VOL.  NO.  Blockchain VOL.  NO.  MAY/JUNE   US ./CAN . Blockchain The future is here

HOPE

HYPE

MAY/JUNE   Display until 07/01/2018

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ad.emtech.spread.2018.indd 3 3/19/18 1:43 PM MIT TECHNOLOGY REVIEW MAY/JUNE 2018 From the Editor

When we were planning this special issue refugee camp, Russ Juskalian (page 42) back in January, someone asked, “What examines an attempt to use a blockchain if most of the things we’re writing about to restore legal identity and self-suffi­ don’t even exist by the time we publish?” ciency to people who’ve lost everything, He was being only slightly face­ while from Beijing, Yiting Sun (page 64) tious. As I write this, a bitcoin is trad­ relates how China’s crackdown on cryp­ ing at little more than a third of its value tocurrencies last year has unexpectedly in December, when it peaked at nearly given some blockchain entrepreneurs a $20,000. Other cryptocurrencies have boost. Douglas Heaven (page 58) looks taken similar tumbles. Regulators in at the forensic teams helping to crack several countries are cracking down on cryptocrimes. And Morgen Peck (page the unregulated crowdfunding schemes 72) draws out three futuristic scenar­ known as initial coin offerings (ICOs), ios in which Bitcoin, the original and which exploded in 2017. A casual reader still the biggest cryptocurrency, might Gideon Lichfield is editor in chief of of the news might be forgiven for think­ become irrelevant, supplanted by rivals. MIT Technology Review. ing that blockchain mania is over. There’s much more, too. We sent Obviously, we don’t think it is, or photographers to capture portraits you wouldn’t be reading this. Crypto­ of the blockchain believers, who turn currencies and ICOs are just one aspect out to be a lot more diverse than you of the blockchain universe. Other kinds of might expect (page 52). We look at blockchain startups are still proliferating, whether ICOs can ever be truly use­ and big companies and financial institu­ ful (page 78), why there aren’t more tions are exploring the technology’s appli­ women in blockchain tech (page 66), cations. But whatever survives the hype and whether blockchains are really as cycle will almost certainly look different secure as they’re claimed to be (page from what exists today. 40). If you want to start with the basics, In this issue’s opening essay (page check out our graphical guide to block­ 10), Michael Casey and Paul Vigna argue chain on page 18. And finally, gaze into that just as the 1990s dot-com boom laid the future with a science fiction story the foundations for today’s technology by Hannu Rajaniemi (page 82) on how industry, the tide of speculative capital blockchains might govern our lives and and the detritus of countless failed block­ relationships. chain startups will wash away to leave the This issue also marks a new direction infrastructure and talent pool for a future for MIT Technology Review. From now wave of technology giants. James Sur­ on, each of our bimonthly print issues owiecki (page 28) argues that cryptocur­ will cover a single topic. Our aim will be rencies will never work as foundations of to leave you with a better grasp of a com­ the world financial system, and Kathryn plex technological issue and all its rami­ Miles reports from Quebec (page 34) on fications for the world. Please write to how they could be sunk by their raven­ [email protected]

ous need for electricity. In a Jordanian and let me know if we’ve succeeded. NIVEN NEPHI

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NRO.indd 1 3/22/18 3:59 PM MIT TECHNOLOGY REVIEW MAY/JUNE 2018 Contents May /June 2018

How Now Next page 9 page 33 page 71

10 In blockchain we trust 34 The little coin that ate Quebec 72 Let’s destroy Bitcoin If you want to understand blockchain, A hydropower operation welcomes Want to knock it from its perch? first get past all the wild speculation. bitcoin miners. Regrets ensue. Here are a few ways you might do it.

18 Blockchain: What is it, anyway? 40 How secure is blockchain, really? 78 Q+A Robleh Ali And while we’re at it, where does it It turns out “secure” is a funny word to Down with ICOs; long live IPOs. come from, and what does it do? pin down. 82 Unchained 25 We have a few words for you 42 Where life hangs by a chain A science fiction story from Making sense of the terminology. A Jordanian refugee camp is a test for Hannu Rajaniemi. blockchain-based identity systems. 26 12 cryptocurrencies and what they’re good for 52 The blockchain believers Here are a dozen for your What makes devotees so passionate Also in this issue consideration. about the technology? We asked.

28 Bitcoin would be a calamity, 58 Can you spot the cybercrime? 2 Letter from the Editor not an economy “Your money or your life” happens in Why blockchain is worth an entire issue. A cryptocurrency future would be a the crypto world, too. disaster during a financial crisis. 88 A puzzle worth $50,000 64 Chinese crypto gets creative A bit of cryptocurrency artwork. Government restrictions lead to some under-the-radar innovation.

66 Q+A Amber Baldet Is the crypto scene sexist? That’s the wrong question. SELMAN DESIGN / ANDREW TESTA / ARIEL DAVIS ARIEL / TESTA ANDREW / DESIGN SELMAN

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1

How WE GOT HERE

The case for blockchain: after the bubble bursts, the foundations of a future technological industry will remain. The case against crypto­ currencies: they’re good for thieves and speculators, but no use as serious money. Plus: what a blockchain is, how it works, the top crypto­currencies, and a glossary of crypto jargon. 9

MJ18_openers.indd 9 4/5/18 11:48 AM MIT TECHNOLOGY REVIEW MAY/JUNE 2018

To understand why blockchain matters, look past the wild speculation at what is being built underneath, argue the authors of The Age of Cryptocurrency and its newly published follow-up, The Truth Machine: The Blockchain and the Future of Everything.

In blockchain we By MICHAEL J. CASEY and PAUL VIGNA trust Illustrations by Selman Design

the dot-com bubble of the works, and the buildout of giant 1990s is popularly viewed as a server farms. All of this would period of crazy excess that ended make possible the technologies with hundreds of billions of dol- that are now the bedrock of the lars of wealth being destroyed. world’s most powerful compa- What’s less often discussed is how nies: algorithmic search, social all the cheap capital of the boom media, mobile computing, cloud years helped fund the infrastruc- services, big-data analytics, AI, ture upon which the most impor- and more. tant internet innovations would We think something similar be built after the bubble burst. is happening behind the wild It paid for the rollout of fiber- volatility and stratospheric hype optic cable, R&D in 3G net- of the cryptocurrency and block-

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chain boom. The blockchain skeptics have That funded the Renaissance and paved How else would we know that Jef Bezos is crowed gleefully as crypto-token prices the way for the capitalist explosion that the world’s richest human being, that the have tumbled from last year’s dizzying would change the world. GDP of Argentina is $620 billion, that 71 highs, but they make the same mistake as Yet the system was not impervious to percent of the world’s population lives on the crypto fanboys they mock: they con- fraud. Bankers and other fnancial actors less than $10 a day, or that Apple’s shares fate price with inherent value. We can’t yet often breached their moral duty to keep are trading at a particular multiple of the predict what the blue-chip industries built honest books, and they still do—just ask company’s earnings per share? on blockchain technology will be, but we Bernie Madof’s clients or Enron’s share- A blockchain (though the term is ban- are confdent that they will exist, because holders. Moreover, even when they are died about loosely, and often misapplied the technology itself is all about creating honest, their honesty comes at a price. to things that are not really blockchains) one priceless asset: trust. We’ve allowed centralized trust manag- is an electronic ledger—a list of transac- To understand why, we need to go back ers such as banks, stock exchanges, and tions. Those transactions can in principle to the 14th century. other financial middlemen to become represent almost anything. They could be That was when Italian merchants and indispensable, and this has turned them actual exchanges of money, as they are bankers began using the double-entry book- keeping method. This method, made possi- ble by the adoption of The need for trust and middlemen allows Arabic numerals, gave behemoths such as Google, Facebook, and merchants a more reli- Amazon to turn economies of scale and able record-keeping network efects into de facto monopolies. tool, and it let bankers assume a powerful new role as middlemen in from intermediaries on the blockchains that underlie crypto- the international pay- into gatekeepers. They currencies like Bitcoin. They could mark ments system. Yet it charge fees and restrict exchanges of other assets, such as digi- wasn’t just the tool itself that made way access, creating friction, curtailing inno- tal stock certifcates. They could repre- for modern finance. It was how it was vation, and strengthening their market sent instructions, such as orders to buy or inserted into the culture of the day. dominance. sell a stock. They could include so-called In 1494 Luca Pacioli, a Franciscan The real promise of blockchain tech- smart contracts, which are computerized friar and mathematician, codifed their nology, then, is not that it could make you instructions to do something (e.g., buy a practices by publishing a manual on math a billionaire overnight or give you a way to stock) if something else is true (the price and accounting that presented double- shield your fnancial activities from nosy of the stock has dropped below $10). entry bookkeeping not only as a way to governments. It’s that it could drastically What makes a blockchain a special kind track accounts but as a moral obligation. reduce the cost of trust by means of a radi- of ledger is that instead of being managed The way Pacioli described it, for every- cal, decentralized approach to account- by a single centralized institution, such as thing of value that merchants or bank- ing—and, by extension, create a new way a bank or government agency, it is stored ers took in, they had to give something to structure economic organizations. in multiple copies on multiple independent back. Hence the use of ofsetting entries A new form of bookkeeping might computers within a decentralized network. to record separate, balancing values— seem like a dull accomplishment. Yet for No single entity controls the ledger. Any of a debit matched with a credit, an asset thousands of years, going back to Ham- the computers on the network can make a with a liability. murabi’s Babylon, ledgers have been the change to the ledger, but only by following Pacioli’s morally upright accounting bedrock of civilization. That’s because rules dictated by a “consensus protocol,” bestowed a form of religious benedic- the exchanges of value on which society a mathematical algorithm that requires tion on these previously disparaged pro- is founded require us to trust each other’s a majority of the other computers on the fessions. Over the next several centuries, claims about what we own, what we’re network to agree with the change. clean books came to be regarded as a sign owed, and what we owe. To achieve that Once a consensus generated by that of honesty and piety, clearing bankers trust, we need a common system for keep- algorithm has been achieved, all the com- to become payment intermediaries and ing track of our transactions, a system that puters on the network update their cop- speeding up the circulation of money. gives defnition and order to society itself. ies of the ledger simultaneously. If any of

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them tries to add an entry to the ledger digital currency. These might be used by a same assets rendered the 158-year-old without this consensus, or to change an group of organizations that need a com- business bankrupt, triggering the biggest entry retroactively, the rest of the network mon record-keeping system but are inde- financial crisis in 80 years. Clearly, the automatically rejects the entry as invalid. pendent of one another and perhaps don’t valuations cited in the preceding years’ Typically, transactions are bundled entirely trust one another—a manufacturer books were way off. And we later learned together into blocks of a certain size that and its suppliers, for example. that Lehman’s ledger wasn’t the only one are chained together (hence “blockchain”) The common thread between all of with dubious data. Banks in the US and by cryptographic locks, themselves a prod- them is that mathematical rules and Europe paid out hundreds of billions of uct of the consensus algorithm. This pro- impregnable cryptography, rather than dollars in fines and settlements to cover duces an immutable, shared record of the trust in fallible humans or institutions, are losses caused by inflated balance sheets. It “truth,” one that—if things have been set what guarantee the integrity of the ledger. was a powerful reminder of the high price up right—cannot be tampered with. It’s a version of what the cryptographer Ian we often pay for trusting centralized enti- Within this general framework are Grigg described as “triple-entry bookkeep- ties’ internally devised numbers. many variations. There are different kinds ing”: one entry on the debit side, another The crisis was an extreme example of of consensus protocols, for example, and for the credit, and a third into an immu- the cost of trust. But we also find that cost often disagreements over which kind is table, undisputed, shared ledger. ingrained in most other areas of the econ- most secure. There are public, “permis- The benefits of this decentralized omy. Think of all the accountants whose sionless” blockchain ledgers, to which in model emerge when weighed against the cubicles fill the skyscrapers of the world. principle anyone can hitch a computer and current economic system’s cost of trust. Their jobs, reconciling their company’s become part of the network; these are what Consider this: In 2007, Lehman Broth- ledgers with those of its business coun- Bitcoin and most other cryptocurrencies ers reported record profits and revenue, terparts, exist because neither party trusts belong to. There are also private, “permis- all endorsed by its auditor, Ernst & Young. the other’s record. It is a time-consuming, sioned” ledger systems that incorporate no Nine months later, a nosedive in those expensive, yet necessary process.

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Other manifestations of the cost of trust The need for trust, the cost of it, and the Such transparency could also give con- are felt not in what we do but in what we dependence on middlemen to provide it is sumers better information on the sources can’t do. Two billion people are denied one reason why behemoths such as Google, of what they buy—whether a T-shirt was bank accounts, which locks them out of the Facebook, and Amazon turn economies of made with sweatshop labor, for example. global economy because banks don’t trust scale and network-efect advantages into Another important new idea is that of a the records of their assets and identities. de facto monopolies. These giants are, in digital asset. Before Bitcoin, nobody could Meanwhile, the internet of things, which efect, centralized ledger keepers, building own an asset in the digital realm. Since it’s hoped will have billions of interacting vast records of “transactions” in what is, copying digital content is easy to do and autonomous devices forging new efcien- arguably, the most important “currency” difcult to stop, providers of digital prod- cies, won’t be possible if gadget-to-gadget in the world: our digital data. In control- ucts such as MP3 audio fles or e-books microtransactions require the prohibitively ling those records, they control us. never give customers outright ownership of expensive intermediation of centrally con- The potential promise of overturn- the content, but instead lease it and defne trolled ledgers. There are many other exam- ing this entrenched, centralized system what users can do with it in a license, with ples of how this problem limits innovation. is an important factor behind the gold- stif legal penalties if the license is broken. These costs are rarely acknowledged or analyzed by the eco- nomics profession, per- haps because practices We now have the capacity to assign digital such as account recon- representation to any store of value, including ciliation are assumed to creative content, physical property, and be an integral, unavoid- intangible assets. able feature of business (much as pre-internet businesses assumed rush-like scene in the This is why you can make a 14-day loan of they had no option crypto-token market, your Amazon Kindle book to a friend, but but to pay large postal with its soaring yet you can’t sell it or give it as a gift, as you expenses to mail out monthly bills). Might volatile prices. No doubt many—perhaps might a paper book. this blind spot explain why some prominent most—investors are merely hoping to get Bitcoin showed that an item of value economists are quick to dismiss blockchain rich quick and give little thought to why could be both digital and verifably unique. technology? Many say they can’t see the the technology matters. But manias like Since nobody can alter the ledger and justifcation for its costs. Yet their analyses this, as irrational as they become, don’t “double-spend,” or duplicate, a bitcoin, it typically don’t weigh those costs against the spring out of nowhere. As with the arrival can be conceived of as a unique “thing” or far-reaching societal cost of trust that the of past transformative platform technol- asset. That means we can now represent new models seek to overcome. ogies—railroads, for example, or elec- any form of value—a property title or a More and more people get it, however. tricity—rampant speculation is almost music track, for example—as an entry in Since Bitcoin’s low-key release in Janu- inevitable. That’s because when a big new a blockchain transaction. And by digitiz- ary 2009, the ranks of its advocates have idea comes along, investors have no frame- ing diferent forms of value in this way, swelled from libertarian-minded radi- work for estimating how much value it will we can introduce software for managing cals to include former Wall Street profes- create or destroy, or for deciding which the economy that operates around them. sionals, Silicon Valley tech mavens, and enterprises will win or lose. As software-based items, these new development and aid experts from bod- Although there are still major obsta- digital assets can be given certain “If X, ies such as the World Bank. Many see the cles to overcome before blockchains can then Y” properties. In other words, money technology’s rise as a vital new phase in fulfll the promise of a more robust sys- can become programmable. For example, the internet economy—one that is, argu- tem for recording and storing objective you could pay to hire an electric vehicle ably, even more transformative than the truth, these concepts are already being using digital tokens that also serve to acti- frst. Whereas the frst wave of online dis- tested in the feld. vate or disable its engine, thus fulflling ruption saw brick-and-mortar businesses Companies such as IBM and Foxconn the encoded terms of a smart contract. It’s displaced by leaner digital intermediaries, are exploiting the idea of immutability in quite diferent from analog tokens such as this movement challenges the whole idea projects that seek to unlock trade fnance banknotes or metal coins, which are agnos- of for-proft middlemen altogether. and make supply chains more transparent. tic about what they’re used for.

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What makes these programmable cracked down on issuers and traders of powerful platforms for innovation. Block- money contracts “smart” is not that they’re tokens, viewing such currencies more chain technology is moving way too fast for automated; we already have that when our as speculative get-rich-quick schemes us to think later versions won’t improve bank follows our programmed instruc- that avoid securities laws than as world-­ upon the present, whether it’s in Bitcoin’s tions to autopay our credit card bill every changing new economic models. They’re cryptocurrency-based protocol, Ethere- month. It’s that the computers executing not entirely wrong: some developers have um’s smart-contract-focused blockchain, the contract are monitored by a decentral- pre-sold tokens in “initial coin oferings,” or some as-yet-undiscovered platform. ized blockchain network. That assures all or ICOs, but haven’t used the money to The crypto bubble, like the dot-com signatories to a smart contract that it will build and market products. Public or “per- bubble, is creating the infrastructure that be carried out fairly. missionless” blockchains like Bitcoin and will enable the technologies of the future to With this technology, the computers Ethereum, which hold the greatest promise be built. But there’s also a key diference. of a shipper and an exporter, for example, of absolute openness and immutability, are This time, the money being raised isn’t could automate a transfer of ownership of facing growing pains. Bitcoin still can’t pro- underwriting physical infrastructure but goods once the decentralized software they cess more than seven transactions a second, social infrastructure. It’s creating incen- both use sends a signal that a digital-currency payment—or a crypto- graphically unbreak- able commitment to pay—has been made. Freely accessible open-source code is the Neither party neces- foundation upon which the decentralized sarily trusts the other, economy of the future will be built. but they can nonethe- less carry out that auto- matic transfer without and transaction fees can tives to form global networks of collaborat- relying on a third party. sometimes spike, mak- ing developers, hive minds whose supply of In this way, smart con- ing it costly to use. interacting, iterative ideas is codifed into tracts take automation to a new level— Meanwhile, the centralized institutions lines of open-source software. That freely enabling a much more open, global set of that should be vulnerable to disruption, accessible code will enable the execution relationships. such as banks, are digging in. They are of countless as-yet-unimagined ideas. It is Programmable money and smart con- protected by existing regulations, which the foundation upon which the decentral- tracts constitute a powerful way for com- are ostensibly imposed to keep them hon- ized economy of the future will be built. munities to govern themselves in pursuit est but inadvertently constitute a compli- Just as few people in the mid-1990s of common objectives. They even ofer a ance cost for startups. Those regulations, could predict the later emergence of potential breakthrough in the “Tragedy of such as the burdensome reporting and Google, Facebook, and Uber, we can’t the Commons,” the long-held notion that capital requirements that the New York predict what blockchain-based applica- people can’t simultaneously serve their State Department of Financial Services’ tions will emerge from the wreckage of self-interest and the common good. That “BitLicense” imposed on cryptocurrency this bubble to dominate the decentralized was evident in many of the blockchain remittance startups, become barriers to future. But that’s what you get with exten- proposals from the 100 software engi- entry that protect incumbents. sible platforms. Whether it’s the open pro- neers who took part in Hack4Climate at But here’s the thing: the open-source tocols of the internet or the blockchain’s last year’s UN climate-change conference nature of blockchain technology, the excite- core components of algorithmic consen- in Bonn. The winning team, with a proj- ment it has generated, and the rising value sus and distributed record-keeping, their ect called GainForest, is now developing a of the underlying tokens have encouraged power lies in providing an entirely new blockchain-based system by which donors a global pool of intelligent, impassioned, paradigm for innovators ready to dream up can reward communities living in vulner- and fnancially motivated computer scien- and deploy world-changing applications. able rain forests for provable actions they tists to work on overcoming these limita- In this case, those applications—whatever take to restore the environment. tions. It’s reasonable to assume they will shape they take—will be aimed squarely at Still, this utopian, frictionless “token constantly improve the tech. Just as we’ve disrupting many of the gatekeeping insti- economy” is far from reality. Regulators seen with internet software, open, exten- tutions that currently dominate our cen- in China, South Korea, and the US have sible protocols such as these can become tralized economy.

