Bitcoin Mining: A Path To Electrifying The World

https://bitcoinmagazine.com/markets/bitcoin-mining-a-path-to-electrifying-the-world

In many parts of the world, access to electricity is a luxury that we often take for granted. Sub-Saharan Africa (SSA), for example, faces a severe electricity deficit, with over 600 million people without power. This deficit leads to economic stagnation, reduced food production, poverty, and even civil unrest. The correlation between electricity access and economic growth is undeniable, and regions with less than 80% electrification rates consistently suffer from reduced GDP per capita. The challenge lies in expanding electrical infrastructure to these underserved areas, which is capital-intensive and often financially unfeasible for governments with limited resources. This is where Bitcoin mining is a potential solution that can offer a pathway to electrify regions that have long been without access to electricity.

Bitcoin mining has long been a subject of much controversy, with critics often focusing on its perceived environmental impact. However, beneath the sensational headlines and mainstream media narratives, lies a story of potential humanitarian benefits, and energy innovation. By harnessing stranded energy in remote locations, Bitcoin mining can provide a source of revenue for new power plants and thus support the construction of electrical grids.

Despite the ongoing mudslinging campaign against Bitcoin mining, knowledge of the importance of harnessing stranded energy for Bitcoin mining is slowly gaining traction. In fact, this is the story that is beautifully captured in the newly released and award-winning documentary, Stranded:A Dirty Coin Short by Alana Mediavialla Diaz, which showcases how Bitcoin miners in places like SSA ingeniously repurpose stranded power, breathing life into both Bitcoin and forgotten power infrastructures.

In this article, we will explore the overlooked positive aspects of Bitcoin mining, compare its energy consumption to other industries, and make a case for how Bitcoin mining could potentially incentivize the discovery of new sources of energy and the build out of new energy infrastructure.

What Is Stranded Energy Anyway?

Stranded energy refers to energy sources that exist in a location but are not effectively utilized or harnessed for productive purposes. It’s essentially energy that is isolated or “stranded” in a certain location due to various reasons, like lack of infrastructure to transport it or a mismatch between the location of energy production and demand.

For instance, when new electrical grids are being developed, especially in remote areas, the energy infrastructure may be in place before the demand for it catches up. Which means that, until consumers are connected to the grid, the energy generated is more than what is immediately needed, making it “stranded” and ultimately wasted until more users connect. This is a huge problem that Bitcoin mining can help to solve, and this area in particular is one of the major benefits of mining that Stranded explored in great detail.

In an interview Alana highlighted how Bitcoin mining, by monetizing excess energy in regions lacking traditional demand, acts as a financial catalyst for constructing vital grid infrastructure, thereby changing lives and challenging our perceptions of energy’s societal impact. She elaborated on this further by saying, “The concept of how a grid grows through demand, was not something I ever thought about. In the film i wanted to capture that it is a great privilege to have access to electricity and that mining is able to finance new grid infrastructure in places that have never had it before”

Take Ethiopia, for instance. It has the potential to generate more than 60,000 megawatts (MW) of electricity from “renewable” sources, but currently has only 4,500 MW of installed capacity. 90% of its electricity is generated from hydropower, with geothermal, solar, and wind making up the difference. However, the country still experiences acute energy shortages, with only 44% of its 110 million people having access to electricity. With projects like the Grand Ethiopian Renaissance Dam (GERD) under construction, which is projected to generate an additional 5,150 MW, the government expects to have a total of 17 000 MW of installed capacity in the next 10 years. The introduction of Bitcoin mining has the potential to fund these electricity infrastructure projects.

Dispelling Misconceptions About Bitcoin Mining

One of the most common misconceptions surrounding Bitcoin mining is the notion that it consumes an exorbitant amount of energy, exceeding the energy consumption of entire countries. Critics often point to reports suggesting that Bitcoin mining consumes more electricity than many nations, including Ireland, Nigeria, and Uruguay. The Bitcoin Energy Consumption Index by cryptocurrency platform Digiconomist estimates an annual energy usage of 33 terawatts, on par with countries like Denmark.

However, it’s important to dissect this critique and place it in the broader context of energy consumption. While it’s true that the Bitcoin network’s energy usage appears significant, it’s essential to remember that energy consumption itself is not inherently bad. This critique tends to presuppose that energy is a finite resource and that allocating it to Bitcoin mining deprives other industries or individuals of this valuable commodity.

In reality, energy is a vital and expandable resource, and the notion of one usage being more or less wasteful than another is subjective. All users, including Bitcoin miners, incur a cost and pay the full market rate for the electricity they consume. To single out Bitcoin mining for its energy consumption while overlooking other industries is a fallacy. As Alana also pointed out, People hold as common misconceptions what the media commonly repeats about Bitcoin. Nobody is ever thinking about the energy consumption of the industries they interact with everyday.This is not a common figure that people know about things yet when it comes to Bitcoin, it sure is dirty because of all that energy consumption!“

Comparing Bitcoin To Other Energy-Intensive Industries

To put things in perspective, let’s compare Bitcoin mining to some other energy-intensive sectors that often escape similar scrutiny:

I don’t know about you, but I cannot recall the last time I heard complaints in the media about the paper and pulp industry’s high energy consumption. In order to counter the myths surrounding “the dangers” of Bitcoin mining and its energy usage, a nuanced understanding of energy consumption is required. While it’s crucial to examine the environmental impact of any industry, singling out Bitcoin mining for criticism while overlooking other energy-intensive sectors is a flawed approach.

What Does The Future Hold?

Unlike any technology before it, Bitcoin mining incentivizes the exploration of cost-effective ways to harness energy, irrespective of geographic limitations or conventional energy constraints. This financial impetus could spark an energy revolution on a scale not seen since the Industrial Revolution, potentially propelling humanity to be a type I civilization. A view also shared by Alana, who when quizzed about her next film project said, The next one is about what it will take us to reach a type 1 civilization using Puerto Rico as our underdog model that is undergoing major infrastructure change. It’s a pivotal moment in the island’s history and it can serve as an example to failing grids around the world.”

As economic incentives push Bitcoin mining to saturate the energy sector, a convergence is occurring. Energy producers are monetizing surplus and stranded energy through Bitcoin mining, while miners are vertically integrating to enhance competitiveness. In the foreseeable future the most efficient miners could become energy producers themselves, potentially inverting the traditional power grid model. 

This is a guest post by Kudzai Kutukwa. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Your Financial Privacy Is Under Attack: How State-Sponsored Attacks On Bitcoin Are Growing

https://bitcoinmagazine.com/culture/state-sponsored-attacks-on-bitcoin-privacy-are-growing

This is an opinion editorial by Kudzai Kutukwa, a financial inclusion advocate and Mandela Washington fellow.

Throughout American economic history, there has been a constant drive toward centralization, as evidenced by the many attempts to establish a central bank in the United States. From Alexander Hamilton’s “Federalist Papers” to President Andrew Jackson’s fierce battle against the Second Bank of the United States and the ultimate creation of the Federal Reserve in 1913, the allure of consolidating financial power has shaped the nation’s monetary landscape.

However, amid the fervor for a centralized monetary authority, there is a cautionary note: Be wary of the erosion of financial privacy. The concentration of financial control leads to less individual sovereignty, as the watchful eyes of authority encroach on the sanctity of personal wealth. As this centralized leviathan grows in the face of diminishing individual autonomy, a disturbing truth emerges: financial privacy is shrinking in the shadow of a monolithic force that demands unquestioning compliance.

Bitcoin exists today in defiance of that centralized monetary control, after more than a century of central bank tyranny. The subsequent entrenchment of legal tender laws bestowed upon the government the sole authority to determine what money is and what it is not. As Austrian economist Carl Menger has pointed out:

“Money is not an invention of the state. It is not the product of a legislative act. Even the sanction of political authority is not necessary for its existence.”

Therefore, the enactment of legal tender laws is in sharp contrast to any rational economic thought. Satoshi Nakamoto understood this and created a transparent monetary system for free-market actors to adopt, while taking away the power of central banks to create money. The government’s monopoly over the issuance of currency is the foundation of its capacity to inflate the money supply. In addition, legal tender laws are the basis for attacking superior alternative monetary systems, such as Bitcoin, while simultaneously eroding financial privacy.

Fighting An Expansion Of Authority

The recent dismissal of Coin Center’s challenge to the expansion of Section 6050I of the tax code, which was part of the Infrastructure Investment and Jobs Act (IIJA) passed in 2021, serves as a chilling example of the incremental outlawing of financial privacy. Section 6050I requires the reporting of cash or cash equivalents that exceed $10,000 and the amendment in the IIJA expanded this provision to include bitcoin and cryptocurrency businesses, traders and investors in the U.S. An immediate problem with treating digital assets as cash contradicts the IRS’s determination that they are property, not cash, for tax purposes.

That’s not all; in addition to meeting these reporting requirements, recipients of bitcoin or other cryptocurrency payments must also divulge personal details of the senders, such as their names, dates of birth and social security numbers. Furthermore, recipients are also required to maintain records of all of their transactions as well as the personal details of all senders for a period of five years. The privacy infringements of these provisions are glaringly obvious as they expand warrantless surveillance while turning everyone making these transactions into unofficial law enforcement agents. Without a successful appeal, the enforcement of this law commences on January 1, 2024.

The Death Of Decentralization

While the alarm has been sounded on how central bank digital currencies (CBDCs) are the death knell for financial privacy, this provision enables the powers that be to create blacklists of Bitcoiners and potentially target them individually for “tax violations” or in other ways that are unimaginable today.

A day prior to the dismissal of Coin Center’s challenge, U.S. Senators Jack Reed, Mike Rounds, Mark Warner and Mitt Romney unveiled the Crypto Asset National Security Enhancement And Enforcement Act In The Senate (CANSEE), which aims to combat abuse of cryptocurrency protocols by criminals and enemies. While this bill may seem reasonable at first glance, it would make it infeasible to develop decentralized protocols in the U.S., while additionally posing a threat to financial privacy. Under the bill, penalties would be extended to those who publish applications for digital asset transactions and who have “the power, directly or indirectly, to direct a change in the computer code or other terms governing the operation of the protocol, as determined by the Secretary of the Treasury,” and this could include open-source software contributors. Furthermore the bill would also extend all of the Bank Secrecy Act obligations that now apply to financial institutions like cryptocurrency exchanges to those same persons.

In short, the bill would effectively ban the publication of open-source code for decentralized cryptocurrency protocols while giving the secretary of the U.S. Treasury virtually-unbounded discretion to decide who qualifies as someone who “controls” those protocols, as well as granting exemptions to centralized protocols that comply with regulations. This would give the government unprecedented control over the development and use of decentralized protocols.

Not only is this concentration of power concerning, but the bill evidently overlooks the fact that decentralized protocols like Bitcoin are designed to function peer to peer and in a non-intermediated way. Decentralization is one of the key pillars that distinguishes Bitcoin from everything else. This bill, in its current form, is an attempt to stifle innovation in the Bitcoin ecosystem by attacking decentralization.

Without decentralization, a major bulwark in preserving financial privacy will have been removed. While these laws do not affect the underlying code or architecture of Bitcoin, they could potentially slow down its adoption, while giving the government time to roll out a CBDC that would be marketed to the general public as a “digital asset you can trust.” As a result, most people would unknowingly trade freedom for convenience.

