The world is finally waking up to the promises and threats of 3D printing, when a group of people calling themselves Defense Distributed published the plans online to make a 3D printed gun make almost entirely out of plastic, and posted a video of the gun being fired.

3D printing is [...]]]>

The Liberator gun

The world is finally waking up to the promises and threats of 3D printing, when a group of people calling themselves Defense Distributed published the plans online to make a 3D printed gun make almost entirely out of plastic, and posted a video of the gun being fired.

3D printing is set to be one of the biggest technical revolutions the world has ever seen, comparable only with the Internet in recent years. At the moment 3D printers are either expensive, slow, or have material limitations, but the potential is mind-blowing, as this video of a 3D printed wrench with movable parts shows. As prices start dropping, materials start getting better, and the technology becomes more widespread, we will be able to see an explosion of everyday items that can be printed.

3D printed itself opens up interesting legal questions, some of which are explored in this trail-blazing paper by Simon Bradshaw published in SCRIPTed. What seems certain is that we will have to rethink some areas of law. For example, I believe that design law, the Cinderella of IP rights, is about to get a serious boost akin to that received by copyright law because of the Internet. When every person with a scanner and a printer can reproduce an item we will certainly encounter unexplored conflicts. Car parts, trainer soles, sculptures, mobile phone covers… the possibilities are intriguing.

But the 3D printed gun has opened up an entirely new type of legal questions, particularly about Internet regulation. Defense Distributed set out to build a 3D weapon because they could. The motivations of the group, and particularly of their front-man, Cody Wilson, seem to be mostly political. There is a strong libertarian seam running through many of the interviews given by Wilson, there seems to be a direct attack on the power of government to control citizens. There is also a very US-centric view of the world in the project. Guns are a right that should not be denied to people. Guns are freedom… etc. Defense Distributed’s website offers Milton’s Areopagitica as one of the foundational documents explaining the reasons why there is a need for a 3D printed gun. This is a strange document to cite, freedom of speech is one thing, freedom to own a gun is an entirely different affair.

The danger of an easily available and relatively affordable undetectable gun is clear. I wonder if the first time a plastic gun is used to hijack a plane the justifications of freedom as the highest human value will stand to scrutiny.

Governments recognise the danger, and that is why the US acted quickly to remove the plans from Defense Distributed’s website. But the damage was already done, the design is already out in the open and can be easily found in most torrent sites (I won’t provide links, but a simple search should produce hundreds of torrent files carrying the printing instructions). Cody Wilson has managed some of his intended effects, to show the difficulty of removing information from the Internet.

So the 3D printed gun lies at the heart of the debates about Internet regulation from the last few years. Here is a technology that could be tremendously dangerous, but it is nigh impossible to stop. In the end, the benefits of 3D printing are to great to ban the entire technology. It may be possible to enact laws that ban the production of 3D printed weapons, but these will likely be as easily circumvented as file-sharing practices.

I have to admit that I have no answers to the conundrum presented by 3D printed guns. I am against this use of the technology. Thankfully, initial reports indicate that the Liberator gun is too dangerous and unreliable, but at some point someone will make a much better one. I do not think that a world where everyone is armed is a more free world. But there is no easy way to stop this technology from spreading throughout the internet, unless government make more restrictions to online environments.

In the end, a gun designed to make people more free, may bring about more stringent Internet regulation, an ironic turn of events that does not benefit anyone.

Has the UK abolished copyright law with the passing of orphan works legislation? I’ll answer quickly with Betteridge’s Law of Headlines: NO.

However, if you listen to some copyright maximalist outlets, and particularly to the photograph lobby, you would believe that all copyright has been abolished [...]]]>

Please, sir, I want some more copyright protection

Has the UK abolished copyright law with the passing of orphan works legislation? I’ll answer quickly with Betteridge’s Law of Headlines: NO.

However, if you listen to some copyright maximalist outlets, and particularly to the photograph lobby, you would believe that all copyright has been abolished as of now. Just look at some of the headlines:

• UK.Gov passes Instagram Act: All your pics belong to everyone now (wtih the even more delightful subtitle: “Everyone = Silicon Valley ad platforms tech companies”, subtlety was never one of Orlowski’s strengths).
• UK copyright owners no longer control the right to copy their work (the URL for this reads Cretins 1, Creators 0).
• Did the UK just abolish copyright? (a bit more measured)

Although all of the above coverage is a distorted exaggeration of the actual law, one has to give some credit to Andrew Orlowski for beating everyone to the news and setting the tone of the debate by warning that Google owns everyone’s pictures now, and by coining a media-friendly term Instagram Act. Well played, sir, well played.

So, I will first explain what are orphan works, why do they matter, and what is actually in the law.

Orphan works

The term orphan work is widely used to define copyright works for which no author can be found after an exhaustive search. This area has been identified as of serious concern for galleries, archives, publishers, film-makers, museums, libraries, researchers, universities, and private users, as sometimes good-faith uses are not possible by the difficulty of finding the owner of a work A 2006 report by the US Register of Copyrights found that:

“Archives, libraries and museums maintain vast collections (in some cases, millions) of photographs, very few of which have any indication of who the author was. Typically these institutions acquire these works by donation, such as where individuals give personal effects to a museum upon the death of a family member, or where a scholar donates professional writings to a library upon retirement, and similar situations. While these occurrences are common, the donors rarely have information about the copyright provenance of the materials they donate. These institutions then face a dilemma in striving to meet the expectations of donors and in fulfilling their institutional purpose of preserving and making works available, while also complying with the law of copyright and minimizing their exposure to liability for infringement.”

