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A Cashless Future Is A Dystopia
Posted November 19, 2019
The world is becoming increasingly digital. Remaining tethered to a physical piece of paper for transactions seems archaic at first thought. Choosing between making a payment via a scan of a phone or credit card versus the need to carry around a wallet full of cash is obvious. It is not without consequences, however. The convenience of a cashless society comes with the cost of privacy.
Coin Center, a non-profit research and advocacy center focused on public policy issues facing cryptocurrency, has published a report here. Below in quotations are a few sections taken from the report:
In a world without cash (a bearer and peer-to-peer form of money) all transactions must be necessarily intermediated by financial institutions. Intermediated transactions are by their nature subject to surveillance and control. If third-party financial institutions must be part of all transactions, then they will be privy to the intimate details of everyone’s financial life. They can also choose to disallow certain transactions and potentially even certain persons from transacting. - Coin Center
We have already seen financial data used by governments all across the world to suppress their citizens. It may be as seemingly inconsequential as de-platforming an individual deemed unsafe to the public or as oppressive as implementing a nationwide ranking system used to monitor the behavior of civilians. Both have long-reaching effects, but the latter is now just coming to fruition in China. Information from the day-to-day lives of its 1.3 billion citizens is aggregated into an overall score that deems each individual access to public facilities like the transit system. (source)
Earlier this year, China banned 23 million citizens from buying basic travel tickets due to their low social score (source). A document outlining this plan is quoted as saying, the goal is to “allow the trustworthy to roam everywhere under heaven while making it hard for the discredited to take a single step”.
“By 2020, China’s rulers aim to implement an Orwellian system premised on controlling virtually every facet of human life—the so-called ‘social credit score” - U.S. Vice President Mike Pence. A society in which payments are all done digitally, through third parties under the authority of government, would likely enable the “blueprint” Vice President Pence is referencing to. It may even be the last missing piece to the overall plan.
It is not much of a leap to expect those same authorities to continue pushing for a cashless society. Tracking, monitoring and collecting financial data of transactions would be just one more aspect of lives being surveilled.
Without cash there is no exit—no chance for the kind of dignity-preserving privacy that undergirds an open society. - Coin Center
We are seeing an example of this in Hong Kong. Digital payments are commonplace. Most people use a debit card-like option called an “Octopus card”. When getting on a bus or purchasing something from a store, citizens just scan the card for payment (source).
Yet, protestors do not use their digital Octopus cards when gathering to demonstrate. There is a risk that the Chinese government will track the payments and determine the location of protest groups to “unmask” the individuals participating. As an example, a protestor scans their card on the metro station a block away from the protest, and then again once the protest ends. Software can easily be created and designed to piece together the data. This is a rightful privacy concern to their freedom when used in the wrong hands (source).
Hong Kong saw massive lines at metro stations as protestors, and non-participating citizens, were not willing to use a trackable digital means of payment. “We’re afraid of having our data tracked,” a protester told reporter Mary Hui. Purchasing a physical ticket not only takes time, it also costs more than the equivalent ticket bought with the Octopus card. It is normally tourists that use the physical ticketing machines, not locals.
“Show me the man and I’ll show you the crime” is a quote from the deputy premier, the head of Joseph Stalin’s secret police force in the former Soviet Union. He supervised surveillance and the detention facilities for “political prisoners” of one of the most ruthless and bloody government regimes in history (source). When the government can decide what is “illegal” and what is not, anything you may have done in the past can be used against you. Acts that might have been thought of as insignificant at the time are recorded. That becomes an especially powerful tool when a government has at their disposal everything you have ever said or done online.
A French Cardinal by the name of Richeliu, in the 17th century famously said, “If you give me six lines written by the hand of the most honest of men, I will find something in them which will hang him.” (source). He was known for his corruption and leveraging the rule of law at the time in his favor. He prosecuted anyone that stood in his way of consolidating governmental power. Richeliuand Joseph Stalin’s deputy are speaking of the exact same thing: when the government has enough data collected on an individual, they will have no problem finding something in that pile of information to frame into evidence and level unfound charges. It does not matter what specifically they find, as humans are prone to errors. How many emails or texts have you sent? How many tweets have you published? How many phone calls have you taken? How many times have you used your credit card?
Surveillance puts everyone at risk from overreach of even the most democratic of governments. There is no guarantee the same governing party will exist in the future, unlike the data they collected which will forever be available.
