Tracers in the Dark

Finally: I begin to understand cryptocurrency

Crypto bugs me like sand in my shoe. I’ve never grasped the point of it, and that annoys the hell out of me.

I have a rule: if a concept is explained to you on multiple occasions by smart people in clear and emphatic terms, and you still do not understand it, that may be because the explanations make no sense on some level which you might understand if you knew more about the topic.

It’s actually not quite as arrogant as it sounds. It’s possible that the thing itself is bullshit - smart people can buy into bullshit just like everyone else - but it may also be that your bullshit detector is keying off the simplifications and elisions your smart friends are making to save you from having to study the topic for a year just to join the discussion. With cryptocurrency, though, the chasm between ignorance and understanding has always felt vast.

First up: why the hell is it worth anything at all? State currencies are worth something because a country with viable economy (and, in all honesty, lots of guns) frankly just says that it is. Conventional currencies are… debt. The bank issues a note acknowledging debt. People trade them, accepting these notes as redeemable for goods and services, but fundamentally their value rests on the perception that a state is good for its debts - which is why Liz Truss’s experiment in crazypants economics tanked the pound. Bitcoin et frères are worth something because… what? Crypto is cool? Because people choose that it should be? That explains its volatility, I suppose.

Worse yet, most crypto has historically been “proof of work” making it essentially a measure of effort and energy expended. Doesn’t that mean Bitcoins are units of entropy? Which leads me inexorably to my endlessly re-asked question: if you were creating a new currency, why would you not base it on available energy, rather than exhaust? An energy currency would have obvious value - the capacity to do work. Even if currencies are in general just debt notes - acknowledgements of an obligation to provide goods or services - it seems strange to me to use a token of work done as the bearer of that obligation, like selling firewood in increments of ash. I realise this is the conflation of the generation of the token with the value the token holds within the constitutive rules of the game, but since the game is perceptual and the token feeds into perception, the streams are already crossed.

Tracers in the Dark is about the cracks in the way the Bitcoin economy works. I mean, it’s also a procedural true crime story about catching bad guys - and it feels like exactly that, a lot of the time: life elegantly assembled as drama in a highly readable form. But what I got from it was a series of ideas about cryptocurrency in general and Bitcoin specifically which begin to make me feel I get it, at least in outline, at last.

First thing: to a specific sort of person - code buffs - part of the appeal of Bitcoin is that Satoshi Nakamoto’s conceptual epiphany is elegant. It’s a really clever solve of a tricky puzzle. And that’s enough, by itself, to give it value to those kinds of people. Imagine someone built a train entirely out of glass. It’s just super-amazing.

But.

What Bitcoin apparently isn’t, is secret.

Because it’s permissionless and nation-state agnostic or unaffiliated, it attracted the attention of those seeking a libertarian currency, and - here’s the thing I hadn't appreciated and that slightly blows my mind - the most obvious quality of Bitcoin is not that it’s obfuscated, but that it’s transparent. In retrospect, I should have realised that a long time ago. The point about it is that all transactions are witnessed and all transactions are permanently archived in a huge number of places. The essence of Bitcoin is that it is seen. In a very appropriate way, Bitcoin is observed into existence.

Of course, it is. Digital cash is before anything else digital. It is information. It is a set of ledger entries. For it to change hands, it must be said to change hands, and that assertion must be agreed.

In the specific case of Bitcoin, privacy is an add-on, and the forensic processes in Tracers are not cryptographic but analytical. The investigators match digital addresses, amounts, dates, numbers… all of which are part of the record. They do not attempt to break any code. There’s no need. Predictably, it’s at the interface of the digital and the analogue where it all comes undone, again and again and again.

Cash is traced through serial numbers, and in a sense Bitcoin exists only as serial numbers.

There are newer cryptocurrencies - Zcash, Monero - which address privacy directly, and were designed to do so. It’s not clear to me how far they go in achieving that, or how future-proof their architecture will prove to be. One of those appearing in Tracers claims to be able to unpick the strands. Another says you can’t. Each has, arguably, a vested interest in promulgating those positions.

But at last, reading this book, I feel a vague sense that some of my “wait, but, wait, hang on -” questions are answered, or at least answerable.

Is it good? Yes. It’s readable, well-paced and interesting. Is it revelatory? Only obliquely, perhaps. Is it pleasant? Not entirely; the Dark Web is full of horrors, and we don’t get away without discussing them. Trigger warnings apply.

But for me it was a hugely satisfying read, because I no longer feel quite so bewildered by the subject matter. In the cracks and failures, I begin to understand the idea.