Tag Archives: Michael del Castillo

Bitcoin is More Evil Than Ever

From the beginning, Nakamoto style cryptocurrency was intended to enable unimpeded flows of funds [2]. Cryptocurrencies are specifically designed to be the perfect mechanism for grey and black markets; for tax evasion and for money laundering of all kinds. While crypto-enthusiasts see this as a feature, most of civilized society views this as a serious bug.

In the short history of Bitcoin, we have seen it become a medium for illicit commerce and ransomware. (Even more-or-less legitimate uses, such as digital commerce are being highjacked by a flood of scams, including preposterous “initial coin offerings”, which might as well be called “tulipware”.)

It has become evident that Bitcoin has also become a favorite tool for human smuggling and human trafficking: modern day slave trade. I’m not seeing this as a good thing in any way at all.

As reported in Coindesk [1], this issue was highlighted by Joseph Mari of the Bank of Montreal at the The Pontifical Academy of Social Sciences, Workshop on Assisting Victims of Human Trafficking: Best Practices in Legal Aid, Compensation and Resettlement [4]. (It’s not often that I cite something “Pontifical” : – )) Mari reports that, as conventional financial services move to block illicit commerce, including human trafficking, criminals have moved to use Bitcoin to collect their illicit money.

Cryptocurrency enthusiasts are quick to point out that this is pretty much exactly how Bitcoin was designed to work: it is supposed to be immune to “censorship”. Other cynics like me would also point out that the wealthy get away with this stuff without resorting to frippery like Bitcoin. (See perhaps: England, Queen of, offshore accounts of.)

Of course, the original Nakamoto design was more than a little hacky, and it isn’t completely immune to interference by determined authorities. Companies make good money selling analytics that spot suspicious transactions and, with favorable winds and some luck, might nab some bad guys.

However, this mostly retroactive data mining is hardly adequate. Detecting this stuff after the fact doesn’t stop, prevent, or deter it.

Worse, the tiny successes so loudly touted are technically obsolete, as the dark web moves to far more opaque cryptocurrencies.

Mari is right to be concerned, and it is good to educate conventional banks and other authorities about this technology. But I’m really not sure that there is anything that can be done, at least until quantum computing takes it all down.

  1. Michael del Castillo, Vatican Address to Highlight Bitcoin Use in Slave Trade. Coindesk.November 2 2017, https://www.coindesk.com/vatican-address-highlight-bitcoin-use-human-slave-trade/
  2. Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System. 2009. http://bitcoin.org/bitcoin.pdf
  3. Darryn Pollock , Jamaican Police Take Aim at Human Traffickers’ Bitcoin Pockets, in Cointelegraph. 2017. https://cointelegraph.com/news/jamaican-police-take-aim-at-human-traffickers-bitcoin-pockets
  4. The Pontifical Academy of Social Sciences, Workshop on Assisting Victims of Human Trafficking: Best Practices in Legal Aid, Compensation and Resettlement. 2017: Vatican City. http://www.pass.va/content/scienzesociali/en/events/2014-18/resettlement.html


Cryptocurrency Thursday


Blockchain Hardware: Is There Something There?

From the very beginning, Nakamotoan blockchain technology has had a complicated relationship with computing hardware. Much of the case for Bitcoin hinges on the availability of ubiquitous, commodity network and hardware that runs open source software. The Internet is open to all, so the blockchain is both transparent and available to anyone. Furthermore, security and “trustlessness” is assured because it runs of generic equipment [2].

On the other hand, there has been a constant desire to deploy special hardware, including a never ending (and self defeating) arms race in mining technology, and the notion of embedding the computation in everything.  Indeed, some are even splurging on a space program, the ultimate in ‘special’ hardware.

Some special hardware is intended to simplify participation, so everyone can be part of the network without effort. (This notion is philosophically akin to the thinking behind Distributed Autonomous Organizations.). Another intuition is that embedded hardware is a way to accumulate massive amounts of ‘spare’ capacity, running in the background. This argument is something like, ‘While no single light bulb contributes much, a bazillion light bulbs adds up to so much compute power that it will keep the network safe and stable.’

And, of course, corporations are intrigued the possibility of capturing a market by including blockchain in their products. This month Coindesk reports on some of these ideas.

Rachel Rose O’Leary reports that Chinese giant Midea Group is developing capabilities to embed Bitcoin mining in household appliances [3].  O’Leary indicates that their patent is similar to ideas floated by others. Essentially, the excess capacity of the embedded computer would run Bitcoin protocols, and any coins earned will be credited to an account, presumably the owner of the device.

One of the leading proponents of this concept is 21, Inc., and they admit that such a tiny device isn’t likely to generate enough Bitcoins to cover the cost of the electricity.  So, one wonders whether this added power consumption, even while not in use, will be a popular feature.

This news is interesting not because it is innovative or even a good idea, but because Midea is a huge manufacturer who could truly deploy many thousands of such devices around the world.

On another front, Michael del Castillo & Bailey Reutzel report that Intel has been working on a different idea, a blockchain that runs on dedicated “secure” hardware [1]. This was introduced in 2015 as “Sawtooth”, which is a variation on Nakamoto, using a different ‘scratch off’ method (poetically named Proof of Elapsed Time Expended) and using special secure hardware. A quick glance at the explanations suggests that the system sets up an tamper proof timer that implements the ‘race’ in place of repeated hashing. To use their blockchain, you have to have their special chips and the software to run on them. (Intel wants to sell chips.)

I really don’t know about these ideas.

Midea’s idea is far from new, it falls right into some classic dreams of a ubiquitous, unstoppable Bitcoin network. The concept will be vulnerable to all the woes of the Internet of Things, including the likelihood that hackers will try to hijack thousands of toasters to steal the cryptocurrency. Furthermore, the economics of cryptomining don’t appear to support these tiny nodes, so it looks like a dead loss to me.

Is this anything other than a gimmick?

But most of all, one wonders exactly what software these devices might be running. Which version of Bitcoin or other coins would it run? What happens when the protocol changes, or everything splits as it has this year? How will upgrades happen in general?

Given the volatility of the cryptocurrency world, it may not be a great idea to “wire in” a protocol in this way, especially when the units are to be distributed to ordinary people who can’t maintain the crypto features.

Intel’s idea is interesting, but not really a Nakamotoan blockchain at all. It is technically incompatible with public blockchains such as Bitcoin, and philosophically incompatible with the “trustless” notion of many cryptocurrencies. You have to trust Intel. For that matter, you have to buy Intel.

There are probably good use cases for this kind of proprietary blockchain, as well as exotics such as a quantum blockchain. But these use cases are not at all the same as for public blockchains.

The economic case for blockchain is essentially a trade off between efficiency and scale. Intel’s blockchain would be well suited to a small or moderate scale network, but then again so would other, non-blockchain protocols. I.e., if you are going to build a network using special Intel security hardware, you have lot’s of choices besides blockchain.

So is Sawtooth anything other than a gimmick?

My own view is that it is far to early to invest in hardware blockchain products. The protocols are changing rapidly and dramatically, and the economics are highly uncertain. To really work, you have to have zillions of units deployed, which would be challenging to say the least.

Furthermore, many of the hardware approaches fly in the face of various philosophical objectives that drive interest in blockchains. Using a “trusted system” to implement a “trustless” protocol makes little sense. Using proprietary hardware to implement a distributed ledger makes little sense. Having your toaster mine tiny, tiny amounts of Bitcoins is a waste of electricity.  For that matter, your toaster would soon be obsolete, as the cryptocurrency protocols rapidly evolve.

I think that at this point, cryptocurrency hardware is mostly a gimmick.

  1. Michael del Castillo and Bailey Reutzel Silicon Blockchain: Intel’s Distributed Ledger Strategy Is All About Hardware Coindesk.August 23 2017, https://www.coindesk.com/silicon-blockchain-intels-distributed-ledger-strategy-hardware/
  2. Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System. 2009. http://bitcoin.org/bitcoin.pdf
  3. Rachel Rose O’Leary,  Manufacturing Giant Midea Wants to Put Bitcoin Miners in Household Appliances. Coindesk.August 24 2017, https://www.coindesk.com/manufacturing-giant-midea-wants-to-put-bitcoin-miners-in-household-appliances/


Cryptocurrency Thursday

“Identity” on the Blockchain?

For the past few years, cryptocurrency and blockchain enthusiasts have been touting a variety of use cases for these technologies, suggesting that they will disrupt/revolutionize pretty much everything [2]. It’s a floor wax and a desert topping!

With time, we are sifting through these use cases, discovering which ones are more realistic.

The most successful uses to date are, unfortunately, extralegal commerce and cybercrime.  Other areas that appear promising are supply chains  and other business to business cases. In also seems likely that private blockchains may well disrupt FINTECH, and eliminate hundreds of thousands of jobs.

What haven’t panned out yet are the benefits for regular folks and the imagined benefits for the world’s poorest.

It is readily apparent that blockchain-based technology isn’t necessarily the right way to do community currencies and similar projects.  Cryptocurrency has made surprisingly little inroads into “the remittance problem”. For that matter, cryptocurrency has made little inroads for real world commerce, mainly because it solves problems that consumers don’t actually care about. (Most people don’t care about the innards of their digital payment systems.)

This month the ID2020 project summit gives reason to think that blockchain is also not a particularly useful technology for “identity”.

ID2020 is an international group dedicated to helping people who lack formal identity papers. This is a significant problem for refugees and others, and it’s quite reasonable to try to create portable digital documentation.


I’m rather baffled by why this is called an ”identity’ problem, which it is mostly an “official recognition” problem.

Michael del Castillo comments in Coindesk, “Identity without the Blockchain? Skepticism Grows for Once-Hot Use Case”. Essentially, the ID2020 people aren’t convinced that blockchain technology is the solution, or at least, the only solution.

I don’t know exactly what their thinking is, but I suspect that a key point is that credentials are all about trust, and in fact, trust in third parties. The importance of credentials aren’t that you can prove that you are who you say you are, but that you can prove to someone that a mutually trusted party says you are who you say you are.

“Trustless” blockchain systems offer little to help provide these proofs. Decentralized blockchains are certainly cheap and easy ways to reliably pass around such certificates, but they don’t address the hard part, which is creating them in the first place.

Identity problems of rich people

There is a second “identity” use case for blockchains, and that is portable and flexible digital identities, i.e,, control of personal information on line. The idea is to make it possible for people to access digital services without having all their information linked. This is truly an important challenge, though, again, I wouldn’t call it a problem of “digital identity” per se, it’s more of an information control problem.

This use case is lumped with the passport issues  above because the same technology could, in principle, solve both. If we had a good way to exchange verifiable cryptographically shielded certificates, we could use them to, say, access services without a universal ID number.

As del Castillo says,

In theory, those users would own their own identities, as opposed to Facebook, Google, the government, or any number of organizations, all of whom want to keep a record of – and profit from – that data.

This is an interesting statement of the problem and perceived solution.

He lumps all organizations, private, public, and “other”, which glosses over important differences, which is intellectually and politically dubious.

The Drivers License folks keep a record of you because they need to certify your qualifications to drive. Doctors keep medical records for obvious reasons. And so on. There are many reasons why organizations keep your history.

On the other hand, advertising companies like Google and Facebook, keep information on you to make money by “selling” you. So do numerous other companies.

Solving this problem is difficult, and not only because there is a lot of money begin made, and the powers-that-be don’t want to be disrupted, thank you very much.

The technical problems are actually quite difficult. Figuring out what sort of information needs to be exchanged and developing secure ways to present just what you need to and no more is very difficult. Furthermore, this process involves—wait for it—trust. No matter how clever the credential scheme, the credentials have to come from somewhere in the first place, and have to be accepted where you need them.

Blockchain technology is a good way to pass around cryptographically shielded credentials. But, again, it doesn’t help the process of obtaining credentials in the first place. If you can create a good system for digital credentials, a blockchain will certainly be one of the places you use it. But the blockchain alone doesn’t solve the problem.

