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

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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, Part 19, Part 20, and Part 21.

The traceability of Bitcoin is a major feature often overlooked by those reviewing blockchain technology. The argument presented by cyberpunks, that Bitcoin and other systems need to be anonymous, ignores the real-world requirements for monetary control and the primary purpose of Bitcoin: to provide micropayment services. For example, Bahamazava and Nanda (2022) explored darknet markets. The authors note that the public acknowledgment of traceability concerning Bitcoin did not impact its use. Hence, while drug buyers have slowly migrated to systems such as Monero, the widespread use of the system has not diminished.

Li (2022) present an argument that “Monero’s algorithm Cryptonight is so far the only algorithm that is truly designed for desktop CPUs, making full use of the CPU’s integrated AES instruction set and large-capacity L3 cache,” and that coupled with the creation of an anonymous system, it is more valuable to markets. Yet, such an argument overlooks the failure of ‘cryptocurrencies’ in the past, including the closure of Liberty Reserve. Moreover, in presenting an argument that value will be obtained through anonymity, the authors overlook the tens of thousands of systems that had taken the same approach and had been closed.

Chen et al. (2022) constructed a survey designed to create a model of cryptocurrency adoption. Yet, the design of the questionnaire and the structure of the questions do not align with the research findings, and several other methodological problems in the paper may be shown. This is unfortunate, as the claim that traceability and transparency are two of the prime reasons behind people adopting digital asset systems is undermined through the problems in the paper. In a similar manner, Nguyen Thanh et al. (2023) utilized a collaborative approach in a report prepared for the Ethereum Foundation, under an academic research grant.

Ramirez (2022) is honest in terms of how the data was collected and the approach taken. Yet, the author accepted the claims of other authors uncritically, leading to a series of false assertions. As the paper was based on erroneous material, the results associated with such research are demonstrably false.

Annotated Bibliography

Bahamazava, K., & Nanda, R. (2022). The shift of DarkNet illegal drug trade preferences in cryptocurrency: The question of traceability and deterrence. Forensic Science International: Digital Investigation, 40, 301377. https://doi.org/10.1016/j.fsidi.2022.301377

Bahamazava and Nanda (2022) have analyzed perceptions of traceability and deterrence by looking at the use of both Bitcoin and Monero in darknet markets. While the authors represent the use of digital cash systems by representations of cryptocurrencies and limit the exchanges to those on dark web markets, the overall position demonstrates that only limited use cases seek to avoid traceability. Each author is relatively unpublished, but has started to focus on areas including artificial intelligence and darknet illegal trade. The paper falsely claims that Monero is untraceable (Kumar et al., 2017).

The paper is based on the assumptions “that apprehending criminals on the Dark Web is challenging due to the following reasons: 1) limited amount of research compared to the conventional drug sale markets, 2) continually evolving technologies that DNMs are based on” (2022, p. 1). Unfortunately, neither assumption is founded on fact; both are based on mythology. Crucially for each case, blockchain-based systems are designed not to be cryptocurrencies. Moreover, the flaw in the understanding of traceability is compounded, because the paper presents a problematic concept of mixing and losing the original source. Rather, the law of tracing (Smith, 1997) and following money leads all parties in an anonymizer to lose rights.

While the paper focuses on using digital assets in darknet markets, the research questions examined aid in demonstrating how the average consumer is less likely to care about anonymity over privacy. The response of individuals associated with darknet markets in not rejecting Bitcoin when it was proven not to be anonymous shows that even in such groups, this is not a major function of the system. Consequently, arguments may be presented that people outside of those in drug markets would care about increasing anonymity rather than privacy even less. As such, the function of Bitcoin is not anonymity, as some tout.

Chen, X., Miraz, M. H., Gazi, Md. A. I., Rahaman, Md. A., Habib, Md. M., & Hossain, A. I. (2022). Factors affecting cryptocurrency adoption in digital business transactions: The mediating role of customer satisfaction. Technology in Society, 70, 102059. https://doi.org/10.1016/j.techsoc.2022.102059

Chen et al. (2022, p. 1) have produced an empirical study related to “the factors influencing the adoption (AD) of Cryptocurrencies in Malaysia’s digital market.” The paper is a collaboration of individuals from China, Malaysia, and Bangladesh. The argument that cryptocurrency derives traceability from use, influencing its usability and business processes, is presumed from previous work by Udokwu et al. (2021). Yet, the paper represents the basis of the need for traceability related to using blockchain technology in developing construction projects. As such, it is not relevant despite the assertion by Chen et al. (2022) in claims of cryptocurrency or monetary use.

The literature review references terms associated with adoption, customer satisfaction, social influence, transparency, price value, traceability, and technology acceptance. Each aspect is measured as an independent variable fed into a mediator function to provide a metric associated with adoption. The researchers used self-reported surveys based on delivering twenty-seven questions concerning methods to improve cryptocurrency use. The questions were answered using a five-point Likert scale. The structured questionnaire is provided in Appendix A of the paper.

