By now virtually everyone on cryptotwitter has seen that letter:
The letter begins:
We are 26 computer scientists, software engineers, and technologists who have spent decades working in these fields producing innovative and effective products for a variety of applications in the fields of database technology, open-source software, cryptography, and financial technology applications.
I mean, this isn’t exactly true and/or could benefit from clearer language. Nobody who signed this letter actually works in the cryptocurrency industry, to start. It’s a tiny bit misleading to suggest that people who used digital signatures in the 1990s are qualified to comment on the state of crypto as things currently stand – without more.
If we’re talking about “database technology, open-source software, cryptography, and fintech” that’s not related to cryptocurrency, then this letter is sort of like reading a letter from a bunch of soybean farmers complaining about inside-baseball technical aspects of cattle farming. Some, such as Bruce Schneier or Grady Booch, are, quite unarguably, leaders in their respective corners of computer science. Others are clearly computer scientists and engineers, although whether each is responsible for “innovative and effective” products and discoveries or generally regarded as having made major contributions to computer science and engineering is not immediately apparent.
Other signatories are firmly in the camp of “writer” or “consultant.” This isn’t a bad thing, it just means that they’re barely “technologists” and in any case not technical experts on cryptocurrency, which possibly explains why they signed onto a letter which is technically wrong in more places than one. In the case of some signatories, such as David Gerard’s, “writer” is, while technically correct, inadequate to describe his command of the space, which is not inconsiderable – he probably signed the letter for the lulz, but has consistently been taking inconvenient and in my view very erudite pot shots at the industry for years (since at least 2014).
In other cases, the “writer” camp contains unapologetic attention seekers. In this category I would include letter signatories like Dave Troy, a guy who runs a dev shop, rose to fame with a popular “resistance” Twitter account during the Trump Era and describes himself as an expert in “hybrid warfare and threats to democracy” despite having never served in the armed forces, law enforcement, nor any other public or private sector job which would involve him participating in warfare, hybrid or otherwise, or promoting democracy in a professional way, such as working for the State Department or an international development NGO.
His only involvement in crypto is to pivot his Da Vinci Code-level-of-crazy conspiracy theory Twitter account when he needed new content after the 2020 election cycle ended. He is expert in nothing, or at least nothing relevant, and his presence in the letter does a disservice to many of the other individuals who signed it. It also renders the opening paragraph of the letter, if not outright incorrect, extremely misleading.
“Global community of technologists?” “Tech experts?”
Rating: false.
The letter continues:
Today, we write to you urging you to take a critical, skeptical approach toward industry claims that crypto-assets (sometimes called cryptocurrencies, crypto tokens, or web3) are an innovative technology that is unreservedly good.
The letter’s authors claim that cryptocurrency boosters say crypto is unreservedly good. This is a bit of a strawman.
There are very few people in crypto who would claim that what Bitcoin and its ilk do are unreservedly good, myself included. Crypto adoption would frustrate a broad range of policy objectives currently held by the state. The question is whether it’s worth the tradeoff. Those of us who do this for a living think that it is.
The fact that 95% or more of the industry, including all major liquidity onramps, interfaces with proof-of-stake or proof-of-capacity/storage/space-and-time systems which expressly claim to reduce energy consumption as a USP – thus indicating disapproval of Bitcoin’s electricity-hungry mode of operations – is evidence that this statement is very incorrect.
Rating: false.
We urge you to resist pressure from digital asset industry financiers, lobbyists, and boosters to create a regulatory safe haven for these risky, flawed, and unproven digital financial instruments and to instead take an approach that protects the public interest and ensures technology is deployed in genuine service to the needs of ordinary citizens.
It’s hard to rate this statement true or false because of the imprecision of the language used. What does “safe haven” mean? No laws apply? Safe harbors like the proposed Regulation X carveout apply? We don’t know. However, being a lawyer, I can say with some confidence that the attitude of most crypto entrepreneurs I encounter is not that they want a free-for-all to do what they want, when they want – to the contrary, they want certainty over how they can participate in this new and fast growing global economy in a way that allows actual participation without having one arm tied behind their backs, and doesn’t constitute years-delayed guidance-by-enforcement.
They don’t want the US to be the most liberal place to do business. They just want to do business and are prepared to bend over backwards to comply, if only the government would permit cryptocurrency business to exist as it does everywhere else on Earth.
