Supporting a Responsible Understanding of Bitcoin – Bitcoin Magazine

This is an opinion editorial by L0la L33tz, a contributor to Bitcoin Magazine.

In an attempt to urge U.S. lawmakers to tighten regulation in the cryptocurrency industry in favor of protecting the “public interest,” 26 expert technologists submitted a signed letter regarding the use, security and confidentiality of “crypto-assets”. But, rather than pointing to shortcomings in blockchain technology and cryptocurrency, the letter conjures up a disturbing picture of the state of engineering expertise.


The responsible FinTech policy support letter, aimed at both majority and minority leaders of the US government, aims to debunk anonymous claims from the crypto lobby, which the authors say paint an unqualified picture of crypto assets, including cryptocurrencies, tokens crypto and Web3. Their goal is to ensure that “technology is deployed in genuine service to the needs of ordinary citizens”. In general, the authors and signatories do not believe that cryptocurrencies are “in any way suitable for solving the financial problems faced by ordinary Americans.”

First, the authors are concerned about the lack of transaction reversal mechanisms. The question of why irreversible transactions pose a threat to the general public remains unanswered, but one can imagine that the perpetrators are concerned about incidents such as hacking of funds. What the authors do not take into account is that the majority of cryptocurrency users use custodial solutions, in which the reversal of transactions is quite possible, while almost all stablecoins are equipped with the transaction reversal mechanisms.

The authors further argue that money that individuals can lose access to forever should not be defined as safe. Under this pretext, cash, gold, cashier’s checks or undigitized bonds should not be defined as safe either. The authors and signatories believe that “fintech that serves the public should always have fraud mitigation mechanisms in place and allow a human in the loop to reverse transactions.” Yet, in particular, expert technologists need to be aware of the security implications of involving third parties in digital transactions – allowing the relay and possible modification of communications between two parties, which can result in, for example, the loss of funds, for example through the exchange of SIM cards. , as well as in unwarranted surveillance Where arbitrary censorship law-abiding citizens through the abuse of power.

Having signed their names to be expert technologists, it is noteworthy how many such apparent contradictions can be found in the author’s letter itself as well as in the statements issued by its signatories surrounding its publication. The authors state that “most public blockchain-based financial products are a disaster for financial privacy,” while continuing the sentence with “the exceptions are a handful of emerging privacy-focused financial alternatives, and these are a gift for money launderers. Matthew Green, a cryptographer and professor of computer science at Johns Hopkins University, summed up this contradiction good in a twitter post“Blockchains don’t have privacy, but if they do, then privacy is bad.”

The authors further cite cryptocurrency as a threat to national security through money laundering and ransomware attacks. While it is true that illicit activity has increased over the past year, the share of illicit activity in all cryptocurrency trading volume decreased to 0.15% in 2021. To compare, estimates show between 2 and 5% of global GDP is associated with money laundering and illicit activities managed by traditional financial institutions.

“Blockchain proponents’ claims are not true”, says Bruce Schneiersignatory and member of the Berkman Klein Center for Internet and Society at Harvard in a statement to the FinancialTimes. “It’s not secure, it’s not decentralized. Any system where you forget your password and lose all your savings is not a secure system. But as a computer scientist, Schneier must be aware that no truly decentralized system could, by design, allow third-party intervention by default, and that the absence of such intervention is precisely what gives security to decentralized systems.

In the same article, signer and ex-Microsoft developer Miguel de Icaza states, “The computing power is equivalent to what you could do centrally with a $100 computer,” which is factually incorrect. Issuing a peer-to-peer digital asset on a centralized database is technically impossible because peer-to-peer and centralized systems are directly opposite concepts. Icaza goes on to say, “We’re basically wasting millions of dollars worth of equipment because we’ve decided we don’t trust the banking system.” But confidence in the banking system has declined significantly while showing no signs of recovery in a much larger group than cryptocurrency enthusiasts as a real consequence of the historical mismanagement of ordinary citizens’ funds through the banking system itself.

