So What If Part of Bitcoin’s Code Was State-Funded?

Last Saturday, renowned historian Adam Tooze published a blog that asked, indirectly, whether there is a back door to Bitcoin. Though primarily built and maintained by private developers, the first cryptocurrency network is essentially a public good. It’s open source, open access, open for you and me – the front door is wide open and there sits a Welcome mat. But what if there is a side door, too, through which a privileged group can gain more control and/or more information about Bitcoin?

Tooze, British-born and now at Columbia University, never asks that precise question. Like other public intellectuals, Tooze is lately in a situation of having to form opinions about an industry he has by and large ignored. Many former critics have recently done about-faces, others are forming new intellectual problems while many regurgitate the most common criticisms of crypto. As in his other works, like the monumental post-2008 crisis compendium “Crashed,” Tooze starts from first principles.

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On what foundation does Bitcoin, sometimes called “digital real estate,” stand? “Commonly described as being anarcho-capitalist,” Tooze finds it ironic that some of Bitcoin’s key attributes were developed by the U.S. National Security Agency (NSA) and other state organizations. Specifically, Bitcoin uses a hash function called SHA-256, a strong cryptographic proof that allows users to hide and compress information through a mathematical “hashing” operation. It’s actually part of a family of ciphers developed by the NSA in the back half of the 20th century, some of which are known to be compromised.

“One of the core pieces of software in [B]itcoin, a system of currency supposedly designed to minimize reliance on government[,] was created by America’s digital spymasters-in-chief, the NSA,” Tooze writes. For Tooze, two questions follow. Shouldn’t this fact “upend” crypto’s “narrative?” And, has anyone thought about this? On the latter point, there’s a general rule in crypto that states any problem you think you’ve found with Bitcoin was likely discussed a decade ago on Bitcoin Talk, a forum for newbies and fanatics (it’s the source of much of Bitcoin creator Satoshi Nakamoto’s public commentary, for instance) to discuss the cryptocurrency.

But digging into the question Tooze didn’t ask: It’s honestly unknown whether there are “trap doors” in Bitcoin as a whole. Current understanding is the SHA-256 algorithm is secure, and the way it’s deployed in Bitcoin draws so much power just to create a hash that reversing it through brute force – an even more computationally intensive process – is wholly uneconomical until “quantum computers” arrive. (Tooze recommends reading Eswar Prasad on the technical details, so here’s a quick recap.)

It’s not unheard of for cryptographic systems to have unobvious ways to hack the code, but the information is public and breaking the near-trillion-dollar asset bitcoin is a hell of a “bug bounty.” This gets us to Tooze’s actual questions. Are the “politics” of Bitcoin “self-deluding?” Bitcoin is about minimizing trust in finance, but its operation requires that you trust algorithms designed by potentially nefarious actors. Ultimately, however, the issue stems from trying to force Bitcoin into predefined political scripts. Bitcoin is not “apolitical,” as many proponents argue, but it is a system that stands against the preceding decades of financial and political dealings. And that’s part of why Bitcoin is for more than just white, male libertarians.

Take the financial crisis from which Bitcoin was born. In some sense, the banking industry’s problem became everyone’s problem after a set of trusted institutions attempted to hide financial risk. The “alphabet soup” of economic bombs (CDOs, SPVs, CDSs) Tooze knows well, shielded systemic risk of compounding credit machines up until the point that banks’ hidden and toxic balance sheets started to unwind – and they had to unwind. Bitcoin may not be a perfect solution, but it is an alternative that sells itself on comparative transparency. If its arrival was a financial seachange, and it is, it’s not because bitcoin provides certain economical assurances or transaction finality through math, but because anyone can audit the system, continually.

Bitcoin is a private currency with the desire of becoming public infrastructure – the “native currency of the internet.” Its cryptography shields certain aspects of the network (private keys) – but the network as a whole remains radically open. Cypherpunks, as the saying goes, “code.” They use the resources available at hand to build systems that preserve privacy or foster open systems. Whether this is “instrumentalization” – a coinage from economist Mariana Mazzucato referring to those who deny the state until they come to rely on it – is sort of besides the point.

There’s a theory I’d love to hear Tooze’s opinion on, that Bitcoin itself was built by the state. Perhaps it escaped from a CIA lab, just another tool the intelligence agency could have used to fund radicals or topple democracies. Satoshi Nakamoto’s nom du plume apparently translates to “central observer,” perhaps a little revealing detail with which ciphers love to sign their work. But even then, saying this “apolitical” system is foundationally, morally bankrupt because it uses state-developed code is just guilt by association.

As my colleague David Z. Morris noted, the internet itself – once spoken about as a libertarian realm – is littered with tools built or funded by the state, to say nothing of the NSA’s role in building privacy layers like Tor or SHA-256. “Most world-transforming innovations rely on a similar level of collective support, because basic or speculative research is usually not profitable fast enough for the private sector to invest in,” Morris wrote. You might need a creative mind to uncover new mathematical proofs, but they’re not created so much as discovered. The history of science is the discovery of natural laws.

Bitcoin adds to this chain of mutual discovery by saying that money, like knowledge, wants to be free.