Commercial lawyer and ASI Fellow Preston J. Byrne continues to explain why, despite the cries of his inner libertarian, more government involvement in Bitcoin would be a step forward for the cryptocurrency-cum-payment-system, rather than its end.
I should begin by thanking the numerous individuals who privately provided feedback on my proposition that cryptoledgers need law, and therefore the state.
I am pleased to report that the proposition was overwhelmingly opposed, with a few exceptions.
My position, however, remains unchanged. To set the scene for later discussions, I will provide the primary objections and my responses in outline:
1) Crypto-currency was designed to distribute power from the state and resources from the banks to individuals – what you propose undermines that idea.
I get this. Libertarians started cryptocurrency; this is our party. If this technology was created to get around the state, why invite it back in? Hell, why acknowledge the state at all?
The answer, of course, is a situation with which most libertarians will be familiar: other people have arrived at the party, and – not being nerdy as we – they don’t want to talk about politics. Early adopters thus need to start getting comfortable with some uncomfortable facts:
(a) The technology is open-source and the genie is out of the bottle. Anyone can use it and advance it for any purpose.
(b) Bigger players are exploring its potential. One cannot seriously expect banks and payment processors to roll over, surrender, and sacrifice their firstborn at the altar of Ludwig von Mises once a cryptoprotocol presents a threat to their business. Instead – if the technology is as good as its proponents claim – they will integrate cryptoledgers into their operations and leverage their own resources against whatever “free,” distributed banking system rises to compete with them, as I suggest in Chapter 2 of Tim Swanson’s Great Chain of Numbers. Consumers will benefit as a result.
(c) The lack of a comprehensive legal framework is currently preventing these new actors – and the innovations they might create – from entering the ecosystem. Consequently, the law is coming for cryptocurrency; the technology may be said to be a victim of its own success. While we remain free to flout this process,* we are powerless to stop it.
Whether we like it or not.
This is a thoroughly Austrian state of affairs; it is therefore in our interests to exercise influence rather than deny it is taking place. Plus, if Bitcoin does everything some say it can this shouldn’t be a problem for those who want to get around the law – it’s distributed and pseudonymous, right?
Maybe.** Without a doubt, Bitcoin – used as intended – doesn’t need the law to be economically effective as a mechanism to store and transfer value. The experience of the last year proves it. Whether this position is commercially practicable is another matter; whether the same will be applicable to Bitcoin’s cryptoledger successors is another still. The law will be written for them. Of necessity, though, it will apply to all.
2) Corporate blockchains? GOVERNMENT blockchains!?!!11one? That’s insane. You’re deliberately crippling the technology!
Correct. This is no bad thing. To say reining in a powerful technology for commercial applications is “crippling” is like suggesting that we’re “crippling” America’s strategic nuclear arsenal by using fissionable isotopes for radiotherapy. Derivative products will change the commercial landscape, for sure, but will do nothing to dilute the potency of the original. They may even improve it, such as the MasterCoin and Colored Coins projects propose to do.
A distributed, pseudonymous/anonymous, public blockchain is fantastic for a revolution but useless to a corporation. The active cryptocurrency development community is miniscule, with individuals numbering in the hundreds, if that. If we are right about crypto’s potential, a future is coming where many blockchains – private, public, regulated, unregulated, or even state-sponsored, all serving different functions – will exist.
To a small extent, that future is already here: there are hundreds, if not thousands, of scrypt blockchains in existence thanks to automated crypto generators (my old university dinner club has even mooted creating one to reward the numerous heroic deeds its members regularly perform). A good friend of mine argues that most of these are Bitcoin/Litecoin clones, and do not represent a genuine improvement of the technology (arguing that in some cases, e.g. with Dogecoin’s one-minute confirmation/block time, these “improvements” present significant security risks). I agree with this view.
He argues, however, that this means it would be prudent to unite behind one market-leading technology – Bitcoin – and take it from there. I do not agree with this view, for both political and practical reasons. The Bitcoin protocol has only been in existence for four years, has a number of non-fatal flaws, and only for twelve months has anything approaching serious attention been paid to it.
Innovation is coming; there will be market demand for regulation to provide additional stability for these new products. The more expeditiously the UK establishes a legal framework for cryptoledgers’ use, the faster UK businesses will be able to benefit from them, and outcompete businesses in other jurisdictions. Additionally, more this technology enters the mainstream, I have to imagine the more legitimate its unregulated applications will appear to the general public – and the greater its potential will be for changing their views on how government should function.
Plus, we’re libertarians. Who are we to say anyone can’t use this technology, in any way they wish, to any end they can imagine?
Don’t get me started.
4) “‘What I’ll be discussing in coming months.’ Hitchcockian master of suspense, you are!”
Writing for the Adam Smith Institute does not put a roof over my head – it’s a ‘nights and weekends’ thing and I have to prioritise. To ease your anxiety, my next post will deal with the practical benefits of a polycentric, rather than fully decentralised, blockchain for smart property transfers.
