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.