Tuesday, March 20, 2018

How resistant is Bitcoin to government regulation?

Excavated from the drafts folder. I composed this in December 2017 (although I can't prove it) and I am publishing it now because recent news has rendered the postscript timely.

Bitcoin depends on the following three types of infrastructure:

  • Semiconductor fabrication plants.
  • Electric power plants.
  • Transoceanic fiber-optic Internet cables.

It depends on the first two of these to an unusual extent; the third simply comes along for the ride because Bitcoin is a global Internet-connected system.

You can't access these things, or the stuff that comes out of them, when governments really don't want you to, because they are big, expensive works of physical infrastructure. A government, or coalition of governments, with sufficient motivation and resources could introduce regulation upstream or downstream of any of these choke points that simply makes further Bitcoin mining non-viable.

"The Internet interprets censorship as damage, and routes around it" is true only up to a point. It is instructive to compare Bitcoin with child porn, a category of online activity that most governments are already highly motivated to stop. Governments have mostly succeeded in eliminating it from the non-darknet parts of the Internet; even sites like 4chan, which revel in their own transgressiveness, aggressively police child porn, because these sites run on servers that sit in datacenters in the physical world that are governed by laws just like everything else. Those servers are hooked up to the power grid and connected to the Internet by physical wires that belong to some utility. To maintain these connections, money changes hands, and a paper trail is generated that ultimately leads to the server operators. If you decide to be a badass rebel and distribute child porn under these conditions, you are looking forward to jail time.

It is true that child porn exchange still occurs online, but it occurs mostly on obscure systems that are specifically designed to be censorship-resistant at the expense of widespread availability. Bitcoin could be shut down or marginalized just as easily (where "marginalized" simply means that it is used as a transaction processing system only in highly unusual circumstances, rather than as a pillar of the economy).

In fact, it could be shut down much more easily. The resource cost to produce and distribute child pornography is nearly fixed: the size of a collection of digital imagery is essentially constant, and can be produced and distributed with extremely modest equipment. Basically, individual criminals can sustain a cottage industry indefinitely. By contrast, the exponentially increasing computational power demands of Bitcoin make it particularly vulnerable to regulation. If you cannot get your hands on an ever-increasing supply of semiconductor chips and electricity, you cannot mine Bitcoin, at least not at the scale that today's largest miners operate. Bitcoin mining is not a cottage industry; it is a large-scale industrial process, with datacenters as the factories. Large capital equipment is inherently easy to regulate. And replacing all of today's gigantic mining operators with small-scale, individual miners suffers from economic and engineering problems similar to those that you'd confront if you tried to replace a Google datacenter with ten million mobile phones (let alone trying to do that while dodging mining regulations).

Bitcoin has not been regulated because governments mostly do not care enough to regulate it (yet). The starry-eyed anarchist fever dreams of the most anti-statist libertarian early Bitcoin proponents were always total fantasies. If Bitcoin does not fail completely, then either it will be tamed into just another boring part of the existing world financial system, or else governments will wake up and cripple it.


p.s. Incidentally, since it is possible to encode data on the Bitcoin blockchain, an attacker with sufficient motivation and resources could save an instance of child pornography on the blockchain. Since every node maintains a copy of the entire blockchain, and Bitcoin lacks the ability to erase transactions, the entire Bitcoin network would be transformed at a single stroke into a child porn distribution system, rendering all Bitcoin node operators criminals. This might cost an incredible amount of money — millions of dollars to stash a single image of a few KB — but once done, it would irrevocably taint Bitcoin forever. This is an aspect of Bitcoin that is obvious on inspection, yet almost never discussed.

p.p.s. It happened.


This post closed to comments because Bitcoin attracts an unusually high ratio of vocal kooks.

