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Myopia, or nearsightedness, is a refractive error, which means that the eye does not bend or refract light properly to a single focus to see images clearly. In myopia, close objects look clear but distant objects appear blurred. Myopia is a common condition that affects an estimated 25 percent of Americans.

The Dangers of Bitcoin Myopia

Jan 22, 2019 · 16 min read

Most people can’t understand what Bitcoin is. That’s why they freely swap the word “Bitcoin” for “Crypto” and “Crypto Assets”. There is nothing wrong in being unable to understand something, or being unable to discuss it accurately. This is especially true when the subject is software, and even more so in Bitcoin, which is a mix of many different, complex fundamental ideas and principles that make the totality of its workings impossible to grasp for the vast majority.

What is wrong, however, is when people who don’t understand what Bitcoin is, move from simply talking about it to taking it upon themselves to go to the legislature to have their narrow vision and threadbare definitions enshrined in law. They do this, ostensibly, to protect others from scenarios that have not even happened. They set up Straw Men based on past experience in unrelated areas and arbitrarily apply them to Bitcoin, expecting everyone to simply go along with it, when their entire case is fallacious from start to finish.

The Facts

It is not true that widespread adoption of Bitcoin requires “financialization”. Bitcoin is no different to WhatsApp, which has one billion users

People across global society use WhatsApp, from members of governments who want to keep their planning sessions secret, to teenagers keeping in touch. No special law was needed to make WhatsApp a global and totally secure phenomenon, and this applies exactly to Bitcoin. Bitcoin and WhatsApp are identical in function; they are software platforms and nothing more and they are covered by the First Amendment of the Constitution.

The government is not needed to ensure the efficient allocation of resources. Bitcoin can spread all by itself without interference or help, just like every other social media tool has. People calling for legislation to “help” Bitcoin are no different than the misguided groups calling for “legitimisation” and regulation of Bitcoin years ago. Bitcoin needs neither of these, and works perfectly without any government having anything to do with it. Citing a single person’s opinion that this is not true, The Appeal to Authority Fallacy, doesn’t make the case true either.

One of the false assumptions in the idea that Bitcoin use requires regulation for success, is the mistaken idea that Bitcoin is only one thing, in this case, an “asset”. People from the financial industry see Bitcoin as an asset; others see it as something else. Everyone has the right to look at information and make their own private assessment and use of it, but what they do not have, is the right to force their opinions on other people through the legislature.

Claiming that the law is required to enable the efficient allocation of resources is Socialism. The efficient allocation of resources in software is done all the time without any regulation or attention from the government. That’s why WhatsApp has gained a billion users without a single law being required to make it happen.

Straw Man Fallacies

The Straw Man Fallacy works by setting up a false problem and then knocking the idea in question down because the thing being discussed doesn’t meet an artificial criteria. Bitcoin doesn’t have a “Big Problem to do with Financialization”; lending is not in the Bitcoin protocol because that’s not what Bitcoin is for, and if you want to lend Bitcoin, you can set up a company right now to do it that doesn’t require any new law to make it safe.

In Bitcoin, you can create a Multi Signature Transaction where in order to release the money, the signatures of several people are required. Let’s say there is $1,000,000 worth of Bitcoin in an address with a 3-of-5 structure. That means that any three out of the total five signatures are required to move the Bitcoin from that address to another address.

Clearly, if one of the signatories is the owner of the Bitcoin, the other is the owner’s lawyer and one is an officer at the financial institution and the fourth and fifth are specialist keyholders/arbitrators, Bitcoin can be sent to a financial institution in the form of a promise that cannot be broken. When the contractual trigger for moving that Bitcoin comes, if the owner of the Bitcoin refuses, he can be overruled because there are other signatories with the power to sign and move the Bitcoin.

His own lawyer would have to agree, since his signature is required to release the funds. This is true for both big and small amounts, and is done every day on the Purse service.

This very simple scenario shows that you can have a trustless arrangement that is foolproof and much better than any legislation, because the software enforces obedience to any contract. Law is inferior to Bitcoin when it comes to this application, and furthermore, proof that the Bitcoin is actually controlled by the people claiming to own that million dollars in Bitcoin is trivial to produce, since the wallet holding the private keys can generate a clear-text signature on an arbitrary string of text.

Unfortunately, in order to know that all of this is correct, you need to know something about Public Key Cryptography. If you can’t understand this, then you have no business trying to create laws to govern the practice of it. Bitcoin lending can be done in a trustless manner right now; all you need is an understanding of how Bitcoin actually works.

Who Decides Which Markets are Good?

