Why Most Blockchain Projects Are Bullshit – magic. – Medium

https://medium.com/helloitsmagic/why-most-blockchain-projects-are-bullshit-2e3918439270

And How to Spot the Ones That Aren’t

This is a good overview to blockchains and mountains of bullshit talk circulating around it:

The key to separating uses with promise from bullshit projects is asking what can onlybe done with the specific features blockchains provide, and whether those things are worth doing or having. In almost all useful cases, blockchains don’t solve technological problems, they solve people problems.

77 Comments

  1. Tomi Engdahl says:

    US Fed Chair Says Private Entities Should Not Help Design Central Bank Digital Currencies
    https://www.coindesk.com/us-fed-chair-says-private-entities-should-not-help-design-central-bank-digital-currencies

    Private entities aren’t needed to build central bank digital currencies, said the head of the U.S. central bank on Wednesday.

    Federal Reserve Chairman Jerome Powell, speaking before the House Financial Services Committee, said the idea of a digital dollar – referring to a blockchain-based version of the current world reserve currency in response to a line of questioning from Rep. Tom Emmer (R-Minn.) – is complex, and one that the Fed takes seriously, but also that the idea needs to be studied further before one can be created and implemented.

    Powell said he believed private entities did not have a role in designing a digital dollar.

    “I do think this is something that the central banks have to design,” he said. “The private sector is not involved in creating the money supply, that’s something the central bank does.”

    Reply
  2. Tomi Engdahl says:

    A new patent has been filed by the U.S. Postal Service to use blockchain technology to make mail-in voting safer following recent comments from Trump concerning the mail service’s funding as part of his fight against mail-in voting. The patent laid out voting operations based on a blockchain, complete with ballot codes, electronic signatures and other intricate points, working in tandem with two databases. The patent also included various other frameworks and concepts around its central idea of blockchain-based voting.

    US Postal Service Files Blockchain Voting Patent Following Trump Cuts
    https://cointelegraph.com/news/us-postal-service-files-blockchain-voting-patent-following-trump-cuts

    Reply
  3. Tomi Engdahl says:

    “out of over 86,000 blockchain projects that had been launched, 92% had been abandoned by the end of 2017″ https://it.slashdot.org/story/20/08/22/1816216/is-blockchain-the-amazing-solution-for-almost-nothing

    Reply
  4. Tomi Engdahl says:

    well, it allows you to waste enormous amounts of electricity while putting money into someone else’s hands, in exchange for a token nobody actually wants

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  5. Tomi Engdahl says:

    What is the advantage of crypto of they can just “move to seize” it anyway?

    [https://www.wsj.com/articles/u-s-moves-to-seize-cryptocurrency-accounts-linked-to-north-korean-heists-11598564571?mod=e2tw](https://www.wsj.com/articles/u-s-moves-to-seize-cryptocurrency-accounts-linked-to-north-korean-heists-11598564571?mod=e2tw)

    Reply
  6. Tomi Engdahl says:

    Ethereum smart contract vulnerabilities can lead to millions in losses
    https://cybernews.com/security/ethereum-smart-contract-vulnerabilities/

    Reply
  7. Tomi Engdahl says:

    Bitcoin is irrelevant to financial markets and investors ‘are going to weep’ if regulators come down hard on crypto, says Kevin O’Leary
    https://trib.al/UCYSn92

    Kevin O’Leary told CNBC on Thursday bitcoin is irrelevant to financial markets and at risk of regulation.

    His comments come as an increasing number of institutions like Guggenheim and SkyBridge capital invest millions into the cryptocurrency, driving a rally of over 200% in 2020.

    “I’m waiting for the day that one of these regulators comes down hard on bitcoin. Grown men are going to weep when that happens. You’ll never see a loss of capital like that ever in your life. It will be brutal,” he said.

    Treasury Secretary Steven Mnuchin is proposing new regulation that would require certain cryptocurrency traders to provide more information about their identities and cryptocurrency transactions.

    Kevin O’Leary told CNBC on Thursday that bitcoin is irrelevant to financial markets and too at risk of regulations to be taken seriously by institutional investors.

