BIS TAKES AIM AT CRYPTO-CURRENCIES

It's rare - very rare - that I have anything good to say about the Bank of International Settlements, the central banksters' central racketeeri... er.... the central banksters' central bank. After all, what possible good can come out of an institution which is the brainchild of Montague Norman (head of the Bank of England in the inter-war period), Benjamin Strong (of the New York Federal Reserve, which, let it be recalled, is neither Federal nor a reserve), and Hjalmar Horace Greeley Schacht, about whose wheelings and dealings enough is known? But, just in case you've forgotten, dear old Hjalmar was the Reichsbank president who pops up at the oddest moments and oddest places, bless his heart. He was a financial advisor to Aristotle Onassis and Adolf Hitler(what a resume!); he was a key member of the group of Nazis ...er... CIA operatives that suddenly appeared in Egypt after the overthrow of King Farouk, along with other Nazi...er... CIA luminaries like Otto Skorzeny and journalists like von Leers (of Goebbels' old Propaganda Ministry, and, who, let it be noted, was a convert to Islam and who, go figure, translated the notorious Protocols of Zion into Arabic, and who, funny thing, ended up in Moscow working for Pravda or Tass or whatever, during the bad old bolshevist days of the Soviet Union); and all of them were sent to Egypt as a West German "delegation" by good old Konrad Adenauer. Schacht pops up again in Indonesia during the Suharto business in the late 1960s, and rumor has it he was talking about gold and bearer bonds, but that's unsubstantiated, though I wouldn't for a moment put it past him.

The Bank of International Settelements was largely Schacht's idea, and one of his ideas about his idea was that the Bank should be "sovereign," which, sure enough, it is. And its sovereign headquarters happen to be just a little north of another strange sovereign entity, CERN. Handy that, and I'm quite sure it's all coincidental.

But every now and then the BIS does something rational, and when it does, I'm right there giving it half a cheer and a one-handed clap, and this occasion - which G.L.R. spotted and shared - is no different:

Cryptocurrencies: looking beyond the hype

Cryptocurrencies: looking beyond the hype PDF

Recently I've been suggesting that crypto-currencies are anything but safe, and a spate of recent hacking activities seems to bear this out. But at a deeper level, I've been concerned that these systems could be a funding mechanism for all sorts of covert operations, from those of governments, to those of "non-state actors", and this also was born out by subsequent stories that some groups are indeed speculating in them (or hacking into them) for expressly that purpose. The BIS report addresses some of these concerns, and I want to draw attention to some paragraphs that give attention to the how's and why's of distributed ledgers and blockchain, which is about as good a summary as one will find:

The technological challenge in digital peer-to-peer exchange is the so-called “double-spending problem”. Any digital form of money is easily replicable and can thus be fraudulently spent more than once. Digital information can be reproduced more easily than physical banknotes. For digital money, solving the double-spending problem requires, at a minimum, that someone keep a record of all transactions. Prior to cryptocurrencies, the only solution was to have a centralised agent do this and verify all transactions.
    Cryptocurrencies overcome the double-spending problem via decentralised record-keeping through what is known as a distributed ledger. The ledger can be regarded as a file (think of a Microsoft Excel  worksheet) that starts with an initial distribution of cryptocurrency and records the history of all subsequent transactions. An up-to-date copy of the entire ledger is stored by each user (this is what makes it “distributed”). With a distributed ledger, peer-to-peer exchange of digital money is feasible: each user can directly verify in their copy of the ledger whether a transfer took place and that there was no attempt to double-spend. 14
    While all cryptocurrencies rely on a distributed ledger, they differ in terms of how the ledger is updated. One can distinguish two broad classes, with substantial differences in their operational setup (Graph V.2).

...

