What does “owning a Bitcoin private key” actually mean? In this latest episode of “Theory of Bitcoin,” Bitcoin creator Dr. Craig S. Wright and Fabriik’s Ryan X. Charles discuss legal ownership and how it could be enforced, as well as the ways Bitcoin can be used to link EDI processes in business.
EDI stands for Electronic Document Interchange, and it’s a fairly mature set of technological standards dealing with non-human but legally-enforceable business documents (including invoices, payments, contracts, supply chains etc.)
We’ve mentioned this before, but Dr. Wright doesn’t like the term “smart contracts.” Referencing the 1989 book “EDI and the Law” and the academic paper “Has HAL signed a contract?” he says only humans can engage in contracting. Machines have no agency, and thus electronic “contracts” are more like evidence to support the “master contract” or, the initial agreement between human parties to bind their actions to the information as it exists on the ledger (in this case, the Bitcoin blockchain).
US$14 trillion passes through EDI agreements between large U.S. firms every year, he says. All this only works if humans have made that initial agreement. And for the data to be trusted, it must exist on a secure and open ledger.
What people don’t understand about accounting is, you’re not supposed to change any information on a double-entry ledger. If something needs to be adjusted or a mistake corrected, it gets added into a journal section. Changing information on a ledger, whether by error or deliberately (by corrupt actors in the process), has caused many of the world’s problems. Bitcoin solves this with a ledger that can’t be altered, and tracks every change and transaction along the way, publicly and forever.
Dr. Wright references Ethereum‘s infamous “DAO hack blockchain rollback” of 2016 as an example of how a handful of developers can wreck trust in a system. Other off-chain transaction ledgers, such as the SegWit-enabled Lightning Network, only make it more difficult (or even impossible) to audit blockchain data and keep track of who did what, and when.
Don’t even start him on “anonymous coins” such as ZCash. A financial system where no-one even knows how much money there is, and who owns it, cannot function properly, he says.
He points out that there’s nothing really new in Bitcoin, legally. Concepts like ownership of property and contracts have been around for a long time—thousands of years—and Bitcoin is simply a technology, or a tool that makes it more efficient. It allows businesses to search and link EDI processes, track the exchange of data and money, and eliminate corruption from these processes by making it all publicly auditable.
Enforcing and tracking ownership: It’s not about the ‘private keys’
The conversation on ownership and enforcement is interesting. Dr. Wright points out that simply having use of an asset does not confer ownership. This is an obvious point, but people forget it applies to non-tangible property as well… like bitcoins. Private keys themselves are not ownership. They may give someone control over an amount of money, but that money still belongs to its legal owner.
He reminds everyone again that there’s only a small number of actual nodes on the Bitcoin network (or any blockchain really) that matter. Node operators count as one node in reality, no matter how many machines or hundreds of “exit points” they manage. Courts, law enforcement and governments can exert all kinds of external influences on these human operators no matter where they are. A court order dealing with stolen Bitcoin-based assets could be enforced by freezing UTXOs, making control of private keys themselves irrelevant.
To those who claim to be turned off by Dr. Wright’s law-and-order cautioning, he issues a reminder that there are no technological solutions to the fact human law is above all:
“It’s all wish and dream, and hope the government will go away. It won’t … People come up to me and say, ‘what about big bad governments?’ Bitcoin doesn’t solve big bad governments. Bitcoin doesn’t solve tyrants. What it does is exposes them.”
People need to remember that they’re still the center of everything, not machines or code (or the people who control that code).
“Only people can solve political problems.” (Not technology). “If you want a free world, a democracy, you have to be involved. And that’s what Bitcoin allows you to have.”
To watch previous episodes of the Theory of Bitcoin, subscribe to the Theory of Bitcoin YouTube channel here.
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