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Ad #: M18QUAL003_04 Bleed: 8.4375” x 10.75” AD: None Headline: Foundational inventions... Trim: 8.1875” x 10.5” CW: None Visual: Copy Live: 7.1875” x 10” CD: None Space/Color: Magazine CMYK Gutter: None AP: -- Publication: MIT EmTech PP: None Project #: PR10665_NYC-CWW Document Name: CNY_M18QUAL003_04_01.indd AQR Retouch #: None Document Path: CPNY:ME Production:Qualcomm Snapdragon:Qualcomm Snapdragon Production:Magazine:M- Studio QA Client: Qualcomm Technologies 18QUAL003:CNY_M18QUAL003_04_01.indd Division: None Font Family: None Proofreader Product: QUALCOMM Ink Name: Cyan, Magenta, Black Job #: 10881834-1252-F0 Link Name: 11_08_2017 QCLogo_INVENTING TAG BLUE_OL.eps (Up to Date; 46.35%) Art Director Print/Export Time: 1-26-2018 6:48 PM CopyWriter Print Scale: 100% User Name: Joe.Congo Acct Exec

Slug Name: CRAFT MagNwp Proof #: 1 Release QA PM: Tennille Martin InDesign Version: CC 2018 Print Prod MIT TECHNOLOGY REVIEW MAY/JUNE 2018

BlockBy MIKE ORCUTT What is it? What’s that? A mathematical structure for storing data in a way that is nearly impossible to fake. A It can be used for all kinds of valuable data.

Though some blockchains require per- public, mission to access, “open” blockchains like those underlying Bitcoin and Ethereum are accessible to anyone, meaning the database is public information.

It’s next to impossible for bad actors to tamper with data encoded in a block- permanent, chain, if it’s properly set up.

Old transactions can’t be changed in a properly functioning blockchain; only append-only new ones can be added.

No single entity owns or controls a pub- lic blockchain. A network of computers distributed maintains and secures the database, and each participant, or “node,” stores a copy.

The original blockchain, Bitcoin, is a led- ger for tracking currency balances. But ledger the same basic method can work for all kinds of digital assets.

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MJ18_explainer.indd 18 4/5/18 3:04 PM MAY/JUNE 2018 TECHNOLOGYREVIEW.COM Block chain: Where did it come from? What is it for?

“I’ve been working on a new electronic cash system that’s fully peer- It’s a new way of answering to-peer, with no trusted third party.” These are the words of Satoshi an old question: how can we Nakamoto, the mysterious creator of Bitcoin, in a message sent to a create enough trust between cryptography-focused mailing list in October 2008. Included was a one another to peacefully link to a nine-page white paper describing a technology that some exchange something of value? are now convinced will disrupt the financial system.

Nakamoto mined the first bit- Bitcoin’s popularity began to grow ENFORCEMENT coins in January 2009, and with that, quickly in 2011, after a Gawker arti- Early civilizations used the cryptocurrency era was born. But cle exposed Silk Road, a Bitcoin- threat of force as ret- while its origin is shadowy, the tech- powered online drug marketplace. ribution for dealing in nology that made it possible, which Imitators called “altcoins” began to bad faith when engag- we now call blockchain, did not arise emerge, often using Bitcoin’s open- ing in trade. out the blue. Nakamoto combined source code. Within two years, the established cryptography tools with total value of bitcoins in circulation methods derived from decades of com- had passed $1 billion. INSTITUTIONS puter science research to enable a pub- Soon, technologists realized that The emergence of lic network of participants who don’t blockchains could be used to track governments and banks provided orga- necessarily trust each other to agree, other things besides money. In 2013, nized, central authori- over and over, that a shared accounting 19-year-old Vitalik Buterin proposed ties to which we ledger reflects the truth. This makes Ethereum, which would record not could outsource trust—as long as we it virtually impossible for someone to only currency transactions but also trusted them. spend the same bitcoin twice, solving the status of computer programs called a problem that had hindered previ- smart contracts. Launched in 2015, ous attempts to cre- Ethereum—and now a host of compet- THE NETWORK ate digital cash. And, itors and imitators—promises to make Blockchains distributed crucially, it eliminates possible a new generation of applica- across thousands of the need for a central tions that look and feel like today’s web computers can mecha- nize trust, opening the Want to authority to mediate apps but are powered by decentralized know how door to new ways of it works? ­ electronic exchange cryptocurrency networks instead of a organizing “decentralized” enterprises Open here. of the currency. company’s servers. and institutions. 23

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The transaction is broadcast to A transaction a peer-to-peer The race to 1 is born 2 network 3 create new blocks

ETHEREUM Completed block Reference to previous block

Service Ethereum Metadata provider blockchain Transactions Reference to Alice Bob previous block

Metadata

Smart contract Transactions Resulting hash Nonce

Account Alice controlled by a smart contract

Transaction Block in progress

Transaction

WHAT IS A TRANSACTION? VERIFYING TRANSACTIONS MINERS COMPETE FOR CASH

In Bitcoin, a transaction is the smart contract, on the blockchain. Let’s say Alice wants to send some will validate the transaction as long A subset of nodes, called miners, ical puzzle, which is unique to each transfer of cryptocurrency from one Alice and Bob can then send money money to Bob. To do so, Alice cre- as it has followed the appropriate organize valid transactions into new block. The first miner to solve person (Alice) to another (Bob). In to an account this program controls, ates a transaction on her computer rules. Then mining nodes (more on lists called blocks. A block in prog- the puzzle will earn some cryptocur- Ethereum, which includes a built- to trigger it to run if certain condi- that must reference a past transac- those in step 3) will accept it, and it ress contains a list of recent valid rency as a reward. The math puz- in programming language that can tions encoded in the contract are tion on the blockchain in which she will become part of a new block. transactions and a cryptographic zle involves randomly guessing at a be used to automate transactions, met. A smart contract can also send received sufficient funds, as well reference to the previous block. In number called a nonce. The nonce there are multiple kinds. Alice can transactions to the blockchain in as her private key to the funds and blockchain systems like Bitcoin and is combined with the other data in send cryptocurrency to Bob. Or which it is embedded. Bob’s address. That transaction is Ethereum, miners race to complete the block to create an encrypted someone can create a transaction then sent out to other computers, or new blocks, a process that requires digital fingerprint, called a hash. that places a line of code, called a “nodes,” in the network. The nodes solving a labor-intensive mathemat-

MJ18_explainer.r1 19 4/5/18 4:37 PM FOOD & AGRICULTURE

Why you should buy in: How do you know if that This tech meat you bought is really grass-fed, organic, and free of antibiotics and has never been anywhere is about way near a cage or feedlot? You don’t—unless a block- chain tells you so. Having a digital ledger that no more than one can mess with means everything from turkeys to chocolate to mangoes can be tracked literally from farm to table—or at least to the grocery money. store shelf. And if something does go wrong, a blockchain can cut the time it takes to track, and stop, the spread of a foodborne illness. A whole host of industries could— The fi ne print: A few pilot projects have been tried, Completing Adding a new but that’s it so far. A large-scale system would prob- emphasis on the “could”—be ably mean giving farmers, distributors, and others a new block block to the chain revolutionized by blockchains. keys to access and modify the blockchain, and we’d have to trust that they wouldn’t misuse them. Players: IBM, Walmart, Nestlé, Unilever, Cargill

4 5 ENERGY MEDICINE

Why you should buy in: Energy trading is a byz- Why you should buy in: Sharing x-rays, blood test antine process riddled with middlemen taking results, and other intensely private medical data cuts (the name “Enron” may ring a bell). Making is no easy task, and there are piles of regulations, energy resources into digital assets that can be di ering data formats, and other hurdles to con- traded on a blockchain could open new investing tend with besides. A blockchain could provide and trading opportunities, letting little guys in. a tamper-proof record of important events like Like, really little: down to an individual apartment prescription refi lls, while smart contracts could building that generates excess solar power, or an give patients precise control over who can access electric vehicle with battery storage capacity to which parts of their medical record and when, spare. For larger companies, a blockchain could without all the red tape. streamline trading and record-keeping. The result The fi ne print: Hospitals, clinics, doctor’s o ces, could involve whole new asset classes, like crypto- pharmacies, insurers … the list of who may need tokens backed by oil or renewable resources. access to your medical records is long. Who The fi ne print: Of late, the power grid has become should be allowed to change the record? Who a target for state-sponsored hackers. Securing will run the computer network that runs the block- all that transaction data will be a complicated chain? How will the system be governed? cybersecurity challenge. Players: MIT’s MedRec project, Massachusetts Players: Power Ledger, Grid Singularity, Grid+, the General Hospital, Kaiser Permanente, IBM, the Energy Web Foundation, the Enerchain project Mediledger Project, SimplyVital Health

INTERNET ADVERTISING & SOCIAL MEDIA ELECTIONS

Why you should buy in: If you could easily control Why you should buy in: The proliferation of elec- your personal data and decide whether the likes tronic voting systems and the practice of keeping of Facebook, Google, and others get to exploit it sensitive information like voter rolls in internet- for profi t, you would, right? Put it on a blockchain, connected databases translate to one thing: risk which will encrypt and store your data in a decen- that an election could be compromised. Distrib- YOU HAVE TO WORK FOR IT ANOTHER LINK IN THE CHAIN tralized network, instead of on company-owned uted ledgers could, in theory, make electronic servers. You can surf the internet anonymously, voting as secure as any physical paper trail. The hash must meet certain condi- called proof of work, is the most This is the fi nal step in securing a block over time. Since each block manage your own sensitive and identifying data, The fi ne print: There are many more tough ques- tions; if it doesn’t, the miner tries thoroughly battle-tested. the ledger. When a mining node also contains a reference to the pre- and control which sites can access it. Ahhhh, the tions than easy answers. Will votes be recorded another random nonce and cal- becomes the fi rst to solve a new vious one, the blocks are mathemat- internet as it was meant to be. on a public blockchain like those used by Bitcoin culates the hash again. It takes an block’s crypto-puzzle, it sends the ically chained together. Tampering The fi ne print: Despite revelations that big tech or Ethereum? If so, how will ballots be kept anony- enormous number of tries to fi nd block to the rest of the network for with an earlier block would require companies are pulling all manner of shenanigans mous? If it’s done on a permissioned system, a valid hash. This process deters approval, earning digital tokens in repeating the proof of work for all with user data, people have yet to #deletefacebook how do we make sure people don’t misuse their or abandon web services in large numbers. The access? hackers by making it hard to mod- reward. Mining diffi culty is encoded the subsequent blocks in the chain. vision of a decentralized web could be a tough sell. Players: Agora, Voatz, Democracy Earth ify the ledger. While some block- in the blockchain’s protocol; Bit- Players: Blockstack, Protocol Labs chain entities use other systems to coin and Ethereum are designed to secure their chains, this approach, make it increasingly hard to solve

MJ18_explainer.r1 22 4/5/18 4:37 PM When robots are your colleagues, which human skills will still matter?

Meet the innovators at the center of this transformation, including:

Jessica Brillhart Jason Furman Greg Mark Julie Shah Brad Smith Director, Professor, Founder and CEO, Associate Professor, President, Vrai Pictures Harvard Kennedy Markforged MIT Microsoft School, Former Chief Economist, Obama Administration

The Future of Work June 4-5, 2018 Cambridge, MA technologyreview.com/events

Emtech Next SIngle Page Ad MJ18-gatesize.indd 1 4/4/18 3:17 PM MAY/JUNE 2018 TECHNOLOGYREVIEW.COM

Alt-coin / A cryptocur- Fork / A change to the Permissioned We have a rency that works simi- way a blockchain’s soft- blockchain / A shared larly to Bitcoin but with ware rules define valid database with a block- few words modifications such as transactions, or blocks. / chain structure that being able to process Hard fork: A change to requires participants to for you transactions faster. the rules that all nodes obtain permission before on a network must reading or writing to the adopt, or else leave the chain. Contrast this with Blockchain / A structure network. / Soft fork: A permissionless block- for storing data in which backwards-compatible chains, which anyone groups of valid trans- change that hinges only can join. ●AZ ➜ ● actions, called blocks, on a majority of nodes’ form a chronological adopting the new rules. Proof of stake / A novel chain, with each block consensus protocol in cryptographically linked which, instead of min- If you don’t know the to the previous one. Hash function / A cryp- ing, nodes can validate tography tool that turns and make changes to terminology, blockchain can any input into a string of the blockchain on the seem either baffling or boring. Consensus protocol / characters that serves as basis of their existing Here’s a guide to help you make A process, encoded in a virtually unforgeable economic stake. sense of it all. software, by which com- digital fingerprint of the puters in a network, data, called a hash. Proof of work / The called nodes, reach an consensus protocol agreement about a set of choice for Bitcoin of data. Initial coin offering and many other cryp- (ICO) / A blockchain- tocurrencies. To add Cryptocurrency (or based fund-raising a new block, miners crypto-token) / A scarce mechanism in which must calculate a hash digital asset defined by entrepreneurs mint new for it that meets certain a blockchain protocol crypto-tokens and sell narrow criteria. Doing and exchanged via that them to investors. so requires an enor- blockchain system. mous number of ran- dom guesses, making Mining / The process by it a costly process that Decentralization / A which nodes in Bit- deters attempts to com- hard-to-quantify mea- coin, Ethereum, and mit fraud. sure of a network’s many other block- resistance to attack, a chain systems (those function of how broadly that use the consen- Smart contract / A com- control is distributed sus protocol known as puter program stored in among different actors. proof of work) add new a blockchain that auto- blocks to their respec- matically moves digital Distributed ledger tech- tive chains and generate assets between accounts nology (DLT) / A sys- new crypto-tokens. if conditions encoded in tem, most commonly a the program are met. It blockchain, for creating serves as a way to create a shared, cryptographi- a mathematically guar- cally secured database. anteed promise between two parties.

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BITCOIN (BTC) Market value in ● Payments-only blockchain billions of dollars ● Blockchain with smart contracts 200 Launched: 2009 Market value: $163 billion The strengths: The original crypto­ currency, Bitcoin is the largest and most popular blockchain network—and the most battle-tested against attackers. The downside: Growing demand has 150 stressed Bitcoin’s network, making trans- actions expensive. The system, which can process only about seven transactions per second, nonetheless guzzles electric- ity owing to its consensus protocol, proof of work, designed to make mining labor- intensive.

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ETHEREUM (ETH)

Launched: 2015 Market value: $70 billion The strengths: A built-in programming 50 language lets developers write computer programs, called smart contracts, that run on the blockchain. Most initial coin offer- ings (ICOs) so far have been based on Ethereum smart contracts. The downside: Ethereum also uses proof of work, making it relatively slow 0 and energy-hungry. Many early smart Launch 2009 2010 2011 2012 2013 2014 2015 2016 2017 contracts are vulnerable to hacking, and date the field of smart-contract security is immature.

RIPPLE (XRP) Cryptocurrencies Launched: 2012 Market value: $32 billion are not created equal The strengths: Ripple says its crypto-token, called XRP, can be a “bridge currency” that financial institutions use to settle cross- Each of the top 12 digital “coins” stands for a digital asset. Every one border payments faster and more cheaply than they do now. It uses a novel consensus is unique, but they have one thing in common: investors think they’re protocol that allows for much faster trans- worth billions. (The market values are as of mid-March.) actions than Bitcoin and Ethereum. The downside: Since Ripple, a privately By MIKE ORCUTT owned company, has so much control over the system, purists say XRP isn’t decen- tralized enough—in contrast with Bitcoin,

which anybody can mine. HTTPS://ONCHAINFX.COM/ MARKETCAP”): “CURRENT BY (SORT DATA VALUE MARKET OF SOURCE 2018; 12, MARCH OF AS ARE VALUES MARKET REPORTED ALL

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BITCOIN CASH (BCH) NEO (NEO) MONERO (XMR)

Launched: 2017 Launched: 2014 Launched: 2014 Market value: $19 billion Market value: $5.8 billion Market value: $4.3 billion The strengths: The creators of this cur- The strengths: China’s biggest crypto­ The strengths: Monero uses ring signatures, rency, the product of a “hard fork” of currency, NEO is a smart-contract plat- a type of digital signature that lets any mem- Bitcoin, tweaked Bitcoin’s software to form with goals similar to Ethereum’s. It ber of a group perform a transaction without handle larger transaction volumes. uses a consensus protocol called del- revealing which one of them it was. It’s a way The downside: Critics say Bitcoin Cash egated Byzantine fault tolerance, which to let users transact privately, and its mining is too centralized—a handful of miners NEO’s creators say allows for 10,000 process is designed to be “egalitarian.” create most of the coins. transactions per second, compared with The downside: Monero’s features have Ethereum’s 15. made it a preferred coin among cyber- The downside: NEO is highly centralized, criminals, and it has helped fuel the rise of and it’s not clear that this will ever change. “cryptojacking,” in which hackers use mal- The founder has said that the plan is to ware to make other people’s computers make it more decentralized “someday.” mine cryptocurrency for them.

LITECOIN (LTC) STELLAR LUMENS (XLM) DASH (DASH)

Launched: 2011 Launched: 2014 Launched: 2014 Market value: $10 billion Market value: $5.6 billion (formerly XCoin and Darkcoin) The strengths: Litecoin is an “alt-coin”— The strengths: Stellar, whose ledger is a Market value: $4.3 billion nearly a clone of Bitcoin, but with a few hard fork of Ripple’s, likewise aims for its The strengths: Another so-called privacy alterations. It processes transactions four lumens to be a bridge currency for cross- coin like Monero, Dash is inspired by Bit- times faster, and its mining process is border payments—only it’s run by a non- coin but has features that speed up pay- designed to remain open to hobbyists— profit, instead of a for-profit company. It ment processing. not the case with Bitcoin, in which profes- also plans to compete with Ethereum as The downside: Like some others, Dash sional miners use expensive hardware. a platform for initial coin offerings. has a centralization problem. Because of The downside: Though faster than The downside: Stellar faces a lot of com- a mishap, too many coins were distributed Bitcoin, Litecoin is still too slow and petition, from both Ripple and the tradi- when it was first released, concentrating energy-hungry to be an ideal payment tional banking system’s dominant platform, the wealth and giving a small group dis- method, and it has the added handicap SWIFT, which is testing distributed-ledger proportionate power in decisions over the of being far less well-known. technology with blockchain-ish elements. currency’s future.

