A few weeks ago, I visited my new favourite financial institution. It’s a Toronto corner store with a big rusted out air conditioner over the front door, and windows plastered with ads for drumstick ice-cream cones and lottery tickets. Near the back door, nestled under old cardboard boxes full of obsolete merchandise, is a cryptocurrency ATM. Most readers will know how this thing works: You feed in cash, and it rewards you with bitcoin, Ethereum, Dogecoin, or one of the many other thousands of cryptocurrencies on offer.

There’s no shortage of websites, podcasts, and videos that will educate you about crypto. In fact, I’ve never encountered a subject that so consistently inspires its enthusiasts to endless babble. I was on the receiving end of some of it myself recently, when I tweeted a request for advice about the best way to use bitcoin as a hedge against certain unsettling political developments here in Canada (more on this below). Many of the resulting DMs I got were peppered with incomprehensible acronyms. One self-identified “crypto entrepreneur,” for instance, instructed me to “Buy as much Litecoin LTC as possible. Its the most widely used ALT and the number of new addresses is rising faster than BTC and ETH … The LTC halving is 2023.”

Finally, I found a guy who agreed to step me through the crypto basics in something approaching ordinary English. And it helped that he was a fellow Canadian, as he understood how the domestic news cycle had informed my preferences.

On February 15th, following weeks of anti-vaccine-mandate protests in downtown Ottawa, Justin Trudeau lurched from complete inaction to absurd overreaction by declaring a national emergency. One effect of this was that banks were suddenly authorized to freeze the personal assets of citizens linked with the protests, civil liberties be damned. Around the same time, moreover, hackers acquired and published identifying information associated with thousands of people who’d donated money to the protest movement. Rather than denounce this apparent criminal data breach, many public figures—including Gerald Butts, who’d been Trudeau’s right-hand man before resigning amid scandal in 2019—actually celebrated this doxxing. Some media outlets even tried to mine the dox information for clickbait before being stung by a public backlash. While I hadn’t donated to the Freedom Convoy movement, I was sufficiently appalled by these developments that I started educating myself about how one might donate to a similar cause without government officials and social-media hyenas exploiting these transactions as a pretext to attack my assets and reputation.

The easiest way to get into the crypto market, I learned, is simply to open an account at an exchange platform such as Coinbase or Wealthsimple. But while they’re easy to use, exchange platforms also generally require clients to supply government-issued ID when they secure their accounts, and transactions are traceable by authorities. To assure myself of real anonymity and theft-protection, my tutor instructed me, a better (if more complex) option is “cold storage.” This is a real physical device—in my case, something called a Ledger—that acts as a personal crypto wallet.

My Ledger (which looks like a large USB key drive) contains the data required to generate the “private keys” (which look like long passwords, though that isn’t quite what they are) that allow me to send my crypto to other people. And that spending can be done only in those moments when the device is connected to the Internet, after which it can be relegated to a drawer or safe (thus the metaphorical concept of “cold storage”). On the other hand, I can receive money even if the Ledger is offline, so long as the sender has my public key, which (unlike a private key) is generally safe to give to others (such as, say, a prospective donor to any charitable cause that I might establish).

Bitcoin’s basic mechanics were set out in 2009 by the much-mythologized pseudonymous author (or collective) known as “Satoshi Nakamoto.” In a legendary white paper titled Bitcoin: A Peer-to-Peer Electronic Cash System, Satoshi describes the newly conceived electronic coin as consisting of a chain of digital signatures (a blockchain) that build one upon the next through a mathematical mechanism known as a cryptographic hash function—a one-way function whose output doesn’t expose the original private key to reverse-engineering. So once a bitcoin transaction is recorded and added in verified form to the blockchain by everyone—this being the “public distributed ledger” that bitcoin users are part of—the transaction can’t be erased or reversed (with one important theoretical exception, described later on).

Of course, you don’t need to understand how this cryptography works to use cryptocurrency. But it is worth getting your head around an important concept that fundamentally separates crypto from conventional assets such as, say, money that sits in a bank account. Your bank account number doesn’t have any value in and of itself: It’s just an institutional convenience that tells you and your bank where your actual money’s been filed (which is why that account number sits in plain sight on every physical check you sign, assuming you still use checks). But in the case of bitcoin, a private key basically is money—in the sense that anyone with access to such a key can spend the associated funds. And so if you lose your private-key information, or it gets stolen by a thief, there’s no 1-800 helpdesk number. It’s gone forever.

