Cryptocurrencies such as Bitcoin are more than just a technological innovation or financial asset; they embody a socio-political movement rooted in cryptography and safeguards against state overreach. This movement was sparked by the “Crypto Wars” of the 1970s, when the US government sought to restrict public access to encryption methods which could not be decrypted by intelligence agencies.
Whitfield Diffie and Martin Hellman then proposed a decentralised system in 1976, where each user held both a public and a private key, allowing anyone to encrypt a message using the recipient’s public key and decrypt it using the recipient’s private key.
However, as personal computers and internet-based communication proliferated, government restrictions on encryption also escalated, prompting the rise of the cypherpunks – techno libertarians who opposed state control and asserted the right to privacy. It was this group who realised that an unassailable digital currency, free from government control, could protect citizens from economic disparity and inflation.
Early attempts at a digital currency, such as David Chaum’s DigiCash in 1983, failed commercially. Yet, these pioneering efforts established the principles of cryptography which would later be used to create Bitcoin and other cryptocurrencies.
The emergence of Bitcoin in 2008, shortly after the financial crisis, highlighted the need for an alternative to fiat currencies, which can be subject to inflationary increases driven by political considerations. This has been particularly evident in Zimbabwe and Venezuela, whose economic turmoil has disproportionately affected ordinary citizens.
The success or failure of cryptocurrencies remains uncertain, but their ability to offer individuals economic freedom and privacy is undeniable. As such, the cypherpunks’ decades-old vision of a state-independent economy has become increasingly relevant today.
[Written by Assistant Professor at the Lahore University of Management Sciences and published in Dawn, The Business and Finance Weekly, October 2nd, 2023]