CARDANO (ADA) EOS (EOS) IOTA (MIOTA)

Launched: 2017 Launched: 2017 Launched: 2017 Market value: $5.9 billion Market value: $4.3 billion Market value: 3.8 billion The strengths: Cardano’s creators say The strengths: EOS tokens exist and are The strengths: IOTA’s system does not use the system, which is still only a platform currently traded on Ethereum, though a blockchain, instead employing a shared for trading and transferring its token, the smart-contract platform itself, billed ledger based on a mathematical structure puts an emphasis on privacy and regu- as yet another Ethereum killer, has yet to called a directed acyclic graph. It aims to latory compliance. They also say it will launch. Like Cardano, it will use a proof- be a currency used by internet-of-things eventually host smart contracts. In that of-stake protocol instead of proof of work, devices to buy, sell, and trade data, whether way it will be like Ethereum—but it uses theoretically making transactions faster the transaction partners are other devices a proof-of-stake consensus protocol and and more efficient. or customers like technology companies. thus gobbles up less energy. The downside: Despite being on track The downside: Critics say IOTA is too The downside: Despite big claims from to raise more than $1 billion via an ICO, centralized, and numerous cryptography the developers, there’s still very little infor- the project is nearly impossible to judge researchers have questioned the system’s mation on Cardano. before the network has launched. overall security. 27

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arlier this year, jack Dorsey, cofounder of Twitter and CEO of Square, declared E that Bitcoin would become the world’s “single currency” within a decade. What was striking about Dorsey’s comment wasn’t just the audacious pre- diction but also the notion that Bitcoin Bitcoin might be useful for something other than speculative investing. After all, even as the financial world has been gripped by cryp- tocurrency mania over the last year, the “currency” part of cryptocurrencies has would receded in importance in the public eye. As a Goldman Sachs executive put it last year, Bitcoin is, at the moment, more of an asset than a currency—it’s something peo- be a ple trade, like a stock or bond, rather than something they exchange for goods and services. That perception reflects reality. The number of Bitcoin transactions (as calamity, opposed to trades) has not risen much in the last few years, and one recent academic study suggested that half of those transac- tions are associated with illicit activity. As not an a medium of exchange, Bitcoin remains today pretty much what it was in 2010: an interesting complement to the exist- ing monetary system, primarily useful for people interested in avoiding legal authori- economy ties or living in societies racked by infla- tion (like, say, in Venezuela or Zimbabwe). Still, the dream that cryptocurrency could replace our existing system of fiat money, in which the money supply is con- trolled by government-­run central banks, remains a key part of Bitcoin’s appeal. The promise is of a system where the govern- ment can’t manipulate the money sup- ply, and market competition determines which currencies people use. But what would happen if that dream came true? If the dollar and the euro were replaced by Bitcoin, how would the system adapt, and how would the economy and the financial system function? By A cryptocurrency JAMES SUROWIECKI The simple answer is: not well. Our future sounds liberating. Illustration by Daniel Zender economies and financial systems are built In reality, it would be a around fiat money, and they rely on the disaster for everybody. central bank’s control of the currency (and the government’s ability to issue debt in that currency) to help manage the busi- ness cycle, fight unemployment, and deal

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with financial crises. An economy in which Bitcoin was the domi- to pour money into the economy. Fiscal policy, too, would be nant currency would be a more volatile and harsher economy, in close to impotent. Today, when the government runs a deficit, it which the government would have limited tools to fight recessions can have the Fed print money and then borrow that money from and where financial panics, once started, would be hard to stop. the Fed. That adds liquidity to the system. In the Bitcoin world, the government would have to borrow bitcoins to spend. And again, this would make bitcoins more valuable, making people The opposite of what you want less willing to spend them—the opposite of what you need to o see why this is the case, it’s key to rec- fight a recession. ognize the crucial role that the central bank (which in the US is the Federal Reserve) plays to provide But don’t worry about it T what economists call “liquidity” when the system needs it. That’s just a fancy way of saying that the central bank he good news is that it’s an incredibly can pump money into the system, either by printing it and then unlikely future. While the idea of making Bitcoin lending it to banks (with the idea that they will then inject that a universal currency may have impeccable logic to money into the system) or by simply buying assets itself. Provid- T digital-age utopians, in practice it makes little sense. ing liquidity is especially important in times of financial crisis, And the design of Bitcoin also makes it difficult to imagine. Since because crises lead banks to cut back on lending and savers to the supply of bitcoins is limited, if the demand for them rises, pull their money out of banks. In those times, the central bank their value rises, too. But that means that if you own bitcoins, serves as a lender of last resort, stepping in when otherwise sol- and you think they’re going to become more popular, then the vent banks are struggling to stay afloat and ensuring that we sensible thing to do is hold them, since they’ll be more valuable don’t end up with a flood of bank closings. tomorrow. That makes people less interested in using bitcoins In an economy run on Bitcoin, these things would be impos- to actually buy stuff and more interested in treating them as sible for a central bank to accomplish. A key aspect of the Bit- speculative investments—the opposite of what you want in a coin protocol is that the total number of bitcoins is capped at 21 medium of exchange. million, after which no more will ever be issued. This makes Bit- You might think that the same restrictions on supply were true coin appealing to many people because something that will never of gold when economies were run on the gold standard. But the increase in supply is more likely to hold its value. The problem supply of gold wasn’t fixed. It expanded as people mined more is that in the event of a crisis, there would also be no way to add of it. There actually was something of an equilibrium—as eco- liquidity to the system, since you can’t “print” more bitcoins. The nomic growth increased the demand for gold, making it more central bank could build up a stash of bitcoins that it could then valuable, the rising price encouraged people to mine it, which funnel into the system, but that would do little good because brought more gold into the system, ultimately keeping the dollar people would know the stash was limited. And in any case, the value of gold relatively stable. Between 1800 and 1900, the dol- central bank’s demand for Bitcoin would drive up its price, which lar value of gold gradually rose by small percentages. Bitcoin, by would make people more likely to hold onto it and less willing contrast, regularly rises and falls 5 or 10 percent in a single day, to spend it—the opposite of what you want in a financial crisis. purely because of shifts in speculative sentiment. That volatility Bitcoin would also make it hard for governments to fight weakens its usefulness as a store of value (one of the other roles recessions, which they typically do by using what economists call of a currency) and makes it unsuitable for use as a day-to-day countercyclical monetary and fiscal policy. Central banks slash medium of exchange, since no one wants to accept a currency if interest rates, and—as the Federal Reserve did after the 2008 it might be worth 10 percent less a couple of hours from now. In financial crisis—pump money into the system by buying assets other words, a financial system run on Bitcoin would have all the (what’s known as quantitative easing). And governments try to bad features of the gold standard and few of the redeeming ones. get the economy moving again by cutting taxes and increasing There are also practical hurdles to making Bitcoin a currency spending, typically paying for that by borrowing money, as with people can use easily. When demand for Bitcoin is high, transac- the Obama-era stimulus package. tion fees soar as miners raise the price of processing those trans- Here again, a Bitcoin economy would limit the government’s actions. At the peak of Bitcoin mania last fall, it could cost as options. Since the central bank would have no control over the much as $55 a transaction. That was fine when people thought currency, it would also have no control over interest rates, and the value of their Bitcoin stash was going to double overnight. only a limited ability (depending on the size of its Bitcoin stash) But it doesn’t work if people want to use Bitcoin to buy pizza or

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This doesn’t mean cryptocurrencies are useless. Buying drugs, know that you will be able to use them to buy whatever you want. Commerce flows more smoothly because everyone has implicitly money laundering: agreed to use the dollar. In an economy with lots of competing currencies (particularly these are situations cryptocurrencies unbacked by any commodity), it would work where they can come very differently. If someone wants to pay you in Litecoin, you have to figure out whether you think Litecoin is a real cryptocur- in handy. rency or just a scam that could shut down any day now. You have to consider who else might accept Litecoin if you want to spend it, or who would trade you dollars for it (and at what exchange rate and transaction fee). Basically, a proliferation of currencies tosses sand into the gears of commerce, making transactions less a new TV set. Even more important, Bitcoin cannot scale to deal efficient and more costly. And any currency that is hard to use is with the number of transactions a modern economy needs. The less valuable as a medium of exchange. system is limited to processing just 420 transactions per min- ute. Finally, there’s the fact that a remarkably small number of Still great for money laundering people control a remarkably large percentage of all the bitcoins in the world. That gives them the leverage to manipulate prices, his isn’t speculative. we actually have a and makes it harder for Bitcoin to have the reach it would need historical example of how this works. In the United to become a real currency. States in the decades before the Civil War, there was T no national currency. Instead, it was an era of what was called “free banking.” Individual banks issued bank notes, Choose your own currency! theoretically backed by gold, that people used as money. The prob- of course, bitcoin is far from the only lem was that the farther away from a bank you got, the less rec- cryptocurrency. Depending on how you count, there ognizable (and therefore the less trustworthy) a bank’s note was are now hundreds, if not thousands, of them. And to people. And every time you did a deal, you had to vet the note O while they’re all built, like Bitcoin, on the block- to make sure it was worth what your trading partner said it was chain, some have features that might seem to make them more worth. So-called wildcat banks sprang up, took people’s money, attractive as a potential global currency. Litecoin, for instance, issued a host of notes, and then shut down, making their notes can process more transactions per minute. Monero and Zcash worthless. To be sure, people came up with workarounds—there offer genuine anonymity (as opposed to Bitcoin, where every were volumes that were a kind of Yelp for banking, displaying the transaction is associated with a given key that can be tracked). panoply of bank notes and rating them for reliability and value. And not all cryptocurrencies have a rigid cap on the total num- But the broader consequence was that doing business was simply ber of coins. So perhaps a different cryptocurrency could replace more complicated and slower than it otherwise would have been. the dollar or euro or yuan—or, more plausibly, we could end up The same will be true in a world where some people use Ethe- with a system of lots of different private currencies, rather than reum, others use Litecoin, and others use Ripple. relying solely on a single medium of exchange. That doesn’t mean that cryptocurrencies are useless. On the There’s something appealing about the idea of everyone contrary, for transactions that one wants to keep hidden from choosing the currency that suits them best, and of cryptocurren- the government (or other authorities), they will remain useful. cies competing against each other to win the loyalty of consumers Buying drugs, laundering money, evading capital controls, pro- and businesses. But in fact the proliferation of cryptocurrencies tecting your money in countries with hyperinflationary environ- that we’ve seen over the past few years makes it less likely, not ments: these are all situations where cryptocurrencies can come more, that they will eventually replace fiat money. in handy. But the notion that private cryptocurrencies might soon The problem with a world in which there are lots of differ- (or ever) be a meaningful competitor to fiat money for everyday ent private currencies is that it massively increases transaction transactions is little more than a pipe dream. costs. With a single, government-issued currency that’s legal ten- der, you don’t have to think about whether or not to accept it in James Surowiecki is the author of The Wisdom of Crowds and a exchange for goods and services. You accept dollars because you senior story producer at Vice News Tonight.

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WHERE WE ARE

Now Bitcoin mining is wrecking the environment. Blockchains could help refugees get their lives back. China’s crackdown and its unexpected consequences. The cyber-sleuths hunting down crypto-criminals. Why “Is the crypto world sexist?” is the wrong question to ask. Plus: portraits of blockchain’s often unlikely true believers. 33

MJ18_openers.indd 33 4/5/18 11:48 AM MJ18_Blockchain_and_the_environment.indd 34 4/5/18 9:55 AM The little coin that ate Quebec

A Canadian hydropower operation put out the welcome mat

for bitcoin miners. Shortly thereafter, it was overrun.

By KATHRYN MILES / Photographs by ALEXI HOBBS

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t first glance, nothing looks par- These computers, often called “rigs,” A flash flood of miners ticularly cutting-edge about this are purpose-built. Able to withstand dra- Aaging industrial park in Saint-­ matic shifts in temperature and humidity, Hyacinthe, Quebec, about 60 miles east they are singularly programmed not only of Montreal. The air is thick with the smell to perform just one computation trillions of roasting cacao, which billows from a of times each second, but to repeat those “Quebec Lures massive chocolate factory and seeps into computations around the clock and with- Cryptocurrency tractor-­trailers and forgotten offices. out pause. They are also energy hogs: the Miners as China Sours on Industry” Nearby, an audiovisual repair shop and an 7,000 in Saint-Hyacinthe alone consis- —COINDESK.COM agricultural lab specializing in the detec- tently draw more energy than the Mon- JANUARY 10, 2018 tion of livestock pathogens vie for space treal Canadiens’ nearby hockey arena, with a massive disused dairy processing even on a sold-out game night. “Canada’s Hydro plant. Tucked behind all three sits a worn, Globally, millions of these computers Quebec Unable to low-slung building that previously served are in operation, part of the cryptocur- Meet Demand from as a warehouse for a soup company and, rency boom that began in 2009. In the “Bitcoin Mining Puts Digital Currency Crimp in Quebec’s Miners” —REUTERS before that, a factory producing diapers. decade since the inception of Bitcoin, Energy Capacity” JANUARY 19 You might think it, too, had since been most of this mining work has occurred in —PYMNTS.COM forgotten, were it not for the plastic sheet- countries like China and Romania, which JANUARY 22 ing hinting at new construction inside and offer plentiful electricity and little regula- the small fleet of shining company cars sta- tion. In 2016, Hydro-Québec announced a tioned in the parking lot. But the biggest formal plan to woo data centers like those clue of all that something both new and run by Microsoft and Amazon. Crypto- “Unfazed by Crypto- decidedly high-tech is happening here can currency miners also came calling, and Currency Crash, be heard while standing next to those cars: began submitting proposals in September Miners Flock to an omnipresent hum, audible well outside 2017. Interest from them soon became Power-Rich Quebec, Canada” the building, created by thousands of com- overwhelming, with more requests than —BLOOMBERG NEWS puters, each one completing the same sin- the power company could accommodate. FEBRUARY 2 gular task again and again and again, day Were Quebec to accept even a fraction after day, without change or interruption. of them, the province could well become These computers are the property of the new global hub of cryptocurrency Bitfarms, one of North America’s largest mining. That has raised questions about cryptocurrency mining operations. Here how well Hydro-Québec’s grid can sustain “Hydro-Québec Con- siders Raising Rates in the once-abandoned factory, about these energy demands, particularly in the for Bitcoin Miners” 7,000 shoebox-size machines (as of April, winter. Meanwhile, environmentalists —THE CANADIAN PRESS but that’s expected to rise to 14,000 by and social-justice advocates worry about FEBRUARY 15 July) sit tightly shelved in a single floor-to- the ecological and cultural impact of this ceiling row that bisects the building. On campaign. And that, in turn, raises diffi- one side of the stacks, a mess of wires and cult ethical questions about the real value routers exiting the rear of each computer of a wholly virtual currency. sits exposed to the cold Canadian air. On the other, thousands of identical fans roar Worthless puzzles “Crypto Craze Has Hydro-Quebec as they push hot air past a heap of empty Cryptocurrencies are energy-intensive by CEO’s Phone ‘Ring- cardboard boxes and into the otherwise their very nature. As decentralized ledger ing Off the Hook’” vacant space. A handful of busy employ- systems, of which Bitcoin is the largest, —BLOOMBERG NEWS FEBRUARY 28 ees move between the two sides wear- most rely for their security on an approach “Québec Premier: ing thin T-shirts and jeans, their faces known as “proof of work.” About every 10 We’re Not Really Interested in Bitcoin flushed. Even on a raw, gray day, the heat minutes, Bitcoin releases new currency in Mining” —BITCOIN.COM on the fan side is stifling. exchange for successfully solving compu- MARCH 6

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tational problems that verify a “block” of modeling of network systems. The cur- transactions. Participants do this by con- rent global Bitcoin hash rate, which verting the data representing those trans- is to say the total number of min- actions into a sequence of code known as ing computations, is approximately a “hash,” trying again and again until they 25,000,000,000,000,000,000 per sec- arrive at one that meets certain criteria. ond, or 25 million terahashes a second. And while it doesn’t require an immense That’s an increase from 300,000 tera- degree of sophistication—insiders liken hashes a second just four years ago, and the process to guessing lottery numbers— the figure is expected to continue growing it does require an immense quantity of in the months and years to come. Fac- wrong guesses. tor in additional energy consumption “You’re essentially solving worthless required to cool the computers (they can’t puzzles that we cannot solve mathemati- function in temperatures over 40 °C), cally,” says Christian Catalini, associ- and Malone estimates that Bitcoin alone ate professor of technological innovation is consuming as much electricity as the at MIT and founder of the university’s entire nation of Ireland at any given Crypto­economics Lab. “You can only moment. And while Bitcoin is the larg- brute-force your way into it.” And the est proof-of-work cryptocurrency, it’s far muscle behind that force comes in the from the only game in town: at last count, form of electricity used to power miners’ there were nearly 1,500 in operation, each The wires and routers behind each computer sit exposed to the cold Canadian air. computers. with its own energy demands. Resource intensiveness is inherent Without a doubt, electricity is the in a decentralized system like Bitcoin’s, single greatest expense for any mining says Catalini, because it is based on a operation. And so, to be profitable, farms the world, and the industry emits about fundamental lack of trust between par- must be able to source power on the cheap. 29,000 kilotons of carbon a year, accord- ticipants. Instead of being guaranteed by That’s a big reason why China has led the ing to Digiconomist, the leading clear- a central bank like, say, the US Federal mining boom: its electricity rates are as inghouse of cryptocurrency and energy Reserve, cryptocurrencies like Bitcoin low as nine cents per kilowatt-hour. But concerns. That’s more than is produced combat fraud by making all transactions increasing government regulation and annually by Afghanistan, Croatia, Kenya, transparent and verifiable by all partici- concern that grid resources could run or Panama. pants. Attempts to tamper with such a out have many miners there looking for It’s also a big reason why Pierre-Luc ledger must be made self-defeating. other places to set up shop. Growing con- Quimper, the founder of Bitfarms, located “Basically, you’re placing an economic cerns about China’s contribution to cli- all five of his mining operations in Que- cost between a user and an attacker,” says mate change only hastened that exodus, bec, where he could rely on hydropower Catalini. “If someone wants to subvert the as mining companies sought to promote to fuel his 20,000 computers. Quimper system by faking a transaction, or revert their operations to potential investors as and his colleagues at Bitfarms had been a legitimate transaction, they would have environmentally friendly. involved with cryptocurrency in a vari- to expend a tremendously high amount For years now, China has led the world ety of capacities since 2009. They joined of energy and computation—to the point in greenhouse-gas emissions. That’s forces and established both the company that no rational economic actor would do partly because it is the most populous and their mining facilities in late 2017— that, because the cost of doing an attack nation. However, it’s also because China just in time for the Quebec boom. would be far greater than the benefit.” generates most of its electricity using “We use a lot of energy,” says Quimper. But that means legitimate transac- coal, which is one of the dirtiest forms of “It has to be clean. If we have a footprint tions must also expend extensive energy energy. The United States, currently the on the environment, that’s bad.” to prove their validity. second most popular country for crypto- Hydro-Québec touted its hydro- David Malone is a senior lecturer at currency mining, also gets the majority electric power as the ideal solution: a Ireland’s Maynooth University, where of its electricity from fossil fuels. Add in clean, renewable source of energy that he specializes in the mathematical the rest of the mining operations around can be supplied in massive quantities.

