Emperor Nakamoto founded a happy kingdom, inhabited by optimistic and chatty hobbits who despise “fiat” currency, rely on the kindness of strangers, and trust in “trustless” systems.
At the heart of Nakamotoism trust is the belief that their cryptographical algorithms are secure. The protocols are designed to be unhackable, and, by implication, the data they protect is unhackable. We can trust it to be unhackable.
This trust is reasonable, more or less. It’s very difficult to monkey with data on the Bitcoin blockchain or other similar system, and any monkeying would be easily detected.
But how far should this trust be extended to the rest of the system? If we can trust that the blockchain is uncorrupted, then we trust transactions that use that blockchain, software that implements those transactions, and the parties that execute them. Right?
Well the world would certainly be a happier place if we could.
This summer Alexander Bulkin points out a blindingly obvious, inconvenient truth: “Blockchain Is Secure, but You Are Not” .
His point is that, no matter how unhackable and “trustworthy” data on a blockchain may be, it’s really no more unhackable and trustworthy than the sources that put it there. Which would be you, me, and other Carbon-based life forms.
And there is no safety net when we inevitably screw up or are screwed with. (For some reason, Bulkin is particularly worried about being mugged or even kidnapped, a pretty extreme risk.)
In this, Nakamoto’s effort to create “digital gold” is far too successful. Cryptocurrency works the same way as gold, only worse. The asset is actually a cryptographic key, which must be guarded. If you lose it, tough. In seconds your assets may be whisked halfway around the word and gone forever.
I would say, “Trust a blockchain, but don’t trust yourself”.
In case you are wondering, managing cryptographic keys is a very, very hard technical problem. It is not something that ordinary mortals can do. This was well known long before Nakamoto designed his system, so you have to say this trade off is baked in.
Bulkin describes this design as aiming for “self sovereignty”, which he views as a trade off against the “safety” offered by conventional institutions. He also notes that the crypto “community” tends to blame the victim when someone inevitably goofs, which is less than helpful.
This is all obvious to anyone who has been paying attention.
But Bulkin’s main point is that despite all the chatter about “institutions” coming into the crypto arena, there is little chance that
normal conventional institutions will use Nakamotoan cryptocurrency.
“The degree of safety financial services require is far beyond what we in crypto can provide today.” And this means not just cryptography but “also includes a reasonable ability to correct mistakes and retrieve stolen funds, as well as to share access with others and remain confident that such sharing won’t lead to problems.” (From )
He predicts that conventional institutions will adopt the best features of Nakamotoan blockchains into their own versions of digital currency. Indeed, we are seeing this already, as large companies and central banks are developing non-Nakamotoan blockchain systems.
If this trend continues, Bulkin concludes, Nakamotoan cryptocurrencies “will become irrelevant in the grand scheme of things”.
This article certainly is a candidate for the CryptoTulip of the Year committee’s, “Emperor Nakamoto’s New Clothes” award.
However, I really have to disagree with his proposal that Nakamotoan cryptocurrency can actually be made “safer”, as “safe” as conventional finance. The problem is, much of the “safety” of conventional institutions is a matter of trust. Trust in third parties to help you when you need. Trust in third parties to be fair and on your side.
There just isn’t any way to do Nakamotoan “self sovereignty” via trusted institutions. It’s a contradiction in terms. Nakamotoan systems are, by definition, “trustless”. If you make them safe, they won’t be Nakamotoan anymore.
So, I think we will see more digital money, but Nakamotoan “self sovereignty” will never be more than a side show.
- Alexander Bulkin (2021) Blockchain Is Secure, but You Are Not. Coindesk, https://www.coindesk.com/blockchain-is-secure-but-you-are-not