🤷 Opinions Rajarshi Mitra

Anarchy and Cryptocurrency: The Relationship That Never Was

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Cryptocurrencies in their current form are definitely not following the anarchist principles
Anarchy and Cryptocurrency: The Relationship That Never Was
Contents

When Bitcoin first entered the market nearly a decade ago, it was thought of as the perfect tool for anarchists. Several so-called crypto-anarchists groups sprung up, hailing Bitcoin as the “path” to self-reliance and getting out of government control.

However, as it turns out, cryptocurrencies, in their current form are definitely not following the anarchist principles. In fact, there is an argument to be made that cryptocurrencies and pure anarchy were never really meant to be “partners-in-crime” in the first place.

So, before we get into all that, let’s first define what anarchy really is.

What is anarchy?

Merriam-Webster defines anarchy as one of the following five states:

  • Absence of government

  • A state of lawlessness or political disorder due to the absence of governmental authority (e.g. the city's descent into anarchy)

  • A utopian society of individuals who enjoy complete freedom without government

  • Absence or denial of any authority or established order (e.g. anarchy prevailed in the ghetto)

  • Absence of order

Now, that’s the dictionary definition. The word itself, however, is shrouded in a lot of negative connotations. If you put it in a positive light, the real meaning of anarchy is a society that has attained the highest order of consciousness. Members of this society have such high levels of self-discipline and empathy that they do not need an authority figure to keep them in check.

Unlike what many wrongly think, anarchy doesn’t mean getting rid of the government: it means elevating yourself up to a level where you don’t need one.

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Cryptocurrencies and anarchy

Back when Satoshi Nakamoto created Bitcoin and opened the floodgates for decentralized cryptocurrencies, people were wondering if this was the ideal tool that anarchists had been waiting for. Think about it, finally people had a currency system which didn’t rely on a centralized entity to take care of it.

In fact, way before Bitcoin even came out, cypherpunks and old school cryptologists already identified cryptography as a method of attaining proper anarchy. Timothy May, one of the original crypto-anarchists, wrote a report back in 1994 titled, “Crypto Anarchy and Virtual Communities.” In the report he explains:

“The combination of strong, unbreakable public key cryptography and virtual network communities in cyberspace will produce interesting and profound changes in the nature of economic and social systems. Crypto anarchy is the cyberspatial realization of anarcho-capitalism, transcending national boundaries and freeing individuals to make the economic arrangements they wish to make consensually.”

That pretty much set everything up for cryptocurrency systems and other encryption-based technologies.

Bitcoin leveraged Blockchain technology to create an ecosystem in which two people could transact with each other without getting involved with a bank. For the first time ever, you, and only you had full control over your own money.

Early adopters of Bitcoin, especially the ones who were coining themselves “crypto-anarchists”, had a big responsibility of spreading the word around to create this crypto-anarchic ecosystem; however, their attitude changed as soon as the market conditions improved, and the value of their assets swelled exponentially. They inevitably became whales, i.e. they just sat on their money and started to accumulate more wealth, failing miserably in the process at what they were originally supposed to do.

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Current state of cryptocurrencies

As cryptos have gotten more and more mainstream, it looks like they have also lost that anarchic streak that made them so desirable when they first entered the market.

To set the record straight, we still believe that cryptocurrencies have the capability of disrupting the financial sector for good. Nonetheless, it goes without saying that the entire system is becoming more and more businesslike these days, and it looks like this is not going to change any time soon.

With more and more people coming in, newer investors are getting extremely jumpy around price volatility. Concurrently, in order to protect their interests, governing bodies like CFTC and SEC have entered the fray as well. Investors have become increasingly open to regulated investment opportunities like ETFs, Bakkt, etc. Big crypto exchanges have been pressurized into adding KYC regulations; in fact, Andreas Antonopoulos recently expressed his dismay on Shapeshift opting for KYC. He sees Lightning Network, Decentralized Exchanges, and Atomic Swaps as possible future replacements:

Andreas Antonopoulos

The idea that “we will go with the government in the beginning and then branch out on our own” never really works out in the long run. Once the government has their clutches on something this disruptive, it will be hard to see them let go.

So, as you can see right now, the current crypto space is definitely not anarchic. Be that as it may, this is where we need to ask ourselves another question.

