By Paul Rosenzweig, The George Washington University Law School
For some of the original designers of the Internet, anonymity was a way of giving individuals greater power to resist or avoid the government. Tor and Bitcoin are two anonymizing tools that make it technically hard, though not impossible, to identify those on the network who wish to remain anonymous.
Anonymity on the Internet
Attribution on the Internet is one of the network’s more alluring, and elusive, technical aspects. Network communication protocols do not, at their core, require identification. And so, connectivity comes with the background assumption that anonymity will be allowed.
Anonymity on the Internet stems not just from the architecture of the communications protocols, it also reflects the quasi-libertarian streak at the core of early Internet society.
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Tor is a free software program, and the name comes from an acronym that stands for The Onion Router. Operated by the Tor Project, it is an anonymizing tool used worldwide by journalists, human rights activists, hackers, law enforcements, and others. It’s called an onion router because trying to get to the original source is like trying to peel back the layers of an onion—it’s nearly impossible.
Tor encrypts messages and builds a volunteer network of servers around the globe to bounce that encrypted traffic in a way that evades detection. Those using Tor software encrypt their locations and bounce their messages across the network so that they’re able to conceal the originating Internet Protocol or IP address.
Proponents say Tor protects personal freedom and privacy. WikiLeaks says it promotes transparency. Some governments say the program protects secrecy and criminality.
For obvious reasons, governments can perceive Tor anonymity as threatening because it might allow terrorists or criminals to communicate in secret. That’s why the National Security Agency had a program known as Egotistical Giraffe, whose goal it was to peel back the layers of Tor.
While the program was unsuccessful at decrypting Tor communications, it did develop a capability to identify those who use Tor on their machines. According to the government, anonymizing tools like Tor can be indicative of a desire to avoid surveillance, which, paradoxically, might make you more likely to be a target of surveillance.
But because software like Tor maintains the privacy of the source and destination of data, and the people who access it, the capability might also enhance private transfers of information, goods, and services—legally as well as illegally.
So, it comes with a problem: How is one going to pay for those services? In the physical world, you hand over cash—a perfect, anonymous, monetary instrument whose value is known. What do you send across the Dark Web? Enter Bitcoin.
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Bitcoin: Digital Currency
Often abbreviated as BTC or XBT, Bitcoin is a digital, decentralized, and partially anonymous currency backed by no government.
Bitcoin was created by a pseudonymous mathematician named Satoshi Nakamoto, who described it in a 2008 paper as a peer-to-peer, electronic cash system.
Bitcoin’s defining characteristic is its lack of government or central bank backing. Other units of account, like obligations to American Express or MasterCard, are denominated in government-backed currency units, and are fully convertible to government-issued cash.
Bitcoin, by contrast, is a purely digital currency that can be accumulated and stored in private electronic accounts.
Value of Bitcoin
Bitcoin’s value is completely dependent on one factor: what other users of Bitcoin will give for it in exchange. Some Bitcoin users see this as its principal virtue.
They think that government backing—either directly or indirectly—is a form of government control. Hence, the development of a system that excludes government intervention is, for them, the singular achievement of Bitcoin. Other users are simply concerned that governments could always debase their currencies as a quick economic fix.
However, this function—storing value—isn’t the only use of currency; it’s also a means of exchange. To become convertible, Bitcoin had to provide a substitute for the other critical function of government. Its backing came with a guarantee of value and uniqueness.
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Bitcoin’s Block Chain
A dollar bill, with a serial number, is certified by the US government as authentic and one of a kind. When I give it to you in exchange for some goods, we’re transferring value; and, implicitly, the government is standing by to verify the authenticity for the currency that is used in the transfer. The government is also ensuring that the same dollar bill can’t be spent twice.
By contrast, transferring a digital file like a bitcoin runs the risk of duplicating the currency. Since a digital file is can be readily copied, a secure digital system needs a way to prevent a user from spending the same bitcoin twice.
As a substitute for the government’s verification function, Bitcoin relies on a complex cryptographic system that involves link to a ledger system known as the block chain.
Here’s how that works: Bitcoins are created by, in effect, adding new pages to the ledger by solving increasingly challenging cryptographic puzzles. This is colloquially known as mining. Creating a bitcoin requires effort in the form of the use of computing power and energy. Once created, the history of each bitcoin is cryptographically tracked in the block chain ledger.
Thus, the mining function, combined with the block chain record, assures the authenticity and the uniqueness of every bitcoin transferred.
Mining also has the virtue of creating new money without the need for a government to mint it.
Bitcoin as Cost-saving Mechanism
Some see Bitcoin as a cost-saving mechanism to eliminate the middleman for transactions—the financial institutions that handle those transactions.
Thus, another key component of Bitcoin is that it operates on a peer-to-peer basis—that is, directly between the purchaser and a seller. In essence, Bitcoin is, at least in theory, a frictionless mechanism of transfer.
As with most markets, the valuation depends a great deal on when you bought and when you sold. Bitcoin uses are growing, however. Tens of thousands of merchants now accept Bitcoin for their goods.
Common Questions about Tor and Bitcoin
Tor is a free software program. It is an anonymizing tool, and the name comes from an acronym that stands for The Onion Router.
Tor encrypts messages and builds a volunteer network of servers around the globe to bounce that encrypted traffic in a way that evades detection.
Bitcoin is a digital, decentralized, and partially anonymous currency backed by no government.