* This is not, in my view, a good idea. I’m reminded of Hobbes – “Fear and liberty are consistent: as when a man throweth his goods into the sea for fear the ship should sink, he doth it nevertheless very willingly.” The technology has the potential to change how people calculate these potential risks, but as recent criminal prosecutions initiated in the United States show, Leviathan’s reach is long indeed – and cryptocurrency transactions are no exception. Those who flout the law do so at their peril, as ever.
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Commercial lawyer and ASI Fellow Preston J. Byrne explains why, despite the cries of his inner libertarian, more government involvement in Bitcoin would be a step forward for the cryptocurrency-cum-payment-system, rather than its end.Read more...
ASI fellow Preston Byrne explains why bitcoin's recent problems do not mean the cryptocurrency-cum-payments-system is over. In fact, the promise of cryptography in payments and contracts is as exciting as ever.Read more...
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Prediction lists for the coming year are always revealing, though perhaps more of the current public mood than the future. A write-up of the tech trends for 2014 by Fast Company's design blog is hardly controversial, but what is interesting is how the areas they’ve chosen highlight the existence of two wider and seemingly divergent technological trends. This apparent conflict in the way technology is heading is far from problematic. On the contrary, it shows our success in adapting and experimenting with new ideas and in response to shifts in the social and political context, without the need for any central guidance.
One thing clear from Fast Company's list is that 2014 will bring a continued increase in the volume and depth of the personal data we create. Things like Google Glass, the ‘quantified self’, hyperpersonalised online experiences and the interconnectivity of the Internet of Things all create new reasons and mechanisms for data capture. This in turn increases the value of our data to ourselves, the companies with access to it and, in some situations, the state.
However, the article also predicts that 2014 will see increasing concerns over cyber-privacy and a movement towards greater digital anonymity. Users will increasingly chose to control their own data and how this is profited from, whilst we will begin to discover the joy of ‘disconnecting’ from the digital world and see the creation of intentional blackspots.
The fact that we seem to be embracing deeper technological integration yet simultaneously finding ways to mitigate and avoid its consequences is certainly interesting. Does this show that we’ve raced forward too fast and are trying to claw back a space we’re realising we’ve lost? It’s perhaps possible that this is the case, but far from giving us cause for concern the two-track path we’re seeing shows the ability of consumers and the tech sector to adapt over time, and in turn gives some hints on the optimal tech policy.
Reservations about an increasingly digitized and tech-heavy world are common, be it concerns over ‘hyper-stimulation’, the aggressive monetization of our digital footprint or wide-scale data collection and its abuse by unscrupulous firms and governments. Concerns often partner with conservatism; a desire to slow down the pace of technological rollout and impose prior restrictions on how things may be used. More often then not, government regulations and restrictions are cited as the way to hold a check on technology and keep us safe.
For example, Google's announcement to purchase the home thermostat company Nest was met with calls for a "much-needed conversation about data privacy and security for the internet of things". However, despite the fact this conversation hasn’t actually taken place yet, the same article expresses dismay and concern that the US government has been reluctant to legislate in this fledgling area.
Clearly, security breaches and the abuse of sensitive information are unwanted, and the more data collected the larger a slip-up could be. However, as Adam Thierer points out “conjectural fears and hypothetical harms should not drive regulation”.
Even when a problem can be identified, it’s unlikely that a committee of concerned yet under-informed policy makers are best placed to deal with it. A case in point is the EU’s Privacy Directive, the progress of which has been continually stalled by conflicting interests and general confusion. Moreover the pace of government action often runs way behind business and societal developments, and policies forged to address a pressing issue today may be redundant in five years’ time.
Worse still, restrictions dampen innovation and risk choking off the next big breakthrough – clearly advances are less likely to come about if we can’t use our resources creatively. This is particularly true in fast-moving and dynamic technology sectors. It’s hard to imagine the success of the internet if companies and experiments had been subject to governmental approval and top-down control.
Ultimately, however, we should be reluctant to adopt state-imposed ‘solutions’ to technological problems is because the market is actually incredibly good at dealing with these issues itself.
This is exactly what the two sides to 2014’s tech trends show. 2013 gave us reasons to be more wary about what we give away about ourselves & put online – and developers have taken note. If we feel at the mercy of data-sucking giants we can begin to avoid them. As the public tires of Facebook, alternative social networks centred upon privacy and control continue to emerge. Hate search engines knowing what you’re looking for? Try out DuckDuckGo . Want greater control over your data? Look out for indiePhone and OS. This new wave of open-source and privacy-conscious technologies is marked by an increasingly sleek user experience as it moves out of the realm of geeks and into the mainstream.
Of course, not everybody will care about these things, and neither should they have to. The beauty of a world where experimentation is encouraged is that people can pick and choose what things (anonymity, relevant ads, seamlessly connected devices and so forth) are important to them, and make their tech usage decisions accordingly. In contrast, government restrictions impose a cost on the whole of society and assume that we hold the same preferences and level of risk aversion. When faced with new dimensions to questions like ‘How should companies use my data?’ and ‘Is it wise to let technology to do x?’, we’re more likely to find answers we’re happy with through personal experimentation and adaption than taking the word of interest groups and politicians.
We might get things wrong along the way and maybe even double-back on ourselves, but its clear that so long as we continue to innovate, we’re likely to solve our own problems and satisfy a range of preferences.
Image source: XKCD Comics
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