What Is Censorship Resistance?

By Craig Wright | 10 Jul 2020

Bitcoin has nothing to do with ‘censorship resistance’, and it never did. The entire term is rather asinine. The only people who truly want ‘censorship resistance’ and money of any size are generally criminals. The simple reality is that Bitcoin gains pseudonymity when it is used as a cash-based system. Like with cash, as the level or total value of a transaction increases, so do the ease in tracking and the number of requirements for the registration of transfers and anti-money laundering (AML) reporting. Simply put, nobody cares when you pay for a coffee using a £50 note, but you’re breaking the law if you purchase just about anything with US$20,000 in cash without filling out the required forms.

The one thing that’s missing, but that’ll soon be developed, is a reliable e-cash, a method whereby on the internet you can transfer funds from A to B, without A knowing B or B knowing A, the way I can take a 20 Dollar bill and hand it over to you…

Milton Friedman, 1999

A rather insidious myth has been developed and propagated around Bitcoin. From January 2011, a report by the Electronic Frontier Foundation (EFF) [1] was coupled with the emergence of Silk Road to promote Bitcoin as ‘censorship-resistant’ and ‘permissionless’—terms that are empty jargon and have nothing to do with the nature of Bitcoin.

The purpose of Bitcoin has nothing to do with creating a system that can operate outside of anti-money laundering (AML) rules; it was designed as cash for micropayments. More importantly, the empty phrase describing Bitcoin as ‘permissionless’ is vacuous and without much meaning. You cannot simply do whatever you want with Bitcoin. Nobody allows you to change the code. The entire purpose of a protocol that is set in stone is that you cannot change the protocol.

The only reason Bitcoin may be considered ‘permissionless’ is that nothing is allowed. With the Internet, you can build a new web page. If, on the other hand, you build a web page that violates the laws surrounding information in your local jurisdiction or where it is being hosted, the web page will be taken down. In Bitcoin, information may not be removed from the blockchain, but it won’t be served and disseminated if it is known to be illegal.

The EFF’s commentary on Bitcoin from January 2011 fell short of even a rudimentary understanding of the basic nature of Bitcoin.

For a start, Bitcoin was not an attempt, as it had occurred many times before, to create a digital currency; it was an attempt, and a successful one, at making a form of electronic cash. In particular, I developed a system that could act as a micropayment platform. A system that would allow transactions to occur in the form of a commodity cash payment for amounts as low as fractions of a cent.

I’ve noted many times that Bitcoin is not encrypted. The entire blockchain is public and in the form of clear text. The only nodes on the network are such facilities or entities that fulfil every aspect of section 5 of the white paper. That is, such nodes that have become known as miners. In the last 12 months, there have not been more than 32 Bitcoin miners, whether on the original version of Bitcoin (the BSV network) or on any of the copies that are passing off as Bitcoin (such as the BTC network). More importantly, there are never more than four entities that would be needed to meet a court order of any kind. In other words, a court order against four Bitcoin nodes (miners) may result in a transaction being required to be frozen and then reallocated.

Since the introduction of the Sarbanes-Oxley Act of 2002, every single US public company has been required, by law, to have an immutable database for its accounting records. The Act required that organisations maintain a write once read many (WORM) database for all accounting entries and for many other electronic activities. It is the same form of database that Bitcoin uses. The error that many individuals untrained in accounting maintain is that a WORM system means you cannot alter values. They believe in yet another myth that is erroneous. You can, of course, change entries in Bitcoin. It does not require that you go back and change the entire blockchain, but rather, like with entries in a corporate database, you add an erratum entry to correct an error. Here, the original mistake and the correction are maintained immutably. We can thus create the foundation for avoiding scenarios such as the Enron scandal, while maintaining good accounting practice.