    “Is this a nothing burger? It’s not even a single cell amoeba,” the O’Shares chairman said, “I love to talk about it, it’s fun to watch it go up and down, but during the day, when the bell rings, I don’t talk to anybody that’s worried about this. They do not put capital to work in bitcoin.”

    His comments come as more institutional players are piling in, validating bitcoin’s legitimacy as a store of value and hedge against inflation. Earlier this week, SkyBridge Capital invested $25 million into a new bitcoin fund, while last month, Guggenheim filed to reserve the right for 10% of its $5.3 billion Macro Opportunities Fund to invest in the Grayscale Bitcoin Trust.

    O’Leary said that the concept of a digital currency will likely come to fruition in the future, but investors should be careful glorifying bitcoin while it has yet to fulfill a defined role in financial markets and while it could still be regulated. This year, bitcoin has skyrocketed over 200%, and many crypto bulls are forecasting an explosion of growth in 2021.

    Reply
  8. Tomi Engdahl says:

    Ian Allison / CoinDesk:
    Sources: IBM has drastically downsized its blockchain team after missing revenue targets by 90%; IBM says the unit is “doing well” — “There is not really going to be a blockchain team any longer,” said a source. — IBM has cut its blockchain team down to almost nothing …

    IBM Blockchain Is a Shell of Its Former Self After Revenue Misses, Job Cuts: Sources
    https://www.coindesk.com/ibm-blockchain-revenue-misses-job-cuts-sources

    “There is not really going to be a blockchain team any longer,” said a person familiar with the situation.

    Reply
  9. Tomi Engdahl says:

    Cryptocurrency Hedge Fund Founder Admits to Massive Fraud
    https://www.theaegisalliance.com/2021/02/04/crypto-hedge-fund-fraud/

    On Thursday, a founder of two New York-based cryptocurrency hedge funds, age 24, with greater than $100 million in investments made a guilty plea to securities fraud.

    Stefan He Qin was charged with duping investors by claiming he used a buying and selling algorithm to reap the benefits of value variations for various cryptocurrencies, federal prosecutors announced.

    Qin stole investor dollars from his Virgil Sigma Fund LP and tried to dip into his VQR Multistrategy Fund LP to pay back investors from the first fund, prosecutors mentioned. He admitted to attempting to steal from one more fund he managed to cover VQR fund redemption demands, the statement reads.

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  10. Tomi Engdahl says:

    A crypto kid had a $23,000-a-month condo. Then the feds came
    He bragged that the fund he had created returned 500%, a claim that produced a flurry of new money from investors.
    https://fortune.com/2021/02/14/crypto-fraud-virgil-capital-convicted/amp/

    dropped out of college in 2016 to start a hedge fund in New York he called Virgil Capital. He told potential clients he had developed an algorithm called Tenjin to monitor cryptocurrency exchanges around the world to seize on price fluctuations. A little more than a year after it started, he bragged the fund had returned 500%, a claim that produced a flurry of new money from investors.

    He became so flush with cash

    In reality, federal prosecutors said, the operation was a lie, essentially a Ponzi scheme that stole about $90 million from more than 100 investors to help pay for Qin’s lavish lifestyle and personal investments in such high-risk bets as initial coin offerings. At one point, facing client demands for their money, he variously blamed “poor cash flow management” and “loan sharks in China” for his troubles.

    “I knew that what I was doing was wrong and illegal,” he told U.S. District Judge Valerie E. Caproni, who could sentence him to more than 15 years in prison.

    Eager Investors
    The case echoes similar cryptocurrency frauds, such as that of BitConnect, promising people double-and triple-digit returns and costing investors billions. Ponzi schemes like that show how investors eager to cash in on a hot market can easily be led astray by promises of large returns. Canadian exchange QuadrigaCX collapsed in 2019 as a result of fraud, causing at least $125 million in losses for 76,000 investors.

    While regulatory oversight of the cryptocurrency industry is tightening, the sector is littered with inexperienced participants.

    A number of the 800 or so crypto funds worldwide are run by people with no knowledge of Wall Street or finance, including some college students and recent graduates who launched funds a few years ago.

