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.

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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.

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

What's the point of Facebook alternatives?

It is clear at this point that Facebook has a monopoly on online human-to-human interaction that no private forces, market or otherwise, will break in the foreseeable future. The network effects from a billion users are unsurmountably large. If we take Metcalfe's Law literally, even a social network that accumulates a hundred million users will be a hundred times less powerful than Facebook.[0] In fact, you're probably confused by the title of this post: What Facebook alternatives?

Facebook is furthermore unlike the other American technology giants in that it alone locks up all its users' interactions inside its walled garden. Apple, Alphabet, Amazon, and Microsoft are, to greater or lesser degree, porous at the edges — you can use an iPhone to chat with people who don't have iPhones; you can use Gmail to email people who don't have Gmail; buying things from Amazon doesn't prevent you from buying other stuff elsewhere; even Microsoft has realized belatedly that it is not the center of the universe & its products have started playing nice with others. But Facebook locks up your posts, locks up your photos, locks up your entire social identity inside its prison. There simply is no way to interact with Facebook users except by creating a Facebook account yourself and creating content that further entrenches Facebook's monopoly.

what'd help community groups get off of facebook? I see a lot of small community groups trying to plan events via facebook.

— alienghic (@alienghic) September 20, 2017

In my experience, there is no plausible alternative to Facebook if you're working with ordinary people. https://t.co/B5gLjuERzc

— Zeynep Tufekci (@zeynep) September 20, 2017

The gradual decay of open Internet protocols as human interaction disappears down the black hole of Facebook's ever-expanding digestive tract has been one of the great disappointments of my lifetime. In the end, AOL seems to have beaten the Internet after all.

I have opted for only de minimis engagement with Facebook, and more or less refuse to communicate via its platform. This has probably attenuated some of my relationships with people in a regrettable way (if you're somehow reading this and you wish this hadn't happened between us, send me email! it still works!) but the actions of conscientious objectors like me have not made the tiniest scratch on Facebook's dominance.

It is only a matter of time before governments realize that this entity must be regulated, whether under antitrust law or otherwise. The question is what will happen then.

In my opinion, it is clear what the ideal outcome would be: forcing Facebook to adopt open APIs that give users transparency, portability, and interoperability. Users should be able to see the data that Facebook has stored about them. Users should be able to export that data in toto to competing platforms. And users should be able to interoperate between Facebook and other social networks — a future version of Diaspora*, for example, should be able to see and interact with Facebook content generated by that Diaspora* user's social network, and vice versa; interactions between users across platforms should be reflected accurately on both sides. A user would thus be able to leave Facebook without severing their ties to the users they have left behind.

In a world where these APIs existed, users would have a way to reject Facebook's toxic business model and questionable privacy practices without exiling themselves from their social life. In Hirschmanian terms, users would have the option of exit, not just voice, as a way of signaling dissatisfaction. Facebook would probably even get healthier, as a product, as a result of the opportunity for meaningful competition.

This outcome is exceptionally unlikely. Government regulation of Facebook, although likely inevitable, is also likely to be ham-fisted and ineffective, simply because governments are terrible at understanding technology and rarely have the political will to impose effective solutions even if they knew of them. The last time the U.S. government, for example, used antitrust law against a technology monopolist, it basically bogged down the company in red tape for a decade but did little to meaningfully give its competitors an opening in the allegedly monopolized market. Windows is still by far the most widely used desktop operating system and the web browser that finally dethroned Internet Explorer on Windows did so through incredibly aggressive Internet marketing, not by using the remedies forced on Microsoft by antitrust law.

However, there is one thing that technologists might be able to do to make the desirable outcome marginally more likely, and that is to develop the protocols, and plausible implementations thereof, that would allow effective federated social networking to be mandated by government decree. Diaspora* may have made a significant dent in a subset of the technical problems, but there are significant open challenges inherent to federated social networking that I suspect have not been solved.

Critics of Diaspora*, Mastodon, etc. thus misstep when they observe that organic growth of these platforms is limited. The ultimate destiny of a successful federated social networking protocol, if one ever arises, will be to stock the toolkit of a future regulator, not to overtake Facebook via organic growth.

There is enormous inertia—a tyranny of the status quo—in private and especially governmental arrangements. Only a crisis—actual or perceived—produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.

— Milton Friedman, Capitalism and Freedom

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[0] 100M is, to an order-of-magnitude approximation, the size of Snapchat's active user population. Observers who think Snapchat is a credible challenger to Facebook are off by a factor of a hundred, not a factor of ten.