In Support Of Responsibly Assessing Bitcoin And Fintech

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This is an opinion editorial by L0la L33tz, a contributor at Bitcoin Magazine.

In an attempt to urge U.S. lawmakers to increase regulation in the cryptocurrency industry in favor of protecting “public interest,” 26 expert technologists put forward a signed letter concerned with the use, security and privacy of “crypto-assets.” But, rather than pointing toward the shortcomings of blockchain technology and cryptocurrency, the letter invokes a worrisome picture of the state of engineering expertise.


The Letter in Support of Responsible FinTech Policy, directed at both majority and minority leaders of the U.S. government, aims to debunk unnamed claims of the crypto lobby, which, according to the authors, paint an unreservedly good picture of crypto assets, including cryptocurrencies, crypto tokens and Web3. Their goal is ensuring “technology is deployed in genuine service to the needs of ordinary citizens.” In general, the authors and signatories do not believe that cryptocurrencies are “in any way suited to solving the financial problems facing ordinary Americans.”

First, the authors are concerned with the lack of transaction reversal mechanisms. The question of why irreversible transactions pose a threat to the general public remains unanswered, but it can be imagined that the authors are concerned with incidents such as the hacking of funds. What the authors fail to consider is that the majority of cryptocurrency users utilize custodial solutions, in which the reversal of transactions is very well possible, while almost all stablecoins are equipped with the mechanisms to reverse transactions.

The authors further claim that a money to which individuals can lose access to forever should not be defined as safe. Under this pretense, cash, gold, cashier checks or non-digitized bonds should by no means be defined as safe either. The authors and signatories believe that “financial technologies that serve the public must always have mechanisms for fraud mitigation and allow a human-in-the-loop to reverse transactions.” Yet, especially, expert technologists should be aware of the security implications of involving third parties in digital transactions — enabling the relay and possible altering of communications between two parties, which can result, for example, in the loss of funds such as via SIM swapping, as well as in unwarranted surveillance or the arbitrary censorship of law-abiding citizens via abuse of power.

Having signed their names to being expert technologists, it is notable how many of such apparent contradictions can be found within the authored letter itself as well as in statements issued by its signatories surrounding its publication. The authors argue that “most public blockchain-based financial products are a disaster for financial privacy,” while continuing the sentence with “the exceptions are a handful of emerging privacy-focused blockchain finance alternatives, and these are a gift to money-launderers.” Matthew Green, a cryptographer and professor for computer science at Johns Hopkins University, summed this contradiction up well in a Twitter post: “Blockchains don’t have privacy, but if they do have privacy then privacy is bad.”

The authors further cite cryptocurrency as a threat to national security through money laundering and ransomware attacks. While it is correct that illicit activity has risen over the past year, the share of illicit activity in all cryptocurrency transaction volume declined to 0.15% in 2021. To compare, estimates show between 2–5% of global GDP to be associated with money laundering and illicit activity handled through traditional financial institutions.

“The claims that the blockchain advocates make are not true,” says Bruce Schneier, signatory and fellow at Harvard’s Berkman Klein Center for Internet and Society in a statement to the Financial Times. “It’s not secure, it’s not decentralized. Any system where you forget your password and you lose your life savings is not a safe system.” But as a computer scientist, Schneier should be aware that no truly decentralized system could, by design, allow for default third-party intervention, and that the absence of such intervention is precisely what gives security to decentralized systems.

In the same article, signatory and ex-Microsoft developer Miguel de Icaza states, “The computational power is equivalent to what you could do in a centralized way with a $100 computer,” which is factually incorrect. Issuing a peer-to-peer digital asset on a centralized database is technically impossible since peer-to-peer and centralized systems are directly opposing concepts. Icaza goes on to state, “We’re essentially wasting millions of dollars’ worth of equipment because we’ve decided that we don’t trust the banking system.” But trust in the banking system has drastically declined while showing no signs of recovering in a far wider group than just among cryptocurrency enthusiasts as a real-life consequence of the historical mismanagement of ordinary citizens’ funds through the banking system itself.

