Intermediaries That Must Not be Named? A Legal and Policy Research Agenda for Crypto Miners

Transcript

1. Intermediaries Who Must Not Be Named? A Legal & Policy Research Agenda for Crypto Miners Angela Walch @angela_walch Professor of Law St. Mary’s University School of Law Research Fellow UCL Centre for Blockchain Technologies Blockchain in Society: Applications, Economics, Law, & Ethics Simons Institute for the Theory of Computing UC Berkeley Nov. 21, 2019 1 UCL CENTRE FOR BLOCKCHAIN TECHNOLOGIES
2. Blockchain creates the opportunity for frictionless immutable transfers of information or value without an intermediary. —Chamber of Digital Commerce, Legislator’s Toolkit for Blockchain Technology, 16 (Dec. 2018). 2
3. A system without intermediaries is a system without intermediary risk, and thus no need for regulation aimed at safeguarding against the types of risk presented by intermediaries. —Peter Van Valkenburgh, The differences between Bitcoin and Libra should matter to policymakers, Coin Center Blog (July 8, 2019). 3
4. [Y]es, miners should act as if they don't have agency and are automata. [W]e people who make up the community should use social means to encourage that. Alex Morcos (@morcosa), TWITTER (May 9, 2019). Morcos is a founder of Chaincode Labs, a company that supports & develops Bitcoin & other crypto systems. 4
5. “New and emerging computing architectures can help forge trustworthy relationships directly between users without intermediaries. The most visible of these new systems thus far is Bitcoin.” Senate Banking Committee Hearing, Written Testimony by Peter Van Valkenburgh (October 2018). T. Aste, UCL 2016 5
6. “…[T]he miners do not act as intermediaries in making payments or deliveries. …[B]y the time miners are involved in confirming and recording transactions, those transactions have already occurred (other than being recorded) without any involvement by the miners. The miners are doing no more than implementing mechanical tasks that are used to confirm those transactions occurred. Not only do they not stand between any transaction participants — they generally do not know who those parties are, what assets are involved in any transactions, where participants are, or anything else that would allow them to play an intermediary role. Again, the miners do not even know if a true transaction has occurred at all, as the transfers they are recording could involve transfers from one address to another owned by the same person.”). Blockstack: Letter from Robert H. Rosenblum on behalf of Blockstack Token LLC, (3/1/19) 6
7. How We’ll Proceed • Argue that viewing blockchains as systems w/o intermediaries is misleading & consequential. • Focus on miners as intermediaries. • Examples of miners acting as intermediaries / recent CS research. • Tease out assumptions made in saying blockchains have no intermediaries. • Legal & Policy Research Agenda around this idea. November 21, 2019 7
8. What is an Intermediary? Basic concept: Middleman. Party who you must go through to accomplish something. Not a legal concept. Not a financial concept. Not the intermediaries outside of blockchain systems (e.g., exchanges, wallets). Not covering non-mining nodes here (though they merit analogous research scrutiny). 8
9. Miners as Intermediaries • Peer to peer network, but not all peers write to the blockchain. • You don’t get your transaction on the blockchain unless a miner puts it there. • If miners can affect things about your transaction (time or order it is put on blockchain), they can affect you. • They are “in the middle” and may pose a “middleman risk.” • Risk analyses / legal conclusions flawed if view systems as lacking intermediaries & intermediary risk. November 21, 2019 9
10. What Can Miners Do As Intermediaries? • Rewind transactions (DAO fork; proposed reorg after Binance hack). • Ordering Transactions to their benefit. – Daian et al, Flash Boys 2.0 • Censoring transactions. – Zcash • Adding layers above core blockchain protocols alters incentives at protocol level & gives miners additional opportunities to exploit their intermediary role. – Patrick McCorry et al., Smart Contracts for Bribing Miners. November 21, 2019 10
11. Why Does This Matter? • Legal, regulatory, & policy decisions appear to be based on view that miners are not intermediaries. • E.g., miners are not (yet) treated as money transmitters by FinCEN. NY Bitlicense doesn’t cover miners. • Signs tide may be shifting. –OFAC list of Bitcoin addresses. November 21, 2019 11
12. A Research Agenda • Empirical Work on How Miners Operate. – Contracts of Mining Pools – Vetting of software upgrades? – Cybersecurity Practices? – Do off-chain payments happen? – How are the different mining pools connected in the real world? • How do upper layers affect miner incentives/opportunities in base layer? • What kinds of risks do intermittent intermediaries pose? • What if we have just broken up the intermediary into multiple intermediaries? • Does an intermediary need ‘control’ to be considered an intermediary? • Should miners be viewed as critical infrastructure providers? Do they now view themselves this way? November 21, 2019 12
13. A Research Agenda (more) • Is the game theory embedded in blockchains robust enough to replace legal and regulatory structures? • Rethink existing legal conclusions? Money transmitter? Transfer agent? Broker? Fiduciary? • Can miners engage in insider trading? • Should miners have to meet governance/risk standards we impose on other financial market infrastructure? • Could miners be regulatory access points to do AML checks? Help stop thefts from exchanges? • What are the analogies between miners and ISPs in maintaining infrastructure and influencing traffic on the network? Are net neutrality principles relevant here? November 21, 2019 13
14. Guiding Principles for Research • Different roles performed in mining ecosystem. • Each system unique. • Tech and practices are fast-moving and ever- evolving. November 21, 2019 14
15. Angela Walch angelawalch.com Twitter: @angela_walch awalch@stmarytx.edu UCL CENTRE FOR BLOCKCHAIN TECHNOLOGIES Thank you!