The Canadian Government Couldn’t Stop Bitcoin

March 11, 2022   |   Tags: , , ,
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Financial censorship, or cutting off access to the global banking system, is one of the most powerful tools that governments have for punishing people.

The U.S. Department of Justice used it in 2013 through a program known as Operation Choke Point. It went after firearms dealers, payday lenders, and sex workers by pressuring banks to cut off their access to financial services.

The federal government blocks marijuana businesses that are legal under state law from opening bank accounts.

And the U.S. Department of the Treasury financially censors other governments around the world that commit human rights abuses or senselessly attack other nations, most recently Russia for invading Ukraine.

Canadian Prime Minister Justin Trudeau financially censored the Canadian truckers occupying the country's capital city, Ottawa.

It's clear that governments can use financial censorship to squeeze worthy and unworthy targets alike for the time being, but it's less clear if governments can maintain this power for much longer. The moment raises a pressing question for cryptocurrency enthusiasts: Does bitcoin solve this?

Does a global, decentralized monetary system that nobody can manipulate or control take away the power of the state to use financial censorship as a weapon, for good or for ill?

A surprisingly successful bitcoin-based crowdfunding campaign called "Honk Honk HODL," which raised more than $1 million worth of bitcoin for the Canadian truckers, shed some additional light on that question. And the answer appears to be, "eventually, maybe, but there's more work to be done."

Nick, who goes by @NobodyCaribou on Twitter, started talking with Canadian truckers in early February, teaching them about bitcoin, raising small amounts to hand out, and eventually partnered with a pro-bitcoin YouTuber to launch Honk Honk HODL on the bitcoin-based crowdfunding site Tallycoin.

"My idea was like, if we get to a thousand or 2,000 dollars, and I can go around and give a hundred bucks to different truckers, that would be amazing. It would be a cool experiment to do. So why not do it?" says Caribou.

Then crypto investors Jeff Booth and Greg Foss jumped in to lend their names and credibility—as did the popular Canadian YouTuber and streamer Ben Perrin, who goes by "BTC Sessions."

"So things just started snowballing a lot quicker than anticipated," says Perrin. "My initial thought was, 'Oh, maybe we'll get a few thousand dollars and some people can buy some gas cards and some food or something.'"

But the fundraiser took off after GoFundMe was pressured into canceling a fundraiser that had accumulated $10 million for the Canadian truckers, and then a judge blocked the distribution of $9 million from another crowdfunding platform. And when the Canadian government announced it would be freezing truckers' bank accounts, some supporters of the movement began to turn to cryptocurrency.

The Honk Honk HODL fundraiser eventually surpassed $1 million U.S. dollars' worth of bitcoin.

"And so I would go through these phases of getting really excited and seeing that, 'OK, bitcoin is on the world stage, and it's showing that it solves the big problem," explains Caribou. "And then I would go into fear mode, and I'd be like, 'If I fuck this up, it's going to look bad on bitcoin as an entirety'…that was a lot of pressure."

And the Canadian government was ratcheting up the pressure, invoking the Emergencies Act, which is reserved for a situation that "seriously threatens the ability of the Government of Canada to preserve the sovereignty, security and territorial integrity of Canada."

With $1 million on the line, the public figures involved worried that they'd become targets for theft or legal action if they were in control of the money. And because there was no clear plan for distributing the bitcoin, donors began to complain on social media, further ratcheting up the pressure.

"I started complaining on Twitter like, 'If you guys don't hand out the bitcoin, then that's a problem,'" says a Twitter user with the handle @JWWeatherman_, who declined to provide his real name. He even threatened to sue the group if it failed to distribute the funds immediately to the truckers.

"If you get robbed, you should try to make it less profitable for the people around you so that they don't rob future people," says Weatherman.

The money was in what's known as a multi-signature bitcoin wallet, in which five people held the passwords, or private keys, and three of them had to agree before the money could be released.

Crucially, the bitcoin they had raised wasn't being stored on an exchange. Bitcoin only solves the problem of financial censorship when individuals hold the keys to their own coins. When kept on an exchange, the companies in charge maintain custody, just like any other bank. That means the government can put pressure on exchanges to freeze even bitcoin accounts, which is exactly what happened in Canada.

After the mounting pressure drove the three loudest promoters of Honk Honk HODL to step away, control over the money was mostly left in Caribou's hands.

"I think [Caribou] has just been an incredible human being through all of this…an incredible resource to the people that were there experiencing it," says Perrin. "I didn't have as clear of a picture of what was going on on the ground as him. And so I'm glad that in the end, it was his decision where those funds went."

After surpassing $1 million of bitcoin, Caribou stopped accepting donations and turned to J.W. Weatherman—the bitcoin tweeter who had threatened to sue him—for help.

"The same reason that most people dislike [Weatherman] is the same reason that I went straight to him," explains Caribou. "He has the highest standards. He will hold me most accountable, and he will be the most vocal critic of whatever I do."

Weatherman was disturbed to learn that Caribou had been left holding the bag alone.

"When he reached out to me, he was completely on his own," says Weatherman. "He had total control of the bitcoin and had no idea what to do next."

Weatherman crowdsourced ideas via a public Google doc, and a volunteer programmer jumped in to write a script allowing them to quickly divide 14.6 BTC—worth approximately $630,000 dollars at the time—into 100 separate bitcoin wallets that the truckers could transfer to their phones.

