News & Analysis
US Judiciary Leans Towards Disclosure Laws That Could Confiscate Electronic Assets
Jail time for refusing to comply with mandatory key disclosure hasn't occurred in the United States yet. But, it's already happening in jurisdictions such as the UK, where a 33-year-old man was incarcerated for refusing to turn over his decryption keys and a youth was jailed for not disclosing a 50-character encryption password to authorities. Similarly harsh, key disclosure laws also exist in Australia and South Africa which compel individuals to surrender cryptographic keys to law enforcement without regard for the usual common law protection against self-incrimination. – Forbes
Dominant Social Theme: If you encrypt it, it's good as gold.
Free-Market Analysis: Here's something we don't ordinarily see in the mainstream press: thoughtful, even courageous, reporting. The author of this article, Jon Matonis, has pointed out that where cryptography has succeeded, authoritarianism must eventually follow.
In fact, his point is even more subversive: Successful encryption PROVOKES the state. Using Tor encryption, many currently feel secure about their state of affairs. But the rampant state in the 21st century has the answer to this: It will simply arrest you and throw you in jail until you render your "key" unto Caesar. Here's some more from the article:
Key disclosure laws may become the most important government tool in asset seizures and the war on money laundering. When charged with a criminal offense, that refers to the ability of the government to demand that you surrender your private encryption keys that decrypt your data. If your data is currency such as access control to various amounts of bitcoin on the block chain, then you have surrendered your financial transaction history and potentially the value itself.
These laws will impact not only money laundering prosecution but almost any asset protection strategy that attempts to maintain an element of financial privacy such as private banking or family trusts. Prior to all these money laundering laws being enacted, I once heard it said that the practice of moving money around was simply referred to as banking.
Doug Casey famously said that "it's a completely artificial crime. It wasn't even heard of 20 years ago, because the 'crime' didn't exist." Furthermore he said, "The War on Drugs may be where 'money laundering' originated as a crime, but today it has a lot more to do with something infinitely more important to the state: the War on Tax Evasion." And, if they can't track it from the outside via the banks and financial institutions, they'll track it from the inside via access to an individual's passwords and private keys.
In the United States, relevant case law has revolved around the Fifth Amendment privilege against self-incrimination as there is currently no specific law regarding key disclosure. The definition of a password is alarmingly broad too — all the way from an extension of your personal memory to an illegitimate tool that only hides something tangible from law enforcement ...
If I'm reading ... correctly, the Court is not saying that there is no Fifth Amendment privilege against being forced to divulge a password. Rather, the Court is saying that the Fifth Amendment privilege can't be asserted in a specific case where it is known based on the facts of the case that the computer belongs to the suspect and the suspect knows the password ...
What Matonis is referring to is something that we brought up previously regarding various kinds of asset protection schemes. We focused specifically on LETS systems and asked why the United Nations was so involved in promoting them.
We postulated that the real reason that the powers-that-be were not, apparently, so opposed to these systems was because ultimately they would prove traceable.
In fact, as we subsequently learned, TOR encryption was partially a product of the US State Department! It was developed perhaps to support the phony "youth rebellions" now sweeping the Middle East. But the participation of US fedgov in the development of fundamental encryption software should surely provoke questions among those who are participating in the resurgence of these systems.
LETS systems were initially supported by elite controlled Fabians and are today supported by various UN proclamations and are deeply involved in the Green fascist movement. And Tor encryption that is relied upon by Bitcoin is a product of the US government.
We asked if those who use these systems are sure that the meticulous logs they're forced to keep would not eventually be used against them. Both LETS and Bitcoin demand such logs.
We also wondered about the mysterious founder of LETS. Like WikiLeaks's Assange, his debut was dramatic indeed – as is his subsequent disappearance. You can read some of our articles on these issues here.
The Pure Fiat Con: Every Transaction Available for Official Scrutiny – and That's Just the Point?
Why Is the UN Installing Mutual Credit/Pure Fiat Systems Around the World?
New Book Further Confirms Eco-Affinity of Alternative Currency Proponents
Paper Money and the UN Perfect Together? More Currency and Credit Exchanges Supported by the UN
Are 'Green' Reciprocal Exchange and Credit Systems Part of a Larger Elite Promotion?
The violence with which proponents of pure-fiat systems attack gold, silver and free-market thinking generally leads us to believe at some level that there are other agendas at work.
As far as encrypted money systems go, we made the point that such systems are fragile at ingress and egress especially. And further, such systems demand fairly good computer literacy. Electronic money, from a privacy standpoint, is not for everyone.
