I’ve wondered why Segways serve that function in a way that e-bikes and scooters don’t. Some of it is just that Segways were around a few years earlier, and some of it is probably that the standing position on big wheels is more comfortable than the bike sitting position and the scooter small wheel situation (which makes every crack in the pavement dangerous). But I suppose tourists care more about these things than commuters or people getting around town, which is why Segways persist in that one market rather than the others that bikes and scooters own.
I did a Segway tour, convinced my elderly mother to do one as well. It's incredibly hard to fall off a Segway, much, much harder than a bike or scooter. On a tour with a tour guide no one ever falls off unless they are trying to do tricks.
That's the real value of Segway in this niche application, all the tourists need to do is stand, lean, and turn the handle a bit for the entire tour.
I can assure you that people (tourists on tours) regularly run into things, each other, uneven ground, etc. and fall off. Novice, drunk, over confident, I'm not sure, but I watched it happen over and over and over in DC...
Sure, but if you watched that same group of drunk unathletic people try to use bikes thousands of times over the course of years, how many more falls would you have seen? I'm guessing like 10x-100x.
I fell off a Segway in 2010 (first time using one) but it's because my guide suddenly braked and I didn't. A construction guy waved at him and he thought it was because he was about to hit a patch of wet concrete. Turns out he was just being friendly. I just scraped my knee but apparently another tourist broke her ankle earlier that week.
But, of course, ebikes (which I have also fallen from) are MUCH more dangerous and unstable, IMO.
As a former Segway tourguide, this is —unfortunately — 100% false. I saw many people fall off (including my own mother) and had one person fall and injure herself so badly she needed surgery.
I spent 3 years living next to a Segway tour place on 23rd NW by GW. I tried relentlessly to convince my now wife to do a tour with me, always failing.
Probably didn't help that we watched tourists crash and fall off them near-daily...
What is more difficult to understand is why what you say here isn't obvious to everyone. And it gets back to "what is money?" Of course, money is what everyone agrees it is. But who is everyone?
More than the rule of law and property rights, it is a 25 trillion dollar economy, the most powerful military in the world, and relative political stability for 250 years that makes most people agree on the value of dollars. Otherwise, I might be sending you a box of tulips to pay for my Slow Boring subscription.
The crypto hype is premised on a worldview that doesn't correspond to the social conditions necessary for real prosperity and thriving -- community governance vs every person for themselves; rule of law vs Wild West; trusted intermediaries vs trust nobody -- crypto is on the wrong side of every one of these.
Most the use cases I've heard for crypto, blockchain and related technologies seem to start from the premise that it's better to solve problems arising from lack of trust or weak community by doubling down on lack of trust, and building a more technologically advanced fortress, rather than solving the root civilizational problems and improving governance, community institutions and rule of law.
At least the libertarian/anarchist goldbug era of early Bitcoin was more honest than the “web3” promoters. The early enthusiasts were explicitly hostile to managed financial systems and these weirdos mainly just discussed the sociopolitics of money amongst themselves. None of them promised the vaporware of a new internet.
Even the Silk Road era was markedly more truthful. These Bitcoin promoters wanted to facilitate financial crimes, notably purchasing illegal drugs. Some of them were politically opposed to drug laws and saw Bitcoin as facilitating social productive civil disobedience. Others were just criminals who appreciated how the tech helped them commit crime.
“It is in my best interests to not give a fuck about my neighbor, and I won’t be made to” is probably among the oldest dozen political/communal fallacies.
I mean, FFS, Moses felt the need to promulgate rules about it 3500-off years ago, lol.
Allan: Right you are and the result is now available for all to see at the hands of Sam Bankman-Fried. Rejecting social organization will always end this way. It's what makes us human and provides whatever order there is - however stressful and disconcerting this can be at times. And exactly what problem is Crypto solving?
30 years or so ago a friend of mine (at the time) moved to Senegal and put all of her savings into a foreign bank in Dakar. She lost every penny. Goes right to the heart of Matt's post.
For as weird as the idea is, a few cryptocurrencies have gone through significant booms and made some people quite wealthy. People can overlook a lot of obvious flaws if they think they'll get rich.
About a year ago, I was talking to an acquaintance who was getting into crypto. I made some comment about how it was a bubble and they nodded, said they knew, but they were going to get in early and then get out before it popped. It's a good strategy in theory, but unless you're clairvoyant, you can't be sure to get out before that bubble does pop.
My assumption is that unless you have real insider information, by the time people are saying this is a bubble but they plan to get in and out before it pops, it's too late to get in and out before it pops.
Of course. Greed. Easy money. Works until it doesn't. Thus my comment about tulips. 1637 Holland. Many fortunes wiped out. Only works if you get out early enough. Like walking away from the poker table in Las Vegas when you are ahead. Very few people have that kind of discipline. And that's because they don't understand they are in a speculative bubble.
I agree -- this whole crypto boom and bust episode reminds me of the run up to the financial crisis when it was clear that something bad was going to happen as a result of giving mortgages to people who couldn't afford them based on inflated home values but it just kept going (until it didn't). I was too financially unsophisticated to understand the strange financial products underlying all of that lending but it was abundantly clear that it was a bubble that would pop.
Well its more than that isn't it. Money has to be tethered to something of value. In ye olden times that was precious metals or even livestock, but today its the power of the state. The stronger and richer the state, the more valuable its money is.
“The Segway of currencies” is pretty apt. I think a lot of the enthusiasm for cryptocurrencies in the tech world stems from the fact that blockchains actually do solve an incredibly hard problem: distributed consensus among non-trusting parties is really difficult! If bitcoin had been someone’s CS PhD dissertation, they would have passed with honors.
And the tendency among my fellow nerds is to look at something like that and just assume that it has a million real world uses. How could it _not?_ It’s a vertical self-balancing scooter!
Except it turns out that sometimes really impressive technologies… just aren’t very useful. To my mind, the real tell here isn’t the collapse of FTX et al: it’s been screamingly obvious for a while now that the “crypto finance industry” was a Ponzi scheme about to go critical. It’s that boring companies like IBM, Amazon and Oracle are slowly winding down their blockchain projects. It turned out that while blockchains are really neat, they were strictly inferior in all respects to legacy technologies for inventory tracking and transaction clearing, primarily because the throughput limits of blockchains turned out to be much harder to engineer away than anyone initially assumed.
In the tech world this is a normal cycle and it’s why startups still hire product people to ride herd on my fellow nerds’ enthusiasms. 20 years ago XML was going to fix everything, it was a weird time. It’s just unfortunate that so many real people’s money got incinerated in the process this time.
Lol even in my customer-facing role I have to talk my application engineers down from showing on the latest features instead of customer-relevant ones, and my developers from doing random-but-shiny shit instead of fixing major bugs with the old random-but-shiny shit of yesteryear.
I was in school for computer science around the time the Bitcoin paper came out. Aside from the piquancy of its anonymous authorship, everyone could see that it was an extremely clever paper. What was ingenious about it was that it solved the double-spending problem in an incentive-compatible way, and this use of economic incentives as part of system design was unusual at the time.
What was not unusual about the Bitcoin paper was the assumption of zero trust. Almost all research papers in distributed computing assumed zero trust, because otherwise you wouldn’t have a problem to solve. Few people mistook this for some kind of financial desideratum; it was an admittedly artificial assumption made for the sake of having something to write about.
The internet itself is very much not built on zero-trust systems. The way the domain name system works is that there are about a dozen root servers that have all the answers. The way SSL works is that a company called Verisign vouches that the server belongs to Bank of America, and there's a file on your laptop that instructs it to believe whatever Verisign says. The way the Internet Protocol works is that you hand off your packet of data with a destination address, and every computer along the way is just supposed to make a best-effort attempt to pass it along without any verification or compensation.
Of course, this lack of paranoia can be abused, and there are tons of proposals to solve spam or denial-of-service attacks by accounting for malicious actors. But these proposals never catch on, because the cure is worse than the disease. Just as every well-performing is a high-trust economy, the most efficient systems are ones that assume trust.
This whole bizarre cryptocurrency fever dream reads to me like everyone missing a key part of the big picture---technologists not knowing anything about economics, enthusiasts not understanding the underling technology, libertarians having no grasp of political economy. That includes me, of course. I remember that there used to be a website called the Bitcoin Faucet where you could click a button once a day and it would send you a bitcoin. If I had understood then to what weird and frankly stupid places we go, I would have clicked the button!
> But these proposals never catch on, because the cure is worse than the disease.
Most of the time that is true, but sometimes the reason (an otherwise good technical idea) won't catch on is that it requires everyone to agree to change their systems at the same time. This is just infeasible. The closest we've come with systems that aren't fully backward compatible, is IPv6 and that still is struggling. Allowing for subsets of users to adopt and still get benefits allows for some incremental adoption - such as the attempts to add authentication to email with SPF, DKIM, DMARC and other tools. That has made things better, in part, but the coordination probably is very real even when the incentives align.
And you didn't even mention the absurdly high energy costs to keep the crypto machine running, which are estimated at ~0.5% of global energy consumption. That's a pretty high negative externality for something whose main purpose is mostly to enable criminal activity.
The Times said bitching mining was “close to half a percent of all electricity consumption.” But most energy comes from wood or fossil fuels, so the 0.5% figure is way off.
It demonstrates the inefficiency of the technology. We don’t hear about Visa consuming 2% of global energy. That said, Etherium seems to have dealt with this specific problem with proof of stake.
They are claiming proof of stake uses 0.5% of the energy used by proof of work. That's huge, but without a good comparison to the energy use of established finantial system per person served, it's hard to know if they have really dealt with the problem.
In any case, the bitcoin developers think moving Etherium to proof of stake makes them far more vulnerable to brute force attacks. I don't have the chops to agree or disagree, but it does indicate that Bitcoin has no plans to move to proof of stake. Hence, the energy consumption problem is still (IMO) a show-stopper for crypto.
Bitcoin started the industry, but blockchain technology in general is in no way dependent on Bitcoin, so you can consider this a show-stopper for Bitcoin (and other proof-of-work blockchains), but I'm not sure why you'd consider it a show-stopper for crypto as a whole. Unless, that is, you have decided that proof-of-stake doesn't work (as someone who works in the industry, I consider this pretty thoroughly discredited at this point; proof-of-stake has slightly different trade-offs than proof-of work, but works fine).
Yeah, I was being a bit too vague and broad with my comment. Maybe I should have said "as long as crypto coins are are mostly based on proof-of-work, having some proof-of-stake blockchains does not offset the enormous energy usage being consumed by the entire industry." And even with everything proof-of-stake, it's hard to assess much energy would be used as it scales up.
As someone inside the industry, do you have any insight as to why different groups choose different methods? Is my outsider's view of bitcoin developers being hostile to proof-of-stake correct?
There are arguments about whether proof-of-stake is sufficiently secure, as far as I'm concerned that debate is pretty much over both because the arguments against proof-of-stake are weak, and the value currently secured by proof-of-stake (even before Ethereum's switch) is substantial. I wouldn't say that *anyone* arguing for proof-of-work is doing so in bad faith, but they are in a pretty small minority at this point.