    Reply
  11. Tomi Engdahl says:

    https://www.facebook.com/groups/2600net/permalink/2960200457536393/

    Mining Bitcoin with pencil and paper: 0.67 hashes per day
    It turns out that the SHA-256 algorithm used for mining is pretty simple and can in fact be done by hand. Not surprisingly, the process is extremely slow compared to hardware mining and is entirely impractical. But performing the algorithm manually is a good way to understand exactly how it works.

    Reply
  12. Tomi Engdahl says:

    http://disciples.technoslug.org/satoshi.htm
    Hundreds of thousands of people are building very powerful, expensive, specialized computers to run code that mysteriously appeared on the internet a decade ago, and no one is really sure who created it.

    Reply
  13. Tomi Engdahl says:

    Raju väite: ”bitcoin tulee korvaamaan kaikki maailman valuutat”
    https://www.tivi.fi/uutiset/raju-vaite-bitcoin-tulee-korvaamaan-kaikki-maailman-valuutat/f6867a6b-62e0-4962-ba3a-d65423bd83ca?ref=iltalehti:0af4&utm_source=iltalehti.fi&utm_medium=almainternal&utm_campaign=kiintea_tivi_ohjausboksi&utm_content=ohjausboksi

    Kryptovaluuttapörssi Krakenin toimitusjohtaja Jesse Powell peräänkuuluttaa bitcoin-sijoittajilta vankkaa uskoa.

    Powellin mukaan bitcoinin arvo dollareissa mitattuna tulee kohoamaan äärettömiin. Ensin bitcoin korvaa kullan arvon säilyttäjänä, myöhemmin siitä tulee yleismaailmallinen valuutta, joka korvaa kaikki maailman perinteiset valuutat.

    ”Ihmiset, jotka todella uskovat bitcoiniin ajattelevat sen markkina-arvon voivan ylittää kaikkien maailman valuuttojen yhteenlasketun markkina-arvon.”

    Kun kurssi nousee Powellin sanojen mukaan Kuun ja Marsin tasolle, ei bitcoinin arvoa enää verrata dollariin, vaan vertailukohteiden mittasuhteet menevät uusiksi.

    ”Bitcoinin arvoa tullaan mittaamaan arvioimalla, mitä sillä voi ostaa. Mahdollisesti planeettoja tai aurinkokuntia.”

    Bitcoin ‘Going to Infinity’: Kraken CEO
    March 4th, 2021, 12:22 AM GMT+0000
    https://www.bloomberg.com/news/videos/2021-03-04/bitcoin-going-to-infiniti-kraken-ceo-video?utm_source=flipboard&utm_medium=bd&cmpId=flipboard

    Jesse Powell, founder and CEO of Kraken, explains how he believes that Bitcoin will eventually replace all of the world’s currencies. He speaks to Emily Chang on “Bloomberg Technology.” (Source: Bloomberg)

    Reply
  14. Tomi Engdahl says:

    U.S. says John McAfee indicted over fraudulent cryptocurrency schemes
    https://mobile.reuters.com/article/amp/idUSKBN2AX200

    NEW YORK/WASHINGTON (Reuters) – John McAfee, creator of the eponymous anti-virus software, has been indicted in Manhattan federal court on fraud and money laundering conspiracy crimes, stemming from two schemes concerning the fraudulent promotion to investors of cryptocurrencies, officials said on Friday.

    McAfee and his bodyguard Jimmy Gale Watson Jr were charged for a scheme to exploit McAfee’s large Twitter following by publicly touting cryptocurrency offerings and digital tokens that they later sold once prices rose on the promotions, according to the U.S. Department of Justice and the U.S. Commodity Futures Trading Commission.

