TechnoLlama blog covers several Cyberlaw topics, with emphasis on open licensing, digital rights, software protection, virtual worlds, and llamas. While the blog tackles these issues in a light-hearted and nonchalant manner, some serious points filter through from time to time. The author, Dr Andres Guadamuz is a Senior Lecturer in Intellectual Property Law at the University of Sussex.
The Internet was built on a series of relatively simple ideas. Decentralisation, resilience, content and transport neutrality. But from the start, one of the most important elements was that all content would be similarly available everywhere, because there would be no way to stop it. An open and free internet available to all using shared protocols governed by a multi-stakeholder model.
It was an ideal to strive for, and no matter how much we aspire to it, it would always be difficult to achieve. An open Internet is anathema to national regulation, so the history of the Web has been a constant struggle between control and freedom. Governments have in various ways tried to exercise sovereign control over Internet practices, platforms, users and tools. These efforts have ranged from the justifiable responses to abuse, to misguided attempts to restrict users’ rights.
So far the result was a largely open Internet dominated by a few tech giants, with governments exercising regulatory efforts. But the result of increasing regulation has been something unexpected, we are increasingly seeing a more fractured Internet, where your experience will be entirely dependent on your location. Geographic segregation on the Internet is not new, we’ve had several countries attempting to filter content for years now, and China pretty much runs a giant Intranet. But recent legal developments could be making things much worse.
The first is the passing of the Stop Enabling Sex Traffickers Act (SESTA) in the United States (also known as SESTA-FOSTA). This is a law designed to stop sex trafficking in online platforms, the idea is that intermediaries are protected by limitation of liability legislation, and this stops them responding to outright violations such as the listing of sex traffic victims online. This is not the place to break down why so many people have opposed this legislation as trying to fix one problem by opening a big gaping hole in the liability regime (best place to start is with EFF and Techdirt), but the law has had an interesting jurisdiction effect. Overnight the law made it difficult for legitimate sex workers to advertise online, as the law creates too much liability for intermediaries. The result was a migration of services and ads to platforms hosted outside of the US. But then, like a regulatory virus, even sex workers located elsewhere started having problems advertisers as the law is having the effect that if a service has a connection in the US, it will not accept any type of sex adverts. So sex workers are migrating to tolls that are not based in the US, such as Mastodon.
But this is nothing compared to the effect that is being caused by the General Data Protection Regulation (GDPR), which will come into effect across Europe next week. This wide-ranging overhaul of data protection law has been causing untold levels of anxiety across a tech industry hooked on data, and with lots of uncertainty and misinformation we’re witnessing quite a few services that have simply decided to wash their hands off Europe altogether and will be suspending services to the region.
“Due to the changes of our company’s service policy for the European regions, we are saddened to bring you news that all games and WarpPortal services to the European regions listed below will be terminated on May 25th, 2018.
The following European countries will be affected by the termination of service: All the European countries except for Russian Federation and the CIS countries.
All WarpPortal game access and account access will be blocked by regional IP. Refunds will be gradually sent for purchases made from February 1st 2018 to April 30th 2018 to those affected by this service termination.”
In a more dramatic response, the online third-person arena game “Super Monday Night Combat” decided to completely shut down due to GDPR concerns. In an announcement they said:
“We want to thank all of you for your support of Super Monday Night Combat. Your passion is what made this game a pleasure to work on.
However, due to the upcoming European Union General Data Protection Regulation (GDPR) deadline which is May 24th, we are sad to announce that we will be shutting down SMNC on that day. The game will remain active through May 23rd, 2018. Once our servers have been taken down, you will no longer be able to play SMNC in any game mode, so please make sure to get those matches in while you can.”
No further explanation of what exactly in the GDPR prompted them to take this action. They are not alone, platforms and services are ceasing to provide their products and sites to European customers citing the GDPR as a reason, including Verve, Unroll.me, and Steel Root (more here). A service called GDPR Shield is even offering code that will block access to EU customers:
FT is calling it data protectionism, a great threat to global business. But this is a much wider phenomenon, as governments try to regulate more and more, companies and services will make the decision of which laws they wish to comply with, and in some instances the global Internet starts to shrink as platforms cater to local markets instead of the ideal of a worldwide audience.
When you think about this, perhaps the dream of a global internet was always a false one, we are already trapped in our filter bubbles, consuming ideas and content that fits our needs and tastes. We segregate not only based on language, but also on age, taste and political orientation, and we congregate with those we like. We have also been foregoing the open Web in favour of apps, so your Internet experience becomes limited to that which platforms such as Facebook show you. What is taking place is that this segregation is increasingly jurisdictional as well, as services decide to block access to decrease their liability.
The Internet has therefore become a much smaller space in all layers: filtered, sanitized gated communities will be the norm. I can only see things getting worse with more talk of further regulation following the Cambridge Analytica scandal.
I have presented at re:publica for the last couple of years, and usually I try to do so with a work in progress paper at the early stages of research, and this is no exception. My first paper was about copyright ownership in artificial intelligence works, and that led to a continuing interest in AI in general. I have now published a full paper that arose from that talk two years ago, and I decided that it was time to look at the other side of the law, namely the responsibility side. This is a relatively new area for me, as I have just started being interested in the liability side of AI, instead of the rights given to creations generated with AI. I am also not going to give any solutions, this is not a regulatory paper, it’s mostly a description of existing laws.
But one of the main reasons why I became interested in the liability side of artificial intelligence arises from the book Rule 34 by Charles Stross (which is a sequel to the also fascinating Halting State). [spoiler alert] The book describes an anti-spam bot that goes on a killing rampage using Internet of Things devices, as it identifies that the best way of getting rid of the spam is to eliminate the people who are causing it. On an interesting side note, Rule 34 refers to an Internet meme that posits that there is Internet pornography for every conceivable subject.
The problem of writing about AI is always to try to limit the subject. This is fast becoming a very vast subject ranging from algorithmic transparency to autonomous weapons systems. For now, I will not be covering algorithms in any depth, other people have been doing an excellent job of that. Similarly, subjects such as the actual regulation of self-driving cars does not interest me (as opposed to the liability question). My guess is that self-driving cars will happen and regulatory efforts will be secondary. The autonomous weapons debate, while very important, is beyond the remit of my research as well.
So we are left trying to make a passable definition of artificial intelligence that can withstand the test of time and changing technologies. Back in 1980 Douglas Hoffstater wrote in the excellent book Gödel, Escher, Bach that “AI is whatever hasn’t been done yet”, and I have always felt very attached to such a definition. This is because one of the issues that we are having is that we tend to frame the debate on the basis of AI as this incredibly powerful tool, almost super-human in speed and capabilities. The reality however is more mundane, AI is your Netflix, your Amazon recommendations, your Spotify suggestions, your Roomba and your Siri. This is precisely the side of AI that interests me more, not so much the killer robot kind, or the evil AI who will enslave humanity, but the everyday variety that will be the most pervasive. What are the legal implications of a Roomba killing your cat?
So I prefer to go for a more muted and understated definition of AI. Russell and Norvig define artificial intelligence as “the study of agents that receive precepts from the environment and perform actions.” Agency is the key operator, so I prefer to talk about autonomous agents, as the “smartness” of the system becomes secondary.
Having that in mind, we can study various instances of robots and autonomous smart agents committing acts that could give rise to legal liability.
Take for example cyclist Elaine Herzberg, who was killed by an Uber self-driving in Arizona in March 2018. While several details have discussed which could lead towards an indication of Uber’s potential liability, Uber will be settling the case with the victim’s family, likely for a sizeable amount of money. While the particulars will not be discussed in court, the police said “It’s very clear it would have been difficult to avoid this collision in any kind of mode (autonomous or human-driven) based on how she came from the shadows right into the roadway”.