For the last decade, people with agendas and many who are funded by money launderers, child pornographers, drug dealers, and tax evaders have sought to change the narrative and turn Bitcoin into a criminal system. Bitcoin is a terrible system for criminals. All the government needs to start to understand is how easy Bitcoin is to monitor and control. They need to open their eyes and start to see that Bitcoin operates independently in civil environments, but allows for the integration of criminal actions such as those started by the Financial Action Task Force (FATF). The Liberty Reserve prosecution involved law enforcement from 42 countries. At most, action to control Bitcoin addresses and transactions would require valid court orders in no more than four countries, and likely two.

The EFF started promoting a false idea of Bitcoin in 2011—not so that people would understand Bitcoin, but so that they could promote their own flaky ideas. They took money that was invested and donated, and used it to twist and manipulate the message about Bitcoin and to create a system that would allow criminals to process money. The only true power they have is the power to change perception through methodology and lies. Bitcoin is a technology that is scumbag-resistant, though not scumbag-proof; people, in their attempt to change Bitcoin into something else, have managed to subvert the message around Bitcoin, passing off copies as something that would be related to Bitcoin in some way. It is scumbag-resistant as I spent a lot of time ensuring that there is no technical way to make the system run as a mesh outside of the existing system, where users connect to a small, resilient hub of nodes. Such nodes have a fiduciary duty, and are paid to process transactions.

As explained, at any time, there are rarely more than 10 nodes on the network that matter, and from a point of view of legal action, there have never been more than five.

Bitcoin is not a response to the current financial system. It is a response to the flawed and poisonous system that is being developed by companies in Silicon Valley. It is a response to the advertising-based economy where for fractions of a cent in profit, hundreds of dollars’ worth of tracking information, advertising that is forced down our throats, and eternal monitoring occur.

The myth that Bitcoin is designed to be ‘censorship-resistant’ is just that. Bitcoin is electronic cash. As with cash, the use of electronic coins (bitcoin) remains private and is unlikely to be traced for small amounts. As it scales, the use of bitcoin or cash needs to be reported and monitored.

The System Is Based on Economics

The differential of the use of bitcoin as cash under existing limits imposed by regulations, when compared to its use in large transactions, is simple; it lies in the cost involved with taking action. It does not take an own hashing and server farm or an own miner, as a government, to implement changes such as in the form of freezing bitcoin or even reassigning keys; it requires the ability to act against corporate entities. Which is, of course, what is overlooked. It is not possible to be a node on the Bitcoin network without a significant investment that is easily detected.Bitcoin users may remain pseudonymous at low levels of transactions, but no Bitcoin node (aka miner) can escape detection. The matter presents not a flaw; it is the implication of how Bitcoin is designed. Some of the criminals that have been involved with Bitcoin don’t like it. They have sought to change it, yet adding extra layers such as the Lightning Network just makes it easier to intercept.

As with everything in life, there are economic limits; using Bitcoin comes with limitations. If you use Bitcoin as cash, it can be seen to be cash. If you use Bitcoin as a monetary system in an attempt to bypass money handling, fraud, and criminal law, you will find that the system allows that you be tracked and traced and caught. Bitcoin presents an immutable ledger, an immutable ledger holding evidence of all activities performed using the Bitcoin protocol.

Some people try to tell you that ‘censorship resistance’ means that you cannot freeze funds. Again, such people are in error. When I introduced the alert key, fulfilling some of the aspects of what I said could be done in the white paper, I allowed nodes to freeze unspent transaction outputs (UTXOs) and transactions. There will never be a blockchain-based system that is legal and allows for the transfer of funds outside of money handling laws. Bitcoin is not a first, as bitcoin can be frozen and seized.

And here is where economics comes into play. The cost of taking action dictates the lower bound on the amount people to go after. If somebody steals 50 pounds’ worth of bitcoin, it is not worth taking legal action to recover the coins on the blockchain. There are better ways of having such value recovered. Conversely, where there are criminal sanctions against drug lords and money launderers, large addresses—holding, at times, billions of US dollars—are simple to target. They can be accessed, frozen, and assigned—and there is nothing that can be done to stop it. The concept of splitting bitcoin onto a new system to capture the same value and to avoid a court order will not work. Bitcoin does not have value if it cannot be exchanged and used. Exchanges that bypass money handling regulation will simply be shut down. Without use, there is no value in the system.