Matonis seems to share our view:
To say the cryptocurrency bitcoin is disruptive would be an understatement. Bitcoin not only disrupts payments and monetary sovereignty, it also disrupts the legal enforcement of anti-money laundering laws, asset seizure, and capital controls. It is very likely that a key disclosure case will make it to the U.S. Supreme Court where it is far from certain that the Fifth Amendment privilege, as it relates to a refusal to decrypt bitcoin assets, will be universally upheld.
This is the issue, really. If the authorities wish to "break the code," they won't spend weeks patiently trying to do it. They'll simply yank you and your computer out of the house and put you in the slammer until you reveal your password. Simple.
Here at the Daily Bell we've constantly maintained that we support competing currencies, even pure-fiat ones. But we are also skeptical – especially given their UN support and the involvement of the US government in developing Bitcoin's chief anonymizer.
The invasive central recordkeeping also gives us pause, as do other issues surrounding Bitcoin – especially the willingness of some central users to work with US Intel to identify users. Finally, when it comes to LETS systems and to the successful implementation of these systems, we wonder if it is not the times driving them as much as their utility.
Back in 2006, the "Bull! (not Bull)" blog reprinted an excerpt from The Future of Money, by Bernard Lietar. An insightful feedback entry was posted on the thread from "Patrick." Here's an excerpt (cleaned up) regarding the Worgle stamp scrip still popular in Germany (a system at least partially devised by Silvio Gesell).
As for the Worgl stamp scrip this is not as simple as it appears. It is presented on the basis of a poor village that was broke being transformed into a wealthy village. However here are some issues to think about. The stamp scrip money has to be validated by paying 1% per month of its value, so that it remains spendable. This means that the issuers are effectively taxing the holder at 12% per annum, the purpose being to encourage people to spend rather than hoard money. It's like being charged interest on your savings!
However who would accept payment in such a currency if they had a choice? Surely only people who could not afford to save anyway (the poor). If you were a merchant and the villagers were buying merchandise from your store (which you had previously paid for in real currency) with a currency that could not be used outside the village and that was decreasing in value by 12% per annum, would you want to accept it as payment? If you did, I'm sure that you would increase the price of your goods to offset the loss you might incur by holding it.
You would then probably use it to pay your taxes to get rid of it. This type of arrangement would have to be permanent because if the issuer took the stamp money back out of circulation then the money supply would dry up again which was the original problem. The only way this could work would be in a self sufficient society which did not import anything and therefore only needed to circulate currency within it's own boarders. This arrangement is also inflationary. Inflation is not so much prices increasing but the value of money decreasing relative to goods. There is a lot more to this than meets the eye.
There continues to be an anti-free market, pro-government tenor of some of the support for these systems. They are proposed in some cases as much to attack free-market thinking as to promote alternatives.
Of course, an argument can be made that metals are not ultimately anonymous, either. But we would argue that systems that demand pervasive recordkeeping are fundamentally questionable when it comes to anonymity. The use of precious metals does not demand such recordkeeping at a personal level.
The use of pure-fiat systems is surely growing. Whether they will prove to be the monetary panacea that backers claim remains to be seen. We figure no matter what happens, people will continue to turn to gold, and silver as well, in hard times, as they have for thousands of years.
Conclusion: That's not a bad thing, in our view. Money metals, especially silver, have proven to be allies in the fight against tyranny throughout history.
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Posted by mava on 09/30/12 11:19 AM
It already exist. True Crypt, is just one instance.
The idea is that with data, a lot can be done, and each manipulation of data by you, requires very substantial effort by the nazis to have a work around for. So, while the free market can provide say ten different means and ideas about encryption and deniability, we, the consumers, can use them all in custom combinations of synthesis, and this will hardly cost us anything, but it can multiply the budget that the nazis will have to spend hundreds of times or more, effectively making it completely impractical to pursue the 5% of people who actually think.
The backside of this argument is that the rest of the people, will never learn or want to learn anything at all, including anything we are talking about, and their data was, is, and will be perfectly accessible any time, and it's existence easily provable.
Moreover, because they will be controlled 100% of the time, everything they think will also be predetermined 100% of the time, and this poses a problem for the argument that the very advancement of the crypt can even benefit from the size of participating population as it pertains to the free market.
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Posted by Adam on 09/29/12 09:07 AM
@BladeMcCool
'What if you don't even have the password? You'll note the UK cases the victims admitted they had the ability to decrypt and were just refusing. Seems to me the key is to deny an ability to decrypt from the outset. "I'm just holding those encrypted files, I have no way of knowing the decryption keys".
Encrypt everything and deny all knowledge.'
"Obstruction of justice!"