Another interesting case is that of smart contracts, these are self-executing documents written on the blockchain, and the idea is that if the terms set by the parties are met, the code will be run without human intervention. On November 6 2017, a bug in a multi-signature smart contract for an Ethereum-based wallet resulted in the freezing of $300 million USD in ETH at the time. This is the ultimate case of computer says no, and there is no way of getting it back other than to change the blockchain and re-write history.
In the field of data mining and copyright, we have large number of companies training their AI using music, text, poetry, etc to produce new works. To give you an example, a program called “Bot Dylan” generates music after being “trained” by listening to thousands of Irish folk songs. Are these resulting works infringing copyright?
Finally, there is the case of the Random Darknet Shopper, and art project by Swiss collective !Mediengruppe Bitnik which purchased random items from Dark Web markets. In October 2014 it purchased 10 yellow ecstasy pills, and was “arrested by Swiss police, but then released as it was evidently an art project and there was no intention to cause harm.
The common element in all of these cases is a harm (real or potential) caused by autonomous agents, usually with little or no human guidance. What can the law do in these circumstances?
Roughly speaking, the law deals with new technology using these options: ban, regulate, self-regulate (or do nothing), co-regulate, apply existing law, or draft new legislation; often one or a variety of solutions is chosen.
With regards to self-driving cars, I don’t think they pose a lot of legal challenges in the liability side. I see three potential sources of liability from these vehicles:
Product: Manufacturer liable for making a defective product.
Service: software developer, ISP, repair company liable for causing a fault in the system.
User: liability through misuse of the device, or neglect in keeping it in order (missing a vital patch).
With regards to smart contracts, the potential origins of liability are similar, but the situation is made more difficult by the distributed and decentralised nature of many contracts. It may be difficult to ascertain exactly who wrote a buggy contract (lots of copy/paste of popular code), but also there may not be an identified entity that could be object to liability.
Regarding data mining, we are discussing a different type of liability. In copyright, what matters is that someone has used a substantial part of a work, and that there can be a connection between the original work and the alleged infringement. In few systems (US fair use), most derivative works would be permitted as transformative, but the same is not true in other jurisdictions.
So the main question is whether we need new laws to cover the liability of autonomous agents.
My first feeling is that much of our current legal regime is still fit for purpose when it comes to liability arising from artificial intelligent agents. Existing laws on negligence still fit for purpose for most cases, be it tort, delict, or extra-contractual liability. For example, in the tort of negligence the concept of proximate cause is still useful when looking at the liability caused by AI, an event sufficiently related to an injury that the courts deem the event to be the cause of that injury. An important element of analysis will be foreseeability, if a manufacturer or a service provider could have reasonably foreseen the event, then there could be liability.
With regards to criminal liability, this could be more problematic, generally speaking it is difficult to allocate criminal responsibility to something caused by an AI because there is no mens rea, and most liability will be civil
When it comes to smart contracts, I actually think that we may need an overhaul in contractual law arising from autonomous agents, or perhaps get even more creative. Why not revisit the Roman law of slavery? Servus non habet personam, yet slaves did generate some sort of liability for their owners in certain circumstances.
Concluding, there are things that we know we don’t know, and there are things we don’t know we don’t know. We need to see how technologies are applied in practice, as things stand, I contend that most liability arising from autonomous agents can be.
Some eSports producers have started clamping down on unlicensed casts, and this could have an interesting effect on the profitable business, but it could also give us a hint about the copyright questions surrounding game broadcasting.
For those unfamiliar with the subject, eSports are competitive encounters in which gamers team up (or play solo depending on the game) and play games in tournaments that are streamed to the world. Before you dismiss this as a silly fad, this is a huge market, with winners making sometimes millions of dollars; for example, at the 2017 The International tournament in Seattle, Team Liquid won a mind-boggling prize of $10,862,683 USD. Some of the most popular games include League of Legends, Dota2, Overwatch, Hearthstone, Counterstrike and Starcraft II.
An interesting copyright development has been taking place with Dota2 casts. PGL is one of the major eSports organisers in the world, and they have been issuing copyright complaints to YouTube to try to remove the growing side-market of digest and highlight casts. Tournaments are often streamed live in several places, including official YouTube channels, as well as casting app Twitch, and often the organiser’s own website. Most of the revenue comes from these streams, tournaments are often sponsored by tech companies, particularly hardware, but also energy drinks and similar items directed at the gamer audience. The streams often have adverts as well in between games. There is also a market in video-on-demand (VoDs) of the casts. But an interesting development has taken place recently, some YouTube channels have been editing the VoDs into highlight reels. Some games can take quite a long time, sometimes over an hour, so these editors put together a cast of the highlights, just like Match of the Day.
PGL and other organisers have now been clamping down on these unauthorised casts. For example, Dota2 caster NoobFromUA had his channel taken down due to three copyright strikes:
When they contacted PGL, they got an explanation that they were copying their content.
How is this possible? Aren’t streams public? Well, it’s complicated. The copyright of the game itself is owned by the companies that make the games (Blizzard, Valve, etc). Broadcasting the playing of a game could be an act restricted by copyright, but most game companies know that this is an important part of the games, and they often do not enforce their copyright on broadcasting the playing of the game for non-commercial purposes, or come up with licensing arrangements with the large commercial players.
But the streams are much more than the raw game, they involve the skill of those playing, and they are often narrated by talented casters. The case law is clear, in Nova Productions v Mazooma Games the playing of a computer game was not considered a dramatic work, and therefore not protected by copyright. Similarly, in the CJEU case of Football Association Premier League v QC Leisure concluded that football matches themselves are not protected by copyright; US law has a similar result in NBA v Motorola. So if the game images are not enforced by the game producer, and the playing of the game is not protected, then what is the copyright claim by companies such as PGL? Actually, it seems like the main copyright claim is in the narration. Games can be boring in their own right, and a good narrator (known as caster) can make or break a stream, and personally I got into watching Dota2 on the back of some amazing casts during the 2013 The International tournament. The casting is a performance, and therefore it can be protected.
So what has been happening is that PGL has been taking down highlights claiming ownership of the casts, as they pay narrators and the performances are work for hire. So highlight providers have reacted and removed commentary from their highlights, which makes the experience less exciting.
The next step is that highlight channels will get independent casters to narrate the games, so we will wait and see what is the next move.
The death of privacy is a chronicle of a death foretold.
One of my favourite cartoons is the 1970 Newsweek cover that depicts the end of privacy, to me it clearly portrays our fears about loss of control and technologies designed to keep track of our every move. Time Magazine declared the death of privacy in 1997. In 1999, Scott McNealy of Sun Microsystems famously said “You have zero privacy anyway. Get over it”. More recently, he reiterated the feeling in an interview, “privacy, you still don’t have any”.
I must admit that I have been surprised by the strength of public outrage after the Cambridge Analytica scandal, but not by act itself. If you were surprised by the misuse of data to get Trump elected then you have not been paying attention. For days my Cyberlaw timeline has been filled with ‘I told you sos’; once more the tinfoil-hat-wearing brigade is proven correct.
But smug privacy advocates aside, Facebook is facing a tremendous backlash because it empowered and enabled the breach of confidence that allowed the mining of information that was used by Cambridge Analytica. The company has seen its stock plummet, and for a while #DeleteFacebook was trending on Twitter. I’m on record as not being a fan of Facebook, and my recent interaction with the platform has dwindled to the occasional cat picture and duck selfie. However, this diminished interaction is not due to privacy concerns, but mostly because of a growing sense of annoyance at the conservative political views expressed by many people that I used to call my friends. But Facebook remains one of the most important ways in which people to interact socially online, and despite the few grumblings, I suspect that it will remain so for at least the next few years. Calls to delete Facebook sound shallow when the people doing so will retain their Instagram and Whatsapp accounts.