The upside is that crypto can be used anonymously if you know what you’re doing. Which brings me back to that seedy Toronto convenience store and the ATM that gobbled up my wad of 20s.

As any knowledgeable bitcoiner can tell you, I chose an inconvenient, amateurish, and expensive way to get my crypto (since the machines charge usage fees). It’s much easier to just set up an online crypto account with one of the big aforementioned platforms, and buy your bitcoin over the counter like a respectable person. Once you have your crypto stored in the online account, you can always send it on into the dark, anonymized maw of a private wallet (physical or otherwise).

But for my initial trial bitcoin run last month, I chose the ATM route—because I was interested in a course of action that wouldn’t give a doxxer or government investigator even the most far-fetched means of connecting me to any upstream transactions. (I should point out, however, that even this grubby cash-to-crypto method wouldn’t be entirely anonymous without a burner pay-as-you-go cell phone, as Canadian bitcoin ATMs won’t accept cash unless you provide a code that’s texted to a number you specify.)

From a technical point of view, my mission was a success: I got the bitcoin loaded up in my Ledger, and I can now send it to whoever I want without blowing my cover. On the other hand, the underlying need isn’t quite as urgent as once imagined: As I was returning from that corner store—literally, during my walk home—news broke that Trudeau has suddenly revoked his implementation of the Emergencies Act, after it had become clear that his (usually quiescent) Senate was set to call him out on his fake emergency.

I suppose it’s nice to know that I’m all set up for the next time a Canadian government suspends civil liberties. But in the meantime, I don’t see myself spending much crypto. The web may be bursting with crypto nerds. But in the real world of mortgages, school tuition, restaurant meals, tax payments, utility payments, and Amazon purchases—last time I checked, they were all still priced in dollars.

And there’s no denying that the plain-brown-envelope atmospherics of that store captured the way a lot of people still think of crypto. One sobering detail was the sticker placed at eye level on the bitcoin ATM, warning me that the CRA and RCMP (Canada’s tax-collection and national police agencies, respectively) “do not demand payment through Bitcoin. You are a target of fraud.” The obvious back story here is that a substantial number of people using these machines are acting at the direction of fraud artists, who’ve convinced their marks that they’ll be hauled off to jail unless they pay some bogus fine or penalty charge with crypto.

Nor is the crypto-fraud nexus confined to gullible Toronto senior citizens. The popular Steam videogame distribution service ended its practice of accepting bitcoin payments several years ago because something like 50 percent of crypto transactions were reportedly associated with users engaged in fraud of one kind or another. Needless to say, there’s nothing inherently sinister about using cryptocurrency. But since this is a technology that facilitates anonymous transactions, it’s hardly shocking to learn that it’s disproportionately preferred by those who seek to escape notice or accountability. To be fair, that’s basically why I wanted bitcoin—if not to steal, then at least to hide.

The irony here is that bitcoin was conceived by its architects as a means to eliminate fraud and uncertainty in commerce—as compared to the traditional system, in which trusted third parties (banks and other financial institutions) act as arbiters of which payments are valid and which should be reversed:

While the [traditional] system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust-based model. Completely non-reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes. And there is a broader cost in the loss of ability to make non-reversible payments for non-reversible services. With the possibility of reversal, the need for trust spreads. Merchants must be wary of their customers, hassling them for more information than they would otherwise need. A certain percentage of fraud is accepted as unavoidable.

And here we get to a major underlying reason as to why the seemingly apolitical subject of crypto often seems politicized: The very structure of bitcoin decisively embeds a fundamental moral judgment about which kind of fraud and dishonesty in society should be targeted, and which should be tolerated.