    Reply
  15. Tomi Engdahl says:

    https://www.facebook.com/groups/majordomo/permalink/10161702915099522/

    NFTs seem dumb. People are just paying for a link to a place where the art is located, which can go down. Looks like a fad or just another place people with money can waste it. Shady, scammish, like not obviously scamming but almost. Crypto and block chains are interesting technology, good for certain niche uses (buying illegal drugs or bypassing banks/governments etc), but most of it is just shuffling around money in a shady way. Whenever I hear anyone hyping it up or raving about it on podcasts or YouTube etc I get a bad vibe about the person..my brain checks a box called “ethically questionable person, be wary of any future advice or info from this person” just for the fact that when someone is heavily invested they are only going to want to talk about the potential non existent future uses for it.

    Reply
  16. Tomi Engdahl says:

    BLOCKCHAIN
    Project Review: Pi Network, a New Scam Project in Town
    https://zephyrnet.com/project-review-pi-network-a-new-scam-project-in-town/

    According to Pi Network official statement: Pi is a new digital currency. This app allows you to access and grow your Pi holdings and serves as wallet to host your digital assets. Pi is fairly distributed, eco-friendly and consumes minimal battery power.

    At the time of writing, Pi Network has over 3.5+ million engaged pioneers (Mobile App miners), 28.5K followers on Twitter, 97K likes on Facebook and 128K followers on Instagram.

    Pi Network’s website is suspicious
    On first impression, PI network’s website looks poorly designed and contains some inaccurate technical information. They claim that PI network is “The First Digital Currency You Can Mine On Your Phone“, and that is not true. Some older legit crypto projects such as uPlexa (UPX) and Electroneum (ETN) are using Mobile Apps to mine crypto coins.

    When you’re looking into digital cryptocurrency companies and startups, experts recommend that you confirm that they’re blockchain-powered, PrimeXBT Now which means they track detailed transaction data. in our case Pi Networks’ website dose not contain a working Blockchain explorer link, no project announcements, no technical white paper and no links to a github page.

    Statements like “Better than Bitcoin” and “The real Bitcoin” has been proven over and over again to be a classic scam and its sad that people still fall for it.

    Pi Network’s mobile App is also suspicious!
    Pi Network’s App on Google play has a lot of fake reviews and all written written by users who only does it to spam their referral links. Yet, the app is rated 4.9 stars and has more than one million active installs and over 43k reviews!.

    The App requires so many permissions
    unlike any other crypto apps, the Android version of Pi Network app requires so many permissions.

    Draw over other apps is incredibly dangerous, the app can easily steal passwords. It can present messages as if they’re from other apps or read those messages.

    Once you install the app, you will not be able to use it without a valid invitation code. This is a live example of pyramid schemes and click baiting scam projects which are “viral social applications” that lure people with the promise of profit by recruiting more members so they can increase their mining power.

    When you start the app, you will be “mining” at the rate of 0.25 Pi per hour. You will need invite a lot of your friends to increase your mining power/hashrate. The more people sign up using your affiliate code the more mining power you will get.

    You need to activate the miner (app) every 24 hours. Pretty unproductive and inconvenient I would say, though you get a notification reminder to turn the miner on.

    After testing it for 24 hours, i can say The Pi Network app is not a real crypto miner. Its just an airdrop app that gives you a tiny piece of a massive, but unknown amount Pi per-mined coins.

    Pi Network App security issues
    PI Network app is sending network packets to a third party domains “socialchain.app” and “rayjump.com”, which is a weird behavior.

    https://www.thecoinspost.com/project-review-pi-network-a-new-scam-project-in-town/

    Reply
  17. Tomi Engdahl says:

    Jos joku kokee FOMOa kryptoista, eikä ehkä halua niitä ostella, niin tässä täsmälääkettä perusteluineen.

    “Ikivanha sijoitussääntö sanoo, että ei pidä sijoittaa sellaiseen, mitä ei ymmärrä. Ymmärrän osakkeiden arvonmuodostuksen periaatteet. Enempää jännitystä elämääni en kaipaa, kuin mitä osakemarkkinat tarjoavat. Minä en ymmärrä kryptojen hintojen muodostumisen mekanismia. Enkä ymmärrä, miten kukaan muukaan voi ymmärtää. Jos tällä hetkellä omistaisin Bitcoineja, haluaisin ymmärtää johtuiko niiden viime viikon 15 prosentin kurssilasku sähkökatkosta Kiinan Xinjiangissa vai Bidenin veronkorotuspuheista. Nyt en tätä ymmärrä.”