And this is perhaps the issue that I have with all of the brouhaha surrounding Cambridge Analytica, it is missing the forest for the trees. If you’re concerned about Facebook and Cambridge Analytica (and you should be), may I introduce you to Palantir, a company so shady that it advertises its purpose in its name? Have we already forgotten about Snowden and widespread state surveillance? Have you tried checking your Google Activity and Location History (via this excellent article)? Have you looked at all the ever-present CCTV cameras around us? Why aren’t people worried about Alexa and other personal assistants?
In many ways, privacy has been dead for a while, but it was killed not by a tech giant, but by a thousand cuts. For every privacy-minded expert out there, there are thousands of people who gleefully give away their data for a chance to know which Friends character they are. The ubiquitous smartphone is a surveillance mechanism the likes of which we have never seen before, and its presence is such in certain circles that there is an entire generation growing up with little expectation of privacy, and the boundaries that we took for granted may even seem outdated.
So you may forgive me if the apparent threat of Facebook does not leave me trembling with fear. Facebook is just a piece of a puzzle that is about to get worse. Wearable technologies are already allowing the mining of data that can uncover secret installations. Now that Google has opened its Maps API, we are about to see Google Map integration to countless new games. The Internet of Things is already being deployed in household devices, and these will often be insecure and easily hackable. Smart Cities are just an euphemism for “always-on pervasive surveillance”.
What should we do to redress this Orwellian dystopia? I have to admit that I tend to be sceptical about most regulatory and legislative solutions. Most data protection legislation relies on consent, but it is difficult to gain meaningful consent when people sign up to apps giving permission for all sorts of misuse, often willingly. I have always been a critic of cookie legislation and other similar solutions because you give just a pretence of privacy, it becomes another nagging screen that you ignore without reading. It looks like GDPR might have more bite, but either consent will still be sought through nagging, or companies will willingly pay fines as a tax, the profits to be made from data are just too juicy to give up.
However, I am not advocating doing nothing, but understanding the scale of the problem is one part of the solution. We should be mindful that unless there is a drastic change in surveillance capitalism and the prevalence of data markets, this situation will not go away, regardless of how many people abandon Facebook.
It often surprises friends and colleagues that I am not a privacy advocate, and I often approach data and privacy from a pragmatic perspective. The first thing is perhaps to understand just how much information you are giving away. I always assume that my Internet habits will be collected by someone, be it my ISP, my employer, or my VPN company, this is a fact of life. I own a mobile phone with lots of apps, and I try to see what permissions are given to each one, but I rarely deny any. I use some loyalty cards. I have Google Pay and use it nowadays for almost everything. I use Gmail and Google Calendars and Google Maps. On the other hand, I always use ad blockers, sometimes even three layers of protection; and I will not install buy IoT devices and personal assistants like Alexa.
Why am I being so open you may ask? Perhaps because for all its reach, technology seems to understand so very little about who we really are. I downloaded and looked at my Facebook data, and found a laughably inaccurate picture of my life. YouTube seems to think that I am an 18-year-old gamer obsessed with esports and movie trailers, while Twitter seems to think that I am a woman looking to buy an expensive car. By living an unusual life, I have managed to confuse the algorithms. I’m sure that ISPs and Google will have a more complete image of my true self, but for the most part I am happy to leave things as they are. You could say that one strategy is to obtain privacy through obfuscation.
Having said that, maybe our own expectation of privacy is what is mistaken. Privacy after all is a modern affectation, and throughout history most of humanity lived without any. In an age where surveillance is everywhere, and where privacy may very well be dead with no hope of ever coming back, what we should strive for is transparency at all stages of collection and storage. This is indeed where legislation can have a positive effect.
Unless you have been living in a cave for the last couple of years, you will have heard about the technological hype of the moment, the blockchain! This technology is set to revolutionise every single industry under the sun, and will disrupt the way in which we do businesses, interact with each other, and communicate with data.
Or will it?
While I have been rather vocal about my Bitcoin scepticism, I thought that the were some interesting ideas about the blockchain, the underlying technology behind cryptocurrencies. My thinking was, and this was shared by many others, that even if Bitcoin failed, the blockchain technology would remain and become an important contribution to the way in which online transactions are made. But I have to admit that in the last few months even that optimistic feeling about the blockchain has started to dissipate. It seems like I am not alone, and already Gartner has placed the blockchain in the trough of disillusionment in their 2017 hype cycle.
Trouble with definitions
A salient question is that for something that has been so hyped, there is little consensus on what a blockchain actually is. The most general definition is that a blockchain is a public decentralised cryptographic database that operates as an open ledger of all of the transactions that have been recorded, and that this record is immutable and tamper-proof. In technical terms, the first definition was given by the Bitcoin white paper by Satoshi Nakamoto, which describes a cryptographic coin that is comprised of a chain of digital signatures that are added to a block and time-stamped and added at the end of the chain; so all transactions are publicly available and verified, but also the system is tamper-free because to change a transaction you would also need to change all the transactions that came after the one you are trying to verify.
So far so good, all we need to do is to follow this definition of a blockchain coined by Satoshi himself, whoever they may be. The problem is that the Bitcoin blockchain comes with some limitations, transactions can be slow because of the need to conduct verifications, and they can also be bad for the environment because of something called proof of work. Proof of work protects the blockchain from attackers and spammers because it requires those participating to perform some work in the shape of computing time. In Bitcoin, the proof of work consists in trying numbers until the correct solution is found and then a new block is added to the blockchain. This is extremely energy wasteful as the difficulty of finding a solution increases over time.
So other blockchain solutions have arisen to make transactions faster and to use less power, which further complicates the definitions. So you may have a proof of stake blockchain, which instead of requiring computers “yelling numberwang at each other”, it chooses the allocation of the next block between those with a stake in the system without the need for large expenditure of resources. Similarly, there are private blockchains where the ledger is actually not open and transparent.
The result of this confusion is a situation in which anything can be called a blockchain, even if it does not meet the traditional definitions. Adrianne Jeffries explains the conundrum in a must-read article on the subject:
“There are countless blockchain explainers in text, audio, and video around the web. Almost all of them are wrong because they start from a false premise. There is no universal definition of a blockchain, and there is widespread disagreement over which qualities are essential in order to call something a blockchain.”
Things become more complicated when we see that there are attempts at cementing some definitions into legislation. This can be tricky as favouring one definition over another could result in dire legal consequences. Jeffries accurately points out that some definitions that require immutability and “uncensored truth” could particularly be dangerous, as the blockchain is not an arbiter for truth, but it only provides evidence of whatever is entered into it.
One of the reasons why the blockchain hype may be on the wane is precisely because, at least so far, the technology has failed to deliver on the various promises made by enthusiasts. At the more extreme end of the spectrum we have people who have proposed the blockchain as a solution to everything from poverty to corruption. Even those who do not promise it as the end to world hunger seem to rely on the hype to make promises that seem far-fetched, or not grounded on reality.
One particularly annoying feature is that the hype and the potential are often reported as fact. If someone proposes a blockchain for the manufacture of digital widgets, this often morphs into “digital widgets are already being produced using the blockchain in country X”. Dig a little deeper, and that is almost never the case.
One of the subjects where this is happening is in elections. For the last couple of years blockchain technology has been offered as a means to ensure elections are fair, and to reduce voting fraud and certify ballot counting, or just to make online voting a reality. But while in theory voting looks like a potentially viable use of the blockchain, there are a few issues. Firstly, electronic voting does not fit well with various characteristics of traditional blockchain definitions, particularly the open ledger and the decentralisation. A robust voting system requires a central authority to validate that a person is legitimised to vote, which requires some form of registry as well. A voting system also needs to be both secret and anonymous, and a certified authority must be able to validate the voting. All of these seem to be counter to the open nature of the blockchain. While some people have proposed elliptic curve cryptography to solve part of the secrecy issue, the need for a centralised authority remains.
