Charlie Schrem, the former CEO of bitcoin startup BitInstant, went to prison a few years back. It was found in 2014 that his service was used to facilitate illegal transactions on the former Silk Road black market. Charlie went to prison in 2015 for this, and so like any true bitcoin fan, he created a thought experiment to consider how one could have a bitcoin-like currency system without the internet or computers.
But how would it, or could it work, without computers and cryptography securing everything?
Cryptocurrency, Without the Crypto
Schrem’s idea involves keeping a ledger on paper that will keep track of all transactions made within the system. Comparing this to a form of prison currency, canned mackerel meat, Schrem suggests calling the system MAK.
The system would work something like this. Let’s say that you want to purchase a service from another prisoner, such as getting a prison tattoo done. Now let’s say the cost of that service is equivalent to ten cans of mackerel. Instead of needing to transfer or hold ten cans physically, the exchange can be reported to one of the ledger keepers. This transaction would then be considered complete.
Schrem suggests that to keep the system honest, multiple people would need to have copies of the ledger and update it daily with all transactions made. To go even further, Schrem suggested that copies of the ledger could be mailed out to an outside source periodically so that coercion would be less of a problem. He compares this concept of mailing copies outside to a block time, and that the MAK system would have a block time of about three days.
In the cryptocurrency world, if you want to cash out your crypto for fiat, there are always fees involved. Popular choices like Coinbase, for example, charge hefty fees for selling crypto to them and having fiat sent to your bank. Fees often start at around $4 and include two separate percentage-based charges (including when you actually sell the crypto).
Schrem suggests that in the MAK system, ledger holders should maintain a supply of the actual canned fish and allow participants to cash out for a fee and receive the actual mackerel.
What’s interesting about this idea is that technically speaking, it would not be against the rules of a prison. Prisons usually prevent inmates from owning or trading currency, that’s why you often see in TV and films that prisoners make use of alternative currencies like cigarettes. Or in this case, tins of mackerel.
The system is not without its flaws though. As there is no cryptographic component, and a relatively small number of ledger holders (or nodes), there is a much greater risk of attack or fraud. For instance, if a single prison only has five nodes, a 51 percent attack could occur if three of the ledger holders agree to work together to trick the system.
It’s certainly an interesting thought experiment, but without computers and fast transaction times, it’s unlikely that such an idea could spread very far. But within the confines of a prison, such a system just might work, at least in theory.