Critiquing Bitcoin with Angela Walch


Angela Walch: Hi Peter.

Peter McCormack: You all right?

Angela Walch: Yes, I’m great.

Peter McCormack: Thank you for taking me for a cruise around San Antonio in your minivan.

Angela Walch: You’re welcome, my minivan’s famous.

Peter McCormack: I thought we might have gone out on Bird scooters?

Angela Walch: Yeah, this is San Antonio, not Austin. So we might find those here, but not out in my neck of the woods!

Peter McCormack: You’re not a fan, aren’t you?

Angela Walch: I am not. How do you know?

Peter McCormack: Because you put it out on Twitter?

Angela Walch: Okay, it’s public!

Peter McCormack: First line of research, three months of Twitter. Then, especially with you, then the academic work because that’s harder!

Angela Walch: Okay. Perfect. Yes. I don’t like Bird scooters.

Peter McCormack: I’ve just been to Los Angeles and the streets are lined with… I think it’s five companies now, it’s unbelievable.

Angela Walch: I’ve seen some on campus here and we don’t know where to park them, so they end up on the sidewalk. So that’s kind of why I dislike them.

Peter McCormack: So I said to you when we had lunch, I said to you, there’s Nouriel Roubini, there’s Frances Coppola and there’s Angela Walch. Three notable critics of Bitcoin. Okay. But when I look through the responses, you have the least abusive responses. People will argue with you, but I think you’ve managed to garner some respect when maybe Nouriel and Frances haven’t. Why do you think that is?

Angela Walch: First, thank you for putting me in a category. I’ve never been put in a category with Nouriel Roubini before and I’ve met Frances and she’s very sharp as well, so thank you. I’d love to be in that category! I think I have tried very hard to treat my conversations on Twitter as being about substance largely and I do think that these are really hard issues and you can disagree about them. Reasonable people can have different perspectives on these things and often I think in the discussions I have, maybe people just are defining their terms differently.

So they’re kind of screaming at each other, but it’s hard to hone in on the part they’re actually fighting. So I don’t dismiss the whole phenomenon as a scam. I think Professor Roubini has been very clear that he views a lot of it as a scam. That there’s no redeeming features to this whatsoever. From the people that I’ve met and the work that I’ve seen done, I don’t view this as a scam. Certain ones are scams, but I don’t think the movement as a whole is attempting to be a scam. I think that there are some very serious people involved who are genuinely trying to create a technology that will enable the world to change in certain ways.

You can disagree whether the world should be going in those ways or not. But I think it’s not necessarily helpful to just dismiss it all as a scam. I haven’t perhaps gotten as much… I’ve gotten some personal attacks recently. I blocked someone I think for the first time. I only blocked generally when someone seems creepy! But I’ve blocked people recently when they were just attacking me personally rather than the arguments. So I want Twitter to be about the arguments.

Peter McCormack: Yeah. So interestingly, I was really excited to see Nouriel’s Senate testimony because I think it’s good to have an opposing opinion. I think we learn from it and I think maybe sometimes people within Bitcoin and the crypto space, they are a little bit nervous about it or a bit defensive. The real shame about his testimony was that he grouped everything together and grouped a lot of scams and nonsense projects with Bitcoin. That was a real shame. When I was watching it again, I was like, “do you know what, I actually think Angela would have been better up there”. Did they ask you?

Angela Walch: They did not ask me, but, I would love the chance. So, if you’re listening, anybody, I would love the chance to talk about these things with regulators because I think they’re critically important and with not just regulators, but policymakers like Congress making decisions about the technology, both how to regulate it and also whether they want to use it in important government systems. I want multiple perspectives to be heard.

It’s funny because, I saw Peter van Valkenburgh in DC after the testimony and he said, “yeah, I was kind of wishing that you would have been on the other side”. So that was a nice thing for him to say and I think Peter and I could have a really good discussion.

Peter McCormack: I agree and what was quite interesting is the point you made about Coin Center, is that it’s very difficult for them to be impartial whilst being an advocate. Is there confusion about their impartiality amongst cryptocurrencies?

Angela Walch: So I think they’re in a strange place. So there are several different groups within the crypto space that, have been both trying to serve an education function and an advocacy function for crypto. There’s Coin Center and they are a think tank. I believe their mission is to advocate for permissionless innovation, I think that’s how they couch it. Then there’s the Digital Chamber of Commerce, which tries to advocate… It’s a bit hazier to me, are they advocating purely for the crypto side, but they don’t seem to be doing it

They seem to also be wanting to push the more general Blockchain side. That’s interesting because, within the crypto space, there’s a rejection of Blockchain as a real thing. So that’s, that’s a bit odd. Then there are several new ones that have been formed and I’m worried that policymakers are getting a single perspective on the technology, its capabilities, its risks and they need to be getting a more critical perspective as well.

So I think that’s what they were trying to do with the Senate testimony. But I don’t think it was as useful as it could have been. I think Coin Center tries to be transparent, but they are an advocacy organization and while they call themselves a think tank and they put out some very good research. The research is funded by the industry.

