Cryptocurrency is radical but who does the radicalism benefit?


Right now, terminology being embraced in the world of cryptocurrency places the technology in opposition to states. Who in the liberal West, for example, would support “censorship”?

But “censorship resistance” in the cryptocurrency world means, essentially, opposition to cryptocurrency-based financial transaction, including action by law enforcement or regulators.

This understanding, which sees central banks, oversight and regulation as a form of oppression, offers a hint about one of the potential functions of cryptocurrency: its capacity to disrupt the state’s role in finance.

There is a race on to harness the value of cryptocurrency. Individuals want to make fortunes. Start-ups want to grow. Financial services companies don’t want to be left behind.

Yaya J. Fanusie is a senior fellow at Foundation for the Defense of Democracies focusing on cyber, blockchain technologies and illicit finance.

Yaya J. Fanusie is a senior fellow at Foundation for the Defense of Democracies focusing on cyber, blockchain technologies and illicit finance.Credit:FDD

But there are others in this space too. Nation states. And some of these nation states are attracted to the technology not simply to innovate their economies but, potentially, as a way to challenge Western power in the financial and economic sphere.

Venezuela recently instituted an oil-backed cryptocurrency with the idea of getting around Western sanctions. The technology was reportedly designed and implemented by Russian engineers – which shouldn’t be surprising.

Russian President Vladimir Putin has made no secret of his desire to “combat the excessive dominance of a limited number of reserve currencies” particularly through the BRICs grouping (the major emerging national economies of Brazil, Russia, India, China and South Africa).

“We’re seeing Russia and China put in place some pieces of what it would take to develop an alternative banking funds transfer system, through digital currency/blockchain tech,” said Yaya Fanusie, the director of analysis for the Foundation for Defense of Democracies’ Centre on Sanctions and Illicit Finance in Washington.

“We can’t really stop them from piloting blockchain tech projects, so it’s like we see the steps happening slowly.”

A banner depicting coins of various cryptocurrencies is displayed inside the cryptocurrency mining farm and school at the Ministry of Youth and Sports facility in Caracas, Venezuela.

A banner depicting coins of various cryptocurrencies is displayed inside the cryptocurrency mining farm and school at the Ministry of Youth and Sports facility in Caracas, Venezuela.Credit:Carlos Becerra

To understand what effect this could have, it means that economic sanctions used against terrorists, rogue states like North Korea, and war criminals would lose their effectiveness. In turn, authoritarian kleptocracies would increasingly be emboldened and capable of driving events.

For cryptocurrency to underpin an alt-global trading system, a key issue will be the degree to which the currency is decentralised, or not overseen by a single authority, Fanusie says.

Some cryptocurrency activists believe a decentralised currency will free people from the oppressive effects of monetary policy, inflation, or central banking regulations and oversight.


Others repeat the rhetoric but show a willingness to accept regulatory oversight.

As cryptocurrencies develop and mature, there is a trend for them to co-operate with government bodies charged with fighting terrorism finance or corruption, while preserving the benefits of a digital currency.

One currency exchange, Shapeshift, founded in 2014, had previously “struggled” with requiring private data from users. Last year, however, it announced the information in order to adhere to anti-money laundering requirements from governments.

The move comes as the US Department of Justice issues indictments of hackers who use cryptocurrency to fund malicious activity, or launder funds.

Within the crypto world, the decentralisation purists form a smaller subset of activists and entrepreneurs, but they, Fanusie says, “are totally committed to the purist vision and all the disruption and revolution it implies.

Hackers use cryptocurrencies to launder funds.

Hackers use cryptocurrencies to launder funds.Credit:Reuters

“They’re not going to relent easily. These are folks who see banks and ‘the system’ as evil and do not plan to compromise. They are happy to focus on the ‘underground’.”

When you consider that cryptocurrency, like online propaganda, is at a certain level, just networked information on the internet, an immediate question is how an emergent underground cryptocurrency in the West would interact with an authoritarian cryptocurrency-based global financial system.

In order for countries like China, Russia or Iran to use blockchain or cryptocurrency to create a parallel global digital currency system, many things would have to fall in place, says Fanusie.

On one side, they would “need an alternative that is faster, quicker, and more secure than SWIFT” (the Society for Worldwide Interbank Financial Telecommunication, the current global banking communication system).

On the other, there would need to be a big crisis that triggers the collapse of the dollar. Something along the lines of the 2008 global financial crisis – or worse.

While these events haven’t occurred, the intentions of the authoritarians are visible.

“I don’t want to be an alarmist, but I do want to point out the long-term strategy Russia, China, and Iran appear are trying to implement,” Fanusie said.

“I don’t want us [in the West] to be blindsided.”