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It contends that the energy it provides And while hydroelectric operations to cryptocurrency mining operations is in cooler climates tend to release less “surplus”—an extra 100 terawatts of low- carbon and methane than their tropical 10 MW impact energy the utility has the capacity counterparts, they come with their own to generates over the next decade. unique environmental price tags. The But the claim that this energy is green northern ecosystems known as boreal 5 MW has come under increasing scrutiny, par- forests don’t just sequester carbon. Their ticularly from conservation biologists. rivers supply the water that forms the 7,000 SOLD-OUT COMPUTERS IN MONTREAL They say the impact is far too high for bulk of Arctic sea ice and are believed ST.-HYACINTHE NHL ARENA any additional industry, let alone one that to be responsible for key ocean currents produces nothing but bitcoins. that transport water and define global weather patterns. Because dams like the Millions of acres under water ones maintained by Hydro-Québec tend 25, Hydroelectric power, which uses moving to be far away from population centers, water to turn turbines that generate elec- they also require extensive installations 000,000, tricity, is undeniably cleaner than coal of transmission lines and transform- and other electricity generated by fos- ers. Those, in turn, can disrupt wildlife 000,000, sil fuels. Nevertheless, it, too, produces habitats, kill birds, and introduce inva- demonstrable environmental impacts. sive species. 000,000 One of the biggest is the damage created Marc-Antoine Pouliot, a spokesper- (25 MILLION TERAHASHES) by the reservoirs built to hold a ready son for Hydro-Québec, assured me that The approximate total number of supply of water. In places like Quebec, full environmental impact studies are computations per second devoted to these reservoirs often overtake existing completed before any new dam construc- bitcoin mining forests, which are some of the planet’s tion is begun. He said the utility runs a most efficient converters and bankers complete analysis of any new blockchain of carbon. And as trees rot underwater, operation, and if any updates to the grid they release the carbon they’ve stored as are required, the company is responsi-

methane—a far more potent greenhouse ble for funding them. The only concern, CARBON EMIT- gas than carbon dioxide. he said, is how to manage the constant TED ANNUALLY “You’re putting hundreds of thou- energy draw of these operations during IN AFGHANI- STAN (9,809 sands and eventually millions of acres existing peak usage times—like Cana- KILOTONS) under water,” says Jeff Wells, a conserva- dian winters. tion biologist and researcher at Cornell “In Quebec, residential customers University. He was the lead author of a heat their homes with electricity. In con- TOTAL SUM OF CARBON 2011 study into the effects of industrial- sequence, the demand can be very high EMITTED BY ization on northern forests. “You’re put- when the temperature is below -20 °C for THE CRYPTO- ting a greenhouse gas in the atmosphere a few days,” he said. “We are now analyz- CURRENCY INDUSTRY and stopping the ability of that area to ing the effect of the blockchain on our ANNUALLY take any more carbon into the system,” winter peak. One of the solutions could (ABOUT 29,000 KILOTONS) he adds. “You’ve lost a whole ecosystem.” be to oblige blockchain companies to Researchers have calculated the car- suspend the activity during the winter.” bon impact of hydroelectricity world- In an industry where every day can wide. Their estimates suggest that if all be worth tens of thousands of dollars cryptocurrency mining were to move to or more, it’s pretty unlikely that min- this power source, the industry would ers would be amenable to that kind of still generate over 9,000 kilotons of car- solution. bon dioxide each year, plus more than Wells would like to see fewer massive

150 kilotons of methane. dam complexes, not more. “I already start 2014 FROM IS FIGURE AFGHANISTAN DIGICONOMIST. AND BANK WORLD THE FROM INFO

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anywhere and don’t require retrofitting or other costs associated with rewiring old buildings. They can also be easily adapted to channel the heat produced by the computers. Nejad says it’s not a stretch to imagine them heating build- ings or allowing greenhouses to grow warm-weather crops like tomatoes and strawberries year-round, even in Quebec.

Empty cardboard boxes So just how big an impact will block- chain applications like cryptocurrency continue to make on our planet? That depends on whether future blockchains continue to use the energy-devouring proof-of-work approach. One alternative is known as “proof of stake.” Rather than asking people to solve resource-intensive computational puzzles, a proof-of-stake system requires issuers to put up capital as a guarantee. This self-contained pod is designed to cut Late last year, the blockchain consortium down on the cooling needs of crypto-mining. Ethereum announced plans to convert to a proof-of-stake system for its cryptocur- rency mining. If successful, it will be the off with the idea that it’s not a good idea the local economy and employed resi- first of its kind and could well lead to an to destroy a working system that is liter- dents to work there. industry shift away from proof of work. ally part of the life support of the planet,” And more innovation, he promises, is Even if that doesn’t happen, the he says. “There are fewer and fewer of on the horizon to further offset carbon amount of energy required to fuel major those places left. To do it for cryptocur- emissions. cryptocurrency operations like Bitcoin rency or some speculative technology Not far from the Bitfarms Saint-­ will eventually drop as all the coins move seems completely reckless.” Hyacinthe mining operation, a small into circulation and energy-intensive But miners like Quimper take issue startup company called K.E. Inc. is look- mining is replaced with mere transac- with the idea that cryptocurrency is ing to change where and how cryptocur- tion monitoring. unproven or a passing experiment. Block- rency is mined in North America. Its But until then, operations like Bit- chain, he says, like network servers and founder, Fooad Nejad, cut his teeth in farms continue to grow. Those heaps the internet itself, is clearly here to stay. cooling systems for data centers. When of empty cardboard boxes back at the And fueling it with hydropower remains new mining operations began contact- Saint-Hyacinthe former diaper factory? the most environmentally responsible ing him to create efficient cooling for They exist because the company is add- way to meet the skyrocketing interest their farms, he developed self-contained ing computers so fast its employees don’t in applications like cryptocurrency. He modular shells that can accommodate have time to break down and recycle the points to additional benefits provided by up to 1,200 computers. The computers packaging. companies like his: Bitfarms’ five opera- still require the same amount of energy, tions each reclaimed otherwise aban- says Nejad, but a recirculating ventila- Kathryn Miles is a freelance writer doned and decaying warehouses and tion system cuts down on heating and and the author of four books, including factories in communities throughout cooling needs. The pods, which resem- Quakeland: On the Road to America’s Quebec. They’ve injected resources into ble shipping containers, can be set up Next Devastating Earthquake.

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MJ18_Blockchain_and_the_environment.indd 39 4/5/18 2:24 PM MIT TECHNOLOGY REVIEW MAY/JUNE 2018 Q: How secure

is a spend. A subset of them compete to pack- age valid transactions into “blocks” and add them to a chain of previous ones. The own- blockchain, ers of these nodes are called miners. Min- ers who successfully add new blocks to the chain earn bitcoins as a reward. really? What makes this system theoreti- cally tamperproof is two things: a crypto- graphic fingerprint unique to each block, and a “consensus protocol,” the process by which the nodes in the network agree on A: a shared history. The fingerprint, called a hash, takes a lot of computing time and energy to gener- ate initially. It thus serves as proof that the It turns out miner who added the block to the block- chain did the computational work to earn a bitcoin reward (for this reason, Bitcoin is “secure” is said to use a “proof-of-work” protocol). It also serves as a kind of seal, since altering the block would require generating a new hash. Verifying whether or not the hash a funny word matches its block, however, is easy, and once the nodes have done so they update their respective copies of the blockchain with the to pin down. new block. This is the consensus protocol. The final security element is that the By MIKE ORCUTT hashes also serve as the links in the block- chain: each block includes the previous block’s unique hash. So if you want to whole point of who are skilled cheaters, in the real world, change an entry in the ledger retroactively, using a blockchain where things can get messy. you have to calculate a new hash not only The is to let people— To understand why, start with what for the block it’s in but also for every subse- in particular, people who don’t trust one makes blockchains “secure” in principle. quent block. And you have to do this faster another—share valuable data in a secure, Bitcoin is a good example. In Bitcoin’s than the other nodes can add new blocks tamperproof way. That’s because block- blockchain, the shared data is the history to the chain. So unless you have computers chains store data using sophisticated math of every Bitcoin transaction ever made: an that are more powerful than the rest of the and innovative software rules that are accounting ledger. The ledger is stored in nodes combined (and even then, success extremely difficult for attackers to manip- multiple copies on a network of computers, isn’t guaranteed), any blocks you add will ulate. But the security of even the best- called “nodes.” Each time someone submits conflict with existing ones, and the other designed blockchain systems can fail in a transaction to the ledger, the nodes check nodes will automatically reject your alter- places where the fancy math and soft- to make sure the transaction is valid—that ations. This is what makes the blockchain ware rules come into contact with humans, whoever spent a bitcoin had a bitcoin to tamperproof, or “immutable.”

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MJ18_secure.indd 40 4/5/18 11:50 AM MAY/JUNEMAY/JUNE 2018 2018 TECHNOLOGYREVIEW.COMMIT TECHNOLOGY REVIEW

The security of even the best-designed blockchain systems can fail where the software rules come into contact with humans in the real world.

CREATIVE WAYS TO CHEAT tions for storing the private cryptographic weak point to attack, and it’s hard for any- keys that anyone who owns cryptocurrency one to build up enough computing power much for the theory. Imple- requires in order to spend it. Wallets owned to subvert the network. But recent work menting it in practice is by online cryptocurrency exchanges have by Sirer and colleagues shows that nei- So harder. The mere fact that become prime targets. Many exchanges ther Bitcoin nor Ethereum is as decentral- a system works like Bitcoin—as many cryp- claim they keep most of their users’ money ized as you might think. They found that tocurrencies do—doesn’t mean it’s just as in “cold” hardware wallets—storage devices the top four bitcoin-mining operations secure. Even when developers use tried- disconnected from the internet. But as the had more than 53 percent of the system’s and-true cryptographic tools, it is easy to January heist of more than $500 million average mining capacity per week. By the accidentally put them together in ways that worth of cryptocurrency from the Japan- same measure, three Ethereum miners are not secure, says Neha Narula, director based exchange Coincheck showed, that’s accounted for 61 percent. of MIT’s Digital Currency Initiative. Bit- not always the case. Some say alternative consensus pro- coin has been around the longest, so it’s the Perhaps the most complicated touch- tocols, perhaps ones that don’t rely on most thoroughly battle-tested. points between blockchains and the real mining, could be more secure. But this People have also found creative ways to world are “smart contracts,” which are hypothesis hasn’t been tested at a large cheat. Emin Gün Sirer and his colleagues computer programs stored in certain kinds scale, and new protocols would likely have at Cornell University have shown that there of blockchain that can automate transac- their own security problems. is a way to subvert a blockchain even if tions. In 2016, hackers exploited an unfore- Others see potential in blockchains you have less than half the mining power seen quirk in a smart contract written on that require permission to join, unlike in of the other miners. The details are some- Ethereum’s blockchain to steal 3.6 mil- Bitcoin’s case, where anyone who down- what technical, but essentially a “selfish lion ether, worth around $80 million at loads the software can join the network. miner” can gain an unfair advantage by the time, from the Decentralized Autono- Such systems are anathema to the anti- fooling other nodes into wasting time on mous Organization (DAO), a new kind of hierarchical ethos of cryptocurrencies, but already-solved crypto-puzzles. blockchain-based investment fund. the approach appeals to financial and other Another possibility is an “eclipse Since the DAO code lived on the block- institutions looking to exploit the advan- attack.” Nodes on the blockchain must chain, the Ethereum community had to tages of a shared cryptographic database. remain in constant communication in push a controversial software upgrade Permissioned systems, however, raise order to compare data. An attacker who called a “hard fork” to get the money their own questions. Who has the author- manages to take control of one node’s com- back—essentially creating a new version ity to grant permission? How will the sys- munications and fool it into accepting false of history in which the money was never tem ensure that the validators are who data that appears to come from the rest stolen. Researchers are still developing they say they are? A permissioned system of the network can trick it into wasting methods for ensuring that smart contracts may make its owners feel more secure, resources or confirming fake transactions. won’t malfunction. but it really just gives them more con- Finally, no matter how tamperproof a trol, which means they can make changes blockchain protocol is, it “does not exist whether or not other network partici- in a vacuum,” says Sirer. The cryptocur- THE CENTRALIZATION QUESTION pants agree—something true believers rency hacks driving recent headlines are would see as violating the very idea of usually failures at places where blockchain supposed secu- blockchain. systems connect with the real world—for rity guarantee of a So in the end, “secure” ends up being example, in software clients and third- One blockchain system very hard to define in the context of block- party applications. is “decentralization.” If copies of the block- chains. Secure from whom? Secure for Hackers can, for instance, break into chain are kept on a large and widely dis- what? “It depends on your perspective,” “hot wallets,” internet-connected applica- tributed network of nodes, there’s no one says Narula.

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A customer pays for groceries at a supermarket in the Zaatari refugee camp.

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MJ18_Blockchain_Human_Rights.indd 42 4/5/18 9:32 AM MAY/JUNE 2018 TECHNOLOGYREVIEW.COM

The place where life hangs by a chain

A sprawling refugee camp in Jordan is an early test of whether blockchains can reinvent the way we own, control, and administer our legal identities in the 21st century.

Story and photographs BY RUSS JUSKALIAN

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MJ18_Blockchain_Human_Rights.indd 43 4/5/18 9:32 AM MIT TECHNOLOGY REVIEW MAY/JUNE 2018 Syrian refugees could regain legal identities that were lost when they fled their homes.

few times a month, Bassam pushes a shopping And if the man behind the project, WFP executive Houman cart through the aisles of a grocery store stocked Haddad, has his way, the blockchain-based program will do far with bags of rice, a small selection of fresh veg- more than save money. It will tackle a central problem in any etables, and other staples. Today he’s wearing a humanitarian crisis: how do you get people without govern- black sweater tucked into denim jeans, which ment identity documents or a bank account into a financial and A are themselves tucked into calf-high boots caked legal system where those things are prerequisites to getting a in mud. The Tazweed Supermarket, where he’s shopping, is on job and living a secure life? the periphery of a 75,000-person refugee camp in the semi-arid Jordanian steppe, six and a half miles from the Syrian border. Owning your identity At the checkout counter, a cashier tallies the total, but Haddad imagines Bassam one day walking out of Zaatari with a ­Bassam doesn’t pay with cash or a credit card. Instead he lifts so-called digital wallet, filled with his camp transaction history, his head to a black box and gazes into the mirror and camera his government ID, and access to financial accounts, all linked at its center. A moment later, an image of Bassam’s eye flashes through a blockchain-based identity system. With such a wallet, on the cashier’s screen. Bassam collects his receipt—which when Bassam left the camp he could much more easily enter reads “EyePay” and “World Food Programme Building Blocks” the world economy. He would have a place for an employer to across the top—and walks out into the noonday chaos of the deposit his pay, for a mainstream bank to see his credit history, Zaatari refugee camp. and for a border or immigration agent to check his identity, Though Bassam may not know it, his visit to the supermar- which would be attested to by the UN, the Jordanian govern- ket involves one of the first uses of blockchain for humanitarian ment, and possibly even his neighbors. aid. By letting a machine scan his iris, he confirmed his iden- Such a record, perhaps stored on a mobile phone, could let tity on a traditional United Nations database, queried a family someone like Bassam take his data from Syria to Jordan and account kept on a variant of the Ethereum blockchain by the beyond, backed up online in encrypted form. Syrian refugees World Food Programme (WFP), and settled his bill without using such a system—and most in Zaatari already have smart- opening his wallet. phones—could regain legal identities that were lost along with Started in early 2017, Building Blocks, as the program is their documents and assets when they fled their homes. In this known, helps the WFP distribute cash-for-food aid to over scenario, Bassam could move—to Germany, or back to Syria— 100,000 Syrian refugees in Jordan. By the end of this year, and easily prove his educational credentials, demonstrate his the program will cover all 500,000 refugees in the country. If relationship to his children, and get a loan to start a business. the project succeeds, it could eventually speed the adoption (In most countries, without an ID you can’t get a bank account, of blockchain technologies at sister UN agencies and beyond. and without a bank account, you can’t get a place to live or a Building Blocks was born of a need to save money. The WFP legal job.) helps feed 80 million people around the globe, but since 2009 If such a system had existed before Bassam left his home- the organization has shifted from delivering food to transferring town of Daraa, he might have avoided Zaatari altogether and money to people who need food. This approach could feed more become a productive member of Jordanian society straight people, improve local economies, and increase transparency. away. Even if Syria revoked his passport, or if a school with a But it also introduces a notable point of inefficiency: working record of his degrees were bombed, an immutable register of with local or regional banks. For the WFP, which transferred his history could still smooth his entry into an adopted country. over $1.3 billion in such benefits in 2017 (about 30 percent of A number of organizations are already working on aspects its total aid), transaction and other fees are money that could of this idea. In Finland, a blockchain startup called MONI has have gone to millions of meals. Early results of the blockchain collaborated since 2015 with the Finnish Immigration Service, program touted a 98 percent reduction in such fees. giving every refugee in the country a prepaid MasterCard—

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Houman Haddad is the UN executive behind Building Blocks and its use at the Jordanian camp.

backed by a digital identity number stored on a blockchain. Even without the passport necessary to open a Finnish bank account, a MONI account lets refugees receive benefits directly from the government. The system also allows refugees to get loans from people who know and trust them, helping them build rudimentary credit histories that could make it possible to get institutional loans down the road. Meanwhile, companies like Accenture and Microsoft are joining nonprofit organizations in a public-private alliance called ID2020. The mission is to help achieve the UN goal of providing a legal identity to everyone, starting with the 1.1 billion people who lack any officially recognized proof of their existence. At the heart of such systems is a concept known as “self- sovereign identity.” It was popularized in 2016 by Christopher Allen, an American technologist, who outlined principles for a digital proof of existence owned by the individual. In such a scheme, identity would be portable and not dependent on any state or central authority. And the consensus is growing that a blockchain should be at its center. Blockchains, Allen told me, are critical to such identity sys- tems because they solve previously “unsolvable” problems. By stor- ing an encrypted identifier in a blockchain, one can separate the authentication system from one’s data, helping to protect privacy. Blockchain systems are also more secure than conventional iden- tity records because they cut out third-party intermediaries. They can be easier to use, and they can survive disasters that might wipe out more centralized record-keeping systems. The ultimate goal is a system in which a user owns and totally controls some kind of digital wallet—much like the physical one we carry today for our paper documents. The wal- let stores claims made by the user (like name and date of birth), evidence for those claims (like copies of birth certificates or utility bills), and third-party validations, known as attestations, that further support an individual’s claims (like a government confirmation of the details on a birth certificate). Such a wallet could reside in a smart chip on a key fob or something resem- bling a credit card, or it could be a secure enclave within one’s phone, like those already provided by some manufacturers. With the right technology, say Haddad and others, a block- A mural at the Zaatari camp (center); chain ID system could cover many more claims than the kind Bassam gets his eye scanned to pay at the found on licenses or passports—claims like “over 21” or “US market’s checkout.

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MJ18_Blockchain_Human_Rights.indd 45 4/5/18 9:32 AM MIT TECHNOLOGY REVIEW MAY/JUNE 2018 Zaatari is a bustling city that sprang into existence as a tidal bore of humanity crashed over the Syrian border in 2012.

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Nearly 75,000 Syrians live in the sprawling camp, including many children and young adults.

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At the Tazweed Supermarket An iris scan is used to establish The supermarket offers bulk (top), residents of the camp can digital identity at the checkout supplies of necessities such as buy goods using a blockchain- (left). The system uses a tradi- rice, oil, and sugar. based account. tional database and an account stored on a permissioned variant of the Ethereum blockchain.

