Papers associated with Bitcoin and related topics in law: Part I

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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 2, Part 3, and Part 4.

Annotated Bibliography: Part I

The concept of decentralization has become a core topic when it comes to describing how blockchain-based monetary systems function. Since the terminology was first documented in the seminal work by Baran (1964), networks have been developed to integrate the robust functioning derived from decentralizing and distributing functions across multiple locations. Yet, Bodó et al. (2021) demonstrate how the terminology associated with the decentralization of networks has devolved into a political discussion unrelated to the underlying network technology.

Annotated Bibliography

Baran, P. (1964). On Distributed Communications Networks. IEEE Transactions on Communications, 12(1), 1–9. https://doi.org/10.1109/TCOM.1964.1088883

Baran (1964, p. 1) presented a seminal work analyzing how a “distributed communication network concept in which each station is connected to all adjacent stations rather than to a few switching points, as in a centralized system” has a “payoff for a distributed configuration in terms of survivability in the cases of enemy attack directed against nodes, links or combinations of nodes and links”. While the paper is referenced extensively in relation to blockchain networks, the structures representing centralized, decentralized, and distributed networks do not apply to any blockchain system. Rather, systems such as Bitcoin are deployed in a small-world network. No mention of a small-world network would be expected in Baran (1964), as such network structures would not be documented until 1996.

Yet, the concept of distributed networks also applies to small-world networks. A small-world network encapsulates the benefits attributed to centralized and distributed networks described by Baran (1964). Consequently, the use of the paper by those in the ‘cryptocurrency’ industry in referring to the political decentralization of Bitcoin may be demonstrated to be aligned with the original concepts of the work on communication networks. The author noted how distributed networks had better survivability. The features within blockchain networks integrate such benefits, providing a more secure network than those offered by traditional centralized systems, including banks.

The paper is important in demonstrating the misuse of vocabulary within the current research associated with blockchain networks. By utilizing the work of the author but presenting it not in terms of computer science and networking, but using it to represent political and social science terminologies of decentralization, the paper demonstrates the foundational aspects of resilience that are associated with distributed networks and the way that such systems can be controlled by single entities and yet decentralized. Hence, the political matter associated with the cyberpunk and crypto-anarchist authors who promote Bitcoin may be shown to be disingenuous.

Bodó, B., Brekke, J. K., & Hoepman, J.-H. (2021). Decentralization in the blockchain space. Internet Policy Review, 10(2). https://doi.org/10.14763/2021.2.1560

Bodó et al. (2021) note how Baran (1964) implemented a theoretical typology of communication networks. The model presents a differential between centralised, decentralized, and distributed networks in the telecommunications industry. While the model is commonly referenced and argued to represent Bitcoin and related networks, the description of decentralization and distribution presented is not generally used within the networking and computer science fields. Rather, the distributed system would be referenced as a mesh, and Baran made no small-world networks such as Bitcoin, which were not referenced in literature until 1999.

Bodó et al. (2021, p. 4) argue that “central nodes can unilaterally set the conditions for using the network” and that they operate at a higher efficiency and lower cost than distributed networks. Yet, the statements are made without the support of evidence, and the argument for higher resilience and the ability to set rules on centralized systems but not on distributed systems is presented dogmatically, without validation or evidence. While the paper documents decentralization as a social construct, the various references used in support also uncritically present an analysis of what the authors believe should be achieved, rather than what occurs in reality.

The paper demonstrates the lack of critical awareness or analysis within research associated with blockchain technology. In analyzing the concept of centrality and decentralization in blockchain systems, the authors present no evidence associated with network science or the mathematical measurements of centrality in graph-based networks. Consequently, the authors demonstrate the pseudoscientific agenda associated with promoting decentralization and offer a means of falsifying the argument presented in the paper.