Notably, the authors appear to strictly concern themselves with the regulation of “public blockchain” solutions. A public blockchain is an open-source framework in which all participants may act freely and openly. A private blockchain, on the other hand, is a commonly closed-source enterprise solution, in which users may act at the whim of their operators. Unfortunately, Stephen Diehl, signatory and CTO of Adjoint, a private enterprise which offers treasury management blockchain technology, as well as a smart contract platform and currently appears to be in liquidation, has not answered a request for comment. Diehl did, however, quote fellow signatory and professor of computer science at the State University of Campinas Jorge Stolfi in his announcement of the letter, stating that “blockchain technology” (including “smart contracts”) is a technological fraud. According to such statements, we must also consider vending machines a fraud, which serve as a common example of traditional smart contract technology.

The authors go on to declare cryptocurrency as a solution looking for a problem that has “latched onto concepts such as financial inclusion and data transparency to justify its existence, despite far better solutions already in use.” Interestingly, the authors do not name what these solutions may be. In a public request for comment, advocates of the letter, which remains open to sign for the public until June 10, 2022, suggested solutions such as neo banks, postal banking, centralized databases and central banking as viable alternatives to achieve financial inclusion, while others expressed concerns over enabling individuals to secure funds on their own.

Let’s go through these so-called solutions step by step. Neo banks, just as regular banks, require identification on sign-up to comply with know-your-customer (KYC) and anti-money-laundering (AML) laws, while nearly one billion people do not have access to legal identification. Postal banking is, even with new pilot programs, broadly on the decline. Centralized databases and central banking, in which a selected group of individuals decide on loan issuance and money supply, run the risk of miscalculations and outright fraudulent behavior, which, in computer science, are also known as single points of failure (SPOFs).

So what about the risk of requiring under-privileged and minority communities to custody their own funds? While self-custody is an incredibly important cornerstone of using cryptocurrency, Bitcoiners are particularly aware of not throwing beginners into the responsibilities of noncustodial solutions without help, and they are actively working on reducing both the risks of malicious custodians as well as the risks of needing to manage keys through self-custody support programs and solutions such as federated e-cash mints, community wallets and multisignature custody. Responsibility and self-ownership are a learning curve, and in Bitcoin, it is broadly believed that individuals are smart enough to take on such responsibilities themselves. Self-custody of bitcoin is a process to get used to, and people will lose money when steps aren’t taken correctly, but it really isn’t rocket science either.

Unfortunately, both the authors and signatories appear to lack any appreciation for the point of privilege from which they are arguing. While touching on topics such as price volatility, the authors are inarguably correct in stating that price fluctuations pose a risk to anyone’s investment. But this risk must be leveraged against the risks posed by the legacy financial system. For people around the world who are facing double- to triple-digit inflation, such as in Lebanon or Nigeria, price fluctuations in cryptocurrency suddenly appear bearable. The same goes for minorities, particularly in the U.S., where roughly 7.1 million people do not have access to a bank account and, therefore, see themselves broadly excluded from legacy finance.

The authors further state that blockchain technologies facilitate few, if any, real economy uses. This statement stands in direct contrast to recorded uses for bitcoin, as seen in the enabling of upholding operations for the publishing site WikiLeaks as early as 2011, who turned to bitcoin as a result of censorship by traditional payment providers such as Visa and Mastercard, as well as in the use of bitcoin as an inflation hedge for ordinary citizens who may not have access to the stock market or other value-preserving financial instruments.

Without a central gatekeeper, cryptocurrency offers a lifeline for millions of people around the world to take part in the global economy as peer-to-peer digital cash. Any attempt to regulate a market in the name of the public interest cannot be accepted when it is proposed under the bias of a small, privileged group of self-proclaimed experts in the field. You cannot brush an entire class of technology over the same comb, and if you do, it is unlikely to result in feasible critique for the unavoidable lack of nuance, foresight and understanding of the inner workings of an evolving ecosystem. But for those for whom the financial system works, it is easy to overlook a broad part of the public in one’s argumentation. It’s just unfortunate when that same argumentation is made to supposedly protect the overlooked in question.

This is a guest post by L0la L33tz. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.