But for the last mile, they turned to a completely analog solution: Caribou printed out the codes needed to take possession of the bitcoin wallets on sheets of paper and tucked them into envelopes. Then, over the course of a day, he walked cab to cab with a cameraman, passing them out and showing truckers how to use them. One livestreamer even caught one of the transactions in the middle of his stream in a trucker's cab.

"The reality was the longer we waited [to distribute the money], the more those funds were in danger of being essentially stolen: stolen by the government, stolen by individuals who knew we were holding those funds," says Caribou.

So does walking the streets and handing out envelopes show that bitcoin is censorship-proof? Not quite: Satoshi Nakamoto designed bitcoin as a "peer-to-peer electronic cash system," because when the last mile involves the physical world, it creates an opening for state interference.

If Caribou had waited a few more hours, the police might have stopped him because of a court order that he stop distributing bitcoin collected through the fundraiser. It was part of a class-action lawsuit filed by citizens and businesses in Ottawa targeting anyone affiliated with the funding of the truckers.

About one-third of the funds raised were in a wallet partially controlled by members of a trucker-affiliated nonprofit, some of whom were arrested for "counseling to commit the offense of mischief" during the protests. Caribou also had the codes necessary to access those funds, and police came to his home, seized them, and took control of the bitcoin. He's raising funds for his own legal defense and says that he hopes to pass the seized funds along to the truckers after the lawsuit is resolved.

"I think in hindsight, we'll view [the trucker convoy] as a pretty pivotal moment in history, not just because of what happened here, but because of what this stimulated in the rest of the world," says Caribou.

Caribou and Weatherman's decision to make the distribution of the funds so public attracted some criticism. In addition to the video evidence of Caribou interacting with the truckers, we know that more than half of the 100 wallets, each containing 0.146 BTC—or about $6,300 USD—have been accessed so far. How do we know? Bitcoin may be uncensorable, but it's also radically transparent. Every transaction ever made is publicly available on the blockchain, the distributed database that undergirds bitcoin. Reason also confirmed through an intermediary that one trucker accessed the bitcoin using the directions handed to him.

Though the real identities of the truckers aren't stored in the blockchain, law enforcement has been remarkably successful at connecting bitcoin addresses to their users, which is why so many people who bought drugs on the bitcoin-fueled online marketplace the Silk Road ended up being prosecuted.

"If we [distributed the money using] privacy [tools], there would always be a looming cloud over my head saying, 'That's the guy who stole the bitcoin.' So the only way to prove to donors that the bitcoin actually went to truckers was to videotape the bitcoin going to truckers," explains Caribou.

But Pirren says that if he were to do it again after seeing his government's heavy-handed response, he would utilize some of the privacy-preserving functions that have come to bitcoin since the Silk Road was shut down in 2013, such as using a BTCPay Server that can move each donation to its own address and then into a wallet programmed to immediately combine it with other bitcoin. This technique would have made the funds extremely difficult to trace.

"There are funds stuck in legal limbo right now. Part of that is because they didn't go out quickly enough," says Perrin.

Caribou explains that future fundraisers should have a more thorough plan for distributing funds from the beginning and figure out ways to further decentralize the process.

"Develop a strategy. Spend the funds. Essentially try not to hold funds in one centralized location," says Caribou. "Decentralize it so you don't have any one person holding a huge amount of money."

Despite the many challenges and the looming lawsuit, they all consider the fundraiser a successful proof-of-concept experience for bitcoin as censorship-resistant money, albeit one that underscored the need for more strategic planning, easy-to-use privacy measures, and a more robust infrastructure around bitcoin.

After all, not all truckers who received envelopes have transferred the bitcoin into their own wallets. If those that did were to try to move that bitcoin onto an exchange to trade them for Canadian dollars without properly anonymizing them, the transactions could get flagged, allowing the government to seize the money. With no easy offramp into cash, spending the funds remains a challenge in a world where bitcoin isn't yet universally accepted.

"I think bitcoin works as censorship-resistant digital money," says Weatherman. "It performed as well as cash or gold bars or anything else could have performed. And because it's technology and it's software, it would have been impossible for somebody to distribute that kind of cash or gift cards or really anything other than bitcoin."

Perrin points out that bitcoin was the only fundraised currency that's currently accessible to any of the truckers after the government began freezing bank accounts and crowdfunding platforms. GoFundMe refunded donors after backlash followed their announcement that they would redirect funds to different charities, and GiveSendGo announced on March 10 that because of the Canadian government has "criminalized the receiving of funds," that they also will be forced to refund the money.

"If the government can shut down and seize the assets of the protest you don't like, then the opposing government can shut down and seize the assets of the protest you do like," explains Perrin. "In the end, bitcoin is entirely apolitical. It's just a global, censorship-resistant network for value."

Caribou says he wants the rest of the world to learn from what Canadians just experienced.

"We showed that there's a lot of risks in the legacy financial system, with people being able to illegally just steal your life. If you can't use your money, you can't get home, drive to the grocery store, or buy groceries," he says. "And I think we showed the world a playbook of how to do this in a way that actually makes a difference and doesn't do it by force, but does it by being so peaceful and loving that you expose the darkness that has been kind of hiding and is now out there for everyone to see."

Produced by Zach Weissmueller. Graphics by Nodehaus. 

Photos: Normand Blouin/Polaris/Newscom; CHINE NOUVELLE/SIPA/Newscom; Lin Wei / Xinhua News Agency/Newscom; Arindam Shivaani/ZUMAPRESS/Newscom; Richard B. Levine/Newscom; Marco Verch; Nazareth College

The post The Canadian Government Couldn't Stop Bitcoin appeared first on Reason.com.


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