Blockchain and Cryptocurrencies

Even now, as the evidence mounts around the world that blockchain just isn’t that useful for anything except ransomware, people are pushing laws for it’s adoption here in AZ. Let’s cover some of the many broken promises of blockchain, why it could never live up to many of them in the first place due to technical limitations, and discuss the multiple forms of harm caused by blockchain, cryptocurrencies and the mania surrounding both.

Case against blockchain and cryptocurrency legislation

Letter in Support of Responsible Fintech Policy: A letter to the U.S. Congressional Leadership, Committee Chairs and Ranking Members signed by an 1500 computer scientists, software engineers, and technologists:

Today, we write to you urging you to take a critical, skeptical approach toward industry claims that crypto-assets (sometimes called cryptocurrencies, crypto tokens, or web3) are an innovative technology that is unreservedly good. We urge you to resist pressure from digital asset industry financiers, lobbyists, and boosters to create a regulatory safe haven for these risky, flawed, and unproven digital financial instruments and to instead take an approach that protects the public interest and ensures technology is deployed in genuine service to the needs of ordinary citizens.

Not all innovation is unqualifiedly good; not everything that we can build should be built. The history of technology is full of dead ends, false starts, and wrong turns. Append-only digital ledgers are not a new innovation. They have been known and used since 1980 for rather limited functions.

…

By its very design, blockchain technology is poorly suited for just about every purpose currently touted as a present or potential source of public benefit. From its inception, this technology has been a solution in search of a problem and has now latched onto concepts such as financial inclusion and data transparency to justify its existence, despite far better solutions to these issues already in use. Despite more than thirteen years of development, it has severe limitations and design flaws that preclude almost all applications that deal with public customer data and regulated financial transactions and are not an improvement on existing non-blockchain solutions.

Finally, blockchain technologies facilitate few, if any, real-economy uses. On the other hand, the underlying crypto-assets have been the vehicle for unsound and highly volatile speculative investment schemes that are being actively promoted to retail investors who may be unable to understand their nature and risk. Other significant externalities include threats to national security through money laundering and ransomware attacks, financial stability risks from high price volatility, speculation and susceptibility to run risk, massive climate emissions from the proof-of-work technology utilized by some of the most widely traded crypto-assets, and investor risk from large scale scams and other criminal financial activity.

This is not our first encounter with such legislation: Arizona edges to front of states eyeing blockchain technology | Cronkite News

“It was very difficult, you know, trying to explain to people,” said Arizona State Rep. Jeff Weninger, R-Chandler. “You never want to vote for something that you don’t fully understand and this is, to say the least, a tough thing to get your head around.”

Sometimes it’s hard to get your head around an idea because not because it’s complicated, but because the technology itself is unbelievably bad.

Essential Resources

My Videos

Elegy for Blockchain | Southwest CyberSec Forum, February 6th, 2023: A detailed look at the issues presented on this page.
Cryptocurrency Threat Models
We Protect PHX - Cybersecurity & Blockchain

General Overview Videos

Crypto: The World’s Greatest Scam.
Line Goes Up – The Problem With NFTs
Coffeezilla has done extensive work investigating cryptocurrency and NFT scams.

My Articles

An Abundance of Scarcity: The core absurdity and atrocity of cryptocurrencies that no one is really talking about.
Geeks Bearing Grifts: Why RFC3161 is superior to blockchain for digital notary in every regard.

Going Deeper with Other Experts

David Gerard writes extensively about the problems with blockchain and cryptocurrencies.
Web3 is going just great: an ongoing list of many cryptocurrency and NFT scams and their $ ~12 billion and rising cost to society.
Stephen Diehl’s Blog
web3: Making sense of web3 & crypto. Introduction to key concepts and ideas. Rigorous, constructive analysis of key claims pro and con. A look at the deeper hopes and aspirations.

Core Issues

Blockchain isn’t really that great. It’s a very limited data structure.
- Blockchain (the term) is overused for marketing reasons. Most “blockchain” systems that are in “actually in use” are actually other data structures like Merkle DAGs or peer to peer networks.
- If you are only using a blockchain to timestamp or notarize data, there are better options Geeks Bearing Grifts.
- Permissioned or private blockchains are absurd. Just use a proper sharded database.
Tokenization is a pernicious form of metrics fixation
Ransomware couldn’t exist without cryptocurrency
Energy use is unacceptable, especially for proof of work systems, but also for other “proof of…” algorithms to a somewhat lesser extent.
Trustless isn’t real. You still have to trust that the majority of “miners” wont collude against you.
Blockchain technologies have been hyped for ~15 years. None of the claims or promises made has actually been adopted outside of smaller enthusiast circles or criminal communities.
Lack of privacy: Anonymous isn’t the same as pseudonymous. Protection comes from unlinkability not from the pseudonymous nature of blockchains.
The distributed-yet-centralized nature of blockchains makes them uniquely vulnerable to chain analysis and other recorrelational attacks.
Blockchain and associated technologies and systems have proven to be prone to hacking.
Centralization: While the technology might technically be defined as decentralized, data and governance of blockchains is centralized.
Lack of partition tolerance (CAP Theorem) - You Can’t Sacrifice Partition Tolerance | codahale.com
15 years without a valid use case (except malicious, illegal stuff)
Technically competent people are not on board. The more someone knows about computer science, the less likely they are a fan of blockchain.
It’s not immutable, just relatively expensive to mutate…usually, but not always. Cost of a 51% Attack for Different Cryptocurrencies | Crypto51
Even if it were immutable, this is not a good thing in a payment system. Refunds and other remedies are important in cases of fraud or just plain mistakes.