Security Notes: Danger: Hidden Digital Money

Imagine that privacy concerns were to triumph over the Fourth Amendment, disallowing court-sanctioned search and seizure. Terrorists and criminals alike would be secure in their abode, safely preparing their misdeeds. Passengers boarding planes could pack heat, and robbers could pile up their plunder without fear of discovery.

Society would collapse under these conditions. Indeed, privacy concerns cannot be taken to their asymptotic absurdity.

Yet, so many smart and credible voices extol the celebrated and unassailable privacy right claimed by Bitcoin and its imitators. If the thought of our neighbor storing machine guns in his basement makes us uncomfortable, why are we so blasé about the guy across the street whose secret fund pays a host of unscrupulous characters to make false legal claims against us, or otherwise make our life miserable? We cannot “follow the money” because the money and its movement are protected by modern technology. Secret wealth that can be paid out without detection is as powerful as firearms. Even more so, because secret money can kill from a distance.

Every day, the news is replete with stories about how corrupt politicians trade favors for money. How many never get caught? Now imagine that political influence could be paid for by unsuspected sources, and the payment leaves no footprints. Our elected representatives would simply become puppets controlled by hidden power brokers.

Last November, this column pointed to the growing threat of ransomware, and it predicted escalation of the threat based on the hallowed privacy of Bitcoin. That was one correct prediction! What’s more, everybody pays! Why? Because hackers became businessmen. They learned to charge their victims a sum so low that the cost to fight back is way too high. And, upon payment, the victim is made whole again to build the “brand.”

There’s only one way to put a dent in this practice: Give society the means to crack open financial doors the way authorities burst into a criminal suspect’s house.

Cancer starts small and develops for a long time undetected. Often, it metastasizes before awareness of it dawns. Likewise, hidden money accumulates slowly, and then it metastasizes. Hidden wealth centers transact with each other, running an underground economy, all with digital money that does not show up anywhere in the nominal financial networks.

Unlike Bitcoin, which at least operates with a public ledger, private hidden-money protocols proliferate within a confederacy of criminals, and keep growing. Remember this: If an algorithm can generate a currency for the good guys, it can also generate a currency tailored for bad guys.

Digital money is created by a protocol. Protocols may be copied as many times as desired. While Bitcoin is based on mathematical complexity, which people who are smart enough can crack, the new generation of digital money (e.g., BitMint) is based on quantum-mechanical randomness, and is immunized to mathematical cryptanalysis. Digital money is secure. It is paid across the table or across the continent, with no friction, no delay—and no detection. It is the modern way to project stealth power.

About two weeks after our BitMint digital-money patent was published, we started to receive requests to build a “working copy” of this technology and write a detailed user manual, to be shipped to some address abroad. The bad guys are quick. By contrast, the U.S. government commissions endless studies to “look into it.”

At the same time, we see a burst of creativity in the money-laundering business so people who are paid secretly can wash clean their ill-gotten wealth. Again, like cancer, laundering underground digital money is a slow process that moves forward unchallenged because warnings like this are so easy to ignore.

It is for this reason that a privacy hawk like myself now concludes that privacy ends at the edge of money. Hidden wealth is a mortal risk for society and should be prevented. With BitMint, we promote the fundamental notion of “Expiry Coins.”  BitMint digital money can be traded peer-to-peer, protecting normal behavioral anonymity, but every BitMint coin comes with an expiration date by which its holder must surface and exchange the coin for another one, or for a non-digital asset.

And by reason of this model alone, we strongly believe that the payment paradigm of the future will be based on two centralized anchors, minting and redemption, with an at-will degree of freedom in between (peer to peer).

—Gideon Samid • Gideon@BitMint.com