I’ll add one more pedantic point. Some of the enthusiasm for blockchains is actually based on the extreme usefulness of public key cryptography, which will definitely, for sure, be the critical piece in these digital systems. But you can use PKI with lots of different architectures, “centralized” and “decentralized”, and with many different business models. Just because cryptographic signatures address a use case, it isn’t necessarily true that blockchains are relevant.

  1. Michael del Castillo, Identity without the Blockchain? Skepticism Grows for Once-Hot Use Case. Coindesk.June 22 2017, http://www.coindesk.com/identity-without-blockchain-skepticism-grows-hot-use-case/
  2. Don Tapscott and Alex Tapscott, Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business, and the World, New York, Portfolio/Penguin, 2016.


Cryptocurrency Thursday

Chicago Blockchain Center Opens

In cryptocurrency land, amid the continuing news for flash crashes, criminal cases, and inaction on crucial technical issues, Coindesk reports that, “New Chicago Blockchain Center Launches With Government Backing”.

This sounds interesting. I wish I could find out more about it.

As with much of Illinois and Chicago government, the CBC is far from transparent. What is it for?

The announcement and launch are heavy on promotion and light on substance. It looks like there are major financial firms (including the Chicago Mercantile Exchange) and VCs. hanging out with tech startups. So, a business incubator focused on blockchain technology.

The “government backing” appears to be moonlighting by Jennifer O’Rourke, the State of Illinois’ “blockchain business liaison”, which I didn’t know we had. What else is involved in the “partnership” isn’t clear. The state and city governments are said to be looking at blockchain applications for public business, as well as trying to grok regulatory issues.

This center seems mostly harmless, though one wonders where the public money is coming from and what the state hopes to gain.

And, by the way, I notice that there is no academic participation at all in this partnership. There are quite a few world-class researchers at Illinois universities who would love to participate in such a center. It’s a shame to be missing out on this opportunity. (Call me.)

  1. Michael del Castillo, New Chicago Blockchain Center Launches With Government Backing Coindesk.June 8 2017, http://www.coindesk.com/new-chicago-blockchain-center-launches-with-government-backing/


Cryptocurrency Thursday

Hyperlegder: IBM’s Serious Blockchain Project

The use of blockchain technology for business applications has become the flavor of the month, drawing interest from many important institutions, including the Federal Reserve. Throughout 2016 there was a stream of announcements of development projects, some of which involved the largest banks and companies in the world.

One project with some very serious juice is Hyperledger, which is hosted by the Linux foundation and led by IBM—both of whom know a thing or two about software.

IBM is a dominant contributor and user of Linux, and the Hyperledger group is patterned after the successful experience with the operating system. The code is open source, and the goal is to create a ubiquitous backbone and API upon which many parties can construct their own apps.

Hyperledger aims to provide a generic way to use blockchains and “smart contracts” in business. This will require quite a bit of engineering, including development of standard APIs, robust implementations, and, in the case of executable contracts, programming languages and debuggers. The Hyperledger project is exploring and testing several candidate designs. The IBM entry is “Fabric”, a fancy term that says everything you need ot know about their ambition to connect everything.

One of the good things about the project (especially Fabric) is the effort to create a “neutral” API that can be implemented with alternative blockchains inside it. This design makes it possible for a business to create their code in a way that will work with many other businesses, even if some use different underlying products, and even if technology changes (which it will).

“Fabric” also aspires to deliver solid software with real “smart contracts”. The software includes industrial grade end-to-end security, cryptographic infrastructure, and sophisticaed support for executing business logic (AKA, “smart contracts”), such as “containers” to execute code.

Now, readers of this blog should know by now that I am not a huge fan of smart contracts, and have pointed out the deep difficulty of creating this technology.

However, in the case of IBM, there is reason for optimism. First, so called “smart contracts” are not essentially different from technologies that IBM has been supporting for many years inside their database systems and business networks. Second, the IBM actually knows what they are doing, and isn’t making unrealistic promises.

As an indication of the state of the work, Michael del Castillo reports on a recent software demo that tried out a simple app running on hundreds of nodes around the world.