A EU report similarly stated the problem of orphan works sating that “Comprehensive, large scale digitisation and online accessibility could be greatly hampered, if adequate solutions are not found to the problem of orphan works.” A joint report by JISC, the British Library, the BBC, and other public bodies found that the amount of orphan works held in public sectors institutions ranged from 5-10%, with some sectors holding considerably higher percentages. In total, the report found that there were an estimated 25 million orphan works held in public collections.

Both the Gowers and Hargreaves reports on IP made very strong recommendations in favour of orphan works legislation. The Hargreaves Review specifically commented that:

“These works raise particular difficulties in the context of mass digitisation. Libraries and archives seek to digitise collections, and have the technological capacity to do so and to provide access to them for users, but they are unable to act where rights holders cannot be found for some of the works, because to digitise those works could be a copyright infringement. The issue is exacerbated in that where rights information is lacking, it is often not even clear whether works are still in copyright or not. There are two distinct situations to consider: mass licensing of collections which include some orphans, and use of individual orphan works.”

The dismissal of the orphan work issue presented by some of the articles opposing changes to the legislation is therefore laughable. This is a serious issue that affects memory institutions, but also stifles important digitisation efforts by private bodies.

Legislative solutions

There are usually three solutions offered to solve the orphan work conundrum. First is to create some form of exception or limitation to existing rights. The second is to create a form of licensing scheme in which bodies pay a price that will eventually be given to authors, if they can be found. The third is to create some form of register of orphan works. Some of the most notable concrete solutions out there are:

• The US tried to implement legislation on the subject, particularly in the Orphan Works Act of 2008 and the Shawn Bentley Orphan Works Act of 2008. After strong opposition from the commercial photographers lobby, both efforts failed.
• Canada has in place an “Unlocatable Owner Provision”, by which a person can apply for a licence to the Copyright Board if, after exercising due diligence, an author cannot be found. Needless to say, copyright seems to be doing quite well in Canada despite having this type of licensing scheme in their legislation.
• The UK’s Digital Economy Bill contained a section on orphan works, but after fierce opposition from photographers, it was removed.
• The EU has passed the Directive 2012/28/EU on certain permitted uses of orphan works. This mostly sets out a regime for the use of orphan works by libraries, educational establishments, archives, public broadcasting organisations, and museums. This provides an exception or limitation to the right of reproduction and making available to the public to the benefit of any of the listed institutions.

So, this is not really a subject that benefits great media organisations.

The UK Act

Enter the source of so much fear, uncertainty and doubt, the Enterprise and Regulatory Reform Act 2013 (ERRA). This is a broad piece of legislation that makes several changes to existing laws across the board, including finance, employment, competition law, reduction of red-tape, and copyright licensing.

The ERRA is controversial because it is a different solution to that proposed by the EU Directive, it is not limited to memory institutions such as archives, libraries and museums, but it is a broad commercial-use licensing scheme. The new section of the UK’s CDPA will read:

“116A Power to provide for licensing of orphan works
(1) The Secretary of State may by regulations provide for the grant of licences in respect of works that qualify as orphan works under the regulations.”

This says that the law is not the final word on the subject, and that we have to wait for the Secretary of State of provide more detail through forthcoming regulation, which one has to assume will be released in the near future. This serves to explain the very acrimonious language that is being used by the opponents of orphan work legislation, they are trying to force a U-Turn from the government, or at least a very watered-down licensing scheme that will be good for nothing.

The key point seems to be in this section:

“(3) The regulations must provide that, for a work to qualify as an orphan work, it is a requirement that the owner of copyright in it has not been found after a diligent search made in accordance with the regulations.”

The definition of “diligent search” will be vital. There are several indications of how this will be defined. The Canadian act is quite clear that this search has to be exhaustive. Similarly, the EU Directive defines diligent search as:

“For the purposes of establishing whether a work or phonogram is an orphan work, the organisations referred to in Article 1(1) shall ensure that a diligent search is carried out in good faith in respect of each work or other protected subject-matter, by consulting the appropriate sources for the category of works and other protected subject-matter in question. The diligent search shall be carried out prior to the use of the work or phonogram.”

It is quite clear that there will be a very high-threshold of what constitutes an orphan work, a simple Google search will not suffice. Countries which have enacted similar legislation do not seem to have had problems so far, and no abuse has been found, at least none that I am aware of, and you can bet that orphan works opponents would be shouting bloody murder if there had been something already.

It is also quite clear that photographers have had fear instilled into them through a concerted campaign. The law will not be likely to affect new works, these have to be assumed to be under copyright. Similarly, metadata is still strongly protected in copyright law by Rights Management Information (see a presentation on the subject that I made for WIPO). Professional photographers should still be able to provide metadata and embed it in their pictures, and such data cannot be removed! So any professional photographer should be as protected after the publication of the ERRA as they were before. It is also highly unlikely that Google will start commercially using images right away, which is the not-very-subtle accusation by Orlowski and his ilk.

We still have to wait for the regulations to come out, but the over-the-top rhetoric and scaremongering have to stop. Orphan work legislation is a good thing, it helps digitisation efforts that will have both cultural and commercial benefits.