Peter McCormack: Of course. I think actually a debate between you and Peter would be good. Peter’s pretty healthy with his outlook, but you’re right, he is supportive. So today we’re obviously going to be critiquing Bitcoin. I do a lot of pro-Bitcoin shows and do the occasional non-Bitcoin show. But today we’re going to be critiquing it mainly from a legal perspective due to your background and your work. So for the people who don’t know you, who do listen to my show, it probably is useful if you tell them your background and the work you do now at Saint Mary’s

Angela Walch: Great, so I am a law professor. This is my seventh year in that role. Before that, I was a corporate lawyer, transactional lawyer. I practised for a while in a big firm and then I practised in-house at several places. I was in the General Counsel’s office at Harvard for a few years and then I worked in London, in-house for Sainsbury’s grocery store and in a big events company.

So I came to Bitcoin when I started my research as a law professor. I had a strong interest in money generally and how money works, who gets to make money, who gets to control money and thinking about what role does law have in shaping what money is and how people use it. Bitcoin was on the scene at this point. This was in 2012. So I think I started looking at it in early 2013 and became very intrigued by it as a potential new form of money. But also then got very interested in the governance of it.

I met people at a Bitcoin conference that I went to, I think the summer of 2013 and they were talking about forming the Bitcoin Foundation and I could not figure out how this Foundation was supposed to be, the voice of something that was decentralized. So I started to hone in on these questions about who are the people behind the curtain, kind of very early on. I have a lot of ideas that there are people behind the curtain.

Peter McCormack: So I’ve been through your two most recent academic papers. As I said to you, for me, it’s too much brain space to try and cover both today. I mean we might talk about “developers as fiduciaries” towards the end. I basically read the intro to both, I found the decentralization a lot more interesting. As I said to you beforehand, I think it’s quite important that people get some perspective here because I think reading just some of your tweets, people might see you as anti Bitcoin or anti crypto.

My take from it after reading the full piece was that it doesn’t feel like you’re opposed to Bitcoin itself in isolation. It’s more you are wanting to raise awareness of issues relating to Bitcoin when it starts to integrate with the legacy financial and legal systems.

Angela Walch: Yeah. I think that’s pretty true. People often react to me on Twitter that I’m anti crypto. I am a no-coiner. I don’t own crypto. The reason for that is that I think it would compromise my ability to be fairly objective in my research. I want to be as objective as I possibly can. Now, of course, my husband is mad that I’m the poorest person in Bitcoin, but that’s okay. So I understand the place that these systems are coming from.

The privacy issues that a lot of them are trying to address, I think are really critical questions and I don’t think there are easy answers to any of them. In these new systems, I want us to make sure that we’re thinking of them as infrastructure and the important role that they can play in our society. Money plays a critical role. We’ve seen that with Venezuela and are seeing it play out right now, how important it is. If we don’t truly understand how… If technology is being money now, we need to really understand how that technology operates and I feel like our understanding even of these systems, even though we’re a decade in with Bitcoin, is still pretty shallow.

There are many, many questions that have not been investigated yet. Academic understanding of them is in its infancy. So it’s interesting to me and kind of scary that people are building on these systems and thinking about ways to make financial products that build on these systems, without us actually having gotten a good understanding of how they work. Then that connects to the financial system! I’ve been interested in systemic risk issues and money collapses and the paper that I presented to get my job as a Professor, you have to give a job talk.

It was actually about thinking about the global systemic risk of the US dollar and the potential of the US dollar collapse. So I think about collapses of systems and I think the governance questions around Bitcoin and all the other cryptocurrencies are really poorly understood. They’re experimental. So using them in significant systems in our society, that’s very consequential. So I want us to understand them.

Peter McCormack: Do you know what is quite interesting. So I read through it all and I agree with a lot of what you had written. Some I didn’t understand naturally, but I couldn’t help but think if the cypherpunks read this, there’s probably thinking “great, who cares? This wasn’t designed to be part of the legacy systems”. For example, there’s one point you talk about these decentralized systems can enable rule breaking and that to me was like, “well that was kind of the purpose. Free trade, open trade, separation of money, estate, etc”.

So I kind of got in this weird position. I was thinking, “well firstly I want Bitcoin to grow, so great let’s have institutionalization and accept there’s some regulation that comes with this”. Then I thought, “actually if this doesn’t work, maybe this is great because this is the cypherpunk dream”. Then I got lost and I don’t know where I stand!

Angela Walch: Well I think you’re conflicted thoughts there, mirror the conflicts that Bitcoin is experiencing right now. With the whole rapid push now for DeFi (decentralized finance) or whatever they’re calling it and the debate about re-hypothecation. I’m trying to learn more about that, but it’s a big debate and whether these things are good for Bitcoin, are bad for Bitcoin?

The debates are about exactly what you’ve noted here. If Bitcoin is intended to sit outside the standard system and be useful outside the standard system, then maybe we should just leave it completely separate from the mainstream financial system. But if it raises the value of it to get more investors in, it’s just weird. I do see there being an undermining of the core goal of having it be an alternative system, by linking it quickly to the financial system.