In a much more radical departure from the prevailing institution-based setup, a second class of cryptocurrencies promises to generate trust in a fully decentralised setting using “permissionless” DLT. The ledger recording transactions can only be changed by a consensus of the participants in the currency: while anybody can participate, nobody has a special key to change the ledger. The concept of permissionless cryptocurrencies was laid out for the case of Bitcoin 16 in a white paper by an anonymous programmer (or group of programmers) under the pseudonym Satoshi Nakamoto, who proposed a currency based on a specific type of distributed ledger, the “blockchain”. The blockchain is a distributed
ledger that is updated in groups of transactions called blocks. Blocks are then chained sequentially via the use of cryptography to form the blockchain. This concept has been adapted to countless other cryptocurrencies. 17
     Blockchain-based permissionless cryptocurrencies have two groups of participants: “miners” who act as bookkeepers and “users” who want to transact in the cryptocurrency. At face value, the idea underlying these cryptocurrencies is simple: instead of a bank centrally recording transactions (Graph V.3, left-hand panel), the ledger is updated by a miner and the update is subsequently stored by all users and miners (right-hand panel).
At this point, the BIS produces one of its famous diagrams that lays out the whole process. But just when all looked so rosy, there is a potential problem, and again, it is one which I have cautioned against: with access to enough computing power, the scheme is tailor made to become a truly hidden system of (digital) finance; the BIS report continues:
With these key ingredients, it is costly – though not impossible – for any individual to forge a cryptocurrency. To successfully double-spend, a counterfeiter would have to spend their cryptocurrency with a merchant and secretly produce a forged blockchain in which this transaction was not recorded. Upon receipt of the merchandise, the counterfeiter would then release the forged blockchain, ie reverse the payment. But this forged blockchain would only emerge as the commonly accepted chain if it were longer than the blockchain the rest of the network of miners had produced in the meantime. A successful double-spend attack thus requires a substantial share of the mining community’s computing power. Conversely,
in the words of the original Bitcoin white paper, a cryptocurrency can overcome the double-spending problem in a decentralised way only if “honest nodes control a majority of [computing] power”. 21  (For the original references in the report, see the PDF file linked above)
By parity of reasoning, one must also conclude the same thing about the potential for manipulation of crypto-currency markets: it would be comparatively easy to do, with enough computing power.
While this report merits careful consideration at virtually every level, I want to focus on the implications of this last cited paragraph above not only for the purposes of market manipulation but also for fraud, and indulge in my usual daily trademark High Octane SpeculationTM, for the confirmation that such actions would require access to great computational power (and the ability to pay the energy bills it requires) means that the recent stories of market manipulation and hacking of various crypto-currencies that we've seen are being done by actors with such access, and that narrows the activities down to a few potential players: nation states (and it has long been suspected, in some quarters, that the whole blockchain revolution came precisely from intelligence agencies, and in particular the NSA or CIA, or possibly both), or non-state actors with such access. At the head of that list one would have to place major banks, brokerages, and corporations, and more shadowy groups that are not - to cite the end of that last paragraph - "honest nodes (controlling) a majority of (computing) power."
Let that one sink in for a moment, and then ponder these paragraphs from the document:
A first key regulatory challenge is anti-money laundering (AML) and combating the financing of terrorism (CFT). The question is whether, and to what extent, the rise of cryptocurrencies has allowed some AML/CFT measures, such as know-your- customer standards, to be evaded. Because cryptocurrencies are anonymous, it is hard to quantify the extent to which they are being used to avoid capital controls or taxes, or to engage in illegal transactions more generally. But events such as Bitcoin’s strong market reaction to the shutdown of Silk Road, a major marketplace for illegal drugs, suggest that a non-negligible fraction of the demand for cryptocurrencies derives from illicit activity....
And this:
While cryptocurrencies do not work as money, the underlying technology may have promise in other fields. A notable example is in low-volume cross-border payment services.(Emphasis added)
Yes, it's all fine and dandy, especially if "honest nodes" like banks can use the technology for payment systems. With any luck, it might even replace those gold-backed bearer bonds that they've been using... you know, the ones with little mistakes on the bonds, the ones denominated in astronomical sums of money, the ones where "gold" might be code for drugs or other types of contraband... you know, the ones everyone claims are counterfeit and that in reality, there's "no such thing"....
Schacht would be proud of his progeny here, because a better example of Schachtian double-speak cannot be had.
See you on the flip side...

 

10 thoughts on “BIS TAKES AIM AT CRYPTO-CURRENCIES”

  1. Double-spending problem? That’s one of the big issues they’re worried about? What about the double-billing problem? At least with credit cards one possesses a means of dispute. Your digital wallet does not have such safe-guards. Those who trust this technology would have no problem putting their debit card out on the internet for e-commerce. Or, would they?

    I’ve been involved in e-commerce at many levels for a long, long time. I do not keep up with many of the white-papers in the industry these days because my extracurricular interests have shifted and time is important to me now. I understand progress is continuing toward optimization for traffic rates, security, etc. Block-chain is unquestionably more secure than other digital systems–I’ll concede that. The best one can argue is it’s safer–not safe. At it’s core, it deviates significantly from any “material” form of currency in that it is patently digital. Allowing any economic system to go completely digital is as insane as burning one’s food supply in order to improve the octane rating in poor, water laced petroleum. It is as insane as manipulating the DNA of any species of plant or animal for the use as food without multi-generational testing to determine the long term effects. The march toward the “optimal” technocratic future, designed for an unstable elite by a sympathetic technocracy, is an insane one–and Dr. Farrells’ book Rotten to the Common Core outlines very clearly the role education has played in this effort!