The “marbles” demo is a fully working application that uses the IBM implementation of Fabric to create and pass around small records. This is not unlike many business to business systems by IBM, except where there might be a conventional database, this demo uses a blockchain running on dozens of independent nodes. The logic for creating and transferring the records (“marbles”) is implemented by a form of “smart contract”, executed by the notes of the blockchain. The idea here is to demonstrate all the pieces, including cryptography and the distributed consensus processes of the blockchain.

The recent demo was done at moderately large scale, running live using 100 nodes situated around the globe. A dozen of more representatives of the foundation fiddled around, creating and transferring “marbles”, and watching other transactions. Eventually, the group was unleashed to “try to break it”.

Del Castillo reports that the demo went well, with only one obvious glitch, and the system recovered gracefully from the problem. The participants seemed suitably impressed. If nothing else, the software worked as advertised.

When I saw these reports, I thought it was kind of trivial. Perhaps I have done enough demonstrations of distributed software in my life to be unimpressed by the trivial task represented by “marbles”. Sure, getting the user app working nicely isn’t easy, and getting anything running on nodes at multiple sites is hard. But this is IBM, so they know how to do these things.

So what were these people so excited about? I think the users were excited because they are interested in the innards, with the fact that the promised decentralized, cryptography-heavy, protocols worked, and worked at a big enough scale to be interesting. Plus, the fact that nothing interesting happened is the interesting thing that was supposed to happen. The dog didn’t bark.

Overall, this is a significant milestone for he project.

But there is a long way to go, and lots of questions I wonder about. A few transactions over 100 nodes is no where need the scale needed. Trivial “marbles” is hardly an example of the diversity and difficulty of creating, validating, and testing “smart contracts”. With IBM’s track record, I won’t be surprised if they get this all to work pretty well.

Furthermore, this implementation was all written by IBM (I think). The real test of the Fabric concept will come when several different implementations “just work” all together at the same time. That will be interesting to see.

Finally, it is worth pointing out the significant difference between this kind of business to business, access controlled blockchain, and the open, power-to-the-people vision of, say, Provnance.org or Ouishare.  Even though “Fabric” is open source, it is not clear whether it will be suitable for these “public” use cases that cannot pay for all the great IBM infrastructure to run it.  We’ll have to see.


Cryptocurrency Thursday

“Charity DAO”: Improving Trust By Eliminating Trust

The folks who brought you The DAO have a new cunning plan—“Charity DAO”. You remember The DAO—the decentralized autonomous investment fund that attracted over $100M in investments, negligently lost half of that to thieves, and shattered Ethereum as it collapsed.  Yes, those same guys are now going to “fix” charitable giving.

Their analysis of the problem is that we could increase the amount of money given to charities if we could improve “trust” in the charities. They identify widespread concerns about “accountability, management and fundraising” in public charities.

The solution, they say, is a decentralized organization that uses Ethereum “smart” contracts to track the funding. (My own view is that this is a case of a hammer maker seeking nails to drive.)

As in the first DAO disaster, the organization is basically a mechanism for channeling funding via the Ethereum blockchain. Proposals (requests for funding) are submitted, and when selected, the executable contracts automatically disburse the money according to specified targets. All records are on the public blockchain, and untouched by human hands.

Wow! So many logical holes! Do I have the energy to cover them all?

First of all, at the deepest level, the notion that the cure for a lack of trust is to take up a peer-to-peer model, where we know almost nothing about the other participants is, well, astonishing. Not only sending money off to the internet, but sending to…well a robot “contract”.

Wouldn’t it make more sense to organize locally, working with people face-to-face where you live?  This would not only improve trust, it would create a more connected and vibrant community.

Second, the elephant in the room simply has to be the crash of the first DAO, which was due to “trusting” the software, and eliminating human judgment. Obviously, this has to be changed, right?

Yes. This time, the “decentralized” robot system has human “Curators”, “a set of trusted curators”, who will check and approve proposals. Just like every other charity. Good idea. We trust that the curators know what they are doing and behave honestly.