Peter McCormack: I’ve actually thought of becoming no-coiner like yourself. I mean, I have a materially small amount of Bitcoin. I’m not worth kidnapping for, but at the same time, I have some. But I have wrestled with the idea of becoming a no-coiner to try and sit with a more impartial view than I currently have and to not be conflicted by it, because I think there is certainly… Like I said, if Bitcoin grows by growing through the legacy financial systems, I set to benefit. So I feel like I’m incentivised to have that view.

But I have this fantasy of the cypherpunk dream of saying, “yeah, excuse me, but fuck the traditional systems. Bitcoin wasn’t meant to be part of that” and interestingly I was with Erik Voorhees yesterday and I’ve brought it up in a number of interviews and I don’t have the quote with me now.

But it was by Tim May, who he sadly passed away recently and he was saying, “that if Satoshi was seeing what we have now with KYC/AML and account locks and essentially a dossier state, he would probably ditch it and work on something else”. So now I’m starting to think, “well, hopefully, Angela’s work will stop the integration of Bitcoin into the financial system. Do you see my conflict?

Angela Walch: Oh Wow! So maybe Bitcoiners should be supporting me because it’s too dangerous for the financial system. My argument that is too dangerous might actually be beneficial to Bitcoin.

Peter McCormack: But the counter-argument is that… And we’re going to get into the centralization of power in certain areas in Bitcoin, but a lot of people would argue, “no, by using the legacy financial system you do grow Bitcoin, but you still are keeping it separate from control by governments”. So it’s a conflicted area. But anyway, so I’m going to go with your conclusion to start with.

Angela Walch: Okay.

Peter McCormack: So the goal really is the term decentralization. We need to ditch it. You quoted Tony Zhang, who I talked about being a fan of his work. Essentially that’s the conclusion you come too?

Angela Walch: Yes.

Peter McCormack: All right, we’re good. We can go now!

Angela Walch: I think we’re done! No, so the paper’s called “deconstructing decentralization, exploring the core claim of cryptosystems” and it is intended to be a critical analysis of this term and how it’s used in the space because it is perhaps the term that is most ubiquitous. Everyone talks about, “we’re building DeFi, decentralized finance, decentralize everything!” So I think it’s important to hone in on what we mean by that and I think it’s very unclear.

My conclusion when I started looking into it more… My gut feeling about this, just watching the space, being on Twitter, talking to people and being in it, is that we’re imprecise about decentralization. My gut feeling was that these pockets of power that I perceive, how are they consistent with a description of these systems as decentralized? I think that the concentrations of power that we see… Which is absolutely a debatable point!

Many people disagree with me, that there’s power being exercised at all by small groups of people in Bitcoin or in other systems. But if we’re misunderstanding it and overlooking these concentrations of power and describing the systems as decentralized, we’re potentially making a lot of bad decisions.

People are exercising power without accountability. They’re exercising power that no one is acknowledging and that undermines the whole principle of it. That people think they’re going into a system where humans or not particular humans are not running the show and there are some people behind the scenes pulling the strings potentially.

Peter McCormack: And Bitcoiners should care?

Angela Walch: I think so.

Peter McCormack: But the reason I think they should care is because decentralization is touted as a strength. But if there are areas of power, centralizations of power, that is actually a weakness.

Angela Walch: Yes, absolutely. So decentralization… You can view it in a number of different ways and I look at that in the paper. You can think of a system as decentralized if you’re looking at just at the network structure. For instance, how many nodes are there? Where are they in the world? Are they concentrated in a particular jurisdiction or could they be subject to a common natural disaster or something like that?

So you can look at it that structurally and that’s thinking about the good characteristic that a decentralized network in this way would give to Bitcoin, is that it’s resilient. It’s hard to knock all the nodes offline at once. So there’s a resilience aspect to it, but then people use it as something much more than that. They use it as saying that there is no power at the core. There’s not a central power and it makes us feel like there’s really no power. It’s diffuse. One of the terms I use in the paper is its accountability floating freely, which people feel good about. I can’t pin it down anywhere. So it doesn’t exist.

Peter McCormack: Interestingly as well, the term decentralization, it’s almost like a fantasy term. It’s like fantasy future of decentralization of power? But the reality is when I was going through it, I came to the conclusion that you did at one point I was like, “it is impossible to define and it is impossible to create binary rules about certain aspects of decentralization because then you just create arbitrary lines in the sand”.

So I feel like decentralization is a nice marketing term and it’s a nice descriptive term for some kind of goal. But it isn’t particularly useful when you come to legislate because I’m assuming the law prefers binary outcomes.

Angela Walch: So the law is very interesting. There’s a whole big debate in the law about whether you… It’s called the rules versus standards debate. Do you try to set up a black line rule where things are very clear, it’s binary, where you’re either on one side or the other and the goal is to have clear consequences, clear outcomes.

The alternative is to set up a standard. So a fuzzy standard might be that you have to use reasonable efforts or good faith efforts. Well, how do you know what those are? It’s kind of like a feeling that you have and you can look at other things like, “well how much money did you spend to accomplish something you had to use reasonable efforts to achieve, how hard did you work on, how many hours did you spend? What did you actually achieve? How many people did you talk to, to try and make it happen?

So, in standards, when you have a standard in law, there’s often an underlying set of factors that you look at, that try to be more concrete to add colour to the standard. But here, so thinking about decentralization, a lot of people talk about it and I just had a conversation with Jimmy Song actually last week at South by Southwest, where his argument was that decentralization is binary. It’s one or zero and Bitcoin is the only one that can say that it’s decentralized and everything else should just give up and call themselves centralized. So he sees it as binary.

I see it as more of a spectrum and I also see it as incredibly fluid. What I mean by that is that the if you’re attempting to measure the decentralization level of any given cryptosystem, it’s arguably changing by the second. It can change with the number of nodes that enter and exit the system. It can change with mining concentrations. How many people join one pool? Are these particular miners joining together to collude? It can change with developer composition. If the people think that certain core devs are compromised or something and they take away their commit keys, then that has changed the decentralization level of it.

So it’s very fluid and if you try to characterize systems in a legal way, according to a decentralization level, you’re definitely going to have to be doing frequent measurements. If the decentralization of a system determines, a particular favourable or unfavourable legal outcome, people are going to want to game it. That’s what always happens with legal rules. So this has come up with, most obviously in the discussion that we’re having about whether Ethereum is a security under the US securities laws.

Peter McCormack: So Bill Hinman made this all difficult for us!

Angela Walch: Yes, exactly!

Peter McCormack: It was almost like he wanted to test the waters, see what the response would be. But it was vague… He said, “a coordinated group those working actively to develop or guide the development of the infrastructure of a network”. So he used that as his guideline whether something is centralized or decentralized and made the point that something could start centralized and become centralized. So this is why we care.

Angela Walch: Yeah. Well, this is one reason why we care, is because cryptosystems level of decentralization appears to be relevant to whether the SEC is going to consider the token that sits on that system to be a security. So in June 2018, Bill Hinman gave a speech that was very heavily watched in the crypto space. I’m sure all of your listeners have heard about this speech. Essentially in it, he said that both Bitcoin and Ethereum seem to be sufficiently decentralized such that they should not be treated as securities.

Peter McCormack: But “sufficiently” is vague again?

Angela Walch: Absolutely. It’s a standard. Sufficiently decentralized is what we just talked about. Rule versus standard. That would be a definition of a standard. It’s a vague thing. What is sufficiently decentralized mean and he tried to give some more colour to it. He gave some things that you could look at to think about whether a system is sufficiently decentralized and just what you were talking about, It’s sufficiently decentralized where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts.

If you don’t expect that, then it may not be a security, it may be sufficiently decentralized. A lot of it has to do with… He talked about information asymmetries as well. Do certain people in the system have information that other people in the system don’t and can use that information that they have, in ways that benefit them as opposed to the rest of the people.

Peter McCormack: So what are the reasons we really need to care about the use of this term? Obviously, we said here with regards to a security, abuse of power and front running are potentially other options. Any other reasons we need to care about why this term is being used?

Angela Walch: So in the paper, I talk about, I think the way that we’re using the term, the way that everyone in the crypto space uses it. But then what we’re seeing with mainstream, normal people, non-crypto people using it, people in the financial system and then also legislators, policymakers, regulators using it, is that I think we’re using it to say there’s no power here. Okay, and if you use it in that way, then you feel like there’s nobody there that has power to hold accountable for anything. You can’t regulate it. It’s almost as if the law says that’s off limits. You don’t have to worry about it.

There’s a nice shield there. It says decentralization on it. This is a decentralized system. You don’t have to look behind it to worry about law having a role there because it’s decentralized. So I actually see that shield functioning as what I call a veil of decentralization. In law, there’s a concept called the corporate veil and you can form a legal entity, like a corporation or a limited liability company and one of the perks of forming those legal entities, is that you get limited liability.

So piercing the corporate veil is it said to… What happens when a court does that, is that they say, “no, we’re going to disregard the corporate form and go after the people actually in the system. They didn’t maintain the corporate form properly. So we’re going to pierce the veil”. I think there’s a similar veil being created just by categorizing a system as decentralized and that’s problematic to me because that means we’re not thinking about it properly from a legal perspective.

Peter McCormack: What I’m trying to get at is, where will laws be broken that we need to care about? So I understand the securities laws. I think I’m pretty comfortable saying it, but it’s very difficult to define Bitcoin as a security and I’m quite comfortable with that. I think there are questions over Ethereum still.

Angela Walch: Where is it in the bigger context?

Peter McCormack: But certainly with regards to other ICOs, almost certainly they are securities. So I get that. With regards specifically say to Bitcoin, where else will laws potentially be broken, where the term decentralization may be used as a veil.

