I have signed the open Letter in Support of Responsible Fintech Policy calling on members of the United States legislature to take a critical second look at blockchain lobby proposals. I strongly agree with the forceful thrust of the letter.
As a freelance professional, independence is my privilege. Independence writes this blog. But many out there will have noticed that I haven’t posted anything blockchain since July of 2017, almost five years ago. It’s the one big, obvious topic I’ve denied myself, and hardly for lack of what to say.
Five years ago, Bitcoin had just broken a thousand dollars. Ethereum was barely two years old. The Securities and Exchange Commission’s first investigation of a blockchain scheme, “The DAO”, buzzed on the blogs, including this one. The “initial coin offering” wave was rising.
I advised a stable of promising blockchain clients. Mine were the adults in the room: older, wiser veterans with life, business, and legal experience, focused on hard technical, policy, and institutional problems. They weren’t basking in reflected glow from their pitch decks. They weren’t pretending derring-do or unfathomable tech-magic exempted them from all known public policy. They were trying to make blockchains do real work. They’d lived through the 2008 financial crisis as self-conscious, responsible adults.
I fired them all.
One by one, in careful e-mails, I ended our attorney-client relationships. Referred them to other counsel, more eager to be “crypto lawyers”. Tried as I could to preserve personal rapport, founded on deep respect. I did what I could to explain, plain and honest, that it really wasn’t them, personally. It was the whole “crypto space”. I’d had enough. I didn’t want to be associated. I was out. Every blockchain client got an e-mail.
My income prospects tanked. I was deeply relieved. I still am. I’ve taken some blockchain-adjacent clients since — all small, engineer-driven concerns doing actual cryptography on trickle-down dollars. But nobody hawking chains, coins, or tokens. I’ve lost track of all the new business I’ve turned down. Gladly.
My pretenses against blockchain were then and remain now basically three: the work, the tech, and the crime. In no particular order.
As a lawyer, working in blockchain increasingly sucked. Legal “greenfield” is fun, but we weren’t out there alone. Even ace clients increasingly sat across from jokers on very meaningful transactions. Countless negotiations were derailed by rampant amateur “incentives engineering”. Countless proposals, earnestly made at great time expense, should have been preemptively debunked by an intro-level business-law course or a quick skim through a book.
Chaos in a new space tends high. That’s half the fun. But I started getting the feeling that somehow, even relatively early in my law career, I wasn’t playing in the right league. A lot of basic homework clearly wasn’t getting done. A lot of transactions well into the dollar danger range for litigation were signing on tottering, incomplete, or downright broken terms.
Even setting foolishness aside, many a capable startup gave in to issuing a “coin” for quick cash. Among the founder precariat, the temptation was massive. You’re worried about payroll on one hand. You’re sick at the thought of pounding pavement for pro finance on the other. Suddenly, a new sign on a familiar route: exit right for Easy Street.
I had serious concerns that my lawyer photo would end up pasted into marketing materials for some ICO I’d never heard of, perhaps as part of a template for fly-by-night scams. To my knowledge, none of my actual clients ever did one while I was engaged. I certainly never approved one. But many a business plan or compliance strategy nonetheless bent around the ever-widening distortion field. If people wanted to mine for turds to hock as treasures, there was money in pickaxes, cans, storage, and transportation. A more honest living, by one step removed. But the work and the company still stank to high heaven.
I didn’t judge my clients. I knew them too well. Under the right (wrong) incentives, we can expect even the staunchest to heel. But I was one more step removed still, and I also had a choice. Five years of my prime down the line, I’m glad to have frittered them otherwise.
More tragically, as a coder, it gutted me seeing attention, money, and brains evacuated out of promising scene after scene. Systematically.
Second-wave peer-to-peer. Privacy-first engineering. User-friendly cryptography. The machine put a bounty on any untapped technical cred. The marketeers hunted it like beaver pelts, far and wide across the hacker Web, trodding into dark thickets as yet uncharted by business. Many a promising hobby concept went from software to a white paper and back to software, only worse. Some really cool ideas were more or less strip-mined of jargon, then left bare.