Try deniable encryption:
Click to view link
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Posted by BladeMcCool on 09/28/12 03:08 PM
What if you dont even have the password? You'll note the UK cases the victims admitted they had the ability to decrypt and were just refusing. Seems to me the key is to deny an ability to decrypt from the outset. "I'm just holding those encrypted files, I have no way of knowing the decryption keys". Encrypt everything and deny all knowledge.
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Posted by Adam on 09/28/12 02:59 PM
DB: 'The somewhat irrational dislike of physical specie and bullion (by users of electronic currency) is disturbing because it seems part and parcel of a larger elite dominant social theme. Our visits to Reddit Bitcoin has confirmed to us that too many somehow see Bitcoin as a replacement for gold and silver.'
There are many (myself included) who simply see Bitcoin (or something else solving the double spend problem) as an ideal means of exchange and gold (and other PMs) as an ideal store of value.
BOTH are the answer and neither will eliminate the state alone. Anyone anticipating that really doesn't understand the root causes of statism.
In the internet age, gold is far too cumbersome as a currency for use online, and digital gold certificates have obvious true issues. These issues (counterfeiting) are alluded to in the interview below.
YouTube: GoldMoneyNews: Bitcoin, gold and competitive currencies
'GoldMoney's James Turk interviews Félix Moreno de la Cova, who is a studied economist, trader and GoldMoney contributor. They discuss the idea of currency competition and talk about the pros and cons of Bitcoin and digital gold currencies.'
Click to view link
And see Open Transactions for bitcoins "backed" by gold or whatever else people trust/prefer.
Click to view link
Reply from The Daily Bell
Thanks, young Adam
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Posted by tradewithdave on 09/28/12 06:56 AM
If Bitcoin does nothing more than provide a functional resolution of the double-spend problem, what might the potential impact of such an understanding be as applied to other areas?
Click to view link
Dave Harrison
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Posted by Peter_Surda on 09/28/12 06:42 AM
80 years ago, US citizens had their gold confiscated by the state. That does not sound much like "proven to be an ally". Neither Tor nor Bitcoin are perfect. But they have a comparative advantage, and they are evolving.
Reply from The Daily Bell
Agreed. But our point would be that many people did NOT give up their gold. Roosevelt had a great deal of trouble with his confiscatory order and contary to what people understand almost NO safe deposit boxes were seized. People KEPT their gold ... and hid it. Which is just the point.
And the point we've been trying to make in these articles is twofold:
1. The somewhat irrational dislike of physical specie and bullion (by users of electronic currency) is disturbing because it seems part and parcel of a larger elite dominant social theme. Our visits to Reddit Bitcoin has confirmed to us that too many somehow see Bitcoin as a replacement for gold and silver. As Bitcoin has been around for two years and gold and silver have been around for eons, this strikes us perhaps a rash assumption. Doesn't mean that anything is WRONG with Bitcoin. But Bitcoin should not be used as a way to anathemize told and silver. Also, we are a bit suspicious of Bitcoin's origins and its the volatility of its popularity. As we have written before, there may be more to Bitcoin than meets the eye ...
2. Bitcoin is damn complicated in terms of all the encryption, overlays, etc. Make one clumsy mistake and it is all for naught. And it is certainly possible that Bitcoin users are overconfident when it comes to their anonymity. So many have written to us now proclaiming the untraceability of a coin that demands a detailed general ledger. All it takes, apparently, is one change of legislation and this anonymity can be seriously jeopardized ...
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Posted by mava on 09/27/12 11:07 PM
As you have noticed, my post below is pure straw man argument, as it pertains to the question at hand: if BitCoin is to be considered non-anonymous then why should we expect it to be just another ground for a legislated invasion of privacy?
This is because I forgot part of my point.
The strength of BitCoin is in it's function as perfect short term transactional currency, because it is immaterial. If I already have anonymously obtained money and have a way to anonymously converting it to BitCoin, then I can use BitCoin to complete an extremely short term transaction across the boundaries of physical control. In this scenario, the long term anonymity and unbreakability of BitCoin code is irrelevant to me, - there is a very low chance that the break-in would occur in a day or two from now. Once I have anonymously transacted back to real money, on the other side, the long term viability of BitCoin is again of low consequence to me.
So, to sum up:
-BitCoin is bad as long term saving medium due to its long term lack of security and anonymity.
-BitCoin is good as short term transactional medium, due to its short term security and anonymity.
I believe it is the latter, that the US government understands perfectly, and therefore it will base it's attack on legislative privacy in part on the argument of BitCoin.
