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Crypto Isn't Just Money – It's a Defense Against Discrimination

Sonya Mann works in communications and marketing at the Zcash Foundation, a financial privacy non-profit. She is a former technology journalist.

For Americans, it can be easy to discount the social relevance of censorship-resistant digital assets like bitcoin.

Unlike people living under authoritarian regimes, we are free to enter into commercial transactions how and when we like, right?

Well, not always.

Many Americans find themselves unable to access the financial system for political reasons. It’s a frustrating experience that cuts across ideological lines. Common targets of financial exclusion include sex workers (regardless of whether their work is legal), drug users and — oddly enough — gun rights organizations.

New York vs. the NRA

For a recent example, look to the National Rifle Association and its run-in with New York State.

Although the NRA is a controversial organization, prone to selective advocacy and partisan rhetoric, the group’s activities are indisputably legal. Freedom entails being able to say and do controversial things, especially when those things are explicitly protected by the Constitution.

The NRA’s mission is to protect and promote Americans’ right to keep and bear firearms. The organization likes to bill itself as the oldest civil rights advocacy group in the country. So, readers may be surprised that the NRA claims to have struggled to access financial services. In May, the non-profit decided to sue governor Andrew Cuomo and the state’s Department of Financial Services.

“The NRA presented as evidence an April letter from Maria Vullo, the DFS’s superintendent, warning banks under her purview about the ‘reputational risk’ of doing business with gun-rights groups,” according to National Review. “The state also pressured the companies behind the scenes, the group claims.”

If these allegations are accurate, it’s an echo of the Obama administration’s Operation Choke Point, in which the government put pressure on banks to stop enabling legal but disapproved-of businesses. In 2014, the US House of Representatives’ Committee on Oversight and Government Reform found that the initiative was intended “to deny [certain] merchants access to the banking and payments networks that every business needs to survive.”

The committee’s report noted that “bank regulators labeled a wide range of lawful merchants as ‘high-risk’ — including coin dealers, firearms and ammunition sales, and short-term lending.” Thereby, “Operation Choke Point effectively transformed this guidance into an implicit threat of a federal investigation.” The effort was deemed an illegal abuse of power by the Department of Justice, and eventually shut down.

Yet even upstream of payment processing, e-commerce platforms like Shopify are kicking off gun-related merchants. “We have invested more than $100,000 in the development of our Shopify store, which will disappear once these policies go into effect,” said Cole Leleux, the general manager of firearms dealer Spike’s Tactical, in an interview with the Daily Wire. A platform like OpenBazaar not only wouldn’t do that, it wouldn’t be able to, because the marketplace is designed to prevent top-down censorship.

When it comes to reputational risk, many banks would be wary of serving someone like dissident gunsmith Cody Wilson, whose projects include publishing free weapons schematics and selling machines for the home manufacture of firearms. His activities are legal, and in fact, litigation comprises much of his activism. But Wilson is a radical, and finance firms tend to eschew radicalism. (That is a problem in-and-of-itself, but we’ll leave it aside for now.)

By contrast, the NRA is a longtime figure of the establishment. It doesn’t just work within the system; the NRA is the system. It has close ties to politicians and firearm manufacturers alike. Whether or not you like guns or the Second Amendment, it should be alarming when a legacy institution as entrenched as the NRA is turned away by financial service providers, especially as a result of state pressure.

That financial discrimination shows just how precarious Americans’ rights are in actual practice. What if a financial regulator decided that the ACLU’s First Amendment advocacy was distasteful, and jeopardized the group’s ability to accept donations?

The point is not that every bank should be forced to work with the NRA. For some banks, refraining from doing business with the NRA may make commercial sense. If the reputational risk, or cost of monitoring compliance, outweighs the revenue that a financial services company can garner from a controversial client, it’s a rational business decision to drop that client.

An imperfect solution

However, the NRA’s case demonstrates the critical need for permissionless financial infrastructure. A truly open financial system would mitigate the state pressure brought to bear against private organizations that advocate for Americans’ constitutional rights. It would also protect provocateurs like Cody Wilson, who may pose a legitimate threat to the PR and marketing needs of a traditional, centralized bank.

Cryptocurrency is the solution to financial exclusion — if an imperfect one at present. Anyone in the space knows that the promise of a robust parallel system has yet to be fulfilled. Usability and adoption remain low. Bitcoin privacy is far from perfect (although it is steadily evolving, and alternate options like zcash and monero are available). The tax and regulatory environments remain intimidating, which is a huge problem for merchants.

And yet, despite all those caveats, cryptocurrency continues to hold the promise of financial freedom. The cypherpunk approach is not to rely on the government upholding the Bill of Rights, but to write code that will guarantee those liberties cannot be taken away. Cryptocurrencies that are trustless and distributed already provide an incredible advantage: You can exchange value, even across great distances, without having to do a song and dance for a gatekeeper.

In this bear market, it’s important to remember the revelatory nature of Satoshi Nakamoto’s innovation. Freedom entails being able to say and do controversial things — and when it’s true freedom, you don’t have to beg for permission first.