Development of lending markets may or may not be beneficial; the software developers in the market is what decides this, not non-entrepreneurs with a clever idea and no means to implement it. WhatsApp didn’t require someone who is not a software developer to come along and declare that their service was, “necessary and beneficial if done right”, and you can be sure that these people are against WhatsApp going dark with end to end encryption.

Bitcoin doesn’t need to “attract major fiduciary institutional investors”. This is another Straw Man. It’s like making the claim that major fiduciary institutional investors will not use the Internet without legislation, “to bring regulatory clarity”.

Anyone can set up a server to serve content on the Internet, and anyone, including an institutional investor, can set up a full node to serve Bitcoin to clients. How they do that is their business, not the business of people who are not setting up any services.

Past experience in fiduciary anything doesn’t instantly make you qualified to to draft regulations for Bitcoin; that experience colours the judgement of the things that are possible in Bitcoin; in fact, the best background to come from if you want to use Bitcoin for any purpose is software development. Then you can understand what Bitcoin is, rather than having a partial understanding of it by the proxy of analogies.

Analogies are the source of much misunderstanding in Bitcoin. There is no “crypto industry” that needs to “up its game”, any more than there is an “Internet industry” or “software industry”, and slang like “up its game” isn’t a substitute for reason. Bitcoin and software most certainly do not need ignorant outsiders to tell them how to write software or model existing businesses with it, and entrepreneurs don’t need outsiders to tell them how they may solve problems.

The market will decide what is necessary and beneficial. WhatsApp exists because its founder believed that it was beneficial and necessary. They incorporated end to end encryption to make WhatsApp impenetrable to attackers no matter who they are, because they believed (correctly) that it would be beneficial.

Only the people who create software and the entrepreneurs behind projects have the right to do this, and outsiders do not have the right to go to the legislature to demand that entrepreneurs obey their arbitrary, ignorant, myopic and entirely mistaken points of view.

Bitcoin companies are held to the highest standards, and the best in class services will dominate. These services do not need computer illiterates telling them how they should structure their business models, which are governed by the constraints of the software. Bitcoin’s aims are not to be an “asset class investable by the big leagues”. This is a sad re-hash of the “it’s time for the grown ups now” line of a famous anti-Bitcoiner who tried to wrest control of the reference client from the developers who maintain it.

Once again, WhatsApp is a global phenomenon without “the big leagues” being involved in any aspect of it, and they have the potential to become the world’s biggest bank, by the addition of a single function; a Bitcoin wallet for every WhatsApp user.

All of a sudden, WhatsApp will be one of the “big boys” without ever requiring the “help” of nosy do-gooders going cap in hand to the legislators to make it happen. There is no reason why WhatsApp cannot add this function to their product, and they should add it. It would change the lives of a billion people overnight, and cause Bitcoin’s use to leap dramatically.

This can only be done by writing software; writing laws can’t change or create software, and this is another thing these well meaning computer illiterates simply don’t understand. Bitcoin is not about “bringing in the Big Boys” and it doesn’t need them; you’re not helping Bitcoin become a global phenomenon that fulfils its promise by trying to add new law to the statutes, you’re just making problems for the people who are actually doing the necessary work to make the Bitoin Black Swan happen.

Is Bitcoin Lending Good, or Bad?

Who knows? The market decides what is good or bad, not outsiders trying to midwife and manufacture a new market without doing any of the hard work (setting up a company and writing the software). If you believe that Bitcoin lending is something that can be profitable, then you should write the software to do it. MultiSig makes it fool and fraud proof with all the checks and balances required, and the existing law that covers breach of promise can clean up all the bad actors.

“Financialization” can happen in Bitcoin, theoretically, but in order for it to happen, the market must create it via entrepreneurs and software developers. Law doesn’t create software, and is the wrong answer to any technical problem, which trust in Bitcoin is; it’s a software problem, not a social problem. Trust is something Bitcoin removes from the equation of any financial transaction. That’s why it was created in the first place; to remove the need to trust anyone with storing or moving your money. No law can ever be as good as Bitcoin for enforcing a contract.

Once again, it is important not to get drawn in to the Straw Man Fallacy on display in the scenarios generated by the “Bitcoin needs Financialization” advocates. What they are asking for may not be needed at all, in the same way all social media did not need aspects of legacy systems or regulation in order to succeed. Bitcoin can change the world without “financialisation” or any “Big Boy” institution from entering. It is an entirely new way of doing something that doesn’t rely on the legacy system at all to be a total, global, game changing success.