    Vesa Puttonen: Miksi en sijoita kryptovaluuttoihin
    https://www.sijoitustieto.fi/sijoitusartikkelit/vesa-puttonen-miksi-en-sijoita-kryptovaluuttoihin

    Bitcoinin ja muiden kryptovaluuttojen markkina-arvo nousi 2000 miljardiin dollariin. Kryptopörssi Coinbasen arvoksi muodostui listautumisen yhteydessä 75 miljardia dollaria. Jos aikaisemmin ajateltiin, että kryptovaluutat ovat pyramidihuijaus mikä ennen pitkää romahtaa, nyt näyttää siltä että ne ovat tulleet jäädäkseen. Pitäisikö niihin sitten sijoittaa?

    Itse olen seurannut markkinoiden kehitystä katsomosta käsin. Mutta minuakin on innostanut kokonaan uusi teknologia, ihmisten hurmos ja nuorten kapinahenki. Opiskelijamme ovat puhuneet kryptojen louhimisesta jo monta vuotta. Osa on tehnyt hyviä voittoja myös käymällä niillä kauppaa. Kerrankin markkinoille tulee jotain täysin uutta, mikä haastaa vanhat rakenteet. Tuntuu siltä, että uusissa innovaatioissa pitäisi itsekin olla mukana ainakin hajautusmielessä.

    Historiallisen mittavan keskuspankkipolitiikan mahdollistama valtioiden holtiton velkaantuminen aiheuttaa huolta fiat-rahajärjestelmän kestävyydestä. Uskallanko enää pitää rahani euroissa? Kryptovaluutat tarjoavat vaihtoehdon.

    Jos ajattelen kryptovaluuttoja valuuttoina (en siis sijoituskohteena), haluaisin niiden olevan käteviä maksuliikenteessä. Samoin haluaisin niiden pitävän arvonsa ainakin lyhyellä aikavälillä. Aivan kuten perinteiset valuutat. Maksuliikenteen hoitaminen hoituu kuitenkin ainakin vielä toistaiseksi helpommin perinteisillä valuutoilla.

    Vielä isompi ongelma on kryptovaluuttojen volatiliteetti. Inflaation vuoksi fiat-rahan arvo heikkenee pikkuhiljaa ajan myötä, mutta kryptovaluuttojen arvo voi helposti heiketä 10 prosenttia päivässä. Vaihdannan välineenä kryptovaluutat siis häviävät perinteiselle rahalle. Vanha rahajärjestelmä on vanha. Sen vahvuus on, että se on kestänyt monenlaiset myllerrykset maailmansodista pörssiromahduksiin. Sitä on koeteltu ja se on kestänyt.

    Jos kryptovaluuttojen määrä on rajattu ja kysyntä ajaa niiden hintoja pitkässä juoksussa ylös, niitä ei kannata käyttää vaihdannan välineenä. Miksi maksaa Tesla Bitcoineilla, jos uskoo kryptovaluutan arvon nousevan?

    Mihin kryptojen arvo perustuu? Samalla tavalla voi kysyä perinteisistä valuutoista. Ei niilläkään ole mitään fundamentaaliarvoa, minkä pystyisi laskemaan. Mutta ei perinteisillä valuutoilla tarvitsekaan olla, koska niiden on tarkoitus toimia vaihdannan välineenä.

    Kun mietin asiaa omalta kohdaltani, huomaan kiinnostuksen varsinaisen ajurin olevan FOMO, fear of missing out. Mitä jos Bitcoinin kurssi vielä tuplaantuu? Katsomossa alkaa ahdistaa. Mutta tuplaantuuko Bitcoinin arvo? Kukaan ei voi tietää. Ja onko se juuri Bitcoin, mikä on jatkossakin kryptojen ykkönen. Bitcoinista on sanottu, että se on teknisesti vanhanaikainen. Pitäisikö sijoittaa Ethereumiin tai Dogecoiniin? Näidenkin hintoja ajaa uusien sijoittajien tulo markkinoille. Se voi ajaa kaikkien kryptojen hintoja ylös vielä paljonkin. Uudet sijoittajat maksavat vanhojen sijoittajien voitot. Mutta kun hinnanmuodostus perustuu pelkästään siihen, moniko maailman ihminen innostuu ostamaan kryptoja spekulointimielessä ja mikä krypto sattuu olemaan se muodikkain, huomaan olevani tyytyväisenä katsomossa.

