Crypto and Centralization: The Hidden Role of Cryptocurrency in Democratic Advocacy

Image Credit: “The Great Game,” credited to ChatGtp-4.

In the economics of stable democracies, all the money is laid on the table. The cards are visible, and they are dealt under the beaming lights of scrutiny. The visible hand of regulation works alongside the invisible hand, and nothing slides unidentified under the table. Not everyone walks away satisfied when the markets close for the day, but regulator referees get their due portion of taxes for their services. Yet, when players can’t hold the referee to their own books, regulators and the government can seek to master the game. Rules begin to bend and snap, and the financial power consolidates. And in the case of cryptocurrencies, the rules and effectiveness of investment literally invert; what was gambling becomes security, and what was condoned becomes tactical, for both dissenting activists and centralizing agents alike.

As The Dictator’s Handbook preaches to its aspiring autocrats, centralizing financial systems means the referees can restrict the game rules and rig it in their favor. After all, there is no greater method of political control than handling the country’s purse when it comes to cracking down on protests. In the case of Georgia’s non-violent opposition protests this March, the ruling party, Georgian Dream, acted upon unsubstantiated claims of property damage to cut off key support from NGOs, freezing their assets and seizing funds. But without substantiating evidence, as Amnesty International explains, Georgian Dream’s target was not political “‘sabotage,’” but to “‘kill the entire protest movement” by obstructing its funding. This freezing move was made possible by Georgia Dream’s ability to gain economic control through the courts; however, other centralizing agents can impose more direct forms of control. 

When resources are scarce, centralizing agents can also physically arrest resources from the majority in order to seize financial control. Notoriously, in countries with resource curses, only a few hands hold ownership over their most profitable industries. In Venezuela, for example, even a recent discovery of oil or “black gold” can lead to the capture of a large component of the country’s wealth by centralizing agents, causing even a relatively wealthy and stable country’s average well-being to plunge. While a nation with more diversified resources can resist this form of financial consolidation, diversification does not yield an immunity card against centralization.

Nevertheless, centralizing can occur even as a natural byproduct of companies' or governments’ observance of scarcity and need. Regardless of coordination, political agenda, or dastardly vision, as Underground Empire explains, “the best way to turn a profit in a decentralized economy [is] to figure out ways to centralize parts of it again.” (Farell and Newman, 171). Similar to resource curses, that’s exactly why essential services centralize over time—their demand rarely ever decreases, and expanding and consolidating control is simply the natural end of profiteering. In their pursuit of profit, even small-scale actors may find they can mine away loopholes in the law, widening the gaps in legal restrictions to enable niche monopolies. Farrell and Newman explain that this occurs even in cryptocurrencies. With Mauritania’s imposition of a fully identifiable, trackable, and censorable central bank currency, they can dominate the financial market and dramatically centralize government control of the financial system. Regardless of the target industries or intentionality, simple profiteering and consolidation can magnify a centralizing agent’s financial influence.

If the interests of government and corporate business convergently evolve, they together can pressure the countries’ businesses to their financial ends, as Mersha Baradaran explains in her book The Quiet Coup (Baradaran in Intro.). When the referee teams up with the wealthiest players, they can quickly overtake democratic movements and courts. Anna Chekhovich, working as the financial director for Alexei Navalny’s Anti-Corruption Foundation (ACF) in Russia, knows firsthand the effects of weaponized consolidated financial power against political dissenters. In a private interview at the University of Virginia, she shared with the Democratic Futures Project and the Virginia Review of Politics harrowing stories of financial and physical prosecution faced by her team. Locked out of their bank accounts, their savings, and even their pensions by Russian authorities, her team was forced to pull their resources from the Russian financial system altogether. Although forced to relocate outside the country, Chekhovich shared their brilliant strategy to outmaneuver Russia’s weaponized financial control and continue their fight against political and financial corruption.

Thankfully for Chekhoivich and the ACF, the original cryptocurrency pioneers did foresee how countries like Russia could weaponize a centralized financial system. Beyond the idol of profit, some cryptocurrency enthusiasts practically worshipped the reality of a truly decentralized global currency network. While they were perceived as “a bit of a cult” in the 2010s, their enthusiasm engendered an environment for Satoshi Nakamoto’s ingenious mathematical trickery, leading to the creation of Bitcoin, “the first decentralized non-trust-based system of money.” (Farell and Newman, 175). Simply put, Nakamoto and his team designed Bitcoin as a built-in referee who can’t cheat or change the rules. While most early cryptocurrency enthusiasts' visions of utopia hardly made it out of a fiction novel, Chehovich and the ACF have achieved a small liberation from the financial repression that cryptocurrency enthusiasts dreamed of solving.

Before Bitcoin, financial persecution by Putin’s regime initially meant stashing ACF’s funding into stable currencies like the euro or the dollar. However, this was an imperfect solution—the Kremlin’s international influence has taken advantage of the transparency of stable currencies to identify and hunt their team and supporters even abroad. Transacting in Bitcoin, on the other hand, has allowed the ACF to avoid Russian intermediaries and protect the anonymity of their supporters against persecution. Internationally established democracies and Russian citizens can freely support their fight for fairer governance. Bitcoin wasn’t a gamble or treacherous investment as it normally is in established democracies—it enabled the organization to survive. But just as decentralized cryptocurrencies don't consider the identities of their transactors, they do not discriminate between democracies or autocracies when avoiding governmental influence.

For countries like the United States, their underground empire of international influence depends on control of information, finance, and data to maintain dollar supremacy and guarantee their citizens have strong financial power abroad (Farell and Newman). So, when the earliest founders of cryptocurrencies adopted their Cypherpunk Manifesto to usurp the power of traditional currencies globally with autonomous transaction systems, they feared shriveling tax bases, sanction avoidance, and depreciating ability to regulate and maintain dollar supremacy (Farell and Newman, 172). While PayPal's old offices touted their World Domination Index of user growth, the US deemed the global elimination of traditional financial intermediaries a non-negotiable extreme. In 2015, PayPal realized “topping the sovereign was just too hard” when OFAC forced PayPal into a $7.7 million settlement for hundreds of sanction violations (Farell and Newman, 173-174). In established democracies, cutting out traditional intermediaries means the end of their ability to regulate financial systems and potentially handing it over to the small companies that control the cryptocurrencies, like PayPal. Still, there are certainly cryptocurrencies at large in the US economy. As Chekhovich noted, some apps and cryptocurrency wallets partner with existing stable currencies to regulate criminal activities like sanction avoidance and let the cryptocurrencies remain active in their economies. But for the ACF, there are still concerns for identification and avoiding political prosecution in their states, even working in Europe.

All in all, de-identified and unmediated cryptocurrency in established democracies can become a threat to national security and control. It can be an investment akin to gambling in rapidly fluctuating markets. Nevertheless, it could be one of the few ways that enables countries to supply democratic movements in heavily autocratic states like the ACF. For democratic rights activists under heavy suppression, it’s a lifeline. Unfortunately for the safety of many of their international supporters, compromising can come with the dangerous consequence of identifying their supporters and risking persecution. In the game of battling autocracy with de-identified cryptocurrencies, the cost-benefit analysis weighs movement survival and national security. However, as democratic sovereigns drift globally towards the interests of national security and isolationism, financial and government power becomes consolidated even in established democracies. In fact, businesses abroad are now “coming to understand that powerful, wealthy countries present the greatest risks, and “those that fail to realize this may capsize.” Until activists find out who their friends are, Bitcoin may be the only way out.