Bitcoin and Cryptocurrency Technologies

To drive home the mismatch between the security properties we get from the decentralized model
and the security properties that we actually want, let’s revisit the earlier example of decentralized
crowd‐funding. We saw a technical mechanism to ensure an entrepreneur cannot cash out on
investments until the contributions sum to some pre‐specified amount. However, this by no means
prevents an entrepreneur who has successfully raised the funds from absconding with the money! In
fact, even with the current centralized model, there have been numerous alleged scams on
crowd‐funding sites, resulting in several lawsuits. In a model where entrepreneurs are potentially
anonymous and there is no deterrent effect from the threat of being sued, this problem is likely to be
far worse. It is hard to imagine that there could be a technical solution to this problem. This is another
case where the technology is only solving a small part of the problem, and frankly, not even the
interesting part of the problem.
To recap, the interesting problems with smart property seem to be social problems, issues that arise
when something goes wrong. Technology can ensure a very efficient transaction when all parties are
satisfied, but it is not well‐positioned to solve thorny disputes.
The pros and cons of smart property
As argued, smart property has difficulty decentralizing the aspects of a system that traditionally
require human intervention. In fact, automation may even make it more difficult by not composing
well with mediation and other processes if they are layered on after the fact. Finally, it may create
new categories of problems, such as requiring software security in addition to physical security in the
case of a car.
These examples are, to a certain extent, cartoon versions of what a thorough proposal for smart
property might look like. Many proposals in the Bitcoin community are more nuanced, but even in our
simple setting, we can discern the advantages and disadvantages of smart property.
The main advantage of smart property is the efficiency of ownership transfer, which can be done from
anywhere at any time. For sales of items less valuable than a car, maybe a smartphone or computer,
disputes are unlikely to end up in court, and so nothing is lost in that regard. For such items, atomic
transactions are a useful security feature.
Smart property through block chains also provide greater privacy, and even anonymity. While we’ve
argued that it complicates dispute resolution, privacy is also beneficial in a society where consumer
data is used by companies in ways that are unseen and likely unintended by making the purchases. In
some cases, it might be important for the parties to a transaction to not disclose their identities,
which is not feasible in a centralized intermediated model.
Finally, the decentralized model allows mediators to be chosen. Even if we are content with the legal
system, often disputes are mediated by private companies like Visa or PayPal behind closed doors
using a method that is hard to scrutinize. By using an alternative model where such mediation is
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