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Data privacy issues can be tricky for libertarians. On the one hand, the shortcomings of government intervention are significant and predictable. Regulations often fail to accomplish intended goals while empowering incumbents and burdening consumers. A "cure" should not strengthen the disease.
On the other hand, internet platforms can be really terrible. One needn't be a commie pinko to take umbrage with invasive, misleading, or even outright fraudulent data tracking and advertising practices—to say nothing of some tech giants' sneaky little habits of sharing data or tracking technology with governments.
Here is an example: The retail giant Target is known to have quietly tracked card payments to build behavioral advertising profiles for each customer, whether one liked (or knew!) it or not. Their statisticians were able to predict which customers were pregnant, "even if she didn't want [them] to know," and target surreptitious ads to make a lifetime shopper of them.
In one case, the company inundated a teenage girl's mailbox with "advertisements for maternity clothing, nursery furniture and pictures of smiling infants," tipping off that girl's father to the unplanned pregnancy before she got a chance to break the news.
Such arrangements may not be strictly "involuntary." No one is forced to shop at Target. The company's purpose is to maximize profits; why shouldn't they leverage freely given information? Some people may not think these big data antics are a big deal, or they might even appreciate that companies proactively send them tantalizing deals.
But private data surveillance is usually clandestine, and to many people, creepy. It is also more pervasive than many realize. Besides, should buying toilet paper really be this adversarial?
In this case, we don't need to choose between clumsy government regulations or submission to uncontrolled data harvesting. We have already had a robust market solution to marking tracking for about a decade now: Digital cash is a market escape from the financial panopticon.
My colleague Jerry Brito made the case for digital cash as a fundamental tool of human autonomy in his recent paper, "The Case for Electronic Cash." (I helped with research for the study.) It explains how cryptocurrency provides a check against malfeasance by public and private bodies. Or to paraphrase the economist Arnold Kling: Intermediated markets fail; that's why we need disintermediated markets.
People rightly praise cryptocurrencies like bitcoin for their privacy-preserving and hard currency properties. They give us important tools to counter government overreach.
But Brito's paper highlights a novel and underappreciated benefit of cryptocurrencies. Direct person-to-person exchange online also provides a critical alternative to private intermediaries that could exploit or limit our transactional freedom. That is to say: Digital cash preserves our financial autonomy.
The existence and usefulness of cash, and by extension digital cash, may seem uncontroversial. It's a good way to settle a tab among friends, or perhaps preserve the surprise of a partner's gift by keeping it off the joint account history. Cash has been around forever. Why kill a good thing?
Many influential thinkers find ample reasons to bash cash. Some economists bemoan physical currency as a pesky impediment to monetary tinkering on negative interest rates. Others see it primarily as a vehicle to evade taxes and starve social programs. And everyone knows that criminals just love big sacks of money.
Serious efforts are underway to do away with cash altogether. In some countries, it's not even forced. Brito discusses how cash use is naturally dwindling in places like Sweden and Norway because cards and mobile payments are just so convenient. Credit card companies are shrewdly spending money on marketing and incentive campaigns to lure people away from cash; fewer cash payments means more fees for them.
We are doing more and more commerce online anyway, and financial technology companies like PayPal and Square provide us with more options than ever. Might cash just be a dinosaur whose extinction event has come?
Actually, the fact that more commerce is facilitated by intermediaries online makes the existence of cash, and especially digital cash, all the more important. If cash were to die, so would our financial autonomy. In the words of Brett Scott, "a 'cashless society' is a euphemism for an 'ask-your-banks-for-permission-to-pay' society."
Every time we make an intermediated payment, we are relying on that third party to faithfully execute our exchange. They can, and do, make mistakes or get hacked. And as mentioned earlier, they can leverage the transaction data gathered from our exchanges in ways that we do not appreciate.
More troublingly, they can flat out refuse to clear any transaction at any time. Maybe they maintain a blacklist of parties or goods for which they will not transfer funds. In the past, governments pressured companies to maintain blacklists. These days, we are seeing more intermediaries build blacklists of their own accord based on things like the political values of their employees.
The state cannot resolve these problems. After all, it is often governments who push intermediaries to track or censor payments in the first place. Even when they do not, their "solutions" too often merely make the problem worse.
Digital cash is the solution. Cryptocurrencies like bitcoin afford us with financial autonomy by allowing us to send money directly without the need to rely on a third party. No permission needed. Other technologies called "privacycoins" attempt to build even more concealment by default, and other bitcoin-compatible anonymity techniques exist as well.
Cryptocurrencies, privacycoins, and their associated infrastructure are not perfect. But they are improving all the time, and they are a lot better than a life without any alternative to a totally intermediated and therefore surveilled financial world.
None of this means the fight to preserve our financial autonomy is already won.
There are many efforts to undermine or even ban cryptocurrency. Beyond the legal sphere, there are social and technical hurdles. Not everyone has access to the infrastructure or know-how to securely keep and send digital cash. And it's not like the Targets of the world have an open Lightning channel (yet).
The first step, as Brito points out, is to recognize the critical role that digital cash plays in securing our financial autonomy. Digital cash should not only be defended, it should be celebrated and encouraged. Cryptocurrency is more than a tool to avoid government overreach, it is also a market-provided solution to market-created surveillance problems in the digital age, and a fundamental way to preserve commercial independence.
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