Bitcoin Was Supposed to Free Us from Big Finance. Is It Leading to More Surveillance?

All Eyes on Blockchain. Artwork done by Joanna Andreasson for Paradox.


Centralizalized tech companies like Facebook, Google, and Apple have mainstreamed mass surveillance techniques that have created a reality wherein every behavioral pattern is monetized.


Decentralization. Usher in a new tech revolution governed by Bitcoin, algorithms, and peer-to-peer exchanges.


The narrative surrounding Bitcoin, Blockchain technology, and decentralized applications parallels the early fetishization toward social media companies. Speaking before elementary school students in 2009, then-President Barack Obama included Facebook’s creation as a monumental American breakthrough alongside the civil rights movement and the moon landing. In 2021, every day brings feverish headlines like Bloomberg’s “The Future Will Be Decentralized,” Fast Company’s “These Two New Technologies Will Supercharge Our Privacy on the Internet” (both published last week alone), and TechCrunch’s “The Future is a Decentralized Internet.”

Decentralization may be the direction technology is moving in, but are its corresponding uses like Bitcoin payments any less susceptible to surveillance by state and corporate actors? Unlike Facebook’s network, all Bitcoin activities take place on a public ledger and can be studied by blockchain analysis firms to map transactions; data which can then be sold to governments and corporations.

“There’s a lot of different technologies at play,” Greg Barbaccia, Head of Investigations at the Blockchain analytics firm Elementus and a former Palantir executive, told Paradox. “There’s a difference between face-level Bitcoin operating on the public ledger and then second layer protocols. Monero, privacy coins, things like the Lightning network. Is it possible to map these transactions? Yes. Is it easy? Absolutely not.”

The Lightning Network, a second layer protocol operating on top of blockchain-based cryptocurrencies like Bitcoin, has gained traction among cryptocurrency users by creating private payment channels for peer-to-peer transactions. CoinJoin is another method for reducing possible Bitcoin surveillance by merging several independent transactions into one group transaction; when done several times, it can make identifying any individual user’s transaction history difficult.

“There are really clever ways people have figured out how to do Bitcoin transactions that can break the transaction history,” Alex Gladstein, Chief Strategy Officer at the Human Rights Foundation and Oslo Freedom Forum, told Paradox. “It’s very possible in 3-5 years the Bitcoin network will be in such a state that you would be economically incentivized to do transaction aggregation. You could actually save money by combining your transaction with a whole bunch of parties.”

Gladstein believes the role of chain analysis firms is overstated, given their high operating costs and how only a handful of wealthier governments contract with them. He also noted how targeted surveillance for Bitcoin is rare and not typically used to go after petty crime; and will become increasingly difficult due to protocols like the Lightning Network taking transactions off blockchain.

“I don’t think these companies are going away, but over time their effectiveness may be quite limited because more and more transaction volumes are going to go off the surveillable chain,” continued Gladstein. “There’s also going to be a lot of ways in the near future to basically break transaction history. They can celebrate now while they do what they do… It’s very easy to do mass surveillance on the legacy financial system. With Bitcoin, it’s not so easy.”

“It doesn’t seem to me, anecdotally, the players in the market are having difficulty adapting to these new protocols,” said Barbaccia, adding that the real threat to surveillance comes from countries like China issuing cryptocurrencies independent of blockchain, designed to be monitored by state actors.

“With the Venezuelan Petro and Chinese digital Yuan, they are not open ledgers much like how we run Bitcoin and Ethereum. They are not transparent to the public so in addition to the risk of sanction evasion, which is absolutely happening, there is also the risk of destabilization of currency because you have to take their word for what’s going on.”

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( mm / dd )