The Breakdown - Crypto Daily 3@3 - 7.24 | Encryption Backdoors // Americans Trust BTC More Than Libra // Regulatory Roundup

Episode Date: July 24, 2019

The US Attorney General has reignited a debate about encryption backdoors for law enforcement. Libra has a long way to go, with a recent poll finding it significantly less trustworthy to Americans than Bitcoin. And finally, a regulatory roundup including a new New York State crypto taskforce and upcoming hearings in the Senate.  Watch the video version: https://www.youtube.com/nathanielwhittemorecrypto

What's going on, guys? Back with another Crypto Daily 3 at 3. So, first up, quick update from yesterday. So for those of you watched yesterday, we talked to a little bit about this report that Justin Sun did not actually have kidney stones, but was in fact being detained by Chinese authorities in context or in the context of a number of different allegations, including real, worry that or questions around how this guy got so much money to buy this lunch with Warren Buffett. It turned out that seemed not to be true because the stories were that he was in China, but then all of a sudden, less than an hour later, he shows up in this images with the Bay Bridge in the background and he does this supremely weird periscope from San Francisco and he's taking

to Weibo to refute the charges. So short answer is, is, I don't know, we have no idea where in the world is just in San Diego. But I think that the point that was being made yesterday that this creates just more insecurity and a perception of sort of ridiculousness around the industry certainly remains. So anyways, just wanted to do brief update on that because we didn't have all the exact information. And let's move on to some more substantive issues. So number one, regulatory roundup. So a couple interesting things on the regulatory front yesterday. The first was the announcement of the New York State Digital Currency Task Force. So the idea of this is basically to have a group of industry

participants and theoretically experts, I guess, help the New York State Legislature figure out how to regulate cryptocurrency and blockchains effectively. And so the idea is there'll be six members of this task force that are appointed by the legislature. legislature with another seven that are appointed by the governor. And so yesterday we saw the six that are, we set the announcement for the six that are going to be appointed by the legislature. They include, let's go to the article, I guess. There you go, Yaya, who has a number of interesting roles in the space. Joseph Lubin, the founder of consensus, York Rhodes, who is the head of Microsoft's blockchain project. Aaron Wright, who does a number of different things. He's a professor of law. He's worked on various law projects with consensus. Ryan Zagon, who's the director of regulatory relations for Ripple, and Sandra Rowe, who is the head of the Global Blockchain Business Council. And so this was interesting. New York has been kind of historically relatively unfriendly to the

to the blockchain space. A lot of companies have had to move out of this space or out of the state because of it. And so, you know, the best case scenario, the hopeful scenario is that this may be a way that it becomes more legitimate in the legislature's eyes and that they actually take in commentary on the best way to regulate it. I think that it's, so Preston Byrne made the point that,

there may be too many conflicts of interest or the perspectives may be too concentrated. Arguing that there's three consensus orbit folks in this, that there's a ripple folk person in this, and that it might be better served by a larger range of advisors. That's one issue. I think that the other issue that I think you pointed out on the main thread, are you sure it's the smartest idea to have companies that ostensibly the state should be regulating, advising the state on what regulations to draft. So this is, I kind of am half and half with Preston here. First, I do think it's actually great to have companies that are going to be regulated, advise around that regulation. It's the legislature's job to take or reject what they hear, but there's no

reason. It's going to come out a lot better, let's put it, I think, if they have a good time period where the people whose kind of companies are most affected by this legislation actually get a chance to weigh in and get into nuanced conversations. in advance rather than after the fact. So I do think that the principle of the thing is really good. Now, the question that he poses separately around what the exact composition of this, I think, is more reasonable. And so I will say that we've got seven more members that will be appointed by the governor.

I'd like to see some Bitcoin-centric companies. I think exchanges could be interesting to include. I think there's plenty of custody companies who are dealing with this from a kind of a deep financial level. There's investment firms who are here. There's people who are thinking about the connection between cryptocurrency in the traditional financial system. So there's no shortage of companies and individuals

that represent other perspectives that could be really valuable on this. And I think that they'll, the committee will be more successful. The task force will be more successful to the extent that they actually bring those voices in. So I hope that that's, maybe we get some of that with the seven government picks. And then I guess one, just one of the regulatory piece of news. So obviously last week we saw the Libra hearings,

but now the Senate Banking Committee is back with a hearing thinking about regulatory frameworks for digital currencies and blockchain more broadly. So it was still kind of inspired by Libra as this article from Coin Desk makes clear that the Setic Banking Committee has held a number of hearings, the most recent taking place, focused on Libra. So it seems like this is a chance to maybe take the next step. You know, a lot of what last week was was about distinguishing Libra from other types of blockchains, but this is a chance to maybe go deeper in the context of blockchains themselves. I'll probably talk more about this as it gets a little closer because I think in some ways the stakes are a little bit higher.

