Cryptocurrencies such as Bitcoin are often viewed as a financial asset, but they actually represent much more than that. They embody a socio-political movement, born out of the “Crypto Wars”, which have been taking place for decades.
Encryption technology was initially used by military and intelligence agencies, but by the 1960s, the US government decided to develop algorithms suitable for wider use. In 1974, IBM created the Data Encryption Standard (DES), which was endorsed by the National Security Agency. This system faced criticism due to rumored vulnerabilities, as people suspected the NSA of intentionally weakening the algorithm.
Whitfield Diffie and Martin Hellman then proposed the concept of public-key cryptography, which relied on individuals having their own keys. This decentralised system was created entirely outside of government circles, allowing for greater privacy.
Nevertheless, as communication and data storage transitioned to digital formats, government restrictions on encryption increased. A group of cryptographers, known as the “Cypherpunks”, resisted these interventions and prioritised privacy as a fundamental human right.
The Cypherpunks realised that the global financial crisis had exposed the vulnerabilities of the fiat monetary system, which allowed governments to expand the money supply and cause inflation. This disproportionately affected the working class, amplifying economic disparities.
In response, the Cypherpunks sought to create a digital currency, free from state control, which could protect individuals’ privacy and prevent inflationary increases.
The first attempts at digital currency, such as DigiCash, failed commercially but introduced cryptography and encryption to the public domain. These principles would later be used to create Bitcoin, which was released shortly after the 2008 financial crisis.
Unlike fiat currencies, the maximum number of Bitcoins is capped at 21 million, which means that only a finite quantity can ever come into existence. This feature, among others, has made Bitcoin popular among tech enthusiasts, libertarians, and proponents of laissez-faire economics.
The future of this experiment remains uncertain, but its significance is clear. The Cypherpunks’ insights are more relevant than ever, especially in countries like Pakistan where citizens’ rights are often disregarded by the ruling elite.
This article was written by an assistant professor at the Lahore University of Management Sciences and was originally published in Dawn, The Business and Finance Weekly, October 2nd, 2023.