The problem of trust is fixed!

Obviously not.

Who are the curators? Well, that’s a mystery. They are not identified.   Even more troubling, the description of the charity indicates that they will cooperate with a group call “Giveth”, who presumably help vet the proposals and give direction to the charity.

Who is Giveth? What are they up to? We have no idea.  I can feel the trust welling up in me already.

Most charities are mission driven organizations. They develop expertise solving certain problems, and request support to carry out the mission. This is critical—we don’t want to donate money to people with good intentions, we want to donate money to solve problems.

Charity DAO has no stated mission (other than demonstrating with the technology). Anyone in the world can request funding, for any purpose. That’s very democratic, but seems open to abuse. Presumably, we can trust “the Curators” and “Giveth” will filter out the questionable cases.

I’m also concerned about the notion that, once started, the robot contracts funnel the money to the “charity”, with little way to know what they are actually doing. Some contracts may have milestones or checkpoints that have to be met, but how is that to be confirmed? Some human(s) will have to be trusted to confirm performance. How will this work? How trustworthy will this be?

We have to assume and trust that the mysterious curators will make sure that everything is fine.

I might also point out that charities are highly regulated legal entities. I’m pretty sure that “Charity DAO” hasn’t registered everywhere, probably not anywhere. For one thing, these mysterious “curators” and the organization “Giveth” would need to disclose who the people are, and who is responsible.

Is it legal to even operate this organization? Possibly not. (They don’t eve  know themselves.)  Would it be legal for a legitimate charity to raise money through them? Maybe, though it would be a huge reputational risk for the charity. If I give through this system, can I claim the gift for taxes? Who knows? I’d bet not.

Speaking for myself, I’m not interested in funneling my own donations through an unaccountable, opaque, and technically iffy system.

The long and the short of it is that Charity DAO is tackling the problem of “trust” by creating a “trustless” system, the problem of “accountability” with an anonymous peer-to-peer system, and “transparency” with a strangely opaque system.

As I said of the original DAO, “this will end badly”.


Cryptocurrency Thursday

Cryptocurrencies: A Favorite Technology Of Criminals

Cryptocurrencies in the Nakamotoan vein have always be attractive for extralegal transactions, for tax evasion, sale of contraband, digital extortion or other purposes. Economically, it is the equivalent of a “bag of twenties out in the alley”, and seems deliberately designed as an economic weapon.

Many apologists have tried to claim that the legitimate (for certain values of “legitimate”) use cases are increasing, and that it is unfair to focus so much on a few bad apples. “‘Sin’ Activities No Longer Drive Bitcoin Economy, Researchers Find“, reports Pete Rizzo.

Unfortunately, the picture is not really so rosy, because cryptocurrency continues to be primarily used for extralegal purposes, as age old rackets exploit the speed and efficiency of twenty first century technology. This is readily seen in any sample of headlines.

Bitcoin Has a New Top Dark Market” reports Michael del Castillo. Years after the demise of Silk Road, dozens of dark markets have sprung up to serve your need for drugs, guns, murder for hire, and services. Bitcoin itself has become the bridge between hidden transactions and the legitimate commercial world, i.e., as the laundry. (This function is the basis for some of the claims to increased “legitimacy”: these transactions are classified as “clean”.)

Demand for Zcash Mining Grows as Blockchain Launch Approaches” says Jacob Donnelly. The original Bitcoin concept prominently promised “transparency” as a crucial feature. This has turned out to be a drawback for the many dark transactions on the Internet, so new protocols such as zcash are coming out which are designed to be entirely opaque.   Let’s be very clear here:  these systems have little purpose other than cloaking transactions, mainly to avoid surveillance by authorities. Nothing good can come from this technology.

Cryptocurrency has found favor in some ancient criminal artforms, bringing them up to the minute. Bitcoin has become a favorite tool of for digital extortionists, allowing them to fully automate their racket. “Bitcoin is Not the Root Cause of Ransomware” reports Peter Van Valkenburgh, but it does fit perfectly into the MO that it might have been deisnged for this purpose.