Rating: misleading.
We strongly disagree with the narrative — peddled by those with a financial stake in the crypto-asset industry — that these technologies represent a positive financial innovation and are in any way suited to solving the financial problems facing ordinary Americans.
This is really a matter of opinion, and as such is unfalsifiable. All I will say is that when the real rate of inflation is burning a white hot 15% and the Fed is nuking the stock and housing markets, why are we surprised that a new asset class which promises to exit from that corrupt and broken system – one where ordinary Americans always lose – is popular and gaining traction? Maybe crypto is winning not because it deserves to win, but because it is the only alternative under circumstances where the existing system deserves to lose.
Rating: matter of opinion in relation to which reasonable people can disagree.
Not all innovation is unqualifiedly good; not everything that we can build should be built. The history of technology is full of dead ends, false starts, and wrong turns. Append-only digital ledgers are not a new innovation. They have been known and used since 1980 for rather limited functions.
Blockchains are not merely append-only digital ledgers. They are append-only databases which allow a decentralized network with no central point of failure to achieve consensus on the content of a hash-linked chain of blocks and conduct a leader election procedure in a decentralized way. As such, blockchains represent a genuinely new innovation and while their components such as merkle trees, digital signatures and cryptographic hashes have all been in use since the 1980s, the combination of these things into Bitcoin was a new innovation and has sprouted innovation delivering all kinds of services – such as cloud storage (Filecoin), WAN for control of IoT devices (Helium), and even decentralized finance and escrow etc. (Bitcoin to an extent, Ethereum and its clones to a greater one) in ways that were not possible before Bitcoin.
Rating: false.
As software engineers and technologists with deep expertise in our fields, we dispute the claims made in recent years about the novelty and potential of blockchain technology.
You’re not all experts.
Rating: false.
Blockchain technology cannot, and will not, have transaction reversal mechanisms because they are antithetical to its base design.
False, false, false. Not every blockchain system works like Bitcoin. You can amend the state of the ledger by appending a new transaction to the end of it. You can also code systems which allow an administrator to step in and change things later on. The theory here is that you use the blockchain as shared processing for a process which otherwise has to be individually repeated in individual data silos, such as in a process like securitization corporate bond lifecycle management.
I have firsthand experience in this regard. Here’s an article about a prototype my startup built in 2015 for Deutsche Bank that allowed an admin to step in and change state in a transparent and cryptographically verifiable way that reversed transactions without deleting data on a fork of Ethereum.
If you’re looking for a public chain that can amend its own logic, see e.g. Tezos.
Rating: false.
Similarly, most public blockchain-based financial products are a disaster for financial privacy; the exceptions are a handful of emerging privacy-focused blockchain finance alternatives, and these are a gift to money-launderers. Financial technologies that serve the public must always have mechanisms for fraud mitigation and allow a human-in-the-loop to reverse transactions; blockchain permits neither.
On the reversibility point, it depends on the system; if you use Bitcoin, yes, the system doesn’t allow transaction reversals, but then again that’s the point of it, its unique selling proposition. If you don’t want to use that you can always use another system which keeps a human in the loop; you lose the censorship-resistance but you gain the ability to make an admin or a mod do what you want. Put another way, “blockchain permits neither” is wrong: blockchain permits both. Whether users elect to use systems that have these features is up to them.
Rating: false.
By its very design, blockchain technology, specifically so-called “public blockchains”, are poorly suited for just about every purpose currently touted as a present or potential source of public benefit. From its inception, this technology has been a solution in search of a problem and has now latched onto concepts such as financial inclusion and data transparency to justify its existence, despite far better solutions already in use. After more than thirteen years of development, it has severe limitations and design flaws that preclude almost all applications that deal with public customer data and regulated financial transactions and are not an improvement on existing non-blockchain solutions.
This is really a summary of what has already been said.
“The tech is still early” isn’t the own that they think it is.
Rating: matter of opinion on which reasonable people can disagree.
Finally, blockchain technologies facilitate few, if any, real-economy uses. On the other hand, the underlying crypto-assets have been the vehicle for unsound and highly volatile speculative investment schemes that are being actively promoted to retail investors who may be unable to understand their nature and risk.