The author thanks Andrew Glidden, Preston Byrne, Jon Stokes and Robert Mariani for reviewing an early draft of this article.

U.S. Constitution image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Trigger Warning: Why the 3D-Printed Gun Debate Matters to Crypto

Marc Hochstein is the managing editor of CoinDesk. The views expressed here are his own, so please don’t blame his colleagues.

The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.

While it may seem only tangentially related to cryptocurrency, the fight in the U.S. over publication of software for 3D printed firearms bears close watching by the whole blockchain community.

The word “publication” should give you a hint why, as the case highlights freedom-of-speech issues that may resurface in future attempts by governments to regulate crypto and distributed networks.

More broadly, the groundswell of media hysteria and political grandstanding around this issue is a reminder of the type of resistance any game-changing technology is bound to meet.

Stepping back, last week a federal judge issued a temporary restraining order (TRO) against Defense Distributed, a company founded by the provocateur and crypto-anarchist Cody Wilson. The order barred the Austin, Texas-based firm from posting computer-aided design (CAD) files online for weapons that can be manufactured at home with a 3D printer or a computer numerical control (CNC) milling machine.

Wilson had recently celebrated victory in a long-running fight with the federal government, which settled with his company and agreed to let it distribute the technical information, throwing in the towel on claims that doing so would violate munitions export rules.

This capitulation prompted gasps of outrage from the likes of Senator Chuck Schumer of New York. Shortly thereafter, attorneys general from eight states and the District of Columbia sued to stop the settlement, claiming it violated administrative procedure law and states’ rights under the 10th Amendment to the Constitution.

In response to that suit, the judge issued the TRO, which Defense Distributed abided by, refraining from posting the files. However, they are still available all over the internet.

Is code speech?

Wilson is a familiar figure in the crypto world, in part because of his work on Darkwallet, a privacy-enhancing bitcoin wallet, and also for his campaign to dismantle the Bitcoin Foundation during that organization’s heyday.

But the relevance of Defense Distributed’s current struggle to the blockchain world goes deeper than that coincidence.

“Winning this fight could prove crucial for bitcoin and other crypto projects,” Peter Todd, the perspicacious cryptography consultant, tweeted after the states intervened. “If you can’t post technical blueprints to guns, banning technical blueprints to crypto too doesn’t seem far-fetched.”

Indeed, beyond the arcane procedural questions in the states’ lawsuit, the fight arguably boils down to whether software is speech.

“Both cryptocurrency protocol software and AutoCAD files may be protected speech under the 1st Amendment,” said Peter Van Valkenburgh, the director of research at blockchain industry advocacy group Coin Center in Washington, D.C.

“Thus, in either case, a law that attempted to censor or put prior-approval/prior restraint upon the speakers of that speech would likely be found unconstitutional.”

However, the free-speech argument for code is not always a slam dunk in court, according to Aaron Wright, an associate clinical professor of law and director of the Blockchain Project at Benjamin N. Cardozo School of Law at Yeshiva University.

“There’s a notion in the crypto community that software is unimpeachably protected by the First Amendment. That’s simply not the case,” Wright said. “If someone develops and implements software that runs afoul of U.S. law, they could face liability.”

In their book “Blockchain and the Law: The Rule of Code,” Wright and co-author Primavera De Filippi note that courts in the U.S. have already denied First Amendment protections for one kind of software because it “had no purpose other than facilitating illegal gambling.”

Looking ahead, they add:

“If governments choose to regulate blockchain developers, some code may be protected by the First Amendment, while other code may not. For instance, decentralized e-commerce marketplaces used for the exchange of everyday items, but also potentially unlawful products … could receive First Amendment protection … because they facilitate both lawful and unlawful acts. Conversely, decentralized prediction markets and exchanges that facilitate the trading of binary options would likely be deemed to violate existing laws like the Commodities Exchange Act.”

Moral panics

Legal questions aside, disruptive technologies, both in the world of atoms and in the world of bits, run the risk of attracting a frightened and angry mob.

To Andrew Glidden, the head of legal research for Blockchain@BerkeleyLaw, a student club at the University of California Berkeley’s law school, the hoopla over 3D printed guns resembles the “moral panics we face about ‘evil internet money.'”

He points out that home manufacture of firearms has long been legal in the U.S. (provided they are not transferred to another person and are not fully plastic), and as mentioned, information about how to build the weapons is already in the public domain.

Compounding the silliness of the present controversy, Glidden went on, is the way some have conflated two different technologies Defense Distributed is involved in, thereby overstating the risks.

Defense Distributed’s 3D printed plastic pistol, known as the Liberator, is inexpensive to produce, and potentially undetectable (if the maker ignores the CYA instructions to add a small block of steel) but “largely useless,” less capable than a black powder musket and liable to explode in the user’s hand.

On the other hand, the company’s CNC-milled, metal firearms are “functional, but expensive and detectable,” Glidden noted. “The moral panic is premised on taking the Most Evil characteristics of each.”