In my opinion, if Bitcoin would even partially replace gold as the "store of value", it would be pretty self-defeating. By demonstrating that technological innovation could cause the consensus to move away from the previously "agreed upon" store of value, Bitcoin would actually undermine it's own value proposition. I think for this reason, many Bitcoin enthusiasts tend to be very negative about *all* other cryptocurrencies... many of them try to make it about proof-of-stake versus proof-of-work, or other more defensible issues, because in reality the mere existence of other cryptocurrencies kinda disproves the value proposition of Bitcoin.
It does seem to me that the main people arguing for proof-of-work are the miners who directly financially benefit from it.
AIUI, the best-case argument for a problem with proof-of-stake is that if someone owns a majority of the currency then they can steal the rest.
But that's only really a problem with either a small currency or a private one. For small currencies, though, the solution is clearly proof-of-work until they get big enough to switch to proof-of-stake (if the currency is small, the reward for the proof-of-work is also small, therefore the amount of work required will remain small and the energy consumption associated will stay small and unproblematic).
Private currencies are just a bad idea in general. FTT is a classic example: the money is only worth what FTX says it is; they can take the value away at any time. If you want to do a corporate bond on crypto, then issue a smart contract, not a private token.
I have a very hard time believing that figure. I doubt that all computer use adds up to 3% of global energy consumption-- planes, trains, automobiles and rheostats are much more energy intensive than computers.
The Times said bitcoin mining was, at peak, “close to half a percent” of global electricity consumption. However, electricity is hardly the only form of energy, so this figure is off by at least a factor of 2.
Although Bitcoin mining is energy intensive, I believe almost all newer blockchains use proof-of-stake, which does not have this issue. Ethereum very recently switched to proof-of-stake too.
Are hoverboards the one wheel thing you ride like a skateboard? I see those about as often as I see privately owned electric scooters, which is a lot more than I see Segways (but a lot less than bicycles or shared scooters).
I think the term covers any sort of electric skateboard-looking thing. I recall they were hot until they started catching literal fire due to faulty electronics.
Please! More overt examples dismantling libertarian grand theories about the economy, world history, society, and systemic incentives!
You've mentioned that Peter Thiel has a very bad theory of everything, dependent on many misreadings, but I'd like to know what those are!
These guys are very influential, and yet have very specious reasoning.
I can get that occasionally they're worth endorsing because they appear like "Rationalists" who use numbers and have an aesthetic of objectivity, but they often use ambiguous language and paint themselves into a corner, all to the ends of making sure that reach people pay lower taxes.
This comment amounts to "tell me more about how to hurt the bad people" ... And there are three upvotes?
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Edit - I'm appending a note here since I do not stand by my comment in its original form, it seems to be attracting more responses, and people may not feel like digging farther into the nested thread.
To paraphrase one of my other comments: I don't have any objection to refuting people, I'm just surprised more people don't find the parent comment gross: my sense is that a lot of Slow Boring readers are interested in challenging their assumptions instead of simply confirming them. The comment's author was straight-up and forthrightly asking for more content that flatters their preconceptions, which is bad by itself, especially since this is a "Let me Google that for you" topic where a simple search would yield nigh-infinite results.
Wow, touchy responses, though obviously my fault for using the language of harm.
Here's another attempt: "Please provide me with appealing arguments explaining why I don't like the bad people." I mean, maybe that accounts for 90% of the takes industry, and God knows I like it when Matt does it, but it's appalling to see someone pleading for more intellectual junk food so baldly, and then get upvotes on top of that. "Please throw me more red meat!"
Sure, you can reword the question all you want, but at heart it's asking MY to pick apart the actual worldview of someone like Thiel in detail.
If you asked me to do that, you'd get a scathing screed culminating in advocating a treason trial and a no-drop hanging.
Which is why I'm not going to do it, will instead read whatever Matt writes, and use it to inform my views going forward, and because of the degree to which I regard Thiel's views as illegitimate in every way and every particular, I cannot help but coming away from such a piece with a bit more nuance.
Thank god you understand! It's not about dunking, or being fed red meat, it's about hearing a proper Mattysian steelman of the argument, but also getting behind a lot of the slanting references Matt has made to these anti-social plutocrat apologists.
Because they might not be bad people, but they do sure keep saying a lot of bad ideas, and doing bad things.
I think you'd be surprised how much a proper dissection of libertarianism would challenge a lot of people's assumptions and wouldn't flatter their preconceptions! Matt might even agree with certain libertarianisms in ways that I don't expect, and don't agree with!
The thing is Matt's done a lot of these strange pokes at libertarians for inconsistent, ineffective, and incredible ideas, despite being so broadly influential to a broad very online engineer/finance/video-game/programmer type dude, and I'd like to hear more about it. So I think they can handle it, without being threatened or feeling demonized!
Matt's already mentioned how he think Peter Thiel's doing bad things with a bad concept of history, and now we have Elon Musk spouting "classical liberal" rhetoric without following it up, so it's very topical, but very misunderstood.
There's even very interesting things going on with the actual Libertarian Party, with their weird Mises Caucus, and how their members fit into the broader "persuadable independent swing-voter" theory of how to win elections.
Ok, ok, you guys have had your fun, and I deserved it. In case it isn't clear from my follow-up comment, I don't have any objection to refuting people, just poor judgement about posting quickly.
I'm surprised more people don't find the original comment gross: my sense is that a lot of Slow Boring readers are interested in challenging their assumptions instead of simply confirming them. The comment's author was straight-up and forthrightly asking for more content that flatters their preconceptions, which is bad by itself, especially since this is a "Let me Google that for you" topic where a simple search would yield nigh-infinite results.
I was confused by your original comment but I agree with what you're saying here. That said, a few posts examining major strands of Libertarian thinking wouldn't be bad or inappropriate and I'd probably find them interesting. But I don't want them to be "take downs" unless the ideas are actually that bad.
The difference between "examination" and "take-down" is almost entirely in the eye of the beholder.
I find libertarianism so fundamentally illegitimate, its moral bases so profoundly fucked up, its beliefs about human nature so un-empirical, and its predictions so utterly wrong... that literally any degree of one-sidedness in an "examination" will not surprise me. I would *expect* an unbiased observer to basically say "yea, this is complete shit without redeeming value."
And that goes at least trebly for the views Peter Thiel espouses, as they're basically libertarianism with an explicit, large dose of neo-feudalism. Why he expects, as an openly gay dude, to survive the imposition of pseudo-religious neo-feudalism is beyond me, but he seems to...
In any case, I expect someone who believes libertarianism has value would regard what I consider to be an unbiased examination as a take-down built on a foundation of dead strawmen.
I am not a libertarian but I honestly have no idea what beliefs you could ascribe to libertarianism that would merit the level of your confidence in their wrongness.
I also find the intense hatred of libertarians that seems to have cropped up very recently to be a bit strange, my impression from just last year was that most people didn't even really know what libertarianism was, now it seems every other person on the internet is convinced with absolute certainty that they are all murderous pedophiles or something and I feel like I missed some significant event in the western world revolving around libertarianism to explain this radical shift from indifference to hatred(not that your hatred in particular is a new thing).
FWIW I agree, I found the post vaguely distasteful as well, and that makes me a hypocrite I guess, because just the other day I was thinking I would enjoy it if MY dunked on activist donors, which feels directionally similar. The desire to dunk on people is strong and I think it is very useful to have corrective reminders against the impulse.
I think Smart Contracts may be something genuinely new, but overall I agree incredibly with this post. Bitcoin and the blockchain, in particular, are just a super-energy intensive system of title with no protections for mistaken transactions.
The latter part (no protections) is mostly bad and means that as Matt says its only real applications are extralegal (arguably Silk Road was the bootstrap for getting BTC to more than $0, for example).
The first part - a system of title - is actually an incredibly valuable and important part of a system of exchange, which is *exactly why it's basically a solved problem and has been for centuries.* Title to real estate has been a concern of the state apparatus since time immemorial -- literally! "Time immemorial" in the context of (English) property law actually refers specifically to the time before the year 1189, which is the epoch for saying "this person owns this property and has sound title since they have owned it since time immemorial."
What the blockchain enables that is new, is criminal, and what the blockchain does that is not criminal, is not new.
Yeah, it cannot be emphasized enough that one of the primary features of blockchains and cryptocurrencies that their boosters like to point to — immutability — is very, very bad! You _want_ slack in the system, and you want the ability to roll back fraudulent or mistaken transactions with minimum friction.
Replicating the most obvious failure mode of a mattress stuffed with cash (someone can steal your mattress and then you never get the money back) is an extremely impressive technical feat for an online ledger system. It’s just gobsmacking that anyone would think it was a good idea.
Except some people have good reasons to stuff their money in a mattress. Also, even though I don't do that, I have to admit I'd feel more than a little uneasy in a world where such a thing was impossible. The mere ability to stuff assets in a mattress is a comfort whether you rely on it or not. The ability to do the electronic equivalent is bound to provide similar comfort.
When I worked on systems related to consumer fraud a few years ago - the most common mechanisms to move around money instead of cash was was pre-paid credit cards. You can transfer them physically, or you can use the account as a CC. To get money out of the country you often could just use western-union, but first you transfer money around between people with cards to obscure the custodial chain. Some of the those "earn money from home" type placards you see around town without specifying the job often related to this: they were for money-mule roles where you received cards from defrauded people (like those with online "relationships" where the person suddenly needed money for car repair) and then transferred that out of the country for cut (under the flimsy veneer of helping with NGO donations or something)
So I don't disagree -- cash is useful! But then we come to a second problem: cryptocurrencies are a really bad replacement for cash! They require the same system of nation-states and central banks to make them useful as a medium of exchange, you can't access them during a major power outage, they're much easier to steal, and the throughput limits on the various blockchains mean that you can't use them for any kind of transaction where time is of the essence.
If you've decided mattress stuffing is your optimal choice, you are already in a world of less than ideal options. I think the relative merits of cash and cryptocurrencies are pretty situational. Unlike cash, cryptocurrency can be transmitted long distances, weighs nothing, is easier to hide, and may even be less volatile than certain other currencies. Cash definitely wins other categories but having access to both allows people in bad situations to tailor their portfolio to best fit their needs.
Smart contract may have their place now and in the future, but in the foreseeable real world of how commercial contracting is actually done, I'm pretty sure that more mundane reforms, like updating the Uniform Commercial Code and having Congress adopt it as federal commercial law to govern transactions nationally, with real incentives for buyers and sellers to simply go along with the default terms to reduce the amount of time wasted on dickering peripheral terms, would do a lot more to streamline and promote efficiency in contracting, than blockchain type technology.
I think Smart Contracts’ value is as much or more in preventing counterparty nonpayment dickery and automating enforcement witnout requiring extremely expensive recourse to the courts (Cf. Amazon [EDIT: meant to say “Twitter,” not Amazon] deciding that it’s just…not going to pay rent or all of the promised severance, or the apparently notorious net-payment and underpayment practices of Walmart et al to their suppliers) as it is allowing arbitrarily fanciful terms of trade.
I could be mistaken, but my impression is that companies like Amazon or Walmart with massive market leverage vs their suppliers don't so much just outright ignore their contractual obligations to pay, as use their disproportionate leverage to force one-sided terms on their counterparties that give them the contractual right to withhold or offset payment if certain broadly and ambiguously described factual situations have occurred. A "smart" code-based contract won't know if one of the contractually stipulated factual predicates has occurred that allow for withholding of payment. For that, some type of dispute resolution adjudicator is needed, where the disputed facts can be presented and evaluated.