This is correct, in part. Some crypto-assets have been promoted to retail who have been unable to understand risks, for sure. However, others – Blockstack in particular comes to mind – have sought to comply by following a rigorous disclosure process (in Blockstack’s case, Reg A) which provided information to investors sufficient for them to make an informed choice.
Much of the problem here arises from the fact that the SEC refuses to promulgate rules which would allow fair and complete disclosure to be made and also permit participation in the crypto markets by those who would build new systems and sell new tokens. As a consequence, on the “utility token” front (utility token being a concept not known to law in the United States, but which describes a particular feature set) the overwhelming majority of the innovation is taking place outside of the United States.
Retail investors can understand the risks. The government won’t give companies an avenue to let them engage in those risks in an informed way, such as proposed by the proposed Regulation X Safe Harbor.
Rating: partly true.
Other significant externalities include threats to national security through money laundering and ransomware attacks, financial stability risks from high price volatility, speculation and susceptibility to run risk, massive climate emissions from the proof-of-work technology utilized by some of the most widely traded crypto-assets, and investor risk from large scale scams and other criminal financial activity.
This belongs in a risk factor document for a token sale. Financial risk is not limited to tokens; just ask my 401K. Risk and volatility is not a reason to can the tech entirely.
On the money laundering point, crypto is a terrible way to launder money, even though politicians would rather pretend otherwise. See e.g. Jony Levin trying to get a word in edgewise on the subject with noted crypto non-expert Elizabeth Warren:
And on the national security point, even if you could get a consensus to ban crypto in the United States, that isn’t going to stop ransomware or money laundering – in the United States or otherwise. Cryptocurrency would need to be eradicated the world over, and seeing as the U.S. can’t even get the other great powers to agree on an oil embargo, it’s pretty clear the U.S. doesn’t have the clout to enforce a crypto ban.
Pretending like American laws can protect American people from a global phenomenon America is unable to police is foolhardy, and for the most part, wrong.
Rating: mostly false.
We implore you to take a truly responsible approach to technological innovation and ensure that individuals in the US and elsewhere are not left vulnerable to predatory finance, fraud, and systemic economic risks in the name of technological potential which does not exist. The catastrophes and externalities related to blockchain technologies and crypto-asset investments are neither isolated nor are they growing pains of a nascent technology. They are the inevitable outcomes of a technology that is not built for purpose and will remain forever unsuitable as a foundation for large-scale economic activity.
Whether this is responsible or not is a statement of opinion. Whether the tech is improving (and whether usability is improving in tandem) is not in doubt; which makes the second half of this statement, “inevitable outcomes of a technology… [which will] remain forever unsuitable”… false.
To the extent that I think the potential is there but, much like the Railway Mania in the 1840s, a new tech that can act as new rails for all kinds of data is going to be the subject of considerable experimentation and many of those experiments will fail. “But it won’t scale!” is being routinely disproven by Layer 2 tech including but not limited to Lightning and Optimistic Rollups.
Rating: true in the past, presently debatable, probably false going forward, TBD with the passage of time.
Given these vast externalities, together with the-at best still-ambiguous and at worst non-existent-uses of blockchain, we recommend that the Committee look beyond the hype and bluster of the crypto industry and understand not only its inherent flaws and extraordinary defects but also the litany of technological fallacies it is built upon.
This isn’t debate club. Complaining to the teacher that the other side is employing a fallacy to support their argument is not a winning point.
Crypto is politics. Its political orientation is anarcho-capitalist. Anarchocapitalism believes in the possibility of, and cryptocurrency aims to bring about, the permanent separation of money and state. This is a revolutionary idea, and every mined block is a new salvo. Fight it or don’t, but don’t insult us by suggesting that this technology is somehow an inadvertent mistake and if only we knew better we’d all be using mySQL.
Crypto is playing to win and if adoption rates are any indication, it’s going to.
Rating: false.
We need to act now to protect investors and the global financial marketplace from the severe risks posed by crypto-assets and must not be distracted by technical obfuscations which mask an abject lack of technological utility. We thank you for your leadership on financial technology and regulation and urge you to consider our objective and independent expert judgments to guide your legislative priorities, which we remain happy to discuss anytime.
The problem with cryptocurrency regulation isn’t that the two parties have provided leadership of any kind; it is that they have done nothing, that they continue to do nothing, and while they dither the world is eating our lunch.
Rating: False.