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citizen.” It might, for example, help a refugee prove his or her accountability. “Now if we get a call that 20,000 people are professional background or family connections. coming in the night, we can have everything ready for them in the morning,” he says. “The old way would have taken two Who controls it? weeks and required paper vouchers.” It will take a while to achieve that grand vision. Haddad’s idea for But because Building Blocks runs on a small, permissioned Building Blocks was to start by creating an account on a block- blockchain, the project’s scope and impact are narrow. So nar- chain for every family of Syrian refugees in a Jordanian camp. row that some critics say it’s a gimmick and the WFP could Families wouldn’t then have to wait days for local banks to trans- just as easily use a traditional database. Haddad acknowledges fer their money, or have to share identifying information with the that—“Of course we could do all of what we’re doing today with- banks, where some unscrupulous employee might steal or misuse out using blockchain,” he says. But, he adds, “my personal view it. Meanwhile, the WFP, instead of forwarding money before it’s is that the eventual end goal is digital ID, and beneficiaries must spent, could itself tally all refugee purchases and pay participating own and control their data.” stores afterward in local currency. That’s a big deal, since upwards Other critics say blockchains are too new for humanitar- of 30 percent of UN assistance is lost to corruption. ian use. Plus, it’s ethically risky to experiment with vulnerable In an early test of the Building Blocks payment idea in Paki- populations, says Zara Rahman, a researcher based in Berlin stan, however, the transactions were slow and the fees were too at the Engine Room, a nonprofit group that supports social- high. Haddad decided one of the problems was that the system change organizations in using technology and data. After all, was built on the public Ethereum blockchain. The current ver- the bulk collection of identifying information and biometrics sion of Building Blocks—the one now in use in Jordan—runs on has historically been a disaster for people on the run. Think of a “permissioned,” or private, version of Ethereum. the Holocaust, or the more recent ethnic cleansing of Rohingya On a public blockchain, anyone can join the network and in Myanmar. validate transactions. Such a system makes it difficult for any one person or agency to tamper with or forge transactions, but A matter of courage transaction fees tend to add up. On a permissioned blockchain, Ultimately, the question with Building Blocks or any similar a central authority decides who can participate. system is whether it will put ownership of digital IDs in the The upside of the permissioned system is that Haddad and hands of the people being represented or simply become an his team can process transactions faster and more cheaply. The easier way for corporations and states to control people’s digi- downside is that since the WFP has control over who joins its tal existence. Bob Reid, CEO of a blockchain identity startup network, it also has the power to rewrite transaction histories. called Everid, told me he expects a battle over this question in Instead of cutting the banks out of the equation, it has essen- the next few years. “Either it goes to individuals or it goes to tially become one. For Bassam and his fellow refugees in Zaatari, the distinc- tion may not matter. Bassam told me he’d bought groceries with an iris scan even before Building Blocks was implemented, but in that case an actual bank handled the transaction. And before that, he had a card the cashier would scan, but sometimes it “Now if we get a call that wore out, and it could take weeks to get it replaced. “The new system works better,” he says. 20,000 people are coming in the “It’s a major success,” says Haddad, who explains that it night, we can have everything reduces costs and the risks of sharing refugees’ data, while simultaneously improving the WFP’s control, flexibility, and ready for them in the morning.” 49

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major institutions that will mine our data,” he says. Still, he says, the hope is that the discussion will move away from such either-or framing. The real promise of using blockchains may not be realized until organizations like the WFP and the UN have the courage to open at least parts of the system to other agencies, and then to take the bravest step of all and turn over ownership of the data to beneficiaries like Bassam, who currently has little say in the matter because he has to be in the system if he wants to eat. Building Blocks could, in theory, accomplish this if it evolves according to Haddad’s vision. For instance, the WFP could offer its technology to others as a basic accounting system, tracking disbursements for food and later adding entries for land own- ership, educational credentials, and travel history. If outside nonprofit organizations were allowed to add nodes to the block- chain’s network, it could become more like a public blockchain, with its advantages of being harder to hack or cripple because it is decentralized and distributed. Walking around Zaatari, a bustling city that sprang into existence as a tidal bore of humanity crashed over the Syrian border in 2012, shows what a severe test it will be for Building Blocks’ ambitions. Just beyond the two officially sanctioned gro- cery stores that accept payments using Building Blocks, there are scores of mom-and-pop vendors openly running what are essentially black-market shops selling everything from food to washing machines to old bicycles. If Building Blocks can’t be adopted there, then aside from making the WFP’s operations a bit more efficient and transparent, it will remain little more than a centrally controlled database dressed in a costume of distributed, decentralized trust.

Russ Juskalian is a freelance writer based in Munich, Germany. He visited Zaatari this February.

Can Building Blocks fulfill its real promise and be more than a centrally controlled database? 50

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The market is well stocked with produce.

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MJ18_Blockchain_Human_Rights.indd 51 4/5/18 9:32 AM “We’re going to start seeing the beginnings of a borderlessness in politics and the marketplace. That’s what really stood out to me ... to not be at the behest of the people who are in control anymore.” —Elizabeth Munker, 28, UK

skeptics cynics naysayers doubters The blockchain believers 52

MJ18_Blockchain_believers.indd 52 4/3/18 2:13 PM What makes blockchain devotees so passionate about the technology? Is it a means to get rich or something much bigger? And how do you even explain the thing to people who don’t quite get it? We sent reporters to blockchain conferences in Dallas, Texas, and Cambridge, UK, to find out.

By AMALIA ILLGNER (at the Blockchain: Rewiring Governance conference in Cambridge, UK) and DAN SOLOMON (at the Bitcoin, Ethereum & Blockchain Superconference in Dallas, Texas)

Photographs by ANDREW TESTA and JULIA ROBINSON

Editor’s note: Some of the quotes have been lightly edited for brevity and clarity.

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“We should stop trying to explain blockchain and start trying to show what the benefits are, because consumers don’t really need to know how it works. They don’t know how Visa or the Treasury—how any of those things work, but they know that they add value to their lives.”—Aari Lotfipour, 33, Dallas

“The internet was really “Years ago when Bitcoin was started because of the three cents I got too busy to same ideas. We wanted the buy it, and they kept saying freedom to share information, buy it, and I kept saying I’ll freedom of voice, level the get to it, and then I forgot. playing field, allow small And then the other week ideas to become big. This I saw it was at $19,000. I is all the same thing that’s thought, if I had it, I’d sell it going on. It’s just another now. But I didn’t have it. I layer on top.” really kicked myself in the —Chris Nichols, 47, Dallas butt. Those are millions of dollars that I could have had.” —Michael Mullen, 50s, Dallas

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What do you tell your friends about cryptocurrencies? “  They were like, ‘You’re putting all that money in? You’re crazy!’ and now they are all calling me for advice.”

Has it made you rich? “  Oh, yes. In my country, Croatia, yes. I bought a house.” —Petar Juršic, 23, UK

“The internet unlocked applications we didn’t think were possible—like Twitter, which came completely out of the blue. The same way the internet revolutionized communication, blockchain is going to revolutionize trust. Now there is an alternative to institutions and governments. We can rethink the whole system.” —Justin Drake, 29, UK

What do you think this ends up doing 10, 20 years down the line? “I think that if I had an answer for that, it would be the most “Through the blockchain, bullshit answer that I’ve ever given to anything in my life.” everyone’s going to have a global ID, so you’ll have Okay. your own genome that’ll “If you asked me in 1997 what the internet was for, I would be anonymize-encrypted, tell you that I could use it for e-mail and to download some and then through crypto- pictures of boobs, and now it’s on my phone and I can do so keys you’ll be able to totally many ridiculous things with it at the touch of a button or a manage who has access to swipe at any point in time. I don’t think we know what those your genome. So you can future iterations look like. I would love for people to have donate it, you can monetize more financial sovereignty and more control. I would love it, but this is all going to be for it to lead to a freer, more borderless, more censorship- something that you control.” resistant world.” —Amber D. Scott, 39, Dallas —Henry Ines, 43, Dallas

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“In India there is a lot of black-market trading going on, and it seems that with blockchain—with its ledger that can never be changed— it’s a secure location. And as someone who’s seen black- market deals happening in front of my eyes, the idea that that might become a lot harder to do, and might one day be eradicated—it’s just really fascinating.” —Ashkay Shah, 21, UK

“Six months ago on my LinkedIn feed there was not a lot of blockchain or crypto chatter. Three months ago I started getting more. Now, like 75 percent of my news feed is all about crypto and blockchain and who’s doing what.” —John Nolz, 44, Dallas Would you buy any cryptocurrency? “No, because I don’t “A few years ago I got involved back horses, and you in a hackathon and they were looking at finding a way to know if a horse doesn’t give an identity to 230 million children unaccounted for by win, you don’t get the authorities in Africa and India. The idea that our team anything. Same with came up with was that you can take a picture of the child, a cryptocurrency— and take their fingerprint every year and store it on the if it fails, you’ve got blockchain, and then you give the child their digital identity nothing!” —John Goldworth, 89, UK when they turn 18.” —Christiana Imafidon, 24, UK

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How would you explain blockchain to your grandma? “I would say, Grandma, you know how you have your credit card now? Just think of it as you have the credit card, but it’s all on your phone now, Grandma.” —Trek, 38, Dallas

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you A growing num­ ber of forensic investigators can, thanks to new tools that let them track data spot through crypto­ currency net­ works that are turning out to be far less private than we thought. the

cryptocrime

By Douglas Heaven in What you’re looking at: A wall-size data visualization at Imperial College London shows activity on the Bitcoin this blockchain.

picture? 59

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Spiky yellow and blue shapes begin to fill a screen that spans an entire wall in a lab at Imperial College London. The shapes emerge from empty space as the display pulses and dances. The visualization is hypnotic and confounding, but it makes sense once you realize what you’re seeing. I’m watching the Bitcoin blockchain grow in front of me. A ragged blue circle pops up, and William Knottenbelt, a researcher at the college, provides live commentary. “Here you see somebody taking in Bitcoin and then paying it out to thousands of other people,” he says.

“So this might be a mining pool paying out reum or NEM or a thou- rewards to the people who have contrib- sand other cryptocurrency uted to finding some blocks.” He points to systems is an address, typ- a curious cluster of shapes on the screen. ically a random string of let- “Ah, this structure here is interest- ters and numbers. You can ing,” says Knottenbelt. Several blue cir- have as many addresses as cles appear—more payouts to multiple you like, and in principle, accounts—but they are knitted together there is no obvious way to by a cross-hatch of yellow lines. It looks tie them together or identify as if someone scribbled on the display their owners. What’s more, with a Sharpie. money in these accounts can What Knottenbelt has just noticed be transferred without inter- could be the first evidence of a sophisti- mediaries and across inter- cated criminal at work. national borders as easily as Banks and financial companies are sending an e-mail. experimenting with using cryptocurrency “Instead of meeting you to create smoother payment systems. But in a dark car park to hand the technology is also supporting a new over a suitcase of money, I generation of illicit activity, providing new can be sitting with a laptop ways to steal, blackmail, commit fraud, and on a balcony in Monaco,” says break international sanctions. Jeffrey Robinson, an investi- An industry has sprung up to help gative journalist and author fight back. New forensic tools are allowing of 30 books on financial authorities to follow the money through crime, including BitCon: The web marketplaces, Ponzi cryptocurrency networks that are turning Naked Truth about Bitcoin. schemes, and ransomware out to be far less private than their found- Clever criminals are Sarah Meiklejohn and attackers—and showed that colleagues developed ers hoped. Just as closed-circuit cameras embracing the new oppor- techniques in 2013 on many of the coins in their turned bank robbers from celebrated crim- tunities. A 2018 study by which much of today’s study could be linked back inals into easily caught rubes, researchers blockchain analysis startup cryptocurrency analysis to them. hope that their advances can turn anony- Elliptic and the Center is based. Ninety-five percent of mous thieves into known prisoners, and on Sanctions and Illicit all laundered coins tracked make the cryptocurrency world safe for Finance, a US think tank, by the study came from just the average customer. found a fivefold increase in the number nine dark-web marketplaces, including Silk of large-scale illegal operations working Road, Silk Road 2.0, Agora, and AlphaBay.­ The opportunities in cryptocrime on the Bitcoin blockchain between 2013 These are notorious online bazaars where if you’re up to no good, cryptocur- and 2016. By analyzing the history of more a person can buy banned goods like drugs rencies tick a lot of boxes. The only thing than 500,000 bitcoins, they identified and weapons and pay for services like pros-

tying you to an account in Bitcoin or Ethe- 102 criminal entities—including dark- titution or murder-for-hire. “On the dark LONDON COLLEGE IMPERIAL MCGINN, DAN SPREAD: PREVIOUS TESTA; ANDREW

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web you can even buy legal advice,” says As Mt. Gox spiraled into bankruptcy, tions ever. That’s because some transac- Robinson. “There are lawyers down there its trustees enlisted a crack forensics team tions are screened multiple times; Elliptic willing to take Bitcoin to tell you how to to help find the missing coins. What they recommends that its customers rerun anal- avoid getting caught with Bitcoin.” found was a mess. “Mt. Gox didn’t under- yses on older transactions because infor- Other types of organized crime are stand how many bitcoins they owed people mation about dodgy accounts is being emerging as well. Hackers have embraced and how many bitcoins they actually had updated all the time. “You need to keep Bitcoin as their payment of choice for ran- until they noticed they were gone,” says checking,” Robinson says. somware attacks. Such attacks spiked in Jonathan Levin, who led the investigation. Robinson won’t name his clients, but a 2016, with nearly 16 percent of tainted Levin and his team eventually tracked the quick search on USAspending.gov reveals coins linked to outbreaks of malware like funds to an exchange called BTC-e, where that they include the US Drug Enforce- Locky. The trend continued in 2017 with the trail went cold. ment Administration, the Internal Reve- WannaCry and NotPetya, which held hos- Though they couldn’t get most of the nue Service, the FBI, and Immigration and tage computer systems in hospitals and missing coins back, “that investigation gave Customs. Chainalysis works with those businesses across the world. In March us the idea to develop a tool that other peo- and more, including financial regulators of this year, municipal government sys- ple could use,” Levin says. His company like the SEC. Chainalysis also says that tems in Atlanta were rendered useless by Chainalysis, born of that effort, builds tools Europol and more than half the police a ransomware attack whose perpetrators for bitcoin businesses wanting to under- forces in Europe are using its software. demanded about $51,000 in Bitcoin. stand their customers better and for law The US Treasury’s interest in the block- Cryptocrime is even infecting the enforcement agencies seeking criminals. chain reflects the fact that crypto­crime isn’t offline world. The last few months have Other companies, like Block Seer and Ellip- limited to coin heists and black markets. seen a flurry of real-world hold-ups in tic, offer similar tools and services. It’s also about fraud and tax evasion. “This which victims were forced to hand over According to Tom Robinson, is going to be an interesting tax year,” says account details at knifepoint. “Sud- cofounder and chief data officer of Ellip- Jeffrey Robinson. “It’s the first time in the denly, if you have a lot of crypto you’re in tic, the majority of the world’s Bitcoin US where they’re cracking down on Bit- coin exchanges for tax purposes.”

How to trace the untraceable much of what these companies do Cryptocrime is even infecting the offline world. The last few builds on techniques introduced by Sarah months have seen a flurry of real-world hold-ups in which Meiklejohn, then at the University of Cal- ifornia, San Diego, and her colleagues in victims were forced to hand over account details at knifepoint. 2013. The basic idea is simple. By exam- ining blockchain activity closely, you can physical danger,” says Imperial College’s exchanges use the company’s software to spot accounts that appear to belong to ­Knottenbelt. screen transactions. It checks whether the same Bitcoin wallet and are thus con- And yet, since every Bitcoin transaction they can be connected to ransomware trolled by the same entity. The process is is recorded in a distributed public ledger, wallets, dark marketplaces, or theft, for known as clustering. Multiple addresses ill-gotten gains can be tracked. Anyone example. Elliptic has helped provide evi- initiating the same transaction might can download the entire transaction his- dence in several criminal cases, including begin to look like one person or organi- tory of Bitcoin—which currently weighs in one involving a man who bought parts for zation consolidating smaller funds into at around 160 gigabytes—and examine it, AR-15 automatic rifles on the dark web one bigger pot, for example. Another tell- or use a website such as Blockchain.info or and a handful of drug busts. tale sign is when change from a Bitcoin Block Explorer to check it out in a browser. Since the company was set up five years transaction is routed back into an account Such analysis helped unravel one major ago, Robinson estimates, a trillion dol- different from the one where the funds heist. In 2014, Mt. Gox, then the largest lars’ worth of Bitcoin transactions have started off. In time, the chaos resolves Bitcoin exchange in the world, was hacked been screened using its software—even itself into regular patterns. by unknown thieves who stole 850,000 bit- though there have been only around 300 Once multiple accounts have been coins, then worth more than $450 million. billion dollars’ worth of Bitcoin transac- linked to the same owner, you can try

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to figure out who that owner is. Linking tion about who was involved or how much generally is that nobody wants it done Bitcoin accounts to real-world identities was transferred. Zcash also lets you hand right,” he says. “If you’re a city bank, you is possible because information tends back coins and have fresh ones mined, the don’t want to know that John Gotti is a cus- to leak out. Regulated cryptocurrency equivalent of trading your marked bills in tomer, and so banks would never tolerate a exchanges—generally those in the US or for clean ones at the bank. law that said whoever banks the mafia will Europe—must follow know-your-customer­ Monero, meanwhile, is effectively a go to jail.” If that’s how the world works, and anti-money-laundering rules, which big tumbling network. When you want to why should crypto exchanges be different? require people to hand over identification transfer coins, your address is mixed in Anderson’s cynicism about the author- before using their services. Some people with a bunch of others so that no one can ities’ willingness to act has led him to are even so careless as to post their sup- tell which one was spending the money. formulate a plan to take down the cryp- posedly private Bitcoin addresses in online Zcash and Monero certainly take pri- tocrime system himself. He is creating forums. “What people forget is that the vacy to the next level. But that doesn’t what he calls a taintchain—a public list blockchain is just one half of the equa- mean they’ll never give up their secrets. of bitcoins with clear links to criminal tion,” says Knottenbelt. Meiklejohn points out that sloppy user activity. “What I’m going to do is publish Chainalysis and Elliptic now use behavior, such as posting your private a list of all the stolen Bitcoin and the soft- machine learning to help cluster addresses. address in forums, will again leave behind ware you need to generate it so that every- Soon it might even be possible for an AI to clear trails, just as with Bitcoin. body can check it for themselves,” he says. police blockchains in real time. What’s more, Monero gives users the Exchanges would then think twice about The wall-size data visualization at option to carry out transactions with no handling stolen coins. Imperial College is a step toward that. obfuscating coins mixed in. This removes Even if regulation were stricter, how- The blue-and-yellow tangle that caught the privacy for that particular transaction ever, it’s not clear that it would make a dif- Knottenbelt’s eye was a coin tumbling net- and adds a way for researchers to disen- ference. “I don’t think outlawing anything work, a sequence of transactions deliber- tangle, through a process of elimination, is going to help anyone,” says Knottenbelt. ately designed to make it harder to track any mixers that subsequently include those Driving the tech underground, he argues, individual coins. It’s like dropping money coins. Malte Möser at Princeton University will simply mean that transactions will be into a jar, shaking it about, and then taking and colleagues estimate that 62 percent of hidden rather than broadcast openly on it out again: the amount doesn’t change, inputs to Monero transactions are vulner- the internet, making it even harder for but it’s hard to tell which coin was which. able to this analysis. When users of Zcash researchers like Meiklejohn to analyze the The effect is much the same as if you move and Monero start to hemorrhage clues, the money flows and find the thieves. money through a bank in a place like the likes of Meiklejohn and Möser will be ready. Surprisingly, Meiklejohn herself turns Cayman Islands, where there are strict Perhaps the biggest problem for law out not to worry too much about regula- secrecy laws around banking. enforcement, though, is the large number tion—or lack of it. “Once you’ve isolated of unregulated exchanges, where criminals the problem to bad exchanges operating Staying one step ahead can wipe away the traces of their theft by outside of typical jurisdictions, then you’ve however, tumblers aren’t neces- laundering the stolen cryptocurrency into kind of won,” she says. Take BTC-e, an sarily a sign of criminal activity. “Some other forms of wealth. Many exchanges exchange based in Russia that was known people just do it for privacy reasons,” says defy regulation out of principle: the likes to have taken a lot of criminal money. A Knottenbelt. And in any case, there are bet- of BTC-e and the conversion service Shape- lot of ransomware operators appeared to ter ways for criminals to cover their tracks. shift, for instance, sell themselves on the be using BTC-e almost exclusively. It was As the limits to Bitcoin’s privacy become promise of asking for no identification also where the missing Mt. Gox funds were more apparent, people are moving to new from their users. Shapeshift founder Erik last seen before the trail vanished. cryptocurrencies, like Zcash and Monero, Voorhees is especially outspoken about the But in July 2017 it was closed down. that reveal almost nothing about the trans- political implications of regulation. US authorities arrested staff and seized actions recorded on their blockchains. Security and cryptocurrency researcher computers at one of the exchange’s data Zcash uses a so-called zero-knowledge­ Ross Anderson at the University of Cam- centers, and Alexander Vinnik, its sus- proof to verify transactions. This is a math- bridge, UK, argues that these exchanges pected operator, was arrested. “They ematical way to confirm that a transaction thrive in part because laws are ineffective. clearly were not going to respond to sub- took place without revealing any informa- “The problem with anti-money-laundering­ poenas,” says Meiklejohn. “On the other