Hence the similarity to the FUD you hear from time to time about bitcoin facilitating a terrorist attack.

“In either case, there’s a lawful activity, with a hypothetical (but not particularly warranted) possibility for abuse that drives the public to panic,” Glidden said.

None of this is to say these technologies are endangered. They are, after all, decentralized, and as observed in the Defense Distributed case, enjoining one actor hasn’t prevented the flow of information.

The prohibitionists almost certainly can’t stop innovation or adoption of either blockchains or home manufacturing altogether. But they might slow it down in some places and cause collateral damage.

At a minimum, they’re a nuisance. Be on guard.

3D-printed gun image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Guns & Crypto: How Bitcoin Is Helping Keep Cody Wilson's Anarchist Dream Alive

Cody Wilson is expecting a nice bump in sales from bitcoin’s rising price.

The controversial founder of Defense Distributed, a manufacturer of machines for 3-D printed firearms, told CoinDesk that despite its admittedly niche appeal, his company is flourishing. Founded in 2012, Defense Distributed has evolved into a multimillion-dollar operation that today generates 10 percent of its revenue from bitcoin.

But it’s not particularly surprising the cryptocurrency community would be supportive of the project. Wilson has been a part of the scene for some time, most notably helping Amir Taaki co-create DarkMarket, a peer-to-peer online marketplace designed to sidestep legal and regulatory restrictions through its use of bitcoin.

If past trends are any indication, this support should not only continue but grow – according to Wilson, the company is gearing up for its most lucrative quarter yet.

Last year, Defense Distributed generated $2.7 million in revenue, a 7 percent increase year-over-year, and to date, Wilson says it’s sold a total of about 4,000 machines. This year, however, Wilson expects that sales figure to escalate by what could be the increased willingness of bitcoin holders to spend as the value of their holdings increases.

He told CoinDesk:

“As bitcoin crested $2,000, we saw more purchases in bitcoin. Because, hell, one bitcoin gets you a gun machine now, and that’s a good trade.”

A self-described cryptoanarchist, Wilson’s work with both 3D-printed guns that don’t have any serial numbers, and cryptocurrency itself is part of his work to circumnavigate government controls, an idea that some members of the cryptocurrency community have proved particularly responsive to.

So, to provide his customers a new such tool, Wilson today revealed he’s upgrading his latest Ghost Gunner 2 gun printer.

Not only has the machine’s firmware been updated to make the printer more accurate, but a number of hardware upgrades, including a spindle capable of turning metal powder into incredibly detailed pistols, have been added to make the finished products look and act more like traditional handguns.

“This is basically the beginning of the automated manufacturing of untraceable handguns of a commercial grade, not of bizarre, 3-D printed quality,” Wilson said.

Bitcoin boosts

But not only is Wilson seeing an uptick in sales from bitcoin’s continued appreciation, but other gun sellers are, too. In an interview with CoinDesk, Michael Cargill, the owner of Central Texas Gun Works, said his gun sales typically increase when the bitcoin price goes up.

“Whenever bitcoin goes up, I get customers from all over the country who want to buy guns,” he said, adding:

“When we first started doing this back in 2013, bitcoin was about $200. Now, it’s peaked at $4,700, and a lot of people are cashing in.”

He continued, noting that his shop, which has Wilson’s Ghost Gunner 2 on sale, would have seen a drop in total sales this year if not for bitcoin. According to Cargill, about 45 percent of his revenue comes from cryptocurrency.

Such a percentage of sales from bitcoin is doubly notable, seeing how Cargill can’t do business with bitcoin merchant services firms like BitPay because of their policies against onboarding guns-and-ammo businesses, a policy which BitPay confirmed still exists, thought he initial press-release detailing the policy has been removed.

BitPay and other merchant services providers have taken a conservative approach to high-risk merchants like Central TexasGun Works, which means those businesses typically have to do a lot of the upfront acceptance work themselves.

3D-printed gun

Business backlash

And that hesitance to work with high-risk verticals is unlikely to change anytime soon.

Wilson has felt this himself, seeing strong opposition to his work in the gray area between building a machine that makes guns and actually making guns.

Back in May 2013, the files he used to print the guns were seized by the Department of Justice. Then, last year, Wilson suffered a setback when the U.S. 5th Circuit Court of Appeals refused to give him the First Amendment protections he sought for the files.

Yet, a niche community of developers has sprouted up offering their own open-source contributions to the 3-D printed gun industry, even in spite of the ongoing risk.

In spite of the obstacles Wilson continues to push forward in disrupting the $51.3 billion gun sector, expecting to keep the Ghost Gunner 2’s price steady at $1,500 in an effort to attract more sales with the price of bitcoin near $4,500.

“We’re going to hype this like we always do,” said Wilson, concluding:

“I assume we’re going to have good sales in the fourth quarter here.”

Cody Wilson image via YouTube; printed guns images via Defense Distributed

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Interested in offering your expertise or insights to our reporting? Contact us at [email protected].