Were cryptocurrencies ever meant to be anarchic?

True anarchy is against the usage of any form of currency since money is a commodity controlled by the government. Nevertheless, even if money wasn’t under the government’s control (like with cryptocurrencies), the value that a capitalistic system itself puts on money is the biggest problem, and this doesn’t change with decentralized currency either.

The anarchist community advocates changing the money economy to a gift economy, wherein people get paid with gift vouchers in return for their services. However, there are certain schools of anarchist thinking that don’t have a problem with having currency.

Deeper than just “anti-government”

From whatever we have shown so far, one thing becomes very clear.

The cryptocurrency space has never been anarchic, in the purest sense of the word, and never will be. Sure, it offers a decentralized currency which can be used trustlessly for daily transactions; however, the concept of anarchy goes deeper than just being “anti-government.”

The core idea of anarchy is to be self-sufficient and competent enough on your own as a society that does not require government’s intervention. Old school anarchy believes that the idea of money, be it in its physical form or its decentralized cryptic form, can seriously threaten this core concept.

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Despite the Criticism, Ripple Arguably More Decentralised Than Bitcoin

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Many won’t even class XRP as crypto because of Ripple’s control, but they could also argue that the XRP token is more decentralised than BTC
Despite the Criticism, Ripple Arguably More Decentralised Than Bitcoin
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Ripple, and its token, XRP, have faced a constant barrage of criticism relating to their decentralization of the token over the years. Many cryptocurrency purists have criticised their inner workings with Ripple, the company, clearly in charge of the XRP token and its distribution.

However, this allegation has been as equally denied by the those at the head of Ripple; in fact, it has even seen the CEO, Brad Garlinghouse, state that the XRP ledger is in fact more decentralized than both Bitcoin and Ethereum.

This statement alone will get many raring for a fight, but a closer inspection and interpretation of what it means to be decentralised could indicate that Ripple has a point. They could indeed argue that they are more decentralized than the other two major cryptocurrencies, based on the mining pools.

It is well known that controlling the majority of the mining of traditional proof-of-work coins, like Bitcoin and Ethereum, can lead to a 51% attack, which destroys the decentralisation of the blockchain and hands full control to one person, or group, or pool.

Bitcoin has been flirting with the 51% attack recently, and previously, but for Ripple, it is a different story, as they only have seven percent control of the validators. Looking at the interpretation of decentralisation, there technically have been more chances for Bitcoin to be controlled by one group than there has Ripple – so is it less decentralised?

Making claims

To be honest, the idea of decentralisation is really up for debate, and it is also dependant on interpretation, thus the claims being made on their side of these fence are debatable, but it is interesting to hear the thoughts of Garlinghouse.

“It is very clear that the XRP ledger is decentralized,” said the CEO of Ripple. “Ripple runs seven validators, which is about four percent of all public validators.”

He added:

“By almost any measures now, the XRP Ledger is more decentralized than the Bitcoin ledger or Ethereum ledger, where you have a very small number of miners controlling you know well past 50% of mining power.”

It is true that Bitcoin’s mining has almost been monopolised in the past by the likes of Antpool, BTC.com, and ViaBTC, with Bitmain at times having the power to launch a 51 percent attack, but never acting on this. However, it shows just how much the mining has been centralised in Bitcoin.

Ripple’s argument

If one was to base the mining and validation of cryptocurrencies as the key determining factor of their centralisation, then it would be preposterous to say that Bitcoin is decentralized.

Ripple, the company, despite having control in different areas of the XRP token, only controls seven percent of its validation. Thus, on this basis, they have very little control and it should be argued that XRP is decentralised.

cryptocurrency

 

A lot of this argument is also predicated on the algorithms that these two coins use, however.

Bitcoin and Ethereum use proof-of-work algorithms. This system rewards miners for validating transactions by paying a fee for their work. This was a great starting point for a decentralized system that incentivizes complete strangers to contribute to the greater good of a network and make forward progress.

But as time has gone on, clear limitations have manifested. Blockchains that use proof-of-work can be subject to centralized control, where a few miners have significant control over the system.

The XRP Ledger uses a consensus protocol that relies on a majority of validators to record and verify transactions without incentivizing any one party. Validators are different from miners because they aren’t paid when they order and validate transactions.