In the end, the solutions become convoluted, and the need for a blockchain stops making sense as a replacement for existing systems, imperfect as they may be. Perhaps evidence of this is that we are yet to find a proper implementation of blockchain for voting. A few examples are wheeled out when talking about elections and blockchain. The first is Estonia, which as Jeffries explains, is not even a blockchain, it’s more like an ID system that has retroactively been called a blockchain. Then there is a plebiscite in Colombia which is supposed to have used a blockchain system to involve citizens living abroad not registered to vote. However, when one looks at the actual implementation, this was not part of the official vote, but a pilot project to test out the technology. Plebiscito Digital was an symbolic ballot requiring self-registration, and as far as I could see, the results are not open (lacking a few of the requirements of transparency and decentralisation). In fact, the article describing the project cites as the result of the experiment the fact that a conversation was started, but it is difficult to verify the number of participants, and even if the results are stored in an open blockchain somewhere.
The latest experiment being widely publicised as I write is the alleged use of blockchain technology in Sierra Leone. I was extremely intrigued by this! Finally, a proper voting experiment using decentralised technologies! But once again, looking beyond the headlines proved disappointing. According to the article, tech startup Agora used a “private permissioned blockchain” to verify the results behind the scenes. But if you look at what actually took place, Agora employees and the CEO attended the paper ballot counting in an undisclosed number of locations (it seems like only one, but it’s difficult to tell), and they entered the tally into a blockchain. Yes, the only use of the blockchain was to enter paper voting results to make them immutable, so all of the problems of election verification, including legitimacy, privacy, and corruption were still there, instead of writing the results in a paper, they wrote them on the blockchain. You’ve just added one more failure point.
The amazing thing, which is testament of the level of hype, is that this small-scale experiment has somehow mutated into the “World’s First Blockchain-Powered Election“, making it look like the entire election was held using blockchain technology. As someone wrote on Twitter: “How is this anything other than having a corruptible 3rd party manually enter votes into a database?”
Of all the uses for the blockchain that are supposed to become more widespread, proof of provenance is often mentioned as one of the most promising. Imagine any walk of life where you would like to have proof of provenance: ethical diamonds, organic food, environment-friendly resources, etc. This is perhaps one of the more hyped blockchain applications out there. Take this example:
“… blockchains in general can be used for anything, to track everything from the food that we eat: “Cows can become blockchain appliances, enabling farmers to track what the cows eat, which medications they’ve had, and their complete health history.” Seriously- we could follow the provenance of every ingredient in every product.”
Blockchain cows, you heard it here first folks.
Seriously though, this line of thought posits that many supply chains are in need of some open, immutable and tamper-free record-keeping technology that will ensure us that the locally-sourced asparagus you are eating is indeed local. These proposals seek to verify everything from fine art to bananas. While the specifics of each proposal vary, they seem to share a common thread, the idea is to use the blockchain as an immutable provenance record where data cannot be destroyed or falsified, and which can be used to identify a product’s origin and trajectory.
Let’s say that I want to start a llama socks business with ethically-obtained llama products from Peruvian llamas. The idea is to have some sort of token that can be stored on the blockchain that will provide evidence of provenance. So I travel to Peru, obtain the llama wool at the ethical llama farm, put it on a box which has stamped an address where the origin can be verified by everyone in the world via a tamper-free and immutable system.
You may already have caught the problem with this scheme. The socks need not be there at the start, an unscrupulous actor could source the llama wool unethically, and just take the box to the local llama farm with nothing in it, or with the illegitimate products already inside. The problem with proposing a blockchain for real goods is that the goods are physical goods, and the data in the blockchain only verifies that someone entered a record at some point in the supply process. You can add all sort of data, a picture, or even GPS coordinates, and that doesn’t prove that the product that you have, be it a painting, socks or a banana, came from the alleged origin. It only proves that someone at the source entered the data into the blockchain. So even if you somehow tag the item with the adequate address, QR code, or whatever, that could have been added later. I could add a label to my socks with the verification code obtained earlier.
Reality once again gets in the way of a brilliant scheme.
We are in the midst of a technological revolution, there is no doubt about it. The blockchain can be seen either as a footnote to the cryptocurrency craze, or as the most disruptive innovation of our lifetimes. The truth may lie somewhere in between. It is possible that blockchains will become prevalent in all walks of life, but to me the most likely scenario is that some functions may be useful in a few circumstances. As of today, I do not see many uses that cannot be achieved with existing technologies. Moreover, many solutions that are touted as a blockchains may not actually meet the definition, be it because they are private, because they are not decentralised, or because there is only one institution using it. If you only have one user, then you don’t have a blockchain, you have an expensive database.
So why the relentless push towards the blockchain? An excellent article by Oliver Leistert postulates an intriguing hypothesis. The blockchain and Bitcoin should be seen not in isolation, but as part of a wider political phenomenon that includes other technologies, such as big data, surveillance, and the Internet of Things. Leistert explains that the registration of digital objects creates a new regime of control where non-verified uses are not only forbidden, but are made technologically impossible. Smart contracts become blind code.
A techno-dystopia of endless verification and commodification.
We should rebel against the creation of a system of immutable records where reality is irrelevant, and what matters is the truth as told by whoever entered the data into the blockchain. History is no longer written by the victors, but by the coders.
I don’t know about you, but whenever I see a new meme (such as the fantabulous “Karma’s a bitch“) I don’t think about how it became popular, who created, or even if it is appropriate. My first thought is always “what are the copyright implications”? Yes, I need help.
I seem not to be alone in this, there are a growing number of scholarly articles dedicated at answering the most pressing legal question of our time (a few examples here, here and here). Most articles I’ve seen analyse US law, and there the consensus appears to be that some memes would be covered under fair use, but it may well depend on the amount that has been copied from the original, and whether the use is commercial in nature.
Unless I am missing something (please send suggestions), there has been practically no academic interest in this subject from either a UK or European perspective. Perhaps my colleagues think that this is a frivolous topic, or perhaps the lack of enforcement has made everyone assume that this is not an important issue. I’m not one to shy away from frivolous subjects, so I’ve been looking at this for a little while.
Interestingly, the question may be about to become more relevant for a couple of reasons. Firstly, some creators have started to sue (and threaten to sue) for copyright infringement in memes. Recently, Grumpy Cat won a copyright and trade mark infringement case worth over $700k USD in damages. Then take the “Distracted Boyfriend” picture. The meme has exploded in the last few months, but the photographer that took the picture seems ambivalent about going after people for re-using his photograph. While accepting the popularity of the picture, he has expressed that everyone using and modifying the picture is doing so illegally, and he reserves the right to go after uses that he considers are using the images “in a pejorative, offensive or any way that can harm the models or me.” So far, no suit has been filed.
Secondly, the European Commission made a proposal for a new copyright directive in 2016, which is under discussion right now. There’s a lot to talk about many of the provisions contained in this directive (such as data mining), but now the German delegation has published a comment on Article 13, which deals with platform liability for infringing content uploaded by users (thanks to Fix Copyright for the heads up). The German document contains an eye-opening proposal:
“The European legislator could also examine the possibility of permitting the non-commercial use of copyrighted content by private individuals, provided that this does not endanger the primary markets of the cultural industries: This includes, for example, sharing photos with a limited circle of recipients or using memes. At the same time, a lump sum remuneration for creators (“compensated exception and limitation to copyright “) could be provided for these uses, which would have to be paid by the qualified platform. This model has long since proved its worth in compensated private copying.”