Trading Freedom For Convenience

This potential is most evident in the Federal Reserve’s newly-launched digital payment system, FedNow, which enables instant transactions by default.

According to Federal Reserve Chairman Jerome Powell, “The Federal Reserve built the FedNow Service to help make everyday payments over the coming years faster and more convenient.” As heartwarming as that sounds, FedNow is another step toward increased centralized control of the financial system as it lays the foundation necessary for the rollout of a CBDC.

It’s important to note that FedNow is not a CBDC, however it’s one of the key pieces of infrastructure in the gradual transition to a digital dollar. Once the complete digitalization of the fiat system is complete, extensive financial surveillance, data mining and control over individuals’ financial choices will be the norm. As always, the standard “carrot and stick” approach is being used to encourage people to adopt this new system, with convenience being the carrot and, later on, jail time being the stick.

Unlike Bitcoin, FedNow is permissioned, grants the Fed the power to monitor as well as reverse or ban transactions and isn’t global. In other words, it’s the same as the current monetary system but with less freedom and privacy. The recent unilateral shut down of British politician Nigel Farage’s bank account serves as a cautionary tale of how reduced financial privacy can quickly morph into financial censorship for having differing political views. Therein lies the danger of permissioned digital financial infrastructure; its use depends on the benevolence of whoever controls it. The moment you are deemed to be “persona non grata” like Farage, you are immediately cut off from the financial system. If successful, FedNow will be the backbone for the American social credit system. The silver lining in all this is that the authoritarians are helping to make the case for permissionless and censorship resistant money like Bitcoin even stronger.

Lurking In The Shadows

In addition to predatory legislation and Orwellian CBDCs, blockchain surveillance companies, such as Chainalysis, are another threat to our financial privacy that lurks in the shadows. In addition to collecting the internet protocol (IP) addresses of visitors to a block explorer that it owns, Chainalysis also runs several Bitcoin nodes in a bid to mine as much data as possible that can be used to deanonymize Bitcoin users. While these methods are ultimately probabilistic at best, Chainalysis enjoys a cozy relationship with law enforcement agencies, which means that its “black box analysis” can be used to secure convictions. The case of Roman Sterlingov immediately comes to mind.

Sterlingov was arrested in 2021 on charges of operating Bitcoin Fog, a Bitcoin mixing service. The United States Department of Justice (DOJ) alleges that he laundered a staggering $336 million through the mixer. According to an arrest warrant, Sterlingov faces three charges: unlicensed money transmission, money laundering and money transmission without a license. Sterlingov’s defense team, led by Tor Ekeland and Mike Hassard, vehemently maintains his innocence, questioning the reliability of the blockchain analysis techniques employed to link him to the case and raising concerns about a possible conflict of interest involving Chainalysis. His defense further contends that the statute of limitations has lapsed on the charges against him, citing that the alleged activities took place back in 2011.

Elizabeth Bisbee, the director of investigative solutions at Chainalysis, made the following statement in an affidavit intended to provide more information on Chainalysis’ clustering methodology and error rate:

“Historically, Chainalysis has not gathered and recorded in a central location false positives/false negatives because there is design to be more conservative in the clustering of addresses. In response to the Court’s inquiry, Chainalysis is looking into the potential of trying to collect and record any potential false positives and margin of error, but such a collection does not currently exist.”

In a nutshell, this means that Chainalysis has not kept a record of the errors it makes when doing its blockchain analysis and is completely unaware of its false-positive rate. This calls into question the accuracy of its methods and, while the court has asked it to consider tracking any potential errors, it currently does not have a system in place to do so. This implies that Chainalysis’ blockchain surveillance methods could potentially lead to erroneous conclusions, the extent of which are unknown at this stage. This point was also confirmed by Coinbase, a competitor of Chainalysis, in a blog post describing blockchain analytics as “more an art than a science” with a high propensity for bias due to the quality and availability of evidence.

In the same statement, Bisbee added:

“Chainalysis clustering methodologies have not been peer-reviewed in the sense that an academic paper would get peer-reviewed with data and methodology(ies) reviewed in a separate study by other scientists. However, every single clustering heuristic in the system has been reviewed by numerous Chainlaysis data scientists, intelligence analysts, and investigators that specialize in blockchain analytics. Chainalysis clustering algorithms are based on deep scientific research in cryptography, blockchains, distributed systems, and computer science.”

Chainalysis is simply saying, “trust me bro” as its clustering methodologies have not been externally peer reviewed, thus raising more questions about the transparency and impartiality of its techniques. Without independent verification, it’s hard to validate Chainalysis’ clustering methods which have become essential tools in cybercriminal investigations. In short, the company claims its black-box methodology is based on solid scientific principles, but considering the fact that Sterlingov has already served over two years in prison and could get a 50-year sentence if convicted, more convincing evidence is required to substantiate this claim.

Given these circumstances, it would be reasonable to expect there to be corroborating evidence that points to Sterlingov and, according to his lawyers, none has been found. This is after combing through 3 terabytes of hard drives, SD cards, thumb drives, handwritten notes, backup account codes, laptops and smartphones that he had on his person at the time of his arrest. This ongoing case, which is set to go to trial on September 14, 2023, is an example of how far the state will go to attack your financial privacy. Sterlingov’s bitcoin holdings were acquired legitimately through early investments, unrelated to Bitcoin Fog, which he only utilized for privacy purposes.

The outcome of Sterlingov’s case may shape the future application of these methods in legal proceedings, and could negatively impact how cases involving Bitcoin financial privacy are handled.