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Posted by piolenc on 09/27/12 10:52 PM
Well gee, it's nice when the experts catch up to little ol' me and start stating the obvious, namely that crypto is only one component of a program to frustrate surveillance on the Net. Read the history of cryptology (e.g. David Kahn's The Codebreakers) and you learn that, while there have been spectacular successes in cryptanalysis, most "breaks" occurred because of compromised plaintext or compromised keys.
That being the case, and considering the ease with which message traffic can be intercepted and keys can be stolen, merely encrypting one's communications is simply an invitation to greater scrutiny. Successful Net privacy protection has to involve anonymity, concealment and misdirection, to which encryption is a mere adjunct. Single provider, hands off privacy protection is impossible. Like it or not, anybody who actually wants privacy has to provide it for himself. It can be done, but not by subscribing to an external provider and washing your hands of the rest. Instead, the privacy seeker has to take a cold, malicious look at his own affairs, note his vulnerabilities and systematically eliminate them using tools under his direct control.
Reply from The Daily Bell
Good points. We've made them too.
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Posted by mava on 09/27/12 10:43 PM
Here is the problem of BitCoin:
It requires huge amount of trust. Not everyone is a mathematician, capable of definitely answering the suspicious argument by recalculating the BitCoin himself from scratch.
So, then, if I am a cobbler, or a carpenter, then I must trust the BitCoin system. I must believe that, for instance, no one can figure out the key mathematically, say 5 years from now, just like the DVD encryption was figured out. And, I also must believe, that all this that BitCoin supporters are feeding us about the areas where BitCoin provides anonymity, is true.
May-be I am old-fashioned, but the last thing I want in my money is that it is to be based on trust. When I submerge my own tiny consciousness in deep and dark archives of my own bad experiences, I tend to think that the number one problem that money is supposed to solve is, incidentally, the lack of trust. I would not need money, if the Bread-maker just trusted me that I did some carpeting for a cobbler, and that by giving me bread, he then would have some credit with that cobbler on his craftsmanship. Everything would work without money. Money solve the problem of trust.
I do not see how BitCoin solves the problem of trust. I am not a mathematician trained in encryption. I can not trust BitCoin as I can trust a weight and volume of gold. Therefore, I conclude that the BitCoin is a fleeting fashion, and as soon as this glaring hole is widely understood, it will rightfully disappear.
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Posted by dimitri on 09/27/12 07:43 PM
Blessed are those who have refused to kneel to on-line banking and debt settlement.
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Posted by runderwo on 09/27/12 02:04 PM
DB: "But the record keeping takes place at a ledger level ... "
I don't think you understand the concept of BitBill. For another example see Casascius bitcoins. These are issued by private "mints" which basically create a bitcoin address, send the face value to that address, then embed the private key (without which the coins are unspendable) securely in a physical object, and charge a premium for the object. When the object secured by Bitcoins changes hands, there is no "record keeping" or "ledger". Only when its private key is removed, destroying the object, and used to transmit the Bitcoins electronically would a record be generated.
Click to view link and you can understand more.
Reply from The Daily Bell
From the literature ...
"The 8-character code you see on the outside of the coin is the first eight characters of the Bitcoin address assigned specifically to that coin. You can verify the coin's balance on Block Explorer. There is a mathematical relationship between the Bitcoin address and the private key inside the coin. The digital bitcoin is actually located on the public "block chain" stored on the internet, but it is completely inaccessible to anyone unless the private key from the coin is loaded into a Bitcoin wallet."
So ...
1. "You can verify the coin's balance on Block Explorer." ...
And ...
2. "The digital bitcoin is actually located on the public "block chain" stored on the internet."
Finally ...
3. "The private key from the coin [is accessible once it is] loaded into a Bitcoin wallet."
------------------
Bitcoin Block Explorer ....
"Bitcoin Block Explorer allows you to easily view information about the blocks, addresses, and transactions created by Bitcoin. It uses the getblock patch by jgarzik, but also does a ton of processing to make certain tasks, such as tracking transactions, easier."
Click to view link
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Posted by runderwo on 09/27/12 01:48 PM
Defeating TOR somehow, and pursuantly spying on the user means you have possibly obtained 1) the IP address of the bitcoin user and 2) the transaction itself (ABCD sends 10 coins to EFGH). You still have no idea who ABCD and EFGH are except through inference or through physical collection of the evidence (a wallet file). If the wallet file is encrypted or stored on an encrypted computer/phone, a rogue state certainly might waterboard or hold you indefinitely in contempt of court but the ball is still in your court whether you reveal your key/passphrase or not and up to you to weigh the costs and benefits. That is empowerment of the user versus the alternative, losing one's money and privacy to strip-searches, vehicular shakedowns or home invasions under color of law.
