In what can only be sort of described as an attack, a “hacker” - by which I mean someone using the available cryptocurrency systems - gained complete control of cryptocurrency project Beanstalk, stealing $182 million in the process. Except they didn’t steal anything or do anything nefarious.
Here’s what happened:
- Like many cryptocurrency projects, Beanstalk allows you to vote on governance issues to control the project. This is a big part of the “code is law” ideal behind cryptocurrency, where you can “steer the future of the project” based on how many tokens you have.
- In this case, the “attacker” used something called a flash loan (a loan you hold for seconds or minutes specifically to take advantage of the volatility of cryptocurrencies) to get a controlling amount of Beanstalk’s “stalk” token.
- In complete accordance with how Beanstalk’s governance works, they used these tokens to create a proposal to give him all of Beanstalk’s money ($182 million), a proposal that the attacker then used their massive amount of tokens to vote “yes” on. I’m not going into the point of that $182 million because it’s boring and irrelevant, but let’s say it was the pooled funds to make the project work.
- On receipt, they then returned the funds to the flash loan company, making about $80 million in the process.
Much of what has been written about this has (as I have) used the term “attacker,” as if an attack was made in anything other than complete accordance with how the project worked. The project was set up to allow the largest amount of votes to pass whatever proposal was made, which, in this case, was “I think that I should have all of the money.” To describe this as an attack, a hack, or “malevolent” is to misunderstand the vacuous idea of “code is law” and Decentralized Autonomous Organizations.
“Code is law” refers to the idea that code can govern without human intervention, and DAOs are the Code Is Law monster - an autonomous organization that operates entirely based on what the highest amount of votes suggest. The problem is obvious if you’ve met more than one person in your life - human beings are fallible and biased, and prone to making mistakes.
In the case of cryptocurrency developers - who I understand may never have met another person outside of their industry - there is a deep-seated arrogance that makes them believe that they (in combination with any number of quasi-respectable “security audit” companies) are capable of creating perfect code that is somehow both democratically fair while repelling people that want to take advantage of the system intentionally.
The irony here is that cryptocurrency grew out of anti-government propaganda - the idea that our current laws allow the rich to take advantage of specific systems to benefit them. Except, if anything, cryptocurrency has created an even more exploitable system, naturally built for the rich to extract from the poor that they’ve tricked into buying into. And, of course, these systems are only as “smart” and “autonomous” as the people that built them, who are regularly anonymous or pseudo-anonymous and rarely if ever take (or face) any responsibility for what happened.
To describe the Beanstalk incident as anything other than a system working as intended is giving cryptocurrency developers far more credit than they deserve. This “$182 million hack” is the predictable, replicable result of directly connecting every cent within a project to a codebase, and allowing said codebase to directly create transactions with that money. It is libertarian democracy - you can vote, your vote matters, but all that really matters is who - and this can be one person - has the most votes, which in many cases can be as simple as “who has a lot of money.”
This is - as I’ve noted before - because of cryptocurrency fans not understanding that libertarianism means “anyone can do what they want,” which means “anyone, including the people with the most resources, can do what they want.” This means that if someone sees your system - a system involving votes that can be bought with money - they can choose to purchase a controlling share of these votes and do literally anything they want. You are also free to do what you want, but you will face restrictions based on the whims of those with more power, strength or resources than you do.
Like the Men Going Their Own Way freaks that believe that in a zombie apocalypse their natural guile and honesty will make them anything other than “the guy who gets bitten and doesn’t tell anybody,” the average cryptocurrency zealot believes that libertarianism will never hurt them. Except it so often does, because libertarian systems are built specifically to exploit people based on imagined freedom. Those who push libertarian ideals are a delight for actual people living libertarianism because to “live” the libertarian lifestyle requires you to have the means to create a micro-society in which libertarianism can exist.
And that, my friends, is cryptocurrency. It is cons, built on cons, to con people that believe they’re conning the system. While it may have begun as a way of anonymously transacting money (which it isn’t even good at anymore), it has now turned into a monster of exploitation, where people join the system with the intention of conning it before they can be conned.
