Michael Casey is on vacation this week. The following essay was written by Marc Hochstein, CoinDesk’s executive editor.
Once, I pried into a stranger’s affairs for no good reason at all.
This happened almost 20 years ago, but the story offers an important lesson for those shaping the future of money today.
My wife took a work trip to another city and I tagged along for fun. The day before her conference, we strolled around some posh neighborhood and I noticed a particularly impressive mansion. Who owns it, I wondered, scribbling down the address.
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On my own the next day, instead of going to a museum or a park like any normal, sane tourist would do, I went to the county recorder’s office. After an hour of waiting in lines and being sent from one rabbit-warren office to another, I obtained a copy of the property’s mortgage. It showed that the house was held by a trust with a generic name, obscuring the owner’s identity.
Knowing what I was like back then, I probably got all high and mighty. How dare this mysterious rich person hide behind a file folder, I would have thundered. Property ownership is a matter of public interest!
But, truthfully, it was none of my business who owned the place.
To be clear: I had nothing nefarious in mind. I wasn’t on a news assignment, I didn’t live in the same city, much less the same neighborhood, nor was I in the market to buy (certainly not in that price range). I was just nosy.
To borrow from Bob Dylan, I spoke the word “transparency” just like a wedding vow. I was so much dumber then, I’m smarter than that now.
If you’re expecting me to segue into an argument about how blockchains fix this, you’re wrong. Blockchains don’t fix this. Blockchains could make this much, much worse.
By “this” I mean not only the natural but regrettable human tendency to eavesdrop, gawk and rubberneck. I also mean the baffling, widespread assumption that once an individual’s sensitive personal information slips into the public domain, we owe them no courtesy to ignore or keep it discreet.
Riddle me this: If Alice forgets to lock the bathroom door and Bob barges in without knocking, who’s at fault? Let’s pray that none of the people who blame Alice work in government, media or blockchain analytics.
As many readers know, bitcoin and most other cryptocurrencies are pseudonymous – up to a point. Instead of an account tied to your name you control a pseudonymous address, a long string of letters and numbers. You can generate as many of these alphanumeric addresses as you want. Better than a Swiss numbered account, right?
Except every transfer of crypto from A to B is broadcast to the network, and once confirmed it's recorded on the shared ledger, more permanent than a tattoo. There’s a booming industry of on-chain sleuthing outfits that analyze spending patterns and relationships between addresses, deducing which ones belong to the same users and where the money is moving.
Chainalysis, Elliptic and other vendors do this work, not out of morbid curiosity but to help law enforcement catch criminals. The auditability of blockchains has also been useful to individual users and journalists tracking stolen funds when crypto exchanges get hacked.
All well and good. Yet, it’s easy to imagine how peeping Toms could take advantage of this feature to spy on unsuspecting innocents, if they haven’t already. Neophytes who neglect to cover their tracks, for example by sharing their addresses publicly and reusing them, would be easy prey. It’s unsettling enough how much you can find out about someone in 10 minutes of googling. Now add financial transactions, which perhaps say more about people than anything else, to the mix. If crypto achieves mass adoption before privacy leaks are fixed, the result could be a stalker’s paradise.
But technical solutions may not arrive quickly enough, or suffice when they do. And it would be foolish to rely on legal protections. (Earlier this month, a federal appeals court ruled the U.S. government did not need a warrant to search a suspect’s transactions on his personal Coinbase account, much less publicly available blockchain data).
New norms needed
New cultural norms around respect for individual privacy are needed as well. The backlash against Google Glass more than half a decade ago was encouraging in this regard. But it seems to have been the exception in a world where, thanks to ubiquitous camera phones and promiscuous content sharing, simply leaving the house runs the risk of acquiring unwanted fame.
The Wall Street Journal editorial page often uses the term “privacy scolds” to describe those who object to mass surveillance and data sharing. It’s funny, because scolds are people who tend to disregard others’ privacy.
But let’s embrace the label. Let’s be privacy scolds.
Don’t shame the celebrity who looks “fat” in a bathing suit or the random pedestrian with poor fashion sense; shame the hall-monitor types who take pictures without getting consent first, the de facto pornographers who disseminate the images (be it in supermarket tabloids or social media) and the ghouls who lap them up.
“You’re in a public place, maaaan, there’s no right to privacy.” Maybe not, but there is a reasonable expectation of decency.