Angela Walch: I think that it can come up really in any legal determination or policy determination that you’re making about these systems because you are fundamentally misunderstanding how power works in the system. If you just view them as decentralized and don’t look through that veil, then every decision that you make about them legal or otherwise is flawed because you’re misunderstanding power. So that’s I think the big picture here, misunderstandings about how power operates makes every decision you make about it flawed.

Peter McCormack: Okay. So what you’re basically saying is there are people or entities that have power within Bitcoin but are almost acting outside of the law because they have no fear.

Angela Walch: They could act outside the law. I’m not accusing people of doing so, but there’s a potential to do so and to get away with it because the law can’t see them through the veil.

Peter McCormack: Again, the cypherpunks celebrate.

Angela Walch: That’s the whole point!

Peter McCormack: So I think it would be useful to start looking at where you’ve talked about there are entities of power and how that can be used. So firstly, I think the one that stood out to me most is with developers and you put a very interesting quote in that, “every line of code is an exercise of power”. I mean you can certainly see how there are many contributors to the core code and anyone can come and join and be part of that and there are certain hierarchies within the programmers. But I never thought of a line of code as an exercise of power, but of course, it is.

Angela Walch: Yeah, I think we’re recognizing that more and more, as code performance more significant functions in our societies. If code does something, there was a policy choice behind it about whether or not that code should do something and you’re implementing that policy choice. Same as maybe, you could view it as passing a law, taking any other concrete action through writing that code. So Bitcoin doesn’t come into effect unless there is software code that runs. So I don’t think we can overlook that. Creating software is power.

Peter McCormack: Is that an overlap with your other paper of developers as fiduciaries?

Angela Walch: Yeah, there is definitely an overlap there. I am very interested in understanding how power with software works. It’s a larger interest that I’m hoping to continue to explore. One of the reasons my arguments that developers function as fiduciaries, meaning there is high trust placed in them is… There’s a worry that if in Blockchain systems view them as fiduciaries, then what does that mean for other open source software?

Is every open source software maintainer or core dev, are they potentially a fiduciary? I don’t have an answer for that. I think it absolutely matters how significant the software is and what it’s doing before you can answer those questions. But that’s one reason why it’s controversial.

Peter McCormack: So what was quite interesting then is you talked about the forks with the CVE bug where a very small group of lead developers, maintainers recognized the threat that had to the protocol and designed a process to fix the bug and communicate that with the miners. That to you, is a very clear example of a concentration of power?

Angela Walch: Yes, absolutely.

Peter McCormack: I was like, “yeah, I don’t disagree, but at the same time though, I can’t think of any way to do this, which is safer”.

Angela Walch: Okay. My argument that is an exercise of power has nothing to do with whether it’s the right thing to do to keep the system safe. That’s probably absolutely the right thing to do to keep the system safe, is to limit the disclosure. So the issue was this bug in September was reported to a very small group of people. I think it was four or five initially and those core devs realized that actually, the bug was a lot worse than had been reported. It was potentially catastrophic inflation bug.

So they essentially hid the fix to the inflation bug in whatever upgrade that they proposed to fix it and didn’t tell the people who they asked to upgrade about the more serious bug. That’s probably a good way to fix a very serious bug and not have the system collapsed. But also at the same time, they were making a decision on behalf of all the other people in the system and that’s not consistent with a characterization of the system as decentralized and no concentrated power. So you can still have power being exercised and I’m not arguing that it was exercised in the right way, but I am arguing that there’s power.

Peter McCormack: Yeah and interestingly, I’ve interviewed core devs, I’ve met core devs. I implicitly trust every single one I’ve met that they act honestly for the best of Bitcoin.

Angela Walch: Yes.

Peter McCormack: But for you, I’m seeing the point you’re making is that if Bitcoin is just some cypherpunk project with people around the world sending Bitcoins back and forth to each other, that’s fine. But if it is to integrate with a legacy financial system, with financial products integrated, with companies investing, futures, various other derivative products, that if there is a centralization of power or there is a group of people who have knowledge of things like bugs, then that is something that the legal system and the SEC have to be aware of.

Angela Walch: Well I think certainly being aware that there is a possibility for that and that it can have consequences. So I think that probably most Bitcoiners would have an issue if they found out that one of the core devs, when they found out about the bug, they tipped their friend about it and their friend was able to buy some sort of derivative product and make a ton of money on that knowledge before it was disclosed to the rest of the world.

I’m not accusing anybody of doing that, but that doesn’t mean that the opportunity is not there. It’s interesting to me that there is such strong resistance to this idea of developers having duties to not improperly profit off the system, as that would be. I think most people would see that as “that’s not right” and also to do their very best and make the best decisions for the system, which they were doing when they fixed the bug that particular way. So I think they’re actually already abiding by what would be fiduciary duties.

They are doing their best. They do copious amounts of research generally before they and they test out code right before they release it. They are on it when there’s an emergency situation, they respond and they really try hard to fix it in a responsible way. They act as fiduciaries already. So it’s interesting to me that there’s such push back and I almost think the system would be… It could be a selling point to the system!