Today, these validators operate at locations across the globe and are run by a broad range of individuals, institutions, asset exchanges and more.

More to it

As mentioned, this form of argument in regards to decentralisation only takes into consideration one aspect. But in this aspect, indeed, Ripple is superior. However, when it comes to purists and believers in how blockchains should operate, many have an issue with a company having discretion over tokens.

Ripple has been a coin that differs substantially from most of the top 20 coins by market cap – that does not necessarily mean it is wrong, nor right, but it is certainly showing that things can be done in different ways in the blockchain space.

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Ripple Believes XRP Should Be Viewed Just Like Bitcoin

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Most cryptocurrencies are in a legal classification grey area, especially in the US, but Ripple believes XRP should be viewed like Bitcoin.
Ripple Believes XRP Should Be Viewed Just Like Bitcoin
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Regulatory uncertainty surrounding cryptocurrencies has become one of the biggest bugbears of cryptocurrency businesses and users alike. There are very few hard and fast rules or legal frameworks around the digital assets, leaving anyone who operates them in a grey area.

It has led to many lawmakers and regulators to start to try and delve into how these cryptocurrencies can fit into the current legal framework, and in the case of the United States, it has seen the SEC declare Bitcoin at least as not a security.

However, the SEC has more jurisdiction over other cryptocurrencies, declaring a huge swath of ICOs as securities, but leaving the rest of the more established coins, such as Ripple, for example, in the dark.

This has led Ripple to implore the SEC to make a decision on XRP and treat it just as they would Bitcoin. It is a decision that surely needs to be made, but will be more difficult for the SEC in comparison to Bitcoin, as the XRP token differs significantly from the major cryptocurrency.

However, the argument from Ripple is that the XRP token is more suited to not being classified as a security due to its regulatory adherence and US-base.

A policy of uncertainty

The relationship between the cryptocurrency ecosystem and regulators has been a complex and dynamic one. The original face of Bitcoin was one of defiance of the governmental rules and regulation, covering itself in a ‘cypherpunk’ cloak and being used predominantly on the dark web.

However, as it has entered the mainstream, and regulators have found it legitimate enough to put levels of control over it, the cryptocurrency community has understood that in order for digital assets to advance and become accepted, they need to adhere to the rules.

This has now led to many seeking legal classification and clarification, including Ripple.

“The challenge for adoption comes back to policy. The policy uncertainty around some of the assets has limited adoption, particularly here in the US,” said Ryan Zagone, director of regulatory relations.

“And I’m speaking from Ripple and XRP, because we use that asset because it’s a half a cent per payment. It’s basically free. It scales. And it’s efficient, with 1,500 transactions per second and nearly no energy burn. So we’re at a point today where there are real solutions to all of these challenges that already exist.”

According to Zagone, US regulators should treat XRP the way same way they view Bitcoin and Ethereum.

“Today, the policy certainty in the US exists for Bitcoin and Ethereum, despite the fact that those are China-controlled platforms. So activity goes to those platforms. What we need to do from a policy perspective in the US is look at places where there are uncertainty.”

“And one place I’m speaking directly for me here is XRP, where it looks like Bitcoin. It’s decentralized. It’s open-source. We have a small 7% of the validation power on that. Rather small on there. Giving clarity to those ones that are very similar to Bitcoin and Ethereum that have the same characteristics and should be classified the same way. And then we’re creating a level playing field across all the cryptos.”

Difficulty in classification

It is not an easy task for the SEC, and other regulatory bodies across the globe, to determine which cryptocurrencies are securities, or other such entities, and which are not. However, the the process thus far has been slow and bureaucratic.

This is not only hindering the growth and potential of cryptocurrencies, but also making it unattractive for the companies and businesses to adopt and utilize the powerful technologies. For Ripple, this includes major banks which have seen the potential but are unsure of the regulatory standpoint. 

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Big Bitcoin Mining Pools Losing Control as “Unknown” Miners Take Profit

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Bitcoin mining is slowly moving away from the big mining pools, like Bitmain, and ‘unknown’ miners are starting to come in to grab profits
Big Bitcoin Mining Pools Losing Control as “Unknown” Miners Take Profit
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Part of the appeal of Bitcoin and other cryptocurrencies is that their design allows for a decentralised network based on a large network of miners. But in recent times, major mining pools have taken control of the mining arena, limiting the decentralised nature of the cryptocurrency, and making mining unfavourable and unprofitable for the everyday miner.

