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This article was first published on Dr. Craig Wright’s blog, and we republished with permission from the author.

The problem with Ethereum and BTC groups is that they are anticorporate. They call themselves crypto capitalists (Ortiz, 2020). What that really means is that they are anti-capitalist. They are Marxist through and through, and believe in the Marxist dream of individualistic manufacture at the household level. They all have a view of equality that supersedes everything else, and they fail to trust any form of organization other than themselves. Even then, they only trust themselves when they are the individual leading the group, if they trust themselves at all.

Konstantopoulos (2021), in his article on Ethereum rollups, includes a section titled “Miners can be bribed to censor withdrawals, breaking OR’s safety”. Such anti-trust seems to represent the entire lack of understanding and anticorporate fear holding back the development of systems like Bitcoin. The simple response here is: it is unnecessary; the so-called attacks by miners are easy to clarify. Bitcoin is not anti-government, and blockchain technology was never designed to replace government structures. Herein lies the false information promoted by those who are socialist or anarchist, who don’t want Bitcoin but its derivative systems and copycats such as Ethereum.

The resolution is far simpler than people make it out to be. While some authors have researched systems along the same lines and constantly focused on possible attacks (Moroz et al., 2020), an analysis thereof demonstrates that the crux of the matter lies not in mathematics, but rather in law and economics. Crucially, Bitcoin was never designed as a cryptographic solution. In other words, the system is not secure cryptographically (Konoth et al., 2019); all data sent across Bitcoin is sent in cleartext and never encrypted. Instead, the system is secured through game theory and economics.

In the instance of double-spending attacks, or rollups in Ethereum, the scenario is exceedingly simple: if a double-spending attack occurs, it is easy to prove. The receiver has a signed copy of a transaction. The receiver can take action against the node, which as a large commercial organization suffers in any event, or in general terms, outside of criminal aspects, whereby drug systems may help identify an individual and facilitate action. Moreover, most online sales either are small or don’t suffer from a requirement to transact within seconds.

The issue with discussing attacks based on miners being bribed is that such an action would be deceptive—and lead to prosecutions relating to deceptive conduct against those running the nodes. What people are missing is that the node provides evidence. You don’t need to audit every transaction. Those who are incentivized to audit a transaction will. The merchant receiving a payment will check whether the payment indeed comes through. The question that needs to be asked is why every single transaction would need to be verified on every machine. The system is not made secure by running every transaction everywhere. The publishing of the hash header is the security mechanism behind Bitcoin. The blockchain isn’t the same as all transactions, but rather, it is the chain of hashed information in block headers, which is all that needs to be secured. It is secured by widely sending it to all participants of the network.

Unfortunately, we have people who think in very limited terms, people who cannot think beyond the concept of a system that is not designed mathematically but works through economic incentives. The cost of disputes is minimized when disputes can always be resolved, whereby the evidence is always available. When disputes occur in relation to credit cards, it is often difficult to gain evidence referencing what has occurred. Conversely, any time a double-spending attack occurs, it is able to be forensically analyzed, and evidence will always exist.

The breakdown of the given scenario (Konstantopoulos, 2021) is easy to analyze. We have the following individuals: Alice is a user who wishes to bribe the miner or node operator Bob. Charles is supposed to be the recipient of a transaction. In paying Bob to ‘double-spend’, Alice and Bob are committing a crime. As soon as the transaction hits the network, Charles, who has been ‘double-spent’ and thereby lost his money, will also have received evidence of the crime. The scenario, of course, only applies to small transactions. If large transactions, in the order of thousands or tens of thousands of dollars or more, are conducted, know your customer (KYC) guidelines apply, and transactions take more than a few minutes to clear. The question is whether Alice can bribe Bob to perform the double-spending attack with an amount of, say, five dollars.

Should Bob be willing to accept the payment, the payment amount will be less than five dollars, because there are no incentives for Alice to cheat and lose all the money. If Bob takes the money, there will be an evidence trail instantly made available to Charles. Suppose Charles files an action against Bob and Alice. Here, Bob will be guilty and, as an operator of a corporation in the system, charged not with the small amount, but rather sanctioned with potentially millions or more.

Tim Wu (2003) addressed the issue of “code is law” two decades ago. The simple answer is that it isn’t. Code is not law. The desire by certain people within the crypto-anarchist industry, who are trying to falsely argue that Bitcoin’s design works outside legal frameworks, or that Bitcoin is not economically designed, is one for a system that is antithetical to the design of Bitcoin. They don’t desire a system that is secure, but rather try to develop a system that doesn’t require government. There is no encryption in Bitcoin for a good reason. There can be no encryption in blockchains. The reason is, I designed it not to be encrypted. If Bitcoin was encrypted, like cryptocurrencies such as eCash, Bitcoin could have been anonymous. It could have operated without an audit trail. Yet, herein lies part of the reason why systems such as eCash (Schoenmakers, n.d.) and Mojo Nation failed (Batten et al., 2001). The issue was not around creating something that could not be recovered, but around creating something that would be acceptable.

In analyzing each of the problems that keep coming up around all of the blockchain systems, and scaling them in particular, the conclusion is deceptively straightforward: scaling happens on-chain. The system is not cryptographically secure. The system is based on economics and law.

References

Batten, C., Barr, K., Saraf, A., & Trepetin, S. (2001). pStore: A Secure Peer-to-Peer Backup System.

Konoth, R. K., van Wegberg, R., Moonsamy, V., & Bos, H. (2019). Malicious cryptocurrency miners: Status and Outlook. ArXiv:1901.10794 [Cs]. http://arxiv.org/abs/1901.10794

Konstantopoulos, G. (2021, January 27). (Almost) Everything you need to know about Optimistic Rollup. Paradigm Research. https://research.paradigm.xyz/rollups

Moroz, D. J., Aronoff, D. J., Narula, N., & Parkes, D. C. (2020). Double-Spend Counterattacks: Threat of Retaliation in Proof-of-Work Systems. ArXiv:2002.10736 [Cs]. http://arxiv.org/abs/2002.10736

Ortiz, R. J. (2020). Financialization, Climate Change, and the Future of the Capitalist World-Ecology: On Kim Stanley Robinson’s New York 2140Soundings: An Interdisciplinary Journal103(2), 264–285. https://doi.org/10.5325/soundings.103.2.0264

Schoenmakers, B. (n.d.). Basic Security of the ecash Payment System. State of the Art in Applied Cryptography, Course on Computer Security and Industrial Cryptography1528, 338–352. https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.298.4934&rep=rep1&type=pdf

Wu, T. (2003). When Code Isn’t Law. Virginia Law Review89(4), 679–752. https://heinonline.org/HOL/P?h=hein.journals/valr89&i=697

This article was lightly edited for clarity.

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