Crypto in the Time of Tyranny
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Note: This interview concerns the possibility of using cryptocurrencies in Myanmar. It does not represent the views of Insight Myanmar, nor should the publication of this interview be seen as an endorsement of cryptocurrencies in any way or be read as any kind of financial advice.
In post-coup Myanmar, the military junta's tight grip on banks and other financial institutions has created a precarious situation for international aid. As traditional, centralized, financial channels are often the only viable conduits for assistance in the absence of secure alternatives, there is a significant risk that funds intended for humanitarian purposes are instead diverted into the coffers of the regime, thereby strengthening the military's hold rather than reaching those in need. In a recent in-depth discussion, a Blockchain researcher, who goes by the handle “7k” for security reasons, introduces an intriguing alternative to possibly address these concerns: Blockchain technology and cryptocurrencies.
In this conversation, 7k—whose background includes work with developers and cryptographers over the years, including an analysis of Blockchain adoption in Myanmar—explores the potential of these decentralized technologies. He explains how they can possibly circumvent military surveillance, offer a stable financial alternative against the rapidly deflating Myanmar kyat, and establish verifiable digital identities for vulnerable groups like the Rohingya, who have been systematically denied legal recognition by the junta. At the same time, he stresses that his perspective should not be viewed as financial advice, as Bitcoin and cryptocurrencies have significant risks associated with them – especially as they are considered illegal by the military junta.
7k begins by drawing a clear distinction between traditional mobile payment systems and the decentralized nature of Blockchain. Traditional systems rely on a central server that stores the users and their data. In contrast, Blockchain establishes a “decentralized database,” where anyone can become a data validator and data provider. It works this way: Each transaction is merged into a grouping of data that contains information such as transaction details, a timestamp, and a unique hash. These groupings are called “blocks.” Each new block is connected to—“chained” with—a previously existing block using a cryptographic hash of the previous block's data. This hash acts as a digital fingerprint, ensuring the integrity of the chain.
Data are confirmed through nodes in the block network that participate in a “consensus mechanism” that validate transactions and add new blocks to the chain. This ensures that all nodes agree on the same data. Finally, Blockchain distributes control across a network of computers, eliminating the need for a central authority. Blockchain thus forms a transparent, easily accessible “public ledger.” He says this system is known as “proof of work”: a set of rules that keeps the cryptocurrency system honest and transparent.
While inexpensive to use, Blockchain’s system of checks and balances demands significant computational power to add new transaction data to the Blockchain, making it prohibitively expensive to tamper with. It’s like trying to break into a novel, extremely sophisticated, nearly tamper-proof bank vault: the costs, effort and risks outweigh any potential reward.
7K lays out a number of reasons why traditional banking systems are no longer a viable option. For one, since the coup, the Myanmar kyat has lost a lot of its value. He describes it as a “heavily and severely deflated sovereign currency.” He recounts its dramatic devaluation from 2000 kyat to 1 USD before the 2021 coup to its current unofficial rate of 5000 to 1 USD. This dramatic drop has “effectively halved the value of people’s savings.” In the same vein, he suggests that if one sends $10,000 in international aid through the official banking service, maybe only $5,000 will end up benefiting the Burmese people because of the unreliable exchange rate and the junta’s theft. 7K warns of the dangers of a collapsing currency, especially if the civil war worsens. As a result, despite limitations in internet and electricity access, he supports the mass adoption of cryptocurrency.
Towards this end, the National Unity Government (NUG) has even started its own digital form of the Myanmar currency, called NUG Pay. However, using this new digital currency has challenges. One problem is that it can’t be bought online like other cryptocurrencies. An agent needs to be found who is willing to sell the digital money in exchange for cash. Another issue, says 7k, is that it is not widely accepted yet in Myanmar, with only about 40,000 reported users.
Reflecting on the post-coup chaos where people stood in lines for hours just to be able to withdraw money from an ATM or from a bank, he notes that traditional banks imposed severe restrictions on cash and foreign currency withdrawals to prevent collapse. In addition, he recalls how the way that people paid for items or services in Myanmar changed quickly because of COVID-19, which started before the coup. Many began using their phones for mobile payments. 7k mentions around 80% of the people in Myanmar were using these mobile payments during this time.
Furthermore, he points out that the regular banking system in Myanmar is an “underdeveloped and underpenetrated banking service.” It suffers from limited “interbank operability,” which means that Burmese banks do not typically work together and exchange information. For example, the use of ATM machines across different financial institutions is often not possible. There are also significant hurdles in sending or receiving money internationally, which 7k says is further complicated by the fact that so many people have been displaced since the coup. Using official bank channels also exposes people to heavy government surveillance that represents a danger of mobile payments, which are also routed through regular banks or phone companies. In contrast, he says, “The idea of Blockchain comes from hackers, from cyberpunk communities, which use cryptography to provide and protect civil rights and civil privacy.”
7K acknowledges that it is not possible for a user to be completely anonymous when using Blockchain instead of traditional banking channels. “Definitely, yes, people can get to know the wallet address, and get to see the money go in and out of this wallet address.” However, this wallet address isn't automatically tied to a person's real-world identity like a traditional bank account subject to "Know Your Customer" (KYC) requirements and regulations. Therefore, while transactions aren't entirely invisible, the lack of direct KYC linkage offers a degree of anonymity, which is a particularly attractive benefit in Myanmar because centralized bank accounts are under the strict control of the military junta. He gives the example of trying to transfer money to resistance groups like the PDFs [People’s Defense Forces]: any transaction involving an account, which identified belonging to the PDF, reportedly will cause one’s own bank account to be frozen without notice. He says, however, that “[b]y using Blockchain, you are not directly under the surveillance of the military, like if you are now using the banking system provided by the Myanmar government which is basically transparent to the military.”
7k highlights measures being taken to further tighten even the small risk of identity access when using crypto. He gives the example of the Rohingya ID project. The Rohingya, many of whom lack official government identification, are in a test phase of using Blockchain to issue digital identities. “It’s just an identification that you can own your own wallet, but it represents your identity,” he says. These types of digital IDs could potentially support the agency of marginalized communities who might not have access to traditional banks or whose identities might make it difficult to participate in the regular financial system; by owning their own cryptocurrency wallet, they would have a direct way to store and manage their money more safely, enabling them to participate in the digital economy without relying on traditional institutions that might exclude them or subject them to government surveillance. Moreover, technologies like IPFS (InterPlanetary File System) are being developed that, for just a small fee, allow users to upload content like news reports and videos out of the reach of military censorship.
While 7k mostly focuses on the potential, he stresses the need to understand the risks. This could include arrest, fraudulent activities such as money laundering, accessibility, cost, and the need for user-friendly interfaces. The safest and easiest way to get cryptocurrencies is through people who already have it, which in Myanmar, means the black market. While these informal networks do facilitate transactions, there is a considerable risk of encountering military agents posing as middlemen in order to entrap users. As the junta is increasingly feeling threatened by these alternative digital technologies, they are trying to shut them down and make them illegal. The more people who use crypto currencies, the more stable their rates become, which then might further lower the value of kyat, making resource trading and energy trading more expensive. Here he mentions the military’s notorious “Four Cuts policy.” One of the “cuts” is closing off financial channels, which has been expanded now to include digital currencies.
Another challenge is the difficulty with learning all of these systems. While traditional banks invest in user-friendly interfaces, cryptocurrency and Blockchain technologies are complex to master. He urges the development of easier ways to adopt, to use, to develop new applications, and a method of mass adoption of cryptocurrency. Next, he says that although cryptocurrencies are generally accessible, there are limited avenues for their conversion into traditional currencies or other assets. Due to their volatile nature, just the task of liquidating these assets can be problematic. As cryptocurrencies lack underlying tangible assets, there are few established methods for mitigating risk, and their intangible and often illiquid nature further complicates their security and insurability.
Less experienced investors are particularly susceptible to cyber extortion, market manipulation, fraud, and other dangers. Technical errors and technological failures also pose significant obstacles. Furthermore, the lack of robust regulation and thorough Know Your Customer (KYC) procedures in cryptocurrency investments creates a substantial risk of money laundering.
Also, considering the widespread societal challenges in Myanmar, where a substantial portion of the population lacks adequate education, particularly in technology, the widespread adoption of cryptocurrency may not be a suitable path forward at this point in time. Regarding the question of how many people in Myanmar are presently using cryptocurrencies, he believes that it is pretty low. This means there isn't a local online marketplace within Myanmar where people can easily buy, sell, and trade cryptocurrencies. One reason for this is that many areas in the country have limited access to the internet and electricity.
Yet despite the present limitations and concerns, 7k still envisions Blockchain and cryptocurrencies as innovative tools for humanitarian aid and financial empowerment in a post-coup Myanmar. He points to the promise of decentralized financial channels, a stable alternative to a collapsing currency, and verifiable yet safer digital identities make them an attractive alternative.