If you said, “yeah, our devs are fiduciaries we fund them”, I think the funding component really complicates this because with open source, “okay, I’m doing it in my free time. I’m doing this development in my free time. I’m not necessarily going to be compensated” and there’s been a lot of questions and complexity and how Bitcoin core devs and now Ethereum are compensated. Now Ethereum is looking at potentially having integrating like an automatic payment or creating a fund for the maintenance of the protocol. So these are all wrapped up together. The funding and accountability.

Peter McCormack: So if a core developer was aware of the bug, told a friend, a friend took a significant short position. The core dev disclosed the bug, the market crashed, the friend made a profit, has a law been broken there?

Angela Walch: I don’t know, I’m not an insider trading expert.

Peter McCormack: It feels like insider trading.

Angela Walch: Doesn’t it?

Peter McCormack: So I guess what you’re saying is there needs to be some kind of framework for developers to… Or there needs to be at least a conversation and an understanding if there is a fiduciary duty because otherwise it’s something like this does happen, there may be a test case.

Angela Walch: Yeah. So if I were a dev actually I would be concerned about the ambiguity of my accountability and actually some devs and I think a core dev or two in Ethereum has quit because of that.

They were concerned that they could be held legally liable for what they were doing. So if you at least get your accountability cleared up and know what it is, then you can say, “well the system needs to compensate me x amount so it can get me liability insurance” and you can set up a system that is going to give the devs comfort and maybe would ensure the longevity and stability of the protocol rather than, people think I’m attacking open source software generally.

But I’m asking whether the practices that have come from open source software, the rough consensus ideas, the ambiguous governance, whether those are suitable in something that is money, but certainly in something that could be infrastructural in the financial system and tied to many different assets.

Peter McCormack: So these are things I’ve not heard the SEC talk about under consideration of ETFs. They are concerned about wash trading. They’re concerned about the way the markets operate. I have not heard them talk about this side of things, but if the SEC is going to eventually approve an ETF, if this becomes a problem, you’re going to be saying, “look, I told you so. We should have been talking about this before”.

Angela Walch: Yeah, I’m concerned about governance at the core and if you have flawed governance for this asset that sits at the core of many different products, potentially an ETF, then it’s rotten at the core. That rot can proliferate to everything you build on it. So I think perhaps the problem is that there’s not necessarily the clearest mandate in our regulatory agencies to address the systemic issues.

So I think my concerns are about systemic risk really and some of the regulators, the SEC does have some mandate to think about systemic risk and there’s a group, the Financial Stability Oversight Council that has a representative from a bunch of the different regulatory agencies that is supposed to be thinking about systemic risk. But it’s not the most obvious question. It’s much easier to say is there this particular type of bad trading? I think we’re missing all the infrastructural issues.

Peter McCormack: And you say using decentralized as a term to make legal decisions, it’s difficult and complicated. I’m starting to see that now because you’re talking about, should something happen, are we ready? So if an ETF is approved and something should happen, we should have the legal standards in place that all other ETF exist for right?

Angela Walch: Yes.

Peter McCormack: So when you’ve put this out onto crypto Twitter, let’s ignore the trolls. You’ve obviously had people debate you and discuss with you. What’s the general feedback on the negative side? Where are they disagreeing with you?

Angela Walch: Okay. So there are different areas of disagreement. One of them, the most interesting one to me is when it’s disagreement about the facts. By that, I mean that they don’t see the same pockets of power that I do. They just don’t see them existing. I think they feel like there’s enough sort of backstops in the system like that devs can’t force people to upgrade. They can’t force people to run any particular software. That’s true. They can’t.

Peter McCormack: And there can be multiple implementations.

Angela Walch: There can be multiple implementations of software. That is another one. I think I need to clarify that in my writing as I continue to move forward. But that’s absolutely one. So there’s those aspects, but I don’t feel like those… They don’t overcome my points about power being exercised.

Peter McCormack: No, and there were two other ones that really stood out as well. One specifically for Ethereum where you talked about the secret meetings.

Angela Walch: Yeah.

Peter McCormack: For essentially a monetary policy was created!

Angela Walch: That’s what I see happening. It’s fascinating. So Ethereum is in the midst of this really heated, involved discussion about the governance of the system. You’ve seen someone quit because the discussion was essentially about whether there was a conflict of interest. For one, if you’re in core dev, Afri, I can’t remember his name, was working on the core Ethereum protocol and also working for Polkadot or someone else. So is that a conflict of interest?

Conflicts of interest are only relevant if you think these people have fiduciary duties and a duty of loyalty to work. What I’m watching in the Ethereum world, the questions that are being asked about does this have to be done in public? Well, I don’t want to have to do in public necessarily, these discussions about bugs or how the policy should shift, etc. I don’t want to necessarily have to have them in public because people will mischaracterise them and it will cause reactions that shouldn’t happen on the system and the price may spike or the price may plummet. Well, that’s governance and it’s hard!

