Bitcoin and Cryptocurrency Technologies

The challenge of real‐world security
Defending against any form of theft — cars, art, money, etc. — is an exercise of prevention, detection
and correction. Preventive security mechanisms try to stop theft before it happens, while detection
mechanisms ensure theft is perceived so potential corrective measures can be taken to revert the
damages of the theft and to punish the perpetrator (which could also serve as a deterrent to
committing theft). Car locks and alarms are preventive mechanisms, while GPS tracing units (such as
LoJack) can assist in detecting the theft and enabling law enforcement to recover the stolen car. The
key insight is the car lock is just one small piece of deterrence to car theft — one piece of a large,
intricate system involving police, insurance companies, courts, etc. If you lived in a lawless
environment, a car lock by itself wouldn’t be much of a deterrent to theft. Leaving your car locked on
the street would ensure that it would be quickly stolen.
The model we have seen for smart property relies heavily on preventive mechanisms. We were able
to achieve decentralization only because we equated possession with ownership — owning a car is
essentially equivalent to knowing the private key corresponding to a designated transaction on a
block chain. But this control mechanism is a poor replacement for our current mosaic of institutional
support, as we’ll explain.
If we reduce ownership to the problem of securing private keys, it raises the stakes for digital security,
which is a difficult problem with humans being a weak link. Programmers have endeavored to write
bug‐free code for decades, but the challenge remains elusive. Designers of cryptosystems have tried
for decades to get non‐technical users to utilize and manage private keys in a way that resists both
theft and accidental loss of keys, also with little progress. If the model of decentralization relies
excessively on private keys, cars might get stolen by malware or in phishing attacks, and the loss of a
key might turn your car into a giant brick. While there could be fallback mechanisms to cover these
types of events, inevitably such mechanisms tend to lead us back toward intermediaries and
centralized systems, chipping away at the benefits of the decentralized model that we were striving
for.
Another area of property transfers that is fundamentally human‐oriented is dealing with disputes that
might arise over the terms of sale or other aspects of the transfer. If the real world, if the participants
cannot reach a resolution, the issue will end up in court where a judge will methodically examine each
bit of evidence, testimony, and written words to reach a nuanced ruling about the validity of the sale.
It is tempting, particularly for technical people, to think of the law as a set of logical rules or
algorithms that can produce a clear‐cut ruling. However the reality of the legal system is that not only
are laws and contracts verbose, they are ultimately subject to human interpretation and discretion,
which is further removed from the notion of clear‐cut logical rules. This is not a weakness. It allows
resolving situations that are far more complex than what was anticipated by the individuals writing
the law.
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