The trendlines are there. Russian entities are investing heavily in cryptocurrency and blockchain, the technology on which it relies.

A fifth of the top 50 blockchain start-ups by funds were founded by Russians or had Russian partners, angel investor Elena Masolova told Forbes.

ICO Watchlist calculates that Russia-based cryptocurrencies have more than $1 billion in initial coin offerings – the launches of new digital currencies – the most of any country it tracks.

Iran is developing its own cryptocurrency, and has think tanks to do research on the technology.

Like those who embrace the ideology of encryption, there is a belief that technology alone can engineer resistance to the malign forces of government and banking.

Crypto-currencies are a favourite of the alt-right. Here a white nationalist  at a rally in Charlottesville, Virginia in 2017.

Crypto-currencies are a favourite of the alt-right. Here a white nationalist at a rally in Charlottesville, Virginia in 2017.

For activists and entrepreneurs of that persuasion, the belief is that all “government” is “tyranny”.

As Virginia Commonwealth University professor David Golumbia has written, Bitcoin itself is “software as right-wing extremism”.

“Bitcoin and the blockchain technology on which it rests satisfy needs that make sense only in the context of right-wing politics,” writes Golumbia.

The ideology of cryptocurrency paints the world today “as if it were an ungoverned ‘tyranny’” which invites a “conspiratorial belief system” which dismisses existing currency as “fiat” (or declared by the state).

At the same, limiting government is presented as an unquestioned good. It’s hard to find a Bitcoin story that admits the nation state’s role in money, Golumbia writes.

Being fringe ideas, they are at risk of being co-opted or manipulated from abroad, like has been seen in radical politics.

Alternative news and conspiracy theory communities linked through social media can reliably be counted on to promote misinformation about current events. Their effect is to fracture public unity and further polarise opinion on particular issues such as immigration, terrorism, and economics.

In many cases, the conspiracy theory they espouse advances anti-Western suspicions held also by authoritarian powers. Think of Zero Hedge, or Alex Jones’ InfoWars, to name two examples.

Despite promises of “liberty”, cryptocurrencies’ practical use seems to be to get around Western banking systems and networks designed to keep a check on terror funding and corruption.

Cryptocurrency is the coin used by Russian hackers. The Mueller indictments of Russian nationals involved in interfering in the 2016 election used cryptocurrency to move funds around to pay for accounts and computer equipment for their efforts.

Non-state anti-Western groups such as WikiLeaks were one of the first boosters of the technology. Even Edward Snowden has touted cryptocurrency. Organisations formed in support of the Russia-based ex-National Security Agency contractor accept cryptocurrency as well.

“It’s not conspiracy theory to think that Bitcoin and other cryptocurrencies can get around SWIFT and other financial controls,” Golumbia said via email.

“It appears to be true that Russia is largely dominated by organised crime these days and that organised crime is the most obvious use case for cryptocurrency as a payment/transfer method.”

Edward Snowden has been a supporter of cyptocurrency.

Edward Snowden has been a supporter of cyptocurrency.Credit:AP

Decentralised currency makes tracking the information on cryptocurrency harder – although not impossible. Nevertheless, like the social media propaganda that has caught Western nations flat-footed, Western governments aren’t prepared to track flows of wealth over the borderless environment of the internet.

Despite these warnings signs, simply ignoring the power of cryptocurrencies is not an option either.

This is a point Fanusie is quick to make.

“The best protection” against authoritarians on blockchain “would be for free nations to invest in the crypto/blockchain space so that this nascent technology, like the internet, develops in association with liberty,” he wrote in Forbes.

That’s because the evolution of digital currencies is also a natural progression in the broader digital disruption that is reshaping the global economy. Digital currencies can actually create new economic incentive models – for example, they can revolutionise payments in geographically diverse and underserved markets, like in Africa and, to be fair, in Russia too.

A bitcoin trading page is displayed on a computer monitor via software for trading virtual currencies.

A bitcoin trading page is displayed on a computer monitor via software for trading virtual currencies.Credit:Bloomberg

But the risk today is that embedded within the cryptocurrency community is a world view that could be turned against Western governments itself.

And the challenge may not just be one of engineering but of the perceived goal of the ideology.

As the alt-right has proven, the current impact of technology on society means that small, committed numbers of activists with a superior understanding of technology can effect big changes quickly.

If there is a long game around cryptocurrency, the wealth being made and lost through them could, like so many other things online in recent years, have a geopolitical dimension to it.

In this way, some of the purists of decentralised cryptocurrency, those “resisting censorship” in order to fight the “tyranny” of the banks, may be the shock troops of this effort to weaken the West, without even knowing it.

Chris is Digital Foreign Editor at Fairfax Media.

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