When you’re dealing with a system that has real implications for people, the value embedded in it and also serving as infrastructure to all the smart contracts, etc. Those discussions have to happen and you see why I make a clear reference to this in the paper that you’re discussing there. You see why something like the open markets committee for the Fed, does these discussions behind closed doors and then releases it later because what they’re talking about is market moving stuff. What the core devs talk about at their meetings is potentially market moving stuff.

Peter McCormack: It’s potentially market-moving stuff for people who hold a significant position in Ethereum.

Angela Walch: Yep.

Peter McCormack: Does that concern you? So for example, the closed-door meeting for Ethereum where… So the monetary policy was changed recently. I can’t remember the details because I didn’t research it after I read your paper. But I remember they changed the miner reward. But the people making that decision likely hold very significant Ethereum positions and that can move the Ethereum market.

Angela Walch: Yep.

Peter McCormack: Now I’m pretty sure regulators who work in other markets cannot regulate on companies they hold positions in.

Angela Walch: So there are absolutely conflicts of interest all over this. Right? If the core devs have their hands in different pots, interest in different projects, then, of course, you would want to think about whether their involvement in other projects is going to determine or affect their decisions on this particular one.

That’s all about the duty of loyalty. I mean that’s what that is, you can’t self-deal, meaning you can’t do things that are solely to your benefit. That you don’t tell them about, that you don’t disclose these things. So it’s fascinating to me how there’s… To me, it looks like a denial of the facts, but people truly think that I’m way off when I say that there are information asymmetry and power differential.

Peter McCormack: So what now then? I’m going to tell you what I think you’re trying to say, not just to put words in your mouth, but I don’t think you’re saying “stop”. I get a feeling you’re saying “slow down, there’s more things to resolve here”.

Angela Walch: Yeah, I mean my biggest message is slow down! I haven’t figured out whether these systems are going to be good or not and I don’t think we can know yet because they are highly experimental and it’s impossible to stay on top of all this stuff, because a new thing comes out every day. The pace is so quick, but we are rapidly integrating them into the financial system and that’s what I would say is, slow down.

Related to this, but not necessarily crypto, more Blockchain-esq, but it’s the same kind of hyper pace. Legislators are passing laws requiring the use of Blockchain technology to keep government records and stuff. Are you kidding me? We don’t know if this stuff works at all. So you’re going to say that we are mandating to put government records on it? Give me a break, just slow down!

Peter McCormack: And your favourite topic, voting on the Blockchain!

Angela Walch: Oh God! I’m not the super expert on that, but the experts that I trust are horrified by the very idea.

Peter McCormack: I’m kind of happy with voting as it is. It doesn’t bother me to go and write on a piece of paper! So another interesting point that came from is, I read, I don’t know if this was your quote or somebody else’s, but “this feels like a second chance to get the power dynamics of our digital activities right”. So that is a reason to slow down because it is interesting.

Angela Walch: Yeah. So I see so many comparisons of this phenomenon, the permissionless innovation, the crypto phenomenon to the birth of the Internet. We can’t even imagine what it’s going to create just like we couldn’t at the early stages of the Internet. That’s fine. It may be, I don’t know one way or the other yet, but people are viewing it as… That was my quote that you were talking about, the chance to fix it. Because we’re seeing strong pushback and kind of horror at what we’ve built on the Internet with these very big concentrated platforms like Facebook, like Amazon, like Google, etc.

We’re finding out that they have been doing things to us that we are not aware of, using our data, all these huge privacy violations, manipulating politics potentially. So, “oh my gosh, that was bad. It was utopian at the beginning but it turned out bad”. So we can improve it here. So my plea is that, slow down, think about it, don’t be in denial about power, where power lurks or where it is, describe it properly and then make decisions based on the truth rather than hype.

Peter McCormack: Your two pieces of advice was that we need to actively interrogate how power operates and the second one, more importantly, but it’s actually quite scary to do at times and I’ll explain why is to push back on the think pieces from thought leaders that fantasize about a better world because it’s decentralized. It is very hard to push back against hardcore Bitcoiners and look outside of Bitcoin and to challenge them. It often comes with, it can be quite intimidating to do. But you think we need to be doing this?

Angela Walch: I think we have to. I mean I don’t think we’re serving anyone by refusing to ask the questions and there are plenty of people in the Bitcoin space who encourage these questions and think that they absolutely have to be asked and answered. So I mean, Rusty Russell at Blockstream is someone I met at a conference and absolutely within the Bitcoin space working on Lightning. He doesn’t mock my questions. When I ask these questions, he’s like, “yeah, we need to be asking them”.

So I think there are plenty of people in the space asking the hard questions. It’s very hard to push aside the unwillingness, I guess of people to engage with them. I’m just concerned that the people asking the hard questions are not the ones who have the ear of the regulators and the policymakers. I think the people who have their ear are more pie in the sky and less about the risks.

