CBDCs and Future Black Markets
CBDCs and Future Black Markets
A deeper look into privacy options in a cashless society and potential black market transactions
Welcome Avatar! Things appear to be moving in overdrive in terms of bank failures and the inevitable CBDC implementation that will eventually transition most citizens to a cashless society. There are a few ways to deal with this upcoming threat, which should not be taken lightly. Let’s go on a dystopian doom prep rabbit hole and explore some options and how to best be prepared for this scenario.
CBDCs are coming, whether you want them or not
Before we start, I recommend everyone to read this excellent overview by
on about the current state of CBDC development worldwide, and how fast a cashless society is approaching.In a previous article I wrote about the dangers of CBDCs, and about the inventor of currency with an expiration date, Silvio Gesell (1862-1930), who happened to live in Argentina.
“Beijing has tested expiration dates to encourage users to spend it quickly, for times when the economy needs a jump start.”
Privacy is a human right, and with the advent of a cashless society, that privacy is no longer granted from the government level.
Cash is private even though it is State-issued currency, and if I pay my kioskero with a 100 peso bill, no one but he and myself know that this transaction took place between us.
With a CBDC, this will be a thing of the past and there will always be a link on a government ledger tying myself to the kioskero in that transaction.
So, is there an alternative if cash is no longer valid? Can I still buy a chocolate bar from my corner kiosko without the government peeking in on that transaction?
Enter freedom markets.
Freedom markets
You can call these '“black markets”, but after having lived with a booming black market in Argentina for almost two decades, I would refer to these markets as “Freedom markets”.
Black market has a negative ring to it, and it implies you doing something illegal (same goes for the dark web).
The dark web is just all websites, even those that have a robots.txt file with “disallow: /” uploaded to the root folder of their server. So nothing too dark about that.
What about State coercion / jail?
But Mara, what if my country activates a CBDC and outlaws non-kyc crypto transactions?
This is again where my previous post about the case for slightly dysfunctional States comes in: when all this shit is going to go down, you would ideally want to live in a place where enforcement is not their favorite pastime.
Imagine the US or Europe would make any crypto transaction illegal, and if people would actually go to jail if they were caught, how many Europoors and ‘Muricans do you think would end up using crypto?
Very few, probably about the same amount of people that currently use the dark web for illegal purchases.
Now, take Argentina for example. The official dollar rate is a fairytale rate that exists on paper and in official bank transfers, and the free market rate is another.
It is technically illegal for people to transact on the dollar blue market. Is anyone going to jail for that? Hell no (unless you are running into the millions of USD maybe). And the majority of people actually transact on the black market without any issues.
Point is clear: when push comes to shove, you want to be in a jurisdiction where a secondary market can flourish because participants are not actively jailed or persecuted for doing so.
Potential Plan B’s in a CBDC world
Bitcoin
Most users will not be tech savvy enough to cover their tracks when acquiring and sending Bitcoin, and since the ledger is completely transparent (even though addresses are pseudonymous), authorities are usually pretty good (and getting better and better at it), at tracking down the final recipient or sender of a particular transaction.
Also remember: all Bitcoin transactions are set in stone for eternity, so in the future it will probably be even easier with new technology to trace transactions back to the identity of the users.
So even though Bitcoin is the most decentralized money in existence, with many independent node operators checking the network and miners adding hashrate to the network, if there is no substantial improvement made in transaction privacy, it will not be your best digital cash equivalent in a CBDC future.
“Crypto” or ETH
You only have to dig in a little deeper to see what happened during the shutdown of Tornado Cash, and the absolute regulatory capture of the network that followed.
Many validators complied with authorities to censor transactions. Not good.
Besides ETH, which has the most liquidity after Bitcoin and could also be called the most decentralized (if it is actually decentralized if you need a server farm to run a node yourself, and there are only a handful of pools where the majority of pooled staking happens to validate the network, is another discussion), most of the other crypto projects are easy to shut down by regulators and authorities since they are not very distributed networks, and have “teams” or “founders” behind them which are responsible for maintaining and promoting the network and can be coerced.
That leaves about 1 or 2 projects, one of course is Bitcoin, with the downside that privacy really leaves a lot to be desired.
Privacy coins
As a freedom maxi, I have checked out the pros and cons of most privacy coins. Many coins are too small in terms of network effects, have too few nodes, are not fully private even if they claim to be, or have an identifiable “team” or “founder” behind them that could eventually spill the cryptographic beans about the protocol.
After diving into most of these, one stands out from a transactions and privacy perspective, which is Monero (XMR). Sending coins from A to B is completely opaque through ring signatures, so no third party can see how much was sent, what the recipient/receiver address is, or what the wallet balance is for wallet A or B.
There is a reason why on the dark web no one uses Bitcoin and all transactions are settled in Monero or cash.
The users making those transactions could actually go to jail for buying and selling the products that they do, so they have all the incentives to be as careful as possible, much like in a CBDC scenario where cash no longer exists and private crypto transactions could end you up in jail.
