Thread by @lex_node

crypto law/policy has become very confused, for the following reasons

this is a potentially cancellable opinion, but I believe it really explains "how we got here"--i.e., to the very strange and confusing legal/policy position we are in as an industry

operationally, blockchains are controlled by miners/validators, who perform the service of bundling txs into blocks and trying to get those blocks stored on the chain--as well as some ancillary services and activities

the discretion of miners/validators in how they perform this service is highly constrained, because the users they work for expect them to follow the rules of very specific software--and if they don't, the users will know, there is no hiding it

the miners/validators still do have some discretion though--they can refuse service to some users (subject to sybil attacks) or more plausibly refuse service to some transactions--like low-fee ones--or can provide expedited service to some users/transactions

fundamentally, they are the only ones positioned to censor or impose conditions on txs, and because this is the case the software that constrains them has to be ingeniously designed to prevent them abusing this power

but, for example, if anyone would be positioned to do "KYC" (reminder-it means know your *customer*), it would be miners/validators

ofc, if they did that in a damaging/consistent way, the users would revolt and fork off to a new network that more successfully constrains them

now then, here is where it gets interesting--because we have various law/policy people involved

the ones on "our side" reason--validation/mining is really important, I will hide how important it is and try to get regulators to accept censorship at other layers

the ones "against us" reason--this activity looks a lot like the kinds of activity laws require censorship in, we must maintain technology neutrality and force censorship here (KYC, some people/countries banned from transacting, only some kinds of txs allowed, etc.)

when these two constituencies talking to each other--one which is not prepared to speak frankly about who is in a position to censor and why it would be dumb to make them do that--the other demanding censorship, chaos and confusion bloom

the result is that the pro-censorship constituency is focused on trying to argue that software developers--who are much much less like service providers than validators/miners are--should be regulated like financial intermediaries

however, software developers *cannot* comply with financial intermediary rules (b/c they are not the ones running the software, the validators/miners are),

therefore, we get the next position from the pro-censorship crowd--in effect, certain forms of software deployment/licensing arrangements are illegal

this is essentially what the CFTC implicitly (perhaps unwittingly) told us their view of the law is on Thursday

What we all have to make everyone realize is that validators/miners run the software, not software developers (even if they retain some tokens letting them adjust limited parameters). The devs *can't* do KYC or censor--only miners/validators *could* do that.

Now, I don't want regulators attacking miners/validators either. But luckily, once you clarify who is in the position to do censorship, it is much easier to advance the right policy arguments--that they are like ISPs/infra providers,

that the benefits of that infra being open outweigh the cons, that regulation would be ineffective as there is an inherent flywheel/incentive system at play that will make regulation similar to playing whack-a-mole across the globe.

Until this conversation happens, the entire crypto law/policy debate will just involve everyone talking past each other.

The most anti-software-freedom, anti speech-freedom positions I have seen come from *within* the industry from people saying we should regulate websites which merely display block data and show a user how to construct JSON objects as if they are NASDAQ.

https://twitter.com/LANCEROBJ/status/1573130803630014464

This is because they are being too smart for their own good, hiding the ball, & pointing regulators to the areas where our ecosystem is weakest (devs, FEs) instead of where it is strongest--like mining/validating, which is purpose-built to be censorship-resistant.

In the process, the industry lobbyists (other than perhaps @coincenter ) have lost their path--they are no longer fighting for core software freedoms, but are trying to throw some software freedom under the bus to save other forms of software freedom. That's how you lose it all.

PS--trying to regulate DeFi by regulating wallets, block explorers and JSON constructors is equivalent to trying to regulate the stock market by regulating the Wall Street Journal, Bloomberg Terminal and CNBC Squawk Box--it is anti-internet, anti-speech, and anti-software

PS cont'd: these are *not* "interfaces", they do not "provide access to" smart contracts or blockchains

they literally *just* provide information...plus, in the case of wallets, a broadcasting function so you can send a tx request to the relevant network

never before have supposed pro-software lobbyists argued that instructing people how to use software and enabling them to send a message to a computer network should make one a regulated financial intermediary--but this is what "crypto policy" people are promoting; it's bizarre