Smart Contracts absolutely are going require an oracle—viz. some arbitrator of what the truth is—so it may just be shoving the arbitration problem elsewhere on the chain — but they definitely *don’t* allow for ambiguity once their terms are met — a computer doesn’t have any notion of whether goods are conforming, etc., although the contract could require some oracle to give yes/no on a “goods are conforming” question, so as you say, the hope provably has to be more about lowering arbitration costs rather than avoiding arbitration entirely.
Also total mistake on my part re: mentioning Amazon—I meant the recent example of *Twitter* just deciding to not pay rent. In this case you can maybe try to solve the oracle problem by sponsoring a Keynesian beauty contest at lower cost than a court proceeding, although that would have to be encoded in the contract itself, which as you say has serious bargaining power problems.
AFAICT the real problem with the bigger co.s screwing over their suppliers is that too much secrecy is allowed with respect to the terms of trsde and course of dealing so they don’t suffer the reputational harms that they should, which in turn would lower their bargaining power. Instead smaller suppliers contract with the big guys, go into debt to finance the expansion, and now are totally beholden to their biggest customer not to go under.
I don't think the comparison to gold even works, as gold's properties means it can obviously be used to make jewellery as well as serving a purpose in some electronics. Crypto doesn't do anything at all
Hell if nothing else a lump of gold can make for a very aesthetically pleasing paperweight. A bar that cryptocurrencies and NFTs very conspicuously fail to meet.
I used to work for an anti-money laundering NGO. We heard this argument a lot about crypto back when it was commonly used to purchase drugs on the internet, before Silk Road was shut down in 2013. We used to hear similar arguments about other money laundering methods used for crimes that people thought weren't so bad (often evading taxes, currency controls or oppressive regimes seizing assets).
Our reply was always that you can't pick what crimes a lane for money laundering is open to. If you can hide the source of funds or disguise it, any criminal can do it too. There's no fundamental difference* between money laundering to evade currency controls and money laundering to hide the proceeds of sex trafficking.
*There's some nuance here. Certain activities lend themselves to different types of money laundering. But crypto is an all-purpose workaround for our AML system.
They did manage to catch and prosecute criminals before the KYC/AML system was created. It's never been clear to me why we tolerate so much financial surveillance and reporting in ways we would never tolerate analogous physical surveillance. The system just seems like a way to circumvent 4th amendment protections to me.
Then again, physical surveillance is getting much more powerful these days too and is generating minimal outrage. Still, as far as I know, most places operating security cameras aren't sending automatically generated mandatory reports to the government about the comings and goings of all people on their premises including gait and facial recognition data.
I don't have much to say other than you are wrong about the importance KYC/AML system. I mostly worked on policy in countries that didn't have an effective AML system. The alternative is financial anarchy, massive corruption, tax evasion and crime on a scale unimaginable in the U.S. If you think Nigeria is a good place to head toward, then kill the KYC/AML system. There's a reason why every developed country in the world has some version of it.
Just one example of what banks do when KYC/AML isn't enforced:
As another KYC/AML advocate, I just want to chime in with supportive analogy.
You need a driver's license, car registration, and insurance to drive. In a narrow framing, that is a restriction of privacy and freedom. Yet these restrictions are necessary because cars are dangerous. We want to ensure that cars are used responsibly so therefore the privilege of driving requires these restrictions, including documentation of ownership and active driver certification. One can always walk or take the bus if they find these restrictions overly invasive.
Similarly, the modern finance system is incredibly powerful. Anyone can move arbitrarily large amounts of money with trivial effort, yet solid guarantees of security and fidelity. Even at a small scale, electronic funds transfers can greatly facilitate crimes. E.g., selling child pornography over the internet with electronic payments. Therefore we have instituted numerous regulations and restrictions around banking, including KYC/AML. One can always use cash if they find these restrictions overly invasive.
Regulations also include strong protections against misuse of KYC/AML information by either financial institutions or the government. That includes narrow access controls and permanent audit records of all access as well as criminal penalties for misuse. This is similar to how a police officer can be charged with a crime if they attempt to misuse DMV records. Our government is therefore guarding the privacy of individuals who comply with its regulations because that is recognized as important.
I’m not much of a political theorist, so I don’t care a lot about the justification. I’ll only add that the alternatives to the current AML regime are much more intrusive than what we have. For example, right now lots of activity that is kind of sketchy, such as depositing $100,000 in bulk cash at a bank branch, triggers requirements that banks start knowing something about the source of funds and a suspicious activity report. Obviously, this regulation prevents laundering money from business that generate bulk cash like drug cartels. Some legitimate businesses generate that much cash, but not many.
One alternative would be to ban depositing bulk cash over a certain amount entirely, or to require permission from a government regulator that requires that you prove where the money came from. That’s basically what happens when you try to bring cash through customs. It’s intrusive as hell. Better let the intermediary bank do a risk based assessment and let a person deposit their money in the mean time. The bank only has to outright refuse to do business if it knows for sure that the source of the money is crime.
The problem with crypto is that there often isn’t an intermediary. I can transfer infinite amounts of crypto from A to B without an institution subject to AML regulation being involved. This isn’t a huge problem right now for a lot of reasons, but mostly because pretty much no one buys normal goods and services with crypto, so a criminal has to eventually go to a real bank and exchange it for real currency. Banks are for now required to treat those transactions as bulk cash, but the crypto industry doesn’t like that. If crypto were used to buy things, criminals could just live their life paying in crypto. That’s real bad and would likely prompt very intrusive regulation like banning merchants taking crypto over Z dollars.
That analogy is one way to look at things, but I don't think it quite fits. The roads are arguably government owned infrastructure so it has a pretty clear justification for making rules about their use, but the financial system is really more of a network of agreements and communication channels between private banks. As you said, if you don't want government intrusion into your life, you can still take the bus to travel long distances on the roads. It's not clear what the equivalent outlet is for financial transactions. Cash is too local to fit the bill.
Perhaps a better analogy would be the internet. It too is very powerful and useful, but also dangerous. Still, so far we have avoided doing things like banning end to end encryption and VPNs and TOR or requiring anyone providing internet access from ISPs to coffee shops to KYC. There are people pushing for these things, and such things are already the norm in China. Despite not having that level of regulation in the US, I don't think the internet has brought us to an era of unprecedented crime and danger. Every few weeks there is a big story about the government arresting cyber criminals or shutting down a black market, so internet criminals are being arrested with our current tools. But if we move in the direction of a heavily regulated internet, I guarantee you that when I make the point in 50 years that maybe end to end encryption and anonymous internet usage is okay actually, I'm going to be pounced on by people outraged that I'm suggesting something that "could greatly facilitate crimes".
There is a balance to be struck between liberty and safety, but when a government can cut protestors or strikers off from the financial system, you know that you've gone too far. The vaunted "protections" that should exist in a developed nation's AML/KYC system didn't do much to protect the Canadian protestors from being targeted earlier this year. Governments shouldn't have those tools. We shouldn't be giving it the authority to do such things, but in case that fails, we also shouldn't be giving it tons of information that can help it piece together which accounts it wants to target. That's AML/KYC.
Once again, that can't possibly be right. The US was not suffering from massive corruption, tax evasion and crime on an unimaginable scale before the KYC/AML system was set up in 1970.
I'm not going to bother educating you here. You're wrong. Do your research. If you think that a libertarian vision of civil liberties is worth the cost of rampant crime, that's you're decision. But don't confuse political theory with policy analysis.
Our old reports at Global Financial Integrity were pretty good. I’ve never seen any real explainers on the Bank Secrecy Act, but that’s what I would Google. I learned the details from the people around me, but that was my job. Maybe go see if you can find some old Carl Levin hearings on money laundering.
I admit to a fair amount of schadenfreude over all of crypto’s struggles. I spent 27 years in corporate finance, and have a decent understanding of how the financial system works. I’ve never been able to figure out how, exactly, cryptocurrency would be both safe and widely useful. So far, it’s neither. And with respect to gold: anyone stockpiling gold in anticipation of a complete societal collapse is delusional. Like paper dollars (and diamonds, for that matter), it only has value because lots of people agree that it does. But you can’t eat it, or shoot anything to eat with it, or grow anything to eat with it.
Regarding gold, while no-doubt there are some collapse people that have odd-ideas about the value of a gold in an apocalypse, the steel-manned (and I'd argue more common) justification is that gold acts as a hedge against inflation, seriously bad governance, and acute economic turmoil. That utility debatable in practice (especially given historical examples of currency controls, or outright confiscation in the applicable scenarios) but certainly is plausible. If we had another Trump-like presidency that led us down the path to becoming Argentina, would having some fraction of your assets in gold make sense? Especially if the rest of the world, while impacted, remained functional? What about another great depression and a collapse of equities markets? Or 1970s style hyper-inflation? These are very possible scenarios, though I'm not sure gold is the right tool to hedge against them.
This substack post - https://cryptadamus.substack.com/p/by-the-claw-satoshi-is-revealed - makes a speculative but fascinating case that the inventor of Bitcoin is... an international criminal who had a huge interest in money laundering, and has been of interest to the authorities since right about the time that Bitcoin's anonymous inventor went quiet forever.
It's a pretty compelling circumstantial case that would really benefit from some proper investigative journalism being directed at it. If you enjoy the post (which I think you will, its excellently done) it would be amazing if you could help to bring it to the attention of the type of people who might be inclined to direct resources towards digging further.
Is it just a coincidence that Neal Stephenson’s book Cryptonomicon is about a cryptographic genius who devises a way to get WWII era gold out of the Philippines, and Paul Leroux was a cryptographic genius who later went on to smuggle gold out of the Philippines?
Well that was fascinating. I'm not 100% convinced Le Roux is Satoshi (though not convinced he isn't), but I already have a kick ass movie about him playing in my head. And I thought the FTX saga would make a great movie. Still think that, but that Le Roux thing is something else.
I'd never heard of La Roux until now, and went to Wikipedia. Did he write his own page, which took half an hour to read. The guy is kick-ass the most evil person in the world and clearly deserves a movie and screen-writing and producer credits. Not surprising, if Wikipedia is accurate, he's a white Rhodesian
Adam Back [1] is Satoshi Nakamoto. Or at least that is the general consensus among the Bitcoin enthusiasts I know. I went down this rabbit hole a couple years ago and came away generally agreeing with that theory.
I believe the 2020 video from Barely Sociable, “Bitcoin - Unmasking Satoshi Nakamoto” is the canonical presentation of this theory. https://www.youtube.com/watch?v=XfcvX0P1b5g
> In particular, Barely Sociable revealed that Adam Back described blockchain technology as early as 1998. Notably, his research was the same as the Bitcoin white paper published in 2008. However, prior to the release of Bitcoin, Back disappeared during 2009 and 2010, which coincided with Satoshi’s Bitcoin development period. What is more interesting, after Satoshi left, Back appeared again on the bitcointalk.org forum
> Since the creation of Bitcoin, Adam Back has been strongly supporting the currency. Being very passionate about BTC, Back has made incredible price predictions several times. In 2020, he stated that BTC was likely to reach up to $300,000 in a 5-year perspective, even without institutional investors’ support. In addition, Back believes that in the future, people will realize that Bitcoin helps protect from inflation as governments keep printing money.
