From:
https://www.schneier.com/blog/archives/2022/06/
on-the-dangers-of-cryptocurrencies-and-the-uselessness-of-blockchain.html
On the Dangers of Cryptocurrencies and the Uselessness of Blockchain
Earlier this month, I and others wrote a letter to Congress [1],
basically saying that cryptocurrencies are an complete and total
disaster, and urging them to regulate the space. Nothing in that
letter is out of the ordinary, and is in line with what I wrote about
blockchain in 2019 [2]. In response, Matthew Green has written
[3]--not really a rebuttal--but a "a general response to some of the
more common spurious objections... people make to public blockchain
systems." In it, he makes several broad 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 making it impossible to
undo specific transactions. But that doesn't mean there can't be
some governance system on top of the blockchain that enables
reversals.
3. Yes, bitcoin doesn't scale and the fees are too high. But that's
nothing inherent in blockchain technology--that's just a bunch of
bad design choices bitcoin made.
4. Blockchain systems can have a little or a lot of privacy,
depending on how they are designed and implemented.
There's nothing on that list that I disagree with. (We can argue
about whether proof-of-stake is actually an improvement. I am
skeptical of systems that enshrine a "they who have the gold make the
rules" system of governance. And to the extent any of those scaling
solutions work, they undo the decentralization blockchain claims to
have.) But I also think that these defenses largely miss the point.
To me, the problem isn't that blockchain systems can be made slightly
less awful than they are today. The problem is that they don't do
anything their proponents claim they do. In some very important
ways, they're not secure. They doesn't replace trust with code; in
fact, in many ways they are far less trustworthy than non-blockchain
systems. They're not decentralized [4], and their inevitable
centralization is harmful because it's largely emergent and
ill-defined. They still have trusted intermediaries, often with more
power and less oversight than non-blockchain systems. They still
require governance. They still require regulation. (These things
are what I wrote about here. [2]) The problem with blockchain is that
it's not an improvement to any system--and often makes things worse.
In our letter, we write: "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."
Green responds: "`Public blockchain' technology enables many stupid
things: today's cryptocurrency schemes can be venal, corrupt,
overpromised. But the core technology is absolutely not useless. In
fact, I think there are some pretty exciting things happening in the
field, even if most of them are further away from reality than their
boosters would admit." I have yet to see one. More specifically, I
can't find a blockchain application whose value has anything to do
with the blockchain part, that wouldn't be made safer, more secure,
more reliable, and just plain better by removing the blockchain part.
I postulate that no one has ever said "Here is a problem that I
have. Oh look, blockchain is a good solution." In every case, the
order has been: "I have a blockchain. Oh look, there is a problem I
can apply it to." And in no cases does it actually help.
Someone, please show me an application where blockchain is essential.
That is, a problem that could not have been solved without blockchain
that can now be solved with it. (And "ransomware couldn't exist because
criminals are blocked from using the conventional financial networks,
and cash payments aren't feasible" does not count.)
For example, Green complains that "credit card merchant fees are
similar, or have actually risen in the United States since the 1990s."
This is true [5], but has little to do with technological
inefficiencies or existing trust relationships in the industry. It's
because pretty much everyone who can and is paying attention gets 1%
back on their purchases: in cash, frequent flier miles, or other
affinity points. Green is right about how unfair this is. It's a
regressive subsidy, "since these fees 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 that has nothing to do with the lack of
blockchain, and solving it isn't helped by adding a blockchain. It's
a regulatory problem; with a few exceptions, credit card companies
have successfully pressured merchants into charging the same prices,
whether someone pays in cash or with a credit card. Peer-to-peer
payment systems like PayPal, Venmo, MPesa, and AliPay all get around
those high transaction fees, and none of them use blockchain.
This is my basic argument: blockchain does nothing to solve any existing
problem with financial (or other) systems. Those problems are inherently
economic and political, and have nothing to do with technology. And,
more importantly, technology can't solve economic and political
problems. Which is good, because adding blockchain causes a whole slew
of new problems and makes all of these systems much, much worse.
Green writes: "I have no problem with the idea of legislators
(intelligently) passing laws to regulate cryptocurrency. Indeed, given
the level of [6] insanity [7] and the [8] number of [9] outright
scams [10] that are happening in this area, it's pretty obvious that
our current regulatory framework is not up to the task." But when
you remove the insanity and the scams, what's left?
EDITED TO ADD: Nicholas Weaver is also [11] adamant [12] about this.
David Rosenthal is good [13], too.
[1]
https://concerned.tech/
[2]
https://www.schneier.com/blog/archives/2019/02/blockchain_and_.html
[3]
https://blog.cryptographyengineering.com
/2022/06/09/in-defense-of-cryptocurrency/
[4]
https://assets-global.website-files.com/5fd11235b3950c2c1a3b6df4/
62af6c641a672b3329b9a480_Unintended_Centralities_in_Distributed_Ledgers.pdf
[5]
https://is.gd/aIHZj6
[6]
https://www.cnbc.com/2022/05/29/
who-got-rich-before-terra-stablecoin-collapsed.html
[7]
https://www.cnbc.com/2022/05/19/
tether-claims-usdt-stablecoin-is-backed-by-non-us-bonds.html
[8]
https://is.gd/2flRn2
[9]
https://is.gd/cghNI7
[10]
https://cointelegraph.com/news/
yikes-elon-musk-warns-users-against-latest-deepfake-crypto-scam
[11]
https://www.currentaffairs.org/2022/05/
why-this-computer-scientist-says-all-cryptocurrency-should-die-in-a-fire
[12]
https://www.youtube.com/watch?v=J9nv0Ol-R5Q
[13]
https://blog.dshr.org/2022/02/ee380-talk.html