Saturday, January 25, 2014

Questions About Bitcoin

The hype about Bitcoins is reminiscent of some of the early hype about the Internet.  Long, long ago, in the Paleolithic times of 20 years ago, the Internet was seen as an idyllic world where all would be equal and a person could accomplish anything with a computer and just a little effort.  The wide open nature of the Net allowed anyone, however anonymous and humble, to speak out and be heard, create and be seen, reach out and touch untold millions, all with just a few keystrokes.  Wondrous things would happen; lead would be turned into gold; a veritable digital Eden would arise and everyone who entered would attain nirvana.

Well, it didn't quite work out that way.  Gigantic corporations now dominate the Internet, and powerful government agencies lurk in the background, spying high and low, leaving no server unmolested.  Bad people from around the world seek to victimize, defraud and destroy; and the wide open nature of the Net allows them to do so with just a few keystrokes.  The free-standing individual who was supposed to have been the pillar of the digital community has shrunk into an online sheep, waiting helplessly to be fleeced of all personal information, browsing habits, bank funds, and credit lines.

The Norman Rockwellian narrative of Bitcoins would have us believe that they are a pure form of value, unmarred by the pock marks of central bank policy.  "Mined" by solving mathematical problems, transacted anonymously on a peer-to-peer basis, Bitcoins would be finite in amount and invulnerable to inflation since no one, supposedly, would control them.  Those who held Bitcoins would be liberated from the oppression of governments and the highway robbery of fee-charging financial institutions that handle transactions in fiat currencies.  A brave new monetary system would supersede the corrupt, degenerative fiat currencies of yore, the clouds would part and the sun would shine forever.

But reality is turning out to be blemished.  It seems that the use of Bitcoins for payment made an online market for illegal drugs called Silk Road attractive to denizens of dark corners of the Net.  The anonymity of Bitcoin transactions is a godsend for scoundrels and knaves of every variety, with government crime fighters largely unable to figure out who to put on the Ten Most Wanted List.  It's now clear that Bitcoins will attract criminals, organized criminals, terrorists, tax evaders, and other miscreants with something to hide.

But, are there bigger monsters lurking in the shadows?  Rogue nations, which may be facing sanctions in financial systems denominated in fiat currencies, might find Bitcoins a convenient way to get back in business.  And business could be nefarious indeed, with weapons, equipment for processing radioactive materials, drugs, and other suspect cargo changing hands.  Intelligence services--foreign and domestic--would have many reasons to use Bitcoins.  Undercover operatives need to be funded.  Bribes need to be paid.  Deniability would be enhanced.  Detectability--and accountability--would be reduced. 

Then, there's the market for Bitcoins.  Unregulated and opaque, it's ideal for manipulators and fraudsters.  The mining process is getting harder and harder, as the mathematical problems that need to be solved become increasingly difficult.  More and more computing power is needed to solve them.  That means bigger, more complex and more expensive computers must be used. The advantage goes to those that are well-capitalized.  Yet the price of Bitcoins is notoriously volatile.  Who can afford to invest in the massive computing power that it now takes to operate a successful mining operation while withstanding the wild price swings in Bitcoin prices?  Wealthy speculators, rogue nations, organized crime, and financiers operating from secrecy jurisdictions might all see an opportunity to make a fast Bitcoin or two--or maybe a lot more--off of the naive true believers who buy and transact at the retail level.  Trading anonymously, these big boys could bid prices up using multiple accounts they control to trade back and forth with themselves.  They could pay for online ads hyping Bitcoins as they walk the price up, provoking an investment frenzy among the sheep.  Then, as the price reaches meteoric levels, they dump the coins that they've mined, and then walk away, leaving the price to move whichever way it will (which is likely to be down). 

The biggest potential problem for Bitcoins may well be that the big players will move in.  And, as with the Internet, the little people will suffer.  Invest at your peril.

Saturday, January 18, 2014

Privacy Rights: Obama's Last Big Moment

Throughout his Presidency, Barack Obama seems to have been on a quest for greatness, something that would mark him as an exceptional President.  He apparently isn't satisfied with being the first African American President, which is understandable.  We all want to be judged as individuals, not as an ethnicity or a race.  He tried to construct a program for federal stimulus for economic recovery, but got tangled up in the politics of government borrowing. He failed to achieve a grand bargain on the federal budget (which was a misguided tilt with a windmill from the get go). He managed, after almost failing, to get national health insurance legislation passed.  But then he and his administration thoroughly botched the launch.  His foreign policy accomplishments--getting us out of Iraq, and moving forward with withdrawal from Afghanistan--have been under-appreciated.  Ending a war without a clear victory isn't seen as a mark of greatness, even if it is the right thing to do.  And the prospects for anything really positive to happen with Iran, North Korea, Israel and the Palestinians, and the war on terror are problematic, at best.

