Apr. 20, 2022
CAUTION: This email originated from outside of the organization. Do not click links or open attachments unless you recognize the sender and know the content is safe. Dear SEC, Please DO NOT authorize the Grayscale bitcoin ETF. The reasons why you rejected previous ETF proposals are still valid and should be sufficient to deny this one (and any future ones) as well. The constant pressure to approve a spot Bitcoin ETF exists because Bitcoin is a negative-sum game - Bitcoin whales need to increase the flow of dollars in so as to have dollars to withdraw. The SEC should not pander to them. My recent talk to Stanford's EE380 course started by pointing out that cryptocurrencies' externalities include: Bitcoin is notorious for consuming as much electricity as the Netherlands, but there are around 10,000 other cryptocurrencies, most using similar infrastructure and thus also in aggregate consuming unsustainable amounts of electricity. Bitcoin alone generates as much e-waste as the Netherlands, cryptocurrencies suffer an epidemic of pump-and-dump schemes and wash trading, they enable a $5.2B/year ransomware industry, they have disrupted supply chains for GPUs, hard disks, SSDs and other chips, they have made it impossible for web services to offer free tiers, and they are responsible for a massive crime wave including fraud, theft, tax evasion, funding of rogue states such as North Korea, drug smuggling, and even as documented by Jameson Lopp's list of physical attacks, armed robbery, kidnapping, torture and murder. I went on to discuss in detail the potential for mitigating these externalities and concluded: Although the techniques used to implement decentralization are effective in theory, at scale emergent economic effects render them ineffective. Despite this, decentralization is fundamental to the cryptocurrency ideology, making mitigation of its externalities effectively impossible. And attempts to mitigate the externalities of pseudonymous cryptocurrencies are lijkely to be self-defeating. We can conclude that: Permissioned blockchains do not need a cryptocurrency to defend against Sybil attacks, and thus do not have significant externalities. Permissionless blockchains require a cryptocurrency, and thus necessarily impose all the externalities I have described except the carbon footprint. If successful, permissionless blockchains using Proof-of-Work, or any other way to waste a real resource as a Sybil defense, have unacceptable carbon footprints. Whatever Sybil defense they use, economics forces successful permissionless blockchains to centralize; there is no justification for wasting resources in a doomed attempt at decentralization. Gateways between cryptocurrencies and the real economy should be illegal, as they impose massive externalities on the real econiomy. The US is far behind China in realizing this. -- David.