If you don't trust TOR or any other form of tunneling, and don't want anybody to know your bitcoin transactions by snooping on the wire, then do your "banking" via an exchange where all transactions are internal and do not generate records on the shared (not "central") blockchain. In that case, however, you must trust the "bank" (exchange).
It is indisputably much safer to travel with Bitcoin than with any form of physical money since as long as you backup your wallet and secure your computer/phone, no one will be able to spend the coins and you can easily recover them. And getting money out of an oppressive country without a trace does not even require carrying the coins on you or even transmitting them at all. You can securely copy them through to your destination in advance of your arrival. Compare it to the Hawala system.
Not to say that the US government won't use Bitcoin as an excuse to ban encryption, since it uses memes like 'terrorism' and 'drug dealers' for any other purpose of state it wishes to advance, but I don't see how one can simultaneously argue that Bitcoin will fail in its primary mission due to its fundamental flaws and at the same time that the authorities will be enabled to advance a public argument for statist control of the Internet through Bitcoin's mere existence. If Bitcoin is truly flawed, it will fail like most of the other attempts at monetary competition and become a non-entity long before headlines can be written about it to buttress a power grab.
Reply from The Daily Bell
"I don't see how one can simultaneously argue that Bitcoin will fail in its primary mission due to its fundamental flaws and at the same time that the authorities will be enabled to advance a public argument for statist control of the Internet through Bitcoin's mere existence."
This argument may not be aimed at us, but we'll take a crack at it. Bitcoin seems to be gathering popularity currently. But as analyzers of dominant social themes, we have picked up on the idea that the powers-that-be don't seem especially averse to such systems in the modern era ... certainly not LETS. So we have wondered if these systems are being encouraged because they commit to massive book-keeping.
Bitcoin may or may not fail but government will use such systems regardless of their success to advance increasingly authoritarian policies. Doesn't seem like a contradiction to us ....
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Posted by johnblenkins on 09/27/12 01:27 PM
"Up The Revolution" Silver.
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Posted by Adam on 09/27/12 01:01 PM
DB: 'Of course, an argument can be made that metals are not ultimately anonymous, either. But we would argue that systems that demand pervasive recordkeeping are fundamentally questionable when it comes to anonymity. The use of precious metals does not demand such recordkeeping at a personal level.'
Bitbills let you store and transfer bitcoins in person, just like cash. Also, Bitbills aren't vulnerable to digital attacks, making them the safest way to hold and use bitcoins. Each Bitbill securely locks bitcoin data between layers of the card. If you would like to get non-physical bitcoins again, you can easily convert your Bitbill or trade them for digital bitcoins.
Click to view link
Reply from The Daily Bell
But the record keeping takes place at a ledger level ...
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Posted by Abu Aardvark on 09/27/12 12:10 PM
DB: "Sounds, in fact, like he will be back in business"
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Yep, maybe he's going to host Wikileaks 2.0 as well in order to really "hurt" the US fedgov. You know, "payback" and all. I wouldn't be surprised at this point ...
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Posted by Abu Aardvark on 09/27/12 11:29 AM
DB: "A great man in the making?"
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A just question indeed. This just in:
"New Zealand Prime Minister John Key has apologized to Kim Dotcom after a report from the Inspector-General of Intelligence and Security found that the government illegally monitored the Megaupload founder. The Government Communications Security Bureau (GCSB) carried out surveillance on Dotcom, but did not check out his residency status, instead relying on incorrect information supplied by the police. 'Of course I apologize to Mr Dotcom, and I apologize to New Zealanders.'
Click to view link
Some switcheroo, eh?
Reply from The Daily Bell
Wow. Sounds like he will be hard to extradite. Sounds, in fact, like he will be back in business. Even if the US brings further carges against him, how will the Kiwis respond? Could they really turn him over at this point?
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Posted by obsvr_1 on 09/27/12 10:42 AM
I see the new bumper stickers now
"I will give up my keys when they pry them from my cold dead fingers" ... which does not directly correlate to the 2nd amendment equivalent, because once the body is dead, the keys are lost forever ... "
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Posted by Abu Aardvark on 09/27/12 10:41 AM
Now that's an adequate roundup. Very good, DB!
By the way:
"Self-styled Internet tycoon Kim Dotcom has resurfaced with a bold statement of intent: to create a new online service that will 'turn this world upside down'.
Dotcom promises thatis latest brainchild, called simply Mega, will offer 'one-click encryption of all your data transfers … total privacy' - implying that the new service will enable untraceable transfers of copyrighted files."
Click to view link
Click to view link
Reply from The Daily Bell
A great man in the making? ...
... Not sure we believe the stuff about "total privacy."
But you don't need total privacy to create a music service ...
