What is Financial Censorship?
Financial Censorship occurs when a private entity’s financial activity is restricted in a way which inhibits their operations. This restriction is typically implemented by Financial Institutions (FIs) and Payment Intermediaries (PIs), with the implicit intention of limiting, or even silencing, these private entities. Common methods of Financial Censorship include freezing of assets, seizing income, and prohibiting the ability to receive funding.
Impacts of Financial Censorship
Financial Censorship has serious ramifications regarding online freedom of expression. Censorship is often used by Governments in an attempt to stifle critics, whistleblowers, and/or unacceptable sentiments, through repressive financial measures. The most notorious instance of Financial Censorship occurred back in 2011, where WikiLeaks encountered a financial blockade which barred them from receiving donations. This was an unofficial attempt by the Government to shut down the site, after having posted confidential military information online.
Cryptocurrency and Censorship Resistance
However, the introduction of Bitcoin provided WikiLeaks a lifeline as they turned to Bitcoin Donations to continue receiving funding. So what makes Cryptocurrency resistant from censorship? To start off, we must first understand what Censorship Resistance is. Censorship Resistance consists of Three Pillars:
- The Freedom of Transaction – Third Parties are unable to interfere with receiving or sending assets.
- The Freedom from Confiscation – Third Parties cannot remove or freeze assets that you own.
- The Immutability of Transactions – It is virtually impossible for Third Parties to change/revert the transaction once it has been made and recorded.
There are several Degrees of Censorship Resistance. Cash, for instance, has a relatively high degree of censorship resistance as it is unlikely for the transaction to be immutable once you hand your cash over. However, cash is somewhat vulnerable to confiscation. Most modern financial assets that we know, and own today, have a low degree of censorship resistance. The assets in our bank accounts can be easily confiscated, frozen, and/or we can have our transactions be reverted at any time. Thus, Cryptocurrency is superior to fiat currency with regards to the privacy and freedom that we have with our transactions.
What makes Cryptocurrency Censorship Resistant
The reason that most Cryptocurrencies enjoy such high levels of Censorship Resistance is because of the Decentralised Blockchains that they operate on. The Decentralised nature of Blockchains hands autonomy back to its users, as no single entity controls every transaction on every Blockchain network. This means that Government FIs and other PIs are unable to have ownership or control of any user’s Crypto Assets on a Blockchain. Manipulating Blockchain transactions would require significant control over the network’s hash rate. The sheer number of active network participants on each Blockchain makes this nearly impossible, especially for large networks. Additionally, Cryptocurrency transactions are recorded on a Decentralised Ledger, which is extremely difficult to take over. These Blockchain features fulfil the Three Pillars of Censorship Resistance, as the Decentralised nature of Blockchains allow users to transact freely without fear of their assets being confiscated. The Decentralised Ledger, on the other hand, makes transactions immutable once recorded.
But, the choices that Blockchains make for speed and transaction costs impacts how resistant the Cryptocurrencies operating on that Blockchain are. The faster and cheaper a Blockchain network is, the more likely it is to be less Censorship Resistant. Therefore, there also exists varying degrees of Censorship Resistance among each Cryptocurrency. Currently, Bitcoin is likely to be the most censorship resistant Cryptocurrency on the market thanks to its Proof-of-Work (PoW) process.
Is Censorship Resistance Necessary for Everyone?
Whilst Censorship Resistance brings privacy and freedom to digital transactions, it may not be required by everyone. The truth of the matter is that most people in the society are comfortable with the level of privacy that current banking systems provide. For the most part, organisations with access to our financial information are legally required to protect it. Data breaches and security lapses often come with major fines and lawsuits as potential repercussions. Additionally, Governments do not have the capacity to monitor, track, and indiscriminately block every individual’s transactions.
Nonetheless, it is undeniable that Cryptocurrency and Decentralised Blockchains have changed the dynamics of digital transactions. Even though it may not be for everyone, we can all still appreciate the innovation that allows us to progress towards a freer and safer digital space.