In the process, some good coders—hell, even some unsuspecting grad students—did get proper paying gigs, care of promoters with hefty promises to fill. I happen to really like some coders who got rich on some peak or another. But even ignoring the many worthy who didn’t, a lot of talent blessed with crypto mana duly went the way of the HURD. Five years is a lot in software land. The sole inflexible business requirement—speculative fundability—was reliably fulfilled, again and again. Meaningful, competitive end-user value, not so much. Good people went in, and worse software seemed to come out. The constraints imposed—or the lack thereof—proved counterproductive.
Dominant chain nodes still convect surrounding airspace solving nothing. Private-key crypto is still fraught and user-hostile. The data stores remain slow and expensive, in the midst of a commodifying cloud war. “Decentralization” is most often enablingly vague, and when achieved in any specificity, with meaningful adoption, also promptly sacrificed to speed and convenience. Privacy properties remain largely ill-conceived or aspirational. In short, the leaves off the tech trees not facing the ra-ra money stunted, withered, or got pruned away. A lot of good devs who know better are grinding away on bad compromise technology. Signal, which is damn good crypto work, announced MobileCoin support, and I stopped donating, bummed.
Basic research is hard. Industrialization is hard. Both at once is miraculous. Allocating resources to call forth such a miracle, under one guiding force, on the basis of promotional talent, has again proved unwise.
Even the amalgamated, monetized want of thousands of eager speculators cannot will a meaningful innovation into being. Crowdfunding the full projected cost of a hypothetical technology, then dumping it on a team in one gobsmacking lump, is the opposite of how we’ve learned to fund startups. It’s a long way off from how we’ve learned to contract for software development, too. Have a budget, but tie installments to milestones. Ensure there’s someone motivated to monitor progress, not a big collective action problem about it. Scout team first, and expect change on the tech, or even the fundamental business. Many a project raised money, got smart, but had to stay blockchain, because that, more than delivering practical value, was the social contract.
Technical achievement requires a certain measure of discipline. But an utter lack thereof is attractive in its own compelling way, for a much broader set of people — those for whom money, not technical achievement, represents the whole goal. The worst and scariest aspect of blockchain is obviously the mounting, persistent crime, the money that crime makes, and the speed with which it turns that money back around on the system the crime at first evaded.
Perhaps this shouldn’t have come as any surprise. A lot of the crime was securities fraud. It’s a series of short mutagenic hops from investing in hype to reinvesting in “community” to running a direct and self-conscious lobby operation, initially on the regulators, then over their heads to the pols. And meanwhile weak or striving backwater jurisdictions, such as may be found.
Nobody needs this blog to parade blockchain horribles or define the new slang for old heists ported over to “crypto”. Suffice to say it was obviously bad enough in 2017 that even a longtime computer programmer, who did research for a securities don in law school, who had a career plan derailed by international financial sanctions, could see enough sleaze to turn around and find the exit.
But walking away doesn’t actually solve anything.
Largely by repeating self-serving nonsense about how criminal use was negligible, banking regulations were illegitimate, and securities laws somehow did not apply—and finding enough lawyers willing to flatter the latter, and eventually work the litigation—the critical, interested mass of crypto players bum rushed the regulatory system.
We’ve seen this play before. Break the rules with aplomb. Preferably, at first, in simple ignorance. Emphasize immediate and imminent hypothetical gains. Downplay harms to the substantial, predictable minorities, fully anticipated by the rules. Operationalize customer enthusiasts and business dependents as an on-call political machine. Pressure the regulators to bless your “revolution” in settlement of all past infractions, securing a de facto pardon. In short, overwhelm the system, designed to be methodical, with a rush of popular mass at speed. Collect you winnings, man your barricades, and preferably make a clean exit, all before public consequences catch up with you.
We’ve seen Uber and Lyft do it against carriage, employment, and insurance rules. We’ve seen a million scooter companies follow suit, with kids’ lives and limbs on the line. We’ve seen actual children do it in “flash robs”, looting stores in mass. We see it now not by a lone firm, an industry group, or a social crowd, but by a mess of all of the above, plus individual interested parties, coalesced on the Web.