And so it goes with financial transactions on a blockchain. By all means, use sophisticated tracing capabilities to find the hackers who infiltrated Twitter, commandeered prominent accounts and scammed some of their followers into sending bitcoin. But if, in the course of such investigations, you stumble upon someone else’s embarrassing, but innocuous, transactions, don’t tweet it with the “big eyes” emoji. Ignore it and forget it. It may be public information, maaaan, but it’s nobody’s business.
I’ll tell you one more story. A bank once sent me another customer’s statement in the mail by accident. The second I realized it wasn’t mine, I stuffed the paper right back in the envelope and walked it over to the local branch.
I wasn’t even tempted to look at the balance. Of that much I’m proud.
A dollar is not a dollar
By Galen Moore, CoinDesk senior research analyst
The dollar continued weakening this week, dropping below year-to-date lows.
But demand for tether (USDT), a stablecoin (maybe) backed 1:1 with actual U.S. dollars or securities, continued to strengthen. Supply crossed 11 billion on Wednesday.
Why would demand for a dollar-pegged stablecoin grow while the dollar falls?
It could be simply due to the need for more dollars to buy the equivalent amount of crypto. Or, it could be due to traders exploiting an arbitrage opportunity on off-shore bitcoin futures markets. On OKEx, one of the most liquid of such markets, cost basis (i.e., the difference between cash and futures prices) crossed 20% as the bitcoin spot price ran up.
Meanwhile, the old-fashioned dollar is still in high demand around the world. In Havana, the government's demand for dollars led it to open "dollar stores," where goods are offered (and not at a discount) to coax out the physical cash dollars Cubans have been holding from remittances. Meanwhile, in Lagos and Abuja, Nigerian manufacturers can't get the dollars they need to buy raw materials.
In other words, a dollar is not a dollar is not a dollar. Its price reflects its use and context. On a blockchain, it may be in demand because it has more uses. For example, tether is a way for traders to access crypto exchanges. Not everyone can do that with ordinary dollars.
Global town hall
By Pete Pachal, CoinDesk executive editor for Operations and Strategy
BIG TECH VS. WASHINGTON. In a bit of political theater made for the Age of COVID, the CEOs of four of the world’s most valuable tech companies appeared from their executive lairs via video screen before the U.S. Congress this week to face harsh questioning about antitrust concerns. Lawmakers peppered Apple’s Tim Cook, Amazon’s Jeff Bezos, Google’s Sundar Pichai and Facebook’s Mark Zuckerberg with intense made-for-TV questions about everything from Google’s allegedly very shady treatment of Yelp to Amazon’s practice of offering its own version of products that happen to sell really well on Amazon.
Even though Apple and Amazon were the biggest dogs in the show with more than $3 trillion in combined market cap, Facebook and Google were hit hardest, with Zuckerberg and Pichai each fielding queries 16 times, compared to Bezos’ 13 and Cook’s seven, according to VentureBeat. Chalk it up to posturing or genuine concern, but the disparity reflects just how dicey being an ad-based information (and sometimes misinformation) platform can be.
While user engagement for both isn’t dropping, skepticism about the surveillance capitalism business model is clearly growing. Rep. David Cicilline (D-R.I.), who chaired the committee, is an advocate of breaking up Facebook. While that seems unlikely today, this week’s hearings at least showed Congress, which Zuckeberg seemed to easily deflect back in 2018, had upped its game for creating a dialogue about Big Tech.
BITCOIN’S FUTURE. Forget for a second that the value of bitcoin recently blasted past the $11K mark – the first time it has crossed the mark in roughly a year. There were at least three other signs this week that the original cryptocurrency is maturing. For starters, the creator of the Lightning network unveiled a promising way to greatly reduce the size of nodes in the network – potentially a big step toward scalability.
Around the same time, Fidelity Digital Assets, an early institutional mover in crypto, published “Bitcoin Investment Thesis: An Aspirational Store of Value.” Global economics and monetary policy (money printer go “brrrr” et al.), it says, have led to growing interest in bitcoin and that it may be a valuable asset even if it’s never really used as “currency” at scale. Not the boldest observations, but the fact that they’re coming from such a mainstream source is notable, and encouraging!
