Leaked: A bad EU motion promoting blockchains coming up for vote — contact your MEPs

Leaked: A bad EU motion promoting blockchains coming up for vote — contact your MEPs

A terrible garbage motion encouraging the European Commission to support “distributed ledger technologies” — meaning Blockchain, and very clearly in the Bitcoin sense — has been brought to the EU Parliament Committee on Industry, Research and Energy (ITRE) by MEP Eva Kaili. I got a leaked copy.

Kaili’s a huge blockchain fan, with a piece in CoinDesk’s 2017 roundup, a regular spot on the blockchain conference circuit and assorted interviews on the topic (Finance Magnates, New European).

The goal of the motion appears to be:

  • legitimise the blockchain industry hype machine;
  • fund more reports to legitimise the blockchain industry hype machine;
  • bung public money to Consensys;
  • make smart contract code legally enforceable. (This would make the DAO hack entirely legitimate because the smart contract code allowed it.)

The motion was drafted last year. It’s taken a while for Kaili to gather support — compare the ITRE work in progress list for September 2017 to the one for January 2018 — but it’s finally been put up for a vote on Thursday 22 February 2018.

The awful thing is likely to go through — but you should contact your MEPs with your concerns in any case.

Every blockchain hype claim, in one motion

The motion appears to be a compendium of every hypothetical use case Kaili could find — however nonsensical it was.

It’s a good worked example of blockchain hype. It takes claimed possibilities and imply they have working examples in the present day — “could” becomes “can.” It then implies that you can get every possible good outcome for free, all at the same time.

It also glosses over the fact that a lot of this stuff doesn’t exist, and that “blockchain could” is a phrase meaning “blockchain doesn’t yet.”

If you’ve been around the blockchain space, you’ll recognise the style of argument — a string of vague and ill-supported claims, thrown out as fast as possible.

It’s a written Gish Gallop — to properly answer all the vague, aspirational and just plain wrong claims, you’d need to take ten times as long as the original document.

The motion also cites evidence that doesn’t exist, but that never stopped a blockchain pitch.

So what happens next?

If the motion passes at committee, it will then be voted on by the whole European Parliament, and the European Commission will then take this as guidance on Parliament’s position.

If the committee likes it, then Parliament will probably trust them and let it through — unless there’s knowledgeable opposition well-armed with facts.

So contact your MEPs with your concerns as to this terrible and inane resolution. Attach this post — I’ve just spent all day answering the motion, point by point.

(And in particular, contact your MEP if they’re on the committee! Go through all 14 pages of members, like I just did …)

The motion in full, with refutations

WARNING: this is long.

The motion text hasn’t been widely available, but I’ve been sent a copy. (Some metadata removed, but have fun with what’s left.)

2017/2772(RSP)
30.1.2018
DRAFT MOTION FOR A RESOLUTION
further to Question for Oral Answer B8‑xx
pursuant to Rule 128(5) of the Rules of Procedure
on Distributed ledger technologies and blockchains: building trust with disintermediation
(2017/2772(RSP))
Eva Kaili
on behalf of the Committee on Industry, Research and Energy

B8‑0000/2018
European Parliament resolution on Distributed ledger technologies and blockchains: building trust with disintermediation

(2017/2772(RSP))

The European Parliament,
– having regard to the question to the Commission on xx (O-xx – B8‑xx),

(yes, that’s what the document says — this is a draft)

– having regard to the motion for a resolution of the Committee on Industry, Research and Energy,
– having regard to Rules 128(5) and 123(2) of its Rules of Procedure,
– having regard to the report on virtual currencies (2016/2007(INI)),
– having regard to the report on FinTech (2016/2243(INI)),
– having regard to the report on addressing geo-blocking (COM(2016)0289),
– having regard the General Data Protection Regulation (Regulation (EU) 2016/679),
– having regard to the regulation on extension of the duration of the European Fund for Strategic Investments (COM(2016)0597 – C8-0375/2016 – 2016/0276(COD)),
– having regard to the report on the draft general budget of the European Union for the financial year 2018 (11815/2017 – C8-0313/2017 – 2017/2044(BUD)),
– having regard to the European Commission (EC) initiatives for the exploration of DLTs including, inter alia “Blockchain4EU”, “EU Blockchain and Observatory Forum”, “Blockchains for Social Good” and the “Study on the Opportunity and Feasibility of an EU Blockchain Infrastructure”

Note that last bit in the preamble — when you see a comically awful official report on blockchain, take it seriously.

You should read the linked reports — you’ll see precisely the same unfounded blockchain hype as in the present motion. The hype is justified only by references to previous hype, and if you track it down to its sources, you’ll see that it was all originally hypotheticals without real-world working examples.

