Papers associated with Bitcoin and related topics in Law: Part XXI

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This article was first published on Dr. Craig Wright’s blog, and we republished with permission from the author. Read Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8, Part 9, Part 10, Part 11, Part 12, Part 13, Part 14, Part 15, Part 16, Part 17, Part 18, and Part 19.

Chen and Bellavitis (2020) argue that blockchain technology can reduce transaction costs. The paper says the scenario is achieved through a “distributed trust” process. Yet, little analysis is done in describing and detailing the definitions of terms such as ‘decentralized finance.’ Cong and He (2019) continue with the argument that Bitcoin and blockchain technology are only disruptive because of the decentralized nature of the system, while misquoting and erroneously describing the nature of decentralization in the context of political systems—and not networks.

Etemadi et al. (2021) continue the analysis of blockchain-based systems by producing a literature review broken into a series of communities of thought based on a comprehensive Scopus search. The paper captures the widespread failure to understand blockchain systems and technology. The authors do not seek to report on the accuracy of results, but rather form a structure that divides papers into separate fields. The division will prove useful in analyzing the development of definitions in the industry.

Lombardi et al. (2021) also provide a literature review, clustering the technology into five keyword clusters, which reference a variety of topics associated with the industry. The authors demonstrate the blinkered approach common within the industry; in assuming that decentralization will naturally lead to the disintermediation of all industries. Pervez and Haq (2019) use hyped terminology, such as the Internet of things (IoT) and cloud computing, while mixing smart contracts and logistics with multiple erroneous statements found on the internet to undervalue the research they have presented.

Annotated Bibliography

Chen, Y., & Bellavitis, C. (2020). Blockchain disruption and decentralized finance: The rise of decentralized business models. Journal of Business Venturing Insights, 13, e00151. https://doi.org/10.1016/j.jbvi.2019.e00151

Chen and Bellavitis (2020, p. 1) discuss the emergence of decentralized finance and argue that fintech has not generally removed intermediaries but “often substitutes one intermediary (e.g., a financial institution) with another (e.g., a technology company).” In this vein, the promise of decentralized finance is simply portrayed as one that removes centralized organizations and corporations that provide services. The definition of centrality and decentralization, as it applies to network science (Baran, 1964), is replaced by a misguided order of implementing decentralization to empower people in the form referenced by Karl Marx (Uniyal, 1988).

Consequently, innovation is misrepresented as a natural outcome when many small operations start individually, acting without scale. The author references a blog post by Dixon (2018). In this, centralization is simply wrong and to be avoided. In this definition, consensus is referenced as a universal decision between all members of the network. Yet, no such methodology exists. The result is a pseudo-religious document referencing interoperability as if it were to occur simply because of the existence of many different parties. In saying that “Decentralized finance can enhance interoperability,” Chen and Bellavitis (2020, p. 3) create a strawman argument that more participants involving different networks will lead to more interoperability.

Further, the paper merely assumes that existing regulations do not apply. As with the argument that ‘code is law’ produced two decades ago, and discredited by Wu (2003), the paper merely shrugs off real-world issues, with arguments that being decentralized removes the ability to be regulated. Finally, the paper notes how “building distributed trust on decentralized platforms can be costly” (Chen & Bellavitis, 2020, p. 6) but simply presumes that such a cost of innovation will be accepted for the majority of applications. Overall, the paper reads more like a pamphlet for a new religion than a peer-reviewed technical paper.

Cong, L. W., & He, Z. (2019). Blockchain Disruption and Smart Contracts. The Review of Financial Studies, 32(5), 1754–1797. https://doi.org/10.1093/rfs/hhz007

Cong and He (2019) again reference the innovation in Bitcoin as the decentralized structure of the network. The authors argue “that despite a plethora of definitions, descriptions, and applications of blockchain and decentralized ledger, the technology and its various incarnations share a core functionality in providing a “decentralized consensus”” (2019, p. 1755). The argument is presented despite the original Bitcoin white paper (Wright, 2008) not mentioning ‘decentralization.’ The key innovation mentioned in the Bitcoin white paper, that of micropayments, is overlooked, noting that for Cong and He (2019, p. 1755), the primary innovation is that “consensus is generated and maintained in a decentralized manner.”

Yet, the analysis is premised on the concept that decentralization is a goal in itself. While systems such as Bitcoin utilize a proof-of-work system to form a consensus between nodes, nodes are defined as those systems that create blocks and validate through the release of validated data structures. In addition, the concept of smart contracts, which was covered in a previous paper, is introduced using the blog post of Nick Szabo, which was previously demonstrated to be invalid. The definitions of finance, trust, contracts, and trade-based systems are unrelated to any real-world business platform or corporation.

The paper is structured to present a model of decentralized consensus and information sharing. In this, Cong and He (2019, p. 1765) present a model that is given a patina of mathematical rigor designed “[t]o illustrate how decentralization makes the consensus more effective at the expense of greater information distribution.” The paper references literature on economics without noting a single paper on economics. Rather, arguments about centralization and decentralization are presented outside of the scope of accepted definitions used within information and network science.

The paper references multiple digital token systems, and presents seemingly rigorous mathematical models. Yet, the use of each model is effectively pointless. Not only do the mathematics fail to relate to the system, but in many instances, they are incorrectly calculated. In presenting concepts of information asymmetry and service models, the authors attempt to argue issues of market equilibrium while demonstrating a marked lack of knowledge concerning such concepts. Overall, the paper has no value and presents no information that could be used in any positive manner.