Finally, a federal court ruled that bitcoin is, in fact, money. Judge Beryl A. Howell wrote that money "commonly means a medium of exchange, method of payment, or store of value,” and that bitcoin ticks all those boxes. For now the ruling’s main effect is to ensure money-laundering charges against Larry Harmon, the operator of an unlicensed bitcoin trading platform, weren’t dismissed, but it’s nonetheless an important milestone for bitcoin – even if you can’t quite buy coffee with it just yet.
NEW STIMULUS, MINUS DIGITAL DOLLAR. Republicans and Democrats in Congress have proposed wildly different coronavirus stimulus bills, but there’s one thing they do agree on: stimulus checks. According to this expertly visualized breakdown from The New York Times, both plans allocate hundreds of billions in direct payments to Americans. That’s all well and good, though the last time we did this many people didn’t receive their checks until weeks or months after the bill was signed into law. (See the “where is my stimulus check” search terms on Google.) In the spring, there were proposals for a digital dollar to address various weaknesses in the system, including the need to disburse a vast sum of money securely and quickly. So the question is: Has there been any progress, or was all that talk of “Digital Dollar Account Wallets” just pie-in-the-sky digital utopian coffee house chatter? How about it, Reps. Rashida Tlaib (D-Mich.) and Pramila Jayapal (D-Wash.)?
Ethereum 2.0: How It Works and Why It Matters
This 22-page report covers the technology behind Ethereum 2.0 as well as the phases of development it will undergo in the years after its launch. It also discusses the potential market impact of Ethereum 2.0, and features commentary from Ethereum developers about what benefits but also risks the technology may bring. Download the free report.
Ethereum at Five. CoinDesk celebrated Ethereum’s fifth birthday with a week-long series of features, pop-up newsletters and live video events. Included in the package was this look at Ethereum culture, a colorful retrospective on the 2016 DAO hack, and this in-depth explainer about Etherum 2.0, a major upgrade that will see the blockchain switch to a Proof of Stake consensus mechanism. A highly ambitious project, Ethereum has faced plenty of doubters over the years, not least from the Bitcoin community. This week proved that Ethereum has energy to burn and enough developer interest to keep it riding ahead for some time yet.
What Crypto Lender Celsius Isn’t Telling Its Depositors. Crypto lender Celsius is making uncollateralized loans, on a limited basis, contradicting the claims of its founder, Alex Mashinsky, according to an investigative piece by CoinDesk’s Nathan DiCamillo. “Celsius’ total uncollateralized loans are less than a fraction of 1 percent out of tens of thousands of loans issued since 2018,” a Celsius representative said. But uncollateralized lending may be only one of several practices that the firm has downplayed or not shared with depositors – including the rehypothecation of a collateral borrowers pledge.
Central Banks Are Privacy Providers of Last Resort. As central banks look to issue digital currencies (CBDCs), they’re being thrown into a debate about financial privacy rights, says CoinDesk columnist J.P. Koning. On the one hand, it’s probably good for private citizens that banks are paying attention to this topic. On the other, these institutions are unprepared to be consumer advocates and face the type of privacy-related scrutiny encountered by Facebook and other powerful internet entities.
China Aims to Be the World’s Dominant Blockchain Power – With Help From Google, Amazon and Microsoft. No other nation has blockchain goals like China. The emerging superpower is rolling out a digital currency, and its Blockchain-based Service Network aims to be the dominant internet provider for decentralized applications. China sees blockchain tech as a tool to take on U.S. financial hegemony, as we said last week. So it’s somewhat surprising that American companies like Amazon Web Services (AWS), Microsoft and Google are among the major cloud service providers for BSN’s data centers. “The world is clearly becoming a ‘splinternet’ with national boundaries and domestic regulations overturning the previous ‘techno globalism’ motif,” James Mulnevon, director of intelligence integration at SOS International, commented.
Why Bitcoin Is Protected by the First Amendment. Justin Wales, co-chair of Carlton Fields’ national blockchain and virtual currency practice, said Bitcoin is protected under the First Amendment. “We’ve all heard the phrase ‘Money is Speech,’ which stems from the U.S. Supreme Court’s recognition that the use of money can itself be an expressive act. One has a right to donate to a political party because we view that type of spending not as financial, but as communicative. Because of Bitcoin, money is no longer restrained to a dollar’s limitations. Accordingly, the range of expression one is capable of has been expanded because money has taken on a more useful form,” he writes.