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of cryptocurrency on block- published the addresses of 11 accounts chain networks happen in where funds had ended up. Each was close to real time, they can’t labeled with a tag that read “coincheck_ connect them to the real stolen_funds_do_not_accept_trades : world fast enough to stop owner_of_this_account_is_hacker.” But even monumental capers. because they didn’t know who owned the The biggest cyber-heist accounts, the NEM team was unable to do in history happened at 3 much more than attempt to block the exits. a.m. Japan time on a Jan- A waiting game ensued. Unable at first uary morning this year. to cash the stolen coins out of the NEM Someone, or more likely network, the thieves moved them around someones, made off with it. These movements were all visible on the more than half a billion dol- public blockchain. The NEM team tracked lars’ worth of a digital cur- the coins to Canada and then watched as rency called NEM from the some of them returned to Japan. But even Tokyo-based cryptocurrency though NEM never took its eyes off the exchange Coincheck. No marked notes, the thieves still got away. one at the exchange raised In the end they were able to make it to an alarms until lunchtime, and unregulated exchange and cash out at least the culprits got an eight- half the stolen coins. In March, the NEM hour head start. team announced it was giving up the chase. When news finally Stung by the massive theft, Coin- reached NEM Founda- check announced that it would no longer tion vice president Jeff deal in Zcash, Monero, or Dash, another ­McDonald in Tulsa, Okla- anonymous currency. It’s among the first homa, he went right to the exchanges to cut off those coins. chain. The funds had been Coincheck’s move is part of a larger taken from a software wal- effort to bring law and order to this new let connected to the inter- frontier of money. The US government is net—an insecure storage toying with the idea of creating a blacklist locker that Coincheck says of cryptocurrency addresses that are asso- it was only using because of ciated with criminal groups, such as terror- a fault elsewhere in its sys- ists, drug traffickers, and sanction-busters. hand, this is something law tem. “It’s basically like leav- One possibility is that it would become enforcement is well aware ing your ATM card out with illegal to deal with blacklisted addresses. William Knottenbelt, a how to deal with.” the PIN number written on The NEM thieves have escaped, for researcher at Imperial Meiklejohn sees her work College London, says, it,” says Alexandra Tinsman, now. But future technology could snare as distilling cryptocrimes to “I don’t think outlawing the NEM Foundation’s com- them yet. As the forensic techniques and the type of crime familiar anything is going to munications director. All of tools get better, previously overlooked evi- to law enforcement. Armed help anyone.” the 523 million stolen coins dence will come to light like DNA traces with leads from Elliptic and were funneled first through at a years-old crime scene. Every time others, good old-fashioned a single account before being the authorities shut down a Silk Road or policing will then do what it does best. split among several others. ­BTC-e, that sends a signal, says Jeffrey To stop the thieves from cashing out Robinson: “They’ll get the rest of them, The biggest cyber-heist in history their loot into a fiat currency, the NEM one by one.” for the time being, however, the team rushed to flag the stolen coins and cybercriminals are still a step ahead. put exchanges on alert. The day after the Douglas Heaven is a freelance writer

THOMAS ANGUS, IMPERIAL COLLEGE LONDON COLLEGE IMPERIAL ANGUS, THOMAS Although researchers can now watch thefts hack, the NEM team had identified and based in London.

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Y T N B Y I I N G SU

t 11 p.m. on September 4 bank proposed limiting supplies of power That was why Daniel Wang, who used last year, Chuan Zhang to China’s bitcoin-mining industry, which to run a centralized exchange in Shang- logged into his account currently accounts for two-thirds of the hai, founded a project called Loopring. on Huobi.com, a popular world’s processing power devoted to such It’s an open-source software platform Chinese cryptocurrency activity, most of it in sparsely populated that anyone can use to build a decentral- Atrading website, and sold every bitcoin areas with abundant surplus electric- ized exchange—a marketplace for cryp- he had. He lost about 400,000 yuan ity. Local authorities are enforcing the tocurrency transactions that doesn’t hold ($63,000), but he had little choice. restrictions haphazardly. investors’ assets. Instead, all assets and Earlier that day the Chinese govern- Yet cryptocurrency is far from dead transactions are recorded on a public ment had issued a seeming death blow to in China. In fact, the restrictive mea- blockchain, much like the blockchains the country’s burgeoning cryptocurrency sures may have inadvertently triggered a that underlie cryptocurrencies them- scene. Although it didn’t outlaw virtual wave of innovation that targets some of selves. That prevents insider trading, coins or the mining of them, it did ban the problems faced by cryptocurrencies because anyone can view transactions initial coin offerings (ICOs) and trading everywhere, not just in China. on the blockchain. Smart contracts on on domestic cryptocurrency exchanges, the blockchain regulate the way orders rendering many people’s holdings effec- New kinds of exchange are matched. Once there is a match, the tively worthless. The cryptocurrency sell- Cryptocurrency exchanges handle trades parties transfer currency to each other off that day was so massive that it took from one digital currency to another, as electronically. four days for money from Zhang’s Bitcoin well as trades between digital coins and China’s crackdown should have killed sales to show up in his bank account, ordinary fiat currencies. But whereas Loopring in its cradle. Wang, who came something that usually takes half an hour cryptocurrencies are (at least in theory) up with the kernel of the idea in 2016, had or so. (That he was able to sell at all was decentralized and under no one organiza- just finished raising money for it in an thanks only to a delay between the gov- tion’s control, exchanges are typically run ICO three weeks before the government ernment’s declaration of the ban and its by a single company, just like ordinary banned ICOs and demanded that money shutdown orders to the exchanges.) stock exchanges. This is one of cryptocur- they had raised be returned. But Wang At their peak, during the last two rencies’ biggest weak points. enjoyed such support from his investors months of 2016, transactions in Chinese Indeed, it creates a raft of potential that he was able to keep part of their yuan accounted for more than 90 percent problems. The exchanges are prime tar- investment and continue the project. of global Bitcoin trading volume, accord- gets for hackers because, like banks, they Loopring’s own decentralized ing to Morgan Stanley. A month after the hold investors’ assets. Insider deals are exchange is now hosted on Amazon Web crackdown, in October 2017, that figure hard to prevent. And there are hundreds Services, and it was set to start offering was down to less than 10 percent. The of separate exchanges around the world, trading services in April, after this story authorities have since tightened things making for a fragmented and inefficient went to press. But since Loopring is also further, closing loopholes that allowed financial system: the account holders open-source software that anyone can investors to trade cryptocurrencies on on one exchange often don’t have quick use to set up an exchange, it is relatively

overseas websites. In January, the central access to better deals on others. resilient against restrictions in any one LITTLE NICHOLAS

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Y T N B Y I I N G SU

country. Wang, who spends a lot of time people are forging ahead with token and collectively safeguarding the nor- in New York these days trying to get Loop­ experiments. mal financial order.” But China doesn’t ring established in the US crypto com- One company at the forefront of this is have a fundamental aversion to digital munity, says that if trading digital assets Beijing-based Spectra Ventures, founded currencies; in fact, the central bank is on a blockchain becomes a widespread about a month after the crackdown in developing its own fiat digital currency. practice, it will be harder for a country September. The founders, Iris Zhang and “A digital currency will bring about a new such as China to block it. “Shutting it out Aaron Chen, have worked in investment financial ecosystem,” says Shenglin Ben, will reduce [a country’s] international banking and China’s cryptocurrency com- dean of the Academy of Internet Finance competitiveness,” he says. munity. Using their experience to evalu- at Zhejiang University. The purpose of the ate both companies that want to issue crackdown, he says, was to curb excessive From “air tokens” to serious sales tokens and the buyers of those tokens, speculation and give the authorities time China’s September crackdown also they advise the companies on how to price to upgrade their regulatory capabilities. included a ban on ICOs, the crowdfund- the tokens, how many to issue, and how to Some of the centralized cryptocur- ing schemes based on crypto-tokens (see get listed on cryptocurrency exchanges. rency exchanges that China banned last “Down with ICOs; long live IPOs,” p. 78). To get around the restrictions on token year still exist—they have simply set up In China as elsewhere, these had acquired sales, Spectra doesn’t engage in crowd- servers abroad—and up until mid-March a shady reputation. Companies looking to funding from Chinese retail investors but their websites were accessible in China. raise funds quickly were selling digital only from established digital-currency Since then they have been blocked, though tokens or “coins” that were supposed to funds registered overseas. Chinese users can still access them via buy access to some product or service in It’s common for a project to raise virtual private networks. The one used the future, but they often had no way to 10,000 to 40,000 ether (Ethereum’s cryp- by Chuan Zhang and his investor friends, fulfill these promises. A Chinese term tocurrency) within a week, says Iris Zhang. Huobi.com, is among them. emerged: kongqibi, or “air token.” At the exchange rate in early April, that After the panic sell-off last year, Zhang The ICO ban suppressed this digital was worth about $4 million to $16 million. and his friends reinvested whatever sav- crowdfunding, but it didn’t address the Projects that have sold tokens through ings they had left in cryptocurrencies root of the problem. Illegal fund-raising of Spectra Ventures include an app for soccer again. This time, they do not plan to sell. all kinds has thrived in China because the fans and an instant-messaging app that Before the September ban, they had seen formal banking sector still favors large allows users to transfer cryptocurrencies cryptocurrency as a way to prop up their corporations and state-owned enter- to each other. fragile financial well-being. Now it has prises. Smaller firms and entrepreneurs These activities may appear to go become a faith. “It’s something that can- rely on a shadow banking sector to meet directly against the Chinese government’s not be suppressed,” says Long Zhang, 30, their needs for financing. orders. But in a sense, they may be what a close friend of Chuan Zhang’s. “It will But though using token sales to raise Chinese officials wanted to see. definitely be worth a lot in the future.” funds is now illegal, merely issuing a In their September edict, the authori- digital token isn’t explicitly prohibited. ties talked about “avoiding market chaos, Yiting Sun is a freelance journalist based Despite the ICO ban, therefore, a few strengthening the education of investors, in Beijing.

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Q+A WITH AMBER BALDET

Is the crypto world sexist? That’s the wrong question.

Anyone can use cryptocurrency. Man, woman, pony, or toaster—we all look alike on a blockchain. // But the cryptocurrency scene has gotten a bad reputation for being much less open and inclusive than the technology itself. In January, one of the longest-running Bitcoin events, the North American Bitcoin Conference, put dozens of men on its agenda but only one woman. When it came time to schmooze, attendees were invited to a local strip club. // Yet there are many incredible women now leading the cryptocurrency industry. One is Amber Baldet. She’s been called the “crypto queen” and the “Madonna of blockchain.” Since 2015, she’s run JPMorgan Chase’s department devoted to finding ways to use blockchain. During her time there she has overseen the creation of Quorum, a business version of Ethereum. In May she leaves to start her own blockchain venture. // In her work, Baldet makes a habit of smashing assumptions. She smashed a few more when MIT Technology Review asked her about the state of diversity in the cryptocurrency world.

By Morgen Peck

“I don’t have time for anyone MP The cryptocurrency community has profile from its source groups. who underestimates me gotten some discouraging press Just because cryptocurrency may because of my gender.” in recent months—portraits of an be a philosophically and techni- entitled boys’ club. Do we have a cally new thing, it’s not magically a gender problem on our hands? green-field meritocracy. AB If you draw a Venn diagram of That said, my anecdotal expe- finance and technology, and spe- rience is that representation at cifically information security and most developer-focused block- cryptography, these are all fields chain events is neither better nor that struggle with a lack of women worse than at most other tech con- and minority representation in ferences. There’s usually about leadership positions. Cryptocur- 15 percent of people who don’t fit rency sits in the center, where the “standard developer” stereo- they all overlap. When you have type, give or take a few percentage an intellectual diaspora into a points, and that number has got- new area of study, the new group ten better over time. At events that tends to inherit its demographic have more business-­development

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or social-good focus, it’s much “Inclusion, like health and happiness, is not something that you higher. I don’t think this is because arrive at one day and say, ‘We’re done!’ It’s something that you women are inherently better or work at every day, a process.” more interested in those topics—it’s simply the same inheritor bias of where more women work today. But there’s also another effect at play, and that’s survivorship often very hostile crypto Twitter, sionate about rather than how it bias. Many of the women who you’re going to have a bad time. feels to exist. got involved early come with bat- Shouting opinions on the inter- tle scars from those other male- net is a low barrier to entry, and MP You’re about to start your own dominated communities and are there are certainly some people venture. Do you worry that raising fiercely determined to see it be dif- out there who give everyone a bad money will be harder as a woman? ferent this time. So we’re having name. Stop letting trolls be referees AB I am of course aware of the these conversations earlier, setting of credibility, because they always abysmal statistics around women up scholarships earlier, creating move the goalposts. when it comes to employment at, women-in-blockchain networking and funding from, Silicon Valley channels earlier, and pushing back MP So are we spending too much VCs. As someone with years of against a toxic culture of “rock-star time talking about diversity? Do experience, a strong network, and developer” hero-worship. We’re still we really need a diversity panel at a real business plan, however, I get in the infancy of blockchain adop- every conference? to be selective about who I choose tion; the efforts happening now AB A subtle nuance—we’re trying to work with. I don’t have time for are going to have serious long-term to shift the conversation from anyone who underestimates me ripple effects. diversity, which can sound like a because of my gender. numbers game or an HR problem, MP Has the gender disparity led to an to inclusion, which is a way of MP You sound optimistic that the future unwelcoming culture? thinking holistically about the of technology will be more inclusive. AB There is no monolithic “blockchain impact of our choices that should AB Inclusion, like health and culture.” People are working permeate everything we do. happiness, is not something that on academic research, building While we can probably never you arrive at one day and say, businesses, writing legal briefs, spend too much time talking about “We’re done!” It’s something that consulting for enterprises, and, of inclusion, it’s unfortunate that the you work at every day, a process. course … investing. People further majority of the burden of doing Inclusion happens when your fragment along technical lines, so falls disproportionately on the recruiting process casts a wider net defending their favorite coin or shoulders of those already respon- for qualified candidates. It hap- project with loyalty that borders sible for doing real technical work pens when you give credit to people on the religious. All this can be and also fighting for their own for their ideas and contributions. It daunting for newcomers to navigate, legitimacy. happens when you value the peo- and some subgroups are known for Conferences that magically for- ple who help design and bring your being friendlier than others. get to put us on stage to talk about product to market as much as the Many projects are great and wel- anything but diversity should be people who code it. It happens when

come women with open arms, and named and shamed, but having you create AI support bots and don’t FORTUNA ROSE BY MAKEUP AND OMAN/HAIR repeatedly positioning the entire those discussions as a supplement give them women’s names. It hap- SL space as unwelcoming causes a neg- is generally fine, I think. It would pens when you spin up a group chat ative feedback loop that dissuades be great to have those panels serve and choose whom to invite. Inclu- great people from getting involved. more as lightning rounds for par- sion happens when people in power If you think “the” culture is ticipants to talk about what they’re use that power to bring people in

represented by the very active and working on and what they’re pas- rather than keep people out. CELESTE BY PHOTOGRAPHS

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MJ18_Q+A+Amber_Baldet.indd 69 4/4/18 10:55 AM Protecting our troops

Stopping anthrax

Eradicating deadly disease

Improving patient outcomes

Keeping airports safe

battelle.org/techreview

Battelle.indd 1 3/22/18 4:01 PM MAY/JUNE 2018 TECHNOLOGYREVIEW.COM

3

WHAT COMES Next Three ways Bitcoin could go from being the paramount crypto‑ currency to an also-ran or even an irrelevance. One way ICOs could actually contribute to the economy instead of bilking people. And a science fiction vision of a blockchain-based future in which AIs and smart contracts decide the course of human lives. 71

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It’s the world’s Could it be Let’s try it out. first and still knocked from the biggest its perch or By MORGEN PECK cryptocurrency. otherwise Illustrations by Ariel Davis made redundant?

Let’s destroy Bitcoin 73

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2009, Satoshi Nakamoto But success, of course, breeds competi- Option one: Government takeover served the world an tion. And Bitcoin is now clearly the domi- The year is two-thousand-something- entirely new kind of cur- nant cryptocurrency; as of this writing, in big, and it’s the day your taxes are due. rency. It was one that early April, its market cap was three times But you don’t fi le them. Instead an algo- people could move over that of Ethereum, its nearest competitor, rithm automatically makes a withdrawal the internet instanta- and roughly equal to those of all other from your electronic wallet, in a currency Ineously n and nearly free of charge. Issued cryptocurrencies combined. called Fedcoin. and distributed not by a central bank Yet while Bitcoin has established It’s the digital version of those crunchy but by its own users, it drew the drapes an economy in which it’s impossible to bills you only vaguely remember from of privacy around fi nancial transactions forge transactions, it provides no defense many years ago, back before the cen- while making forgery—in theory, at least— against replication of the idea itself. No tral banks began taking paper cash and impossible. one can copy an individual bitcoin, but redeeming it for fedcoins. Over the years, It’s nine years later, and there are now anyone can copy the idea of Bitcoin. So you’ve seen less and less hard currency. You 24 million active Bitcoin wallets in use how might a government, or a corporation, don’t need it anymore, not when you can around the world. The value of a single or even ordinary people, go about doing walk into a local bank, verify your identity, bitcoin has risen from about a dollar in so in a way that makes Bitcoin useless or and set up a wallet on your phone. Sure, 2011 to as high as $19,700 in late 2017. redundant? Here are a few scenarios. you still have a few dollar bills. But they are tucked away as souvenirs. This hypothetical technology—a central-bank-issued digital currency built with a tweaked version of the Bit- coin blockchain—was described by David Andolfatto, a researcher at the Federal Reserve Bank of St. Louis, and later refi ned by Sahil Gupta, who as an undergraduate at Yale wrote a study on how a currency like Fedcoin would work. With some col- leagues, he wrote code to test a simulation. In their system, a blockchain records transactions, just the way it happens with Bitcoin. Instead of being updated by a net- work of unaffi liated peers, however, the Fedcoin ledger is managed by institutions certifi ed by the Federal Reserve. “These authorized nodes could be things like Bank of America, JP Morgan—basically, trusted institutions,” Gupta told me. Each bank is responsible for a chunk of addresses on the blockchain. When new transactions come through, the bank vali- dates them in a new block and sends it to the Fed. The Fed then acts as the fi nal arbi- ter, checking the entries and unifying the blocks into a master version of the block- chain that it makes public. To use fedcoins, people must fi rst show proof of identity and set up a wallet with the Federal Reserve or an affi liate bank, at which point they can buy the new cur- rency with US dollars at a one-to-one ratio.