    Ikivanha sijoitussääntö sanoo, että ei pidä sijoittaa sellaiseen, mitä ei ymmärrä. Ymmärrän osakkeiden arvonmuodostuksen periaatteet. Enempää jännitystä elämääni en kaipaa, kuin mitä osakemarkkinat tarjoavat. Minä en ymmärrä kryptojen hintojen muodostumisen mekanismia. Enkä ymmärrä, miten kukaan muukaan voi ymmärtää. Jos tällä hetkellä omistaisin Bitcoineja, haluaisin ymmärtää johtuiko niiden viime viikon 15 prosentin kurssilasku sähkökatkosta Kiinan Xinjiangissa vai Bidenin veronkorotuspuheista. Nyt en tätä ymmärrä.

    Sen sijaan ymmärrän, että en arjessani tarvitse kryptoja.

    Luulen ymmärtäväni, että lohkoketjuteknologia mahdollistaa tiedon tallentamisen ja transaktioiden tekemisen tehokkaalla tavalla. Sille on monia hyviä sovellusalueita. Kryptovaluutatkin ovat tulleet jäädäkseen, ne eivät kokonaan häviä mihinkään. Olen iloinen jokaisen kryptoilla vaurastuvan puolesta, mutta minä en niihin sijoita. Toivon, että jokainen niille markkinoille lähtevä tunnistaa markkinoihin liittyvät riskit ja osaa kohdallaan analysoida, miksi on näille markkinoille lähtenyt. Havitteluun eli spekulointiin perustuvissa markkinoissa on yleensä se piirre, että jos hinnat voivat nopeasti nousta, ne voivat myös nopeasti laskea.

    Reply
  18. Tomi Engdahl says:

    Blockchains Were Supposed to Be “Unhackable.” Now They’re Getting Hacked.
    https://futurism.com/blockchains-unhackable-getting-hacked

    Until recently, blockchains were seen as an “unhackable” technology powering and securing cryptocurrencies — but that’s no longer the case.

    Hackers have gotten away with nearly $2 billion worth of cryptocurrency since 2017 by attacking the unique vulnerabilities of blockchains, MIT Technology Review reports. In other words, forget what you heard from Bitcoin boosters — just because information or currency is on a blockchain doesn’t necessarily mean that it’s more secure than any other form of storage.

    Reply
  19. Tomi Engdahl says:

    Why does this need to be decentralized?

    Anyway, decentralized ledger tech has proven it is great at creating speculative investment assets.

    Reply
  20. Tomi Engdahl says:

    Are cryptocurrencies a cybersecurity threat?

    How to Start Disrupting Cryptocurrencies: “Mining” Is Money Transmission
    https://www.lawfareblog.com/how-start-disrupting-cryptocurrencies-mining-money-transmission

    Bitcoin arrived on the scene just two years after the iPhone, and in that time it has helped facilitate a whole lot of bad things. All cryptocurrency assets, not just Bitcoin, are zero sum. So every dollar “made” in cryptocurrency was simply provided by someone else. And any volatile cryptocurrency, Bitcoin included, will always be inferior for legal payments.

    Now, with the rise of “big-game ransomware,” it is time to explore different methods that different governments, including the U.S. and others, can use to disrupt the Bitcoin and larger cryptocurrency ecosystem. There is no silver bullet, but there are a lot of things that can throw sand in the gears, degrading Bitcoin and other systems into unusability.

    One avenue rests on an observation that Bitcoin and other cryptocurrency “miners” aren’t just creating new cryptocurrency or securing the network. They are also specifically acting as money transmitters and need to be treated that way.

    Why this is the case requires a discussion of how Bitcoin and other cryptocurrencies are processed and secured by the miners.

