Berlin, 2017-08
Do we have to declare blockchain currencies illegal?
Introduction added 2021, updated 2022:When in 2012, the main Bitcoin stack developer Amir Taaki gave a presentation at C-Base, I spent about an hour with him trying to understand the societal use of Bitcoin. We couldn't find any. Why would one use a financial tool that obeys no societal regulations? By now we know that Bitcoin and related currencies are formidable for anonymous criminal transactions. Also, you can speculate on it, which means that you are speculating on the growth of worldwide digital crime.
What's left is a practical means for international money transfer, which could easily be provided by laws similarly like the EU regulation on mobile phone roaming, rather than as a side effect of a toxic technology. With the political necessity to impose sanctions on Russia in 2022, even this aspect has become unwelcome.
Sorry, there's no way to make sense of it. If you speculate on Bitcoin, you have electronic blood on your hands. Your gains come from trade of illegal goods (or should we say bads?) which have a reason why they are societally banned. In the case of drugs, I would prefer a solution based on doctors and pharmacies rather than prohibition, but that's a political discourse we have to continue making — not just go ahead and bypass it, enabling a lot of worse crimes that use the same infrastructure.
Bitcoin isn't just about the weed sale on the corner of the street. It's about being able to run big crime without ever needing to meet and know each other. Enabling for criminal groups to form in complete anonymity.
Update 2022:
On March 1st, 2022, Ben Wright of the UK Telegraph comments:
[…] Two years ago Harvard University hosted a wargame where policymakers were asked to work out how they would respond to the threat of North Korea developing a nuclear missile funded with digital yuan. The participants, several of whom are now in the Biden administration, concluded the cryptocurrency posed a bigger threat to US national security than the warhead. […] This is why Mykhailo Fedorov, the vice prime minister of Ukraine, has asked cryptocurrency exchanges to block the addresses of Russian users. On Monday, Binance, the world’s largest, said it wouldn’t, adding that cryptocurrencies provide “financial freedom” and unilaterally banning access would “fly in the face of the reason why crypto exists”.These Ayn-Rand-led ideologists spit in the face of human needs, convinced that a technology that bypasses human society is a worthwhile invention.
Which may well be true - among the benefits of the distributed ledgers on which cryptocurrencies are based is that they allow relative anonymity for users and cut out financial intermediaries. But how crass does it sound to be talking about our financial freedoms when Ukranians are fighting in the streets for their actual freedom? […]And that's still a very tip-of-the-iceberg kind of perspective on the implications of cryptocurrencies.
[…] A world in which unregulated cryptocurrencies undermine the potency of the dollar is a world in which despots will find it easier to get their way. Financial freedom is important. But surely not at any cost.Freedom for whom? Freedom for the few that have access and are given a tool to bypass societal obligations while the many are cut out and suffer the consequences?
So they say the blockchain is too transparent for criminality...
Update 2018:Cryptocurrency supporters say the blockchain is the most transparent ledger ever invented, where each transaction can be traced to the point when somebody tries to exchange the crypto into real-world money. Soon after I wrote this piece, China, South Korea and now also India started banning the Bitcoin. I thought I was breaking a taboo, but legislators have been worried about this longer than I. The exchanges are one of the point where they enact their bans on Bitcoin — by inhibiting bank transactions with the exchange bureaus. Other countries are merely applying banking rules on the exchange bureaus, which quite evidently isn't enough, as the bitcoin fanzine CoinDesk illustrated in late 2021. Coinformant goes even further and provides an actual manual for criminals on how to launder their crypto coins.
As long as unregulated exchange bureaus however exist, somewhere on the planet, the traces to criminal activity can be eliminated. Frequently, the actual criminal interaction isn't visible in the blockchain at all: whenever the agents meet on anonymous platforms, agree on a deal to make, whatever the product or service acquired, the blockchain only knows of the money flow — it has no clue about the traded goods. So, under these preconditions, Bitcoin crime can still happen without being traced (except
maybeby the NSA — but the NSA isn't interested in actual crime), let alone taxed.A blockchain analysis company declared that some 99% of transactions are legal. But it is totally impossible for them to know. They must be making it up. Appropriately, they didn't publish how they arrived at their findings.
We can have legitimate anonymous payment systems instead.
All of the societally harmless uses of Bitcoin and Ethereum can be implemented in a safer manner using TALER, without bypassing the tax system which is, as flawed as it may be, the only instrument society has to redistribute from the wealthy to the poor.
Without such a redistribution, the wealth just insistenly goes on to accumulate in less and less hands. The capitalist architecture collapses and humanity's ability to exist on the planet dies with it.
If everyone just cares about themselves, a future comes when the rich get chased by pitchforks while global challenges such as pollution and climate change would not be tackled by anyone. Redistribution is a fundamental part of capitalism. A market that only generates super-rich individuals stops working.
See also: Shouldn’t We All Have Seamless Micropayments By Now?
Unconditional basic income over blockchain?
Blockchain supporters have been promoting the idea of implementing some sort of basic income over Ethereum, putting aside the crucial detail that all the superwealth, which is absolutely needed to finance a cumulative unconditional basic income, is simply going to opt out from it — leaving all the needy among themselves. In an age when wealth is exponentially collapsing onto a handful of white males, redistributing the money of a collapsing middle class, as suggested by Götz Werner and Milton Friedman, is no solution at all. A UBI can only work if the plutocrats, the lords of globalization and automation, are treated as a part of the equation.
No revolution of the Internet in sight here.