There is a reason why you will never find a quote from me about ‘censorship resistance’ from the time where I was acting under the pseudonym Satoshi: none exists. No single such quote had ever been formulated by me, because it would have nothing to do with Bitcoin. When I released the alert key, I released a methodology and a proof of concept that were extremely easy to implement. Freezing funds on Bitcoin does not require changes on exchanges or end-user devices. The consensus methodology utilised within Bitcoin is completely and utterly based on the exchange of blocks. It does not matter whether you think you are a ‘relay node’; there is no such thing within Bitcoin. If you’re not creating blocks, you’re not part of the consensus.

In creating blocks within Bitcoin, you provide your location. Bitcoin is not friendly to the Tor network where nodes and block propagation are involved. If you try to run a Bitcoin-mining operation over Tor, you will find yourself going broke very quickly. Users can be pseudonymous, Bitcoin nodes cannot.

There Is No Encryption Used in Bitcoin

The bit that some people fail to comprehend stems from a false belief that Bitcoin is like encryption. There is no encryption used in Bitcoin; the exchange of all transactions occurs in clear text. Although Bitcoin uses cryptographic algorithms, it does not encrypt data.

Here lies a concept that is important to understand. Governments and law enforcement cannot access files that are encrypted using strong encryption and well-chosen keys.

Governments and law enforcement cannot seize bitcoin and alter keys that are used to transact without leaving an immutable record of the change.Bitcoin is not designed to stop government from freezing bitcoin, and it is not ‘censorship-resistant’. Bitcoin is public. What Bitcoin does is work within the rule of law. Any court action or government and law-enforcement move to freeze and seize bitcoin will be public. When such actions are performed against criminals, few people will see them as a problem. If a totalitarian, controlling government decides to do so, a record is left immutably—for all time and for all people in the world to see. It is thus how Bitcoin counters bad actors. It allows change, but change through sunshine. Bitcoin does not stop people from freezing transactions, it stops them from using illicit money at scale.

The thing with strong encryption is that even governments cannot decrypt a file without the key.

Bitcoin is not encrypted. Transactions sent on the Bitcoin network are propagated and recorded as clear text. As they are clear text, all UTXOs can be seen, monitored, traced, and acted upon. As the source of all transactions, the input transaction, remains clear text and is easily viewed, it is simple to apply existing rules of following and tracing money and enact court orders for freezing and later seizing bitcoin.

The Consensus Methodology

If every single user on the Bitcoin network decided that a court order from a government for freezing a Bitcoin transaction was invalid, they would have no impact whatsoever. The implementation of a blacklist or transaction-freezing code on the largest five Bitcoin nodes would ‘orphan’ any blocks containing transactions covered by the freezing order.

Bitcoin is not and has never been about ‘censorship resistance’. I added the alert key to be able to freeze and reverse transactions, if needed. All that matters in Bitcoin is a public record of any transaction that is reversed. Without encryption, the way Bitcoin was designed, there is nothing that anybody can do to stop such actions from occurring.

Some people will tell you that I can’t be the creator of Bitcoin because of their arguments about ‘censorship resistance’. Such arguments never came from the creator of Bitcoin. I created a micropayment system, an electronic cash-based system, a system that could act to reduce the size of transactions towards micropayments at levels below one cent.

If you go back to 2009 and 2010, you will start to see that the narrative was different.

If you don’t want to record transactions that are captured in oppressive governments, you don’t want Bitcoin. I say so because it is not by allowing everything that we get freedom; it is by propagating the truth that we gain freedom. Oppressive governments and restrictive law-enforcement bodies do not want a system like Bitcoin, that records every time they seize money. They want a system like Zcash, that keeps the world secret, so that they can keep their secrets.

Notes

[1] Note that I find the EFF slightly less offensive, only slightly, than used toilet paper sitting in the middle of one’s bed.