Your Financial Privacy Is Under Attack

These seemingly-unrelated accounts presented in this article all point to one thing; your financial privacy is under attack! Those in charge of the fiat system are more determined than ever to use every tool at their disposal, legislative or otherwise, to neuter Bitcoin while weaponizing the justice system against individual, privacy-conscious Bitcoiners, as in the case of Sterlingov. Fortunately we have the capabilities to develop new privacy-preserving tools that would render all these State-level attacks useless.

As Eric Hughes wrote in the “Cypherpunk Manifesto”: “We must come together and create systems which allow anonymous transactions to take place.”

Nakamoto gave us a head start with Bitcoin. We must continue to build tools to strengthen its censorship resistance and privacy. An example of this would be PayJoin transactions. PayJoin makes Bitcoin transactions more private by making it harder to track them, through the obfuscation of the origin and destination of funds, thus preventing chain surveillance companies like Chainalysis from linking them together. The recent release of the PayJoin Development Kit by Bitcoin Developer Dan Gould is a positive development that will ensure that as many Bitcoin services as possible integrate PayJoin.

The faster that these privacy enhancing tools can be developed, the easier it will be to ensure that dystopian monetary instruments like CBDCs and other privacy eroding technologies are dead on arrival.

This is a guest post by Kudzai Kutukwa. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Introducing Ark: An Alternative Bitcoin Scaling Solution Focused On Preserving Privacy

https://bitcoinmagazine.com/technical/how-ark-plans-to-scale-private-bitcoin-payments

This is an opinion editorial by Kudzai Kutukwa, a financial inclusion advocate and Mandela Washington fellow.

“When use of strong cryptography becomes popular, it’s harder for the government to criminalize it. Therefore, using PGP is good for preserving democracy. If privacy is outlawed, only outlaws will have privacy… PGP empowers people to take their privacy into their own hands. There has been a growing social need for it. That’s why I wrote it.” 

Phil Zimmerman, “Why I Wrote PGP

The case of Roman Sterlingov, who stands accused of running the custodial Bitcoin mixer, “Bitcoin Fog,” is indicative of the many situations in which individuals are targeted by law enforcement for safeguarding their financial privacy.

As outlined in “What Bitcoin Did,” the U.S. Department of Justice relied on Chainalysis’ Reactor software to trace the purchase of the Bitcoin Fog domain back to an address linked to Sterlingov’s Mt. Gox account, establishing him as its operator. Reactor was designed to tie cryptocurrency addresses with real-world identities. Despite the various irregularities present in this ongoing case, one could draw the conclusion that it sends a clear message of “thou shalt not have financial privacy.”

Introducing Ark

Given this growing hostility toward financial privacy for Bitcoin transactions, there is a pressing need for the development of superior tools. At the recently concluded Bitcoin 2023 conference, a potentially game-changing tool, called the Ark Protocol, was introduced.

Announced during one of the keynote sessions on the open-source stage by developer Burak, Ark is a Layer 2 scaling solution that enables cheap, anonymous and off-chain Bitcoin transactions. The protocol also has a minimal on-chain footprint, which further protects user privacy while keeping transaction costs low. In what can be described as an “accidental invention” that occurred when Burak was trying to develop a Lightning wallet, Ark is a distinct protocol that could potentially scale non-custodial bitcoin use.

Burak named the protocol “Ark” in reference to Noah’s Ark, which acts as a lifeboat that provides refuge from predatory blockchain surveillance firms and custodians.

Source

During his presentation, Burak highlighted one of the most concerning trends with the Lightning Network today, which is that there are currently more custodial users of Lightning than there are non-custodial ones. This is mainly due to the liquidity constraints on Lightning that require non-custodial users to first receive liquidity from someone else’s node before they can receive funds. Custodial wallets like Wallet Of Satoshi abstract this problem away from the user but at the expense of the user not being 100% in control of their funds, as well as their financial privacy.

An Alternative Layer 2 Protocol

I interviewed Burak to gain a deeper understanding of Ark and the inspiration behind its development. When I quizzed him on what led him to develop an alternative Layer 2 protocol, he said:

“I have always been a critic of Lightning mainly because of inbound liquidity issues, async receiving as well as its on-chain footprint. Inbound liquidity always felt like a bug to me, which made the user experience anything but pleasant. In addition to that, it would take more than a century to onboard the entire global population in a non-custodial fashion onto the Lightning Network, assuming each person has four channels that each consume a few hundred vbytes.”

As he set out to address these and other issues, his Lightning wallet idea eventually morphed into Ark.

“Ark can be best defined as trustless e-cash or a liquidity network similar to the Lightning Network but with a UTXO set that lives entirely off-chain and it’s neither a statechain nor a rollup,” Burak said. “These UTXOs are called ‘virtual UTXOs’ or ‘vTXOs,’ which have a ‘lifespan’ of four weeks. The core of Ark’s anonymous off-chain payments is driven by the vTXOs.”

Throughout the conversation, Burak continued to emphasize his obsession with a frictionless experience for the end user, his view being that sending sats should be as easy as pushing a button. This is one of the reasons why Ark users do not need to have channels or liquidity, as this is delegated to a network of untrusted intermediaries known as Ark service providers (ASPs). These are always-on servers that provide liquidity to the network, similarly to how Lightning service providers operate, but with an added benefit: ASPs are unable to link senders with receivers, which adds another layer of privacy for users.

This is made possible by the fact that every payment on Ark takes place within a CoinJoin round which obfuscates the connection between sender and receiver. The best part about this is that the CoinJoin happens entirely off-chain while settling payments every five seconds, which not only drastically reduces on-chain footprints but also fortifies the users’ privacy. The anonymity set is every party involved in a transaction and, theoretically, this creates a greater degree of privacy than what’s possible on the Lightning Network. Furthermore, Ark mimics on-chain user experiences in that users have a dedicated address for sending and receiving payments, but the difference is that it’s a reusable address that doesn’t compromise the user’s privacy, made possible in a way that’s similar to how silent payments work.