Bitcoin cannot become corrupted by financial institutions creating database promises to pay that they cannot fulfil. Bitcoin will always be verifiable forever. If you’re stupid enough to accept a promise to pay in Bitcoin rather than Bitcoin itself, that is your problem, not a problem to do with Bitcoin or Bitcoin companies in general. Also, there are many breach of promise laws on the books that deal with failure to perform, and these are adequate to cover any circumstance involving Bitcoin companies promising to return Bitcoin.

In a blatant Appeal to Fear Fallacy, the people asking for special legislation to do with Bitcoin lending use the example of fiat rehypothecation in the past to assert that this will happen in Bitcoin, “if something isn't done”. There is no evidence that this will happen, and if correct custodial businesses outperform the potentially bad firms, those firms will die leaving the good businesses behind.

Even if it does happen, that is no indication that it will happen in the future nor is it an indication that new law is needed, or that that new law will be effective in solving this synthetic problem.

The amount of Bitcoin in circulation is known, because the ledger is public. Everyone making a claim that they own Bitcoin can prove it in minutes by signing an arbitrary string of text. With these two facts to hand, it is not possible that people who understand Bitcoin can be fooled into thinking an institution has more Bitcoin than is possible.

Anyone who understood how Bitcoin works would know this; Bitcoin is already one of the most audit-able and verifiable resources ever made, and with MultiSig, it can be audit-able and locked to owner’s accounts in a way that can’t be forged.

Bitcoin is very easy to police…if you understand how it works. The whole point is that you don’t have to trust anyone, and that’s why no new law is required to make it safe. Bitcoin can’t be corrupted; the very fact that it is incorruptible is why it is so powerful and works at all. Thinking that Bitcoin can be “corrupted” shows just how little the people who want to bring the force of law to bear on it understand.

Owners of Bitcoin must keep their private keys. It is as simple as that. Software tools to do that are what are required, not new laws. There can be no claims to Bitcoin that doesn’t exist and it is trivial to prove that Bitcoin is under the control of an institution with MultiSig.

Owners of Bitcoin must own Bitcoin. There is no need to “take care” to protect Bitcoin against incentives to create more claims to Bitcoin than the Bitcoin which has been issued; “take care” is meaningless. The answer to this is not law, it is software. Bitcoin is absolutely verifiable; it doesn’t need the law to make it verifiable, it is verifiable by default. Society needs Bitcoin, it doesn't need “financialization”.

Technological frameworks are software, not prose. You can’t write down a wish list and call it “a technological framework”. The distinction between Bitcoin and pictures on a screen are covered in this piece:

“Proof of Reserves”, is something that if the market demands it, will become a feature of all services. It is doable and here now, and can be seen on the Kraken exchange (for example). No new law was required for Kraken to implement this, and this example alone kills the idea that new law is required to make people honest.

Kraken took it upon themselves to do this because they’re honest. By doing this software work, they instantly made other exchanges an inferior proposition, and rational market actors would move to Kraken where they know their “Flat Screen Bitcoin” is actually to hand.

Definitions and Debt

There is a difference between debt and multiple claims to the same stored asset. Multiple claims to one asset is fraud, simple debt is not. The way to prevent multiple claims from emerging on stored Bitcoin is to use MultiSig, which creates an entry in the public ledger. What is missing is a financial industry, user-friendly interface to abstract away all the complexity. A simple block explorer is not enough to help these people.

It is possible to ensure that Bitcoin is lent only once through software. Your problem is to write that software; the solution is not to be found in new law, which has no force in software. Writing law to engineer trust in Bitcoin is like scrambling eggs to stop earthquakes. The solution you create has to be in the same domain as the problem, and writing law and writing software are entirely different domains.

Bitcoin does not need “protocol-level mechanisms supporting peer-to-peer coin lending”; if you believed that such a thing were even possible, you should write the software to do that and then release a Bitcoin that is superior to Bitcoin. But of course, you can’t write software, and this is the core of the problem. Anyone can bandy about words like “protocol-level” and have no idea of what that means.

Even if you did, software to create your niche use case of lending has no place in the Bitcoin protocol, because Bitcoin is a general tool to do one thing; it is not money or a tool that requires “big boys” or “financialisation”. Once again, Bitcoin will change the entire world without any help from you. It exists without you knowing that it was required, and it will outlive you.

It is simply false that the only way to create lending markets in Bitcoin is via legal structures. That is a baseless opinion, not a fact. Bitcoin was developed without legal structures of any kind, or any rules that protect property rights. Bitcoin itself is a complete refutation of the idea that the law is a prerequisite for a new market emerging.