Perhaps some background is needed to understand this. Currently, European copyright law allows for private copying of copyright works provided that some adequate remuneration is given to the owner. For example, you are allowed to make a digital copy of your music CDs. The remuneration is paid in the shape of levies collected on the sale of devices capable of making copies, such as blank CDs and memory cards. What the German proposal states is that something similar can be arranged for all platforms which share images and memes.
This is an incredible proposal with astounding implications (apologies for the use of superlatives, I’m in shock).
The main problem with this proposal is of course that it makes two big assumptions, that memes constitute copyright infringement, and that such uses require that some remuneration is given to the creator. But the need for an author to be compensated rests entirely on the question of whether a meme is infringing copyright in the first place, and this is may be a more complicated issue, depending on what type of meme we are talking about.
The first question to ask is whether the original work has copyright, and we have to assume that in most instances they do have it. For the purpose of this analysis I will divide memes into four categories (this is itself inaccurate, but will do for now): stand-alone pictures, viral videos, gifs, and screen captures of films and TV series. In the case of an original video such as organ cat or technoviking, the video itself is worthy of copyright, and the maker could make money from its reproduction. In these cases infringement would be easier to detect and enforce, and creators could use automated systems such as YouTube’s ContentID to gain money from views. In the case of images like the distracted boyfriend, we can assume that the picture will have copyright in its own right, and therefore further use could be infringement. Similarly, film has copyright protection, and making a screen shot of a film and even making a gif could be infringing.
But infringement is not automatic. In order to infringe copyright by making an unauthorised copy of a work and distributing it on the internet, a substantial part of the work has to have been taken. What is substantial? This is a question elucidated in several cases. In Designer’s Guild v Russell Williams, the House of Lords defines substantial as “a matter of impression, for whether the part taken is substantial must be determined by its quality rather than its quantity. It depends upon its importance to the copyright work. It does not depend upon its importance to the defendants’ work…”. In Infopaq, a cumulative effect of several smaller extractions from a work could be enough to warrant the existence of substantial copying. And more recently we have the interesting case of England And Wales Cricket Board Ltd v Tixdaq Ltd, in which 8 second cricket clips in an app and social media operated by the defendants was enough to be considered as substantial by the Court. Arnold J explains:
“I do not consider that it follows that reproduction of any part of a broadcast or first fixation amounts to an infringement. […] At least in the case of broadcasts and first fixations of films of sporting events, broadcasters and producers invest in the production of broadcasts and first fixations knowing, first, that some parts of the footage of an event (e.g. wickets in the case of cricket matches and goals in the case of football matches) will be more interesting to viewers than other parts and, secondly, that there is a market for highlights programmes and the like in addition to the market for continuous live coverage.”
In other words, the most important a part of a work is reproduced, the more likely we are to have infringement because a substantial part has been copied.
With regards to memes, it’s difficult to assert that any of the above has taken place, and it will depend on a case by case basis. With regards to a copying and distribution of the entirety of a work, such as a video or a photograph, it is easy to see how this could be infringing. If I take the video of two otters holding hands, and I reproduce it in any way, I could very likely be infringing copyright. The same would go with any picture. But when it comes to animated gifs and screenshots, then we may be in more difficult territory. Take a screenshot and meme from the TV Series The Good Place:
While s17(4) of the CDPA says that copyright in a film can be infringed by making a picture of a substantial part of the work, one could argue that this is not substantial enough. Is this substantial? It’s just a picture of the protagonist swearing, what makes the image is the added text. Similarly we could do the same with most animated gifs taken from film, we would need to determine if the gif is taken from a substantial part of the original.
For the sake of argument, let’s assume that most memes are infringing (although some may not), we would then need to see if there are any defences to the infringement. Here we are in more explored territory. As we do not have a open-ended system such as fair use, it is difficult to see how memes could fall under most fair dealing defences, as this is an exhaustive list that includes things like educational use, research, commentary, parody and news reporting, just to name a few. Perhaps a few news-worthy memes such as falling asteroids or other natural events could apply, but for the most part I would say that most memes would not apply.
This is the main difference with US law. Fair use has both transformative uses and a very open-ended definition of parody. In the UK jurisdictions there’s no such a thing, and most importantly, the parody exception is rather limited. In the case of
In the case of Deckmyn v Vandersteenoffers, the CJEU commented that the concept of parody must be interpreted by considering the usual meaning of the terms in everyday language, while also taking into account the context in which they occur and the purposes of the rules of which they are part. Perhaps most important for the present article, the court establishes that:
“…the essential characteristics of parody, are, first, to evoke an existing work, while being noticeably different from it, and secondly, to constitute an expression of humour or mockery. The concept of ‘parody’, within the meaning of that provision, is not subject to the conditions that the parody should display an original character of its own, other than that of displaying noticeable differences with respect to the original parodied work; that it could reasonably be attributed to a person other than the author of the original work itself; that it should relate to the original work itself or mention the source of the parodied work.”
These seem to set a very specific boundary for what should be considered a parody. Firstly, a parody is always a copy, and that while there must be differences as the parody is a separate work in its own right, the copy must at the same time be recognisable to the public at which the parody is directed, otherwise it would not be a parody. While the court helpfully dissects the concepts of parody, the question of the intent of the parody, whether it is to provoke humour or to mock, is more difficult, as the intent may be humorous, but it might be deemed to be mocking the original. With regards to memes, some may be parodies under this definition, but quite a lot would not apply.
Concluding, the question of copyright in memes may be resurrected because of the reasons highlighted above. I am disheartened that there could be anything that could affect the vibrant culture of memes that we have online. The power of memes is impressive, and even many TV shows will be the first to create gifs on their own accord, as a healthy user-generated culture using memes means that users are engaged with the property. Seeing memes as only an act of infringement misses the whole point.
I leave you with this gif of two llamas on the run. You’re welcome.
Back in the 90s, copyright law was concerned about the issue of linking to content, in some quarters it was considered that linking to content required some sort of permission because it would be an act similar to that of making the work available to the public. In early cases, such as Shetland Times Ltd. v. Wills courts struggled with the concept of hyper-linking, even granting injunctions in some instances. At some point it was finally understood that linking was a vital technical function of the Internet, and for the most part linking to content was left alone.
Fast-forward a few year, and we start seeing further attempts to make linking to content more difficult in some circumstances. The idea is that an author has some exclusive rights under copyright, and offering a work to users via a link should be an exclusive right of the owner as well. We’ve had a few cases in the Court of Justice of the European Union looking precisely at this question. In Svensson, a group of journalists sued a commercial indexing service providing its clients with links to articles published by other websites. The CJEU erred on the side of the indexing service by establishing that if the content had already been communicated to the public to the author, and the link was not directed to a new public, then there would not be infringement. This principle was re-visited and upheld in other cases such as C More, until the case of GS Media complicated interpretation a bit.
GS Media operates a website called GeenStijl, which provides light-hearted news and content in Dutch; in 2011 GeenStijl published links to pictures that belonged to Playboy, but they were hosted in a cloud file storage service in Australia. Sanoma Media (the Playboy publisher in the Netherlands and other northern European countries), tired to get the links removed, but GS Media failed to comply. Sanoma sued for copyright infringement and the case eventually made it all the way to the CJEU with the question of whether linking to infringing material could be considered as copyright infringement. The question was referred because in Svensson the principle is to communicate the work to a new public, which is precisely what is happening here. The Court decided to retain Svensson, but added a strange new caveat. Whenever a site links to a work that has been posted elsewhere without the owner’s permission, this will be a communication to the public (and therefore infringing) if the work is being published for profit and the author knows, or has reason to know, that it is infringing copyright. This creates a new commercial and constructive knowledge element to hyper-linking.
Thankfully, GS Media has not destroyed the Internet as we know it, mostly because it seems to set the bar quite high on what could be considered infringement, the knowledge element in particular is difficult to meet unless there is evidence that the person linking has been made aware of such actions.
