Attack of the 50 Foot Blockchain: Bitcoin, Blockchain, Ethereum & Smart Contracts

"Again, I recommended it not because I completely agree, but because I think he’s a serious critic. He’s a very cheeky critic who is making fun of it, but he is an IT professional, a technically sophisticated guy. It’s not that he fails to understand the basic mechanics of it. These warnings are really important because the other thing is that we’re talking about money here. People have already lost a lot of money based on various problems with these systems. It’s so easy to get caught up in the excitement and the celebration of new technology that we really need people like him saying, ‘Whoa, whoa, whoa. Just think about what’s going on here.’ It’s a fun book, but it’s not a pure comedy routine. It’s a thoughtful criticism. Yes, it is a big issue. It’s a problem that too many people who are promoters of the technology just want to sweep under the rug. The question is, ‘What percentage of those who become attracted to these kinds of systems are people who are untrustworthy or who want to engage in illegal or fraudulent activity?’ It’s not zero, but it’s certainly not everyone, and in most of these cases it’s not even a substantial percentage. But it’s something we need to deal with. “It’s human nature: there are bad people out there who’ll take advantage, and it’s not the case that the problem can be solved with game theory” We’ve seen it time and time again. Especially in 2017, when the price of all these cryptocurrencies went into the stratosphere, we saw lots and lots of examples of fraud and illegal activities. I have a fairly balanced view of this, I think, which is that there’s a lot of good and a lot of bad. It’s mostly good, but the bad is serious enough that it needs conscious and direct countermeasures. It’s human nature: there are bad people out there who’ll take advantage, and it’s not the case that the problem can be solved with game theory, which is what some people in the cryptocurrency world think. You can solve some pieces of it, but nature abhors a vacuum and people will find other ways to attack. It was almost certainly not the actual person that stole it who wrote that, but that statement was an incredibly clever piece of performance art. The DAO is pretty much the touchstone for anyone talking about the potential and the risks of blockchain technology, because it puts all the pieces together. It’s something that was incredibly exciting: in just two weeks, a group of people contributed $150 million to this decentralized, self-operating, crowdfunding system. Then it blew up, which was tremendously scary, and the way the system was designed, no one could get the money back, except via a very confused process. The Ethereum leadership and the underlying blockchain community eventually agreed to fork the whole network. That’s an example everyone points to because in it, you’ll see a reflection of what you want to see. If you have a positive view of blockchain, you will see this as, in the end, a positive experience, but if you’re a skeptic, you’ll see it as a catastrophe heralding future catastrophes. There have been periods when there was more excitement about the cryptocurrencies themselves, the things that can be used as money, and periods when there was more excitement about the non-financial applications, like Walmart using blockchain for its supply chain. There’s been a swing back and forth based on financial speculation and the valuations of the currencies. But yes, there was an initial period where it was basically just Bitcoin and some derivatives of Bitcoin. Then things broadened out, with Ethereum being the starting gun for that process. Those are still the two dominant platforms, although there’s also these large enterprise platforms. There’s just a lot more going on. It was a year and a half ago now that I wrote my book. I really felt, looking out, that there weren’t enough books that provided a clear introduction both deep enough to give some understanding of the mechanics and yet accessible to a non-expert. I also thought that there wasn’t much material that really put blockchain in the context of the business value proposition—not just telling the story with a bunch of examples, but saying, ‘What is it that this does for people in the firms that use this technology above and beyond the surface things, like I’m using it to pay or I’m using it because I’m investing in something that I think will go up?’ I also felt there wasn’t enough of a conversation about the legal, regulatory and governance questions. There was basically a community saying that blockchain makes law irrelevant, because we can do—through encryption and cryptography and software code—what law has done badly in the past. Then, on the other side, there’s a community of people saying, ‘This is all just a community of scammers and lawbreakers and criminals.’ I think there’s a middle ground. As I said before, I really think we in the legal and policy community can learn a lot about other things from studying what is happening in the blockchain world. Yes, and also that it’s nuanced. What I talk about in my book is that there are situations where the legal system is operating just fine, and the blockchain just creates another kind of application. With the Walmart food safety system, for example, there aren’t really any particularly hard legal issues in doing this on a decentralized ledger. There’s also a set of situations were blockchain may actually fill in gaps, issues that the legal system is failing to address. There’s also a set of situations where the promise of blockchain is to supplant the law and go where law is not going effectively, and where there isn’t effective legal enforcement. In all those situations, it’s not a black-and-white case; we need to understand what’s going to happen with these different mechanisms."