Bitcoin proves that all you need is software. And if it is not possible to create a lending platform on Bitcoin, so what? Bitcoin doesn’t need lending capability to change the entire world. Once again, the idea that it does is another side effect of mischaracterising Bitcoin.

There are no such things as “crypto assets”. Note how whenever this phrase is used the author conveniently neglects to offer a definition of what a “crypto asset” is. This is just about acceptable in a magazine article, but it has no place in the body of legislation, where the precise meaning of words matters. This inability to define terms is a telling lapse, showing that they don’t know what they’re talking about.

The fact that there are no laws that explicitly reference Bitcoin is a good thing, not a bad thing, and the law is not required to make transactions in Bitcoin enforceable; that’s what Bitcoin does by default.

Coin lending businesses exist, and if they have good business models they will thrive. These companies did not require “clear law” to construct the software they use, and the Appeal to Fear fallacy is not an argument for new law. Everyone already has recourse to the law if they are defrauded, so no new law is required at all.

Judges should be able to rule properly in any litigation or bankruptcy in a Bitcoin company because contractual promises will have been clearly breached and the bad party clearly identifiable. This is why there is no need for special lawnmower, ice cream or instant messaging regulation; the current law is enough as it is to cover any possible breach of contract.

The terms “crypto assets” and “digital assets” are fake constructs used to engineer a case for new and unnecessary law. Bitcoin has perfect clarity at every stage; it is trivially easy to prove who owns what, and any company that won’t provide that proof should not be used. Kraken is a good example, once again.

It is illogical to claim that there is such a thing as a “coin owner” who gets a nasty surprise when they discover, “they do not own the coins”. The only way to own Bitcoin is to personally control the private keys. If you don’t own the private keys, you are not a “coin owner”…you are on the other side (the wrong side) of a contractual agreement. People who don’t understand how Bitcoin works freely use “coin owner” to mean the number shown on a screen against your name.

That is not coin ownership at all, and it’s shocking that people trying to manufacture Bitcoin touching law can’t make the distinction between owning Bitcoin and an image on a screen.

Appeal to Authority

It is absurd to desire that the SEC (which only has jurisdiction in the USA) should “clarify that a blockchain itself can be a custodian”. Databases are not custodians, they are records of data. Bitcoin’s database is not a person either. A custodian is “a person who has responsibility for taking care of or protecting something.”

Bitcoin is not a legal person, neither is it responsible for anything. These facts matter when you’re trying to talk about Bitcoin, and once again, the class that does this damaging work of trying to create new legislation is fast and loose with the facts and their English, all in the bad service of trying to corrupt the market and curtail its natural development.

Game Over

The entire idea of creating legislation to usher in “the big boys” or the “institutional investors” is a giant Straw Man built on a profound misunderstanding of what Bitcoin is and how it works. This is clear by the insane and laughable suggestion that the SEC should rule that “a blockchain is a custodian”. There are, however, reasons to be positive about the future.

There are many jurisdictions on earth, all vying for entrepreneurs to enter and build global scale businesses. These builders will look at jurisdictions that allow random strangers to force arbitrary and irrational Straw Man / Appeal to Fear rules on on their market, and then explicitly exclude these places when they fail to work by attracting investment and creating jobs.

We’ve already seen this in the case of Hong Kong and Jersey, where the administrations are taking a hands off approach. People are moving to those jurisdictions and not to places where unethical busybodies are using Straw Men to control business.

Bitcoin is going to thrive because software developers are writing tools. They are ignoring nonsense like this and moving to the best jurisdictions to get things done. Some of them are not using any jurisdiction at all; that is true of the Bitcoin reference client.

This is where the most interesting work and startups are happening; they are avoiding the “help” of people with no personal stake in Bitcoin or its success, whose enthusiastic misreading of the subject will cause a disaster in the jurisdiction where they ”succeed”. We’ve already seen this in New York, where many of these same arguments were used to give birth to the repellent BitLicense.

It seems that lesson was not learned.

Bitcoin is a long term project. It will take many years to fully design, deploy and establish all the products and services that will be built on it. Observers with myopia can only see the near view; a few feet out is blurry to them, and the horizon may as well not exist at all, never mind ten years in the future. Myopics should not be allowed to distort the path to Bitcoin adoption. They will not, and they will ultimately fail.

Thankfully the world is very big. People will continue to develop and deploy services, and nothing that anyone does in a singe jurisdiction can stop it. All it will mean is that other jurisdictions will benefit, while you bask in your ill gotten, anti-American and absurd near horizon myopic “certainty”.


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