Friday, January 19, 2018

The evolution of players in the American constitutional game

Another looming threat of Federal government shutdown prompts Timothy B. Lee to concur with the Yglesian view that American constitutional democracy is doomed — or, at least, in need of major structural changes:

The hour-by-hour style of conventional news coverage tends to obscure the big picture: the perpetual crises the US government has suffered over the last decade are a symptom of America’s deeply flawed constitutional system. This isn’t a new insight on my part. You can read Matt Yglesias’s classic 2015 write-up of the argument, which in turn draws on a large body of political science literature.

The basic issue is that the American system of checks and balances was designed for a nation without ideologically polarized parties. . . . The problem is compounded by the fact that it’s so hard to remove a bad president from office.

One seemingly-strong rebuttal to these arguments is that American democracy has survived for a long time, so probably the system is fine. The last Civil War veterans died in the 1950s; unlike most nations on Earth, America has no living citizens with a firsthand memory of existential risk to its constitution. This history of recent stability is probably the main reason that most Americans instinctively reject arguments, no matter how logically sound, that America's constitutional system is fundamentally flawed.

But this rebuttal has less force than it seems. The American constitution is a game, and political actors are players. When people play a game, it takes time to explore the available strategies. Partly this is because, even for relatively simple games, the space of strategies can be immense, requiring time to explore; partly this is because external forces, such as social norms, may prevent players from using optimal strategies initially. However, once a stronger strategy is discovered, it is difficult to stuff the genie back into the bottle; rewards accumulate for those who ruthlessly exploit the most lucrative methods of play, and those who use less optimal strategies are driven out.

A nice illustration of this dynamic can be seen in Google's training of its chess-playing program AlphaZero chess — openings such as the French Defense and Caro-Kann Defense appeared strong to the program while it was training itself, but eventually it abandons these almost entirely in favor of strategies that are inherently stronger, such as the English Opening.

In other words, every nontrivial game is also an optimization process, where the set of players explores the landscape of available strategies over time. In such a process, it is entirely possible for the most prevalent strategies to shift dramatically and even discontinuously; the past is not necessarily a guide to the future.

If you had been taught to play chess by the version of AlphaZero that existed two hours into its training, you might have learned that the French Defense was the "normal" way to win at chess; if I showed you a single later game using the Queens Gambit, you might view that as a temporary aberration. You would be wrong. Likewise, if you came of age in the 20th century, you might view electoral politics as practiced back then as "normal", and the current era, where the government walks up to the brink of shutdown or debt ceiling default every year or two, as a temporary aberration. I suppose it's possible, but the persistence of this observed behavior suggests that it is simply a stronger way for political parties to play the game.

Lee and Yglesias, and the political scientists whose work they draw upon, point to increasing partisan polarization as the cause of the shift in American electoral politics in recent decades. This is fine as far as it goes, but it is important also to realize that the constitutional game itself has always had, encoded within its rules, the possibility of the current configuration of power. The numerous veto points of the American system have always had the potential to be used to hold one policy objective or another hostage. The division of electoral authority between the President and Congress has always had the potential to allow both to dodge accountability for outcomes. It has always been possible for ideologically united parties to gridlock against each other. Accidental features of the American political landscape prevented these strategies from being exploited, but now the players are playing at this level, and thereby evidently beating those who would play differently. There are now only two possible avenues to change: either some novel strategy emerges to beat these strategies, or the rules must be revised.


Incidentally, this general idea — that a ruleset and the actors who interact with it coevolve — recurs across many fields:

  • It is at the heart of the concept of regulatory capture in public choice theory.
  • Designers of multiplayer computer games understand that a game's rules must be periodically patched for "balance" as players discover dominant strategies which render the game trivial or un-fun.
  • Security researchers are, of course, dreadfully familiar with the fact that every nontrivial system has unknown exploitable vulnerabilities. Once a vulnerability has been found, they would laugh at the notion that you could simply convince attackers not to behave that way, which is the analogue of hoping that American political parties won't use the toxic tactics currently available to them.

You'll find many other places to apply this concept once you have it in your toolkit.

(I've actually been meaning to write a longer essay on this idea and its implications for a while now, but haven't done so for the usual reasons, so this post will have to do for now. Well, this, and my Pinboard tag on the subject)