Another thing that I think will help with resiliency is the way that Monero is mineable: you can literally mine it on your car radio if you wanted.
While that will never give you any significant amount of coins, it is illustrative as to the amount of machines you can potentially mine this on to keep the network running. Anything that has a processor, basically.
This makes it a lot harder to shut down from a government perspective versus Worldgov making the decision: let’s shut down and ban ASIC mining production.
There would probably still be some rogue countries producing ASICs in that scenario, but it is a potential chokehold for Bitcoin, which is a network that needs those very specific machines that can only do one thing (mine Bitcoin), in order to produce hashrate.
Now I want one thing to be clear: I am not shilling any bags here. Could care less if Monero jumps up or down (that is my Bitcoin thesis: up only, even though in the end in its current form it is not as private as cash).
What I want to have is some kind of cash equivalent that I can transact privately with for when CBDCs get introduced globally.
Resiliency is the name of the game, and unless the IRS or other 3-letter government entities are successful at cracking these private transactions (they are trying, and failing for now), this is the best digital equivalent to cash. The fact that many exchanges started delisting Monero for American users, should tell you enough about its effectiveness.
Tradcoins (Gold & Silver)
When thinking about resiliency and not depending on any single solution, another option is to have a stash of tradcoins ready, for when the CBDC hits the fan.
Not GLD on an exchange (also called “paper gold”), because it will be very unlikely that you will actually be able to redeem that for real gold once you need it.
Gold (and silver to a lesser extent), has always been a medium of exchange over multiple centuries, and that will not change now that we enter the Information Age. This is why as an additional backup, I also think gold coins (and silver potentially), can become interesting payment methods for bigger items on a freedom market eventually.
For this scenario you would want coins, not bars, since the main problem with metals is that fractioning into smaller amounts is harder (can’t just chop off a bit of a gold bar), and proving the purity is another issue (versus digitally verifiable assets such as Bitcoin).
Still, a good additional (and analogue) plan B to a CBDC.
The crackdown
In 2022 and even more so in 2023, governments in developed countries like the US and in Europe are cracking down on many crypto related services, banks, and protocols (Tornado Cash).
What is happening in recent days with all the “Si” banks failing (Silvergate, Signature, Silicon Valley), also has a crypto related element to it.
The tweet above is a reference to the excellent article by Nic Carter called Operation Chokepoint 2.0, in which he suggests that a war on crypto banking is underway.
If true, the tweet above also shows that bankers know exactly that funds will quickly move from a Tradfi onramp to crypto if needed, and at that point, they cannot control them anymore.
Onramps and offramps
This is why these will be the first to get shut off. If there is no exit out of government money, then most people will not be able to swap their GovCash for something else that may hold more value over time.
If you are keeping coins on exchanges or haven’t yet bought them yet, the window for buying and sending them to a wallet fully in your control is probably closing (offramp).
My base thesis is that these funds will not be converted back to fiat or whatever CBDC will be in place by the time I need them. This is not money that I directly need for day to day living expenses.
The Walled Apps Garden & Hardware Devices
If things get really nasty, the Apple App Store and the Google Play store could get forced to pull crypto wallets from their stores. Desktop apps are a different story, but when you transact outside you would prefer to have a wallet on your phone.
You come to the conclusion that it’s an insane walled garden/monopoly. The fact is that there are basically only 2 companies that have the ability to decide which apps are available on your phone or not.
Very easy to shut down for the majority of the population.
People who want to go around this will have to learn a whole range of new technical skills in order to install an app that is not available in the native app store.
The same goes for hardware crypto wallets.
I use Ledger myself, but see this as a potential issue. The fact that Ledger is a company and can be coerced is an issue, even more so since their software is not open source (not verifiable). Trezor might be a better option because their hardware wallet does run on open source software.
Wrapping up
Overall, there’s a lot of thinking and brainstorming to do, and it will be very interesting from a social and economic perspective what kind of secondary markets will erupt, and where.
Because believe me, they will pop up and they will be used. States are dealing with humans after all, and where there’s a human involved, there will be creative solutions to bypass regulation or just completely ignore it.
As you can see in the currency mayhem that played out in 2001 in Argentina (Coinmarketcap in real life), there’s far from a definitive answer to the kind of secondary trade and swaps that could emerge.
I am still sceptical about the US or Europe completely banning crypto or making the use of private transactions a jailable offense, but from the government overreach we have seen in the last few years during the pandemic, this wouldn’t surprise me either and is something to actively consider as a possibility.
Autist note: next post will be related to Argentina’s energy landscape, and how this could shape energy independence in the near future. It is a continuation of this previous article about Vaca Muerta, so that would be a good intro if you haven’t read that yet.
See you in the Jungle, anon!
Yeah, I work as an auditor of financial statements and have some dealings with bankers as well and they are just useful idiots, implementing this as we speak, not knowing what will hit them. It will come slowly tho so I tend to hope we have a few more years for them to actually start using it (cbdcs) for their intended purposes, but it will be done by 2030 for sure. You just made a very good point here about Argentina being a good spot to be since low enforcement and blackmarkets already exist.
