Technology as Power Transfer
Though I've forsaken cryptocurrency and blockchain in my personal and professional life, I currently work in homomorphic encryption. Both areas have fertile soil for new ideas in cryptography, and so the blockchain world remains in my periphery. As much as I avoid the topic, I can't avoid people in my field who work on it.
A mild silver lining of that reality is that most of the people I interact with who work in blockchain appear to be in it for the math, and put up with the blockchain parts for funding. To be clear, that crosses an ethical line for me personally—and I've been thinking a lot about how to express my thoughts about this that is both meaningfully persuasive and intellectually honest in the essay that will close Practical Math for Programmers. But shaming them about not meeting my ethical standards also doesn't feel productive.
And occasionally, I find people who have a similar persuasion to me, and in an appropriately private setting we sometimes discuss how one might frame the problems of Bitcoin and blockchain to the non-cryptographers in their lives who have bought into the hype—and for whom recent events have not convinced them otherwise.
There are some basic empirical contradictions. Bitcoin can't replace cash as a medium of exchange because there are so few legal things you can actually do with it besides speculate on its price. It's a poor store of value because of its wild price fluctuations. It's so expensive and slow to confirm transactions that actually processing a decent fraction of daily purchasing volume on the blockchain would grind consumer finance to a halt. Bitcoin mining rapidly centralized, defeating its purpose and threatening its security model. Bitcoin has also turned out to be highly non-private, rife with scams, politically slow to adapt, and a massive energy hog. But proponents counter (at least with consistency) that a future world in which decentralized currency succeeds would somehow magically fix all these problems, and shouldn't we all be dreaming for a better system than the one we currently have?
I don't think anything besides getting bankrupt will convince a "number go up" cryptocurrency enthusiast to act differently, and so technical or observational arguments above will be ignored as long as the roller coaster continues to provide thrills. But an appeal to values might persuade those who understand the high-level criticisms, but still think cryptocurrency will make the world a better place. These people mistrust governments, especially the United States government, and for good reason. They would prefer a world in which individuals had more control over their own destinies, whether that means freedom of movement, freedom to seek economic prosperity, freedom from rent-seeking, "trust-free" transactions, etc. Often this boils down to specific ways they felt they've been wronged by particular laws and regulations—some more extreme than others—or else it is driven by a fuzzier sort of attraction to an idealized proto-American individualist lifestyle in which people can invent and innovate unencumbered. (Pro tip: a history lesson here does not seem to help.)
To these people I would say: if it succeeded, cryptocurrency would represent a transfer of power. Specifically, it would transfer power to technologically savvy people and away from everyone else. So if you dream of a world with cryptocurrency replacing fiat currency, you need to ask yourself whether you have the technical skills required to understand and use cryptocurrency safely, and the time required to exercise those skills in your day to day life.
Let's make it more concrete. In traditional consumer finance today, you spend some basic amount of time trying to determine if some sunglasses you're buying online are counterfeit or a scam (thanks, Amazon). But this is mostly to avoid the hassle. You can get a refund but it takes effort to do so, and then you still have to find another pair of sunglasses to buy. You don't particularly worry that by buying these sunglasses, attackers will drain your bank account, because the banks provide protections and credit cards make chargebacks relatively easy for consumers.
In a world where everything happens on the blockchain, where the wild west is reality, all of the work of vetting the source falls on each individual consumer. In the worst case, you have to read the code of a smart contract, and hope that someone else doesn't find a security flaw you didn't spot. If you have the time and ability to do that, then you're probably going to be safe. You won't lose your wallet's private keys, you won't fall for scams, and you'll reap the benefit of a regulation-free economy. Everyone else will just have to shift their trust to some other person or institution that has these skills.
My father, for example, asked me in 2018 or so to buy him some Ethereum. I am well aware of the joy he takes in stock trading and his "number go up" mentality, so I said no, not if he's going to get into the habit of short-term price speculation. Then he tried to convince me of two things. First, that he really, truly believed in the technical merit of the platform and its long-term prospects for society. He was apparently an avid reader of Ethereum news (god only knows what blogs he was reading). Second, he promised me that he would not touch the money for 15 years. I didn't believe him, but thankfully I have enough technical knowledge, so I said, "only if we do it my way." My way was to buy the ETH on Coinbase, send it to a wallet not managed by Coinbase, write the wallet's secret key on a piece of paper, delete the key from my computer, and put it in my parents' lock box in a small-town bank branch that happened to be far away from where they lived at the time. It was effectively impossible for my father to access this money, because, while he physically had access to the secret key, he would have never been able to restore the wallet without me or someone like me who knew how to get it back into Coinbase. This would force him to hold to his "15 year" promise. 1
Even if I hasn't gone to such extreme measures to try to keep him honest—and to try to keep him from margin trading or getting scammed—it was clear that he needed me to achieve his goals in this new world. My ability to make the transactions safely for him, and even my hypothetical willingness to teach him how to do it on his own, was an embodiment of that power transfer.
The story ended much earlier than 15 years. About a year later, my father convinced me to take the ETH out of cold storage so he could cash out completely. His reason was stated as his impatience with the rate of progress of the promised features of Ethereum, and a loss of confidence in the project. In a way I didn't understand, that was somehow tied to the price of ETH, which I guess he expected to rise with every new feature. I relented, I cashed him out, and then a few things happened. First, he made a small profit. Second, he was irate with the fees Coinbase charged to take USD off the platform. He called it a "scam", but I'm just happy that was the worst of what he experienced. Third, their taxes were a huge headache that year. And finally, the price of Ethereum grew to be much higher.
The "number go up" folks will say, "See?" but this isn't for them. That post-cashout experience underscores my point: he thought he was well-versed in the technical merit of Ethereum, and how those technical details related to its price—or at least its worthiness of investment. But he was wrong. Based on some small clues he inadvertently let slip, I suspect what happened was that he was swayed by other new cryptocurrency projects he was reading about that were inspired by Ethereum and able to move faster, and he was planning to pivot to reinvest his proceeds in Monero or whatever, but then the huge exchange fees were so distasteful that he felt standard stock trading would cut in less to his profits.2 So he just happened to be wrong in enough ways to cancel out and at least get his money back, if not his time, with a small, lucky profit.
For all that my dad lacks in cryptocurrency knowledge, he is still quite smart and technically minded. Over his career he designed and built planes, factories, and medical devices used in optometrists' offices and veterinary sciences. I'm sure he has the skills required to learn how to use cryptocurrency safely if he had the time necessary to understand the technical aspects. But he doesn't. And what does that say for the rest of the population? Working mothers, teenagers, bus drivers, and all the people who don't care about the technology and just want to buy their pizza or watch a movie. If they use digital currency, they will simply be transferring their trust from a government-backed bank to a service provider with shakier safety measures. And who will be running those service-providers? We nerds who actually understand the technical parts. Maybe some people out there still think our current tech moguls like Mark Zuckerberg and Jeff Bezos are blessed innovators and the best hope for society's progress is to give then more power over our personal lives. Maybe they'd be happy to trust them to control all of society's money, while only the nerds can opt out to manage their own wallets. But for most people, framing cryptocurrency as a choice between letting well-regulated, government-insured banks manage our money and letting the next Jeff Bezos do what he wants with it, should make the best choice obvious.
I have more to say about how this framing—technology as power transfer—relates to other tech trends like LLMs, but I could not fit my thoughts in the margins. Next time.
In cast you missed it: April Cools was last week and a handful of us bloggers wrote earnestly about something they don't normally write about. Mine was parenting. Maybe join us next year?