Law in the Internet Society

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Complementary Currencies: Providing Privacy, Credit, and Disintermediation in an Age of Austerity

-- By RaulCarrillo? - 05 Jan 2015

The Erosion of Privacy at the Financial Periphery

The U.S. news is currently replete with examples of the abuse of financial data on the internet. Just this past week, the Federal Trade Commission (FTC) sued a data broker for allegedly selling payday loan applications to marketers, ad agencies, and far more nefarious clients. These loan applications include bank account information, Social Security numbers, credit card history, and other forms of personal financial data.

This is only the tip of the iceberg: as I highlighted in my last essay, every day, there are systematic, unregulated, and ostensibly legal breaches of civil rights through digital finance. Siphoned information is used to punish people on the socio-economic periphery, to deny them bank accounts, insurance, mortgages, and even jobs that they would have otherwise received.

Professor Moglen has insightfully noted in several speeches, and in class, that financial abuse is a second-order concern to the first-order concern of an “enormous ecological disaster” created by the voluntary supply of personal information to comprehensive systems of surveillance. If we don’t want to be abused then we have to disengage from predatory applications.

Removing oneself from established institutional providers of credit, however, is not as easy or as simple as removing one’s self from social media. In the era of austerity, especially, the ability to get a loan is often a matter of life and death. Although one might live a life of wages paid in cash “off the grid” -- and many people do -- the achievement of upward mobility or security during a financial emergency is generally premised on the ability to draw credit, digitally, from a financial institution of some sort. Thus, Americans who are lucky enough to access debt systems at all must now seemingly sacrifice privacy in the process.

Credit Innovation in the Face of Austerity

There are a few affirmative democratic responses to this conundrum.

First, we can update statutes and regulations to catch up with the internet, so to speak. This is the approach suggested by most academics and the most widely written upon, most recently and thoroughly in University of Maryland Law Professor Frank Pasquale’s book, The Black Box Society. However, although ultimately necessary, it seems unlikely that a movement for legislation in the near future will overcome the combined power of Wall Street and Silicon Valley lobbyists and fundraisers.

Second, we can create a public, government-run option for financial services (as I've written about previously, here). Although a viable improvement upon the status quo, this route still poses the risk of unseemly state surveillance of financial data, or even corporate invasions in the context of public-private partnership. Furthermore, some allege that the government is currently taking action to shut various industries out of the financial system that it judges to be “reputational risks.” Thus, although elected officials may eventually be pressured to build something resembling a credit commons, bringing along law enforcement is another question entirely. Perhaps even more importantly, in an age of austerity, the creation of a public banking option may well require a paradigm shift in how people think of the role of government finances generally.

The third option is we can cut out the middlemen, a process Professor Moglen has referred to as disintermediation. That is, we can attempt to establish decentralized, collaborative, secure systems of credit within civil society. Moglen does not use the term “disintermediation” in the way, say Uber does, to mean the creation of firms that rely heavily on individual owners of physical capital yet profit from mere coordination and branding. Rather, Moglen refers to the consistent manner in which young people, faced with both austerity and “snooping”, “create an infrastructure which allows them to hack the real world”, and share the fruits for their general welfare. This spirit of innovation can lend it itself particularly well to the development of digital currencies, exchanged on decentralized networks without need for banks, data brokers, or other intermediaries.

Disintermediation: Complementary Currencies

The world of digital currencies, especially “cryptocurrencies” has thus far been mostly a realm of privilege. Bitcoin, in particular, with its metallist, libertarian, hyper-deflationary structure, has done little to promote economic justice in any authentically egalitarian sense. But this does not mean other digital currencies cannot be established for those who don't have enough dollars, can't use dollars, or won't use dollars because of privacy or security issues. These currencies might not be “money”, meaning they cannot be used to pay taxes to the sovereign, but they can provide purchasing power to communities who have the physical resources for economic activity yet lack a financial catalyst. They are thus “complementary” currencies in the sense that they cannot substitute for the dollar in every way, but they can denominate credit and thus provide purchasing power. At the very least, complementary currencies can pressure the sovereign to exercise better financial stewardship.

The technology for creating a complementary currency that is both financially useful and satisfies, say, Moglen’s criteria for privacy seems quite difficult. But there are promising developments. We know some level of secrecy can be attained via public key encryption. The Canadian government’s MintChip? program and ZeroCoin? have made laudable attempts at anonymity. Autonomy within the labyrinthine regulatory architecture seems to be the most difficult facet of privacy to achieve, in no small part because different U.S. regulatory agencies are taking different stances toward alternative currencies, always informed by the tendency that what benefits the poor also benefits criminals.

Perhaps the most promising light for autonomy in the world of alternative currencies is not found in the United States. In the face of massive unemployment in his city, Will Ruddick recently successfully created and defended the community currency of Bangla-Pesa in Mombasa, Kenya. Despite initially being thrown in jail as a national security threat, Ruddick was eventually released, arguing that the Bangla-Pesa isn’t “meant to impersonate or replace shillings, but to simply serve as a complementary currency when there aren’t enough shillings to go around.” Ruddick has since received requests from the government representatives to replicate the Bangla-Pesa in other parts of the country.

Although it is unlikely that complementary currency development would proceed in a similar fashion in the United States, the potential to combine the privacy aspects of the free software movement with Ruddick’s economic insight is promising: perhaps the most promising option available.

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Revision 1r1 - 06 Jan 2015 - 04:46:52 - RaulCarrillo?
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