Bitcoin and Ethics in a Technological Society

*Eva R. Porras and Bryan Daugherty*

#### **Abstract**

Bitcoin came into existence as a peer-to-peer payment system for use on online transactions. This achievement was the result of a shared vision about the future relationship between governments' control and citizenry, and the collaborative work of the many who contributed to the development of the cryptographic field. This innovation and its underlying technology, the blockchain, have been at the root of a change of paradigm, as the joint use of blockchain and artificial intelligence (AI) seed the next technological revolution. However, as it is often the case, these revolutionary inventions have also been met with skepticism in the financial sector and society at large. Using the case of Bitcoin and the blockchain, this paper analyzes the intersection between the philosophy and technology underlying these innovations, and the outlook of a sector of society who fears these developments while others try to profit. In this chapter, we first look at the history of Bitcoin together with that of those behind it. We then review the mixed reception it obtained after coming to the market. We assess the innovations' properties and confront these with the needs of a society eager to obtain further clarity and enjoy more transparency in matters of relevance to their participation in democratic processes.

**Keywords:** Bitcoin, Blockchain, Ethics, Cryptocurrencies, Satoshi Nakamoto, Craig S. Wright, Distributed Ledger Technologies, Artificial Intelligence, Data Privacy, Freedom, Crypto-anarchy, Libertarianism, Cryptography

#### **1. Introduction**

*" On ne résiste pas à l'invasion des idées." – Victor Hugo, Histoire d'un Crime*

Bitcoin [1] came into existence in 2009 as a peer-to-peer payment system for use on online transactions. This type of electronic cash system was designed to make online payments without the need of an intermediary financial institution to coordinate the transaction. The system became known when an individual using the pseudonym of Satoshi Nakamoto broadcasted the first version of the protocol in October 31st 2008 and released the related software in January 2009 [2, 3]. This software could be downloaded by anyone, and any computer running it could join the network. With Bitcoin, third parties to a transaction become dispensable because now the exchanges could be executed with no middleman to connect the sender and the receiver. Instead, the operations used a network of computers that communicated with one another directly through the Bitcoin open source software.

By the time Bitcoin was introduced to the market, there had been multiple prior attempts to launch a digital currency (E-gold, or the Liberty Reserve). Given the long history of technological evolution prior to the public coming out of Bitcoin, we can say that the ideas that led to its success were in the making for decades. This achievement was the result of a shared vision about the need to develop electronic payment systems in a way that was coherent with the concurrent evolution of online technologies. In addition, this outcome responded to the wants of an ultra modern society in which the needs for privacy, efficiency, effectiveness, and transparency could not be ignored and would have to inhabit shared spaces with a perception of individual freedom. Thus, although Bitcoin was masterminded by Satoshi Nakamoto, this technology was the result of the active collaboration among individuals who, each in its own way and to different extends, cooperated in its development.

However, aside from many other conceptual and technical differences, in contrast to the earlier failed attempts at creating various types of digital cash, Bitcoin became successful and it remained the only decentralized digital cash coin until Namecoin emerged in April 2011 [4] as the first "alt coin". A key reason for this success, is that the creator of Bitcoin was able to incorporate in the design the solution to two long-standing conundrums: the *Double-Spending Problem* and the *Byzantine Generals Problem*. The first of these problems refers to ensuring the information received is complete and accurate and no falsified updates get introduced into the ledger so that the same money is never spent more than once. The second problem relates to the reaching of consensus among parties who do not trust each other because they do not share the same interests.

Ever since becoming public in 2009, the "block chain" or "time chain" -as Nakamoto first called Bitcoin's underlying technology -, has been at the root of a change of paradigm. The reason is that the joint use of the blockchain and AI is expected to seed the next technological revolution. This is so much the case, that a new economic sector has already surged around engineers and inventors who are developing applications in various industries.

Together with this technological expansion, the hype of a revolutionary development and, particularly, the promise of huge potential economic rewards has also brought herds of people into performing other activities around these new sectors. Some have become entrepreneurial miners, and others have gone into performing roles such as those of investor, trader, and/or speculator of these markets. These events have occurred while the world at large has taken the role of spectator: on the one hand attempting to capture the essence of this technology, and on the other hoping to envision what, if any, could be the potential uses and the consequences for society of its meaningful implementation. Concurrently, the speculative nature of the financial markets around most of these assets has become undeniable and worrisome.

One essential impediment preventing the fair evaluation of the various solutions grouped now under the general umbrella of "cryptocurrencies" or "alt-currencies" is the technical complexity of these products. This explains why many publications and investors mistakenly compare and think of them as equivalent. In addition, there is also an underlying intellectual and moral battle among those who do understand the technology as to what attributes should define their structure and substance. In particular, there is the key issue of traceability, one that was already at the core of the evolutionary history of the creation of electronic payment systems.

Beyond that, as it is often the case with innovations, these have raised strong emotions among many in society. Part of these emotions are explained by the challenges presented when trying to adapt to the existence of the new technology. But, in addition, much of the emotional tide surges due to the issues highlighted in the prior paragraph. The lack of understanding of how the technology works and the permeability of attitudes rooted on moral grounds have resulted on highpeach-statements by many including relevant figures in the financial sector and society at large. The following are three early examples of the animosity of relevant public figures who use skepticism and express abhorrence at the new technological revolution. These are: "Bitcoin Is Evil [5, 6] "by Nobel award winner Paul Krugman; "Why I want Bitcoin to die in a fire [7] "by Charlie Stross; and multiple declarations by JPMorgan CEO, Jamie Dimon [8, 9]. Given that historically Bitcoin is the most recognizable and relevant among the assets grouped as "cryptocurrencies" much of the criticism uses it as a representative of the asset class.