Now we have a case from the United States that are shedding more light on the issue of linking, and it is Playboy v Happy Mutants. If you read this blog you will definitely be familiar the wonderful Boing Boing blog; in 2016 the blog published an article linking to a collection of Playboy centrefolds hosted in popular image hosting site Imgur (since then the images have been removed). Xeni Jardin, who published the link, was correctly pointing out what an interesting resource it was, as it was “kind of of amazing to see how our standards of hotness, and the art of commercial erotic photography, have changed over time.” Playboy didn’t agree with this interpretation, and sued Happy Mutants (the blog publishing company) for secondary copyright infringement under the inducement doctrine (of Grokster fame).
The judge in sided with Boing Boing granting a motion to dismiss the case. In the decision, the judge opined that it was unlikely that Playboy would be successful as it was difficult to see how linking to a third party site hosting content would get around the very strong protection to freedom of speech prevalent in the US. The judge cites another recent linking US case, that of Tarantino v Gawker Media, in which Quentin Tarantino had sued Gawker because one of its publications had linked to a leaked movie script for “The Hateful Eight”. That case had been dismissed, and the judge cited this passage:
“An allegation that a defendant merely provided the means to accomplish an infringing activity is insufficient to establish a claim for copyright infringement. Rather, liability exists if the defendant engages in personal conduct that encourages or assists the infringement.”
It is encouraging that courts are unwilling to extend too much protection to copyright owners when it comes to hyper-linking. Any case that would eventually erode the freedom to link to content would seriously affect the way in which the Internet operates, and hopefully we will continue to see that principle upheld.
Worryingly though, a New York Federal judge has decided that embedding a tweet into an article could be copyright infringement. A worrying and disturbing decision, but hopefully just a one-off, or it might be down to a quirk of US law. In Europe we do not have such thing as an “exclusive display right”, unless the judge is using a new term to talk about communication to the public. I will be happy to hear from US lawyers about this.
I love the Internet. Games. Netflix. Twitter. Cat gifs. Memes.
The whole world’s knowledge at your fingertips. Expert opinion, peer reviewed articles, books in the public domain, online encyclopaedias. Never in history has been so much information made available to us in such a reachable fashion.
Why is it then that it seems like we’re going backwards? Are we becoming less informed?
I’m not just talking about the obvious political disasters of the last couple of years. In all-important public debates, from vaccination to climate change, the hordes of the wilfully misinformed seem to be on the rise. Read any discussion on any contentious issue where the scientific consensus is clear, and you will find people willing to peddle blatantly false information, or refuse to look into easily-verifiable data. Overwhelming scientific consensus is ignored in favour of celebrity opinions, and doubt creeps in where there should be certainty.
For a few years now I have been following the most baffling example of a falsity gaining widespread recognition, and this is the belief that the Earth is flat. Yes, you would think that the question was laid to rest by Erathostenes in the 3rd century BC, and that centuries of exploration culminating with the launch into space of countless rockets would have destroyed any remaining doubts. But you would be wrong, in recent years there has been an increase in the number of people who believe in a Flat Earth, so much so that it has been the subject of journalistic interest in Vice and The Guardian. There is little hard data out there as apparently this has not been the subject of opinion polls, but Google Trends shows a marked increase in searches since 2016 (which fits my own anecdotal experience), and social media accounts dedicated to the subject boast tens of thousands of followers.
It seems like the current rise in popularity of Flat Earth theories came about when US rapper B.o.B. tweeted his belief that the Earth was flat, and then basketball player Kyrie Irving declared that the Earth was flat during a February 2017 podcast. The belief had been already gaining followers due to the strong social media and YouTube presence of various Flat Earth memes. And perhaps the culmination of the movement came this week with the launch of the SpaceX rocket carrying a Tesla Roadster and a mannequin into space headed for Mars. While all the talk in mainstream circles was whether this was a waste of resources, or the world’s most spectacular marketing ploy, any visit to a social media chat about the event will be filled with calls of “fake” because you cannot see the stars in the background, and people discussing, seemingly in serious fashion, that the Earth is flat and this does not prove anything because it is obviously a staged video.
What is going on? Are people really starting to believe more in the Flat Earth? Firstly, we cannot discount that there is quite a lot of trolling going on. There are several 4chan threads discussing Flat Earth in the shape of memes, and this is particularly strong in /pol/ which is the board made infamous by its connection to the alt-right. It is evident that there is a strong element of mischief in many of the memes advanced there in support of the Flat Earth. Similarly, Irving admitted at some point that he was trolling. But at some point the troll may have reached a wider audience because if there’s something that 4chan can do well, is memes that quickly disseminate around the Internet. The level of engagement of some YouTube channels and other social media accounts would lead one to believe that there is a combination of trolls and genuine doubters.
There is no doubt that we are witnessing an erosion of trust in scientific knowledge and expertise. Flat Earthers exist in a world where everything is a conspiracy, for whatever reason the Truth is hidden from everyone for whatever strange reason, and experts are in on it for money/power. Objective reality becomes a matter of opinion to be mediated not by scientific method, but by vloggers and meme merchants.
It may be easy to dismiss this as just another passing Internet fad, but the Flat Earth conspiracies are just a symptom of a wider malaise. There is a toxic combination of phenomena that make false information more likely to spread. First there is the Dunning-Kruger effect, where incapable people are more likely to overestimate their own ability, which leads people with no education to make statements in areas they know nothing about. We are also seeing evidence that the Internet makes people think that they are smarter than they really are. And then there is quite simply a matter of numbers; it’s possible that the number of people who believe in conspiracies is the same as it was in the past, but those people now have a way to convey their ill-informed opinions through social media. In the words of Umberto Eco, social media has given “legions of idiots the right to speak”.
This translates into politics, “fake news” have always been around, but memes make them easier to share, and as we increasingly get our information from social media we are forgetting the ability to filter-out false data.
What to do? I don’t think that this is something that can be regulated, and I’m extremely sceptical of efforts to make tech giants tackle the issue. Do not believe everything you see online still seems to be the best piece of education we can teach.
I’ve always had a natural aversion against certain brand of California techbros. They usually feature a unique combination of entitlement, privilege and confidence that allows them to make spectacularly tone-deaf statements. The Kony 2012 is a good example of the white-dude techno-messianic saviour complex at work, where some entitled tech guys thought they could bring down an Ugandan war criminal through the power of clicktivism.
The New York Times has published the latest example of cyber-colonialism in a jaw-dropping article describing a group of cryptocurrency enthusiasts that have moved to Puerto Rico to take advantage of its unique situation in order to bring about their Crypto-Utopia. The article explains:
“Dozens of entrepreneurs, made newly wealthy by blockchain and cryptocurrencies, are heading en masse to Puerto Rico this winter. They are selling their homes and cars in California and establishing residency on the Caribbean island in hopes of avoiding what they see as onerous state and federal taxes on their growing fortunes, some of which now reach into the billions of dollars.
And these men — because they are almost exclusively men — have a plan for what to do with the wealth: They want to build a crypto utopia, a new city where the money is virtual and the contracts are all public, to show the rest of the world what a crypto future could look like. Blockchain, a digital ledger that forms the basis of virtual currencies, has the potential to reinvent society — and the Puertopians want to prove it.”
So, taking advantage of the low taxes, these crypto-millionaires will use their wealth to build a city based on Bitcoin and blockchains, buying cheap land that will allow them to build the ultimate techbro Libertarian utopia (impossibly called Puertopia). The idea is to benefit the local economy, which has been destroyed by Hurricane Maria, and they will do so by building and using blockchains for everything, including airports, residences, businesses and banks.
Laudable goals, right? What could possibly be wrong with this?
