Crypto Newsletter 2/27: A Question of Governance
In a talk given at the Alan Turing Institute (ATI), Vili Lehdonvirta, an Associate Professor and Senior Research Fellow at the Oxford Internet Institute, discusses the fundamental problem with blockchain.
Lehdonvirta first notes that one of the primary reasons people are so excited about the technology is that people believe blockchain could reinvent the way we handle digital record keeping, particularly within financial services and government, as blockchain removes centralized third parties.
Lehdonvirta posits the need for centralized parties in economic markets as a game of prisoner’s dilemma. A buyer and seller can cooperate and trade (exchange the money/goods as agreed upon ) or defect (does not complete the trade as agreed). If the two parties don’t trust each other, the default result is no one trades, out of fear of the other party’s defection.
Queue the emergence of reputation systems (if you hold to your word, your reputation goes up; if you defect, it goes down) as well as third parties, such as banks, that double as intermediaries and enforcers. The goal of both systems is to disincentivize defection, and encourage everyone to play along.
Lehdonvirta points out some of the strengths and weaknesses of each, before pointing out that blockchain can remove that third party and force everyone to play by the rules. That’s pretty cool. However, there is a paradox within the technology itself.
While blockchain can enforce rules, it cannot make them. This is an issue of governance. Bitcoin’s governance was created by an anonymous individual named Satoshi Nakamoto and is now governed by a core development team. Other blockchains are similarly governed by a company, a team of individuals that have their own motives and are influenced by external factors. Do you trust the people making those governance decisions?
At the end of the day, does blockchain really change that much? Lehdonvirta argues that you still have to trust someone to make the rules, and what’s the difference between trusting a Board of Directors at a blockchain company and a bank?
What’s Happening In the News
Will Elon Musk talking about new technology ever not make the news? Probably not. Anyway, here’s Musk talking about crypto: Bitcoin is “quite brilliant.” Nice.
Crypto startup Gladius reported themselves to the SEC last summer for the sale of unregistered securities, and the two parties reached a settlement last week. Gladius will compensate investors and register their tokens as securities. In exchange for their candor and stepping forward, the SEC is not penalizing Gladius.
Securitize, a security tokenization platform, has partnered with OTCXN, a custodial ledger technology, to provide a service that encompasses both the issuance of security tokens and their secondary trading.
Admittedly, this one seems like a marketing gimmick more than anyting, but the NHL team has launched an app that uses blockchain to verify fans’ merchandise as authentic when they purchase it. Both Musk and a hockey team in the same week? Blockchain is slowly entering the public conscious.
Articles We Read (And You Should Too)
Jerry Brito, the Executive Director of Coin Center, makes an argument for the need for electronic cash—cryptocurrencies. Brito traces the decline of paper cash and the rise of consumer surveillance, notably in China, and the costs of removing privacy (an important distinction from secrecy) from peer-to-peer transactions.
Curious to know the security measures crypto exchange Gemini goes to in order to keep their customers’ assets safe? Find out from Gemini’s VP of Engineering himself.