There are clear benefits to bitcoin adoption in Palestine, but misinformation and risks of misinterpretation remain.
There is debate over whether bitcoin can play a role in the Palestinians' quest for freedom from Israeli occupation. It started a year ago, in September 2021, when the strategy director of the Human Rights Foundation, Alex Gladstein, published " Can Bitcoin be the currency of Palestinian freedom? » in Bitcoin Magazine. The argument goes like this: Bitcoin allows users to send, receive, and store value securely without relying on a third party. In this way, it empowers personal autonomy and serves as a form of resistance to occupation. In Gladstein’s words, “It’s a peaceful protest, a digital shield, that could lead to big change.”
One of us has spent a lot of time down the bitcoin rabbit hole in recent years. The other, more recent in the world of bitcoin but well informed after months of intensive research on the subject, is also Palestinian and recently lived in the Gaza Strip. We will address concerns about the need for caution and qualification in some of Gladstein's arguments towards the end of this article, but in general we agree with him that bitcoin has the potential to play an important role in Palestine's quest for freedom.
Not everyone agrees. Over the past year, criticism has mounted against this argument. This is a good thing: there needs to be more debate about whether and how bitcoin can improve the lives of marginalized people. However, the quality of the debate also matters. Too often, analysts make uninformed arguments, usually because they don't take the time to understand a place or technology, and sometimes they lead readers astray simply to confirm their ideas. A recent article presents both types of criticism and deserves a thoughtful response. In our review below, we highlight the points that critics misunderstand and attempt to offer an analysis that can be taken seriously by researchers, policymakers, and the general public.
Analysis of the criticism
In July, Hadas Thier, a writer and activist who writes for The Nation and Jacobin, among others, responded to Gladstein in an article titled, “ Bitcoin cannot liberate Palestine“Writing for the Middle East Research and Information Project (MERIP), an independent nonprofit research group, Hadas Thier acknowledges the “urgent and necessary pursuit of Palestinian financial independence,” which she calls “indisputable.” But she argues that bitcoin should play no role in that quest. There is a “gaping chasm between the ambitious promises made by Gladstein and others and the actual technological capabilities of cryptocurrencies,” she writes. These “false humanitarian promises” only present Palestinians with “dangerous economic and political risks.”
Those who have spent time in this space will already sense a problem with this statement. The title of Thier’s article is about the role of bitcoin in Palestine, but she confuses bitcoin with cryptocurrencies throughout the article. The word “bitcoin” appears over thirty times in the article, but a version of “crypto” appears just as often. Thier primarily uses “crypto” as an adjective: crypto believers, advocates, enthusiasts, supporters, millionaires, projects, assets, wallets, payments, entrepreneurs, transactions, exchanges, etc. Bitcoin advocates have always tried to distinguish bitcoin from other cryptocurrencies; this is the raison d’être of the term “altcoin.” Bitcoin is the oldest, most decentralized, most secure, and most widely adopted blockchain, with a known and immutable monetary policy and a fixed supply. These characteristics significantly distinguish bitcoin from its competitors. To the extent that any nation-state has even considered adopting a digital currency not backed by a central bank, only one has been considered: bitcoin. In 2021, El Salvador crossed that Rubicon. Earlier this year, the Central African Republic did the same.
Beyond the use of the term crypto in a conversation about bitcoin’s role in Palestine, much of Thier’s argument hinges on critiques that she says make the asset unsuitable for adoption. Cryptocurrencies, she writes, are characterized by “wild volatility, built-in inequalities, environmental consequences, and connections to criminal". Assuming for a moment that she's talking about bitcoin specifically (not cryptocurrencies in general), there's some truth to each of these claims. Overall, though, they're unconvincing. Let's briefly review each one.
First, it’s no surprise that an asset as small as bitcoin, which trades 24/24 on perhaps the world’s only truly free market, is volatile. But volatility cuts both ways. A dozen years ago, bitcoin was under $7. Today, it’s around $7. For most of the last decade-plus, it’s been a lucrative investment. While that doesn’t mean the future will be like the past, the word “volatility” doesn’t need to be pejorative. If we’re seeing the monetization of a new asset, a new currency, and that may be exactly what we’re seeing, then early adopters will benefit disproportionately. It should not be surprising that developing countries, which tend to suffer more in the existing international financial system, think more about possible alternatives than developed countries.
