Monero and the Sovereign Individual

"Privacy is an inherent human right, and a requirement for maintaining the human condition with dignity and respect." - Bruce Schneier

The importance of sovereignty

Pete Rizzo’s recent coverage of Mircea Popescu as “perhaps the most underrated contributor to Bitcoin maximalism” is epitomised by Popescu’s 2014 article in which he explains that Bitcoin is not only sovereign in the theoretical sense, but also in a practical sense when supported by the appropriate deeds of individuals.  He explains this sovereignty and the way in which made “the recognition of Bitcoin’s sovereignty a sine qua non of further dialogue” with the SEC, who were at the time requesting for him to turn over information about his business operations and colleagues - an endeavour in which they were notoriously unsuccessful thanks to Popescu’s proud pedantry of the aforementioned established sovereignty.  The significance of recognising a decentralised system that purports to treat all its users equally is that the users themselves become sovereigns. 

This is certainly the dream of Bitcoin; the notion of The Sovereign Individual is not only a cursory reference to Davidson’s 1997 book The Sovereign Individual: How to Survive and Thrive during the Collapse of the Welfare State, but also an idea that has been propagated strongly alongside the core values of the Bitcoin ideology by thinkers such as Robert Breedlove and economists such as Saifedean Ammous.  Ammous himself credited Popescu for influencing his perspectives on individual sovereignty under a neutral system in The Bitcoin Standard, and has recently shared his views that it was precisely because of Popescu’s unlikeable characteristics that so many of his views on Bitcoin being sovereign were vindicated, despite his extended misogynistic diatribes concerning niche Romanian pornography from the 1980s.

Although many will dispute the claims that Bitcoin is sovereign, particularly those who are obsessed with conformity to nation state regulatory pressure rather than basking in libertarian ideals, it is undeniable that the property rights enshrined in SHA-256 represent some of the highest known to man, and if push comes to shove nothing short of torture will suffice to extract someone’s private keys (a risk that can be further mitigated with multi-sig). The ramifications of a society in which one’s finances can be protected peacefully and without violence are enormous. As Peter Lowery has explained with the help of his drawing below, and has been expounded upon by former Twitter CEO Jack Dorsey, the ability of the individual to protect their interests and to be able to resist force by using cryptography, means that the incentives for violence are diminished - if someone cannot attack and steal from you, then they are forced to engage in a more cooperative form of capitalism in which they can only acquire your resources by offering you something in exchange.

However, as highlighted by Edward Snowden on numerous occasions, privacy is also an important fundamental prerequisite for the sovereignty of the individual and a necessary force for protection against totalitarian governments that do not always have the best interests of the individual at heart. This is where Bitcoin falls short: armed with the justification of enhancing transparency in the blockchain space, firms such as Chainalysis are able to track and remove the anonymity from Bitcoin wallets, and have been known to work alongside law enforcement agencies in the past. The second amendment in the US constitution was designed specifically with the idea of defending individuals from the proclivities of overbearing governments to abuse their powers, but in the digital age the intangible is often more important than the tangible, and information itself can be more significant than physical threats.

Bitcoin’s fungibility problem

A core tenet of the philosophy of Bitcoin is that everyone ought to be treated equally, and it was thanks to the cypherpunk movement that so much progress was made in this direction. Nevertheless, Bitcoin does have a fungibility problem in that Unspent Transaction Outputs (UTXOs) can be traced back indefinitely, meaning that if someone tries to spend their Bitcoin the recipient will know the entire history of that specific Bitcoin, and would theoretically be able to trace all the previous owners due to the lack of privacy afforded by the public ledger. Given that up to 90% of circulating banknotes have been found to have traces of cocaine on them, it is evident that the a detailed and transparent history of ownership is not always a desirable characteristic for an innovation purporting to become a medium of exchange.

The unbelievably-irritating Kevin “Mr Wonderful” O’Leary is no stranger to saying stupid things about Bitcoin, but in terms of building on his experience as an asset allocator he did make some interesting points that further highlighted the issue of Bitcoin’s fungibility. In May 2021 he called on the Bitcoin mining industry to focus on ensuring that Bitcoin was mined in a sustainable manner and that perhaps “green” Bitcoin could be “tagged” at inception, and that he would not be interested in acquiring any Bitcoin if he could not be certain that non-renewables had been involved in the mining process. His idea of “free range” Bitcoin might seem farcical to proponents of the cypherpunk movement, but they do demonstrate that there is a concern amongst regulatory bodies, and that such organisations may be willing to discriminate against different users of the Bitcoin blockchain (and will be able to), culminating in a world in which there are “green” Bitcoin, “grey” Bitcoin, and “black” Bitcoin.