Yet, the structure of the questions does not relate to the variables presented in the research. For instance, in the four questions related to traceability, the authors have asked questions such as “Cryptocurrency usability is clear to me” (Chen et al., 2022, p. 10), which have little to no relationship to the test variable. Even in the one question where traceability is explicitly mentioned, “Cryptocurrency provides me an in-depth access to crypto traceability” (Chen et al., 2022, p. 10), little insight is provided for the claim that “Traceability (TRA) is regarded as a direct proof of customer satisfaction in terms of the uses of cryptocurrency” (Chen et al., 2022, p. 4). Hence, despite the findings aligning with my research, the paper should be rejected for methodological flaws.

Li, J. (2022). The development of blockchain privacy protection: From Bitcoin to Monero. In M. K. Mohiddin, S. Chen, & S. F. EL-Zoghdy (Eds.), Third International Conference on Electronics and Communication; Network and Computer Technology (ECNCT 2021) (p. 133). SPIE. https://doi.org/10.1117/12.2629737

Li (2022) present an argument concerning preserving privacy in virtual currency systems. In particular, the author notes that Monero will likely become a major mainstream system because it integrates controls over monetary exchanges allowing for anonymous transfers. While the analysis is flawed, ignoring the known ability to trace these systems (Kumar et al., 2017), the work shows some misconceptions held within academic circles. In particular, the authors argue that most people want to buy and sell goods without being traced and hence that implementing darknet markets would be acceptable to the majority.

The author writes on topics concerning encryption and anonymity, referencing these as privacy. However, the work overlooks the purpose of Bitcoin in delivering micropayments and introduces traceability as a flaw in Bitcoin. This begins with a privacy analysis of the BTC core system that has copied the original Bitcoin database and notes that user identity can be linked. However, this approach also ignores or overlooks the privacy controls in Bitcoin associated with not reusing keys. In addition, the author’s background in encryption systems has led them to link the addressing and key structure of Bitcoin to that of email-based encryption systems such as PGP. This erroneously creates a model of Bitcoin privacy unrelated to a correctly structured implementation.

Finally, the paper presents a model of “Monero’s prospects,” arguing that the “[a]nalysis of the forecast of the future profitability trend of Bitcoin and Monero and the rate of return” (Li, 2022) leads to necessary future gains. However, claiming gains because of scarcity is wrong. Also, claims that “the analysis of Monero and Zcash, both achieved untraceable operations through similar methods” (Li, 2022) have already been proven false. The author has failed to note their involvement in the Monero system, and the paper is biased while presenting spurious arguments to price. Overall, this further demonstrates the continuing problems in this industry with individuals willing to sacrifice integrity to produce arguments designed to pump price and which are presented as academic papers.

Nguyen Thanh, B., Perera, D., Nguyen Thanh, P., Nguyen, T. V. H., Pham Thi Thu, T., Nguyen Thi My, L., Chu, T. T., & Kiong Kok, S. (2023). Monetary Policy in the Age of Cryptocurrencies. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4407460

Nguyen Thanh et al. (2023) are a collaborative group from The Business School, RMIT Vietnam. However, the research is not independent, as the Ethereum Foundation funded the research. Furthermore, the paper concerns monetary policy, while the authors do not specialize in this field. The paper is divided into three binary chapters the first detailing the development of monetary technology and policy over time, the second looking at challenges and opportunities in the adoption of cryptocurrency as legal tender, and the third chapter looks at issues concerning proof of work on proof of stake consensus rules and the implication this may have towards economic growth.

In analyzing the history of money, the authors rely heavily on outdated material, including works by Menger (1892) which have been applied out of context and are supported by heavily biased individuals (Ammous, 2018) that have produced demonstrably flawed works but yet are taken at face value in this paper. For instance, the claim by Ammous (2018, p. 38) that “only Bitcoin has the potential to serve as a store of value, due to its strict commitment to low supply growth, credibly backed by the network’s distributed protocol and credible demonstration of the absence of any authority capable of altering the supply schedule” is easily counted by the global adoption of U.S. currency, a system that is both backed by an authority and supported through variable supply growth.

The history of money is extended with flawed mythology, such as the “use of Rai stones as money in Yap Island is another example for commodity money” (Nguyen Thanh et al., 2023, p. 12) despite the Yap stone money being a myth (Southurst, 2021). Unfortunately, while this paper reports being an independent academic research effort, it is based solely on uncritically analyzed responses of individuals associated with digital currency projects and is openly skewed towards promoting Ethereum as a system that will support central-bank Digital currencies even though Ethereum is unable to scale to even 1% of the necessary levels. However, in the twenty-plus failed attempts, those involved have made hundreds of millions of dollars despite the failures. Overall, the value of this paper is best attributed to demonstrating how many academics have been captured and are willing to produce unsupported papers for pay.

