Although Napster was used to share files between separate individuals around the world, it actually had a central server that listed who owned which files. This was a weak, centralized point of attack for law enforcement. The fact of the matter is that the issues with centralized servers and entities are one of the main reasons Bitcoin was created in the first place. Satoshi Nakamoto’s understanding of Napster-esque issues was clear in the original Bitcoin whitepaper:
“While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model.”
I’ve actually read many of Daniel’s posts in the past and follow him on Twitter, so it was quite strange to see his blatant misunderstanding of the differences between the technologies behind Napster and Bitcoin.
If you’re going to make an analogy between Bitcoin and some form of file sharing technology, then the correct option would be BitTorrent. Much like regulators have been unable to shutdown Bittorrent, they are also unable to prevent people from using Bitcoin as a technology. It would take Orwellian-level controls over the Internet to shutdown either technology, regulations even more Orwellian than the types of Internet laws that we see discussed by regulators and lawmakers on a regular basis today.
If you want to see an example of Napster’s setup applied to digital currencies, then take a look at e-gold. This digital gold currency allowed individuals to transact with each other in a somewhat private manner without having to rely on fiat currency, but it was easily shutdown by the US Government due to the fact that it had centralized servers. These central points of failure are the reason certain decentralized technologies, such as BitTorrent and Bitcoin, were created.
In the case of Liberty Reserve, it didn’t even matter that the company was based in Costa Rica. It was eventually shutdown by the US Government. As we’ve seen time and time again, any kind of central controller or server is a weak point for any technology that threatens the status quo. As a side note, it should be mentioned that cryptocurrencies “backed” by gold or some other physical asset face a similar problem.
For a disruptive, decentralized technology to survive in a world of overbearing government regulators, it needs to be censorship-resistant. This feature is at the core of bitcoin’s value proposition as a form of money. The reason that Bitcoin can be used to donate to Wikileaks and buy illegal substance on various darknet marketplaces is that it is censorship-resistant. As we saw when Visa, Mastercard, and PayPal stopped processing donations for Wikileaks, centralized entities can always be coerced by men with guns. It doesn’t matter if you’re talking about the NSA demanding private communications from Google, Yahoo, and others, or law enforcement asking your bank for a record of your financial history from the past few years; when the service is centralized, there is an opening for governments and others to come in and censor content, communication, transactions, and more.
So, luckily for us, Bitcoin will not meet the same fate as Napster, but that doesn’t mean we should stop building these censorship-resistant technologies. We still need to continue development until all aspects of the Internet are decentralized. As Nick Szabo explained back in 2001, trust third parties are nothing more than security holes.
Note: Thanks to Thomas Hunt at World Crypto Network for pointing out this story on his Mad Bitcoins YouTube channel. His show is informative, entertaining, and generally awesome.
Images from Shutterstock.
This post was last modified on (Eastern Time): 26/09/2014 00:36