But Obama now has a really big opportunity to achieve greatness.  Edward Snowden's revelations about the NSA have blown wide open the increasingly pressing issue of privacy.  With the Internet now ubiquitous, privacy is the most important civil liberties issue in the world.  In a democratic nation, the relationship of citizens to their government is the essential dynamic.  The process of electing the government, the notion of a government of limited powers defined in a national charter, the rights of individuals to speak out, worship, assemble, petition the government for redress of grievances, and publish, the protection of individual rights by an independent judiciary, the limitation of the government's authority to investigate (allowing search and seizure, wiretaps and other intrusions into the lives of citizens only with the approval of a court), and, at least in America, the right to keep and bear arms, all work to establish the individual citizen as the foundational component of society.  The government is supposed to be of the people, by the people and for the people.  The people aren't supposed to be subservient to the government.

With the recent disclosures of the NSA's seemingly insatiable appetite for, it would seem, every piece of information about everyone, citizens are threatened with a reversal of their relationship to their government.  The government's interests seem to take precedent over the individual's historic right to be left alone in the absence of clear and demonstrable need for government intrusion.  We won't have a government of limited power if the government knows everything there is to know about you.  Democracy as we have historically understood the term would cease to exist.

Obama today made a speech, promising to rein in the NSA, and more strongly safeguard the privacy of Americans (and also some foreigners).  His proposals are rather general, and, when it comes to privacy, the devil is decidedly in the details.  When the details come out, we'll find out how much of a change he is really proposing.  The privacy issue may well be Barack Obama's last chance to achieve greatness as a President.  If he succeeds in upholding primacy of the individual citizen, he will be remembered well for decades and even centuries to come.

And while he's at it, he might as well tackle the problem of individual's rights against the Internet giants.  The relationship of individuals, as consumers and workers, to giant corporations has been one of the great commercial and employment law problems of the industrialized world.  Without strong protections for those buying the products and services of the titans of the economies, and those working for them, the raw economic power of these gargantuan organizations would leave individuals helpless to be victimized early and often.  The Internet giants threaten to abscond with the privacy of all Internet users, and attain vast informational power over them.  Just as GM, Ford, Chrysler and the other automotive manufacturers weren't allowed to sell dangerous products to consumers without legal liability for product defects, the Internet giants shouldn't be allowed to treat Internet users as sheep to be fleeced in order to boost ad revenues and executive bonuses.  A Presidential initiative to significantly protect online privacy would bolster Obama's chances for greatness.

Saturday, January 11, 2014

Learning From the Data Scandals

It's obvious that there is too much data being stored, and the biggest problem is that even more data is being accumulated.  The NSA scandal reveals what happens when a very large, secretive government agency with a big, but probably unverifiable budget decides it wants to know everything there is to know about everyone--it accumulates the Brobdingnagian pile of data that would allow it to do just that.  And Edward Snowden's revelations prove that whoever you might be, even if you're the NSA, your data isn't secure.

The Target data hack shows what happens when a private sector organization accumulates massive amounts of valuable data--someone figures out how to get it.  And much of the fallout falls on the most innocent of all--Target's customers.

These examples are only the beginning.  By all indications, Google and Facebook want to gather and store all the data on the Internet about you for ever and ever, so they can sell it to the highest bidding advertiser closest to your GPS coordinates.  But in accumulating these massive amounts of data, they make themselves tempting targets for hackers--and perhaps the NSA.  Remember what Willie Sutton supposedly said when asked why he robbed banks:  "Because that's where the money is."  Wherever there is a big pile of data, someone will go after it.  No person or organization has completely secure systems; not Google, not Facebook; not anyone.  The value inhering in these huge databases will motivate somebody somewhere to put in the effort it takes to find the flaw.

How can we get this data based nightmare under control?  By doing what banks do to limit the impact of robberies--keep less around.  Banks generally keep only limited amounts of cash on hand. If they are robbed, the bad guys don't get that much.  The damage is limited by the fact that there simply isn't a lot of cash to steal.