Do you remember the time when important events were described by journalists, re-enacted by actors, or retold by witnesses? Lucky snapshots were rare, and viral videos and citizen journalism were alien concepts. Now we are increasingly presented with pictures that give us every angle of an explosion, CCTV cameras catching a meteorite, the incredible [...]]]>

Do you remember the time when important events were described by journalists, re-enacted by actors, or retold by witnesses?  Lucky snapshots were rare, and viral videos and citizen journalism were alien concepts. Now we are increasingly presented with pictures that give us every angle of an explosion, CCTV cameras catching a meteorite, the incredible crash of a cargo plane in Afghanistan, or to expect recordings of abusive behaviour on public transport.

It has become trite to point out that technology has done away with privacy to an extent previously unknown. It is trite because it is true. Smart phones have become ultimate anti-privacy tools, cameras and GPS devices that record everything we do at all times. And yet, even when we are aware of these capabilities, we decide to carry them always. With Google Glass just over the horizon, things are about to get worse for privacy.

This future is not one only created by mindless corporations, people are more than willing to give up privacy in exchange for shiny gadgets. I have to admit that I like the idea of Google Glass, while understanding the leap that it brings. Even a casual glance at social media outlets can give an idea of just how willing people are to share (and overshare) about their personal lives, even to the point of resenting those who do not engage in the practice of sharing absolutely everything. Last week I had an interesting exchange when I posted a cryptic picture on Facebook, an online acquaintance got seemingly upset by the lack of detail, even describing the practice of posting cryptic content as “passive-aggressive”. An interesting choice of words, is not posting detail about one’s life an act of aggression towards those who contribute to the public space? But I digress…

One of my favourite science fiction books is The Quantum Thief by Haanu Rajaniemi, which describes a world in which both quantum computing and nanotechnology have managed to produce perfect surveillance where every event is recorded at the molecular level. The inhabitants of such a world have given up some of their privacy in exchange for convenience. However, the technology has created a solution for the privacy nightmare, citizens can have a nano-privacy cloud, a  sub-atomic information filter that allows them to present only what they want the rest of the world to see. There are public spaces where privacy is not possible, but most people seem to operate with a mix of settings by previously agreed privacy protocols.

So perhaps we should begin to try to build privacy filters into our technology. In Zero History, William Gibson describes a t-shirt that can be used to defy CCTV detection, that is, hardware has been coded with some visual switch that will make the wearer disappear from surveillance. Perhaps we can start building similar types of built-in filters, but for consumer devices like mobile phones and Google Glass. So, if you are in a public space, you turn on a privacy device that will let consumer devices that you do not want to be recorded.

Or you could choose to wear this on your t-shirt:

When reading [...]]]> On April 18, 2013, the US House of Representatives passed the Bill H.R. 624, also known as the Cyber Intelligence Sharing and Protection Act (CISPA). An earlier version of the bill had been passed already by the US HR, but did not pass the Senate (for earlier analysis of the Bill, see here).

When reading the new version of CISPA, it would be easy to dismiss it as mostly hot air about intelligence agencies sharing information with one another. It is true that the first half of the bill is dedicated to creating mechanisms that will coordinate between the Department of Homeland Security and other government offices with regards to cybersecurity data. The fun begins with Section 3 on Cyber threat intelligence and information sharing. Sec. 1104(1) reads:

(1) IN GENERAL- The Director of National Intelligence shall establish procedures to allow elements of the intelligence community to share cyber threat intelligence with private-sector entities and utilities and to encourage the sharing of such intelligence.

This sets the procedure for intelligence agencies to give information to the private sector in order to make them aware of some “cyber threat”. But what xactly is a cyber threat? According to the bill, it is:

“(A) IN GENERAL- The term ‘cyber threat intelligence’ means intelligence in the possession of an element of the intelligence community directly pertaining to–

‘(i) a vulnerability of a system or network of a government or private entity or utility;

‘(ii) a threat to the integrity, confidentiality, or availability of a system or network of a government or private entity or utility or any information stored on, processed on, or transiting such a system or network;

‘(iii) efforts to deny access to or degrade, disrupt, or destroy a system or network of a government or private entity or utility; or

‘(iv) efforts to gain unauthorized access to a system or network of a government or private entity or utility, including to gain such unauthorized access for the purpose of exfiltrating information stored on, processed on, or transiting a system or network of a government or private entity or utility.”

This is terribly broad, it puts in the same category a relatively harmless DDoS attack, and serious international cyber-spying by means of gaining access to a computer.

CISPA is also very broad about the types of private entities that will be subject of communication from intelligence agencies. There are three types of private enterprises covered by the Bill:

“CYBERSECURITY PROVIDER- The term ‘cybersecurity provider’ means a non-Federal entity that provides goods or services intended to be used for cybersecurity purposes.[...]

PROTECTED ENTITY- The term ‘protected entity’ means an entity, other than an individual, that contracts with a cybersecurity provider for goods or services to be used for cybersecurity purposes.[...]

SELF-PROTECTED ENTITY- The term ‘self-protected entity’ means an entity, other than an individual, that provides goods or services for cybersecurity purposes to itself.”

“Cyber-security purposes” are also broadly defined, almost in identical fashion to cyber-threat intelligence. These definitions cover pretty much any Internet intermediary service, from anti-DDoS cloud providers, to any company with a firewall and antivirus installed. It is as strike of inspired legislative drafting that manages to make such broad provisions sound so narrow.