Second, the inherent inequality due to pre-mining, pre-selling, etc. has been at the heart of almost every cryptocurrency launch. This was not the case for bitcoin, which probably had the fairest launch of all and from which the creator, as far as we know, never profited. It was recently explained to us this way: Satoshi Nakamoto was a buyer of bitcoin, not a seller. He purchased hardware and electricity to secure the bitcoin network, then disappeared and never touched the block rewards he received. And while it's true that some early investors in bitcoin profited enormously – that's typical of early investors in any successful technology – bitcoin wealth becomes more and more evenly distributed over time. This contrasts with trends in wealth distribution in general. According to recent data from the U.S. government's Bureau of Economic Analysis, for example, the United States is currently experiencing its " fourth consecutive decade of growth in income and wealth inequality"
Third, the alleged environmental consequences of bitcoin are serious, well known and widely discussed. They can also be exaggerated. Anyone who says the protocol's environmental footprint is insignificant or unimportant is wrong, but often critics assume that all the energy used by the protocol is wasted. In reality, all monetary systems use energy, including the petrodollar system. Citing data from the University of Cambridge, Lyn Alden notes that the bitcoin network currently represents less than 0,1% of global energy consumption. “In the very long term,” she writes, “if bitcoin becomes a resounding success and becomes a systemically important asset and payment system used by more than a billion people at 10-20 times its current market cap, it could account for several tenths of a percent of global energy consumption.” If it fails, however, “its energy consumption will stagnate and decline as block subsidies continue to decline.”
Three questions should therefore be at the heart of any discussion on bitcoin and the environment.
- First, is the energy devoted to securing the network in pursuit of better currency worth the environmental consequences, especially for the large portion of humanity that desperately needs better currency?
- Second, how do positive trends in renewable energy adoption in bitcoin mining affect this calculation?
- Third, could bitcoin contribute significantly to long-term climate solutions, e.g. through climate mitigation? gas flaring or to capture the methane emitted?
- We believe the answers to these three questions support further exploration of this technology, including its proof-of-work consensus mechanism.
Finally, it is true that bitcoin has been associated with criminal activity, and this association will never completely go away. The same can be said of the American dollar. But the FBI doesn't care about bitcoin. Rather, he is concerned about the vulnerabilities of smart contracts. Citing data from Chainalysis, a The Bureau's recent press release highlights that over $1,3 billion in cryptocurrencies stolen from investors in the first quarter of this year, almost 97% were stolen from DeFi platforms.
On the other hand, the percentage of activity on the bitcoin network associated with criminal activity is decreasing. According to a recent report Former Acting CIA Director Michael Morel has said, “Broad generalizations about bitcoin’s use in illicit finance are greatly exaggerated.” In fact, the transparency of public blockchains means they can even be useful to law enforcement. In Morel’s words, “Blockchain analysis is a highly effective crime-fighting and intelligence-gathering tool.”
Thus, Thier’s article appears to have been written without an understanding of the differences between the key technologies (i.e., bitcoin as a subcategory, not the same category as cryptocurrencies) and without mention of the known refutations of common critiques of bitcoin. Another problem with her analysis is the use of the “straw man” argument. At several points, Thier cites an interview she conducted with Sara Roy, a senior fellow at Harvard’s Center for Middle Eastern Studies and an expert on the Palestinian economy.
She presents Roy's comments as both opposing and supporting Gladstein's argument. It's possible that Roy disagrees with Gladstein on the role of bitcoin in Palestine, and she agrees with Thier, but it's impossible to know based on how Gladstein's views Roy are formulating.
To quote Thier:
“I spoke to Roy about Gladstein’s article. She strongly objected to the idea that ‘cryptocurrency is somehow impervious to the political reality in which Palestinians and Israelis live’ or that it could ‘give marginalized Palestinians equality with powerful Israelis, eliminating the glaring power asymmetries between them and granting Palestinians economic sovereignty.’”
Of course Roy disagreed with these ideas. Even the most hardened bitcoin maximalist would be. Gladstein also did not assert this and he would not agree with this interpretation. The insinuation in Thier's article is that she presented Gladstein's argument to Roy, who vigorously opposed it. But the relevant quote is not attributed to Gladstein for good reason; the thoughts are not his own. This type of analysis is either an unfortunate attempt to strengthen an argument by distracting the reader, or a blatant misunderstanding of what bitcoin supporters believe adoption of the currency could accomplish in Palestine.
A final criticism concerns an important topic, addressed in just two sentences in Thier’s analysis. “In the best-case scenario,” she writes, “some members of the Palestinian middle class—almost nonexistent in the Gaza Strip and the West Bank—might benefit from international payments or transfers in bitcoin. But given the extreme volatility in the value of cryptocurrencies, it will more likely hurt those who take the risk.”