As many people see it, the fact that banks ban or reverse certain kinds of transactions, enlist in boycotts against rogue nations, and do the bidding of politicians seeking to punish maligned domestic actors, is seen as a feature, not a bug. Which is to say, most citizens are willing to live with a certain amount of unpredictability about what individual transactions are approved, so long as the system as a whole is subject to a benevolent form of top-down control. But to Satoshi, the place to enforce discipline is at the micro level, on a transaction-by-transaction basis, not at the level of policy or politics. By replacing human trust with cryptographic proof, bitcoin is dedicated to ensuring that a properly structured transaction will always be irreversible, even if the human motivation underlying the transaction is later deemed to be illegal or antisocial.

In purely arithmetic terms, the volume of daily crypto usage represents a small fraction of the overall commerce that takes place around the planet. But that’s somewhat immaterial, since an individual’s ability to transfer even relatively small amounts often is enough to undermine a government’s ability to leverage its monopoly control of the financial system. Canada’s Freedom Convoy supplies a good example: Despite the government’s absurd claims that these truckers represented an existential threat to the country, an early estimate pegged their fundraising efforts at no more than $10 million. And you can bet that the next time Canadians organize a similar protest, they won’t be doing it with GoFundMe, which retroactively declared the protestors to be in breach of its terms of service. If they’re smart, they’ll do it with crypto.

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I mentioned earlier that there is at least one scenario in which the bitcoin system can be gamed by a dishonest actor who tries to double-spend the same bitcoin. This case, discussed in the last few pages of Bitcoin: A Peer-to-Peer Electronic Cash System, would involve a dedicated criminal team that uses an earlier iteration of the blockchain to seed a sort of alternate reality that gets accepted by other bitcoin nodes as authoritative. But as Satoshi shows by a mathematical method known as a Binomial Random Walk, such schemes are unlikely to bear fruit unless the crooks are able to commandeer a truly epic quantity of computing power, so as to swamp the bitcoin mining being conducted by the whole rest of the system.

This is because each of the millions of nodes within the bitcoin network, when faced with two rival versions of the blockchain, will prioritize the one containing more blocks—i.e., the one with more verified transactions. Moreover, the addition of each block requires an investment of computing power—as explained in the “proof of work” section of this video—a rule that makes it hard for a dishonest actor to “catch up” when starting from his shorter, fraudulent version of the blockchain.

The math here is complicated by the lottery-like nature of the proof-of-work computation that goes into declaring new blocks—which is why Satoshi’s calculations are statistical and not purely analytic. But the important thing to note here is that even in such cases where the bitcoin blockchain system is even theoretically at risk of rewarding a fraudulent payment maneuver, the correction mechanism consists of an entirely amoral, pre-programmed algorithm that requires (and, indeed, tolerates) no human intervention. In this way, the general description of bitcoin and similar products as “decentralized” currencies that lack unified administration somewhat understates the extraordinary nature of these projects: Hundreds of billions of dollars' worth of electronic coins are circulating within a system whose core functionality has been stripped of literally all forms of human agency. For my own purposes, I find it useful to have this kind of financial tool at my disposal. But you can see why governments might be unnerved by it: You can’t sue a hash function or get an injunction against a blockchain.

Did our (still ongoing) social experiment with digital currencies have to be this radical? Was there ever a pre-blockchain electronic-coin option that would have combined elements of traditionally regulated currencies with the convenience and anonymity associated with bitcoin and its copycats? The answer is yes, such hybrid options did exist. But those experiments didn’t end well, or inspire much confidence in their viability as long-term solutions.

I’m thinking specifically of a product called e-gold, which had a surprisingly successful run between 1996 and 2009, when it was effectively (though, as we shall see, not literally) shut down by US investigators and prosecutors. By offering what was a sort of proto-PayPal and micropayment platform, e-gold was ahead of its time. But in other respects, it was old-fashioned, being run out of a corporation, with the value of digital assets secured in part by almost four metric tons of (actual) gold. As a Wired article on e-gold’s subsequent demise reported, the Florida-based staff were storing “sovereign coins and ingots in safety deposit boxes in banks around town.” And when this proved too difficult, founder Douglas Jackson literally just stacked precious metal “around the office.”

Unlike bitcoin, e-gold wasn’t a peer-to-peer technology, and its centralized servers became a magnet for spammers, crooks, and Ponzi schemers. In 2004, the US government began investigating it for failing to do background checks on users or following up on evidence of fraud. E-gold’s offices were raided, and Jackson spent the next few years frantically trying to save his company by helping the government track down the criminals who’d been exploiting his product. But e-gold collapsed, while Jackson (a former oncologist) got three years of supervised release after pleading guilty to financial crimes.