    1. On “the march toward the ‘optimal’ technocratic future, designed for an unstable elite by a sympathetic technocracy,” you might enjoy (or not) this article:

      “Now Elon Musk quietly tinkers with Education: LA’s most exclusive school sits on SpaceX’s campus and skips sports, music, and languages.”
      https://arstechnica.com/science/2018/06/first-space-then-auto-now-elon-musk-quietly-tinkers-with-education/

      On the good side, this is as far away from “Edoocashun” as you can get. Money-is-no-object design (and implementation) of learning, with emphasis on post-school usefulness rather than grades or formalities. Wow!

      On the other hand, I have an image that this is where Khan Nunian Singh or Paul Atreides would have been sent to prepare for the world. And perhaps most horrifying, I can’t decide whether this is a good thing or a bad thing. Gad…

      1. Thank you, goshawks.

        So, Musk has effectively upgraded the progressive “mechanistic worker” education model to a more progressive “electric chip-assisted drone” model. His approach is only a modern variant of the Dewey model with an electronic interface–but is potentially more myopic than the original. So, I give this one a single eye-roll and a huge yawn!

        With respect to his foreign language decision, I’m not opposed to using computer assisted translations of language for casual readings and conversations. To deal with a thorough examination of any text, ancient or modern, one needs to not only need to know the language’s vocabulary and grammar, but must understand the culture. The hard part of learning any language is to approximate the mental processes encoded within the language in order to understand the idea discussed. Machines might be able to approximate this some day provided they are given the relevant details, but how can we know if they are not digitally withholding critical information? What if the database designers didn’t think the historical and cultural data was relevant? Finally, how do we know whether the “electronic white-noise” that was removed from the text was a software decision or censorship? One cannot deal complex documents from philosophers, thinkers and visionaries from any culture without some intellectual foundation in the tradition of that cultural matrix. If this were the full moon faced by Professor Lupin in the famous HP tome, I would be pulling the Ridikulus charm, too!

  2. Camp of saints can be overrun by army of devils. Yet, burning platform is just changing level in game. Creator of game can step outside own creation, and reboot system.

    Some see “reality” as never changing, and others just step outside it. My kingdom is not of this world. Weaponizing Euclidean space is hanging on z-axis into free fall. Odin.

    Pyramid is analogue computer. It is ancient template of creation. Druidry.

  3. Technical details aside, to me the bottom line is: If the BIS is talking about it, it’s because they want to use it. Maybe they haven’t worked out all the kinks and have put this out there to aid the “crowdsourcing” effort that CAF has suggested may be under way to get the technology up and running fast.

    What’s it going to be used for? Certainly for covert money transfers by major players. Almost certainly for financial clearing. Quite possibly as a backbone technology for a future cashless society.

    No, I don’t believe for a second that this technology is going to set us all free and usher in a democratic digital utopia, complete with decentralized currencies, untrackable transactions, and tamper-proof contracts recorded on the blockchain . . . That’s the hype.

  4. JPF: “…with access to enough computing power, the scheme is tailor made to become a truly hidden system of (digital) finance…”

    BIS paper: “A successful double-spend attack thus requires a substantial share of the mining community’s computing power. Conversely… a cryptocurrency can overcome the double-spending problem in a decentralised way only if ‘honest nodes control a majority of [computing] power’.”

    In the July/August 2018 issue of Analog Science Fiction and Fact, the Alternate View fact-article is on “Cryptocurrency and Quantum Computing” by physicist John G. Cramer. In this article (good but technical), Cramer notes that quantum computing progress is such that it will not be long before a q.c. will effectively have more computing power than much of the planet’s ordinary computers. Cramer quotes a q.c. as solving the calculations needed to ‘win’ in Bitcoin within ten minutes. (Don’t have the article in front of me for the technical details.)

    (Note that Cramer is only referencing ‘public’ q.c. progress. Black-budget q.c. may be far, far beyond this. Almost like Bitcoin was tailor-made for the black world…)

  5. I’m still optimistic and I’m somewhat optimistic about crypto-currencies. Do I believe they are funding covert operations? Of course. Can they be used to transfer wealth without the possibility of appeal? Can Amazon censor e-books?

    The black market is not just Silk Road. American manufacturing got its start when Samuel Slater learned all he could about the textile business then defied a travel ban to come to New England and open a factory on the Blackstone River. Wall Street would crucify him.

    I seriously believe you underestimate the amount of computing power available even on smartphones – in part because so much is wasted. I do believe the Big Actors are in this, but having just reread Neuromancer while I do see differences from today’s world, I still believe it’s like society decided that was the future it wanted and set about creating it. So no, the theft and fraud are not limitable to Big Actors.

    Furthermore, Timbuktu, Port Harcourt and many other formerly fabulous places have as much technology available to them as Woonsocket, SD or Conway, NH. Theft of IP by many actors built today’s world. It will build tomorrow’s. Blockchains may be a boon to barter and other black market activities so yes I think they are potentially a good thing though maybe not in the West.

Comments are closed.