Personally reckon this is the second most plausible. The difficulty with all the theories is that there are holes and things which don't add up, which potentially bears out some collaboration between two or more of the most obvious people. One of the people being involved being an international criminal would be a great reason to go dark forever though!
I appreciate and agree with your conclusion here that the rule of law is an important abstract technology. I think there is some tension here with your past occasional commentary to the effect that judges, justices, courts etc. are to some degree just a pretext or front for politics. I would value your further exploration or explanation of your beliefs on the value and legitimacy of the judiciary.
I think Matt's skepticism about the judiciary mainly involves constitutional rulings: situations where judges are empowered to overrule legislators' clear intent based on their interpretation of an inherently vague document.
When judges uphold contracts, property rights, etc., they're acting in accordance with legislation (or sometimes in accordance with common law, but legislators are free to override common law if they don't like it). The issue of politics disguised as neutral jurisprudence doesn't really arise there.
I don’t necessarily see a conflict between saying something is important abstract technology and also that it is a front for politics. The very idea of democracy is itself both of those things!
True, but I think Matt is making a distinction here. (Or maybe I'm just projecting my own opinions onto him, as I sometimes do.)
Every liberal democracy needs an independent judiciary, but there's not much evidence that liberal democracies need a judicially enforced bill of rights that constrains legislative authority. It doesn't seem to be all that effective, because when public opinion supports policies that some would define as "rights violations", the politicians just end up appointing judges who allow the alleged violations to take place. (Think of capital punishment, or horrible prison conditions. The federal courts have tinkered around the edges with those issues but they haven't taken any dramatic action, because judges who would like to do that don't get nominated to the Supreme Court.)
Having legislators directly accountable for citizens' rights just seems like a better approach. I think Matt has said nice things about the Canadian system, where there is a Charter of Rights and Freedoms that judges can use to strike down legislation, but parliament can neutralize it by explicitly stating in the text of a law that it won't be subject to judicial review (the "notwithstanding" loophole).
Tech people don’t understand banking. One of the worst experiences of my life was using an online bank owned by an edgelord VC type (SoFi) for a home deposit because I had to get a lot of money transferred quickly, which is just much easier if you have an actual human to work with (or at least a non-zero level of customer service). The customer service was so bad that I’m probably just going to stop using online banking entirely and just park spending money somewhere it doesn’t get interest, and keep the rest in Vanguard.
Yes, although the US financial infrastructure could use a tech upgrade regardless of crypto. It is horrifying the extent to which trillions of dollars are moved daily through rickety software systems using tech standards developed decades ago.
For example, there is no technical reason that most financial transactions require a day or two to settle; i.e., show up in your account. But the original fintech systems were designed to augment highly manual processes that could only be managed in daily batches. Further, the tech of that era was extremely underpowered compared to today and couldn’t have supported real-time settlement anyways.
Worst of all, far too much of the original code from that era is still being used despite the fact that none of the current engineers understand it. Some of these issues are presented in the 2017 Reuters article, “Banks scramble to fix old systems as IT 'cowboys' ride into sunset”. [1]
> The Common Business-Oriented Language was developed nearly 60 years ago and has been gradually replaced by newer, more versatile languages such as Java, C and Python. Although few universities still offer COBOL courses, the language remains crucial to businesses and institutions around the world.
> In the United States, the financial sector, major corporations and parts of the federal government still largely rely on it because it underpins powerful systems that were built in the 70s or 80s and never fully replaced.
> And here lies the problem: if something goes wrong, few people know how to fix it.
There isn't a technical reason why your financial transaction takes two days to settle, but there is a financial reason. It's called the float, and it adds up to big money for banks. Rickety software has nothing to do with it, but it's great for the banks for you to think so, so they can continue enjoying the float.
No, batch vs. real-time settlement does not constrain a bank's ability to earn on float since that only impacts at most 1 day of liquidity. They are instead constrained by regulations like liquidity coverage ratio requirements, which requires them to hold high quality, liquid assets of at least 30 days of outflows under high-stress conditions. [1] In general, banks met HQLA regulations by holding central bank reserves. [2] Those reserves are pure liquidity and are the lowest yielding asset available to bank balance sheets.
As they should given the importance of the banking system to American prosperity. The fact is banks earn about a 2% spread between their interest costs and interest income, and their equity values are the capitalized value of the difference. If you want America to become a Balkan state where crypto runs wild, by all means de-regulate the banking system. That your deposit takes two days to settle, instead of one minute, is a small cost to bear.
I agree that their return-on-equity is appropriate and am not arguing otherwise. I’m simply diffusing the faulty argument that they earn more with batch settlement than they would with real-time. In actuality, banks are resisting modernization because it would cost them a lot of time and money.
Further, I’m not arguing in favor of bank de-regulation nor crypto. I’m instead petitioning for regulations that require banks to upgrade their financial tech infrastructure. That includes requiring both support for real-time settlement and the usage of modern engineering practices.
This pivot seems to be entirely in bad faith. Please provide a quote where Matt suggested any form of deregulation, as opposed to regulation mandating infrastructure updates?
Not sure if this comment was directed at me. But a quote: 'a foolish consistency is the hobgoblin of little minds, adored of statesman and divines.' Emerson, not Matt, who's always intelligent and is going to need a huge infrastructure bill and tons of regulation to support a billion Americans. My faith is good, even if not always consistent.
Fun anecdote. For a very brief period I worked at Bank of America in spring of 2009. Work in real estate industry so you can imagine this was a bit of a crazy time. And I could probably right 20,000 word essay about my 8 weeks at BoA (you read that timeline right). Like the details of why a someone hired at the same time I was (along with literally hundreds of others) was arrested like days after their first day.
But to keep in on topic. In 2009, the system being used to process and underwrite residential mortgages at one of the biggest banks in America...was MS-DOS (?!?) I understand this is now 13 years ago and I have to believe they've updated their software since then, but even in 2009 using MS-DOS was ancient. And not shockingly, it was buggy as all hell. For example, you could be working on a loan and then a glitch would happen and a previous loan you may have been working on would come on screen. Except if you weren't paying close attention (i.e. on the phone or had to go to the restroom), you very well may not have noticed and start making all sorts of updates to a deal...that are completely wrong updates.
Considering BoA was one of the biggest mortgage lenders in the country (likely still is), my 8 weeks there was an extraordinarily revealing experience.
Yes, it uses a different technology. Or more specifically, Zelle is a technology layer on top of the existing batch settlement system. Behind the scenes, the banks are still batch settling. Beyond the tech, new contractual terms are what allows the banks to immediately offer funds to recipients. Specifically, Zelle provides sufficiently strong guarantees against counterparty risks (e.g., a bounced check).
There is work-in-progress to introduce real-time settlement between banks, including some Zelle payments. [1] This leverages the Real-Time Payment network, an actual technology and business relations solution for real-time settlement between banks. [2] RTP is a new service provided by The Clearing House, a banking consortium that has been managing settlement between banks in the US since the 1850’s. They developed the original Automated Clearing House service that is central to current batch settlement in the 1960’s and RTP is their anointed successor.
The Federal Reserve is also working on a solution for real-time settlement named FedNow. [3] It is roughly an improved FedWire. Notably, it offers 24/7/365 availability, lower transaction costs, and modernized tech standards. FedNow is planned to launch next year and it is a major milestone on the road to eliminating batch settlement.
I don’t know about Zelle specifically, but often transactions appear to move faster than they do, but could theoretically not go through a day or two after. Venmo used GM have this problem. The Fed needs to build a better system than ACH, but the transition costs are huge for all involved.
No doubt the social technology of deposit guarantees and the bank regulation necessary to support it have been very useful, especially when they were first implemented. But today I can't help worrying that they are paving the way to panopticon. Those regulations opened the door to AML and KYC, which combined with ever more powerful computing is going to give states the power to target transactions they disfavor at the individual level in real time.
As Scott Alexander said in his post - "Freedom of speech is hollow if you can’t pay the print costs for your magazine. Freedom of religion is hollow if you can’t pay the rent on your church. The freedom to protest is hollow if you can’t pay bus fare to the protest site."
Even if the US government hasn't quite crossed that line so far (and Scott cites several examples where maybe they already have), I think we need to start considering whether we might want to diversify away from the infrastructure that makes it a possibility. Just as it's very useful to have a robust clean energy industry around when you're trying to end the dependence on fossil fuels, it's going to be useful to have a robust alternative finance industry around if we want to reduce our dependence on a useful social technology that is nevertheless starting to become a big liability.
The Segway, originally intended as transportation, now mainly serves the niche 'analogy' market.
I mean I do see people doing tours on them downtown
A niche modernist analogy used in service of teaching people more niche historical analogies, the irony!
I’ve wondered why Segways serve that function in a way that e-bikes and scooters don’t. Some of it is just that Segways were around a few years earlier, and some of it is probably that the standing position on big wheels is more comfortable than the bike sitting position and the scooter small wheel situation (which makes every crack in the pavement dangerous). But I suppose tourists care more about these things than commuters or people getting around town, which is why Segways persist in that one market rather than the others that bikes and scooters own.
I did a Segway tour, convinced my elderly mother to do one as well. It's incredibly hard to fall off a Segway, much, much harder than a bike or scooter. On a tour with a tour guide no one ever falls off unless they are trying to do tricks.
That's the real value of Segway in this niche application, all the tourists need to do is stand, lean, and turn the handle a bit for the entire tour.
I can assure you that people (tourists on tours) regularly run into things, each other, uneven ground, etc. and fall off. Novice, drunk, over confident, I'm not sure, but I watched it happen over and over and over in DC...
Sure, but if you watched that same group of drunk unathletic people try to use bikes thousands of times over the course of years, how many more falls would you have seen? I'm guessing like 10x-100x.
I fell off a Segway in 2010 (first time using one) but it's because my guide suddenly braked and I didn't. A construction guy waved at him and he thought it was because he was about to hit a patch of wet concrete. Turns out he was just being friendly. I just scraped my knee but apparently another tourist broke her ankle earlier that week.
But, of course, ebikes (which I have also fallen from) are MUCH more dangerous and unstable, IMO.
As a former Segway tourguide, this is —unfortunately — 100% false. I saw many people fall off (including my own mother) and had one person fall and injure herself so badly she needed surgery.
Hopefully this is NOT a crypto application!
I spent 3 years living next to a Segway tour place on 23rd NW by GW. I tried relentlessly to convince my now wife to do a tour with me, always failing.
Probably didn't help that we watched tourists crash and fall off them near-daily...
With Segway analogies crowding out the market, buggy-whips have gone the way of the buggy-whip.
(But when people start basing their analogies on crypto itself, they'll be digital-ies instead of analog-ies).
Digital-ies/analog-ies is brilliant despite the pun also being a crime against humanity.
And you come along and write the Segway of SB comments
...did I do that right?
Also the one wheel and euc which are really similar concepts but improved form factor
Matt,
What is more difficult to understand is why what you say here isn't obvious to everyone. And it gets back to "what is money?" Of course, money is what everyone agrees it is. But who is everyone?
