Jul 7, 2017
A Broken Paradigm
By Liam Bussell
When people who aren’t cypherpunks look at the crypto-community, it’s not hard to understand why the two things they think of are
- Silk Road or buying drugs on the internet
- Hacks
Because hacks are such a visible symptom of the freedom and anarchy inherent in the system. It’s the “Wild West” out here, it’s a gold rush, a solid case of tulipmania. The downside of all this is that regular folks look at the world of Bitcoin and Ether and file it away in the “Too Hard Basket”.
And who can blame them?
There’s something deeply wrong with an industry when you see news like this
And as someone with a bit of experience in the crypto world my first was “$1 Million USD isn’t too bad” then I stopped myself.
What does that say about the industry that when I heard that 30,000 customer accounts were compromised and my first thought is “That’s not too bad”?
Before I even got into the possible intricacies of this engaging thought experiment, I understood why I was thinking like this;
Or who could forget Bo Shen’s bad luck around Christmas?
Or of course, the granddaddy of last year
Guess what? We aren’t even back 12 months yet! To quote Springsteen there’s a line of “skeleton frames of burned-out Chevrolets”leading all the way back to Satoshi’s White Paper.
But why is that?
It’s a question that those of us involved in openANX think about a lot. It’s why Peter Smith of Blockchain came onboard as an advisor, it’s because there’s a slowly dawning recognition that maybe
“Something is rotten in the state of Denmark”
And what’s rotten is the way that centralized exchanges tend to hide their security practices and assets behind opaque walls. As the Quartz article above says in the title
“How can you tell a good bitcoin company from a bad one?”
You can’t. At least not unless something changes. After all, it was Louis Brandeis who said
“Sunlight is said to be the best of disinfectants”
He said in his 1914 book Other People’s Money And How the Bankers Use It. I am not kidding here, that’s the name and the title.
Here’s the Contents page if you don’t believe me
- Our Financial Oligarchy
- How the Combiners Combine
- Interlocking Directorates
- Serve One Master Only!
- What Publicity Can Do
- Where the Banker is Superfluous
- Big Men and Little Business
- A Curse of Bigness
- The Failure of Banker-Management (first appeared in Harper’s Weekly, 16 August 1913)
- The Inefficiency of the Oligarchs
I’ll stay away from the fact he wrote this right before the outbreak of WW1 and that we’ve had umpteen financial collapses since then and stick to the issue at hand.
The Second Law of Thermodynamics states that
“Entropy Increases in Closed Systems”
This is a fancy way of saying that without some form of transparency any system, be it sports team, a boarding school, or a company, will suffer a slow breakdown over time as poor practices become exacerbated and good practices are not introduced to offset inefficiencies.
To say it another way, as Donald Rumsfeld said
Reports that say that something hasn’t happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns — the ones we don’t know we don’t know
In essence, if you are running an exchange, you don’t know how good your security is because you are running a closed system and as a customer you can’t tell which exchange is a good actor and which is a bad actor.
This is one of the fundamental questions we wanted to answer with openANX.
How can we begin to restore trust in the system?
It’s a big question, but we like big questions. We are even prepared to admit that our platform may not be the only answer, there’s plenty of smart cypherpunks out there. But it is an answer, and it was one of the answers that led us to consider another way.
