The nature of Bitcoin makes it unconfiscable at the protocol level.
When a third party handles your private keys, confiscation becomes possible.
Everything strives, as much as it can, to persevere in its being.
Ethics – Baruch Spinoza.
Bitcoin, as an asset and protocol without intermediaries and resistant to censorship, is opposed to the intervening essence of the State. The possibility that each person can guard their money by themselves and transfer it without asking permission from a third party, the fact of having a monetary policy that cannot be manipulated by any external entity, reduces the role of arbitrator and supervisor of the State. Bitcoin is freedom money. This difference in natures produces an existential struggle: the more the presence of one grows, the more the potential of the other is reduced. Thus, as an expression of the survival instinct inherent in all things, both supporters of Bitcoin and the state will do “everything in their power to persevere in their being.”
The latest draft presented by the Financial Action Task Force (FATF) is one of the most recent moves on this chessboard to preserve state control over money (and, on a deeper level, over the exercise of vital time of people). Among other measures easily categorized as overreaching and excessively broad, the FATF intends that virtual asset service providers (VASP) censor the receipt and withdrawal of transactions to and from personal wallets, as well as those transactions that come from peer-to-peer services (p2p).
In other words, it would be sought that bitcoins and other cryptocurrencies always remain in the hands of intermediaries who identify each of their users, companies and institutions that can be coerced into serving as authoritarian government agencies. Under the guise of fighting money laundering and terrorist financing facilitated by cryptocurrencies (demonstrated low, according to several studies), characteristics that make Bitcoin a cutting-edge asset and protocol are being castrated, to reduce it to a confiscable promissory note. This is not only an attack against basic natural rights such as privacy and property, but against the nature and cause for which Bitcoin was created and managed to become the first successful form of digital money. In the words of its creator:
The root of the problem with conventional currency is all the confidence that is required to make it work. The central bank must be trusted not to devalue the currency, but the history of fiat currencies is littered with breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it in waves of credit bubbles with only a fraction of reserve. We have to trust them with our privacy, trust that they won’t allow identity thieves to drain our accounts. (…) With an electronic currency based on cryptographic evidence, without the need to trust an external intermediary, the money can be safe and transactions do not require effort.
On the way to the massification of Bitcoin, it is inevitable that rules will be established for businesses that work with this technology. Regulation also involves the recognition that Bitcoin is here to stay. But a regulation like the one proposed by the FATF aims to extirpate Bitcoin’s decentralized and disintermediated nature, with a view to perpetuating the vices of the economic system based on trusted third parties, such as those exposed by Satoshi.
Until now, anti-money laundering measures have resulted in very high costs in terms of financial exclusion, commercial friction, bureaucracy and regulatory adequacy, violation of privacy and more. Meanwhile, the FinCEn Files leak in September 2020, with more than USD 2 trillion laundered by the world’s largest banks, showed that the effectiveness of these measures is minimal even in the traditional centralized system. Crime flourishes when structural incentives favor it, when poverty increases and access to a decent life becomes difficult, not when there is greater openness to global finance and stronger money.
Despite the fact that the FATF is not a body with binding decisions on its member states (there are few countries that do not subscribe to at least one body similar to the FATF), when a country does not adhere to its standards, it is progressively demoted from a gray list to a black list, which entails financial sanctions for other members and even the censorship of economic relations.
All this highlights even more how the supra-state powers (whose representatives, it may be said, are not democratically elected) end up having a more profound influence on individual life than those representatives chosen by suffrage by the citizens, presumed depositaries of the sovereignty of a nation. This is how they experimented with their promotion of the call Travel Rule, currently adopted in almost all services that guard cryptocurrencies. And, although this new draft has not been approved, there are already companies that reject transactions from p2p platforms. Others are likely to follow these measures if their survival is compromised by draconian regulations.
States seek the survival of their control over money through attributes inherent to their very essence, for example, the imposition of laws through force. Until now, the resistance to censorship and unconfiscability of the Bitcoin protocol has protected it from any attack, maintaining its internal functioning as it has been programmed, obeying the rules of consensus before which all participants are equal, and preventing fraud by malicious actors. Bitcoin’s incentive system has kept online justice invulnerable without resorting to violence or intermediaries. Due to this shield, regulations have focused on cryptocurrency custodians and exchange platforms for state money, a single point of failure in which force is effective.
Bitcoin is only confiscable in the hands of custodians. If someone else keeps the private keys to the bitcoins, it is easier for any government to give the court order to freeze accounts or simply make the possession of bitcoins illegal. This is what happened in the United States of the 20th century, with order 6102, the one with which the treasury took over the gold holdings of individuals. And so it could happen with Bitcoin if individual custody is abandoned.
Leaving the door open to this possibility is too risky to admit. And this risk is not exclusive to those who are in the movement for ideological reasons. Bitcoin will not reach its true potential, either as a store of value, hedge fund or as a base protocol for a final settlement system for international payments, if it becomes a promissory note exchanged through custodians. A captured bitcoin will have zero value.
At the moment when the governments of the world feel that Bitcoin is compromising their control over monetary policy and over people’s vital time, if the keys are in custody systems, confiscation would be within reach of an order. In self-guarded purses, confiscation would require a systematic use of violence, not so easy to orchestrate.
Remember that legality is not a yardstick to measure the morality of actions. Many heinous acts have been legally endorsed in the history of mankind. Therefore, when it is observed that tyranny is making law, rebellion becomes a right. Should these measures prosper, a response must be made from Bitcoin’s own p2p and self-custody nature, use bitcoin more as money among equals in a circular economy, and enlighten people about the vices of the fiat system and about the excessiveness of these proposals. It is necessary to reclaim freedom as a fundamental and non-negotiable value for humanity and respond wherever technocratic authoritarianism tries to impose itself. Only in this way will this technology, this change in the political-economic paradigm, persevere in its being, only in this way will we protect freedom.