
Risks of Cryptocurrencies [pdf] - DyslexicAtheist
https://www1.icsi.berkeley.edu/~nweaver/papers/cryptorisks.pdf
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DyslexicAtheist
Schneier shared this today
[https://www.schneier.com/blog/archives/2018/07/nicholas_weav...](https://www.schneier.com/blog/archives/2018/07/nicholas_weaver_2.html)

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CryptoPunk
>>However, unless censorship resis-tance in an electronic transaction is a
requirement (such as for drug deals, ransom payments, money launderers, and
those seeking to evade currency control), irreversibility combined with the
volatile price means Bitcoin is sig-nificantly inferior to alternatives such
as credit cards or PayPal

This is not true, as Elaine Ou explains:

[https://elaineou.com/2016/08/01/the-value-of-settlement-
fina...](https://elaineou.com/2016/08/01/the-value-of-settlement-finality/)

Any high charge-back industry would benefit from an irreversible payment
method, which is why several offer steep discounts if one uses cryptocurrency.

With respect to volatility, that's largely a function of very thin trading
volumes, and the high proportion of cryptocurrency's current value stems from
speculative demand. In a hypothetical mass-adoption scenario, trading volumes
will be huge, solving the first problem, and growth potential will be
significantly less, making speculative value a much smaller component of the
cryptocurrency's total value.

So this only applies in the early adoption phase:

>>This also means that unless the buyer is a believer in Bitcoin, the buyer
ought to buy Bitcoin only immediately before they initiate the transaction, to
avoid volatility (and will have had to mine or buy the Bitcoin in any case).

In a mass adoption scenario, immediately converting to fiat currencies through
exchanges will not be necessary.

>>Bugs in these smart contracts can be catastrophic.

This is indeed a major risk, but one that can be mitigated through methods
like formally verifiable smart contracts.

>>The exchanges themselves also cre-ate systemic risks. Almost all exchang-es
seek to avoid regulation, which means they implode with almost seeming
regularity—usually due to a combination of theft and fraud.

Absolutely false. The failure rate of exchanges has dramatically declined over
the last several years. Methods like cold wallet storage have significantly
reduced the losses suffered when an exchange is hacked, and the exchanges are
now much more professionally run services than they were in 2012/2013.

I question the impartiality of the author when he makes a claim like this.

>>In many cases the bandwidth limit for crime is not the crime itself, but the
money laundering.

I am dubious about this claim. Is there any case of a criminal activity being
easy to get away with, but not widely committed, due to the difficulty of
laundering the proceeds?

>>It is primarily criminals who regularly benefit from censorship-resistant
payments

While it is true that criminals benefit the most from censorship-resistant
payments, this is no different than criminals benefiting the most from
privacy. It is not an argument against censorship resistance or privacy. The
flip side is that exercising one's basic rights, and ensuring one's own
survival by doing something as fundamental as trading a good/service for
money, requires becoming a criminal in some countries, like Venezuela.

Circumventing Orwellian levels of mass-surveillance and centralized control in
places like Xinjiang is also an antitode to a much more dangerous risk to
society than that posed by malevolent non-state actors:
[https://www.hrw.org/news/2018/02/26/china-big-data-fuels-
cra...](https://www.hrw.org/news/2018/02/26/china-big-data-fuels-crackdown-
minority-region)

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jackpeterfletch
>> Any high charge-back industry

Not if your the person buying. Bitcoin guarantees 1 way movement of
'currency', it makes no guarantees on your product or service. This is why
charge-backs exist.

>> With respect to volatility, that's largely a function of very thin trading
volumes

That only get thinner due to limited (and loosable) deflationary currency and
increasing fees due to extrodinary power consumption.

>>In a mass adoption scenario, immediately converting to fiat currencies
through exchanges will not be necessary.

Not possible due to volatility and fees. See previous.

>> Absolutely false. The failure rate of exchanges has dramatically declined
over the last several years.

Brick and mortar banks still get hacked, if they havent solved it, unregulated
crypto exchanges certainly wont. The problem can be mitigated in traditional
currency by simply 'undo'ing the damage, or holding a regulated institution
responsible.

>> While it is true that criminals benefit the most from censorship-resistant
payments, this is no different than criminals benefiting the most from
privacy.

You've conflated privacy into this argument, which is strange because normal
currencies have privacy. Crypto generally does not.

~~~
CryptoPunk
>>Not if your the person buying. Bitcoin guarantees 1 way movement of
'currency', it makes no guarantees on your product or service. This is why
charge-backs exist.

In the article I linked, it explains that part of the reason high charge-back
industries have a high rate of charge back is that the payment processors
they're stuck with don't conduct the fraud prevention validations that more
established credit card processors conduct.

So the result is that credit card scammers have an easier time conducting
scams, which honest buyers end up paying for with higher prices.

While the risks posed by the merchants in these industries aren't mitigated by
using irreversible cryptocurrency payments, the additional costs incurred by
credit card scammers are.

Where cryptocurrency has a use is where the customer trusts a merchant in a
high charge-back industry. They can enjoy high discounts for using
cryptocurrency in this case.

>>That only get thinner due to limited (and loosable) deflationary currency
and increasing fees due to extrodinary power consumption.

Trading volumes should have no relationship with the nominal money supply in
cryptocurrency, since the units are highly divisible.

1 Ether == 1000 Finney == 1000000 Szabo == 1000000000000000000 Wei.

The choice of units is up to the user.

So no, in a mass adoption scenario, thin trading volumes won't get thinner.
That would be totally absurd.

>>increasing fees due to extrodinary power consumption.

Power consumption follows fees, not the other way around. Power consumption is
a function of mining revenues. The cost of the energy consumed approaches
mining revenues. Since much of mining revenues consists of the block subsidy,
as the portion of mining revenues consisting of subsidies decreases, as a
result of greater fee revenue from a larger volume of transaction, power
consumption per transaction decreases.

>>Brick and mortar banks still get hacked, if they havent solved it,
unregulated crypto exchanges certainly wont.

Straw man. I didn't say hacks will stop. I said that exchanges are getting
more secure, in contradiction to the claim made in the paper.

>>You've conflated privacy into this argument

I haven't conflated anything. I was illustrating a general principle using
privacy as an example of the principle in action.

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arisAlexis
mandatory repost since price is going up and we hate bitcoin here

