On the dangers of cryptocurrencies and the uselessness of Blockchain

On the dangers of cryptocurrencies and the uselessness of Blockchain

Earlier this month, I and others wrote a letter to Congress, basically saying that crypto is a complete and utter mess, and urging them to regulate the space. Nothing in that letter is out of the ordinary and is in line with what I wrote about blockchain in 2019. In response, Matthew Green has written—not really a rebuttal—but a “general response to some of the most common spurious errors.” objections…people believe in public blockchain systems.” In it, he makes several general points:

  1. Yes, current proof-of-work blockchains like bitcoin are terrible for the environment. But there are other modes like proof of stake that are not.
  2. Yes, a blockchain is an immutable ledger that makes it impossible to undo specific transactions. But that doesn’t mean there can’t be some governance system on top of the blockchain that allows for reversals.
  3. Yes, bitcoin doesn’t scale and the fees are too high. But that’s not inherent to blockchain technology, it’s just a bunch of bad design choices Bitcoin made.
  4. Blockchain systems can have little or a lot of privacy, depending on how they are designed and implemented.

There is nothing on that list that I disagree with. (We can argue about whether proof-of-stake is really an improvement. I’m skeptical of systems that enshrine a “those with the gold make the rules” system of governance. And to the extent that any of those scaling solutions work , undo the decentralization that the blockchain claims to have). But I also think these defenses largely miss the point. For me, the problem is not that blockchain systems can be made a little less horrible than they are today. The problem is that they don’t do anything that their advocates say they do. In some very important respects, they are not safe. They don’t replace trust with code; in fact, in many ways, they are far less trustworthy than non-blockchain systems. They are not decentralized, and its inevitable centralization is harmful because it is largely emergent and ill-defined. They still have trusted intermediaries, often with more power and less oversight than non-blockchain systems. They still require governance. They still require regulation. (These things are what I wrote about here.) The problem with blockchain is that it is not an improvement to any system and often makes things worse.

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In our letter, we wrote: “By its very design, blockchain technology is not suitable for almost all purposes that are currently promoted as an actual or potential source of public benefit. Since its inception, this technology has been a solution in search of a problem and has now latched onto concepts like financial inclusion and data transparency to justify its existence, even though much better solutions to these problems are already in use. Despite over thirteen years of development, it has severe limitations and design flaws that preclude almost all applications that handle public customer data and regulated financial transactions and are not an improvement on existing non-blockchain solutions. .

Green replies: “’Public blockchain’ technology enables a lot of stupid things: Cryptocurrency schemes today can be venal, corrupt, too promising. But the core technology is not absolutely useless. In fact, I think there are some very interesting things happening in the field, even if most of it is further from the truth than its drivers would admit.” I have yet to see one. More specifically, I can’t find a blockchain application whose value has anything to do with the blockchain part, which wouldn’t be made safer, more secure, more reliable, and just plain better by removing the blockchain part. . I posit that no one has ever said “Here’s a problem I have. Oh look, blockchain is a good solution.” In all cases, the order has been: “I have a chain of blocks. Oh look, there’s a problem I can apply it to.” And in no case really helps.

Someone please show me an application where blockchain is essential. In other words, a problem that could not have been solved without blockchain that can now be solved with it. (And “ransomware couldn’t exist because criminals can’t use conventional financial networks and cash payments aren’t feasible” doesn’t count.)

For example, Green complains that “commercial credit card fees are similar or have increased in the United States since the 1990s.” This is true, but it has little to do with technological inefficiencies or existing trust relationships in the industry. It’s because just about everyone who can and pays attention gets 1% back on their purchases — in cash, frequent flyer miles, or other affinity points. Green is right about how unfair this is. It is a regressive subsidy, “since these fees are included in the cost of most retail products and thus fall heavily on the working poor (who pay them even if they use cash).” But that has nothing to do with the lack of a blockchain, and adding a blockchain doesn’t help solve it. It is a regulatory problem; With a few exceptions, credit card companies have successfully pressured merchants to charge the same prices whether someone pays with cash or by credit card. Peer-to-peer payment systems like PayPal, Venmo, MPesa, and AliPay avoid those high transaction fees, and none of them use blockchain.

This is my basic argument: blockchain does nothing to solve any existing problems with financial (or other) systems. Those problems are inherently economic and political, and have nothing to do with technology. And, more importantly, technology cannot solve economic and political problems. Which is good, because adding blockchain causes a whole host of new problems and makes all of these systems much, much worse.

Green writes: “I have no problem with the idea of ​​lawmakers (wisely) passing laws to regulate cryptocurrencies. Indeed, given the level of craziness and the number of direct scams that are happening in this area, it is quite obvious that our current regulatory framework is not up to the task.” But when you remove the madness and the scams, what is left?

EDITED TO ADD: Nicholas Weaver is what’s more sign about this. David Rosenthal is Okayalso.

*** This is a syndicated Security Bloggers Network blog from Schneier on security Written by Bruce Schneider. Read the original post at: https://www.schneier.com/blog/archives/2022/06/on-the-dangers-of-cryptocurrencies-and-the-utility-of-blockchain.html

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