Bonnet, S., & Teuteberg, F. (2022). Impact of Blockchain and distributed ledger technology for the management, protection, enforcement and monetization of intellectual property: A systematic literature review. Information Systems and E-Business Management. https://doi.org/10.1007/s10257-022-00579-y

In this analysis of property law enforcement and the monetization using blockchain technology, Bonnet and Teuteberg (2022) investigate the various types of intellectual property and how they apply to blockchain technologies such as Bitcoin. The paper starts with an analysis of the more commonly implemented intellectual property forms. In analyzing such research, the authors review both media as it applies to the internet and distributed ledger technologies as they apply to smart contracts. During this process, the authors review the concepts presented by Lawrence Lessig as they apply to the crypto-anarchist concept of “code as law” and include the question of whether blockchain technology needs legal enforcement or whether it can become an enforcement system itself, outside of government and regulatory control.

In the analysis, the authors mention many types of intellectual property protection, including copyright. Yet, database rights and the protections that would occur through the formation of a ledger are overlooked. Such an omission is surprising, given the scope of the review. Bonnet and Teuteberg (2022, p. 16) find that “[n]early half of the selected publications believe the technological challenges represent the main obstacles were further adoption and on top of the list is lack of scalability”. The limitations around processing and storage are presented as insoluble problems that will limit the adoption of blockchain technology.

The scope of the publication is significant, covering many articles on the topic. Such work is valuable as a starting point for analyzing intellectual property as it applies to blockchain technology, and will form a background for analyzing the existing work on the topic despite the author’s neglect of database rights. The authors argue that the technology is immature and will take time to be implemented from technological and legal standpoints. The finding demonstrates that the research being done in my study is valuable if successful and currently believed to be unachievable.
Bonsón, E., & Bednárová, M. (2019). Blockchain and its implications for accounting and auditing. Meditari Accountancy Research, 27(5), 725–740. https://doi.org/10.1108/MEDAR-11-2018-0406

The authors define “Blockchain [as] a distributed digital ledger that is used to record and share information through a peer-to-peer network” (Bonsón & Bednárová, 2019, p. 725). Yet, the terminology associated with such terms has not been adequately described. Peer-to-peer (P2P) references the ability to directly connect and exchange information between users. Yet, the reference to P2P networking has documented the erroneous idea of a peer connecting to another peer through a mesh network. Such a structure has been promoted, but fails to describe the implementation of blockchain-based systems such as Bitcoin (Javarone & Wright, 2018).

The authors reference the immutability of a blockchain system. Here, they note how the alteration of a record would require changing a previous transaction in a block that has been created and that it would be impossible because of the decentralized nature of the technology (Bonsón & Bednárová, 2019, p. 726). Yet, such thinking overlooks the methodologies used within accounting systems to update and change records. For example, in accounting processes using paper-based records, the immutability of the existing records requires the addition of external journals that may link to the main general ledger. Such a structure is feasible within any blockchain network, and the implementation would ensure that the system remains immutable and records the complete transaction journal capturing all changes.

Bonsón & Bednárová provide an example of the benefits of reducing economic uncertainty (2019, p. 729). In addition, the ability to reduce agency costs and share information openly, in a way that reduces asymmetry, provides economic benefits to many organizations. The biggest benefit can be argued to derive from the increased transparency and auditability (2019, p. 730) that will come from a single verifiable source of accounting information that cannot be altered without leaving an audit trail of the alterations. Yet, the authors also argue that the limitations of scalability associated with a blockchain-based system (2019, p. 732) limit the benefits that may be attributable to a business. But, in demonstrating the interconnectivity and the transaction rate of the primary systems within the blockchain network, it will be possible to document how the system can scale, providing all such benefits.

Additional References

Javarone, M. A., & Wright, C. S. (2018). From Bitcoin to Bitcoin Cash: A network analysis. Proceedings of the 1st Workshop on Cryptocurrencies and Blockchains for Distributed Systems, 77–81. https://doi.org/10.1145/3211933.3211947

This article was lightly edited for clarity purposes.

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