The icing on the cake is the fact that private enterprises will have no other recourse but to comply with this intelligence collaboration, because if they do so, they are immune from prosecution. The Bill reads:

“‘(A) EXEMPTION- No civil or criminal cause of action shall lie or be maintained in Federal or State court against a protected entity, self-protected entity, cybersecurity provider, or an officer, employee, or agent of a protected entity, self-protected entity, or cybersecurity provider, acting in good faith–

‘(i) for using cybersecurity systems to identify or obtain cyber threat information or for sharing such information in accordance with this section; or

‘(ii) for decisions made for cybersecurity purposes and based on cyber threat information identified, obtained, or shared under this section.

‘(B) LACK OF GOOD FAITH- For purposes of the exemption from liability under subparagraph (A), a lack of good faith includes any act or omission taken with intent to injure, defraud, or otherwise endanger any individual, government entity, private entity, or utility.”

The above pretty much compels all intermediaries to share any sort of information they may have on their customers if it is deemed by some obscure intelligence agency that the subject might be engaged in some cyber threat, which is also broadly defined.

To translate from Legalese to Plain English, CISPA allows US intelligence agencies to contact practically any private provider of information technology services to ask them to snoop on their customers if there is suspicion that they may be engaged in an online activity that could be considered threatening, which includes anything from whistleblowing to participation in a DDoS protest. The intermediary will have to comply, as this is the only way in which they will be exempt from criminal and/or civil liability. In other words, spy for us, or else.

Why should people outside of the US care about CISPA? Because a vast majority of people in the world employ a US company one way or another. This includes:

• Hosting: 83% of the world’s content is hosted in the US.
• Cloud providers:  The top 10 cloud provider are based in the US.
• Domain name registries: The United States is the country with the most domain names registered under its jurisdiction.
• Email: Top 4 webmail providers are based in the US (Microsoft, Yahoo, Google and AOL).

This does not even consider other services, such as VPN providers, anonymisers, browsers… anything that can be considered a self-protected entity could be covered by CISPA.

So make your voice heard and try to help defeat this nefarious piece of legislation.

In 2002, Joss Whedon created a science fiction series called Firefly. You will be forgiven for never having heard anything about it, the show was cancelled during its first season by Fox, leaving us with only 14 episodes. [...]]]>

“A man walks down the street in that hat? People know he’s not afraid of anything”

In 2002, Joss Whedon created a science fiction series called Firefly. You will be forgiven for never having heard anything about it, the show was cancelled during its first season by Fox, leaving us with only 14 episodes. But the series became an instant cult classic, it was a charming mix of Western motives with spaceships, the casting was inspired, the characters tragic and funny in right amounts, and it contained some of the best 14 episodes ever to have been broadcast on television. The rabid fans (known as Browncoats) have kept the faith through all these years, invigorated by a stand-alone movie based on the show (called Serenity). But in my opinion what has kept the Browncoats going all these years is The Hat. The Jayne Hat, to be more precise.

Jayne Cobb is Firefly’s tough guy, played wonderfully by Adam Baldwin. In episode 12, Jayne receives a knitted hat as a gift from his mum, and it appears only for a few minutes of that one episode of that one series. Yet, the hat became the secret symbol of all Browncoats, to wear the hat meant that you were not only a fan, but a committed one. You were part of the circle, you got the joke. As Wash (Alan Tudyk) says to Jayne: “A man walks down the street in that hat? People know he’s not afraid of anything!”

Damn straight!

For years the Jayne Hat has been passed around by fans, crafted by committed knitters, sold at Firefly conventions, and more recently, sold at crafting websites such as Etsy. But then, disaster struck. After more than 10 years of ignoring the Firefly fans, Fox reached an agreement with a company called Ripple Junction in order to sell exclusive merchandise of the Jayne Hat, and other Firefly-related products. Then Fox started pursuing fans who were selling their own knitted versions on Etsy and other outlets, sending cease and desist letters. ThinkGeek was ordered only to sell the official hat.

Chaos in the community ensued.

You can understand the fan’s rage. Fox had unceremoniously axed the show, and for a decade had displayed their utter contempt by not even bothering to sell merchandise. Now in they come with their expensive merchandise lawyers and threaten fans whose only fault is to love the show too much. The Hat represents that love, only a person who has nothing to lose would wear that monstrosity of yarn on their head.

The legal question

The case has opened an interesting legal question. Can Fox stop fans from selling their own version of the Jayne hat? What is the legal protection of knitted hats?

Long-time readers may recall that I am not new to this type of controversy, some years ago a similar legal keruffle took place with Doctor Who fans. However, the issue is slightly different here, in the Doctor Who case there was a person posting knitting instructions of a character, here the letters are being directed against people selling their knitted versions of a piece of costume worn by a character.

Firstly, there is little doubt that Fox owns all of the rights to Firefly property. Merchandise consists of a large number of different types of items: creators own fictional characters, their likenesses, set and prop designs, and wardrobe designs. The show’s title, associated taglines (e.g. “winter is coming”), characters and fictional places are trademarked. So, one could state categorically that nobody but Fox (and official licensees) are entitled to sell any hat as a Jayne Hat, a Firely Hat, or any other similar denomination. In that single point we would tend to agree with Fox.

But what about the hat? Is it protected in any form? And if so, who owns the damn hat?