    FinCEN and other regulators would, without hesitation, call the winning stone carver a money transmitter—someone who accepts currency (or a substitute) from one person and transfers it to another, regardless of the means used. He processed the check, ensured that it was valid, and then recorded the check to transfer the money from your account to mine. As a money transmitter, the stone carver has a large number of legal obligations designed to prevent misuse of his services. A cryptocurrency “miner” is no different.

    Cryptocurrencies all start with the same basic concept: a public ledger of all confirmed checks and a method by which the miners add to the ledger. The biggest difference between this “blockchain” and our pile of stone tablets is the nature of how the accounts are identified and the mechanism of determining the “winning” tablet.

    Our village tablets have names, but the cryptocurrencies identify accounts by their public key—effectively a very big random number, and anyone can create as many public keys as they want. It isn’t a matter of making sure that “bitcoin doesn’t become the equivalent of Swiss-numbered bank accounts”: Bitcoin and most other cryptocurrencies only consist of “Swiss-numbered bank accounts”!

    Miners first have to make sure that each check they consider is valid and that the sending account has sufficient funds. Miners then choose from the set of valid checks they want to include and collect them together in a “block.”

    This block contains two more pieces of information: a pointer to the previous block (uniquely identified by a cryptographic hash, thus the “blockchain”) and an additional check saying “pay the miner’s numbered account the mining reward and any transaction fees.” Now the miner checks if the block would be valid, based on the particular lottery scheme the cryptocurrency employs. If not, the miner tweaks the block slightly and tries again, repeatedly generating and checking to see if the block matches the requirements.

    The details of the lottery vary. Bitcoin and Ethereum use a scheme called “proof of work,” which requires simply trying until a miner gets lucky. Other cryptocurrencies use “proof of stake,” where the probability of winning the lottery depends on the amount of cryptocurrency the miner already has, sort of a “he who has the gold enforces the rules” scheme.

    Eventually one miner gets lucky, becoming a “block creator” with a new block that meets the rules according to the cryptocurrency’s underlying scheme. That block is then broadcast to the world, confirming the included checks and updating everyone’s balances. Now all the miners start working on the next block with all the remaining and any new unconfirmed checks.

    During this process the miners are making active decisions on which checks to include. Not only do the miners have to make sure checks are valid, but they also have to make numerous choices beyond this, usually focused on maximizing revenue by selecting the checks that provide the highest fee to the miner. So a miner who creates a block is explicitly making decisions about which transactions to confirm. This successful miner, like our village stonecarver, is a money transmitter.

    And these miners are transmitting a lot of value. Let us examine a single Bitcoin block—the newest block when I wrote this paragraph. In this block the miner, “F2Pool,” confirmed 2,644 transactions representing a notional value of $1.6 billion. Of course many of these transactions are simply noise (the Bitcoin blockchain is notorious for transactions that do not represent real transactions), but even the “small” transactions represent several hundred dollars moving between pseudonymous numbered accounts. And each and every one of them was processed, validated, selected and recorded by this one mining pool.

    The cryptocurrency community remarks that the mining system is “decentralized”—that is, because there are many participants, this implies that no single participant is responsible. Yet because every given transaction is validated by the winning block creator, that winning miner is the money transmitter for that transaction. Additionally, due to pooling, the mining process inevitably centralizes into the hands of a few actors: 75 percent of all Bitcoin transactions are validated by one of just seven mining pools, and a similar phenomenon is seen in the other currencies, no matter what scheme they use.

    So not only does “decentralization” not absolve the winning block creator of responsibility for being a money transmitter, but also only a few actual block creators are doing most of the money transmission for Bitcoin and most other cryptocurrencies. So if we call a spade a spade, and a cryptocurrency miner a money transmitter, what does that mean?

    Right now the FinCEN guidance on money transmission and virtual currencies is pretty clear: Whether or not a person is a “miner” or “creator” has no bearing on whether they are just a “user” (not affected by the Bank Secrecy Act), an administrator or an exchanger.