Trade-Offs

However, like any other system, Ark does have its own trade-offs. Although it may not offer instant settlements as rapidly as Lightning does, it provides immediate accessibility to funds without having to wait for confirmations in what Burak described as “immediate availability with delayed finality.”

For vendors, Lightning is still the better option when it comes to receiving payments. Additionally, liquidity providers are required, but based on the assumption that individuals will be motivated to offer liquidity to earn yield in bitcoin, Burak also thinks this challenge can be easily overcome in the long term. This novel proposition addresses certain shortcomings in Lightning, yet also comes with its own set of challenges.

The Road Ahead

In summary, the Ark protocol is a unique, second-layer scaling solution with unilateral exit capability that enables seamless transactions without imposing any liquidity constraints or interactivity, nor necessitating a direct connection between sender and receiver. Therefore, recipients can easily receive payments without the hassle of any onboarding setup, maintaining a continuous server presence or compromising their anonymity to third parties. Designed to be a scalable, non-custodial solution, Ark allows users complete control over their funds and gives everyone the option to self custody their money.

Ark is interoperable with Lightning, but also serves as a complement to it. However, due to the complicated process of self-custodial Lightning and varying levels of privacy for senders and receivers, along with the imminent danger posed by blockchain surveillance firms, scaling solutions that prioritize privacy, like Ark, have become essential. The various attempts to attack Bitcoin through malicious prosecution, like in the case of Sterlingov, and predatory legislation such as the EU’s MiCA, demonstrate the need for scalable, efficient, privacy-preserving tools in order to prevent future issues.

It’s against this background that I think Ark is an interesting concept worth keeping an eye on as development of the protocol unfolds. Of course, without code to review at the moment or a battle-tested, working prototype, it’s still a long road ahead. Despite the unforeseen challenges ahead, Burak is optimistic about Ark’s potential and is convinced that it’s a breakthrough that strikes the balance between private Bitcoin transactions and scalability, in a user-friendly manner. A sentiment that I also share, given the vital need for non-custodial, privacy-preserving tools.

This is a guest post by Kudzai Kutukwa. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

The Rise Of The CBDC’s

https://medium.com/coinmonks/the-rise-of-the-cbdcs-b0d8d9f1eef5?source=rss----721b17443fd5---4

The man who puts all the guns and all the decision-making power into the hands of the central government and then says, ‘Limit yourself’; it is he who is truly the impractical utopian.”

Murray Rothbard

Back in 2013 the United States Department of Justice (DOJ) launched an initiative that they dubbed,Operation Choke Point” and the aim of this initiative was to pressure banks to cut off politically disfavoured businesses, such as payday lenders and firearms dealers, from the financial system. The DOJ subsequently sent “administrative subpoenas’’ to financial institutions that were serving these businesses coupled with a list from the Federal Deposit Insurance Corporation (FDIC) of “high risk merchants/activities”.

The whole idea was to intimidate banks into dropping these merchants as clients, without any due process, and this is exactly what happened. No bank wants to deal with extra audits, endless investigations from regulatory agencies hence why they were quick to drop these lawful businesses as clients even if there were no legally justifiable grounds for doing so.

For example, Rep. Blaine Luetkemeyer (R-Mo.), who had been a strong opponent of Operation Choke Point since its inception, made the following remarks after more evidence surfaced of how the program was being weaponized against lawful businesses:

“In one example of blatant intimidation, a bank terminated its relationship with a legal business after threats from the FDIC. The bank eventually surrendered to the pressure, and when the bank notified the FDIC of the decision, they admitted that a risk assessment showed the business “pose[d] no significant risk to the financial institution, including financial, reputation, and legal risk,” yet they still terminated the banking relationship…For years, Office of the Comptroller of the Currency officials have continually denied any wrongdoing, yet in the newly-unsealed documents we see proof of a conscious decision to work in conjunction with the FDIC against payday lenders. These lenders were specifically targeted, not based on evidence of wrongdoing, but based on personal beliefs a decision to “suggest strongly that [banks] re-evaluate payday lending.”

Operation Choke Point set a dangerous precedent of using personal prejudice or preference as a standard for regulatory enforcement. While the program was officially shut down in August 2017, its legacy of disregarding due process for ideological reasons still looms large and has now morphed into something even far more dangerous. Though initiatives like Operation Choke Point were created to circumvent the legal system, they still for the most part relied on analogue methods of enforcement. Subpoenas still needed to be issued and regulatory directives still needed to be followed.

What if I told you that the central planners are hard at work to develop a financial control grid that can be enforced without subpoenas or any sort of explicit regulations on the books? A system that demands your compliance and absolute obedience not just to existing laws but also to certain political or ideological leanings, failure to which results in you being cut off financially until you bend the knee. A system where; every purchase is tracked, every movement you make is known, every spending decision is scrutinized by the state, everything you do or say that goes against the “current thing” of the day results in financial penalties and enforcement of these aforementioned penalties is algorithmic. This nightmare that I have briefly outlined is exactly what Central Bank Digital Currencies (CBDC’s) are being designed to usher in.

“Give me control over a nation’s money supply, and I care not who makes its laws.”

Mayer Amschel Rothschild

CBDC’s are programmable virtual fiat currencies that are issued directly by the central bank to the public, without flowing through the banking system. It’s important to note that a CBDC is just a new payment channel because a digital dollar is still a dollar and a digital yuan is still a yuan. With CBDC’s however, the currency never exists in physical form. It’s always digital, and ownership is tracked on a single database that is maintained by the central bank, instead of the multiple databases that exist today in different banks and payment processors. In other words with CBDCs; banks, credit card companies, and even PayPal are largely irrelevant. All transactions are processed by the central bank via a single digital wallet for payment and receipt. The best analogy to use to describe a CBDC is that of an electronic voucher that can be used to make purchases. Most of the key differences that distinguish CBDC’s from other forms of money are described in detail in my previous article “The Battle For The Future of Money: Bitcoin vs. CBDC’s” and I would strongly recommend you check that out, if you haven’t, for some very important background context.