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use to pay for services within the network. You don’t need cash anymore, By February, Telegram had raised $850 not when you can walk into a local million from investors by selling the cur- rency in advance in an initial coin offering. bank, verify your identity, and set By late March it had raised another $850 up a wallet on your phone. You still million in a second round. So Facebook, like Telegram, could issue have a few dollar bills, but they are its own native currency. Or it could take the more insidious route: adopt Bitcoin itself tucked away as souvenirs. and take it over. Today, the rules of Bitcoin are enforced by a triad of network operators: the users who make transaction requests, the min- ers who process those requests and write them into the blockchain, and the valida- tors who watch the blockchain to make A scheme like this, says Gupta, might gain lect taxes and enact monetary policy, says sure everything is up to snuff. All of them popularity and ultimately result in the slow Campbell Harvey, a professor of finance are using interoperable software, which is disappearance of physical cash. at Duke University. For example, if a gov- what keeps them united on a single version “I’d imagine people first get com- ernment wanted to disburse stimulus pay- of the blockchain. fortable spending Fedcoin on things like ments, it could simply deposit money into Any subset of these network actors can groceries and movie tickets,” he says. “As people’s Fedcoin wallets. “You drop five decide at any moment to use another ver- people realize it’s easier than cash, as hundred dollars in everybody’s wallet, a sion of the Bitcoin software with slightly businesses realize it’s cheaper than credit single line of code. You’re done … there’s different rules to split off from the rest and cards, and as banks realize it’s literally nothing in the mail, no mail being inter- form a parallel currency. Exactly that hap- more secure, so goes the process by which cepted. There’s no people trying to fraud- pened last year with the creation of Bit- dollars are phased out of the money sup- ulently take the money,” he says. “It’s no coin Cash, an alternative blockchain with ply and Fedcoin phased in.” surprise that every major central bank in slightly different specifications that allow it This isn’t just an academic thought the world has got a team looking at the to process more transactions in each block. experiment. The Bank of Canada built a possibilities of moving to a blockchain-­ If Facebook could persuade a large simulation for such a currency, on a block- based crypto national currency.” enough fraction of Bitcoin users and min- chain similar to Ethereum’s, in 2016. ers to run its own proprietary version of What such researchers are finding is Option two: Facebook sneak attack the Bitcoin software, the company would that a digital version of state-run curren- Let’s voyage once more into the future, thereafter control the rules. It could then cies could match or even improve upon the but not so far this time. Because this sce- refashion Bitcoin as a corporate version of efficiencies of Bitcoin. Gupta believes that nario could happen tomorrow if the right the Fedcoin described above. transactions should be processed much people got their acts together. This time But there’s an even better way that faster when a central bank is behind the Bitcoin is usurped by a social-media behe- doesn’t involve converting a bunch of true system (as opposed to the peer-to-peer moth. To make it easy, let’s choose the one believers: Facebook could pull off a take- network that currently records Bitcoin that claims to have over two billion users over before most people even realized what transactions). This efficiency could add up worldwide. it had done. If you’re reading this, Mark, to a lot of saved money. The Bank of Eng- To imagine how Facebook could use here’s how to do it. land, which has been furiously researching its popularity to topple Bitcoin, look at First, spend a month building a user- blockchain technology, reported in 2016 how another large network, Telegram, friendly, secure, Facebook-hosted Bitcoin that even partial adoption of a central- approached the issue. In January of wallet. A Bitcoin wallet is exactly what it bank-issued digital currency would result this year, the company, whose secure-­ sounds like—a container for your digital in a 3 percent increase in GDP as the cost messaging app has over 200 million users currency. There are many different kinds— of taxes and transaction fees went down. worldwide, announced that it would create some in hardware, some in software—vary- A shift away from cash would also its own app-specific cryptocurrency, called ing in their level of security and ease of make it easier for governments to col- Grams, that users could send each other or use. Facebook, with its vast engineering

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resources and expertise in user experience brands turn into commodities. And all the you rides on your local subway system. You design, would have no trouble making its while, credit yourself with ushering Bitcoin decide to pay with a fraction of a share of wallet slick as hell. into the mainstream. Apple stock, which you send as a coin to Then, overnight, integrate it into every Then take control. Now that most of the grocer’s wallet. single Facebook account—all 2.2 billion the people holding bitcoins and many of “My vision of the future is that there of them. The next morning, Facebook the people mining bitcoins are using your would be thousands if not millions of ways users wake up to find a new goodie tucked software, you’re at liberty to change it as to pay for stuff,” says Duke University’s into their profiles: a little button that says you see fit. As with Bitcoin Cash, a rebel- Harvey. If the Federal Reserve can cre- “Send Bitcoin.” The wallet eliminates all the lious few will choose to stop using your ate a token representing the US, he says, wonky quirks that make other Bitcoin wal- wallet and will instead send their transac- then there’s nothing stopping people from lets confusing. The address of every Face- tions to the few ideologically driven miners backing tokens with whatever they want: book user is presented as a real name rather who continue working on the old Bitcoin “This idea of collateralizing with dollars than a meaningless alphanumeric string. blockchain. Don’t worry about them. The or gold is a pretty general idea. Why not For those who already use Bitcoin, the real Bitcoin, the one that nearly everyone instead of a million ounces of gold in the experience is so vastly superior to what in the world is using, is now yours. vault, you drop a million shares of Apple they’ve previously experienced that they Now you have the same powers the in the vault?” immediately migrate their funds to their Federal Reserve would have over its own This “future” is already happening. Facebook wallet. Those who don’t yet own centrally issued currency. Now you can The trend among blockchain startups is any bitcoins, or have never heard of them, mint, block, and reassign coins at will. to build services that function only with could be given the option of earning some the use of a native cryptocurrency, one spe- on the site, either by watching advertise- Option three: Go forth and multiply cifically designed for the application. Even ments or by writing Facebook posts for There’s another way to make Bitcoin irrel- companies that predate the blockchain are others to see. evant, one that simply follows the natural catching on. In January, Kodak announced For those tired of watching ads, you progression of what’s already unfolding a new coin that people could use to license mix in another fun feature. In exchange today. In this near future, goods and ser- the rights to their photography. for a clean, ad-free experience, users can vices are increasingly represented by These tokens are not unlike the points choose to let Facebook mine bitcoins tokens, which can be exchanged with systems and gift cards that companies with their computer’s unused processing anyone. You’re in the checkout line at the have used to hem in their customers for power. (Other media outlets, like Salon, grocery store. Inside your phone’s digital decades. What changes when you record are already experimenting with this.) On wallet you find not only Fedcoin and Face- these assets on a blockchain is that they the side, and with very little fanfare, you bookCoin but also AppleCash, ToyotaCash, become easily and securely transferable. build a data center and begin mining bit- and a coin specific to the store you’re stand- “Think of this as an incredibly effi- coins on your own. ing in. There’s also a coin redeemable for cient barter system,” says Harvey. “Barter Now let your users absorb these babysitting services, and another that gets is generally inefficient, but if you have a remarkable new tools into everyday life. Give them time to delight in the ability to send money instantaneously over Face- book to any of their friends on the global platform. (Contrast that with Facebook’s existing system, which allows payments Facebook could try to convert through Facebook Messenger, but only in a few currencies and countries.) Sit back and Bitcoin believers to a proprietary watch as the assets of Facebook’s implicit version of the currency. Better yet, reputation economy—the likes, the com- ments, and all the other metrics by which it could pull off a takeover before people get credit for keeping their eye- balls glued to the screen—take on real, most people even realized what transactional value. Give them time to get it had done. If you’re reading this, addicted. Give them time to settle in to the new career paths that emerge as personal Mark, here’s how to do it.

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network and you tokenize the goods and services and enable it with a blockchain, it can become very effi cient.” Facilitating trades between distinct digital assets would require a whole eco- system of innovations. For assets that live on separate blockchains, there will need to be reliable ways to transfer tokens on one chain at exactly the same moment that another token moves elsewhere. Third parties will need to quickly match buy- ers and sellers—if your grocer doesn’t accept Apple stock, for example, you’ll need to fi nd someone to broker that deal and deliver a coin your grocer will accept. “Without a network, you have to fi nd the person that wants to trade four goats for the cow. That’s very diffi cult, to fi nd that person. But with a network and with col- lateralization of blockchain-based tokens, it’s much easier,” says Harvey. “We’re not there yet in this world, but that’s where we’re headed.”

What’s left for Bitcoin to do? So under those scenarios, would there be advantage left to the original Bitcoin? Maybe it’s the one thing Bitcoin enthu- siasts tout as the technology’s greatest strength: Bitcoin transactions are anon- ymous and impossible to censor. These qualities would disappear the moment transactions were yielded to the Federal Reserve, or to Facebook, or to a network has been tapping fi ber-optic cables, moni- that is private, free for all to use, and under of brokers coordinating the sale of bar- toring internet activity, and luring people the control of the masses. But the seven bil- tered assets. onto compromised platforms by falsely lion people not yet using Bitcoin might not But if all Bitcoin can off er in our hypo- promising to secure their privacy—all in an care about any of that. With networks, con- thetical future is privacy and censorship eff ort to collect every bit of data that might venience wins, and convenience is based resistance, then we have to ask—is it actu- link addresses to names and real identities. on size. It’s the reason you’re on Facebook ally giving us those things right now? Should governments seek to create rather than some other social-media site— There are no real names stored on the and enforce blacklists, they will fi nd that because everyone else is. If cryptocurren- Bitcoin blockchain, but it records every the power to decide which transactions to cies are to be widely used, it will be the transaction you make, and every time you honor lies in the hands of just a few Bit- habits of the masses, not the wishes of Bit- use the currency, you risk exposing infor- coin miners. Some of these crucial players coin’s early adopters, that determine what mation that can tie your identity to those are already feeling the pressure of travel becomes of Satoshi Nakamoto’s vision. actions. We know from documents leaked bans imposed by the Chinese government, by Edward Snowden that the US National though it remains unclear whether any Morgen Peck is a freelance writer based Security Agency has sought ways of con- specifi c demands have been made. in New York City. Her work has appeared necting activity on the Bitcoin blockchain Bitcoin’s early adopters have held fast in Wired, Scientifi c American, and to people in the physical world. The NSA to the dream of a single world currency IEEE Spectrum.

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Q+A WITH ROBLEH ALI

This is not to tar every single Down with ICOs; long live IPOs token sale with the same brush. Some try to only sell to accredited To say initial coin offerings have “exploded” is, for once, to use the word investors [in the US, someone with justifiably. Buyers put $256 million into them in 2016, $5.5 billion in 2017, a certain level of income or wealth], or use the SAFT [Simple Agree- and more than $3 billion in the first two months of 2018 alone, according to ment for Future Tokens, a contract CoinDesk. // Styled to sound like an IPO, an ICO offers investors not shares that attempts to stay on the right in a company but tokens of a cryptocurrency. Usually, the offer is that these side of US securities law while tokens will provide a way to buy some (unspecified) amount of some (vaguely building in some safeguards for described) product or service that the company will (maybe) build at some investors]. But many of them are (indeterminate) point in the future. // The headlong rush of money has enriched just like, “Here’s my website, here’s my white paper, get it listed on the ICO issuers, and early buyers, by making the value of their tokens shoot up. But exchange, and away you go.” At the it’s alarmed regulators in several countries, who are starting to bring the market end of 2017 you saw a lot of these to heel in an attempt to stop unwary investors from being fleeced. //Tech tokens shooting up 100x, and that’s Review sat down with Robleh Ali, the former head of digital-currency research what draws people in. at the Bank of England and now a researcher at the MIT Media Lab’s Digital A lot of these white papers bam- Currencies Initiative, to try to work out what will come of the ICO craze. boozle people—the number of peo- ple who can actually read them and discern which technical claims are By Gideon Lichfield sound and which aren’t is relatively small. Everybody else is relying on other people or signals in the market GL What do you think are the main GL Why do you think these incredibly to tell them. And if you see the prices misconceptions about ICOs? speculative investments have going up, it’s easy to get sucked in. RA The problem with ICOs is they become popular so quickly? want to ride two horses. The use RA People have heard about people GL As you noted, some ICOs are of the word “coin” implies that who bought bitcoins for a few limiting themselves to accredited the tokens being sold are money. cents, put in a few thousand dol- investors. An accredited investor, The phrase “initial coin offering” lars, and are now multimillion- almost by definition, is someone is deliberately evocative of “initial aires. That’s the purchaser side. who can afford to lose money. So public offering,” which is about a On the supplier side, if you see what’s really the risk? company selling shares to the pub- that you can write a white paper, RA If you go into it with your eyes lic. They want to ride the Bitcoin put up a website, put up a Bitcoin open and say, “I know I could lose horse by saying, “We’re not a secu- address, and people will send you all my money and it’s money I rity—it’s just money,” but they also millions of dollars, that’s a very can afford to lose,” then it’s not a want to ride the “You’re buying big temptation. You can essen- problem. But it often isn’t limited into a future enterprise that will be tially get the exit before you’ve to accredited investors, and a lot of worth a lot of money” concept that’s built the product. It’s very attrac- people are pitching ICOs as “You’ll inherent in the sale of shares. That’s tive to some people, and one of the make 100x and this can’t possibly one of the big tensions with ICOs, issues is the incentive problem— go down.” People who can’t afford to that lack of clarity, and that’s some- who is attracted to that kind of lose money are putting money into thing that needs to be fixed. easy money. these things and losing it. These are

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people in desperate situations, and more accessible to the local barbers, The concept of an ICO is almost they think, “This is the thing that the local garage, the local baker or inherently flawed, and probably the can get me out of it.” You’re taking butcher or whatever. These inde- phrase needs to change, because it’s advantage of people’s desperation. pendent small businesses need to trying to elide two different things. It’s also important for people who be able to tap in, and their custom- want to raise money this way to rec- ers, people in the area, should be GL What would you rather call it? ognize that there is this large group able to buy shares. You accept that RA When I think about how to apply of people you will be associated with your local pizza shop is probably this technology in the future to who are tainting the whole ecosys- not going to become Papa John’s, make a better system, I think about tem. If people think this is all just a but it’s still a good business and you shares. The term IPO is perfectly bunch of scams, it’s bad for everyone can invest in it. fine for me. But IPOs are only for who works on cryptocurrency. The problem is that right now very big companies right now. The everyone is looking for the grand question is how to get the barrier to GL Are there any cases where ICOs slam, the next Google. If you can get an IPO down much further. could be a great solution to more businesses involved that you The concept of selling shares in something that wasn’t possible invest in because you want to support my company to the public is fine. before? your local business, and you want The concept of using a blockchain RA There is an argument that issuing steady growth but you’re not expect- and tokens instead of whatever col- shares or bonds for smaller com- ing 10x, 100x—that’s what it will take lection of databases they use now panies should be much easier. His- for this technology to be much more to record shareholdings—yes, you torically there were regional stock useful to a wider population. can do that if you want to. Will exchanges all around the country, that be helpful in terms of stream- and it might be nice to get back GL In theory, couldn’t a local barber lining the back end and making it to that concept. Instead of put- who was tech-savvy enough already more flexible? Yes, that’s a possibil- ting all your money in an S&P 500 hold an ICO? ity. But then you need to think of tracker, you could put some of it in RA I don’t think he could. It comes back how the regulations can change to a fund of local businesses. If tokens to the “What is the coin?” problem; accommodate that. This is almost are equity and it’s helping revital- this is why the phrase “initial coin like going back to the past, of local ize local businesses, that could be a offering” is a bad one. If the barber exchanges and the buttonwood good thing. had tokenized shares in his business tree [where the New York Stock But that’s not just a techno- and was selling those shares; and if Exchange was formed]. That’s the logical problem—it’s about how to the regulations around who can offer sort of world I think we should be reform accredited-investor regula- shares to the public and what type of aiming for. The whole ICO craze tion. Really, it’s an IPO. One day accreditation you need to buy them at best is a catalyst; at worst it’s a tokens could represent shares, and had been reformed, so that he could really deliberately misleading con- shares could be sold more easily, and do this legally and at relatively low cept and phrase. this technology hopefully plays a cost; and if his purchasers bought part in that—but that’s a very differ- that in the understanding that they GL If people are looking at ICOs, how ent thing from ICOs. were buying a share in his business can they tell which ones are run by and it wasn’t going to grow 100x— people trying to do the right thing? GL What would have to happen for ICOs that’s fine. But if it’s just, like, “Here’s RA If they’re using SAFT, that’s prob- to not just benefit a handful of rich my coin and I’m going to get some ably a good sign. It’s a way of try- investors? influencers to go and pump it,” that’s ing to formalize the law around RA If this way of issuing equity is not a good outcome. token sales. But if they are using restricted to very high-growth tech We’re still talking about this con- that, they’re only selling to accred- companies, then it’s just a differ- cept of ICOs, and that needs to be got ited investors. So if you’re a member ent way of doing a similar thing. To away from. The word “coin” is prob- of the public and not an accredited

be more broad-based it needs to be lematic because it implies money. investor, it’s all very risky. O’CONNOR BOB

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“The concept of an ICO is almost inherently flawed, and probably the phrase needs to change ... The whole ICO craze at best is a catalyst; at worst it’s a really deliberately misleading concept.” BOB O’CONNOR BOB

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by Hannu Rajaniemi Illustrated by Armando Veve

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Alina set the trap for the car at her father’s summerhouse. ¶ When it was time, she pulled on her Nokia rubber boots, slung the backpack over her shoulder, and went outside. The Lapland morning was monochrome: slushy snow, dark saw-edged pines, gray lake. The fresh air was a relief. She had never been able to sleep in the mildew-smelling house, not even as a child. ¶ She had never planned to come back. But it was perfect for the trap. A patchy network that would force the car AI to run locally. No witnesses. No IoT devices auctioning sensor data for tokens. Although, years ago, her father had stuck a yellow “You Are Being Recorded” sticker in a window as a joke. That was so perfectly like him: all surface, no substance.