But there is a change in the air as the major pools, like Bitmain and others, are starting to lose their grip with a surge of “unknown miners” now helping decentralise the cryptocurrency further in what could be a return to profitability for individual miners.

Research has shown that the likes Antpool, BTC.com, and ViaBTC are now validating far less Bitcoin blocks than this time last year. Rather, there is an emerging group of “unknown” or untied miners that are currently validating more blocks than any individual pool.

This group of “unknown miners” could well be individuals flexing their own muscle as they look to profit from the fall in difficulty that has been seen over the past few months in the Bitcoin mining algorithm.

Who is in charge?

Blockchain research unit Diar has published new data that shows the control once held by major mining pools is waning, and is likely being overtaken by the more casual miner. Anonymous, and unknown miners, not tied to any pools, are now finding profit in mining the major cryptocurrency.

Who is in charge?

“Unknown miners closed December having solved a whopping 22 percent of the total blocks, up from 6 [percent] at the start of last year,” reported Diar. “The Bitcoin network is currently less likely to experience an attack given the fact the BTC.com controlled pools have lost dominance over the network.”

Protecting against attack

Not only is it that the casual miner could be profiting from Bitcoin mining again, it is helping accentuate the decentralisation of Bitcoin by diluting the power held by a single mining pool.

It is well known that if a blockchain is controlled by more than 51 percent by one miner or mining pool, that blockchain becomes the target of a 51% attack, which can have devastating outcomes for the cryptocurrency.

Bitcoin has been under threat of a 51 percent attack in the past because of the mining monopoly of Bitmain, but it has never come to fruition, and now, it cannot currently.

Diar reports that in early 2018, Bitmain’s mining pools accounted for 53 percent of Bitcoin’s hash power. Theoretically, this would have allowed them to collude to take control of Bitcoin with a 51 percent attack.

This reduction in their influence is positive for those wary of such an attack. Recently, Ethereum Classic suffered such an attack that led to $1.1 million being stolen from cryptocurrency exchanges.

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Ripple Focusing on Where the Money Is – the MENA Region

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Ripple has seen significant uptake in the MENA region of the Middle East and North Africa, so it is taking its focus there
Ripple Focusing on Where the Money Is – the MENA Region
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The Middle East, despite the strife and conflict, has grown to be a place of vast wealth with the likes of Dubai and Abu Dhabi shining bright in that region as places of immense wealth. This region, along with North Africa, known as the MENA region, is thus a very important place, especially for Ripple.

Ripple has stated that it is focusing a lot of its attention on the MENA region, and it is a two-part approach as it is aware of the potential there, but it has also seen significant interest from the region already.

Not only is the MENA region one of the fastest adopters of Ripple’s product, but they are also friendly to digital assets in terms of a regulatory standpoint. Since October, Ripple has been trying to expand there in a move which is quite smart.

The banking-focused cryptocurrency XRP and its parent company Ripple have been seeking partnerships in the MENA region, and it is starting to show, as they are starting to see traction.

The place to be

Ripple’s Head of Infrastructure Innovation Dilip Rao has spoken on the importance of the MENA region, recently mentioning that it is adopting the distributed ledger technology solutions from Ripple at a rapid rate.

They have been signing up banks in Saudi Arabia and UAE and other countries like Oman and Kuwait.

Rao said:

“The enthusiasm of the regulator, the central banks to also encourage the use of Ripple technology to build new infrastructure for payment rails.”

It makes sense that Ripple has decided to focus its efforts into the Middle East, especially with the interest it has there, and also because of the potential in its expanding and impressive banking system.

Banks showing their interest

For Ripple, it is mostly about partnering with banks so they utilize the blockchain assets of their XRP token in order to make the intra-banking payments easier, cheaper and more efficient.

So far, they have seen strong interest from the banks in the MENA region, and are thus driving deeper in. The banking system in the MENA region, especially in the developing middle eastern countries are far less attached to their legacy banking systems, something that has been a handbrake for the general adoption of blockchain and cryptocurrencies.

Banks in the MENA region are thus far happier to use the XRP token and xRapid product to solve visibility and liquidity problems in global remittances.