A painful reckoning with accrued deferred and ignored consequences is right where we’re headed, should we cut blockchain exceptions to sound rules just for being blockchain, just to see what it can do under whatever looser regime it can procure. This in marked contrast to laws of the past clarifying that old skulduggery with newfangled tech—the mails, the wires—weren’t somehow exempt from public protections as the price of innovation, but called for greater responsibility, since they could wreak more widespread harm. Half of humanity is now online. Being online means not just being able to communicate with almost anyone, but being able to pay and be paid by them, as well. Nearly any one of us can scam nearly any other for cash. Never have so many predators been thrown in with so many prey.
As becomes clear to anyone who really thinks on the dates of key statutes and legal decisions in financial services, antifraud, and securities, the prospect of technology altering crook-mark balances of power was hardly news upon our forebears. The banking and money transfer laws were written to deny criminals those facilities both as they existed then and as they’d evolve. The securities and fraud laws were given flexibility precisely to prevent the old scams from slipping by in new mustaches.
The rules designed to prevent harms aren’t written in terms of the tools used to harm people, or specifics of promises made, but the harms themselves. Long-dead legislators’ inability to foresee details of the Bitcoin or Ethereum papers didn’t render them incapable of legislating to prohibit using or hocking such tech to screw investors. That’s not how law works.
Yes, the terms of flexible legal rules often read loose on first glance. In California, fraud is “an intentional misrepresentation, deceit, or concealment of a material fact with the intention of depriving [someone] of property or a legal right or otherwise to cause [them] injury”. But that’s a not a bug or the law behaving un-law-like. Where terms of the law hew general, lawyers take cue to look to “policies”—the purposes behind the language, often stated in the same statutes or inherited with the judge-made law. The fundamental interests remain the same today. They don’t include tolerating widespread Main Street collateral damage because boosters have the pluck to deflect public policy questions with confidence in the importance of their own new jargon and irrelevant tech details. Where and how you record who owns what doesn’t much matter to the relevant agencies or their missions, nor should it.
I don’t support cracking down on blockchain people just for being blockchain people. A scene being riven with datajackers, confidence men, and self-taught, emoji-adept bucket shop jockeys does not condemn others not so involved by abstract association, be they merely fools or holdout true believers. But neither do I support special accommodations for those in denial or indifference to the unwelcome company they keep. They way blockchain is going is largely bad, tragic, or both, not deserving of special leniency. Its strongest defense is that honest developers may yet convince it to do something useful and prosocial, at justified cost. When your primary, present-tense, validated use case is regulation evasion, you do not win a special regulatory pass.
Nonetheless, our federal representatives are sure to take note that the blockchain phenom has gained coherence enough to gather resources unto itself, some of which it is willing to spend at state and national capitols. But they should not mistake money to spend for money earned. That is missing half the balance sheet: all the many promises made and still outstanding, all the many victims yet to be made whole, many of whom apparently never will be. Companies and interest groups are writing checks. But constituents in thousands are holding empty bags.
Neither should Congress or anyone else confuse the hype machine’s capacity to invoke real grievances—banking access, financial consolidation, transfer network improvement, predatory lending, monetary policy—with capacity to solve them. The proper tools are known, but they aren’t found in any “white paper”. They are found on parchment, in the Constitution, vested in Congress. Due regulation of both established and nascent financial services, keeping market forces in our service and off our necks, is its duty. Not aiding, abetting, or facilitating rampant speculation in fundamental economic infrastructure.
If our representatives tie themselves to blockchain with special favors, they will stand with it when the hustle grinds down, the debts come due, and full account is taken of its past as well as its promises. They should do the opposite. Clearly assert that “blockchain” and “crypto” must meet or exceed the same standards of public protection and public service already established in law. Fund the enforcement needed to protect everyday Americans and secure justice for those already taken. Reserve dispensations, if any, for those who embody democratically established public policy in their public service. Not those who flaunt it, downplay the costs, and call that “innovation”.
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