Peter McCormack: Okay. Conscious of time. There are a couple of other areas I want to get into with you. We won’t spend too long on them. But firstly you said many people fail to understand the risk from crypto assets and you’ve talked about in relation to the previous financial bubble. I’m trying to understand your fear here.

I mean there’s obviously a lot of volatility in Bitcoin and as Bitcoin and crypto grow the impact on that volatility reaches wider and further. So this latest bear market, a lot of people have lost a lot of money. If it keeps having these wild swings, it can keep happening. Now I know you aren’t just talking about that in isolation, but is that what you’re getting at?

Angela Walch: I’m thinking about the last financial crisis. I view, one of the causes of it, in the US at least, that subprime mortgages were one of the big causes of this. So people bought this asset believing that it was not as risky as it was, that mortgages, house values across the US could not simultaneously fall. Based on that belief, subprime mortgages were put into these mortgage-backed securities and those were sold widely integrated into countless other financial products. The financial system works its magic basically by creating infinite derivatives based on what ultimately you would boil down to a subprime mortgage.

So that subprime mortgage was a poorly understood asset from my perspective. But yet integrated widely and had many different chains in which what happened to that particular mortgage could have a consequence. So I see crypto assets potentially having the same potential, in that Bitcoin or whatever crypto asset that you’re putting at the base of trading futures based on them, ETFs, as collateral for loans as we’re seeing now, all the lending and synthetic this and whatever that!

What happens with the underlying asset then triggers many, many, many different consequences for people. So if we poorly understand the risks of this core asset, like Bitcoin at the base and don’t realize that, “well gosh the Chinese government can shut it down, they just shut down the Chinese miners” or something or we’re underestimating the risk of the ease of a 51% attack because a government, a state actor can buy 51% attack.

Peter McCormack: Or a bug is found, another one?

Angela Walch: Or another bug is found!

Peter McCormack: Which does allow the activation of inflation, the market panics, sells off, cascading effect across the financial system.

Angela Walch: Yes and I think if that were to happen in a Bitcoin, it may also have cascading effects across all cryptocurrencies because there would be suddenly doubted, “oh, we didn’t understand those as well as we thought either. If we didn’t understand Bitcoin and that was oldest, well maybe we don’t understand Ethereum at all or any other crypto asset”.

Peter McCormack: I’m starting to think because I’m a Bitcoin fan. I’m just starting to feel like Bitcoin is better outside of the legacy financial systems.

Angela Walch: Well, I think there is that and I’m much more comfortable with it, as an idea outside of that, as long as you do it in your own little walled garden, great! But once you start linking it to the financial system, then I’m sorry, but you’re not just having an impact on yourself.

So this was something that also came up in that discussion with Jimmy Song actually. His points were that “if you don’t like it, don’t invest in Bitcoin. If you don’t like the way it’s run, don’t invest in it, that is absolutely fine”, until it can start to affect other people because of the links to the mainstream financial system and if they’re big enough, is there another bailout? Does it cause a financial crisis that requires a bailout? Then even though I didn’t invest in Bitcoin, I can be strongly affected by it because of its links.

Peter McCormack: That’s a very fair point. I think Andreas said he doesn’t want ETFs. I’m going to go back and have a look at that and see why. I wonder if there is a link to what you’re saying. The final thing and it’s kind of putting you on the spot, we spoke about it briefly and I’m going to point to the fact that you said you need more time to look at this.

But we did speak about it in the car and we made some good points. Dai, Maker Dao, I said to you, I don’t really get it. I mean I understand what it does, but my big fear of Dais is that it relies so much on Ethereum, protocols and other cryptocurrencies have died or become materially worthless. It feels like Dai is beholden to Ethereum and that worries me.

Angela Walch: Yeah, so I agree with you for that reason. Ethereum in that sense is functioning as infrastructure, financial infrastructure. Any other systems that build on Ethereum, all the ICO tokens or whatever that were issued on top of the Ethereum, they’re using it as infrastructure.

So, therefore, all of these questions about the governance of the underlying protocol and what the software developers do at that protocol level are critically relevant. To Maker Dao and every other system built atop it. So I just don’t think you can escape that. I think we need to be looking very carefully at systemic connections between all of these different things and that’s why experimental governance at the lowest level, at the base level in the foundations, makes me very nervous.

Peter McCormack: So I’m going to conclude our interview by saying I think what you’re leaning towards and I kind of think I agree is that, slow down, more discussions, let’s have open discourse. Let’s not fear these discussions because there is systemic risk here.

Angela Walch: Yes! Can you come be my mouthpiece?

Peter McCormack: No, no. I’ve got enough people shouting at me already! Angela, this is wonderful. Thank you so much. Tell people how they can follow your work. I will share obviously the academic work you’ve done in the show notes but tell people how to follow you, tell them how to be respectful on Twitter.

Angela Walch: Okay. So you can find me on Twitter @angela_walch and then you can also follow my work on my website, On there I have things like my speaking engagements, media and also the teaching materials, I taught a course on Blockchain.

Peter McCormack: Brilliant. Fantastic. Thank you so much.

Angela Walch: Thank you!