Privacy as a human right

I do not advocate for any form of maximalism or believing in absolute truths whatsoever, and thus would not make the case that Monero ought to invalidate Bitcoin’s value proposition entirely or vice versa. Certainly, the market has spoken thus far in that it values Bitcoin far more than it values Monero and, whether efficient or not, that is a reflection of how people feel about which asset is of most use to them. There is certainly an important reason to hold Bitcoin, and the inherent transparency of the Bitcoin blockchain is definitely something extremely positive as far as regulators are concerned, which builds upon the “store of value” narrative in a way that isn’t possible for a currency whose ownership cannot as easily be audited (Monero can be audited, but only if someone consents to this by sharing a public view key - certainly not as easy as simply using a block explorer). Nevertheless, I would contend that privacy is an important human right and one that is not adequately protected on the Bitcoin blockchain, even with additions such as CoinJoin.

Over the course of recent years, growing government power has risen to a level that would have been shocking not only to proponents of The Enlightenment movement in the way that individual liberties have been completely disregarded in favour of the state (perhaps the starkest example of this being the Chinese social credit score), but would also have shocked anyone interested in maintaining a small government. Since 1971 the overbearing power of governments to conduct large-scale theft through the Cantillon Effect (the most significant result of such quantitative easing being the exacerbation of inequality through effective indirect theft of the poorest in society and those without assets) has become not only commonplace, but a , the extent that the debt bubble is now little more than a joke that politicians on either side of the aisle recognise is an impossibility to contend with. In 2011 ideals of freedom and privacy were further eroded under the Obama administration when whistleblowers such as Snowden and Assange revealed malpractice on behalf of Western governments, and were subsequently punished rigorously: the former now living in exile in Russia, and the latter recently approved for extradition to a country in which politicians have vocally supported his assassination, solely for exercising his freedom of speech. In 2014 Ross Ulbricht was martyred as a further example of an unjust legal system in the west, during which new precedents for government running roughshod over fourth amendment rights in the digital age were brought to the fore. It is therefore clear that, just as explained in Satoshi’s whitepaper, governments and central banks cannot be trusted to have their incentives and motivations aligned with those of their constituents, and it is thus necessarily for individuals to take responsibility for their own sovereignty as a necessary prerequisite for protecting themselves. There is no better way to do this than to ensure that one is able to remain totally anonymous in their financial transactions.

Bitcoin’s privacy measures and their limitations

Proponents of Bitcoin will note that there are ways in which users can anonymise their coins in order to obfuscate information about their transactions, and to enhance their privacy. The most notable of these are CoinJoin and the recently-implemented Taproot. The way that CoinJoin works is that users are able to pool multiple transactions in a trustless manner between a variety of different senders and receivers, in order to make it more difficult to show who sent exactly how many Bitcoin to whom.

Since privacy is not a feature by default on the Bitcoin network, this come with the trade-offs that it is very obvious that someone is attempting to anonymise their transactions, and they may even be pooling their transactions with other users who have tainted Bitcoin themselves: in an attempt to “clean” one’s Bitcoin they may end up owning Bitcoin that comprises UTXOs from known terrorists - clearly this is not a solution for anyone who is concerned about the fungibility of UTXOs. As explained by Reddit user and XMR contributor u/jtgrassie: “[CoinJoin] doesn’t hide IP addresses, nor amounts, not output keys … using CJ is akin to sticking your hand up waving a big red flag saying ‘look at me, I've got something I need to hide’”. Although an interesting technical implementation, CoinJoin does not actually fully address the consternations held by those who want total privacy, and nor does Taproot. For those thinking that these problems are solely theoretical and that governments, law enforcement, and regulators are unlikely to be interested in these niche aspects of cryptography, they may be interested to know that there is a precedent for those seeking greater privacy to face enhanced suspicion: users have had their funds frozen after sending them to exchanges in the past simply for having used mixed services, due to the concern of centralised exchanges complying with sufficient KYC and AML procedures.

Conclusion

The market has already determined that Bitcoin is superior to Monero in terms of being a long term store of value, particularly due to the fact that the transparency of Bitcoin makes it far easier to audit and thus it is simpler for larger asset allocators to store value in Bitcoin whilst remaining certain that they are compliant. However, the corollary of Bitcoin’s transparency is that the protection of individual privacies are tainted, and nefarious governments or corporations are able to exert more than their fair share of power over the individual, thus limiting one’s sovereignty.

We can hope that we never need Monero and the enhanced privacy that such technology entails, but history has shown us that we do and that in the future we will: over the past couple of years George Orwell’s “instruction manual” 1984 has been progressively more rigorously enacted by governments around the world: particularly in 2021, when the political movement to enforce vaccine passports under the nonsensical pretext of public health came to the fore. For this reason, we will need Monero in the future: not necessarily to build walled gardens to protect our privacy from our neighbours, but particularly to reinforce the social contract of a peaceful society comprised of sovereign individuals.

Advocates of the Monero community are fully aware of this dichotomy between the speculators and investors with different incentives in crypto, and those who are focused on using tools that function exactly as they are purported to: there is much less focus on price speculation in the XMR community, and this makes perfect sense when one considers that with Atomic Swaps it is easier than ever to use Bitcoin as a store of value and Monero as a transactional layer for Bitcoin that complements the latter and mitigates the potential risks of its limitations.