    Using the cryptocurrency you mine is not acting as a money transmitter (in that case you are a user), nor is distributing the proceeds internally in a mining pool. But FinCEN’s current guidance never connected the dots: The miners are the money transmitters in a cryptocurrency system because they are validating the transactions.

    The legal questions here are complicated and beyond the scope of this post, but here I’ll propose what I see as the ideal, if perhaps ambitious, policy fix: In an ideal world, FinCEN would issue a new guidance statement establishing that cryptocurrency miners who act to validate third-party transactions are money transmitters.

    What would treating mining as money transfer mean? For U.S.-based mining pools, it is impossible for them to function in their current form. They simply are incapable of performing the anti-money-laundering and know-your-customer (AML/KYC) required of money transmitters on the transactions they validate. After all, you can’t do AML/KYC on every Swiss numbered account. Instead, any U.S.-based mining pools would need to make a list of allowed wallets and validate only those transactions.

    During the month of May, Marathon used a risk-scoring method to select transactions, intending to create Bitcoin blocks untainted by money laundering or other criminal activity. Yet they stopped doing this because the larger Bitcoin community objects to the idea of attempting to restrict Bitcoin to legal uses!

    Treating mining as money transfer might also affect participants in mining pools. The pool itself decides which transactions to approve and just provides a stub for various miners to try to find a lucky winner. When an individual miner gets lucky, it sends the result to the pool and the pool subsequently distributes the revenue among the participants. Although the FinCEN guidance says that renting out computer services for mining is not acting as a money transmitter, the use of U.S. resources would bring a foreign mining pool with U.S. participants under the cover of U.S. law.

    This basic observation—that cryptocurrency miners, no matter the cryptocurrency itself, are money transmitters and should be treated as such—would effectively outlaw Bitcoin, Ethereum and other cryptocurrency mining in most of the world. And some nations that generally don’t follow FinCEN’s model, notably Iran and China, are cracking down on Bitcoin mining because it poses both a local money-laundering threat and an obscene waste of energy.

    Making cryptocurrency mining illegal won’t stop all mining, but it will seriously disrupt it. Bitcoin mining is not a small activity from a physical standpoint, a power load standpoint or a network standpoint. If the countries around the world address cryptocurrency mining as the security risk it is—after all, even the roguest of rogue states wants to limit money laundering that isn’t in their interest—hopefully this can reduce the cryptocurrency problem.

    Additionally, Bitcoin and other proof-of-work cryptocurrencies have a security weakness: The system is secure only as long as there is a lot of continuously wasted effort. If the available mining drops precipitously, this enables attackers to rewrite history (a rewriting process that, if it only removes transactions, is arguably not a money transmitter). I’m certain ransomware victims and their insurers would pay $1 million to a service that would undo a $5 million payment.

    It is time to seriously disrupt the cryptocurrency ecology. Directly attacking mining as incompatible with the Bank Secrecy Act is one potentially powerful tool.

    Reply
  21. Tomi Engdahl says:

    Bitcoin power plant is turning a 12, 000-year-old glacial lake into a hot tub https://arstechnica.com/tech-policy/2021/07/bitcoin-power-plant-is-turning-a-12000-year-old-glacial-lake-into-a-hot-tub/
    The fossil fuel power plant that a private equity firm revived to mine bitcoin is at it again. Not content to just pollute the atmosphere in pursuit of a volatile crypto asset with little real-world utility, this experiment in free marketeering is also dumping tens of millions of gallons of hot water into glacial Seneca Lake in upstate New York.

    Reply
  22. Tomi Engdahl says:

    Scientist Invents Toilet That Turns Human Feces Into Cryptocurrency
    https://futurism.com/the-byte/toilet-poop-green-energy

    Reply
  23. Tomi Engdahl says:

    Fake Walmart press release causes cryptocurrency price surge https://www.bitdefender.com/blog/hotforsecurity/fake-walmart-press-release-causes-cryptocurrency-price-surge/
    The cryptocurrency Litecoin soared in value earlier this week upon the news that supermarket giant Walmart would accept it as a form of payment at its retail stores across America. The only problem was…
    it simply wasn’t true.

    Reply

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