Thursday, August 12, 2021

Purposely Naïve


Via Card-Cow Vintage Postcards.

Very peculiar impression from this New York Times column by Ezra Klein, "The Way the Senate Melted Down Over Crypto Is Very Revealing". I find it pretty informative, but I'm not sure what part of it is supposed to be the big reveal: the way the Senate melted down reveals mainly that

As I’ve said before: The Senate is a ridiculous institution, run by ridiculous rules.

Namely, the "meltdown" was over a provision the Bipartisan Infrastructure Bill or BIB allowing the Treasury Department to force the "brokers" of cryptocurrency transactions to pay taxes owing on the transactions, written by (GOP) Senator Portman and backed by the White House, and predictably there was an outctry of pain among those senators who can't stand that an unenforced tax law should ever be enforced. In fact there was some good faith in the objections, notably over the way Portman's language didn't say very clearly what a "broker" is in this context, and a compromise amendment was duly worked out, involving pro-crypto liberal Ron Wyden, which might well have made the taxes in question a little easier to evade. But the Senate couldn't vote on this amendment Wednesday night, for reasons that had nothing to do with cryptocurrency at all:

for procedural reasons too inane to go into here, [the amendment] needed unanimous consent, and Richard Shelby, an Alabama Republican, blocked it in order to try to get $50 billion in unrelated military spending added to the bill. Shelby failed, but he took the crypto compromise down with him.

So the final bill is stuck with the original text.

The most useful thing in Klein's column from my standpoint is a clearer statement than I'm used to seeing of why some people think the technology of crypto is of such revolutionary importance, which is to come in two phases following the spread of cryptocurrency itself: first the development of a whole system of DeFi (decentralized finance) replacing banks and title insurers with "self-executing contracts" built in the blockchain technology, and second a new model not of money but of the ownership of information, in a Web 3.0:

Think about it this way: The internet we have allows for the easy transfer of information. We costlessly swap copies of news articles, music files, video games, pornography, GIFs, tweets and much more. The internet is, famously, good at making information nearly free. But for precisely that reason, it is terrible at making information expensive, which it sometimes needs to be. What the internet is missing, in particular, are ways to verify identity, ownership and authenticity — the exact things that make it possible for creators to get paid for their work (for more on this, I highly recommend Steven Johnson’s article “Beyond the Bitcoin Bubble”).

That’s one reason the riches of the web haven’t been more widely shared: You get rich selling access to the internet or by building companies that add convenience and features to the internet. So Facebook got rich by building a proprietary infrastructure for identity, and Spotify created a service in which artists could eke out payment from works that were otherwise just being pirated. The actual creators who make the internet worth visiting are forced to accept the exploitative, ever-changing terms of digital middlemen.

This is the problem that the technology behind crypto solves, at least in theory: If the original internet let you easily copy information, the next internet will let you easily trade ownership of digital goods. Crypto lets you make digital goods scarce, which increases their value; it lets you prove ownership, which allows you to buy and sell them; and it makes digital identities verifiable, as that’s merely information you own. Together, they unlock the potential for a true economy for digital goods, where creators actually get rewarded for what they make.

Which sounds grotesquely wrong to me, even evil, contrary to everything I've been led to hope for from the Internet, and everything good I've experienced from it so far, in which information is to run free and be available to everybody—and also symptomatic of everything that's gone sour with it so far, down to the efforts of all Ezra's friends to make their own writing scarce by pushing it behind a paywall, with their Substacks (not yours, Roy!) and podcasts and Pucks (the experiment Julia Ioffe is involved in, where she apparently hopes to be the Mary Pickford of a journalistic United Artists of which the performers are in financial control) and the increasing unavailability of the newspapers and magazines I don't consult enough to subscribe to but love to cite whenever I get the chance (why do I have to ration myself on The Los Angeles Times or Vanity Fair?).

Not that I wouldn't want creativity to be rewarded! In fact I think it's exactly the opposite: I'm against the continuing financialization of creativity—its treatment as a commodity in which the big guys deal. In the "trade in ownership of digital goods" the creators will always lose out worse still, because that's how capitalism works, and I do in fact have a kind of socialist alternative in mind, which I would like to call the Aaron Swartz Library of Everything (after the tragic hero who liberated the academic JSTOR platform in 2010 and died, in 2013, at 26, for information freedom). where it's actual librarians (whose outfits pay the subscriptions that keep places like JSTOR afloat) who would rule the world of information on the basis of tax receipts and institutional subscriber fees of some kind and make sure the artists (and their immediate descendants) got paid royalties and residuals. (Print will continue to be, as it already is, a luxury market in which publishers compete privately.)

Ezra's not unaware of the downside potential on Web 3.0, either, though his hair isn't exactly on fire:

I will admit to some skepticism that this is how it’ll play out, because many of the financiers funding crypto also founded and sit on the boards of the companies that set the terms of today’s internet, but we’ll see.

Also, he's aware that it can't be said to exist yet, except in the weird market for NFTs like Jack Dorsey's first Tweet, and there's no way of being certain how it's going to be developed, if at all. Also, he's aware of what crypto is mainly used for

the proof of concept for these innovations was, and often still is, illegal activity. The point of a crypto transaction is that it’s “trustless” — it’s secure even when you don’t know or trust the other party. That’s made crypto currencies a favored medium for money laundering, illegal purchases and ransomware. To be fair, criminals are often early adopters of new technologies, so crypto’s association with crime is likely to abate as the technology matures. But part of that evolution might require the kinds of regulation that the crypto community currently fears, as has been true with other technologies...

For all the gauzy stories of what crypto could become, there’s the simple reality of what it mostly is right now: a financial market in which highly volatile assets are traded, where scams and hacks and broken promises abound, and with DeFi, where complex derivatives and financial instruments are being invented and swapped. One worry many in the government have is that these markets are thriving through the avoidance of taxes and regulations.

and why it is intrinsically harmful:

There’s a dark side to this: The promise of unlocking bits of cryptocurrency by solving computationally intensive math problems, coupled with the need to log every transaction on countless different computers, is driving the disastrous energy consumption that has made some of the crypto networks a >a climate threat. According to Digiconomist, Bitcoin and Ethereum together consume about as much electric energy annually as Indonesia. (One way you know the infrastructure bill is not a climate bill is that it completely ignores crypto’s energy use.)

Indonesia is the fourth most populous country in the world.

But what the heck, these are the forces that will create that Web 3.0 that everybody needs, through the fabulous innovative force of the market, and everybody basically wants the same things, he goes on to say. Nobody wants IRS to be hounding innocent entrepreneurs, and tax collectors have a legitimate beef too. 

I am, of course, being a bit purposefully naïve here. The truth is that there’s some mixture of misunderstanding, mistrust and regulatory jockeying on all sides. The crypto industry wants to be lightly regulated and undertaxed, just as every industry does, and many of its key players are deeply hostile to the government — the genesis of the technology, after all, is an effort to wrest the control of currencies away from governments, even if the money flooding into the sector has ensured that crypto will be intimately entwined with governments.

The federal government, for its part, wants broad authority, in part because it believes that carve-outs will be used for tax and regulatory avoidance. It fears a future in which crypto is big enough to pose risks to the financial system, and it doesn’t have the tools or reporting to see and manage those risks, just as was true in the derivatives markets in 2007.

The crypto industry wants sacred innovation, which they believe requires the breaking of laws without consequences, and the government wants them to obey the law! Gosh, I wonder who's right?

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