Etemadi, N., Borbon-Galvez, Y., Strozzi, F., & Etemadi, T. (2021). Supply Chain Disruption Risk Management with Blockchain: A Dynamic Literature Review. Information, 12(2), 70. https://doi.org/10.3390/info12020070

Etemadi et al. (2021) analyze the literature on supply-chain and blockchain-based systems in an attempt to deliver a comprehensive paper and literature review on the topics. The literature-review analysis is conducted using a complex query in Scopus that is initially linked to resilience, supply-chain management and blockchain technology and then refined to search for key areas, which are linked to a citation analysis using the Pajek software. From this, Etemadi et al. (2021, p. 5) create “a citation network… In which the nodes are the articles in the connections [are] their citations.”

The analysis provides a collection of papers broken into communities. The first community references disruption risk management related to blockchain technology, and incorporates concepts including resilience and robustness in the supply chain. The second community references shared and trusted information, and notes how most mechanisms deployed using blockchain technology overcome challenges such as low performance.

Next, papers are referenced in a community of works which reference the recording of all information. Community D then references the papers found that integrate blockchain technology and IoT. The fifth community is related to transparency and traceability, and information exchange. And community F references anticounterfeiting methods that can be developed using a blockchain. Communities G and H reference information security and privacy and safety. The authors do not attempt to define terminology, but create a rather useful series of clusters of how existing papers are distributed. The paper is well worth referencing in detailing the development of the descriptions used within publications relating to blockchain and analogous systems.

Lombardi, R., de Villiers, C., Moscariello, N., & Pizzo, M. (2021). The disruption of blockchain in auditing – a systematic literature review and an agenda for future research. Accounting, Auditing & Accountability Journal, 35(7), 1534–1565. https://doi.org/10.1108/AAAJ-10-2020-4992

Lombardi et al. (2021, p. 1534) deliver “a systematic literature review, including content and bibliometric analyses, of the impact of blockchain technology (BT) in auditing, to identify trends, research areas and construct an agenda for future research.” Yet, the paper presumes that publications related to blockchain and distributed ledger technologies generally are accurate. Unfortunately, the definitions provided by Lombardi et al. (2021, p. 1535) begin by noting that distributed ledger technologies are those where “[a]ll participants (i.e., individuals or businesses) using the shared database are ‘nodes’ connected to the blockchain, each maintaining an identical copy of the ledger.”

The literature review is presented with the explicit goal of answering three specific research questions (Lombardi et al., 2021, p. 1537):

RQ1. How is research developing for inquiring into blockchain as a disruptive tool on auditing?

RQ2. What is the literature focus and critique within blockchain and auditing?

RQ3. What is the future for blockchain and auditing?

The authors review a detailed list of articles, basing the research on an analysis of 100 papers obtained through a Scopus search. The authors document multiple research implications following the conclusions and focus presented in the papers analyzed. While clustering papers is useful, the conclusions presented by the authors falsely presume that all information in the published papers must be valid. Unfortunately, references include systems such as ‘cryptocurrency’ and ICOs as methods for corporate governance while overlooking the existing rules and regulations that apply to such systems.

Pervez, H., & Haq, I. U. (2019). Blockchain and IoT Based Disruption in Logistics. 2019 2nd International Conference on Communication, Computing and Digital Systems (C-CODE), 276–281. https://doi.org/10.1109/C-CODE.2019.8680971

Pervez and Haq (2019) start by presenting a common internet fallacy on the origins of smart contracting and link it to automated payments. The authors then argue that unrelated technologies, including Directed Acyclic Graph (DAG) systems, have “revolutionized the blockchain technology due to its specific implications in Internet of Things” (Pervez & Haq, 2019, p. 276). Yet, this ignores the lack of use in any IoT system and presumes multi-party involvement and that the traditional blockchain architecture has already been widely implemented.

The paper has been written to summarize the implementation of IoT, supply-chain, and blockchain technologies. Yet, the approach the authors took misrepresents the technology, fails to provide support for the conclusions, and presents a non-blockchain system, IOTA, as a technology being utilized within the industry, though no real-world examples of the technology have been supplied. The authors seek to present the paper as a work of scientific scholarship. Yet, each author has failed to disclose their interest in IOTA, and hence the conflict of interest, which has led to the development of a paper without merit and one that is heavily biased.

References

Chen, Y., & Bellavitis, C. (2020). Blockchain disruption and decentralized finance: The rise of decentralized business models. Journal of Business Venturing Insights, 13, e00151. https://doi.org/10.1016/j.jbvi.2019.e00151
Cong, L. W., & He, Z. (2019). Blockchain Disruption and Smart Contracts. The Review of Financial Studies, 32(5), 1754–1797. https://doi.org/10.1093/rfs/hhz007
Dixon, C. (2018, October 26). Why Decentralization Matters. OneZero. https://onezero.medium.com/why-decentralization-matters-5e3f79f7638e
Etemadi, N., Borbon-Galvez, Y., Strozzi, F., & Etemadi, T. (2021). Supply Chain Disruption Risk Management with Blockchain: A Dynamic Literature Review. Information, 12(2), 70. https://doi.org/10.3390/info12020070
Lombardi, R., de Villiers, C., Moscariello, N., & Pizzo, M. (2021). The disruption of blockchain in auditing – a systematic literature review and an agenda for future research. Accounting, Auditing & Accountability Journal, 35(7), 1534–1565. https://doi.org/10.1108/AAAJ-10-2020-4992
Pervez, H., & Haq, I. U. (2019). Blockchain and IoT Based Disruption in Logistics. 2019 2nd International Conference on Communication, Computing and Digital Systems (C-CODE), 276–281. https://doi.org/10.1109/C-CODE.2019.8680971
Uniyal, L. (1988). A search for alternatives: Beyond decentralisation, Gandhi and Marx. India International Centre Quarterly, 15(1), 31–50.
Wright, C. S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3440802