I don’t know where to begin. Perhaps it is the fact that one of the proponents of the scheme called the combination of events that led to their move to Puerto Rico a “perfect storm”, yes, a perfect storm that killed over 100 people and destroyed the island’s infrastructure. Or perhaps it is the fact that these Bitcoiners are setting up an energy-heavy enterprise in an island that had all of its power knocked down by the hurricane, and where power is still not fully back to normal (in fact they complain that they cannot mine BTC reliably). Or could it be perhaps the fact that the reason why Puerto Rico does not have the same tax regime as mainland USA has to do with the troubled relationship between the island and the US government. Or maybe it is the smugness of entitled white dudes walking into a placing thinking they own it and can do what they fell like, buying the place and setting up their own rules.
This is what makes the story so infuriating for people from the global south. It reeks of condescension, they may be surprised that Puerto Ricans have access to the Internet, and can use cryptocurrencies if they want to, no need for these saviours to impart their sacred knowledge to the primitive locals.
But to me the worst part of the story is that here we have a textbook case of what Naomi Klein calls “disaster capitalism” in the book “The Shock Doctrine“. In short, Klein documents several examples in which capitalists take advantage of disasters (natural and man-made) to make a profit from the ensuing chaos, usually by taking advantage of the plight of survivors who are so desperate that they will agree to anything in exchange for a few bucks. And shockingly, the Bitcoiners are quite open about their intentions, it is right there in their own words: “It’s only when everything’s been swept away that you can make a case for rebuilding from the ground up […]” So convenient that all those people died so that you could buy cheap land to build your utopia.
Hopefully the locals are not too keen on what they see as “crypto-capitalism”. Andria Satz, who works for the Conservation Trust of Puerto Rico, said:
“We’re the tax playground for the rich,” she said. “We’re the test case for anyone who wants to experiment. Outsiders get tax exemptions, and locals can’t get permits.”
And this is the crux of the problem. But also history is not on the favour of the crypto-colonialists, they could be joining a long line of similar failed libertarian and colonial experiments. Only time will tell.
I could be fabulously wealthy right now. When I first wrote about Bitcoin, the price was $14.65 USD, and as of writing, the price is hovering just above $12,500 after undergoing a few ups and downs since December. If I had bought 10 BTC that day for a $146.50 USD investment, those 10 Bitcoins would be worth over $125,000.
That’s quite a large “what if”.
I am what is known by Bitcoin proponents as a “nocoiner”, a person who knew about BTC early on, but did not invest. However, I sleep quite well at night as I am certain that even if I had invested early on, I would have sold coins in many of the various stages in which the price has been going up. But most importantly, many of the doubts that I had back then still remain, with various new problems arising.
So what are the issues? (for an earlier look at some regulatory problems, see this article).
Failure as a method of payment
One of the earliest promises of Bitcoin was that it would be an unparalleled decentralised, open source currency where transactions would be fast, cheap and transparent as they would be lodged in a distributed cryptographic immutable public ledger called the blockchain. The currency is not issued by central body, but rather mined by people around the world who dedicate computing power to perform transaction verifications and are rewarded for their efforts.
Reality has been very different. While Bitcoin has been in existence since 2009, the number of places which accept it as a means of payment has remained limited, and on the contrary, some corporate adopters have stopped taking it altogether, such as Dell and Steam.
There are various reasons for the lack of success as a payment method. One of the main problems is price instability, just in the last couple of months the price of Bitcoin has gone on a roller-coaster ride, jumping from $7,000 to $19,000 in one month, and then down to $9,000 and then up to about $12,000. This volatility makes BTC particularly unsuited for merchants, as they could risk a wild variation in price in a short period of time that could dissipate profits. During the latest crash, the price dropped 12% in three hours, a variation that is unacceptable and is unsuited for a stable currency.
Many people were willing to ignore these problems as long as the price went up, but this creates another problem that has been identified with Bitcoin, deflation. When prices go up, we get what I call the “Bitcoin pizza” problem. In 2010 a software developer called Laszlo Hanyecz paid for a pizza with 10,000 BTC; as of today, that pizza is worth over $120 million USD, and it has its own Twitter account. The problem with a deflationary currency, and particularly one that has gained so much value in the last years, is that nobody wants to spend it and hoarding becomes an issue, this has become its own Internet meme, and it’s known as “hodling“. Nobody wants to spend their bitcoins, so they become useless as payment method.
But the main problem in recent months with using Bitcoin as a currency is that transaction times and fees have become prohibitive, the average transaction confirmation time as of today being 263 minutes, and the average transaction fee at an astounding $25 USD average, and it got to over $50 during December 2017. There are various reasons for this, including the size of each mined block, the reward given to miners, and the limit in the number of transactions per second to ensure decentralisation. The issue is therefore systemic, and one could argue that the more successful Bitcoin gets, the more useless it becomes as a currency.
Several solutions have been proposed for this, including changing the code itself (a hard fork), and changing elements of the ecosystem to bypass Bitcoins scaling limitations (soft fork). A few hard forks have been made, such as Bitcoin Cash, but this is a controversial solution that still splits the community. The preferred solutions right now are Segregated Witness (SegWit), and the Lightning Network (LN), but these have been criticised for various reasons. In particular, LN seems to be a highly problematic implementation that necessitates the existence of funds and mandates lending, which could actually complicate the environment even further.
Store of value
As a response to Bitcoin’s difficulties as a currency, proponents have been advocating it as something entirely different, it is actually a store of value, digital gold instead of digital dollars. They say that Bitcoin’s viability is not as a payment method, but it rather rests in its superior technology, on its use of the blockchain, and on its scarcity (there is a limited amount of BTC). So instead of buying gold or making other investments to store your hard-earned fiat currency, you should convert it into Bitcoin.
There are of course various problems with this. Firstly, there is an assumption that prices will continue to go up, but this rests on several assumptions. Just because the price has gone up in the past, it doesn’t mean that it will continue to go up in the future. On the contrary, as BTC’s value went up, the various scalability issues came to the forefront, and its unique inability as a payment method dissuaded potential investors, so with no new money flowing in, the price dropped. Those who bought BTC at $19,000 because they thought that the price could only go up were left holding the bag.
Moreover, the lack of transparency in the ecosystem still bothers me, just as it did from the start. Satoshi Nakamoto‘s identity remains shrouded in mystery, and there are still large amount of coins held by unidentified people. Moreover, over the years there have been lots of heists, robberies and hacking attacks against Bitcoin users, leaving large numbers of coins in the hands of real criminals. Similarly, since its inception it was used by criminalsin the Dark Web as a method of payment for drugs and other unsavoury practices. This means that large amounts of BTC are held by shady characters and criminals, as well as anonymous people who do not respond to anyone. Call me crazy, but investing in a currency that is controlled by so many obscure interests does not fill me with confidence of it being a sound store of value.
While Bitcoin and other cryptocurrencies are entirely decentralised on paper, their success depends in large part on the existence of exchanges and other intermediaries. As mining has become prohibitive for everyone but dedicated conglomerates with large amount of computing power, the only way to obtain Bitcoin is to receive it for payment, or to purchase it with fiat currency or with other cryptocurrencies. As BTC is no longer viable as a currency, this usually means that to get your hands on some Bitcoin you need an exchange that can perform the transaction. There are other intermediaries that perform other functions, such as wallets to hold BTC, derivatives, and even lending. A lot of these activities are heavily regulated in “regular” financial markets for a reason, intermediaries of these nature are handling funds and investments in ways that require quite a large amount of trust and transparency.