In her 2008 sentencing memorandum, District Court Judge Rosemary Collyer wrote that Jackson’s business hadn’t been registered with the federal government or any state, and that “the private nature of transactions in e-gold attracted expanding numbers engaged in scams and other Internet-related criminal activity.” Yet the court also found that Jackson hadn’t intended to break the law, that he’d taken steps to prevent the use of e-gold by criminals, and that he’d been victimized by bad legal advice—which is why he wasn’t sentenced to jail time.

More than a decade later, Jackson is still around, closely (and ruefully) following the blockchain-powered digital-currency explosion that emerged from out of e-gold’s ashes. When I spoke to him recently, he emphasized a fact that even many digital-currency experts who followed his case closely don’t appreciate: Even in pronouncing sentence upon Jackson, Judge Collyer conceded that e-gold “conceptually, is not illegal.” The same is true of prosecutor Laurel Loomis Rimon, who told the court: “Your Honor, we aren’t affirmatively asking to shut down e-gold. We know it is important to the defendants that there be an opportunity and a possibility that e-gold continue to survive.”

Jackson’s theory about how and why e-gold was hounded into extinction is complicated, and well beyond my ability to summarize (though you can find some details over at Wired, and Jackson’s not shy when it comes to talking about it with new contacts). But what’s worth emphasizing here is that Jackson doesn’t see e-gold’s demise as inevitable. And so he objects to the notion that, as Peter Thiel put it a few months ago, “Bitcoin was the answer to e-gold, and Satoshi learned that you had to be anonymous and you had to not have a company … Even a corporate form was too governmentally linked.”

Thiel’s comments echo a decade-old Forbes piece by Jon Matonis (who would become the founding director of an advocacy group known as the Bitcoin Foundation) arguing that bitcoin would help set people free from “monetary tyranny,” and that “we can see from the case against digital money provider e-gold that an efficient challenger to the provision of a stable monetary unit will not be permitted.”

Jackson—whom one might expect to be embittered by the treatment he received by the US government—doesn’t buy the tyranny argument. The rules set out for e-gold were “not onerous,” he says. “To the contrary, they were in harmony with good business practices that would enhance customer account/transaction security and help to protect against reputation-damaging exploits … E-gold was not shut down by the government, and concerns with dollar competition had nothing to do with the legal case.” Rather, Jackson argues, “these self-serving fictions were invented to gin up some plausible rationale for bitcoin—a payment scheme that takes over three thousand times longer to settle a transfer with finality than did e-gold a decade earlier … and with infrastructure/overhead costs more than ten-thousand-fold higher.”

I have no way of fact-checking those numbers, though they do seem plausible: The whole “proof-of-work” fraud-prevention mechanism embedded at the heart of bitcoin is designed to be the computerized version of a needle-in-a-haystack hunt. And by one calculation, the power required to drive the computers engaged in this bitcoin mining works out to over 1,000 kilowatt-hours per transaction. So whatever you think of the legal, political, and ethical issues at play with cryptocurrency, there’s no question that bitcoin isn’t a resource-efficient money model. And in a more perfect world, one in which we could all trust politicians, financial regulators, and law-enforcement officials to always act objectively and in good faith, it might well be e-gold that’d be loaded up in my Ledger instead of bitcoin. But that’s not the world we live in, as evidenced by what happened in Canada last month.

American authorities’ treatment of Jackson was questionable. But the least that could be said for these federal officials is that they were legitimately concerned with the way real criminals were using e-gold to further their schemes. What Trudeau did to protest donors, on the other hand, is far more disturbing—because the misdeeds he claimed to be targeting were either non-existent or politically constructed.

What both examples suggest is that any electronic-cash model that requires regular human oversight will eventually become captured by the same legal regimes that govern the legacy financial system—since the presence of human actors (who, of course, can be fined, jailed, or forced into plea bargains) constitutes a vulnerability that government actors can and will exploit as a means to assert control. The one-sentence explanation of bitcoin’s success is that it solved this problem in what seems to be the only possible way: by removing human decision makers from the system altogether.