Cash is also necessary to retain agency and autonomy. Autonomy can be understood as the power to make decisions for oneself without interference from others. It’s the ability to try things one’s way, to succeed and be rewarded, or to make mistakes and learn from them. As with personal privacy, without individual autonomy there can be no meaningful open society. It is therefore imperative that we preserve our ability to use it [cash]. Yet that is not enough. As we move to an increasingly online world in which physical cash is not practical for many transactions, we must also develop and foster electronic cash that is as privacy-preserving and permissionless as physical cash. While this will have costs as well as benefits, we argue that the way to address the costs is not to prohibit electronic cash, but instead to regulate its use no differently than physical cash for which there is a robust regime. - Coin Center
Is the World Going Cashless?
In short, yes. It is happening faster than many think. Here are figures from the World Cash Report:
The world is moving towards completely digital payments. As more of our lives are spent online, this seems inevitable. While some citizens are transitioning to a digital medium willingly, due to the benefits of convenience, not every government is taking a hands-off approach.
Beginning in 2016, the People’s Bank of China put measures in place for reporting all domestic and overseas cash transactions of more than ~$7,350, compared to the previous ~$29,400 (source).
In late 2017, the Central Bank then put an annual cap of ~$14,000 per person and daily limit of ~$1,400 that applies to all ATM cards issued by mainland Chinese banks, covering both yuan and foreign exchange accounts (source).
Earlier this year, Chinese banks lowered the daily limit on foreign-currency cash withdrawals from an already restricted ~$5,000 to ~$3,000 (source).
Likely in anticipation of the government’s digital currency, a new bill requires business accounts to be “registered” for any amount of cash transactions above ~$71K. A similar measure is in place for personal accounts which will range from ~$15k to ~$60k (source).
As expected, the reasoning by the People’s Bank of China for this restriction on larger-scale cash transactions is to prevent cash from being “exploited” by illegal criminal activities such as corruption, tax evasion and money laundering (source). This is a common theme across the world used to limit the use of cash by everyday citizens.
Arguably the most aggressive approach by a government to reduce the amount of cash transactions was instituted by the India ruling party in 2016. The government made a surprise announcement of the demonetization of all ₹500 and ₹1,000 banknotes used by the country (source). That had comprised 86% of India’s currency at the time.
The Prime minister of India, Narendra Modi, the man instituting this action, claimed that this would seriously hinder the ability of India’s massive “shadow economy” to transact and reduce the use of illicit and counterfeit cash to fund illegal activity and terrorism.
On the anniversary of this action, three years later the Former Finance Minister called for a further reduction of banknotes by demonetising the ₹2,000. These notes account for about one-third of currency notes in circulation, in terms of value (source).
It does not stop there. The Finance Ministry is aiming to put even more stringent controls on the amount of cash citizens are allowed to hold at home or in “lockers” by next year (source).
Argentina has been plagued with a period of high inflation as government elections have shocked the economy. In September of this year, Argentina’s Central Bank instituted capital controls with citizens only able to buy up to $10,000 in US Dollars. Even companies need to get permission to buy foreign currency or precious metals, and to transfer that money abroad (source). A month later, the restrictions became more severe, with a limit of $200 in US Dollars for citizens and a complete restriction on the purchasing of digital cash in the form of Bitcoin (source). While this move has been criticized as solely about keeping value within the local economy, it is a transition that will likely not be reverted. Once citizens are forced to maintain accounts in a digital form, the control of the government will be that much more powerful.
A proposed tax on the messaging app, WhatsApp, sparked nationwide protests reported in Lebanon a month ago (source). Like many protests happening around the world, there was widespread social and economic unrest building prior to these eventsLebanon has a history of government mismanagement as exemplified by its incredibly high national debt of $86 billion. As it stands today, the country has the third highest public debt-to-GDP ratio in the world (source).
Since the protests began, banks have been closed nearly continuously. They only opened up recently to then close the following day due to the bank tellers going on strike. Citizens have had to revert to digital forms of payment and limited cash from ATMs. Lebanon’s state prosecutor banned traders and money exchangers from taking “significant amounts” of physical cash out of the country (source). With protests gripping the country, the government does not want a flight of capital. But like Argentina, this move is likely to have lasting impacts.
The Malaysian government is planning to impose a cash transaction limit of RM25,000 starting next year, which amounts to about $6,000 (source). “This is to address the abuse of physical cash used for illicit activities,” Bank Negara (BNM) deputy governor and chairman of the National Coordination Committee to Counter Money Laundering (NCC), Datuk Abdul Rasheed Ghaffour said.