Notably, the authors seem to be strictly concerned with the regulation of “public blockchain” solutions. A public blockchain is an open source framework in which all participants can act freely and openly. A private blockchain, on the other hand, is a generally closed enterprise solution, in which users can do whatever their operators want. Unfortunately, Stephen Diehl, signatory and CTO of Deputy, a private company which offers blockchain cash management technology, as well as a smart contract platform and currently seems to be in liquidation, did not respond to a request for comment. Diehl has however Quotation co-signer and professor of computer science at the State University of Campinas Jorge Stolfi in his announcement of the letter, stating that “blockchain technology” (including “smart contracts”) is a technological fraud. According to such statements, we must also regard vending machines as fraud, which serve as a common example of smart contract technology.

The authors go on to state cryptocurrency as a solution in search of a problem that “has clung to concepts like financial inclusion and data transparency to justify its existence, despite much better solutions already. used”. Interestingly, the authors do not specify what those solutions might be. In a public request for commentsSupporters of the letter, which remains open for public signature until June 10, 2022, have suggested solutions such as neo banks, Postal bankcentralized databases and central bank as viable alternatives for achieving financial inclusion, while others expressed concerns about allowing individuals to securing funds on their own.

Let’s go through these so-called solutions step by step. Neo-banks, like regular banks, require ID upon registration to comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) laws, while almost a billion people do not. have access to a legal identity document. The postal bank is, even with a new driver programs, globally in decline. Centralized databases and central banking, in which a selected group of individuals decides on the issuance of loans and the money supply, run the risk of miscalculations and purely fraudulent behaviorwhich in computing are also known as single points of failure (SPOF).

So what about the risk of forcing disadvantaged and minority communities to keep their own funds? While self-custody is an extremely important cornerstone of cryptocurrency usage, Bitcoiners are particularly mindful not to throw beginners into the responsibilities of non-custodial solutions without help, and they are actively working to reduce both the risks of malicious custodians as well as the risks of needing to manage keys through self-care support programs and solutions such as federated electronic currencies, community wallets and multisignature guard. Responsibility and self-ownership is a learning curve, and in Bitcoin it is widely accepted that individuals are smart enough to take on such responsibilities themselves. Bitcoin self-custody is a process that takes some getting used to, and people will lose money if steps aren’t taken correctly, but it’s really not rocket science either.

Unfortunately, both the authors and the signatories seem to lack appreciation for the point of privilege on which they are relying. While touching on topics such as price volatility, the authors are unquestionably correct in stating that price fluctuations pose a risk to anyone’s investment. But this risk must be leveraged against the risks posed by the legacy financial system. For people around the world facing double or triple digit inflation, as in Lebanon Where Nigeria, cryptocurrency price fluctuations suddenly seem bearable. The same is true for minorities, especially in the United States, where roughly 7.1 million people do not have access to a bank account and therefore are largely excluded from legacy funding.

The authors further argue that blockchain technologies facilitate little, if any, real-economy uses. This statement stands in direct contrast to recorded uses of bitcoin, as evidenced by enabling hold operations for the publishing site. WikiLeaks as early as 2011who turned to bitcoin following censorship of traditional payment providers such as Visa and Mastercardas well as in using bitcoin as an inflation hedge for ordinary citizens who may not have access to the stock market or other value-preserving financial instruments.

Without a central gatekeeper, cryptocurrency provides a lifeline for millions of people around the world to participate in the global economy as peer-to-peer digital money. Any attempt to regulate a market in the name of the public interest cannot be accepted when it is proposed under the bias of a small privileged group of self-proclaimed experts in the field. You can’t brush an entire class of technology on the same comb, and if you do, it’s unlikely to result in feasible criticism for the inevitable lack of nuance, foresight, and understanding of the inner workings of a evolving ecosystem. But for those for whom the financial system works, it is easy to overlook a large part of the public in its argument. It’s just unfortunate when this same argument is made to supposedly protect the forgotten in question.

This is a guest post from L0la L33tz. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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