Blockchain has been touted to revolutionize the way in which the world works by facilitating better coordination and the ability to implement truly permissionless systems without a single point of failure. However, blockchains that are permissioned create a completely new paradigm of information asymmetry that can prove to be a dangerous technological innovation in the hands of authoritative entities.
China has recently embraced blockchain. Given their historical autocracy, doesn’t it seem a bit peculiar that one of the most oppressive regimes in the world is bullish on the technology being used to create non-autocratic systems? This is precise because of the asymmetries posed by permissioned chains. Let’s dig into this a little deeper.
On the Bitcoin network, anyone can see all the transactions happening on the network. Let’s say there are two people; X and Y. If X knows Y’s address, they can accurately look at how much bitcoin Y has and where they have spent it. The same holds if Y knows X’s address. This is replicated across the millions of people who use Bitcoin.
Now, imagine there’s a new blockchain where users cannot see the activity happening on the network but there’s one, a single entity who can see everything. This is how a permissioned blockchain used by the public works.
Permissioned blockchains used between corporations who do business together will be enabled to give equal access to each node. The reason it is permissioned is to stop their internal data from falling into foreign hands. On the other side, using a permissioned blockchain for public consumption is done to enforce one’s authority over the public while refusing to give them the same access a single, autocratic entity enjoys.
The last sentence of the above paragraph describes sovereign digital currencies or CBDCs. A country’s central bank effectively recreates the current system whereby users can only utilize the functionality of the network, while the central bank or commercial bank has unilateral access to all of the data. Except now, this ledger is on a blockchain, which allows is to be better accounted for and reconciled when things need to be matched and analyzed.
This alone is not dangerous because we have lived with this system for decades now. But with the push to go cashless, our privacy is under attack by the very entities who claim they are trying to protect us. Cash is the most private form of money. Phasing it out for a purely digital economy will completely erode individual financial privacy. The government will know when you bought a car and when you bought a stick of gum.
Governments like China that use data to further oppress their citizens will only be empowered by this. Financial surveillance has always been unprecedented due to the existence of cold, hard cash. But with cashless agendas and a push for rapid digitization, the threat of financial surveillance is near dystopian across the world.