[Cryptography] Incentive Politics

[Ray Dillinger]

On 10/2/23 13:46, Phillip Hallam-Baker wrote:
>
>
> What we were promised was decentralized finance. What was delivered 
> instead was a classic Ponzi fraud wrapped up in psychobabble. 
> Pseudo-currencies are to the world of cryptography what astrology is 
> to astronomy and esoteric alchemy to chemistry.
>
>
> There is a rule in physics that if you claim to have invented a 
> perpetual motion machine, you are mistaken, something, somewhere is 
> adding energy into your system. The same holds for proposals for 
> better assassination markets: if a system allows such, the system is 
> going to be regulated out of existence.
>
I'm going to agree, but it's more nuanced than just being a Ponzi scam.  
It was a mistake.  We made buggy software, and Ponzi scams are a symptom 
of the software bug.

What we learned was that finance cannot be deregulated, because it is 
finance.  Money is power.  Power is regulation.  Nobody who has money, 
wants to risk money or spend money if they do not have regulation to 
ensure that their risks are honestly represented or in case they do not 
get what they spent their money for. Therefore, people who have money, 
or anything that can effectively be used as money, demand regulation.  
Having money means that they also have power, so they actually get 
regulation.

Cryptocurrency in its current "block chain" formulation aimed to replace 
this regulation with simply making sure that the transactions are a 
consistent record complying with impartial computer code.  It was a 
worthwhile experiment; regulation that is more impartial is after all a 
resolution devoutly to be wished. The problem is that real transactions 
require both the movement of money, which the computer code is aware of, 
and the production of value, which is not part of the universe that code 
can respond to.  And because a block chain can track only one side of 
the transaction, the stage was set for big systematic failures on the 
other side.

The world - the world of genuine goods delivered and services performed 
for money spent, risks taken on money invested, and, yes, regulations 
enacted and court cases settled by human beings to redress scams run by 
other human beings who in one way or another pretended that they would 
do those things but did not - is not represented in the inputs to that 
computer code.  And therefore the code, interpreted as regulation, fails 
to do the job required of any system that can support genuine wealth.

Those who require regulation of both sides of the transaction - who need 
to keep track of more than just whether or not an amount was paid - are 
more or less exactly EVERYBODY IN THE WORLD who is talking about genuine 
wealth - about production, investment, jobs, and real-world resources.  
The only kind of "money" amenable to the  world-blind 
accounting-consistency regulation of cryptocurrency is "money" that 
doesn't represent genuine value or production in the world.  It for 
doesn't represent production of value - it only represents trade.  For 
every winner who realizes a profit, there's an equal and opposite loser 
who believed that they would.

It was a worthwhile experiment.  It was something of a success because 
we did successfully fix the trusted-role bug that had been the downfall 
of previous cryptocurrency protocols.  So the state of the art was 
advanced, and we discovered a new bug whose existence we hadn't run into 
before.  But it's still a serious bug, and systems that still have this 
bug, ultimately won't work. Solving both bugs simultaneously - how to 
have trust in a world-aware regulatory system that somehow doesn't 
require a central trusted role - will be, at best, tricky.

We failed to recognize what the requirements for supporting genuine 
wealth actually were, and made a mistake.  The ponzi scams are the 
user-facing problem that manifested, ultimately, as a critical bug 
report.  Thing is I don't think the CVE system acknowledges bugs that 
are this subtle.

If you want real cryptocurrency that tracks real wealth, we've got to 
fix that bug. Money cannot exist independent of the regulation of the 
society whose wealth it represents. People who don't want regulation 
don't want to see it fixed. But script kiddies don't want to see a patch 
on a bug that allows them to get root on other people's servers, either.

Bear

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