denied supplying the software. (It failed to respond to requests for comment when the Telegraph contacted it.)
Gamma’s managing director, Martin Muench, is in his early 30s, dresses in black and comes from a small town in north Germany that he won’t name because he fears for his family’s security. He says FinFisher helps captures paedophiles and terrorists, who regard him as “the personified evil”.
He’s not popular among human rights activists in Bahrain, either: as Bloomberg reported in detail, they claim FinFisher has been used against them. Muench denies that FinFisher is a tool for tyrants. He’s someone who carefully guards his reputation and his privacy. If you look closely at the photograph Bloomberg took of him standing next to his Apple laptop, you’ll see that he seems to have a small sticker covering its webcam lens.
Muench and Gamma operate within the law: FinFisher is not an illegal tool, though it can be used illegally.
Tweak the technology a bit, however, and you have something like Blackshades Remote Access Tool (RAT), which is regarded as “malicious commercial software”.
Blackshades RAT was used last year to capture naked photographs of the then 19-year-old Miss Teen USA Cassidy Wolf. Jared James Abrahams, 20, threatened to post the photos online unless Wolf gave him a nude video. He was later sentenced to 18 months in prison.
At the end of May this year, nearly 100 people were arrested in a worldwide crackdown on the creators, sellers and users of Blackshades RAT. It’s a hackers’ and blackmailers’ tool. Follow its trail and you’ll soon find yourself in strange places. Police making the Blackshade arrests seized 1,100 data storage devices suspected of being used in illegal activities. They also found stolen cash, guns and drugs.
Organised crime is technology-obsessed. That makes life tough for law enforcement – but it’s also evidence of a wider trend.
Governments and agencies companies which have, until now, had total control over the internet are fast losing it. Like holding a handful of sand: the harder they squeeze, the quicker it slips away.
Here’s an illustration. The University of Abertay in Dundee now offers a four-year BSc in “Ethical Hacking”. Abertay is a minor university and some of its other courses – eg, a BSc in “Performance Golf” – invite ridicule. So, on the face of it, does “Ethical Hacking”, which could mean anything.
Click through to details of the course, however, and you realise that it’s cleverly designed to address the growing anxieties of large organisations that live in fear of digital sabotage.
According to the prospectus, “the business world is seeing a rapid increase in the demand for ethical or white hat, hackers, employed by companies to find security holes before criminal, black hat, hackers do … Hackers are innately curious and want to pull things apart. They experiment and research. A hacker wants to learn and investigate. The aim is for you to arrive on this programme as a student and leave as an ethical hacker.”
Graduates will have state-of-the-art knowledge of penetration testing, cryptography and biometric identity systems. They will be intimately familiar with the habits of “black hat” hackers.
As a result, they will not find it difficult to land well-paid jobs. Many of these jobs could even be inside GCHQ itself.
The agency sponsors an annual hacking tournament which attracts thousands of entrants of exactly the kind that The University of Abertay is after, who are whittled down through numerous online rounds to the few dozen who take part in a final and extremely realistic cyber-attack simulation. This year it was held in the Cabinet War Rooms deep beneath Whitehall.
At this year’s event I spoke to a man from Cheltenham who refused to give me his name, who said that “some of the skills you see here today are what GCHQ would be doing”. He was one of many people watching proceedings wearing a special armband whom I was forbidden from photographing.
Later, I asked Stephanie Daman, chief executive of the Cyber Security Challenge, how many of the people in the room would be hoovered up by the security agencies, but was told with a smile that such things aren’t revealed.
But if somebody performed well and then didn’t reappear next year? You can make your own inferences from that, she said: “We’re not a recruitment agency. We provide a place for people to meet.”
Whether these ethical hackers will stay ethical is another question, however.
Social networks, search engines and online retailers have grown rich by soaking up our personal data and distilling it into valuable databases used to surgically target advertising.
As the adage goes: “If you’re not paying, then you’re the product”. You don’t pay a penny for Google’s search engine, email or calendar products. What you do provide, though, is data on every aspect of your life: who you know; where you go; what you enjoy eating, wearing, watching.
An unimaginable amount of information is being analysed and exploited by companies in order to screw money out of us. But rather than having to collect it, we are handing it to them in return for a simple, free way to chat to our friends, share pictures or send emails.
Behind the laid-back, let’s-play-table-football facade of Silicon Valley firms lies a sneakiness and paranoia that, critics say, verges on the sociopathic. This is hardly surprising. The giant dotcoms stand to lose billions of dollars and even kick-start a US recession if the internet becomes too unstable for them to manage. But, in addition, they need to take advantage of digital instability in order to shaft their rivals.
“These guys are control freaks who see themselves as ‘disruptive’, to quote one of their favourite words,” says a California-based analyst. “It’s a very combustible mixture particularly when you consider the endless, endless uncertainty they face every day.”
The biggest corporations work overtime to maintain the appearance of omnipotence. Dave Eggers satirises one such firm in his novel The Circle, about a sinister West Coast dotcom whose slogans include “secrets are lies” and “privacy is theft”.
In an interview with McSweeneys, Eggers said he often had to delete sections of his manuscript when truth caught up with fiction: “A lot of times I’d think of something that a company like the Circle might dream up, something a little creepy, and then I’d read about the exact invention, or even something more extreme, the next day.”
Now we need to put our finger on a really important paradox that lies at the heart of the coming digital anarchy.