This is a considerably trickier question in US law. Here I have to state categorically that I am not a US lawyer, so you may want to disregard my advice as uninformed chatter. However, having conducted some research on the topic, I believe that the actual hat might very well be unprotected under US law, and as such Fox cannot stop anyone making their own knitted versions, and cannot stop selling them if the fans do not use the accompanying trademarks. Costume design is an interesting area of the law, as parts of the fashion industry have been moaning for years that there are inadequate levels of protection for clothes, which it is nicely explained in this TED video by Johanna Blakely. Apparel is “too utilitarian” to warrant copyright protection.

What exists is a mish-mash of design patents which protects unique and previously unused items, which seems to be used mostly in shoe design to protect trainer soles, so I really doubt that someone has applied for a design patent that protects the Jayne Hat (I really recommend this article by Anne Briggs on the protection of clothing design). Copyright protection of costumes is even more difficult because of the existence in US copyright law of the usefulness doctrine, which states that items of clothing cannot be protected because if they fulfil a utilitarian function. Conversely, “aesthetic features of a useful article may be protected when they are not in any way required or necessary for the performance of the utilitarian function” (quoted from here). Items of clothing might be granted copyright protection if they have reached the stage in which they can be considered art (see Poe v Missing Persons). Similarly, asome fabric designs can be given copyright protection as works of art and as prints (see Peter Pan Fabrics v. Brenda Fabrics). Looking at Jayne’s piece of head gear, I truly doubt that it could be even remotely considered a piece of art, and the fabric is just yarn.

Furthermore, knitting instructions are very utilitarian in nature, they are more akin to software code than anything else. While the instructions themselves can be given copyright protection as literary works (just like software code), the final product would be more akin to object code. Just as with software, similar instructions could produce a similar functional result.

So, as long as knitters are not selling the hat as Jayne’s Hat, FireFly Hat, Serenity Hat, or Jayne Cobb’s Hat, they should be fine. It is not in Fox’s best interest to create a bigger PR disaster by suing a fan on dodgy legal ground, and I truly do not think that the threats would go further than cease and desist letters. However, I will completely understand if fans do not want to run the risk. BIG Disclaimer: this is not legal advice, I cannot ensure that my analysis will serve as a valid defence against enforcement by trigger-happy corporate lawyers who have nothing better to do.

Concluding

Having said that, this case cannot be separated from the moral element. Regardless of the legalities, Fox are being complete idiots here by mistreating fans who have kept a show alive for more than a decade. The earnings accrued by the sale of boxed sets (yes, I own one) are more than enough to recover the costs from the show. The income lost from the unlicensed sale of fan-made hats is pitiful, and it does not cover the amount of ill-will that they have generated amongst the fans.

Thankfully, some people have been behaving well in this affair. ThinkGeek have announced that all profits will go to Can’t Stop the Serenity, a Browncoat initiative that donates money to charities identified by Joss Whedon. Ripple Junction have also indicated that they did not initiate the cease and desist action. That only leads Fox, hopefully they will also see the light.

On a personal note, I seem to be getting a reputation for writing about knitting and the law. Maybe there is a career in legal advice for knitters.

As I am finishing writing this post, Bitcoin (BTC) is in the middle of a crash, or what some people call in technical terms, going completely bonkers. I have been unhealthily interested in bitcoins for more than a year, and I have been following it closely. This includes reading [...]]]>

Just another day at Bitcoin

As I am finishing writing this post, Bitcoin (BTC) is in the middle of a crash, or what some people call in technical terms, going completely bonkers. I have been unhealthily interested in bitcoins for more than a year, and I have been following it closely. This includes reading papers, visiting websites, reading forums, monitoring its subreddit, and generally trying to keep in touch with what is happening in the BTC world. While I have been vocally negative about Bitcoin during all that time, I am not writing this as a “told you so”, my guess is that Bitcoin will bounce back at some point, so there is no need to gloat. My criticism and interest stems from frustration, the digital currency is so tantalizingly close to what we need that I cannot help but try to urge it forward in the right direction. The world is in dire need of a decentralized payment system like Bitcoin. Anyone who values decentralization and openness would be immediately drawn to BTC, but once you start looking at the details, it is easy to find the problems, many of which have been too evident in the last couple of days.

I would like to write about these problems right in the middle of the crash because some of the optimist BTC proponents who have been dazzled by its previous growth may have been ignoring any criticisms, and now they might actually read and think of why this is taking place. My hope is that we will get past Bitcoin and that at some point a better cryptocurrency will emerge, one that has learned from the many problems with this first experiment. I will being by explaining what is Bitcoin, and then will state some reasons why I think it has some serious problems.

What is Bitcoin?

This is a modified and updated primer taken from this article.

Bitcoin is a non-fiat cryptographic electronic payment system (cryptocurrency). In other words, it is a peer-to-peer, client-based, completely distributed unit of value that does not depend on centralised issuing bodies to operate, the value is created by the users, and the operation is distributed using an open source client that can be installed in any computer (and many mobile devices).

Bitcoins are created by computer operations, therefore, their value arise from computing power, that is, the only way to create new coins is by allocating distributed CPU power through computer programs named “miners”; the miners create a block after a period of time that is worth 25 bitcoins, and each bitcoin consists of 100 million smaller units, called a satoshi. The operations performed to mine are precisely to authenticate other transactions, so the system both creates value and authenticates itself, an elegant and simple solution that is one of the appealing aspects of the currency. Once created, each Bitcoin (or 100 million satoshis) exists as a cryptographic address that is part of the block that gave birth to it. The person who mined the coin owns the address, and can transfer it by sending value to a another address, which is a “wallet” file stored in a computer. The blockchain is the public record of all transactions.