I do own btc and xmr. What do you think of ARRR (piratechain?)
I own silver coins and small sim card size gold plates which u can buy like 25x1g and premium isn't that big, you could also buy 100% gold jewelry (look for company Mene) but premium there is a lot higher like 30%, but u can have it on you all the time and noone knows.
What most people don't understand is that atm we still have some grey areas in the EU so that people can slash their taxes for example from the crazy 43% effective tax (income+corporate) down to like 20%(which is still high obv) and we still have some corporate structures that are more favorable BUT all of this is going away. With CBDCs there will be no more gray areas, everything will be visible and proven, also EU directives coming out are calling for universal EU taxes and so on so no more of those favorable corp structures, etc. Atm wealthier people are complacent because they get a consultant, slash taxes from 43 to 20% and feel good, "hey, healthcare/pensions and safety are worth it" but when they realise what has hit them there will be no more escaping - capital controls.
Even if you have multiple bank accounts IMO Europe will become a self-regulated hell. So having btc, gold, etc. won't help. Imo the only way is to get tax residency outside of the EU so that you can legally pay 10% or such and then those digital EUR/USD will be legal i.e. useful. I'm also on a keto diet and I realise that there will be meat quotas (being setup by mastercard as we speak like when u buy meat with a debit card u get emission points for the week) so unless you're planning to have a farm, say goodbye to meat and hello to cockroach flour (already in bakeries). Another reason I decided to go to meat heavy cultures such as PY.
Lastly, many argue that cash will save us. Wrong, cash will be gone in a few years. How?
1. 500 eur and 200 eur bills already out of the circulation
2. High upcoming inflation will make those 100 eur worth 50 eur, 50 eur will be 20 eur, etc.
3. There is a shortage of smaller coins (1,2 eur) which makes using that 50 eur harder for smaller items like groceries
4. France and Italy already deem cash transactions over 1000 eur unlawfull, others have it at around 4000. This will either go down or 4000 will become 2000 by inflation
5. Some bigger companies like Apple for example might only start accepting card payments (already discussed)
6. Pandemic 2.0 might get cash banned due to unsanitary reasons (bonus tin foil hatter idea)
Anyhow, enough rambling. Bottom line, I've been thinking a lot on how to make my life better here in the EU and after 2 years of thinking I realised there is no way. It's as if we're being invaded and the only way is out. Kind of like escaping to LatAm for those seeing the WWII coming.
"Advances in technology do not abolish the institution of war; they merely modify its manifestations." A. Huxley - Science, Liberty and Peace
This is a great post, Mara, thank you for that. Just want to point a few things about monero (xmr)/btc (also, new in the jungle I may have repeated some known things, so apologies for that in advance).
the main points of my comment are:
1. monero is the "privacy coin" par excellence. yet we already have reasons hinting that is not as useful as it seems in theory for the use case proposed in the post
2. btc is actually (slowly) catching up on that
we can say the three components of Monero are:
- ring signature (RS): obfuscate sender
- stealth addresses (SA): obfuscate receiver
- confidential transaction (CT): encrypt the amount
SA are the things that makes monero "untraceable" in the sense that if I could look at your address, it would be _always_ (you actually can't tho, see later) empty. This is because each payment for Alice isn't actually sent to Alice's address, but to a new (derived) address. Alice's node has to perform checks on _all_ transactions in _every_ block to see if one of them is directed to her. All this, beside the verification normally done in e.g. btc.
Consequence: it is slooower. 2nd level consequence: this coin can not deal with the load btc deals with. So in practice we can not expect any meaningful mass shift from btc to xmr, especially when we would need it the most. (another reason for that is that you need atomic swaps to exchange btc to/from xmr, and they are currently in their infancy + they are very slow)
As mentioned you can not check addresses as you can check btc addresses on a block-explorer. part of that is due to stealth addresses (you need knowledge of a private key to check) but also to the fact that addresses in xmr derive from _two_ public keys, generally named _spend_ and _view_ keys. as the names suggest:
- the private key related to the spend pub key: you can actually spend coins and check if you received new transactions (let's call it _write_ permission)
- the private key related to the view key: you give a way to a third party to check what you receive (let's call it _read_ permission) (basic info here: https://www.getmonero.org/resources/moneropedia/viewkey.html)
because of that view key I am very worried that in case xmr is "unstoppable" you may be forced to give your view key to regulators/IRS (you may lie ofc, but then you're at the same level of people doing coinjoins on btc to gain some privacy). TBH it is not clear to me why they introduced this bug.
Finally, let me point out that there are currently experiments with both CT and SA in bitcoins. The elements project (and Liquid) already support CT, and stealth addresses are the base of paynyms. Also let me point out that a lot of insights on the research for monero comes from insights from bitcoin cryptographers and researchers. Of course xmr cryptographers and developers are very good, just saying that xmr may not have the best man-power to go to the next level
just my two cents, hope it's interesting!