Alina had prebooked the ride using a burner autochain ID. ridiculous. The car was never going to fall for it. She had not The app in her AR glasses showed the car icon crawling along even thought about where she would ask the car to take her if the winding forest road. In a few minutes, it would reach the the scheme failed ... sharp right turn where the road met the lake. The turn was The car missed the turn. It plowed straight into the lake with marked by a road sign she had carefully defaced the previous a crash of breaking ice. Alina blinked at the jammer app. The day, with tiny dabs of white paint. Nearly invisible to a human, device in her backpack killed the sparse local network. they nevertheless fooled image recognition nets into classifying She ran toward the car. It was a Mercedes, 2020s model, the sign as a tree. meant to evoke luxury: silvery sheen, sculpted contours. The Glass-thin ice cracked under her booted feet. The cold weight front of the car was in the black water, but the back wheels spun in her belly grew colder. madly on the shore. Snow, ice, and gravel flew into the air. The Suddenly, she had an urge to call Sini, just to hear her voice. engine keened like a wounded animal. There was still time. Tapani would be taking her to the kinder- To Alina’s horror, the car started moving slowly backward. garten right now. She hadn’t seen her daughter for almost two She dropped her backpack, ran, put her shoulder against weeks, not since she had started hunting the car. the back of the car, pushed hard. Something tore, and pain shot Alina removed her woolly mittens and took out her phone. through her left thigh. As she swiped the screen, the band of pale skin on her ring finger For a second, she slid backward in the snow. Then her boots grinned at her. The absence of her wedblock ring banished all found purchase. The car was surprisingly light; you didn’t have doubt. to armor things that never crashed. Ignoring her screaming leg, She put the phone away. No matter what, the car was going Alina pushed the car into the lake. down. When it was fully in the black water, its engine died. But its Alina pulled the ski mask over her face and broke into a jog. headlights stayed on. It bobbed up and down in the water, float- She was warm when she got to her observation spot behind a ing. The lidar nub on the roof kept spinning. large pine near the turn. She opened the app that controlled It was still alive. the jammer in her backpack, held it ready in her field of vision. Alina dropped to her knees. Black dots swam in her eyes. As The car’s headlights flickered in the deep shadows of the trees. if through the car’s four-dimensional vision, the past unfolded Then its sleek low form glided into view. before her: the hunt, the day she saw the car for the first time. Time slowed. The pine smelled wet and rich. Alina was a ~ vitrovegan, but some ancient reflex made her mouth water. This It was on Tapani’s first day at the games company, and Sini had to be what hunters felt like when the prey approached. was making them late. The car decelerated at the turn. Alina knew how it saw “I—don’t—want—to—put—on—rubber—boots!” the world: lidar point clouds, IoT sensor oracle feeds, chain She banged her heels on the floor. Alina sighed. She had got- IDs—with algorithms predicting where everything was going ten up early to pack the toys, the pram, and the spare clothes for to be seconds, minutes, days from now. The past, the present, the day in the city. Tapani had slept through it all. Now he stood and the future in a glance. Her simple traffic-sign exploit felt in the hallway in an AR daze, a blank look on his bearded face. He

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looked owlish in his thick-rimmed glasses, black suit, and thick touched with wet electricity. He smelled of the aftershave she overcoat. Sini’s Moomin backpack dangled limply from his hand. liked, and tasted of fresh toothpaste. She decided she liked the “Sini, Mommy is going to count to three. One,” Alina said, new Tapani. more sharply than she intended. They had met at a bitgov meetup as students. Alina loved the “No!” Sini screamed. A tendril of snot leaked from her nose. idea of spinning up ad hoc government services with a web of “Two,” Alina said. She had a headache. She needed backup. smart contracts. Tapani and his artist friends just wanted to flip Why couldn’t Tapani take a hint? a middle finger at the populist, anti-EU Finnish government by She rubbed her wedblock ring with her thumb. Its tiny LED creating an alternative electronic state. But when the EU came was its usual calming green. apart, bitgovs exploded into a de When Tapani had proposed the facto revolution, and suddenly wedblock, even getting down on there was no Finland, Sweden, one knee, she’d laughed. But then or Norway, only the Northern she realized it was exactly what Block and its e-citizens. After a she had always wanted. demonstration in Senaatintori, It was a smart contract that Tapani and Alina had wild sex in stipulated sexual fidelity and her small student box. Somehow, parental responsibilities. Tokens that became a weekend together, from their joint earnings paid the then a shared flat, and then Sini. AI judges and IoT sensor oracles “It’s fine,” she said. “I’m glad that monitored contract viola- you get to do art. It’s better than tions. On mornings like this, you being a data cow.” really needed commitment that Tapani winced. Alina bit was mathematically provable, her tongue. Before the job came not just an empty promise at the along, he had been selling bio- altar. marker data for a few tokens, She snapped her fingers. a mosquito-like bloodsucking “You are going to put the wearable stuck to his forearm. boots on, Sini. Right now.” She wished she could support Tapani jumped, with a guilty him to do his VR comics. But look. AIs had started to outbid her “Your daughter insists on on smart-contract auditing ignoring the effects of climate gigs, and there was Sini to think change,” Alina said. about. She promised herself “Right. Sorry.” He squatted she’d make it up to him. next to Sini. “Do you know what “You’re right,” Tapani said happens when Mommy says three?” quietly. “Much better. Come on. The car is almost here.” Sini shook her head. Outside, the sky was clear and purple. Sini sprinted through “You’ll go outside in your socks. And the puddle monsters get puddles to check on the partially melted snowman they had you. Like this!” built the day before. It was a Moomin character, Stinky: Sini had He tickled Sini’s feet. She giggled. Alina seized the opportunity. sculpted most of it herself. She slipped one boot on, and Tapani took care of the other. Tapani cocked his head at the spiky snow creature. “There,” he said, winking at Alina. “We still make a good team.” “Our daughter is quite the artist,” he said. “At least when it comes to rubber boots,” Alina said. She wasn’t “She gets it from you.” going to let him off the hook. “Did you order a car already?” “Or your father.” “It’s coming,” Tapani said. “I’m sorry. I needed to prepare. I’ll Alina turned away from him. She folded her arms and stared finish up on the way.” into the distance. A blue tendril rose from a neighbor’s sauna “I know.” She leaned close over Sini’s head and kissed him, chimney. Suddenly, she was a child, sitting in her father’s lap while longer than she meant to. It had been a while. Their tongues he sketched on the summerhouse porch, cozy in the post-sauna

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glow that clung to him. shop, and deactivated the intrusion countermeasures. But the memory was like the distant smoke, a ghost of warmth She squatted down in the snowbank with a grunt, took out she had no part of. The old anger rose and erased it. Her eyes her ruggedized laptop, connected the cable that trailed from the stung, and she wiped them with a woolly mitten. car, and opened a command-line terminal. “I’m sorry,” Tapani said. “I shouldn’t have said that. I just got Tracking the car down had been the easy part. It belonged annoyed earlier. I never wanted us to become that sniping couple. to an autoDAO, a self-owning, decentralized autonomous orga- That was the whole point, wasn’t it? To keep things simple, never nization that owned and operated cars. She had simply tracked make it a prison.” down the payment for the data that had destroyed her wedblock, He sighed. “How about we just start today over, hey? We can using the same scripts she had written for her clients to search meet up after I finish, get some food, all of us—Sini!” the main token exchanges. Even in the Northern Block, the Sini was beating Stinky the snowman with a branch. The autoDAO vehicles sometimes had to use euros to pay recharg- creature’s head came off, fell to the ground, and smashed to ing stations, and once you mixed crypto and old-school money, pieces. Sini kicked at it with wicked glee. anonymity went away. Alina rushed to her and took her by the shoulders. “That was Alina copy-pasted BlackHatGal’s zero-day exploit into the mean, Sini,” she said. “You’re not supposed to do that.” terminal. The car’s headlights flashed. Now its firmware thought Tears welled up in Sini’s eyes again. “Why not?” she screeched. she was a factory quality assurance inspector, with root access Alina stared at her, at a loss for words. And then Tapani to everything. was there. She cd’d her way up the decision-making and reinforcement “You shouldn’t break something just because you can,” he said. learning directories, until she found the explanation dialog system. “Do you want to be the kind of girl who smashes other kids’ toys “And now, mister,” she said aloud, “you and I are going to and then nobody’ll play with you?” have a conversation.” Sini shook her head. ~ “It’s okay,” Tapani said, gathering her in his arms. “You just On the day the wedblock terminated, Alina barged into have to promise that we’ll make another Stinky tomorrow.” Tapani’s new company. “I promise,” Sini said. And then the car was there. Its engine The hubbub of the office died. Half a dozen game devs with was so quiet Alina had missed its arrival. Its wheels rattled on wraparound AR goggles turned to look at her. They were young the gravel as it pirouetted on the yard gracefully, taking care to and hip, with bioluminescent tattoos and in vitro leather trousers. avoid Sini’s destroyed snowman. Under the winter sky, the car’s She hesitated, self-conscious with her practical winter coat and sleek silver lines made it look like an alien spaceship, come to unwashed hair. take them to another planet, far away. Then she saw Tapani, hunkering behind his treadmill desk, ~ and the anger turned her into a giant. Alina gritted her teeth and rubbed snow on her pulled muscle. “You,” she growled. The cold made her see sparks but numbed the pain. “Alina. I was going to call you. I didn’t know it would be so Then she took a crowbar, rubber gloves, and a large bundle quick.” of data cable from her backpack and waded into the icy water. She had been playing an AR game with Sini when she spotted She did not have much time. Judging from the autohacker forum her wedblock ring blinking angry red. A bot informed her that estimates, the autoDAO would send a drone to check up on the her wedblock contract with Tapani Juhantalo had terminated lost vehicle in less than 20 minutes. at 2:03 p.m. The car was still, floating in the water like a huge gray seal. “You. Didn’t. Know.” Her face burned. “What the fuck did Alina found the side panel and rammed the crowbar into the you do?” seam. It slid along the metal with a whiteboard screech. She “Let’s go outside.” tried again, and this time the panel popped out, exposing flat “Sure. Let’s go outside so your coworkers don’t have to hear black GPU boxes and tangled optical fiber. Gritting her teeth, why you broke a wedblock with your wife of five years, the mother she inserted the cable tip into a port, waiting for the zap. of your child.” The connector clicked. Alina let out an explosive breath. She stomped out. Tapani followed her, wearing that infuriat- BlackHatGal117 from the forum had been right: if the car floated ing dazed expression. She slammed the door behind them, and so that the wheel sensors lost touch with the ground, the safety the deep stairwell boomed. Then she leaned on the railing and firmware decided the car was being towed or elevated in a repair looked into the abyss, unable to face Tapani.

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“I was going to come home and talk it over,” Tapani said. The stairwell multiplied her voice. A door opened some- “It’s not your home anymore.” The wedblock termination where below. passed the fractional house ownership to Alina, although Tapani “We are moving in together,” Tapani said. “I’ll get my things retained access to visit Sini. next week. You still have my calendar.” “Exactly! I accept that. And that was the whole point. Not There was a heavy stone in Alina’s chest. A sob escaped, and even having to decide it was over. No pretending. No fi ghts. No she realized she had been holding her breath. mess. I don’t understand why you are so upset.” Tapani moved toward her, then hesitated. Alina stared at him. Keep things simple, never make it a “Maybe you should go. I have to get back to work.” prison, Tapani had said. Nothing made sense. It was as if two and two had suddenly “What?” Tapani asked. become fi ve. Alina blinked back tears and eyefl icked her way to “What did you do? Or—who did you do?” the smart-contract app, ignoring Tapani’s hovering. Tapani looked down. The termination had been triggered by an AI judge (Northern “Are you sure you want to know?” Block lawchain public key 07dc74631), based on data from a “What’s her name?” single sensor oracle. The wedblock’s deposit tokens had been “Riya. We always ended up sharing a car to work. She liked transferred to the oracle, for providing the key data for the ruling. to draw; she made a sketch of me. It was nice. It was a good “The car,” she muttered. We always ended up in the same drawing. So we talked, about silly things. Palomino pencils, the car, he said. vlog she had as a teen. I liked her.” “Of course,” Tapani said hastily. “I’ll get you a car right away.” He closed his eyes and massaged his eyelids. “I felt guilty at ~ fi rst, even for that. Do you remember that old How I Met Your > Explain transaction $078232875b, Alina typed. The Mother episode? Marshall imagines his wife dying of cancer and answer came instantly. giving him permission to have a fantasy about a hot pizza delivery > The transaction resulted from following policy girl. It was like that.” tree $3435. Tapani smiled sadly. She swore. The explanation system was bolted on top of the “And then I remembered my wedblock wife was cool. We car’s AI. It tried to map decisions of diff erentiable software—a dis- had worked all this out in advance, like grown-ups. So, one tant descendant of neural nets—into human-parsable sentences. morning … well. It was in the car, and after that, it was hard to It didn’t always make sense. But Alina had to know. stop. It was like it was meant to happen. You can’t fi ght things And then she was going to kill the car and the DAO it that are supposed to happen.” worked for. Alina felt dizzy and backed away from the railing. Her > Explain policy tree $3435, she typed with freezing stomach hurt. fi ngers. “Nothing,” she whispered, “is supposed to happen.” > Policy tree $3435 maximizes value of in-car sen- “You never believed that, did you?” Tapani said quietly. sory data using [TIP_PREDICTION.py] to match users “Maybe that was the problem.” whose combinations will result in high data value to Alina’s knuckles were white. She wanted to punch him in [oraclenet.api], conditional upon user [EULA_UPDATE_ the face with the wedblock ring, leave an indelible mark, like the CLICKTHROUGH] to update variable $privacysettings. Phantom’s ring in comics. Alina stared at the screen. What did this have to do with her Instead, she pulled it off and threw it into the stairwell. It wedblock? made a faint tinkling sound. She opened TIP_PREDICTION.py in a terminal text editor. It “You are an asshole,” she said. was a mess. The original code was by a human coder: a neural net “I understand that you are upset about Sini, but I found this predicting how much a rider would tip, based on body language. great chatbot that explains divorces to children. It’s aimed at But the AI had modifi ed it. Those changes were incomprehen- fi ve-year-olds but she’s so smart, she’ll be fi ne—” sible—until she got to the training data set. “Do you love her?” There were thousands of videos. She played a few at random. “Of course I love Sini! How can you say that?” A romantic comedy. Surveillance footage of a man and a woman “Not her. That woman. Riya.” sitting together, the woman playing with her hair. A porn clip Tapani blinked. that cut off before the sex. “DO YOU LOVE HER?” She nearly dropped the laptop when she understood. It was

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all there in the car’s code commits, like a fossil record. The auto- She thought of Sini’s wicked glee at the smashed snowman. You DAO’s cars were reinforcement learners: they experimented with shouldn’t break something just because you can, Tapani had said. business models and rewrote their own code to maximize rewards. Alina took a deep breath and backspaced the Trojan upload At some point the car had discovered that when applied to pairs code into nothingness. > rm -r /var/lib/RL/policy- of passengers, the tip prediction subroutine could predict some- trees/3435/*, she typed instead. That deleted the Cupid thing that correlated with bigger tips—sexual tension. Pairing blackmailer behavior. Later, she would submit a ticket to the passengers to maximize that property resulted in longer journeys lawchain repo so the wedblock AIs could watch out for it. Finally, and even higher rewards. Another experiment had led the car to she deleted her ride request from the job queue. covertly modify its EULA so it Then she closed the lap- could record what its passengers top, plucked out the cable, and got up to. Then it had discovered a got up. Her left leg was merci- lucrative market for those record- fully numb. She limped back ings—selling wedblock-breaking into the water and pushed. adultery data to AI judges. Finally, To her surprise, the fl oating, it had started pairing up married airtight car moved easily, passengers likely to commit adul- although icy water poured tery with each other. The car was a into her boots and her teeth Cupid gone bad, just as she had started chattering. When the guessed when Tapani first men- back wheels touched ground, tioned meeting Riya in the car. she put her back into it, and The rage rushed through her then the car’s engine hummed again. The devil machine had found to life. The tires found pur- the perfect match for Tapani: the chase, and with Alina push- frizzy-haired Riya, with the skinny ing, the car backed out of the legs Alina would never have, able to lake and up to the road. talk about art and food, with her It stood there for a sexy Syrian accent with the soft Rs. moment, lidar nub spinning. Alina couldn’t hurt Riya, so the Standing in the lake, Alina car would have to do. gave it a nod. Gritting her teeth, she wrote The car made a sudden a command to upload the neural pirouette. Then it sped away, Trojan. It was malware, dormant just as the sun’s rim peeked in the car’s code until it synched above the treetops and turned with the DAO’s repos and infected its metal into gold. all the self-owning company’s cars. When Alina made it back Then, when they had no passengers, the Trojan would blind them to the summerhouse, there was no feeling in her feet. But there and crash them. were still embers in the fi replace, and soon she had a roaring She could do it with one keystroke. Her fi ngers hovered over blaze. She wiggled her blue toes in the heat, and realized she had the Return key. Get on with it, she told herself. The autoDAO put the rubber boots exactly where her father used to, leaning on drone was probably on its way. Why was she hesitating? She wasn’t the curving brick side of the chimney. hurting human beings, just idiot machines. Idiot machines that Outside, the sun glittered on the snow-covered lake. It was followed rules. perfectly quiet. She closed her eyes, smelled the warm rubber, That was what she had done, accepting Tapani’s proposal. and listened to the crackling of burning birch. In a little while, The rules she had made for herself when her father left: Never she would call Sini and tell her she was coming home. In a little let yourself be hurt again. Make sure there are chains and while, after the boots were dry. vows and punishments. Only to Tapani, the wedblock had been something else: a hedge, a convenience. And now she was Hannu Rajaniemi is the author of Summerland, the Quantum drowning, just like the car. Thief trilogy, and several short stories.



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in april 2015, an artist known as code. In fact, the flames’ widths and their A puzzle @coin_artist posted the painting above border and interior colors are also binary. on Twitter. She offered 4.87 bitcoins—then The winner had to deduce, from other sub- worth around $1,200—to anyone who could solve tle clues, how to read numbers from the a puzzle hidden inside it. Not until Febru- flames (e.g., red flame border = 0, yellow $50,000 that ary this year did someone claim the prize, = 1), and then work out that the ribbons by then worth some $50,000. represented a cipher for turning those took three The first problem was to figure out numbers, via several steps, into text. That what the puzzle even was. The flames that text—“b34u7y, truth and rarity”—included years to crack border the painting and the ribbons on the the cryptographic key to a Bitcoin wallet key in the lower right are the giveaway: containing the prize money. The winner they are all either long or short, a hint posted his solution online but gave only a that they encode the 1s and 0s of binary pseudonym: “Isaac.”

MIT Technology Review (ISSN 1099-274X), May/June 2018 issue, Reg. US Patent Office, is published bimonthly by MIT Technology Review, 1 Main St. Suite 13, Cambridge, MA 02142-1517. Entire contents ©2018. The editors seek diverse views, and authors’ opinions do not represent the official policies of their institutions or those of MIT. Periodicals postage paid at Boston, MA, and additional mailing offices. Postmaster: Send address changes to MIT Technol- ogy Review, Subscriber Services, PO Box 5001, Big Sandy, TX 75755, or via the internet at www.technologyreview.com/customerservice. Basic subscription rates: $41.94 per year within the United States; in all other countries, US$54.

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DOCUMENT PATH: Macintosh HD:Users:paulgruberg:Desktop:DATA:WORK:PhRMA:82871:P:8C82871_PHR_p2.1_pg.indd FONT FAMILY: Circular Std (Book, Bold, Medium), Archer (Bold Italic) LINK NAME: 8C82842_17007_01_Pat_0148_v2_r1.tif, 8C82842_17007_02_Pablo_0055_V2_r1.tif, PhRMA_ABC™_logo_Side Stacked_4C+K_yr2.ai, Go Boldly™ Lockup_100pt_4C_FINAL_yr.ai INK NAME: Cyan, Magenta, Yellow, Black