CBDC’s will come pre-packaged with some “amazing features” inspired by George Orwell’s classic novel, 1984. These include but are not limited to:

  • Negative interest rates to discourage saving and encourage spending i.e. monetary repression
  • Instant and automatic taxation and levying of fines
  • Zero financial privacy, obviously meant to catch “criminals”. Every transaction is monitored and tracked, for your safety of course.
  • Expiration dates on your money, as the state sees fit
  • Being programmable money, restrictions of how and where they can be spent are easy to implement with a few keystrokes e.g. the state can freeze your money if they don’t like your political views
  • They can be “turned off” at any time and for any reason in an effort to curb money laundering, tax evasion and all kinds of “illicit activities”
  • Due to their digital nature, debasement happens much faster since “helicopter money” can be dispensed in real time by the state to its citizens

As a bonus, successful CBDC implementation will require the total elimination of cash. Just in case you hadn’t figured it out by now, none of the above will benefit you in any way. CBDC’s are tools of control and are one of the levers that are being set up to enable the state to have total control over every aspect of your life. Along with digital IDs they will become the backbone of a social credit system and will usher in a surveillance state unlike anything that has ever existed in history; as no empire in history has ever had as much power as governments will have in a CBDC world! Unlike Bitcoin which is designed to be a check on the central bankers’ power by separating money from state, CBDC’s are the exact opposite that seek to strengthen the bond between money and state in a very dystopian way.

While central bankers will try to hoodwink the public into buying into CBDC’s on the basis of either being a more efficient method of payments or the holy grail of financial inclusion, make no mistake about it, CBDC’s are not being rolled out en masse for these egalitarian purposes. The main goal is to tighten the state’s grip on the financial system and indirectly engineer, as well as influence the behaviour of their citizens. The powers that be will have the means to enforce whatever agenda they like and turn you into a digital serf who does as he/she is told. To drive this point home, during an IMF hosted conference in October 2020 Agustin Carstens, the head of the Bank of International Settlements (BIS), made this remark with regards to CBDC’s:

“For our analysis on CBDC in particular for general use, we tend to establish the equivalence with cash, and there is a huge difference there. For example in cash, we don’t know for example who is using a hundred dollar bill today; we don’t know who is using a one thousand peso bill today. A key difference with a CBDC is that the central bank will have absolute control on the rules and regulations that determine the use of that expression of central bank liability. And also, we will have the technology to enforce that. Those two issues are extremely important, and that makes a huge difference with respect to what cash is.”

A few months later, in June 2021, the Bank of England echoed Mr Carstens’ remarks when they alluded to the programmability of CBDC’s as an important feature that would ensure that money is spent on goods that the government or employer deems to be sensible. In other words the state or your employer gets to control how you spend your money. CBDC’s will make initiatives like Operation Choke Point seem infantile in comparison as the state will now have the mechanism and tools to cut off “enemies of the state” from the financial system at will. Oh and yes, they get to define who these enemies of the state are, and should you happen to land on a government blacklist for whatever reason, you instantly get frozen out of the financial system with little to no legal recourse. In short, CBDC’s are Orwellian money.

Given the dystopian nature of this form of money, it then begs the question, how far are we from living in a CBDC dominated world? Renowned investor and author, Doug Casey, in a recent interview predicted that 2023 would be the year of the CBDC, a sentiment that has been echoed by economist and author Jim Rickards, among many others. The Atlantic Council CBDC tracker also reports similar data citing that this year alone, more than 20 countries will launch a CBDC pilot. Japan, UAE, Australia, Thailand, Brazil, India, South Korea and Russia intend to continue or begin pilot testing in 2023. Russia and Japan are both set to roll out their retail CBDC pilots from April 1st 2023.

Early this month, The Bank of England also announced that the UK will have a CBDC ready by 2025. Dubbed “Britcoin”, the digital pound is expected to, “maintain public access to retail central bank money and..also promote innovation, choice and efficiency in domestic payments.” The Deputy Governor for Financial Stability of the Bank of England, John Cunliffe, said:

“Our assessment is that on current trends it is likely that a retail, general purpose digital central bank currency — a digital pound — will be needed in the UK.”

The Bank of England is also toying with the idea of capping holdings of the new digital pound to between £10,000 to £20,000 once it comes into existence and making it non-interest bearing. They also castigated Bitcoin describing it as a “volatile unbacked crypto asset that isn’t a safe store of value and reliable unit of account”, while hailing Britcoin as the safer alternative. The chart below outlines just how safe your purchasing power is when stored in the pound.

The BIS also reports that over 90% of the world’s central banks are actively conducting feasibility studies with regards to launching a CBDC; while countries like China and Nigeria have already launched their CBDC’s and are actively stepping up their efforts to foster adoption of these CBDC’s.

In November last year the New York Federal Reserve announced that it too was beginning a 12 week digital dollar pilot program in conjunction with Citibank, HSBC, Mastercard and Wells Fargo, to name but a few. The NY Federal Reserve press release further states that pilot program is “not intended to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a retail or wholesale CBDC, nor how one would necessarily be designed,“ but given all the CBDC excitement going around, its abundantly clear what happens next after the pilot. Within the same month of November the International Monetary Fund (IMF) in collaboration with MIT’s Digital Currency initiative published a paper titled, “A Multi-Currency and Exchange Contracting Platform”, in which they outlined how a global centralized ledger for cross border payments in which central banks, banks and payment processors, dubbed X-C platform, would work. According to the paper this X-C platform would not just centralize payments and settlement, but would also enable a foreign exchange (FX) market, hedging and compliance with existing laws. The main goal being the reduction of friction in cross-border payments when using different CBDC’s from different countries.

