I’ve generally tried to keep this blog upbeat and avoid such topics. In light of recent developments, I’ve decided to post this letter I sent to the local paper of record in August of 2021:
There has been a lot of skepticism recently – and rightly so – of the systemic risks cryptocurrency poses to the financial system, not to mention the environment. From the enablement of money laundering and cybercrime to the deceptive marketing, unregistered securities offerings, wildcat banks known as “stablecoins”, and outright frauds.
Senator Toomey featured prominently in a hearing on the topic last week. He seems to be asking insightful questions while displaying genuine curiosity and healthy skepticism. While I do not think it’s in our best interests to regulate the technology, but merely the way it interacts with our financial and legal systems, he has publicly mentioned being “intrigued by the underlying technology,” and that happens to be my own area of expertise.
As a non-engineer, your perspective may be “I hear the technology has a lot of potential, but I don’t understand what it is or how it works.” I’m going to let you in on a secret: you already understand it.
“Blockchain” is nothing but a buzzword that exists to confuse lay people into giving their money to charlatans. Its ecosystem is a collection of Rube Goldberg devices designed for the express purpose of making compliance with tax, anti-money laundering, disclosure, liability, and other laws difficult if not impossible. Full stop. There is no baby to throw out with this bath water.
One example frequently given as a potential application of blockchain technology is land registration. Let’s walk through that. I recently purchased a home in one of Philadelphia’s older neighborhoods. How exactly is a new high-tech database supposed to protect me from a claim that predates the telegraph? Going forward, how exactly will a decentralized computer program compel the holder of a mechanic’s lien to properly record their claim in the first place? A newfangled database is neither necessary nor sufficient to solve these problems. Proponents of cryptocurrency are hoping to dazzle you with technobabble so that you’re too confused to ask those questions – because they don’t have any answers.
Investment in good record keeping is a worthwhile task! – But you don’t need to give a central bank’s powers to Facebook in order to do that. I could perform a similar exercise with any commonly cited use case for cryptocurrency. Cryptocurrency promoters tend to subtly shift verb tense so as to sign the praises of applications for which there are no credible prototypes or even designs.
If you’re more technically inclined, and your research in cryptocurrencies has led you to wonder: “but surely cipher-block-chaining, asymmetric encryption, and Merkle trees must have wider applications” – then you’re right! Those technologies have been crucial to much of what we consider modern computing for several decades. These snake oil salesmen are trying to sell you an (already free) toolkit that is already widespread, even if obscure.
Cryptocurrency regulation is a rare point of bipartisan agreement. Many of the regulations supported by Senator Warren mirror those being worked on by Secretary Mnuchin. It’s exciting to see this working its way into the bipartisan infrastructure bill. Crooks and scammers in the industry may seek to make this another point of partisan division. They’re calling their representatives, and you should, too.