🏓 To-the-Mooon!

Externalities and “Can You Call the Gatekeeper?”

That “wrong rocket” was intended. Driving a Tesla (hopefully bought with DOGE hodler up from 2013 [Howell]) on a country road after the Summer rain is beautiful. It might also seem green. However, it’s really not if your gorgeous EV got charged with energy from a fossil-fuel-burning thermal electric power plant (unfortunately, the case for too many Teslas out there). All that had happened was emissions and your carbon footprint migrating from the car’s tailpipe to the power plant’s pipe.

DeFi and post-2016 crypto is in so many ways about profiteering and getting rich fast. That’s ok in the free market economy (and that’s most likely why you are reading this white paper). Nevertheless, there is a big difference between legitimate profiteering and a crime. Forget the boring morals or live YouTube video of Sermon on the Mount. It’s about algorithms that stop working when the rules are observed incompletely.

Silk Road was one of the first bitcoin hypes, long before ICOs and DeFi. Feds shut it down in 2013. In 2015 its founder got double life imprisonment plus 40 years without a possibility of parole [Hong]. In 2020 the US Government seized $1bn worth of BTC from the Silk Road account [BBC]. Was seizure a good thing? Hell yes. After all, the government has to take care of the hopeless drug addicts and their families [Adler].

Is it possible to have SilkRoadSwap in 2021 without anyone noticing and regulating it? Could SilkRoadIllegalCoin (holy guacamole, the SilkRoadCoin does exist! Thanks, Google, for saving us from a defamation lawsuit) get featured in “trending swaps” on some anonymous DEX (of plenty available) or a darknet clone [Coinfirm] of some food-themed swap? Mind that the Silk Road example is a straightforward one. With DeFi, we enter way more complicated and murky ethical waters [Orcutt].

Back in the 1920-s English economist Arthur Cecil Pigou introduced the concept of externality [Caplan]. According to the Concise Encyclopedia of Economics, “negative externalities are costs that are infeasible to charge to not provide.” The Tesla example from above is a negative externality. Selling to over 140k drug addicts and child pornographers is an externality of making $28M (2013 Bitcoin exchange rate) in profit for Ross Ulbricht, the man behind the Silk Road. The more profit Silk Road would have made, the more of its customers would have died. So this ecosystem has bad sustainability.

So “are we all going to die”? Well, eventually, and (hopefully) not so soon, we will. But there are many 🌈 good things in between. Thankfully, we can use the same concepts that make blockchain crime-friendly (ZKP and trustless transactions, to name a few) to improve its governance to an unprecedented level [Huang], increase accountability [Burke], and encourage sustainable business practices [Zwitter].

Remember the Emerald Crypto Coin scam from the previous section? The story ended well after all. Why? There were gatekeepers. First, China-based cybersecurity firm Slow Mist issued a notice on the Internet warning of the suspicious activity with EMD’s smart contract. Then Changenow, the crypto exchange scammers were trying to use for exiting, froze their assets on a cold wallet [ChangeNOW]. After that, other exchanges followed suit in similar situations [Godbole]. And this brings us to the next chapter.