As a computer scientists I am more than a little embarrassed by how automation has made it so easy for anyone to execute what is basically a mindless racket, over and over, whisking away the proceeds via the internet.  Sigh. Beautiful engineering, for such a low purpose.

Cryptocurrency technology can also be employed in pyramid schemes and similar scams. Some cryptocurrencies are widely believed to be essentially nothing other than pyramid sales schemes, dressed up in fancy terminology.

London Police Investigate OneCoin Cryptocurrency Scheme” reports Stan Higgins.  In this case, the scam, if any, would be in the story surrounding the technology, and the associated sales programs. The Onecoin scheme is no different from any of hundreds of other multilevel marketing schemes, except they use cryptocurrency as a sort of window dressing, and, of course, to efficiently whisk away the profits. Sigh.

Having reinvented the universally abandoned Gold Standard, and made the world safe for money launderers, cryptocurrency is now invigorating age old crimes and scams with new, highly efficient technology.

This is certainly “disruptive”, though no points are awarded for “innovation”.

How is this a good thing?


Cryptocurrency Thursday

Cryptocurrency Governance Processes: A Master Class

This summer has seen a master class in the difficulties of “decentralized” governance, at least as practiced by Nakamotoist cryptocurrencies, which are “a tool that we put outside of our jurisdiction in order to have it govern us.” (as Vlad Zamfir put it).

Bitcoin is now in its second year of flailing at the problem of blocksize capacity. A perfectly pedestrian engineering problem, with multiple solutions (each with plusses and minuses) has so far defeated the Bitcoin community’s ability to make decisions.

Despite the existential threat to the whole enterprise, the supposedly democratic process has been revealed to be a democracy of a few large companies, with huge economic interest in doing nothing. So much for “nobody can censor” Bitcoin.

At the same time, Ethereum is walking us through a multi-phase catastrophe that was “TheDAO”. The entire concept of Nakamoto-style cryptocurrency and “Distributed Autonomous Organizatoins” is to eliminate untrustworthy humans, in favor of a laissez faire voting and coded “smart contracts”.

After attracting absurd amounts of investments in advance of any meaningful economic activity, TheDAO was swiftly “hacked”, via a logical loophole it the “smart” contracts. Gosh, who could have predicted that?

The perpetrator takes the position that the autonomous system is, by definition, correct, so the fund transfers must stand. This is certainly the fundamental philosophy of cryptocurrencies and DAO’s.

For some reason, the investors who lost millions of (“fiat”) dollars are less happy with this, and want their stuff back. The Nakamoto style blockchain is highly resistant to either finding the perp or undoing the damage. That’s the whole point.

Furthermore, by definition and design, there is no one in charge to complain to or fix it. Again, that’s the whole point, to remove those pesky “authorities” who might undo a done deal.


The DAO and Ethereeum do have programmers involved, programmers who have a whole lot at stake personally. These developers have, in fact, stepped in to block the removal of the disputed funds for a time.

But how can this “crime” be undone?

Within the rules of TheDAO, it can’t. Within the rules of Ethereum there is only one way to do it: rewrite history, and have a majority of the users accept the alternate history.

That’s right, the very thing that cryptocurrencies are designed to prevent.

This, in fact, appears to be what is going to happen to Ethereum. A new, hacked up version of the code started Wednesday  (AKA, the “hard fork”), which  basically undoes the disputed transactions by creating a new history out of thin air. If 51% of the computing power of the Ethereum network accepts this new software, it will go into effect, and the old transactions disappear.

How was this decided? The developers have had quiet, behind the scenes discussions with the largest companies (i.e., the largest interest groups), and have decided that this is the best course.

This is so much better than governments and bankers talking quietly behind the scenes to decide important economic policies, no?


These episodes show us that the Cryptocurrency Emperor has no clothes, and the Great God Nakamoto has feet of clay. These innovative disruptions turn out to, well, not really work at all, let alone as advertised.

And, by the way, the not particularly new, and certainly not “autonomous”, Pokemon.go has been far, far more successful than cryptocurrency in just a few days.


Cryptocurrency Thursday