One of us has direct experience of money transfers in Palestine and knows what it's like to lose money to middlemen – whether banks, governments or Western Union. A recent World Bank report shows that in 2021, $3,5 billion in transfers were made to the West Bank and Gaza Strip, representing 20% of Palestinian GDP. Unemployment in these territories is around 16% and 47% respectively, and GDP per capita in Palestine as a whole is around 3 dollars. In other words, it affects everyone. When $1 turns into $000 because of transaction fees, or when $920 turns into $100, families and individuals who earn the equivalent of just a few dollars a day feel these effects in profound ways. However, this requires significant time. Transferring fiat to Gaza can take weeks.
Does bitcoin solve this problem?
Maybe, and in the future it certainly could be. If someone wants to send bitcoin to Gaza right now, they can do so with a smartphone. Via the Lightning Network, transaction fees are practically zero. Almost immediately, this bitcoin will arrive in the recipient's wallet. It can be transferred to Binance and converted to stablecoin Tether (USDT) before being exchanged for Israeli shekels at a currency exchange. All of this can be done quickly – much faster than any fiat transfer – with minimal volatility risk. In the future, if and when a company like Strike operates in Palestine, fiat transfers through the bitcoin network could become commonplace and completely replace the need for other alternatives.
Before we move on to our own critique of Gladstein’s argument, we want to acknowledge that Thier makes several points with which we agree. First, bitcoin is not a panacea for the problems of the Palestinians or any other population. Second, “The monetary relationship between Israel and the Palestinians reflects a more fundamental asymmetry of power.” Third, “An independent Palestinian economy will not magically emerge from a sovereign currency, digital or otherwise. It can only emerge through the capacity to produce and exchange goods and services, which has been systematically undermined by the destruction of physical infrastructure and the removal of geographic bases on which Palestinian capital accumulation could effectively take place.”
These statements are true. The question is whether informed adoption of bitcoin has the potential to help Palestinians achieve economic freedom. We believe this is the case and encourage Thier to speak to those who have interacted with bitcoin in Palestine, as Gladstein and we have. Unfortunately, no Palestinians were interviewed for his article.
Place the debate in the right framework
This topic is important. Over the past dozen years, bitcoin's market capitalization has grown exponentially, and the pace of adoption of cryptocurrencies – the majority of which has historically been bitcoin – has exploded, especially in developing countries. The United Nations Conference on Trade and Development (UNCTAD), which advocates for increased regulation of cryptocurrencies to mitigate investment risks in the sector, highlights in a recent report that 15 of the top 20 global economies in terms of digital currency holdings as a share of the population are in emerging and developing countries. In other words, the current global financial system is not working for many of the world's poor, who are increasingly looking for alternatives.
Topics that matter spark debate, and Gladstein deserves credit for starting this one. That said, This is not a debate about left versus right., neither about progressives against conservatives, nor about Israelis against Palestinians.
This is a debate about how to give marginalized people greater access to financial options, and we believe the data, as well as history, leans in favor of the informed adoption of bitcoin as a solution potential.
Why not consider the possibility that the current global financial system may not work well, even for many people who live outside the United States or Western Europe? Why not consider the possibility that tens of millions of people around the world, including Palestinians, could be better off through open payment networks, uncensored and without permission like bitcoin? Why not consider the possibility that pursuing this technology could improve the lives of these people?
However, a reasonable analysis does not mean accepting Gladstein’s argument in its entirety. While bitcoin has a role to play in the Palestinians’ quest for freedom, it is unlikely to become Palestine’s sovereign currency, as Gladstein suggests. Why? Because the Palestinian leadership has not yet shown a willingness to adopt the currency, and because Israeli authorities—who currently have veto power over the currency issue—would likely oppose the idea. Furthermore, as Thier acknowledged, “an independent Palestinian economy will not magically emerge from a sovereign currency, digital or otherwise.” Bitcoin cannot solve all of the Palestinians’ economic problems, but it can be a potentially useful tool in their quest for economic freedom and resistance to Israeli occupation.
Ultimately, it is important to keep in mind that the bitcoin debate in Palestine is a complex debate that deserves a nuanced discussion.
This is not a question of all or nothing, but an exploration of the possibilities that this technology can offer Palestinians in their struggle for economic autonomy and financial freedom.
Critics of bitcoin in Palestine have raised legitimate concerns, but it is important to understand that bitcoin is a tool, not a silver bullet. As with any tool, its effectiveness will depend on how it is used and how it is integrated into a broader context of struggle for freedom and justice.
It is essential to continue debating the issue and exploring the opportunities and challenges that bitcoin may present for Palestinians and their quest for economic freedom.
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The authors of this article are Mohammed Mourtaja et Seth Cantey
Read the original article »Examining the debate around Bitcoin's role in Palestine» in English here.