More than the rule of law and property rights, it is a 25 trillion dollar economy, the most powerful military in the world, and relative political stability for 250 years that makes most people agree on the value of dollars. Otherwise, I might be sending you a box of tulips to pay for my Slow Boring subscription.
I’ll take some flowers :)
What are you banned from?
https://www.slowboring.com/p/elon-musk-is-the-latest-victim-of/comment/11158295
Bummer. I've always felt a connection as another adjective-noun account.
It's only for a day, and he should try to be a little nicer. Although in full disclosure, I liked that comment.
The crypto hype is premised on a worldview that doesn't correspond to the social conditions necessary for real prosperity and thriving -- community governance vs every person for themselves; rule of law vs Wild West; trusted intermediaries vs trust nobody -- crypto is on the wrong side of every one of these.
Most the use cases I've heard for crypto, blockchain and related technologies seem to start from the premise that it's better to solve problems arising from lack of trust or weak community by doubling down on lack of trust, and building a more technologically advanced fortress, rather than solving the root civilizational problems and improving governance, community institutions and rule of law.
At least the libertarian/anarchist goldbug era of early Bitcoin was more honest than the “web3” promoters. The early enthusiasts were explicitly hostile to managed financial systems and these weirdos mainly just discussed the sociopolitics of money amongst themselves. None of them promised the vaporware of a new internet.
Even the Silk Road era was markedly more truthful. These Bitcoin promoters wanted to facilitate financial crimes, notably purchasing illegal drugs. Some of them were politically opposed to drug laws and saw Bitcoin as facilitating social productive civil disobedience. Others were just criminals who appreciated how the tech helped them commit crime.
“It is in my best interests to not give a fuck about my neighbor, and I won’t be made to” is probably among the oldest dozen political/communal fallacies.
I mean, FFS, Moses felt the need to promulgate rules about it 3500-off years ago, lol.
Allan: Right you are and the result is now available for all to see at the hands of Sam Bankman-Fried. Rejecting social organization will always end this way. It's what makes us human and provides whatever order there is - however stressful and disconcerting this can be at times. And exactly what problem is Crypto solving?
30 years or so ago a friend of mine (at the time) moved to Senegal and put all of her savings into a foreign bank in Dakar. She lost every penny. Goes right to the heart of Matt's post.
Tulips power the second largest agricultural exporter in the world!
That is soon to become a lot smaller of agricultural exporter because their government decided to act like Zimbabwe.
Money, can be anything, but generally, you'll want to have on hand whatever it is you need to pay your taxes with!
This is really the one big thing I actually learned from David Graeber.
Touche!
"why what you say here isn't obvious to everyone"
For as weird as the idea is, a few cryptocurrencies have gone through significant booms and made some people quite wealthy. People can overlook a lot of obvious flaws if they think they'll get rich.
About a year ago, I was talking to an acquaintance who was getting into crypto. I made some comment about how it was a bubble and they nodded, said they knew, but they were going to get in early and then get out before it popped. It's a good strategy in theory, but unless you're clairvoyant, you can't be sure to get out before that bubble does pop.
My assumption is that unless you have real insider information, by the time people are saying this is a bubble but they plan to get in and out before it pops, it's too late to get in and out before it pops.
Of course. Greed. Easy money. Works until it doesn't. Thus my comment about tulips. 1637 Holland. Many fortunes wiped out. Only works if you get out early enough. Like walking away from the poker table in Las Vegas when you are ahead. Very few people have that kind of discipline. And that's because they don't understand they are in a speculative bubble.
I agree -- this whole crypto boom and bust episode reminds me of the run up to the financial crisis when it was clear that something bad was going to happen as a result of giving mortgages to people who couldn't afford them based on inflated home values but it just kept going (until it didn't). I was too financially unsophisticated to understand the strange financial products underlying all of that lending but it was abundantly clear that it was a bubble that would pop.
Well its more than that isn't it. Money has to be tethered to something of value. In ye olden times that was precious metals or even livestock, but today its the power of the state. The stronger and richer the state, the more valuable its money is.
So...the strongest and richest state is Kuwait?
“The Segway of currencies” is pretty apt. I think a lot of the enthusiasm for cryptocurrencies in the tech world stems from the fact that blockchains actually do solve an incredibly hard problem: distributed consensus among non-trusting parties is really difficult! If bitcoin had been someone’s CS PhD dissertation, they would have passed with honors.
And the tendency among my fellow nerds is to look at something like that and just assume that it has a million real world uses. How could it _not?_ It’s a vertical self-balancing scooter!
Except it turns out that sometimes really impressive technologies… just aren’t very useful. To my mind, the real tell here isn’t the collapse of FTX et al: it’s been screamingly obvious for a while now that the “crypto finance industry” was a Ponzi scheme about to go critical. It’s that boring companies like IBM, Amazon and Oracle are slowly winding down their blockchain projects. It turned out that while blockchains are really neat, they were strictly inferior in all respects to legacy technologies for inventory tracking and transaction clearing, primarily because the throughput limits of blockchains turned out to be much harder to engineer away than anyone initially assumed.
In the tech world this is a normal cycle and it’s why startups still hire product people to ride herd on my fellow nerds’ enthusiasms. 20 years ago XML was going to fix everything, it was a weird time. It’s just unfortunate that so many real people’s money got incinerated in the process this time.
Lol even in my customer-facing role I have to talk my application engineers down from showing on the latest features instead of customer-relevant ones, and my developers from doing random-but-shiny shit instead of fixing major bugs with the old random-but-shiny shit of yesteryear.
It’s the eternal struggle. Surely this time we’ve found the one magic technology that will fix everything forever!
I was in school for computer science around the time the Bitcoin paper came out. Aside from the piquancy of its anonymous authorship, everyone could see that it was an extremely clever paper. What was ingenious about it was that it solved the double-spending problem in an incentive-compatible way, and this use of economic incentives as part of system design was unusual at the time.
What was not unusual about the Bitcoin paper was the assumption of zero trust. Almost all research papers in distributed computing assumed zero trust, because otherwise you wouldn’t have a problem to solve. Few people mistook this for some kind of financial desideratum; it was an admittedly artificial assumption made for the sake of having something to write about.
The internet itself is very much not built on zero-trust systems. The way the domain name system works is that there are about a dozen root servers that have all the answers. The way SSL works is that a company called Verisign vouches that the server belongs to Bank of America, and there's a file on your laptop that instructs it to believe whatever Verisign says. The way the Internet Protocol works is that you hand off your packet of data with a destination address, and every computer along the way is just supposed to make a best-effort attempt to pass it along without any verification or compensation.
Of course, this lack of paranoia can be abused, and there are tons of proposals to solve spam or denial-of-service attacks by accounting for malicious actors. But these proposals never catch on, because the cure is worse than the disease. Just as every well-performing is a high-trust economy, the most efficient systems are ones that assume trust.
This whole bizarre cryptocurrency fever dream reads to me like everyone missing a key part of the big picture---technologists not knowing anything about economics, enthusiasts not understanding the underling technology, libertarians having no grasp of political economy. That includes me, of course. I remember that there used to be a website called the Bitcoin Faucet where you could click a button once a day and it would send you a bitcoin. If I had understood then to what weird and frankly stupid places we go, I would have clicked the button!
I know a guy who clicked that exact button many, many times...and lost the key to his wallet.
> But these proposals never catch on, because the cure is worse than the disease.
Most of the time that is true, but sometimes the reason (an otherwise good technical idea) won't catch on is that it requires everyone to agree to change their systems at the same time. This is just infeasible. The closest we've come with systems that aren't fully backward compatible, is IPv6 and that still is struggling. Allowing for subsets of users to adopt and still get benefits allows for some incremental adoption - such as the attempts to add authentication to email with SPF, DKIM, DMARC and other tools. That has made things better, in part, but the coordination probably is very real even when the incentives align.
And you didn't even mention the absurdly high energy costs to keep the crypto machine running, which are estimated at ~0.5% of global energy consumption. That's a pretty high negative externality for something whose main purpose is mostly to enable criminal activity.
Ethereum has switched to proof of stake, which is far less energy intensive.
The Times said bitching mining was “close to half a percent of all electricity consumption.” But most energy comes from wood or fossil fuels, so the 0.5% figure is way off.
https://www.nytimes.com/interactive/2021/09/03/climate/bitcoin-carbon-footprint-electricity.html
It demonstrates the inefficiency of the technology. We don’t hear about Visa consuming 2% of global energy. That said, Etherium seems to have dealt with this specific problem with proof of stake.
They are claiming proof of stake uses 0.5% of the energy used by proof of work. That's huge, but without a good comparison to the energy use of established finantial system per person served, it's hard to know if they have really dealt with the problem.
In any case, the bitcoin developers think moving Etherium to proof of stake makes them far more vulnerable to brute force attacks. I don't have the chops to agree or disagree, but it does indicate that Bitcoin has no plans to move to proof of stake. Hence, the energy consumption problem is still (IMO) a show-stopper for crypto.
Bitcoin started the industry, but blockchain technology in general is in no way dependent on Bitcoin, so you can consider this a show-stopper for Bitcoin (and other proof-of-work blockchains), but I'm not sure why you'd consider it a show-stopper for crypto as a whole. Unless, that is, you have decided that proof-of-stake doesn't work (as someone who works in the industry, I consider this pretty thoroughly discredited at this point; proof-of-stake has slightly different trade-offs than proof-of work, but works fine).
Yeah, I was being a bit too vague and broad with my comment. Maybe I should have said "as long as crypto coins are are mostly based on proof-of-work, having some proof-of-stake blockchains does not offset the enormous energy usage being consumed by the entire industry." And even with everything proof-of-stake, it's hard to assess much energy would be used as it scales up.
As someone inside the industry, do you have any insight as to why different groups choose different methods? Is my outsider's view of bitcoin developers being hostile to proof-of-stake correct?
There are arguments about whether proof-of-stake is sufficiently secure, as far as I'm concerned that debate is pretty much over both because the arguments against proof-of-stake are weak, and the value currently secured by proof-of-stake (even before Ethereum's switch) is substantial. I wouldn't say that *anyone* arguing for proof-of-work is doing so in bad faith, but they are in a pretty small minority at this point.
In my opinion, if Bitcoin would even partially replace gold as the "store of value", it would be pretty self-defeating. By demonstrating that technological innovation could cause the consensus to move away from the previously "agreed upon" store of value, Bitcoin would actually undermine it's own value proposition. I think for this reason, many Bitcoin enthusiasts tend to be very negative about *all* other cryptocurrencies... many of them try to make it about proof-of-stake versus proof-of-work, or other more defensible issues, because in reality the mere existence of other cryptocurrencies kinda disproves the value proposition of Bitcoin.
It does seem to me that the main people arguing for proof-of-work are the miners who directly financially benefit from it.
AIUI, the best-case argument for a problem with proof-of-stake is that if someone owns a majority of the currency then they can steal the rest.
But that's only really a problem with either a small currency or a private one. For small currencies, though, the solution is clearly proof-of-work until they get big enough to switch to proof-of-stake (if the currency is small, the reward for the proof-of-work is also small, therefore the amount of work required will remain small and the energy consumption associated will stay small and unproblematic).