Some London financial technology start-ups have been selling the idea, that the web can be "fixed" by offering a distributed alternative to cloud computing. Developers of secushare would agree, as they are working on the same thing, but there is a dramatic difference: The anarcho-capitalist incentive method is a bypass of societal payment systems. It allows bitcoin billionaires to make a fortune with crime and speculation on crime, or alternatively speculation on speculation on crime.
So, the fix of the web being proposed by our best-intended blockchain enthusiasts, to become available in some more or less distant future, appears already to be a lame duck:
Bitcoin is just speculation and crime. Sorry, folks.
A logical deduction of this reasoning would also be, that anyone who speculates on Bitcoin or other anarcho-capitalist "currencies" is effectively speculating on crime or speculating on speculation in a Ponzi scheme style. You may be successful with it, but stop making yourself believe it is okay to do so, let alone that you are on some bright path to the future.
Does this mean that the entire blockchain-oriented FinTech industry is just a speculation bubble? No, because crime will continue to strive on these peer-to-peer payment systems until explicitly declared illegal. Is it moral? Certainly not.
And I didn't even speak about the ecological footprint.
Update 2018:In the original piece I didn't even mention the main ethical reason to object against Bitcoin, Ethereum and the inappropriate use of proof-of-work, because enough people have done so already.
Also, I can't keep up with the comparisons: First they said the Bitcoin uses up an American household of energy per transaction, then they started comparing Bitcoin to the energy consumption of Iceland, Ireland, Denmark. How much more nuts can humanity be? Why is such an absurdity — an anti-ecological, anti-societal pyramid scheme — allowed to go on and make the news? This madness needs to end. We cannot afford this.
What about blockchains that need no proof-of-work?
Are all blockchain systems affected? Not necessarily, if you consider blockchains just a special case of Merkle trees, they solve a tiny problem space in distributed computing. If you stop using them for illegal financial transaction, you can still use them for first-come-first-served naming services, although that isn't real-world practical: No legal entity will accept that their name, for example "Nike", belongs to the first random spammer that registered the name on the blockchain. So what other use can the blockchain have? Honestly, we haven't found any, yet.
Update 2018:A distributed liquid democracy voting system might actually work, although it needs to solve the problem of guaranteeing the uniqueness of voters, which boils down to having some trusted third-party authorities — one of the goals the blockchain was supposed to achieve. Also, I wonder whether the blockchain allows for all the important features of Liquid Feedback to be re-implemented in a distributed fashion, or will it just be a plain voting system, more suitable for demagogy than collective rationality?
The distributed Internet needs a lot of advanced cryptographic primitives, yet the blockchain is not among the terribly important ones. Even the examples made by those London Fintech founders regarding the authenticity of certificates and fair-trade products actually depend on trusted third parties (as they admit in the Q&A at the end of the talk).
A distributed social graph can achieve more than a blockchain
A distributed social network such as secushare is actually better than that, as it leverages the social consensus of people. If all of your social network agrees who Nike is, or that a certain fair-trade institution is trustworthy, only then you have a basis on which to build your trust. If your social network recommends a home owner to rent a home from, that is safer than either AirBnB or any blockchain imitation of it. If your social neighborhood recommends a car driver, that is a better choice than some shady Uber or any of its copycats. secushare provides social consensus rather than first-come-first-served squatting.
This is similar to what a decent search engine does: When you search for cat food, it will not just send you to catfood.com that got registered by whoever came first — it sends you to what "the web" (and its search engine optimization agents) think is a decent cat food provider, or simply who paid the most to be at the top of the search result list.
secushare is actually slightly better than that: It will show you cat food offerings that cat owners in your social neighborhood think are recommendable. While a centralized search engine can manipulate what it shows to you according to its political or economic agenda, secushare as a search engine would not be able to manipulate you. It is the unfiltered digital replication of the network of humans that surround your life.
So, while the blockchain is attempting to replace the domain name system, and failing at it — as it cannot implement legal necessities, secushare is actually offering an alternative to Google and Facebook. It should be the better blockchain than the blockchain we know today.
Would anyone have heard of blockchains if there wasn't all that money involved?
The technology itself is a rather meager and humble amatorial kind of distributed system. As a side note, if Bitcoin is illegal and it becomes difficult to buy any, then there is much less motivation to use the "dark web" for criminal purposes. Instead, the "dark web" turns into what it was intended to be, a space of privacy for human beings.
Update 2021: If there are any questions left, you can always have David Gerard explain Bitcoin to you.
Non-fungible tokens, what a joke
Update 2022: Now we know NFTs are only guaranteeing you the ownership of a URL somewhere in the realms of the traditional domain name system, putting some root servers in power over the document you think you are buying— no! Worse than that! Since the people of so-called "crypto" didn't even come up with the idea of putting a cryptographic hash (the most trivial use of crypto!) of the piece of art into the blockchain, which could have been an actual cryptographic proof of ownership of a particular digital document, you can in no way ever prove to anyone what piece of art ever was located at that URL you bought while having no control over.
NFTs are an excellent illustration on how people want to believe they are part of some sort of enlightened elite when actually they are just collectively incompetent. A typical phenomenon the Internet created: people convinced of things just because they are no longer alone. Same mechanism that led to BREXIT, Trump and vaccine paranoia.
Max Clarke made a very interesting observation: Maybe the sudden rise in popularity of NFTs is correlated to the European Union’s Fifth Anti-Money Laundering Directive (“5AMLD”) with wide-reaching implications for participants in the fine art trade. "Fine art sales may involve large monetary transactions, anonymous buyers and sellers, the use of shell companies, fuzzy and sometimes non-existent records, and speculative pricing. Such characteristics can make art an ideal vehicle for money laundering. 5AMLD looks to impart a measure of control on some of these opaque characteristics."
Last Change: 2022-03-14
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