There are also far more lenient and open minded regulators in the Middle East which are willing to look into the new and forward-thinking options that are out there. It is because of this that Ripple has decided to pursue this region, and should it be a success, it would be the perfect platform to launch a more global offensive in terms of adoption.

Regulation inclined

Ripple has always been a cryptocurrency which has taken a different path from most others. Its intention is to work with traditional financial structures and help upgrade them rather than replace them, and to this end, it relies heavily on a welcoming regulatory standpoint.

In the MENA region, Ripple has found an open minded general approach to these financial tech rules, and to that end it has seen adoption start taking hold. It remains to be seen if Ripple can totally colonize the MENA region with its solutions, but it is positive that it is focusing in on an area which has an open pathway.

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Ethereum Will Overtake Bitcoin But Competition Will Come From Ripple

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Bitcoin has always seemed untouchable, but that will, in time, change with Ethereum, the likely successor and Ripple the chaser
Ethereum Will Overtake Bitcoin But Competition Will Come From Ripple
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Ever since the genesis block, which was just over 10 years ago now, Bitcoin has stood firm at the top of the cryptocurrency tree with challengers never really getting close to its fame, or market cap.

However, the days of a handful of cryptocurrencies are well and truly over thanks in part to the ICO boom of 2016/17, as well as the development of other major cryptos in the past five or so years.

Ethereum was a breakaway development in blockchain and cryptos as the team behind it looked to create a “World Computer” rather than a simple distributed ledger. In terms of functionality, Ethereum opened the doors wide open.

This has led to a number of key projects trying to advance upon what Ethereum has done, such as NEO, EOS, and Cardano, just to name a few, but there have also been advancements in other uses for Blockchain.

The likes of Ripple have gone in their own, quite separate direction, but their mandate is starting to make more and more sense as it is realised that institutions and companies want to integrate blockchain, rather than be replaced by it.

True, Bitcoin evangelists will never admit that it can be replaced as the major cryptocurrency, but that is short sighted. The world is looking for a functional blockchain that can offer a lot, and that is why Ethereum will overtake Bitcoin, but don’t write off Ripple just yet.

Ripple is the one cryptocurrency that has from day one tried to distance itself from the “Cypherpunk” ways and rather offer itselves up to the “Big Evil” of banks and other institutions.

What we have seen is for cryptocurrencies and blockchains to be a success, they need to integrate and play along with the established order of regulators, institutions and governments.

Ethereum’s superior offerings

Bitcoin of course is revolutionary and quite ahead of its time, even 10 years from its creation. However, time moves fast in technology and really, it is starting to show that it is fairly outdated as well.

Bitcoin’s success is predicated largely on its size, popularity, and age, whereas its offering is quite straightforward. That is not necessarily a bad thing; if it does one simple thing perfectly, it is still perfectly good.

Bitcoin is a blockchain that facilitates the movement of tokens across a distributed ledger, and that is great from a financial standpoint, but the potential that blockchain offers is underutilized by the biggest blockchain there is.

Ethereum is a blockchain that recognised this early on, with Vitalik Buterin helping create Ethereum when he realised Bitcoin’s inefficiencies. The smart contract system and its design as a platform makes it far more accessible and applicable in today's modern world.

Companies, institutions, even start ups and other blockchain developers, are looking to Ethereum for its usefulness, and because of this, once the blockchain reaches a level of functionality and stability that only comes from time and experience, one should see it start to encroach on Bitcoin's market cap.

Ripple’s roaring success

So, while Ethereum is broad and open to a multitude of projects and applications, it is also dogged by other competitors that could sink it as a better offering. However, when it comes to Ripple, one can see it is fairly unique and quite desirable for banks looking to break into blockchain.

It is developed to be an intra-bank payment system that utilizes the blockchain, and it is arguably a centralised blockchain, meaning that it has a face and an organisation that people can do business with in the traditional sense.

This makes it much more attractive to banks who the blockchain is aimed at, and the reason why the market it is chasing is so important is because, like it or not, banks hold a lot of sway around the globe.

If Ripple can reach critical mass with banking institutions and become a staple for their digital needs, that traditional power behind them will see them catapult up the market cap and could overtake Bitcoin and Ethereum quite quickly.

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