Private currencies are just a bad idea in general. FTT is a classic example: the money is only worth what FTX says it is; they can take the value away at any time. If you want to do a corporate bond on crypto, then issue a smart contract, not a private token.
I have a very hard time believing that figure. I doubt that all computer use adds up to 3% of global energy consumption-- planes, trains, automobiles and rheostats are much more energy intensive than computers.
The Times said bitcoin mining was, at peak, “close to half a percent” of global electricity consumption. However, electricity is hardly the only form of energy, so this figure is off by at least a factor of 2.
https://www.nytimes.com/interactive/2021/09/03/climate/bitcoin-carbon-footprint-electricity.html
Although Bitcoin mining is energy intensive, I believe almost all newer blockchains use proof-of-stake, which does not have this issue. Ethereum very recently switched to proof-of-stake too.
I never fell for the Segway fad. I just bought them in order to flip them quickly to a bigger fool.
I had no idea they'd turn out to be such a solid long-term investment! Contact me if you'd like a piece of this lucrative action.
Remember hoverboards & killer clowns? 2016 was wild
"Remember hoverboards & killer clowns? "
I don't, actually, but it does sound wild.
You kids and your remembering things.
Just wait 'til you're my age, and you can live in the eternal present of dementia.
Are hoverboards the one wheel thing you ride like a skateboard? I see those about as often as I see privately owned electric scooters, which is a lot more than I see Segways (but a lot less than bicycles or shared scooters).
I think the term covers any sort of electric skateboard-looking thing. I recall they were hot until they started catching literal fire due to faulty electronics.
I always thought your username was some kind of weird jab at Segways, actually.
I never found out why my parents named me that.
They told me that if I kept asking questions, they would keep naming me something worse.
I can see how that idea failed. Segways are engineered not to flip
Let's say it has been a very stable investment.
I still have the whole stable I started with.
If you like stable, get a horse.
Tie a team of Segways to a coach and buggy whip them onward.
Milan, are pump-and-dump schemes allowed on SB? Or should I call the SEC? ;)
Please! More overt examples dismantling libertarian grand theories about the economy, world history, society, and systemic incentives!
You've mentioned that Peter Thiel has a very bad theory of everything, dependent on many misreadings, but I'd like to know what those are!
These guys are very influential, and yet have very specious reasoning.
I can get that occasionally they're worth endorsing because they appear like "Rationalists" who use numbers and have an aesthetic of objectivity, but they often use ambiguous language and paint themselves into a corner, all to the ends of making sure that reach people pay lower taxes.
This comment amounts to "tell me more about how to hurt the bad people" ... And there are three upvotes?
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Edit - I'm appending a note here since I do not stand by my comment in its original form, it seems to be attracting more responses, and people may not feel like digging farther into the nested thread.
To paraphrase one of my other comments: I don't have any objection to refuting people, I'm just surprised more people don't find the parent comment gross: my sense is that a lot of Slow Boring readers are interested in challenging their assumptions instead of simply confirming them. The comment's author was straight-up and forthrightly asking for more content that flatters their preconceptions, which is bad by itself, especially since this is a "Let me Google that for you" topic where a simple search would yield nigh-infinite results.
I find it telling that you equate “tell me why these people are wrong” with “tell me how to hurt these people.”
As if the mere act of poking holes in their views is an attack.
Careful now, disagreeing with libertarians is a violation of the First Amendment
Wow, touchy responses, though obviously my fault for using the language of harm.
Here's another attempt: "Please provide me with appealing arguments explaining why I don't like the bad people." I mean, maybe that accounts for 90% of the takes industry, and God knows I like it when Matt does it, but it's appalling to see someone pleading for more intellectual junk food so baldly, and then get upvotes on top of that. "Please throw me more red meat!"
Lolz.
Translation: "I was wrong but have chosen instead to die on this hill."
Hey, troll, I'm trying to agree with you.
Sure, you can reword the question all you want, but at heart it's asking MY to pick apart the actual worldview of someone like Thiel in detail.
If you asked me to do that, you'd get a scathing screed culminating in advocating a treason trial and a no-drop hanging.
Which is why I'm not going to do it, will instead read whatever Matt writes, and use it to inform my views going forward, and because of the degree to which I regard Thiel's views as illegitimate in every way and every particular, I cannot help but coming away from such a piece with a bit more nuance.
Thank god you understand! It's not about dunking, or being fed red meat, it's about hearing a proper Mattysian steelman of the argument, but also getting behind a lot of the slanting references Matt has made to these anti-social plutocrat apologists.
Because they might not be bad people, but they do sure keep saying a lot of bad ideas, and doing bad things.
I think you'd be surprised how much a proper dissection of libertarianism would challenge a lot of people's assumptions and wouldn't flatter their preconceptions! Matt might even agree with certain libertarianisms in ways that I don't expect, and don't agree with!
The thing is Matt's done a lot of these strange pokes at libertarians for inconsistent, ineffective, and incredible ideas, despite being so broadly influential to a broad very online engineer/finance/video-game/programmer type dude, and I'd like to hear more about it. So I think they can handle it, without being threatened or feeling demonized!
Matt's already mentioned how he think Peter Thiel's doing bad things with a bad concept of history, and now we have Elon Musk spouting "classical liberal" rhetoric without following it up, so it's very topical, but very misunderstood.
There's even very interesting things going on with the actual Libertarian Party, with their weird Mises Caucus, and how their members fit into the broader "persuadable independent swing-voter" theory of how to win elections.
Ok, ok, you guys have had your fun, and I deserved it. In case it isn't clear from my follow-up comment, I don't have any objection to refuting people, just poor judgement about posting quickly.
I'm surprised more people don't find the original comment gross: my sense is that a lot of Slow Boring readers are interested in challenging their assumptions instead of simply confirming them. The comment's author was straight-up and forthrightly asking for more content that flatters their preconceptions, which is bad by itself, especially since this is a "Let me Google that for you" topic where a simple search would yield nigh-infinite results.
I was confused by your original comment but I agree with what you're saying here. That said, a few posts examining major strands of Libertarian thinking wouldn't be bad or inappropriate and I'd probably find them interesting. But I don't want them to be "take downs" unless the ideas are actually that bad.
The difference between "examination" and "take-down" is almost entirely in the eye of the beholder.
I find libertarianism so fundamentally illegitimate, its moral bases so profoundly fucked up, its beliefs about human nature so un-empirical, and its predictions so utterly wrong... that literally any degree of one-sidedness in an "examination" will not surprise me. I would *expect* an unbiased observer to basically say "yea, this is complete shit without redeeming value."
And that goes at least trebly for the views Peter Thiel espouses, as they're basically libertarianism with an explicit, large dose of neo-feudalism. Why he expects, as an openly gay dude, to survive the imposition of pseudo-religious neo-feudalism is beyond me, but he seems to...
In any case, I expect someone who believes libertarianism has value would regard what I consider to be an unbiased examination as a take-down built on a foundation of dead strawmen.
Not sure what one can do about that.
I am not a libertarian but I honestly have no idea what beliefs you could ascribe to libertarianism that would merit the level of your confidence in their wrongness.
I also find the intense hatred of libertarians that seems to have cropped up very recently to be a bit strange, my impression from just last year was that most people didn't even really know what libertarianism was, now it seems every other person on the internet is convinced with absolute certainty that they are all murderous pedophiles or something and I feel like I missed some significant event in the western world revolving around libertarianism to explain this radical shift from indifference to hatred(not that your hatred in particular is a new thing).
FWIW I agree, I found the post vaguely distasteful as well, and that makes me a hypocrite I guess, because just the other day I was thinking I would enjoy it if MY dunked on activist donors, which feels directionally similar. The desire to dunk on people is strong and I think it is very useful to have corrective reminders against the impulse.
They’ll find a nice “safe space” to chill in.
I think Smart Contracts may be something genuinely new, but overall I agree incredibly with this post. Bitcoin and the blockchain, in particular, are just a super-energy intensive system of title with no protections for mistaken transactions.
The latter part (no protections) is mostly bad and means that as Matt says its only real applications are extralegal (arguably Silk Road was the bootstrap for getting BTC to more than $0, for example).
The first part - a system of title - is actually an incredibly valuable and important part of a system of exchange, which is *exactly why it's basically a solved problem and has been for centuries.* Title to real estate has been a concern of the state apparatus since time immemorial -- literally! "Time immemorial" in the context of (English) property law actually refers specifically to the time before the year 1189, which is the epoch for saying "this person owns this property and has sound title since they have owned it since time immemorial."
What the blockchain enables that is new, is criminal, and what the blockchain does that is not criminal, is not new.
Yeah, it cannot be emphasized enough that one of the primary features of blockchains and cryptocurrencies that their boosters like to point to — immutability — is very, very bad! You _want_ slack in the system, and you want the ability to roll back fraudulent or mistaken transactions with minimum friction.
Replicating the most obvious failure mode of a mattress stuffed with cash (someone can steal your mattress and then you never get the money back) is an extremely impressive technical feat for an online ledger system. It’s just gobsmacking that anyone would think it was a good idea.
Except some people have good reasons to stuff their money in a mattress. Also, even though I don't do that, I have to admit I'd feel more than a little uneasy in a world where such a thing was impossible. The mere ability to stuff assets in a mattress is a comfort whether you rely on it or not. The ability to do the electronic equivalent is bound to provide similar comfort.
When I worked on systems related to consumer fraud a few years ago - the most common mechanisms to move around money instead of cash was was pre-paid credit cards. You can transfer them physically, or you can use the account as a CC. To get money out of the country you often could just use western-union, but first you transfer money around between people with cards to obscure the custodial chain. Some of the those "earn money from home" type placards you see around town without specifying the job often related to this: they were for money-mule roles where you received cards from defrauded people (like those with online "relationships" where the person suddenly needed money for car repair) and then transferred that out of the country for cut (under the flimsy veneer of helping with NGO donations or something)
So I don't disagree -- cash is useful! But then we come to a second problem: cryptocurrencies are a really bad replacement for cash! They require the same system of nation-states and central banks to make them useful as a medium of exchange, you can't access them during a major power outage, they're much easier to steal, and the throughput limits on the various blockchains mean that you can't use them for any kind of transaction where time is of the essence.
If you've decided mattress stuffing is your optimal choice, you are already in a world of less than ideal options. I think the relative merits of cash and cryptocurrencies are pretty situational. Unlike cash, cryptocurrency can be transmitted long distances, weighs nothing, is easier to hide, and may even be less volatile than certain other currencies. Cash definitely wins other categories but having access to both allows people in bad situations to tailor their portfolio to best fit their needs.
Smart contract may have their place now and in the future, but in the foreseeable real world of how commercial contracting is actually done, I'm pretty sure that more mundane reforms, like updating the Uniform Commercial Code and having Congress adopt it as federal commercial law to govern transactions nationally, with real incentives for buyers and sellers to simply go along with the default terms to reduce the amount of time wasted on dickering peripheral terms, would do a lot more to streamline and promote efficiency in contracting, than blockchain type technology.