When we're talking about Facebook, we almost get a free pass comparatively. But this will be interesting. So we'll come back to that for sure. With that, actually, let's jump into number two for the day. So speaking of Libra, interesting poll that came out today, Bitcoin is more trusted than Libra. So effectively, a company called Civic Science did a poll of almost 1800 U.S. adults, 1799, and said that the poll said just 2% felt they would trust Libra and its Calibra wallet more than Bitcoin. By comparison, a hefty 40% said they trust the public cryptocurrency more,

while 19% they'd say both they trust both options about the same. Importantly, so I think there's a couple of things that are interesting about this. And maybe we'll pop over to actually, we'll stay on the Coin Desk article for just a minute because it's a good summary. So the things that I think are interesting about this is one, anytime you have a poll, you have to kind of have a, take it with a grain of salt, right? Polls are inherently and precise and it's very hard to tell, especially with something like a new technology, who this sample is, who they represent,

to what extent they're already kind of biased towards, you know, these new technologies. Civic science seems like a really interesting organization, but it's not Pew or, you know, someone else that has kind of like a clear long-term track record and precise kind of, you know, background that we know in terms of where biases lie. So there's the caveat with it. However, I think it's interesting because it does seem that from their, sample size that many of the folks are not actually cryptocurrency users. So from the surveyed group, less than 10% had actually bought cryptocurrencies. So that to me in some ways actually makes me

even more interested in what they have to say. So basically, you're not talking just about a kind of a native crypto audience that's swaying the results. These are kind of average people with average interest. In fact, if you see here going through a couple of these other stats, 86% say they are not at all interested in Facebook's new Libra cryptocurrency and it's accompanying digital wallet. Which of these best describes your experience with cryptocurrency? 66%. I haven't invested in it and I'm not interested.

21% say I've never heard of it. So that's basically everyone is saying either they've never heard of it or they haven't invested in it because they're not interested. So the long story short here is just it's just one more piece of kind of information. that maybe gives a little bit of a sense of where the pulse of, you know, U.S. audiences are as it relates to cryptocurrencies in terms of how many people own it, how many people know about it, and what they think going into Libra. Now, I do think that the biggest caveat of all, more so than even the methodology, is that people report things often very differently than they behave. And, you know, Libra doesn't

exist yet for them to try or for them to use or to be running in the background in some way. and people are more likely reporting on where the general tenor in tone of the conversation is with Facebook than what's real. So I would say that what this suggests is that Libra has its work cut out for it, and it's got a rough starting point because of the legacy of Facebook. But with that, let's go to the third and final topic for today. So Eveside, the director of cybersecurity at the Electronic Freedom Foundation says, that thing where the former head of the NSA says that the security risks of encryption backdoors are not worth it, and I agree with them. So number three for today, encryption back doors. So this has been an ongoing conversation for the last couple months. There were a little bit of banter,

maybe last month, maybe in May, that the Trump administration was seriously pushing or seriously considering pushing tech companies to install basically backdoors for law enforcement. This was this conversation was resuscitated yesterday when, William Barr, the U.S. Attorney General, said that Americans should accept security risks of encryption and backdoors. That is just, it should be just part of what they accept as normal because of the needs of law enforcement. General Michael Hayden, who's the former director of the National Security Agency and the CIA, said, not really. And I was director of the National Security Agency. So this is a couple things.

First, it is one of the greatest ratios I've ever seen on Twitter. And obviously, David Chamberlain is just the poor person who posted this TechCrunch article. You know, he got 140 likes. And the comment from Michael Hayden was 7.5,000 likes and, you know, over 2,000 retweets. So it's not really a ratio in the traditional sense, but it is in kind of the idea of what's being said. I think that there's – this is an incredibly important. important issue, right? Encryptured backdoors are a Pandora's box of potential abuse. And, you know, right now we're seeing different companies in Silicon Valley and in the technology

space really having to fight hard against this. I mean, Apple is taking a hard stand against it. And this is another really interesting point being made. So Joseph Cox, a journalist who covers this stuff from motherboard. He wrote, Today Barr reignited the call for companies to introduce backdoors into their products. Somehow in his 4-127 speech, Bar didn't mention that cops around the country are already hacking every day to unlock iPhones. You can't have an honest debate if you omit that. He doesn't mention local cops have gray keys to unlock iPhones. Celebrites on-site device can unlock iPhones. FBI deploys malware specifically to circumvent encryption, lawful malware marketed to get chat from encrypted to apps. So there's a lot of tools already available to.

to law enforcement basically to break this. And I guess, you know, I'll leave you on a commentary from Zucco. This is actually from May, maybe when the most recent time that this came up. So someone asked Zuko, what are your thoughts on installing backdoors for police to use in crypto projects? So someone was taking it out of the context of tech and putting it in the context of crypto. And Zucco says, I fought against it my entire adult life with code, scientific research, advocacy, civil disobedience, and other action.

When the Obama administration floated the idea that they might require crypto devs to insert backdoors, I organized the entire team of my open source project to sign a document saying that we would refuse. My current project, Zcash, has a very clear policy. I could go on and on in the ways I've invested much of my life into countering the terrible idea of sabotaging vital public infrastructure, but I won't. Instead, please listen carefully. The fact we are having this conversation means someone is trying to manipulate you. Focusing attention on a CEO's philosophy or tweets may be useful for someone trying to promote or discredit a project or manipulate prices, or to earn social affirmation, but it will do little to protect users from cyber exploitation.

How do people get exploited in practice? Read the experts who study this. It usually involves exploitation of bugs that were probably inserted innocently. So basically, the point that he's making is that this is a fight for our times and that this is something that is incredibly important and significant and shouldn't just get buried.

So it's something that I'm keeping an eye on and I will certainly come back to. You can read more about Attorney General Barrow's speech online. I'll try to link it in the notes. But for now, I'm going to wrap up. I appreciate you watching and listening as always. And hit me up on Twitter if you ever have specific topics that you're interested in at NLW. And I will talk to you soon.

Bye, guys.