A key feature of Bitcoin is that they are deflationary in nature, and that it has scarcity built-into the system. Mining for coins becomes more difficult as time goes by and the market grows. The algorithms that produce new coins increase the amount of processing power necessary to create each new block, so producing new money is more difficult as time goes by, and this difficulty is built into the system to try to keep the total amount of bitcoins at a maximum of 21 million. So, the first block “mined” was done at difficulty 1, at the time of writing there were 230,418 blocks, making a total BTC of just over 11 million, and a difficulty of 7,673,000. That means that making a new block will be more than 7 million times more difficult than it was for the initial block. This difficulty will only go up, so an individual cannot hope to have the processing power to develop new coins, and this can only be done currently through pool mining CPU resources. Or by operating a large botnet… but we’ll get to that.

Transparency

One of the main selling points of Bitcoin is its transparency. The client itself is open source, and all the transactions are open to scrutiny because all transactions must be verified by the whole, so it is possible to look at each individual transaction in the public blockchain to scrutinise the outgoing and incoming wallet addresses. The addresses do not identify the person, only the possessor of the key that unlocks the address. This makes it both anonymous and transparent at the same time, another neat feature that explains Bitcoins popularity with the technical elites (although the anonymity aspect is disputed by some studies).

But this transparency is limited because the actual originator of the scheme remains anonymous. Bitcoin was created in 2009 by a member of a cryptography mailing list who goes under the pseudonym of Satoshi Nakamoto (paper here). This mysterious origin does not seem to bother some proponents, but to me is indicative of the almost religious nature with which some developers treat the subject. It seems like a strange thing for someone to come up with such an amazing idea, and yet remain in the dark. This has made some people suspect that Bitcoin operates in a manner similar to a Ponzi scheme, where those early adopters at the top amassed large BTC stocks, so that the resulting coins can be easily manipulated. The barrier-to-entry is not only physically high (difficulty increases with time), but also it is a psychological investment for anyone who understands just how easy it would be to maliciously manipulate the market if you had a large share of the same.

Just look at this transaction performed during the crash. Yes, that is one single person selling transferring 69k bitcoins, at the highest point of the trading at around $250, that would have been worth a staggering $17,250,000 USD (ETA: see the comments section for a further explanation about this transaction).

This lack of transparency is a serious concern for anyone who would think of investing in the scheme.

Lack of failsafes

As already mentioned, bitcoins exist only as files in a computer or mobile device, these files have access to the private key used to secure the money. This creates one of the biggest issues with Bitcoin to date, which is the ease of losing one. If the wallet file is lost, then the bitcoins it contains are lost forever. Sure, the file can be backed up, but people rarely do that, so if anything happens to the computer, or if you just inadvertently delete the file, then the Bitcoin is gone. The public address still exists, but this can only be accessed by the private key, which has been deleted, so unless one breaks the very secure encryption built into the system, then it would not be possible to recover the lost coins.

I read somewhere that there may be as many as 5 million lost bitcoins out of the 11 million ever mined. This may seem like an exaggeration, but  a study looked at very old “dormant” addresses in the blockchain, and assumed that these were probably lost coins from the time when people were testing the technology and deleted their wallets. The authors calculated the number of lost old coins to be 1,657,480 bitcoins. Considering the certainty of later losses, it would be fair to assume that the value of lost coins could very well double that number. This has not been seen as a problem for enthusiasts, as they point out that each BTC is divisible up to 8 decimal points. It is also assumed that the fewer BTCs there are, the higher the value. Defenders of Bitcoin also point out that it is possible to lose real money as well.

Hogwash, the finality of Bitcoin loss is absolute. People tend to know where their wallet is, but are less conscious about files in their computer. Similarly, normal consumers do not keep all their money stashed in one location, that is why we have banks. The lack of a failsafe when things inevitably go wrong is a serious issue with the scheme.

The solution to this concern is to keep wallets online, but that is a centralized solution that has its own problems, chiefly the fact that one has to rely on unregulated intermediaries holding the wallet. Some online wallets have had problems with security and lost coins, not to mention the real possibility of fraud.

Regulation

Bitcoin has not really been the subject of much regulatory scrutiny so far. There were quite a lot of comments in the BTC forums recently when new guidelines from the Financial Crimes Enforcement Network (FinCEN) in the US specified that decentralized currencies should comply with money laundering regulations. This was met with both glee and worry from bitcoiners. On the one hand, it proved to many that Bitcoin was big enough to warrant official notice. On the other hand, most enthusiasts distrust any sort of regulation, and thought that this was the first step towards the much-feared government crackdown on Bitcoin.

I have the suspicion that regulators were well aware of the Bitcoin phenomenon, and simply decided to ignore it for the time being, given the fact that it seemed to be headed for disaster.

The truth is that today many thousands of Bitcoin users are learning the hard way why financial markets and currencies are heavily regulated areas. Deposit taking, the keeping of accounts, management of payment transactions, the keeping of balances… all of these are functions of financial institutions that are of the utmost importance to businesses and consumers. The economy relies on financial intermediaries to operate, and while things sometimes go spectacularly wrong, regulation is precisely there to prevent more damage to consumers. The notion that we should forego centuries of banking experience and regulation to favour a system where no accountability is either expected or desired speaks volumes of why Bitcoin is so unreliable.