I think Smart Contracts’ value is as much or more in preventing counterparty nonpayment dickery and automating enforcement witnout requiring extremely expensive recourse to the courts (Cf. Amazon [EDIT: meant to say “Twitter,” not Amazon] deciding that it’s just…not going to pay rent or all of the promised severance, or the apparently notorious net-payment and underpayment practices of Walmart et al to their suppliers) as it is allowing arbitrarily fanciful terms of trade.
I could be mistaken, but my impression is that companies like Amazon or Walmart with massive market leverage vs their suppliers don't so much just outright ignore their contractual obligations to pay, as use their disproportionate leverage to force one-sided terms on their counterparties that give them the contractual right to withhold or offset payment if certain broadly and ambiguously described factual situations have occurred. A "smart" code-based contract won't know if one of the contractually stipulated factual predicates has occurred that allow for withholding of payment. For that, some type of dispute resolution adjudicator is needed, where the disputed facts can be presented and evaluated.
Smart Contracts absolutely are going require an oracle—viz. some arbitrator of what the truth is—so it may just be shoving the arbitration problem elsewhere on the chain — but they definitely *don’t* allow for ambiguity once their terms are met — a computer doesn’t have any notion of whether goods are conforming, etc., although the contract could require some oracle to give yes/no on a “goods are conforming” question, so as you say, the hope provably has to be more about lowering arbitration costs rather than avoiding arbitration entirely.
Also total mistake on my part re: mentioning Amazon—I meant the recent example of *Twitter* just deciding to not pay rent. In this case you can maybe try to solve the oracle problem by sponsoring a Keynesian beauty contest at lower cost than a court proceeding, although that would have to be encoded in the contract itself, which as you say has serious bargaining power problems.
AFAICT the real problem with the bigger co.s screwing over their suppliers is that too much secrecy is allowed with respect to the terms of trsde and course of dealing so they don’t suffer the reputational harms that they should, which in turn would lower their bargaining power. Instead smaller suppliers contract with the big guys, go into debt to finance the expansion, and now are totally beholden to their biggest customer not to go under.
I don't think the comparison to gold even works, as gold's properties means it can obviously be used to make jewellery as well as serving a purpose in some electronics. Crypto doesn't do anything at all
Hell if nothing else a lump of gold can make for a very aesthetically pleasing paperweight. A bar that cryptocurrencies and NFTs very conspicuously fail to meet.
But who needs paper when you have crypto? It's tackling the root cause of the problem, gold paperweights are just treating a symptom.
Re: Crypto as useful to commit good crimes
I used to work for an anti-money laundering NGO. We heard this argument a lot about crypto back when it was commonly used to purchase drugs on the internet, before Silk Road was shut down in 2013. We used to hear similar arguments about other money laundering methods used for crimes that people thought weren't so bad (often evading taxes, currency controls or oppressive regimes seizing assets).
Our reply was always that you can't pick what crimes a lane for money laundering is open to. If you can hide the source of funds or disguise it, any criminal can do it too. There's no fundamental difference* between money laundering to evade currency controls and money laundering to hide the proceeds of sex trafficking.
*There's some nuance here. Certain activities lend themselves to different types of money laundering. But crypto is an all-purpose workaround for our AML system.
They did manage to catch and prosecute criminals before the KYC/AML system was created. It's never been clear to me why we tolerate so much financial surveillance and reporting in ways we would never tolerate analogous physical surveillance. The system just seems like a way to circumvent 4th amendment protections to me.
Then again, physical surveillance is getting much more powerful these days too and is generating minimal outrage. Still, as far as I know, most places operating security cameras aren't sending automatically generated mandatory reports to the government about the comings and goings of all people on their premises including gait and facial recognition data.
I don't have much to say other than you are wrong about the importance KYC/AML system. I mostly worked on policy in countries that didn't have an effective AML system. The alternative is financial anarchy, massive corruption, tax evasion and crime on a scale unimaginable in the U.S. If you think Nigeria is a good place to head toward, then kill the KYC/AML system. There's a reason why every developed country in the world has some version of it.
Just one example of what banks do when KYC/AML isn't enforced:
https://www.justice.gov/opa/pr/hsbc-holdings-plc-and-hsbc-bank-usa-na-admit-anti-money-laundering-and-sanctions-violations
As another KYC/AML advocate, I just want to chime in with supportive analogy.
You need a driver's license, car registration, and insurance to drive. In a narrow framing, that is a restriction of privacy and freedom. Yet these restrictions are necessary because cars are dangerous. We want to ensure that cars are used responsibly so therefore the privilege of driving requires these restrictions, including documentation of ownership and active driver certification. One can always walk or take the bus if they find these restrictions overly invasive.
Similarly, the modern finance system is incredibly powerful. Anyone can move arbitrarily large amounts of money with trivial effort, yet solid guarantees of security and fidelity. Even at a small scale, electronic funds transfers can greatly facilitate crimes. E.g., selling child pornography over the internet with electronic payments. Therefore we have instituted numerous regulations and restrictions around banking, including KYC/AML. One can always use cash if they find these restrictions overly invasive.
Regulations also include strong protections against misuse of KYC/AML information by either financial institutions or the government. That includes narrow access controls and permanent audit records of all access as well as criminal penalties for misuse. This is similar to how a police officer can be charged with a crime if they attempt to misuse DMV records. Our government is therefore guarding the privacy of individuals who comply with its regulations because that is recognized as important.
I’m not much of a political theorist, so I don’t care a lot about the justification. I’ll only add that the alternatives to the current AML regime are much more intrusive than what we have. For example, right now lots of activity that is kind of sketchy, such as depositing $100,000 in bulk cash at a bank branch, triggers requirements that banks start knowing something about the source of funds and a suspicious activity report. Obviously, this regulation prevents laundering money from business that generate bulk cash like drug cartels. Some legitimate businesses generate that much cash, but not many.
One alternative would be to ban depositing bulk cash over a certain amount entirely, or to require permission from a government regulator that requires that you prove where the money came from. That’s basically what happens when you try to bring cash through customs. It’s intrusive as hell. Better let the intermediary bank do a risk based assessment and let a person deposit their money in the mean time. The bank only has to outright refuse to do business if it knows for sure that the source of the money is crime.
The problem with crypto is that there often isn’t an intermediary. I can transfer infinite amounts of crypto from A to B without an institution subject to AML regulation being involved. This isn’t a huge problem right now for a lot of reasons, but mostly because pretty much no one buys normal goods and services with crypto, so a criminal has to eventually go to a real bank and exchange it for real currency. Banks are for now required to treat those transactions as bulk cash, but the crypto industry doesn’t like that. If crypto were used to buy things, criminals could just live their life paying in crypto. That’s real bad and would likely prompt very intrusive regulation like banning merchants taking crypto over Z dollars.
That analogy is one way to look at things, but I don't think it quite fits. The roads are arguably government owned infrastructure so it has a pretty clear justification for making rules about their use, but the financial system is really more of a network of agreements and communication channels between private banks. As you said, if you don't want government intrusion into your life, you can still take the bus to travel long distances on the roads. It's not clear what the equivalent outlet is for financial transactions. Cash is too local to fit the bill.
Perhaps a better analogy would be the internet. It too is very powerful and useful, but also dangerous. Still, so far we have avoided doing things like banning end to end encryption and VPNs and TOR or requiring anyone providing internet access from ISPs to coffee shops to KYC. There are people pushing for these things, and such things are already the norm in China. Despite not having that level of regulation in the US, I don't think the internet has brought us to an era of unprecedented crime and danger. Every few weeks there is a big story about the government arresting cyber criminals or shutting down a black market, so internet criminals are being arrested with our current tools. But if we move in the direction of a heavily regulated internet, I guarantee you that when I make the point in 50 years that maybe end to end encryption and anonymous internet usage is okay actually, I'm going to be pounced on by people outraged that I'm suggesting something that "could greatly facilitate crimes".
There is a balance to be struck between liberty and safety, but when a government can cut protestors or strikers off from the financial system, you know that you've gone too far. The vaunted "protections" that should exist in a developed nation's AML/KYC system didn't do much to protect the Canadian protestors from being targeted earlier this year. Governments shouldn't have those tools. We shouldn't be giving it the authority to do such things, but in case that fails, we also shouldn't be giving it tons of information that can help it piece together which accounts it wants to target. That's AML/KYC.
Once again, that can't possibly be right. The US was not suffering from massive corruption, tax evasion and crime on an unimaginable scale before the KYC/AML system was set up in 1970.
I'm not going to bother educating you here. You're wrong. Do your research. If you think that a libertarian vision of civil liberties is worth the cost of rampant crime, that's you're decision. But don't confuse political theory with policy analysis.
Anyone have suggestions on how to learn more about the impact of KYC/AML systems?
Our old reports at Global Financial Integrity were pretty good. I’ve never seen any real explainers on the Bank Secrecy Act, but that’s what I would Google. I learned the details from the people around me, but that was my job. Maybe go see if you can find some old Carl Levin hearings on money laundering.
I admit to a fair amount of schadenfreude over all of crypto’s struggles. I spent 27 years in corporate finance, and have a decent understanding of how the financial system works. I’ve never been able to figure out how, exactly, cryptocurrency would be both safe and widely useful. So far, it’s neither. And with respect to gold: anyone stockpiling gold in anticipation of a complete societal collapse is delusional. Like paper dollars (and diamonds, for that matter), it only has value because lots of people agree that it does. But you can’t eat it, or shoot anything to eat with it, or grow anything to eat with it.
Regarding gold, while no-doubt there are some collapse people that have odd-ideas about the value of a gold in an apocalypse, the steel-manned (and I'd argue more common) justification is that gold acts as a hedge against inflation, seriously bad governance, and acute economic turmoil. That utility debatable in practice (especially given historical examples of currency controls, or outright confiscation in the applicable scenarios) but certainly is plausible. If we had another Trump-like presidency that led us down the path to becoming Argentina, would having some fraction of your assets in gold make sense? Especially if the rest of the world, while impacted, remained functional? What about another great depression and a collapse of equities markets? Or 1970s style hyper-inflation? These are very possible scenarios, though I'm not sure gold is the right tool to hedge against them.
Hi Matt,
This substack post - https://cryptadamus.substack.com/p/by-the-claw-satoshi-is-revealed - makes a speculative but fascinating case that the inventor of Bitcoin is... an international criminal who had a huge interest in money laundering, and has been of interest to the authorities since right about the time that Bitcoin's anonymous inventor went quiet forever.
The post rightly notes that this is one of the all time most interesting Wikipedia pages - https://en.wikipedia.org/wiki/Paul_Le_Roux
It's a pretty compelling circumstantial case that would really benefit from some proper investigative journalism being directed at it. If you enjoy the post (which I think you will, its excellently done) it would be amazing if you could help to bring it to the attention of the type of people who might be inclined to direct resources towards digging further.
That was really fascinating!
Is it just a coincidence that Neal Stephenson’s book Cryptonomicon is about a cryptographic genius who devises a way to get WWII era gold out of the Philippines, and Paul Leroux was a cryptographic genius who later went on to smuggle gold out of the Philippines?
Well that was fascinating. I'm not 100% convinced Le Roux is Satoshi (though not convinced he isn't), but I already have a kick ass movie about him playing in my head. And I thought the FTX saga would make a great movie. Still think that, but that Le Roux thing is something else.