As if on cue, Red Date Technology, a Hong Kong based tech firm which also happens to be the architect of China’s state-backed Blockchain-based Service Network (BSN), announced the launch of, “Universal Digital Payments Network (UDPN) at the 2023 edition of the World Economic Forum (WEF) Annual Meeting in Davos. The UDPN’s goal is to enable different companies from different countries to transact and settle CBDC based payments denominated in different currencies. In short they want to be the SWIFT for CBDC’s, in lockstep with what the IMF paper outlined. As you might have already guessed, non-sovereign currencies like Bitcoin are barred from the UDPN. The icing on the cake, however, was the publication of a report by Bank of America (BofA) in January this year hailing CBDC’s as “the future of money and payments”. According to the report, central banks are going to be the drivers of the “digital asset revolution” and CBDC’s are set to revolutionize global financial systems, ultimately making them the most important technological advancement in the history of money. I almost spilled my coffee when I read the preceding statement.

It’s clear from the above examples that central bankers are taking the development of this Orwellian money very seriously and it wouldn’t be far-fetched to assume that every major central bank will have a CBDC in circulation by the end of the decade.The million dollar question of the day is, why is there so much interest in launching CBDC’s all of a sudden? Is it really just because of the threat of Bitcoin that they have suddenly decided to spur into action or there is something else to it? While Bitcoin and initiatives like Facebook’s now defunct Libra project (which was later renamed Diem) have been major factors in this seemingly sudden awakening by central banks to accelerate the development of CBDC’s, they aren’t the only factors.

History shows that epidemics have been the great resetter of countries’ economy and social fabric. Why should it be different with COVID-19?”

Klaus Schwab

The World Gold Council in a recently published report cited 2022 as a record year for gold purchases by central banks. Gold demand from central banks alone totalled a whooping 1,136 tonnes in 2022, making it the highest level of gold purchases by central banks on record! Furthermore Q4 2022 purchases were 12 times higher than Q4 2021 purchases, with only 25% of the purchases being reported to the IMF. Geopolitical uncertainty (especially given the seizure of Russian foreign reserves) and rampant inflation (which ironically they caused) were cited as the key drivers for these purchases. In other words the era of sovereign debt as a “safe-haven asset” has come to an end, and the central banks know it.

A global economy increasingly addicted to money printing and the artificial inflation of financial assets can only spell disaster. With total global debt hovering at just over $300 trillion or 349% of global GDP, and rising, the central banks have read the writing on the wall and are aware that a global monetary reset is imminent. Just like in 1971 when President Nixon closed the gold window and ushered in a new monetary order of fiat money backed by US sovereign debt instead of a neutral reserve asset like gold, the monetary reset on the horizon will be built on a CBDC foundation.

What this reset will look like remains to be seen but if history is any indicator main street is still largely unaware of what’s on the horizon and as such will be left holding the bag when (not if) the reset happens. Given everything we know so far about CBDC’s, it is very likely that the urgency to roll them out is being driven more by the fact that the credit driven global economy, which is a giant ponzi scheme, is on the brink of collapse. This isn’t an unfounded “conspiracy theory” but certain key events in 2019 will help put things in perspective.

Just before Covid-19 (C19) was officially declared a pandemic in March 2020, trouble had already started brewing in the financial markets as early as September 2019. The financial system had been on the verge of yet another massive meltdown, as evidenced by the sudden spike in repo rates from 2% to 10.5%. Repo is short for repurchase agreements which are basically short-term collateralized loans that are typically used to raise short-term capital and these occur when a dealer sells treasuries to investors, usually on an overnight basis, and buys them back the next day at a slightly higher price. That small price differential is the implicit overnight interest rate. Since they are the main source of funding for traders in the majority of markets, especially derivatives traders, a lack of liquidity in the repo markets can spell disaster for all major financial pillars of the economy.

As usual the Fed responded to this threat by pumping billions of dollars into the financial system on a weekly basis in an effort to avert disaster. The Fed is estimated to have quietly pumped in approximately $6 trillion into the repo market between September 2019 and January 2020!

In June 2019 before the repo markets went into a tailspin, the BIS in their annual economic report were the first to sound the alarm when they stated, “overheating […] in the leveraged loan market”, where “credit standards have been deteriorating” and “collateralized loan obligations (CLOs) have surged — reminiscent of the steep rise in collateralized debt obligations [CDOs] that amplified the subprime crisis [in 2008].” In other words the financial industry was once again in trouble.

They followed this up with another working paper published on 9 August 2019 in which they recommended central banks to use unconventional monetary policy measures such as bypassing commercial banks to lend directly to troubled firms during a financial crisis. Almost a week later, Blackrock, the world’s largest asset manager, published a whitepaper titled, “Dealing with the next downturn: From unconventional monetary policy to unprecedented policy coordination,” in which they instructed the Fed to directly inject money into public and private hands “when the next downturn” happened; which coincidentally showed up a month later in the repo markets.

Every year, the top 120 of the financial industry’s global elite, most of whom are central bankers, meet in Jackson Hole, Wyoming, to discuss current events and make plans for the future ahead. BlackRock presented their proposal at this event and they even acknowledged the fact that their proposal was radically different from the usual response to crises by the Fed:

An unprecedented response is needed when monetary policy is exhausted and fiscal policy alone is not enough. That response will likely involve “going direct”: Going direct means the central bank finding ways to get central bank money directly in the hands of public and private sector spenders. Going direct, which can be organized in a variety of different ways, works by: 1) bypassing the interest rate channel when this traditional central bank toolkit is exhausted, and; 2) enforcing policy coordination so that the fiscal expansion does not lead to an offsetting increase in interest rates.

