About the dangers of cryptocurrencies and the uselessness of blockchain

Earlier this month, I and others wrote a letter to Congress, in which they basically said that cryptocurrencies are a complete and total disaster, and urged them to regulate 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 more common fake objections… people make public blockchain systems. “In it he makes several big 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 does not mean that there can not be a control system at the top of the blockchain that enables reversals.
3. Yes, bitcoin does not scale and the fees are too high. But there’s nothing inherent in blockchain technology – it’s just a bunch of bad design choices that bitcoin has made.
4. Blockchain systems can have little or a lot of privacy, depending on how they are designed and implemented.

There’s nothing on the list I disagree with. (We can argue about whether proof-of-stake is actually an improvement. some of these scaling solutions work, they regret the decentralization the blockchain claims to have.) But I also think that these defenses largely miss the point. To me, the problem is not that blockchain systems can be made a little less awful than they are today. The problem is that they do not do what their advocates claim they do. In some very important ways, they are not safe. They do not replace trust with code; in fact, in many ways they are far less reliable than non-blockchain systems. They are not decentralized, and their inevitable centralization is detrimental because it is largely emerging and poorly defined. They still have reliable intermediaries, often with more power and less supervision than non-blockchain systems. They still require management. They still require regulation. (These are the things I wrote about here.) The problem with blockchain is that it is not an improvement of any system – and often makes things worse.

In our letter, we write: “Like the design itself, blockchain technology is ill-suited for just about any purpose currently identified as a current or potential source of public benefit. From the outset, this technology has been a solution in search of a problem and has now become entrenched. to concepts such as financial inclusion and data transparency to justify its existence, despite far better solutions to these problems already in use.Despite more than thirteen years of development, it has severe limitations and design flaws that exclude almost all applications dealing with public customer data and regulated financial transactions and is not an improvement on existing non-blockchain solutions. “

Green responds: “‘Public blockchain’ technology enables many stupid things: today’s cryptocurrency schemes can be venal, corrupt, overbearing. But core technology is certainly not useless. In fact, I think there are some pretty exciting things happening in the field, even though most of them are further away from reality than what their boosters would admit. ” I have not seen one yet. More specifically, I can not find a blockchain application whose value has anything to do with the blockchain part, which would not be safer, more secure, more reliable and simply better by removing the blockchain part. I postulate that no one has ever said “Here is a problem I have. See, blockchain is a good solution. ” In all cases, the order has been: “I have a blockchain. See, there’s a problem I can use it for. ” And in no case does it actually help.

Someone, show me an application where blockchain is important. That is, a problem that could not have been solved without the blockchain that can now be solved with it. (And “ransomware could not exist because criminals are blocked from using the conventional financial networks, and cash payments are not possible” does not count.)

For example, Green complains that “credit card sales taxes are the same, or have actually risen in the United States since the 1990s.” This is true, but has little to do with technological inefficiency or existing trust in the industry. This is because almost everyone who can and follows gets 1% back on their purchases: in cash, frequent flight miles or other affiliation points. Green is right about how unfair this is. It is a regressive subsidy, “since these taxes are baked into the cost of most retail goods and thus fall heavily on the working poor (who pay them even if they use cash).” But it has nothing to do with the lack of blockchain, and it does not help to solve it by adding a blockchain. It is a regulatory issue; With a few exceptions, credit card companies have successfully pressured sellers to charge the same rates, whether some pay in cash or by credit card. Peer-to-peer payment systems such as PayPal, Venmo, MPesa and AliPay all revolve around the high transaction fees, and none of them use blockchain.

This is my basic argument: blockchain does nothing to solve existing problems with financial (or other) systems. These 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 issues and makes all of these systems much, much worse.

Green writes: “I have no problem with the idea that legislators (intelligently) pass laws to regulate cryptocurrency. In fact, given the level of insanity and the number of direct frauds occurring in this area, it is quite obvious that our current regulations are not up to the task. ” But when you remove the madness and the scams, what’s left?

EDITED TO ADD: Nicholas Weaver is also stuck on this. David Rosenthal is also good.

EDITED TO ADD (7/8/2022): This post has been translated into German.

*** This is a Security Bloggers Network-syndicated blog from Schneier on Security written by Bruce Schneier. Read the original post on: