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The Decentralized Mystic |  Nasdaq


JToday, a team of data scientists is publishing, and The New York Times is reporting, what may be the most important Web 3 academic research to date.

We expect the headlines to focus on the more explosive potential implications of linking many pseudonymous Bitcoin addresses. Yet the true scope of the article goes deeper and reveals more: we interpret it to show that decentralization was more an ideology than a property of Bitcoin technology in its early years.

Jaron Lanier is a technologist, artist and composer, and is widely considered the father of virtual reality. It will appear at Consensus 2022 this week. E. Glen Weyl is one of the founders of the RadicalxChange Foundation and co-author of radical markets and “Decentralized society.” Although both work for Microsoft, neither speaks for the company.

The paper uses a variety of smart address-linking techniques similar to those offered commercially by companies like Chainalysis and Crystal Blockchain, as well as new approaches focused on identifying miners, to link more than 99% of Bitcoin addresses since the creation of the network in 2009 until 2011. to unique individuals (and in some cases to their legal names). Although the study does not focus on identifying such names (except in two cases where they were already known), it shows enough of the methods used for us to suspect that they will eventually be used to provide further insight. great transparency to previously obscure founding figures of the community. .

More deeply, they reveal several important properties of the first Bitcoin network, such as the finding that 64 agents (less than one thousandth of previous estimates based on address counting) mined a majority of BTC during this first period and that 51% of attacks could typically have been carried out by small groups of individuals (usually around five), including a single individual for significant periods of time. (In such attacks, a miner or group of miners gains control of the majority of the network’s computing power and uses it to rearrange, reverse, or block transactions on the public ledger, usually to defraud other participants. .)

Additionally, contrary to Bitcoin’s self-image as an open and global protocol, usage appears to have flowed through social networks connected to these early pioneers in a way like other fledgling networks from the early days of Internet to Facebook.

following the money

The immediate implications for the ecosystem should be obvious. The researchers find that nearly all transactions through the end of 2017 can be traced to Bitcoin addresses associated with this initial pool of 64 agents by a small number of hops (four to six). It is well known that identified seeds can usually be traced on such short strings, and so we expect the researchers’ findings to quickly undermine much of Bitcoin’s pseudonymity if their methods are replicated and widely applied.

Moreover, it seems unlikely that researchers would be the first to come to this conclusion about the small number of early miners; it is plausible that organizations like the National Security Agency, China’s Ministry of State Security, and Israel’s Unit 8200 have long had access to this information and have chosen not to reveal this capability to preserve the mystique of the pseudonym and the supposedly private financial records it gives them access to.

The new findings have the potential to not only undermine the remaining (limited) privacy reputation in the Bitcoin network, but more broadly, to impact the reputation of many cryptographic protocols used in Web 3.

Yet the most important implications of the document are deeper, if less sensational.

Web 3 and the academy

First, and perhaps most importantly, this is one of the first articles from the mainstream of academic research to directly address the issues at the heart of Web 3.

While protocols like Algorand, Avalanche, and Stellar and techniques like quadratic voting have emerged from academic work, the relationship between academia and Web 3 has been much more distant than in other areas of technology, such as original internet and artificial intelligence, where the academy was central to the development. We hope that this article will help usher in a new era of serious academic work and engagement with Web 3, which we believe is essential to keeping the promises and avoiding the perils of space, in a partially put way. highlighted by the article.

It’s disappointing how long it took for the article to be published; the main findings of the paper were shown to us over two years ago, and the academic review process has slowed their release to the public. In such a rapidly changing space, academia must learn to keep pace or become irrelevant in a dangerous way as this allows technology to far outpace scientific understanding. We have understood this with COVID-19 and must pass the lesson on to rapidly emerging technologies that pose equally significant, if less obvious, threats.

Technology is not enough

Second, we infer from the article that many, spurred on by over-the-top rhetoric in space, have vastly overestimated the power of technical solutions alone to provide security and privacy to socio-technical systems. Although cryptography and consensus mechanisms play an important role in addition to other protections, they are generally quite fragile on their own, unrelated to laws, social norms, institutional reputations, etc.

In this case, Bitcoin seems to have, contrary to its common reputation, become something of a perfect tool for state surveillance, exposing activities that many users thought were pseudonymized to sophisticated state security agencies. while hiding transactions from peer communities. such as other developers, friends, or community credit unions who would have been better placed to monitor them in context.

More broadly, we are generally wary of approaches that attempt to remove the need for intermediary institutions and organizational forms by relying on global protocols: “global states” are typically entry points for global states. nations.

The mythical decentralization of Bitcoin

Third, the document not only undermines the mystique of pseudonymity around Bitcoin, but also the mystique of (technical) decentralization. It was not technical decentralization that sustained Bitcoin, but rather the decision of a small number of people, who seem to have known each other (through crypto conferences and online forums) and their roles, not to attack the system.

What motivated this “altruistic” behavior? We believe that two interrelated causes are likely: the potential for financial gain in the future if the system was seen as never failing, and a vision of technical decentralization that early leaders wanted to see tested on a large scale.

We therefore believe that decentralization has functioned not as a technical property of the system but as an ideological inspiration and a foundation of power. Such (often false) myths have long been the basis of a whole series of social movements.

Many dispute the historical existence of a man named Moses or his ability to part the seas, but few doubt the power of his story to ensure the survival of the Jewish people through thousands of years of tribulation. Yet, what is supremely ironic is that as a myth, ‘decentralization’ was intended precisely to avoid traditional institutional ties and provide safeguards instead; as we see, the myth of decentralization rather provided a perfect basis for reproducing what it meant to supplant.

The path to follow

Finally, the article indicates what may be needed to make decentralization work in technical design and practical application rather than mythical imagination. Bitcoin, like other technology platforms, exhibits network effects. Network effects propagate through … networks. They are not the global open systems they claim to be. Thus, if they are designed to privilege early adopters, they will replicate the vast, arbitrary, and oppressive inequalities of other technological systems that gave outsized power to early adopters.

Other approaches to decentralization, such as the original Internet, “networks of trust”, and recent manifestations such as the Spritely project, have taken into account and directly attempted to compensate for the concentrations of power that accompany the diffusion of uses in network. Meaningful decentralization requires awareness and a deliberate fight against the “power of the network”, not the assumption that a simplistic “openness” will achieve it.

Decentralization has long been the central dream of the Internet. It was at the heart of the speech that computer scientist and psychologist JCR Licklider gave to the leaders of the Advanced Research Projects Agency (ARPA) of the Ministry of Defense to avoid the disruption caused by the Soviet nuclear attack when he founded the ARPANET, which evolved into the Internet.

At various, often fleeting, times, decentralization has been achieved through concerted and often centralized efforts to invest in it. But sustainable decentralization will not come from lonely brilliant hackers and financial speculation; it will come from a broad public interest, awareness, and range of legitimate institutions working to make it happen, even at the cost of some part of their power, to avoid the outcomes (such as cyberattacks parallel to the Soviet nuclear attacks of yesteryear) that they fear.

Our dearest hope is that the hype around Web 3 can combine with academic work like this article and public concern about the concentration of power in technology and authoritarian governments to make decentralization a reality more steady.

Further reading

Even Giants Started Small: Cooperation and the Beginnings of Bitcoin

What the new Baylor Bitcoin study really says (and really doesn’t) about Satoshi & Co.

New Research Reveals Information About Early Satoshi and Bitcoin

The paper makes no statement about the Bitcoin network today, more than a decade after the end of the analyzed period. But it points to well-known and long-standing privacy issues.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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