The same thing can be done with data.  The big accumulators should be forced to stop hoarding.  Private organizations like Google and Facebook should be allowed to hold most types of data for only short periods of time.  For example, perhaps they could be allowed to keep location data for a few seconds.  That would be long enough to sell an ad to the restaurant you're walking or driving by.  But the data should not be added to a profile of you or other long term records that they could keep forever and forever so that it would be available for hackers to steal.  Your web browsing activities could be similarly retained for just seconds, to accommodate the sale of advertising, but not to be incorporated into your profile or other long term records.  Of course, information that you voluntarily post on your Facebook page or your blog could be retained for as long as you choose to keep it there (although you should be allowed to delete whatever you post and thereby prevent Facebook, Google or whoever from retaining it thereafter). 

Even for data accumulated from sources other than the Internet--possibly much of Target's data was accumulated from activity of customers at bricks and mortars stores--could be subject to time limits on retention.  Why does it matter who was buying what brand of diapers two years ago?  Kids grow older and stop needing diapers, and the customer isn't going to buy any brand of diapers no matter how badly bombarded with advertising.  And if a person stops by at a Target store a few times a year, would the store's extremely limited information about that person's buying habits really justify keeping information about the person?  Why put that person at risk of being victimized by hackers when the store's knowledge of the person has little commercial value?  The bottom line is much less information should be accumulated, and the justifications for keeping whatever is kept should be much stronger than they now are.

Some of the proposals for reform of the NSA reportedly take a similar approach.  Data accumulation may be taken out of the hands of the NSA and placed with service providers or other third parties.  While such non-NSA accumulations would present tempting targets for the bad guys, they could be spread out among more places (and therefore be more difficult to attack).  In addition, time limits should be set on the retention of such data.  Yes, any such time limits might make detection of terrorists and other bad guys harder.  But there isn't much evidence that NSA's Big Gulp of data has detected a lot of terrorists anyway, so what we lose from time limits could be pretty theoretical.

Time limits on data retention would mean potentially big changes for the business models of some major companies.  So be it.  Our personal data and personal lives don't exist to serve the needs of soulless corporations.  The surging appeal of SnapChat, with its limited half-life for posted photographs, shows that people want time limits on data about themselves.  One of the most appealing aspects of American life is that you can re-invent yourself.  No need to be weighed down by what you were years ago.  And you shouldn't have to be weighed down by data stored by Internet or retailing giants years ago.  Live free.  Power to the Delete key.  Death to personal data. 

Thursday, January 2, 2014

Expect Nothing From the Government in 2014

Chances are the federal government won't do much of anything in 2014.  Neither party has control of the government, and neither has a coherent program in any event.  Republicans are at war with each other, with the mainstream and Tea Partiers wrestling for dominance.  Right now, the Republicans couldn't put together a coherent set of policies if they wanted to.

The President is playing defense, trying to get the federal health insurance exchange out of the ICU, contain the NSA surveillance scandal, deal with the Iranian nuclear program without another major American military commitment in the Middle East, pivot toward Asia, and bring the troops back from Afghanistan, all while avoiding a government shutdown from yet another lousy rerun of the debt ceiling crisis in early February.   The Democrats on the Hill are angling to keep their majority in the Senate and perhaps gain some seats in the House, but the administrative debacle with the sign-up process for the federal health insurance exchange has left Democrats facing re-election scrambling for cover.  That means distancing themselves from the President.  And that makes the formulation of a coherent set of Democratic policies pretty unlikely.

The mid-term elections this fall will drive doings in Washington.  That will mostly mean doing nothing.  In today's politics, everyone wants to be a critic, and no one wants to be a doer.  Critics get a lot of press coverage.  Doers are targeted by critics.  When you do something in Washington, you may benefit some people.  But you'll also damage the interests of others.  And they will dispense political contributions with a view to getting even.  It's safer to be a critic, verbally heave donkey dung at one's adversaries, and avoid actually doing anything.  You may not help anyone, but you also won't make a lot of enemies.  Voters gravitate toward those who tell them what they want to hear.  With today's grossly gerrymandered districts, critics have an easier time getting elected and staying that way. 

So expect little from the government this year.  Far right-wingers and hard-core libertarians may think this is a good thing.  But everyone who realizes that essentially the entire country--from the top 1% to those below the poverty line, from the big banks to the small businesses scrambling for an SBA loan, from parents who want safe toys for their kids to those who prefer not to eat tainted food to home buyers looking for a mortgage loan to anyone who is potentially exposed to communicable disease (and that excludes very few of us)--needs a functioning government must hope against hope for something more.