The hidden power of the Facebooks, Twitters and Googles of this world is inspiring digital anarchists to destroy the smug, jargon-infested giants of Silicon Valley. But who are these hackers? They’re unlikely to be career criminals who identify themselves by their black hats. On the contrary, they may well have picked up their techniques while working in Palo Alto.
In some cases, the very same people who helped create these mega-corporations are now working on “disruptive technologies” to replace them.
We think of Silicon Valley as peopled by “liberals”. But that’s misleading. They may be socially liberal, but their “libertarianism” is often predicated on very low taxes funding a very small government. They have a soft spot for the anti-tax Republican Rand Paul and the kill-or-be-killed ethos of the paranoid libertarian capitalist Ayn Rand (whom Mr Paul was not named after, though he’s had to spend his whole life denying it).
The digital utopias at the back of these people’s minds are often startlingly weird.
Consider, for example, Peter Thiel, the founder of PayPal – ironically, one of the companies Bitcoin aims to blow out of the water. He has donated $1.25m to the SeaSteading Institute, a group which aims to create an autonomous nation in the ocean, away from existing sovereign laws and free of regulation.
At a conference in 2009 he said: “There are quite a lot of people who think it’s not possible. That’s a good thing. We don’t need to really worry about those people very much, because since they don’t think it’s possible they won’t take us very seriously. And they will not actually try to stop us until it’s too late.”
It’s difficult to generalise about motives when the membranes separating control and anarchy, creativity and disruption, greed and philanthropy have become so alarmingly thin. Remember that the entrepreneurs of Silicon Valley and its many global franchises are usually young enough to be impressionable and excitable. Yes, some of them they may qualify as utopians – but, like utopians throughout history, they are ready to use destructive tactics to reach their goal.
What is that goal? Right now, and put simply, it’s to create what they regard as “incorruptible” versions of the websites, networks and financial institutions which we all rely on every day – to remove the man in the middle and any ulterior motives he may have.
The new digital anarchists – who are as likely to wear Gant chinos as hoodies, and wouldn’t be seen dead in an Anonymous mask – are in the mood to punish Facebook, Google, Twitter, PayPal, eBay, you name it, for their arrogance. Indeed, they may have encountered this arrogance close up by working for them. That’s enough of a motive for the great digital unravelling.
As for means and opportunity – well, they now have their weapon of choice: the blockchain.
We need to understand more about this concept, so let’s return to Bitcoin and peer beneath the bonnet.
Why the blockchain changes everything
In our current banking system we all have accounts holding certain amounts of money. To pay for a coffee at Starbucks we tell the bank, often via a chip-and-PIN machine, that we’d like to transfer £3. Starbucks’s account balance goes up £3, ours goes down £3, and the bank tallies the books.
Bitcoin removes the banker, the man in the middle, who can choose to levy fees, disclose information to governments… or do anything else they see fit which may anger your average libertarian anarchist. (Some of them live in a permanent state of resentment, it should be said.)
But doing so is far from simple. Who tracks how much money everyone has, if not the bank? If it were left to individuals, we would all add a few zeros to our balances and the whole thing would descend into a fraudulent farce.
Bitcoin’s solution is for everyone to record all information. We will all be the bank. As we saw earlier, the blockchain is the public ledger of all transactions, showing how much each person owns, and it is stored by Bitcoin users all over the planet.
The clever part is how the network reaches a consensus on what should be written in it. Otherwise there could be thousands of different blockchains, all disagreeing over who owns what.
The idea is that each and every transaction is broadcast by the person initiating it. Rather than telling the bank we want to spend £3, we tell the world. That transaction is bundled up with thousands of others and cryptographically bound into a “block” by “miners”.
Technically, anyone with a computer can be a miner – they just need to install a small piece of software. But it’s not easy to do: far from it.
Bitcoin “miners” are so called because gold miners traditionally have to put in a lot of work before they see any reward in the shape of precious metal. In the world of Bitcoin, miners have to crack an extremely difficult cryptographic problem before they are rewarded with some newly minted Bitcoins. That “block” is then added to the end of the blockchain and shared around the world.
To quote the wiki dictionary maintained by “the Bitcoin community” – perhaps the nearest you can get to an official explanation – “mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady … The primary purpose of mining is to allow Bitcoin nodes to reach a secure, tamper-resistant consensus.”
In other words, the blockchain remains both public and infallible. It’s a totally reliable and trustworthy record of who owns what, but also who owned what back through time, all the way to the creation of Bitcoin.
Anyone attempting to alter that ledger to steal a coin would have to re-do all of the difficult calculations that were done to embed it there the last time it was traded. Then they would have to do the same with all the later blocks on top of it up to the current date, and then get far enough ahead that they were the first people to crack the newest block and get it accepted as the definitive version.
In short, it’s impossible.
Our first taste of this decentralised power happened to be a currency, Bitcoin, but it could equally have been a stock exchange, a social network or an electronic voting system.
Jeff Garzik, the Bitcoin developer, tells me that the blockchain technology is “the biggest thing since the internet – a catalyst for change in all areas of our lives”.
He’s currently fundraising to put Bitcoin satellites into space to rebroadcast the latest version of the blockchain around the world for those without reliable internet connections. That’s how strongly he believes in it.
“Currency is simply the first application of Bitcoin’s decentralised technology,” he tells me from his Atlanta home. “Bitcoin is many layers of an onion. Peel back one layer, and a new and amazing layer awaits underneath to discover.”
When power is concentrated in the hands of a few powerful people there is a risk of catastrophe, corruption and chaos, he warns. Decentralising a system hands power to immutable mathematics.
And then the game really changes.
Things fall apart