Malta, known for more lax regulations relative to the rest of Europe, has now put a 10,000 euro restriction on cash transactions. Pressure from international institutions had the country follow suit with the rest of the Euro countries that each have similar bans in place (source).
After a historic period of hyperinflation over a decade ago, the government has just started to recirculate physical cash banknotes for citizens. Most transactions have since been digital and processed through mobile payment systems. There was even a ban in place that prevented merchants from accepting cash in or cash out for customers (source).
The amount of new banknotes has not been nearly enough to satisfy the demand. Citizens want physical cash. After a delay from the promised time of the banknotes release, ATMs were emptied instantly and a large amount of the paper went straight to the black market as they are highly valued within the country (source).
Even democracies are contemplating increased restrictions on the use of cash by its citizens. A seemingly controversial bill to ban cash payments of $10,000 or more imposing possible two-year jail sentences, has passed the Lower House of Australia’s governing body. It is important to note that this will not become law until after a Senate inquiry (source).
The proposed change was first suggested by the Government’s Black Economy Taskforce as a way to stop criminal gangs using large cash purchases of cars, houses and jewelry to launder their gains from illegal activities.
Assistant Treasurer Michael Sukkar had argued that a $10,000 cash limit for transactions between businesses and individuals would help fight the illegal cash economy by stamping out tax evasion, money laundering and other crimes.
How Does Blockchain Fit In?
The term “blockchain” in the literal sense just means a “chain of blocks”, a list of records, called “blocks”- quite similar to that of spreadsheet pages. The pages are cryptographically linked together, one after another. This concept goes back nearly thirty years in cryptography and computer science, but the term and technology have been made popular recently due to the way the Bitcoin Network has emerged.
One country known to be at the forefront of surveillance technology, China, is close to launching their own national stablecoin using a blockchain database structure. They are upgrading their current mix of cash and online currency to that of a purely digital medium.
Currently, the People’s Bank of China seems to be the closest to launching theirs (source). Goals you would expect from any government, like tax enforcement and censorship, become much easier with the ability to shut-off access to anyone on the system with a “flip of a switch”. A digital currency would be accomodating. While Bitcoin was created to use blockchain technology as the means and censorship resistance as an end, a stablecoin would centralize and enable mass censorship, ironically, at a scale nearly impossible today. All transactions ever completed in the economy will be on a single ledger, or spreadsheet.
Traditional fiat currencies may already be mostly virtual and relatively easy to control, but there are numerous databases that transactions are spread across. Fiat is currently transferred throughout a network of payment processors and application databases that effectively become barriers to an efficient surveillance and censorship state. While we see people deplatformed across the world everyday, there are limitations to the effect of that power. Digital currencies issued on a single database, possibly a blockchain structure, eliminates this problem. It’s a more perfect means of storing data that allows sophisticated tracking tools to control transactions and ultimately social behaviors, a 21st century authoritative government’s dream.
What about Bitcoin?
Blockchain-based digital currencies created by governments pose a threat to citizens’ right to privacy. What makes Bitcoin’s blockchain unique is that no single entity controls how or what transactions are recorded on the ledger. Strip away the permissionless nature of the system, in which anyone can access and innovate upon, and you’re left with something like that of China’s digital currency. In other words, just an excel spreadsheet used by the government.
Bitcoin’s use of a permissionless and decentralized blockchain has given people a way to opt-out of this dystopian nightmare that today’s surveillance is creating. Physical cash has been used to preserve the privacy of its users for most, if not all of human history. When a dollar bill for example, is handed to another person, no one else partakes between the two parties. There is no third party in between that can record the dollar bill moving from one hand to the other. That same concept has been brought into the digital world, albeit in a unique fashion, with Bitcoin. Bitcoin is a peer-to-peer digital cash. While sophisticated tracking software for transactions recorded on the Bitcoin Network exist, second layer solutions to the network vastly decrease their effectiveness. There are multiple implementations being actively worked on that give the users privacy while maintaining the security of the network.
It preserves the benefits of cashlike privacy while being designed for the digital age we live in. Before Bitcoin, every single payment processed had to go through the hands of a digital intermediary as the “double-spend” problem had not been solved. A trusted third party has always been required to prevent the duplication of the cash and maintain the ledger of all transactions. That problem has now been solved, and proven to work during the last decade. Bitcoin may end up taking time to integrate into our day-to-day lives, but we now know a surveillance state is no longer inevitable in the digital age.
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