A Burning Sensation
One might argue that these are the growing pains of a new industry, except new industries tend to get snuffed out when they become inherently damaging to society. Cryptocurrency is regularly compared to the early days of the Internet, where people were unsure about how wide-spread its effects would be, but I prefer a far more obvious comparison: asbestos.
Asbestos, which is a naturally-occurring material, was used to fireproof materials for thousands of years, with its large-scale use dating back to the mid-19th century. It was wildly successful throughout the world, used in things like buildings and machinery. A writer (or potentially a person writing to the editor) raved about the many ways in which the “indestructible” Asbestos would change our lives in the New York Times in 1909, three years after the first Asbestos-related death, and 21 years before the landmark Merewether Report…and decades before Asbestos was fully banned.
To be clear, Asbestos had an actual utility - one that was used to keep it legal for decades until it was obvious it was giving people cancer and lung disease. And unlike cryptocurrency, mass media didn’t exist at the scale to report every bit of death and destruction it causes. People wanted to keep asbestos because it was good for reinforcing and fire-proofing stuff. Sure, it killed people, but 200,000 people is a drop in the bucket when you’re talking about a planet of billions of people, right?
And if you think about it, what’s a few billion dollars of stolen money? What does it matter if $182 million is gone, and a few hundred people or a thousand are painfully, brutally harmed? People should “do their own research” and be aware that there are dangerous projects, but realize the wonderful gains they could make based on the “early days” of this wonderful new internet where money is regularly stolen from people.
The reason that cryptocurrency zealots are so desperate for adoption is that they want to legitimize and stabilize their broken, exploitative system, in the same way that the global use of Asbestos made outlawing it so incredibly difficult. They believe that if enough people use cryptocurrency, it becomes very difficult to outlaw or restrict it.
The real difficulty is that cryptocurrency is powered by faith, desperation and snake oil. Investments in the system are not in a seemingly-necessary industrial tool, but in the idea that the number you have might go up, and you could make money in the process. It is all but impossible to prove the utility of cryptocurrency above any of the systems it’s attempting to redefine, and it is becoming much more difficult to hide how dangerous it is considering something extremely bad happens almost every day.
If you believe that cryptocurrency cannot cause the widespread harm that Asbestos did, consider that much of it is wrapped up in the dollar-backed stablecoin Tether, a coin that is most certainly not backed by actual dollars, but some combination of loans and certificates of deposit. If Tether crumbles, it will cause a massive crash in the market as 82 billion dollars of Tethers are traded for whatever they can get.
And, of course, there’s also the chance of a regular old crash, like the one from 2017 to 2018 that sent Bitcoin from over $19,000 in 2017 to under $3,400. What’s important to know is that we have no real idea of why it crashed, or why it climbed to today’s price (around $40,0000 for one BTC), or why any of this happens.
For me, this is enough of a reason to start heavily regulating - if not outwardly banning - cryptocurrency. If regulations exist to make sure that regular people aren’t hurt, then we need regulations that make it harder to be exposed to markets that are driven by a combination of market manipulation and libertarian con-artists. People are losing their life savings and houses so that greasy cretins can feel important and the ultra-rich can experience faster liquidity on their investments.
“Code Is Law” is hubris marketed as the work of infallible philosopher kings. It plays to engineers’ arrogance, and also makes would-be investors feel like they’re part of something new and exciting. Code is Law sells autonomy as perfection - a system free from human error - when, if anything, code that runs itself is one of the most brutal, unforgiving tests of human ability known to man. It is an idea that runs contrary to the human condition itself and suggests that we have - despite this being the future - reached a point where the entire universe - including human greed - is both known to us and can be defeated through coding.
Except it can’t, and will never be defeated. As long as there is money to be taken, human beings will attempt to take it. As long as there are systems to be exploited, someone will try to exploit them.
Code Is Law is nothing but a challenge to the greedy.
And greed will always win.