In Support Of Responsibly Assessing Bitcoin And Fintech
This is an opinion editorial by L0la L33tz, a contributor at Bitcoin Magazine.
In an attempt to urge U.S. lawmakers to increase regulation in the cryptocurrency industry in favor of protecting “public interest,” 26 expert technologists put forward a signed letter concerned with the use, security and privacy of “crypto-assets.” But, rather than pointing toward the shortcomings of blockchain technology and cryptocurrency, the letter invokes a worrisome picture of the state of engineering expertise.
The Letter in Support of Responsible FinTech Policy, directed at both majority and minority leaders of the U.S. government, aims to debunk unnamed claims of the crypto lobby, which, according to the authors, paint an unreservedly good picture of crypto assets, including cryptocurrencies, crypto tokens and Web3. Their goal is ensuring “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 suited to solving the financial problems facing ordinary Americans.”
First, the authors are concerned with the lack of transaction reversal mechanisms. Although the question of why irreversible transactions pose an immediate threat to the public is still unanswered by the authors, it can be argued that they are concerned about incidents such as hacking of funds. The authors neglect to mention that most cryptocurrency users use custodial solutions which allow for the reverse of transactions to be possible. However, almost all stablecoins have the ability to reverse transactions.
The authors claim that money that individuals can lose forever should not be considered safe. This pretense also applies to cash, gold, cashier checks, and non-digitized bonds. The authors and signatories believe that “financial technologies that serve the public must always have mechanisms for fraud mitigation and allow a human-in-the-loop to reverse transactions.” Yet, especially, expert technologists should be aware of the security implications of involving third parties in digital transactions — enabling the relay and possible altering of communications between two parties, which can result, for example, in the loss of funds such as via SIM swapping, as well as in unwarranted surveillance or the arbitrary censorship of law-abiding citizens via abuse of power. Having declared their expertise as technologists, it is interesting to see how many apparent contradictions are found in the letter as well as statements made by its signatories. The authors claim that most public blockchain-based financial products are a disaster in financial privacy. They also state that cryptocurrency is a threat to national security due to money laundering and ransomware attacks. Although illicit activity has increased over the past year, the share in all cryptocurrency transaction volume fell %. 15% in 2021. To compare, estimates show between 2-5% of global GDP to be associated with money laundering and illicit activity handled through traditional financial institutions.
“The claims that the blockchain advocates make are not true,” says Bruce Schneier, signatory and fellow at Harvard’s Berkman Klein Center for Internet and Society in a statement to the Financial Times. It’s not secure and it’s not centralized. It’s not secure, it’s not decentralized.
In the same article, signatory and ex-Microsoft developer Miguel de Icaza states, “The computational power is equivalent to what you could do in a centralized way with a $100 computer,” which is factually incorrect. Peer-to-peer is technically impossible because they are opposite concepts. Icaza goes on to state, “We’re essentially wasting millions of dollars’ worth of equipment because we’ve decided that we don’t trust the banking system.” But trust in the banking system has drastically declined while showing no signs of recovering in a far wider group than just among cryptocurrency enthusiasts as a real-life consequence of the historical mismanagement of ordinary citizens’ funds through the banking system itself.
The authors seem to be primarily concerned with the regulation and use of “public blockchain” solutions. A public blockchain is an open-source platform that allows all participants to act freely and openly. A private blockchain is a closed-source solution that allows users to act at their own discretion. Unfortunately, Stephen Diehl, signatory and CTO of Adjoint, a private enterprise which offers treasury management blockchain technology, as well as a smart contract platform and currently appears to be in liquidation, has not answered a request for comment. Diehl did, however, quote fellow signatory 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 consider vending machines a fraud, which serve as a common example of traditional smart contract technology. The authors declare cryptocurrency to be a solution to a problem that “latches onto concepts such as financial inclusion, data transparency, and even despite far better alternatives already in use” 12, 15, and suggest solutions such as neo banks, , centralized databases and central banking or centralized databases and 1531920893844267008central banking. In a public request for comment, advocates of the letter, which remains open to sign for the public until June 10, 2022, suggested solutions such as neo banks, postal banking, centralized databases and central banking as viable alternatives to achieve financial inclusion, while others expressed concerns over enabling individuals to secure funds on their own. Let’s take a look at these so-called solutions one by one. Neo banks, just as regular banks, require identification on sign-up to comply with know-your-customer (KYC) and anti-money-laundering (AML) laws, while nearly one billion people do not have access to legal identification. Postal banking is, even with new pilot programs, broadly on the decline. Centralized databases and central banking, in which a selected group of individuals decide on loan issuance and money supply, run the risk of miscalculations and outright fraudulent behavior, which, in computer science, are also known as single points of failure (SPOFs). What about the risk that under-privileged or minority communities are required to hold their own funds? While self-custody is an incredibly important cornerstone of using cryptocurrency, Bitcoiners are particularly aware of not throwing beginners into the responsibilities of noncustodial solutions without help, and they are actively working on reducing both the risks of malicious custodians as well as the risks of needing to manage keys through self-custody support programs and solutions such as federated e-cash mints, community wallets and multisignature custody. Self-ownership and responsibility are difficult concepts to master. However, Bitcoin is widely believed to be a smart enough currency to handle such responsibilities. It takes some time to learn how to self-custody bitcoin. People will lose money if steps aren’t taken correctly. But it isn’t rocket science.
Unfortunately, both the authors and signatories appear to lack any appreciation for the point of privilege from which they are arguing. Although they touch on topics like price volatility, the authors are undoubtedly correct in stating that price fluctuation poses a risk to any investor’s investment. This risk must be balanced against the legacy financial system’s risks. For people around the world who are facing double- to triple-digit inflation, such as in Lebanon or Nigeria, price fluctuations in cryptocurrency suddenly appear bearable. The same goes for minorities, particularly in the U.S., where roughly 7.1 million people do not have access to a bank account and, therefore, see themselves broadly excluded from legacy finance. The authors also state that blockchain technology facilitates few, if any, real economic uses. This statement stands in direct contrast to recorded uses for bitcoin, as seen in the enabling of upholding operations for the publishing site WikiLeaks as early as 2011, who turned to bitcoin as a result of censorship by traditional payment providers such as Visa and Mastercard, as well as in the use of 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 way for millions of people to participate in the global economy as peer–to-peer digital money. If a few, well-connected experts in the field are attempting to regulate a market for the public interest, it cannot be accepted. It is impossible to examine all technology with the same brush. Even if you did, it would be difficult to offer constructive criticism for the inexplicable lack of nuance, foresight, and understanding of the inner workings. It is easy to forget a large part of the public when arguing for the financial system. It is just wrong when the same argumentation is used to supposedly protect those who are not in the financial system.
This is a guest post by L0la L33tz. Opinions expressed do not necessarily reflect those held by BTC Inc or Bitcoin Magazine HTML1.
Frederick has been an active trader for over since 1991. After successfully navigating the market for so long, he’s finally bringing his wisdom to the masses.