Exchanges are the chink in the armour of Bitcoin’s decentralisation, and throughout its short history there have been a large numbers of amateurish and even fraudulent intermediaries (see Mt.Gox). The reason for this is that for a while exchanges operated completely free of regulation, which is actually something that doesn’t seem to bother some Bitcoin enthusiasts. As more regulators started paying attention to exchanges, an interesting split seems to have occurred in the community. On the one hand we have legitimate regulated intermediaries that seem to be operating following the letter of the law, and on the other hand we have a number of dodgy and obscure exchanges that appear to be operating outright scams and ponzi schemes in areas where regulators have been reluctant to intervene. The latest horror story is Bitconnect, an exchange and lending operation that is running both a cryptocurrency (BCC), and a blatant ponzi scheme that appears to have left investors in the cold with large losses. There had been warnings from many in the community that Bitconnect was not operating properly, but this did not stop investors pouring money into the exchange, until it shut down earlier this month.
This is a big problem for the cryptocurrency environment right now. Regulation is anathema to many of the libertarian and anarchic enthusiasts who see Bitcoin as the perfect response to what they see is a corrupt union of governments and traditional financial institutions. Regulation is therefore feared, but it is precisely that same regulation that is supposed to be in place to stop scammers and fraudsters taking advantage of ill informed investors. Moreover, any photogenic millennial with a couple of months of trading experience can go on Youtube to provide investment strategy, and sometimes outright shilling in favour of fraudulent businesses such as Bitconnect. In the era of the demise of expertise, memes and “influnecers” rule.
The latest questionable practice is Tether (USDT), which is Bitcoin’s attempt to peg crytptocurrencies to some fiat value. Tether is a cryptocurrency token that is allegedly supported by US Dollars, in other words, for each Tether in existence, the issuers claim that there is a USD supporting its value, so it’s nominally pegged to the USD. However, the company has obscure origins, and for a while its operations were kept secret, which did not stop many exchanges accepting it. Thanks to the Panama Papers we have learned that Tether was created in the Virgin Islands (which should already raise some eyebrows) by the operators of Bitfinex, one of the largest BTC exchanges. Further research unveiled that Tethers are supposedly held in a tiny Polish bank, further providing doubts about the operation. And to put the icing on the cake, during the current crash, as the price dropped to $9,000 USD Tether’s operators started printing tokens to an alarming rate, up to $650 million in the last week alone, bringing the total value of Tethers to $2 Billion USD. Needless to say, there are worries that Tethers are being used to artificially maintain the price of Bitcoin during a downturn, as these printed value created out of nothing is being used to buy cryptocurrencies.
If Tether and Bitfinex are eventually the subject of regulatory oversight, this could be a huge crash for Bitcoin, so stay tuned (and follow Bitfinex’ed on Twitter for updates).
What is clear is that it should be suspicious that any hint of regulation tends to send the price of Bitcoin tumbling as some exchanges could be running price manipulation in an unregulated market, such as painting the tape and wash trading. Moreover, researchers have found that it is possible that a single actor was able to manipulate the price of Bitcoin from $150 to $1000 in the time of Mt.Gox.
Security and replicability, old concerns
As Bitcoin’s value went up, so did the potential for hackers to try to steal them. While Bitcoin itself is protected by strong cryptography, users are vulnerable to attacks that try to steal their coins. Hackers have been successfully targeting exchanges exchanges and users, managing to steal hundreds of thousands of BTCs; a list of stolen coins over the years contains over 1.8 million BTC have been stolen in major incidents, and this does not include everyday attacks. Strong encryption does not protect against fraudsters and scam artists. The security issues with Bitcoin are hard to assess, but there are various security issues with very high risk, such as general security, subversive miner strategies, loss of keys and man-in-the-middle attacks.
The other problem is that when your coins are gone, they are gone for good (I should know, I still have 0.01 BTC in a broken hard drive). If any coins are stolen, the community will either blame the victim, or say “sorry for your loss”. The victim blaming is an interesting phenomenon. When someone complains that they were hacked or their coins stolen, people in the community will often criticise the security measures of the hacked person, and it seems like to be able to operate in the Bitcoin environment, one needs security skills that rival those of a bank. I have always seen this as a huge obstacle for adoption.
Related to the last point, the complicated nature of Bitcoin and the cryptocurrency environment presents problems for mainstream interest. During the years, I have tried to explain cryptocurrencies to people who know that I am interested in Bitcoin, and I often lose their interest; “too complicated” is a common reaction. The problem is that even Bitcoin proponents admit that there is a large learning curve to understand the technology properly, and understand it they must, otherwise they will get hacked. So we have an interesting paradox, Bitcoin enthusiasts accuse critics of not understanding BTC, but at the same time yearn for wider adoption that will bring the price up, justifying their early adopted status. Needless to say, both goals are incompatible.
Things are made more complicated by the proliferation of cryptocurrencies and Initial Coin Offerings (ICOs), producing a soup of acronyms that can confuse even those interested in the space. And if you don’t know your ETH from your LTC, or your BTC from your BCH; if you can’t identify what a SegWit is (which you should totally be using), then you are laughed out of the community.
The result is a decreasing number of techies and geeks that can make the price go up. And this is all that matter to some.
The computational power dedicated to mining has continued to increase over time. In Bitcoin, computing power is called the hash rate, and the unit of measure is the hash/second, meaning a calculation per second. Ten tera hashes per second (Thash/s) means that the network is performing 10 trillion calculations per second, with the hash rate at the time of writing standing at over 19 million Thash/s. Whichever way you measure it, that is an astounding amount of computing power used to produce value, which could have a large impact on the environment. Researchers found that the entire Bitcoin network uses energy that exceeds the use of 159 countries. Even under normal circumstances, such a staggering amount of energy expenditure might prompt questions about Bitcoin’s carbon footprint and other related environmental problems.
Breaking the Blockchain?
While Bitcoin may have a lot of issues, a lot of people have decided to back its underlying database technology, the blockchain. Even if Bitcoin tanks, the blockchain will remain.
The blockchain is a decentralised, distributed, cryptographic public ledger. This sounds very impressive, and proposals have been made to implement a blockchain in everything from music licensing to bananas. While I have been considerably more enthusiastic about the blockchain’s potential than cryptocurrencies, this initial enthusiasm has waned in recent years. The main problem is that for all its promises, blockchains are difficult to implement, and could prove to be less efficient and more cumbersome than existing solutions.
While blockchain hype has been increasing, some scepticism started seeping in. Many projects that started out as blockchain ended up implementing different technologies, this is because institutions thinking of developing a blockchain face time constraints, barriers to adoption, and sheer complexity. More interestingly, of 26,000 blockchain projects listed in the open source repository GitHub, only 8% survive to this day.
Perhaps the most scathing and interesting attack against blockchain hype has come from Kai Stinchcombe, who made a lot of waves by pointing out that in ten years the practical uses for the blockchain have been minimal, or even non-existent. While I disagree with the categorical statement, he does a good job of dissecting various case studies in favour of the blockchain, and finds them wanting.
I often dread writing about Bitcoin because the topic tends to attract people who are completely in favour of the cryptocurrency, and sometimes these do not take criticism lightly. Anyone who is a BTC sceptic is quickly labelled a paid shill by Wall Street, a FUD merchant, an uninformed person who doesn’t understand the amazing technology, a Statist, a nocoiner loser, a bitter person who sold their BTC too early, or a combination of the above.
These are my honest opinions as someone who is mildly adept at the technology and who has been following Bitcoin from early on, I have no other motive than my endless pursuit of writing things that interest me. It’s possible that I will be wrong and Bitcoin will continue its unstoppable trip towards world domination. I doubt it, but I’m not bothered either way.
However, it is precisely this type of religious reaction from the community that often makes many of us highly sceptical. In a fantastic Twitter rant against Bitcoin, the always excellent Sarah Jeong said:
“I am the target demographic for blockchain based solutions. I am the paranoid 1% who purposefully inconveniences her life for decentralization and cryptographic solutions. I am the rare case and I fucking hate bitcoin”
I couldn’t put it better myself.
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