In the end, the fact that many in the BTC community are precisely shouting for the exchanges to do something makes a strong point in favour of some sort of regulation. Would regulation kill the decentralized nature of the currency? Not necessarily, a future cryptocurrency could be decentralized, and the exchanges and other intermediaries could be subject to the same forms of regulation as every other financial institution.

Deflation

As explained above, Bitcoin is built with scarcity in mind, that is, the maximum number of Bitcoins that will ever be mined is fixed at 21 million. This entirely arbitrary figure is one of the reasons many BTC advocates equate it with gold and other commodities. The idea is that the scarcity will ensure upward valuation of the currency because there is no central bank that can print more money as the economy requires it. This seems like a good idea if one looks at the economy in very simplistic terms. Inflation is bad because the currency loses value, and therefore people lose acquiring power, so deflation must be good, right? Not really, the problem with deflation is that it encourages hoarding, in which case the currency is not being used as intended, namely to exchange it for goods and services. If everyone kept their money and hid it under the mattress, then the economy would enter into a downward spiral as businesses would have no revenue, so they could not employ people. Moderate inflation is desired in a healthy economy because it encourages investment and spending.

When Bitcoin was experiencing its amazing upward trend, many commentators correctly noted that a rise in the price of Bitcoin meant that it had entered a hyperdeflationary spiral which made it uniquely unsuitable as a currency because there was no reason to spend BTCs if the price would continue to rise. Just look at the early days of Bitcoin, when a poor person spent 10,000 Bitcoins to buy a pizza. In a deflationary economy, this person feels that they lost greatly as valuation goes up, so they would be less willing to part with their currency  in the future.

If one wants a stable medium of exchange, then the deflationary element has to go, otherwise what you have is something more akin to stocks or commodities.

Centrality

During its short history, the Bitcoin economy has relied too heavily on one intermediary, a Tokyo-based company called Mt.Gox. Bitcoin relies on exchanges to operate, these are intermediaries that will accept your “normal” currency and exchange it into Bitcoins, and vice versa. There have been dozens of exchanges, as in theory literally anyone could setup their own firm. Mt.Gox is famous for having started out as an outfit to trade “Magic the Gathering” cards, but then evolved to be the largest exchange by far. How large? A study found that Mt.Gox had intervened in 90% of all Bitcoin transactions ever recorded. As of today, Mt.Gox accounted for 58% of all volume transaction in the last 30 days for the top 10 exchanges. This is a remarkable market share when one considers that Mt.Gox stopped trading yesterday to try to alleviate the crash.

This is a level of centrality that is not good for a supposedly decentralized currency. Many blips in price prior to the crash were caused precisely by DDoS attacks against Mt.Gox. Similarly, such reliance makes the entire system less resilient and prone to catastrophic failures.

Instability

Bitcoin has been tremendously unstable throughout its trading history. While as of today the overall trend has been upward, the currency has crashed several times before, just take a look at this excellent illustrated history of crashes. This is not the picture of a healthy currency, such instability is one of the reasons why it is very unlikely to be a viable currency.

Imagine that you are a merchant who decides to accept BTC, and agree with the buyer to sell at the trading rate when the transaction was initiated. The first problem you would encounter is that the transaction needs to be verified, and as there are more verifications taking place all the time, the process takes longer (about an hour). With wild variations in price, it is possible that you could lose money even before the transaction has been completed. Moreover, even a minor downward swing like those which were common in the days before the crash could wipe away any profit margin, leaving them wondering why they are even bothering accepting the pesky things in the first place.

However, the instability may not kill Bitcoin. In one of the best pieces that I’ve read about the instability of Bitcoin, Matthew Yglesias argues that it is possible that it will continue to go up and down in price forever. He says:

“Bitcoins are deliberately designed to represent a finite supply. So if over time more and more people want to use Bitcoins to conduct transactions of various kinds, then the price of bitcoins is going to have to rise and rise. The problem is that if the price of a bitcoin is on a steady upward trajectory, then nobody’s actually going to want to spend a Bitcoin on anything. And if everyone’s hoarding their Bitcoins, then the network is actually useless. Then, since it turns out to be useless, you get a crash. The funny thing is that once the upward spiral comes to an end, then the technological virtues of the Bitcoin platform come to the fore again.”

This is going to be the biggest challenge for future cryptocurrencies. Fiat money is kept stable by all sorts of means, from fiscal policies to centralized decisions about interest rates. It is even possible that stability can only be achieved through some form of centralization.

Security

Bitcoin itself is based on sound and tremendously strong cryptography, so the chance of someone hacking it are very small (for now). However, throughout its history BTC has been riddled with serious security incidents that place a large question mark above the implementation of the technology. The issue is that while Bitcoin itself is secure, intermediaries and consumers are not always so resilient. In early days, wallet files were unencrypted, which meant that any person who gained access to the computer holding it could simply transfer out all of the money, as happened to an early adopter who had 25,000 BTC stolen from his machine. Unencrypted wallet files were also to blame for an exchange losing 24,000 BTC.

