Security Notes: Hidden Wealth and Social Health

Humanity faces a long list of existential threats, from global warming to viral epidemics, nuclear war, and crushing meteorites, not to mention running out of ketchup. Here is another entry for the list, one that fails to get serious attention: hidden wealth.

Before there was digital money, to open a money account you had to prove your identity: name, Social Security Number, address, phone number, and so on.  Your money in your account, by contrast, had no identity; it was just a number.

But when money became digital, the identity equation flipped.  Digital coins came with clear, unambiguous identity, while their owners became known as  Mr. ij5MM8-9KJhn45ra45 and Ms. 0Jm677EqsaLp84u3, and nothing more, no names, no residential address, no phone number.

Privacy triumphs, was the initial response. People can pay and be paid as if with cash payment, with no names and no identity revealed. If I want to buy a book entitled “Why I Hate Government” and I don’t want the government to know, I pay with digital money rather than through my payment card.

It’s freedom indeed. But not far behind a big danger lurks. Two bad things become unstoppable when the owners of money are unidentifiable: trade may be faked, and wealth may become invisible.

Prices and social behavior are changing as a result of trade dynamics. What type of merchandise sells tells us what society thinks is valuable. Alas, with owners’ obscurity, a single agent can pose as a thousand traders, faking a vigorous trade with rising prices—faking because money does not change hands. Prices rise or fall as the puppeteer decides, leading society to wrong conclusions.

The adage “money is power” is validated in our society time and again. Alas, hitherto the rich and powerful were recognized and visible, making them a target for a social counteraction. Today, as more and more wealth goes digital, more and more wealth brokers go dark. Extremely rich agents remain unrecognized,  their money wielded by hundreds of thousands of money-owning entities without drawing any suspicion to the singular point of control.

Any wrongdoing by these hidden wealth cores remains invisible, and no counter movement rises. Invisible wealth will increase its hold on society, as if it were an invisible cancer. And, much as cancer dies when the sick person dies, so wealth brokers will perish with the rest of us because society lives on the innovative vibrance of its members, as well as on its ethical foundation.

To carry out innovative dreams, we need wealth to be visibly distributed to favor (i) those who can use the money to build something new, and (ii) those who fall between the cracks. If a creative, innovative, energetic person is doing nothing because she lacks funds, then we all suffer. If society allows its poorest to agonize in abject poverty, we lose our ethical foundation.

Money is a tool to steer society through the dangers and opportunities of the future. If money is sucked in to invisible holders, then society surrenders the helm to them. It is a political fact: The candidate who outspends his rival is overwhelmingly likely to win the election. Invisible wealth may turn democracy into a facade.

So, while we are hailing privacy as offered by digital money, and promoting our ability to hide our behavior from surveillance, we should, by all means, find systemic solutions to prevent the ongoing, and ominous, accumulation of hidden wealth.

Fortunately, there are ways to let privacy reign and prevent hidden wealth to accumulate. Pattern recognition is one, as AI has demonstrated. But don’t expect hidden wealth to fund it.

—Gideon Samid gideon@bitmint.com