I'd never heard of La Roux until now, and went to Wikipedia. Did he write his own page, which took half an hour to read. The guy is kick-ass the most evil person in the world and clearly deserves a movie and screen-writing and producer credits. Not surprising, if Wikipedia is accurate, he's a white Rhodesian
Was thinking this is an 8 episode netflix miniseries basically already written. I mean, I think you could make this season 4 of Narcos right now.
Adam Back [1] is Satoshi Nakamoto. Or at least that is the general consensus among the Bitcoin enthusiasts I know. I went down this rabbit hole a couple years ago and came away generally agreeing with that theory.
I believe the 2020 video from Barely Sociable, “Bitcoin - Unmasking Satoshi Nakamoto” is the canonical presentation of this theory. https://www.youtube.com/watch?v=XfcvX0P1b5g
I just now searched for a summary, and this 2021 article from Coinspeaker seems decent, “Barely Sociable Analyst Believes Blockstream CEO Adam Back Is Satoshi Nakamoto”, https://www.coinspeaker.com/barely-sociable-adam-back-satoshi/
> In particular, Barely Sociable revealed that Adam Back described blockchain technology as early as 1998. Notably, his research was the same as the Bitcoin white paper published in 2008. However, prior to the release of Bitcoin, Back disappeared during 2009 and 2010, which coincided with Satoshi’s Bitcoin development period. What is more interesting, after Satoshi left, Back appeared again on the bitcointalk.org forum
> Since the creation of Bitcoin, Adam Back has been strongly supporting the currency. Being very passionate about BTC, Back has made incredible price predictions several times. In 2020, he stated that BTC was likely to reach up to $300,000 in a 5-year perspective, even without institutional investors’ support. In addition, Back believes that in the future, people will realize that Bitcoin helps protect from inflation as governments keep printing money.
[1] https://en.wikipedia.org/wiki/Adam_Back
Personally reckon this is the second most plausible. The difficulty with all the theories is that there are holes and things which don't add up, which potentially bears out some collaboration between two or more of the most obvious people. One of the people being involved being an international criminal would be a great reason to go dark forever though!
Skimmed the wiki article. I hope someone's working on a script. Would totally work as a limited series, perhaps 4-6 episodes.
I appreciate and agree with your conclusion here that the rule of law is an important abstract technology. I think there is some tension here with your past occasional commentary to the effect that judges, justices, courts etc. are to some degree just a pretext or front for politics. I would value your further exploration or explanation of your beliefs on the value and legitimacy of the judiciary.
I think Matt's skepticism about the judiciary mainly involves constitutional rulings: situations where judges are empowered to overrule legislators' clear intent based on their interpretation of an inherently vague document.
When judges uphold contracts, property rights, etc., they're acting in accordance with legislation (or sometimes in accordance with common law, but legislators are free to override common law if they don't like it). The issue of politics disguised as neutral jurisprudence doesn't really arise there.
I don’t necessarily see a conflict between saying something is important abstract technology and also that it is a front for politics. The very idea of democracy is itself both of those things!
True, but I think Matt is making a distinction here. (Or maybe I'm just projecting my own opinions onto him, as I sometimes do.)
Every liberal democracy needs an independent judiciary, but there's not much evidence that liberal democracies need a judicially enforced bill of rights that constrains legislative authority. It doesn't seem to be all that effective, because when public opinion supports policies that some would define as "rights violations", the politicians just end up appointing judges who allow the alleged violations to take place. (Think of capital punishment, or horrible prison conditions. The federal courts have tinkered around the edges with those issues but they haven't taken any dramatic action, because judges who would like to do that don't get nominated to the Supreme Court.)
Having legislators directly accountable for citizens' rights just seems like a better approach. I think Matt has said nice things about the Canadian system, where there is a Charter of Rights and Freedoms that judges can use to strike down legislation, but parliament can neutralize it by explicitly stating in the text of a law that it won't be subject to judicial review (the "notwithstanding" loophole).
In this post, Matt refers to Die Hard as a 90s cinematic classic, but Die Hard was actually released in 1988.
Tech people don’t understand banking. One of the worst experiences of my life was using an online bank owned by an edgelord VC type (SoFi) for a home deposit because I had to get a lot of money transferred quickly, which is just much easier if you have an actual human to work with (or at least a non-zero level of customer service). The customer service was so bad that I’m probably just going to stop using online banking entirely and just park spending money somewhere it doesn’t get interest, and keep the rest in Vanguard.
Yes, although the US financial infrastructure could use a tech upgrade regardless of crypto. It is horrifying the extent to which trillions of dollars are moved daily through rickety software systems using tech standards developed decades ago.
For example, there is no technical reason that most financial transactions require a day or two to settle; i.e., show up in your account. But the original fintech systems were designed to augment highly manual processes that could only be managed in daily batches. Further, the tech of that era was extremely underpowered compared to today and couldn’t have supported real-time settlement anyways.
Worst of all, far too much of the original code from that era is still being used despite the fact that none of the current engineers understand it. Some of these issues are presented in the 2017 Reuters article, “Banks scramble to fix old systems as IT 'cowboys' ride into sunset”. [1]
> The Common Business-Oriented Language was developed nearly 60 years ago and has been gradually replaced by newer, more versatile languages such as Java, C and Python. Although few universities still offer COBOL courses, the language remains crucial to businesses and institutions around the world.
> In the United States, the financial sector, major corporations and parts of the federal government still largely rely on it because it underpins powerful systems that were built in the 70s or 80s and never fully replaced.
> And here lies the problem: if something goes wrong, few people know how to fix it.
[1] https://www.reuters.com/article/us-usa-banks-cobol/banks-scramble-to-fix-old-systems-as-it-cowboys-ride-into-sunset-idUSKBN17C0D8
There isn't a technical reason why your financial transaction takes two days to settle, but there is a financial reason. It's called the float, and it adds up to big money for banks. Rickety software has nothing to do with it, but it's great for the banks for you to think so, so they can continue enjoying the float.
No, batch vs. real-time settlement does not constrain a bank's ability to earn on float since that only impacts at most 1 day of liquidity. They are instead constrained by regulations like liquidity coverage ratio requirements, which requires them to hold high quality, liquid assets of at least 30 days of outflows under high-stress conditions. [1] In general, banks met HQLA regulations by holding central bank reserves. [2] Those reserves are pure liquidity and are the lowest yielding asset available to bank balance sheets.
[1] https://www.federalreserve.gov/newsevents/pressreleases/bcreg20140903a.htm
[2] https://www.newyorkfed.org/research/staff_reports/sr852
As they should given the importance of the banking system to American prosperity. The fact is banks earn about a 2% spread between their interest costs and interest income, and their equity values are the capitalized value of the difference. If you want America to become a Balkan state where crypto runs wild, by all means de-regulate the banking system. That your deposit takes two days to settle, instead of one minute, is a small cost to bear.
I agree that their return-on-equity is appropriate and am not arguing otherwise. I’m simply diffusing the faulty argument that they earn more with batch settlement than they would with real-time. In actuality, banks are resisting modernization because it would cost them a lot of time and money.
Further, I’m not arguing in favor of bank de-regulation nor crypto. I’m instead petitioning for regulations that require banks to upgrade their financial tech infrastructure. That includes requiring both support for real-time settlement and the usage of modern engineering practices.
This pivot seems to be entirely in bad faith. Please provide a quote where Matt suggested any form of deregulation, as opposed to regulation mandating infrastructure updates?
Not sure if this comment was directed at me. But a quote: 'a foolish consistency is the hobgoblin of little minds, adored of statesman and divines.' Emerson, not Matt, who's always intelligent and is going to need a huge infrastructure bill and tons of regulation to support a billion Americans. My faith is good, even if not always consistent.
It also makes it easier to detect and reverse fraud
Fun anecdote. For a very brief period I worked at Bank of America in spring of 2009. Work in real estate industry so you can imagine this was a bit of a crazy time. And I could probably right 20,000 word essay about my 8 weeks at BoA (you read that timeline right). Like the details of why a someone hired at the same time I was (along with literally hundreds of others) was arrested like days after their first day.
But to keep in on topic. In 2009, the system being used to process and underwrite residential mortgages at one of the biggest banks in America...was MS-DOS (?!?) I understand this is now 13 years ago and I have to believe they've updated their software since then, but even in 2009 using MS-DOS was ancient. And not shockingly, it was buggy as all hell. For example, you could be working on a loan and then a glitch would happen and a previous loan you may have been working on would come on screen. Except if you weren't paying close attention (i.e. on the phone or had to go to the restroom), you very well may not have noticed and start making all sorts of updates to a deal...that are completely wrong updates.
Considering BoA was one of the biggest mortgage lenders in the country (likely still is), my 8 weeks there was an extraordinarily revealing experience.
Zelle, for example, appears to work instantly. Are they using a different system?
Yes, it uses a different technology. Or more specifically, Zelle is a technology layer on top of the existing batch settlement system. Behind the scenes, the banks are still batch settling. Beyond the tech, new contractual terms are what allows the banks to immediately offer funds to recipients. Specifically, Zelle provides sufficiently strong guarantees against counterparty risks (e.g., a bounced check).
There is work-in-progress to introduce real-time settlement between banks, including some Zelle payments. [1] This leverages the Real-Time Payment network, an actual technology and business relations solution for real-time settlement between banks. [2] RTP is a new service provided by The Clearing House, a banking consortium that has been managing settlement between banks in the US since the 1850’s. They developed the original Automated Clearing House service that is central to current batch settlement in the 1960’s and RTP is their anointed successor.
The Federal Reserve is also working on a solution for real-time settlement named FedNow. [3] It is roughly an improved FedWire. Notably, it offers 24/7/365 availability, lower transaction costs, and modernized tech standards. FedNow is planned to launch next year and it is a major milestone on the road to eliminating batch settlement.
[1] https://www.pymnts.com/digital-payments/2021/early-warning-services-tch-now-allow-zelle-payments-via-rtp-network/
[2] https://www.theclearinghouse.org/payment-systems/rtp
[3] https://www.frbservices.org/financial-services/fednow/about.html
I don’t know about Zelle specifically, but often transactions appear to move faster than they do, but could theoretically not go through a day or two after. Venmo used GM have this problem. The Fed needs to build a better system than ACH, but the transition costs are huge for all involved.
No doubt the social technology of deposit guarantees and the bank regulation necessary to support it have been very useful, especially when they were first implemented. But today I can't help worrying that they are paving the way to panopticon. Those regulations opened the door to AML and KYC, which combined with ever more powerful computing is going to give states the power to target transactions they disfavor at the individual level in real time.
As Scott Alexander said in his post - "Freedom of speech is hollow if you can’t pay the print costs for your magazine. Freedom of religion is hollow if you can’t pay the rent on your church. The freedom to protest is hollow if you can’t pay bus fare to the protest site."
Even if the US government hasn't quite crossed that line so far (and Scott cites several examples where maybe they already have), I think we need to start considering whether we might want to diversify away from the infrastructure that makes it a possibility. Just as it's very useful to have a robust clean energy industry around when you're trying to end the dependence on fossil fuels, it's going to be useful to have a robust alternative finance industry around if we want to reduce our dependence on a useful social technology that is nevertheless starting to become a big liability.