Needless to say, when the price was going up there was a great incentive for hackers to create botnets that would mine bitcoins, or to engineer malware that would steal BTCs, these would be propagated by installing fake clients or by visiting infected sites. At some point there was also an increase in phishing sites trying to pass-off as Mt.Gox.

It is not necessary to detail all of the incidents, a simple web search will show a large number of them. Bitcoin prides itself in being an unregulated technical currency, which makes it a prime target for hackers looking for an easy way to steal money that is not likely to be prosecuted. This is because involving law enforcement would be a double-edged sword for the BTC community. If they want the police to pursue theft just like they do with fiat currency, then they would be welcoming regulation. On the other hand, if the currency remains unregulated, then police will be likely to treat it as the theft of WoW gold or Linden dollars.

And remember, once stolen, you cannot get the coins back. Ever.

Political underpinnings

From very early on, Bitcoin has been extremely popular in libertarian circles. Any visit to a Bitcoin discussion forum is evidence enough that an important core of the BTC community consists of libertarian types of all stripes, from those who want to see the end of all fiat currencies, to slightly more moderate and pragmatic Ron Paul-type supporters. To be called a statist is the worst insult, and anything that smells of regulation and/or government is immediately dismissed.

The depth of hatred against fiat currencies is staggering, a small group really think that Bitcoin will be so successful that everyone will be using it eventually after the much prophesied collapse of all government-backed money. However, most seem to accept that coexistence will be prevalent.

Lately, a growing number of Anonymous outlets have been  coming out in favour of Bitcoin. The politics of Anonymous are more difficult to pinpoint, there are some left-leaning positions in many issues, but I have always classed Anonymous more as an anarchic movement. The leftist anarchic fear and loathing of government is shared by the Randian libertarian branches on the right. The common denominator is distrust of any regulatory solution and the wish to see the end of the tools of power.

I have no problem whatsoever with people becoming involved in something out of ideology. However, I have a big problem when that ideology is taken as fact with the flimsiest of evidence to support it. Ideally, a decentralized currency should be politically neutral, it should strive to be efficient, not to overthrow governments. Any revolutionary effects would be caused by its success, not as part of a big plan to bring about a libertarian utopia.

Concluding

One of my favourite tweets of the last few days states:

Money is: 1. A unit of account 2. A store of value 3. A medium of exchange Right now, Bitcoin is none of those things (in any serious sense)

A good cryptocurrency must strive to fulfil these three requirements. It is not my remit to point out how this is to be achieved, I am not a developer. I just know that Bitcoin has too many problems to be the solution that we are looking for. An anonymous and decentralized payment system could indeed revolutionise the economy, it could help to end the disproportionate power of fat-cat banking systems, and would democratise monetary exchange. A system created by an anonymous cryptographer with a pseudonym that sounds like an anime character is not the way of the future, we need true openness for the next experiment to be successful.

Having said that, I do not blame the crash on early adopters selling-off huge amounts of BTCs. Just hours before everything went south, this article was published in the New York Times detailing how the Winklevoss twins (them of Facebook infamy) now owned about 1% of all Bitcoins in existence. The Bitcoin shark had been jumped. Panic ensued.

For those interested in the subject of data mining, here is an article written by Diane Cabell and Yours Truly dealing with the issue of data mining in UK higher education. Here is the introduction to see if you are interested in reading it further. Feel free to disseminate.

Data or [...]]]> Download the report here.

For those interested in the subject of data mining, here is an article written by Diane Cabell and Yours Truly dealing with the issue of data mining in UK higher education. Here is the introduction to see if you are interested in reading it further. Feel free to disseminate.

Data or text mining (hereafter called “content mining”) is a process that uses software that looks for interesting or important patterns in data that might otherwise not be observed.  An example might be combining a database of journal articles about ground water pollution with one of hospital admissions to detect a pollution-related pattern of disease breakout.

It is also a useful tool in commerce.  A credit card company might detect a correlation between purchases of tickets from particular airline with purchases of certain types of automobiles and develop a marketing program uniting appropriate vendors.  One McKinsey report states that the utilization of ‘big data’ in the sphere of public data alone could create €250 billion annual value to Europe’s economy.

Content mining is increasingly accomplished by machine.  Databases, particularly those produced by scientific research, are far too large to be scanned by human eyeball.  However, the right to mine data is not assured by the law in most jurisdictions and even where it is, the terms of access to the majority of research publication databases deny permission to do so.  One recent study indicated that obtaining permission to mine the thousands of articles appearing on a single subject from the myriad of different publishers would require 62% of a researcher’s time. Many content owners, including research institutions, have yet to develop any policy on content mining.

This report will identify the main legal barriers to data mining and data reuse and make policy suggestions to guide governments, funding agencies, and research institutions. As the title suggests, the emphasis of the study is about legal issues that are specific to higher education institutions (HEIs).
The first challenge for this report is to attempt to delimit the subject matter, as various types of content that are subject to automated analysis.  HEIs can hold and share content of various formats, here are just a few examples:

• Text: published articles, book chapters, preparatory notes, working papers, reports, teaching materials, conference papers, presentations, theses.
• Datasets: statistical data, geolocation data, survey results, maps, figures, time series, genetic information, health records, computer logs.
• Multimedia: pictures, sound recordings, interviews, presentations, video.

Each of the above may have separate legal regimes applying to them. In the interest of convenience and simplicity, whenever the report talks about database contents, there will be no distinction as to whether we are dealing with text, data or multimedia, unless clearly specified in the text.