Ramirez, K. (2022). Blockchain Network Characteristics and User Adoption of Cryptocurrency [Grand Canyon University]. https://www.proquest.com/openview/379396a6f1d019f2f331dd462622d7bf/

Ramirez (2022) has published a DBA dissertation noting the requirements for adopting digital cash systems. However, the research is premised on the falsely applied concept of Decentralization. In this, the author has correlated the number of unique addresses against the use of a system while failing to note that each address in Bitcoin should be used only once. The quantitative study measures values, including unique addresses and the mempool size. The measurements captured are designed to measure blockchain performance and scalability.

Unfortunately, the use of fee structures and the acceptance that Bitcoin should have a block size cap have skewed the understanding of the system and led to the integration of definitions based upon those outside of computer science (Baran, 1964). As a result, the work uncritically assumes the statements of other authors to be correct, presenting an argument that Bitcoin is a “peer-to-peer technology” where “the Bitcoin network demonstrates multiple weaknesses, including throughput, scalability, and network governance” (Ramirez, 2022, p. 4). Unfortunately, this is premised on four definitions, such as that of the core aspect of the paper around decentralization, erroneously noting that “[d]ecentralization is a form of network governance and technical organization functioning as a system of nodes to service the network without a centralized authority or group” (Ramirez, 2022, p. 6).

Overall, the paper captures many misconceptions about blockchain technology, assuming other authors have correctly defined each associated term. Doing so has created a work based upon a series of incorrectly premised analyses. The author creates a literature review referencing the evolution of technology, failing to note that proof-of-stake systems represent automated online shares and had existed twenty years before Bitcoin. Unfortunately, the paper integrates erroneous and misleading terminology (Walch, 2017), which has been promoted to disguise the nature of the system in front of regulators. Overall, the paper documents that the issues were scalability issues in the BTC (Core) system, reporting this as Bitcoin and, consequently, failing to deliver value.

References
Ammous, S. (2018). Can cryptocurrencies fulfil the functions of money? The Quarterly Review of Economics and Finance, 70, 38–51. https://doi.org/10.1016/j.qref.2018.05.010
Bahamazava, K., & Nanda, R. (2022). The shift of DarkNet illegal drug trade preferences in cryptocurrency: The question of traceability and deterrence. Forensic Science International: Digital Investigation, 40, 301377. https://doi.org/10.1016/j.fsidi.2022.301377
Baran, P. (1964). On Distributed Communications Networks. IEEE Transactions on Communications, 12(1), 1–9. https://doi.org/10.1109/TCOM.1964.1088883
Chen, X., Miraz, M. H., Gazi, Md. A. I., Rahaman, Md. A., Habib, Md. M., & Hossain, A. I. (2022). Factors affecting cryptocurrency adoption in digital business transactions: The mediating role of customer satisfaction. Technology in Society, 70, 102059. https://doi.org/10.1016/j.techsoc.2022.102059
Kumar, A., Fischer, C., Tople, S., & Saxena, P. (2017). A Traceability Analysis of Monero’s Blockchain. In S. N. Foley, D. Gollmann, & E. Snekkenes (Eds.), Computer Security – ESORICS 2017 (Vol. 10493, pp. 153–173). Springer International Publishing. https://doi.org/10.1007/978-3-319-66399-9_9
Li, J. (2022). The development of blockchain privacy protection: From Bitcoin to Monero. In M. K. Mohiddin, S. Chen, & S. F. EL-Zoghdy (Eds.), Third International Conference on Electronics and Communication; Network and Computer Technology (ECNCT 2021) (p. 133). SPIE. https://doi.org/10.1117/12.2629737
Menger, K. (1892). On the Origin of Money. The Economic Journal, 2(6), 239. https://doi.org/10.2307/2956146
Nguyen Thanh, B., Perera, D., Nguyen Thanh, P., Nguyen, T. V. H., Pham Thi Thu, T., Nguyen Thi My, L., Chu, T. T., & Kiong Kok, S. (2023). Monetary Policy in the Age of Cryptocurrencies. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4407460
Ramirez, K. (2022). Blockchain Network Characteristics and User Adoption of Cryptocurrency [Grand Canyon University]. https://www.proquest.com/openview/379396a6f1d019f2f331dd462622d7bf/
Smith, L. D. (1997). The Law of Tracing. Clarendon Press.
Southurst, J. (2021, April 16). ‘Naturally decentralized’ island nations like Tuvalu are perfect for blockchain ledgers, says forum. CoinGeek. https://coingeek.com/naturally-decentralized-island-nations-like-tuvalu-are-perfect-for-blockchain-ledgers-says-forum/
Udokwu, C., Norta, A., & Wenna, C. (2021). Designing a Collaborative Construction-Project Platform on Blockchain Technology for Transparency, Traceability, and Information Symmetry. 2021 2nd Asia Service Sciences and Software Engineering Conference, 1–9. https://doi.org/10.1145/3456126.3456134
Walch, A. (2017). Blockchain’s Treacherous Vocabulary: One More Challenge for Regulators. 9.

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