An extreme form of “going direct” would be an explicit and permanent monetary financing of a fiscal expansion, or so-called helicopter money.

In a nutshell the actions taken by the Fed from March 2020 were identical to the plan laid out by Blackrock a few months earlier, before a pandemic had been declared by the WHO. To be frank the plan had already been in motion but thanks to the pandemic, the plan was shifted into high gear. In 2019, the global economy was suffering from the same disease that led to the 2008 financial crisis; it was being smothered by an unsustainable mountain of debt. “Zombie companies” were on the rise as numerous public companies were staying afloat only by taking on new debt. The meltdown that ensued in the repo markets in September 2019 must be viewed from this lens. In short the stock market did not collapse (in March 2020) because lockdowns had to be imposed; rather the reverse was true, lockdowns were imposed because financial markets were collapsing. In other words, executing Blackrock’s radical plan was contingent on the global economy’s engine being turned off thus accelerating the pre-existing macrotrend of monetary expansion, while postponing inflationary damage. The rest of the world’s central bankers followed the Fed’s Blackrock playbook resulting in the massive expansion of money supply leading to the devaluation of their currencies. For more details I recommend checking out this article by Fabio Vighi as well as this one by John Titus.

What has all this got to do with CBDC’s you may ask? Well it’s simple, thanks to the pandemic digital ID’s, which are the very backbone of a CBDC system, were rolled out in the form of vaccine passports. These made it possible to enforce employer vaccine mandates as well as restricting access to public spaces such as restaurants, theaters and gyms if a person was not fully vaccinated, as per prevailing definition of fully vaccinated. In reality this was actually a pilot program for a CCP-style social credit system, even though at this point it was only using vaccination status as a singular metric of ensuring compliance.

Furthermore Blackrock’s plan wasn’t meant to be a once-off policy response but it was proposed as a permanent measure for dealing with any future financial crisis or as John Titus puts it, “This is the ultimate outcome of BlackRock’s “going direct” plan: controlling both the population and the economy through money pipes with valves that open and close in accordance with whatever “stringent conditions” the money supplier chooses to impose.” Therefore if “helicopter money” is to be provided directly to the public in future, what better way to do it than via CBDC’s?

The worship of the state is the worship of force. There is no more dangerous menace to civilization than a government of incompetent, corrupt, or vile men. The worst evils which mankind ever had to endure were inflicted by bad governments. The state can be and has often been in the course of history the main source of mischief and disaster.”

Ludwig von Mises

A year after the launch of the eNaira, the Nigerian CBDC, in October 2021 less than 0.5% of Nigeria’s 225 million citizens were using it. This is against the background of increasing Bitcoin adoption which has led to Bitcoin trading at a 60% premium in the West African nation. In a bid to save face and force people into digital serfdom, the Nigerian central bank first limited bank withdrawals to a maximum of $225 a week. They later doubled down and decided to replace all high denomination notes in circulation. The ultimate goal being restricting cash usage just like India did in its 2016 demonetisation campaign, and this has resulted in a massive cash shortage. The Nigerian central bank stated that the demonetisation campaign is intended to mop up excess cash liquidity, keep counterfeiters in check and tighten their control of Nigeria’s money in circulation, with more than 85% of it existing outside the country’s banking system.

Similar to India, the results of this policy have been chaotic with endless lines at ATMs, stranded commuters and many small businesses, which represent the lion’s share of the economy, and predominantly rely on cash payments, grinding to a halt. Despite these disastrous results the Nigerian Central Bank governor, Godwin Emefiele, has hailed the policy as a success and the Finance Minister, Zainab Ahmed, concurred, saying: “The only sore point is the pain it has caused to citizens.” As a result of the cash shortages, riots have broken out in Nigeria in protest, with reports in some cases of lethal force being deployed against the rioters. CBDC’s are so good that they have to be forced on people who don’t want them.

In a recent interview on Bloomberg, Mr Carstens of the BIS, declared that fiat had won the battle against crypto citing the FTX fallout as the final nail in the coffin that he anticipates will ignite a regulatory response soon. He went on to assert that “technology doesn’t make for trusted money” and that “..only the legal, historical infrastructure behind central banks can give great credibility [to money],” He then went on to make a magnificent suggestion of having a “unified blockchain” where one central bank (ie the BIS) underpins trust in CBDC’s. One ledger to rule them all. It’s abundantly clear that the battle for the future of money and freedom is only just beginning. The likes of Mr Carstens are definitely not going to voluntarily give up their powers of liquidity creation and in the coming months they will deploy every regulatory power at their disposal to restrict Bitcoin adoption as much as possible until their weapons of digital fascism, aka CBDC’s, are ready.

While it’s obvious that the CBDC train has already left the station and seems to be gathering momentum, that should be motivation for us to double down in building an alternative economy around Bitcoin. It’s incumbent upon us to start building Bitcoin circular economies and make exchanges obsolete as a source of acquiring Bitcoin, because given Mr Carstens’ comments, they are going to be the first attack vector for regulators, a form of Operation Choke Point 2.0. From a technological and economic standpoint Bitcoin already won and the central planners know that; even though it’s a reality they are unwilling to accept. The real battle isn’t just about competing monetary systems but it’s a battle between freedom or slavery. The CBDC’s are indeed coming but the question is when they do, will you be enslaved or will you be free? The choice is yours.

New to trading? Try crypto trading bots or copy trading on best crypto exchanges

Join Coinmonks Telegram Channel and Youtube Channel get daily Crypto News

Also, Read


The Rise Of The CBDC’s was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.