The “Study on the Opportunity and Feasibility of an EU Blockchain Infrastructure” hasn’t reported yet, and won’t until Q2 2018. Nor will “Blockchains for Social Good.” This motion cites evidence that literally doesn’t exist.

A. whereas Distributed Ledger Technology (DLT) can empower citizens by giving them ownership of their own data;

This is a very compressed form of a common claim in healthcare blockchain marketing: that patients will be able to control access to their own private data.

The claim is there because the health care sector is not touching blockchains without such functionality. But literally no working implementation exists. Of course, that doesn’t stop salesman claiming blockchain will allow this.

This very specific claim is then generalised — to imply that if we want people to have “ownership” (whatever that means in detail here) of their own data, blockchains will totally do that!

It may be good for citizens to have a right in law to their own medical data, after past problematic data-sharing arrangements — but blockchains won’t somehow provide what the law doesn’t yet.

B. whereas DLT is a general purpose technology with strong potential to improve products and services by disrupting value chains and improving efficiency;

This sentence is a collection of blockchain jargon masquerading as the words’ normal meanings.

The “efficiency” claim is particularly egregious — the crippling weakness of blockchains for business and bureaucratic use cases is how startlingly inefficient they are. Even if you don’t use a public proof-of-work blockchain, with its horrendously antisocial waste of electricity, a private blockchain is just a very roundabout and inefficient replicated database cluster.

C. whereas DLT introduces an IT-based paradigm of social value that promotes self-sovereignty, trust and transparency;

Only in the fantasy sense, and the fantasies in question are the conspiracy theory dreams of the extreme right ideologues who founded and nurtured Bitcoin. This is anarcho-capitalist jargon used as if the words had their normal meanings.

In the “IT-based” sense, we’re talking about a data structure. Specifically, an append-only ledger made tamper-evident with cryptographic checksums. We’ve had this for decades. If software such as Git didn’t deliver these amazing claimed social results since 2005, then other “DLT” won’t.

And why would the EU promote “self-sovereignty”? There’s probably a movement or two inside the EU that they’ve had concerns over who might want to adopt that phrase …

This is also a good example of blockchain hype being, per chapter 11 of the book, literally just Bitcoin hype with the buzzword changed. You may have wondered how a data structure accumulated somewhat disturbing cultists who promise it will bring social revolution …

D. whereas DLT is still evolving and it is therefore necessary to create a framework of legal certainty around the applications that have originated from it;

Databases containing personal information are already regulated in the EU. This seems to claim there’s a regulatory gap, but it’s not at all clear what it’s supposed to be — if it’s a cryptocurrency then you regulate it as a commodity or a security, if it’s a database then we have extensive existing regulation.

(When the General Data Protection Regulation hits blockchains, it’s going to be amazing. And messy.)

E. whereas regulating DLT is not politically optimal as the approach of being technology-neutral in regulation is favoured; whereas it is important to develop innovation-friendly regulation based on the innovation principle;

Again, that there even is a regulatory gap is not at all clear. In practice, we already regulate DLTs in terms of what the software does in the real world — e.g., you’re selling bitcoins for money? Your Bitcoin exchange needs Know Your Customer procedures.

F. whereas Blockchain is only one of several types of Distributed Ledger Technologies;

“Distributed Ledger Technology” started as a euphemism for “blockchain”, which was a euphemism for “Bitcoin.” (The earliest usage I’ve found for “distributed ledger” as the class of things Bitcoin is supposed to be an instance of is from 2013.)

The reason they need a euphemism treadmill is that Bitcoin is strongly associated with crooks, drugs, scammers and a bubble market that works like a Ponzi scheme.

The trick here is, again, equivocation between jargon meanings for words and conventional meanings. Shared Excel sheets, Google Docs and Git would all count as “distributed ledgers” in the broad sense — and nobody makes magical claims for those.

The problem this claim tries to solve is how to add some fantasy-laded “blockchain” hype to real-world technologies that exist and do things, but clearly don’t partake of the magical bit.

G. whereas DLT can improve significantly the key-sectors of the economy as well as the quality of public services, providing high level transactional experience to the consumers and citizens.

This is where you should ask “but what’s the evidence that any of this exists at all?” This is entirely aspirational.

DLTs, Decentralization and Applications

1. Stresses that DLT facilitates disintermediation, improves trust between the transacting parties and allows peer-to-peer exchange of value that can empower citizens, disrupt legacy models, improve services and reduce costs throughout value chains in a wide range of key-sectors;

This is a list of standard claims for blockchains and cryptocurrencies — any of which, to the extent they’re true at all, are only true in particular limited ways, in particular limited circumstances, with particular trade-offs.

All the evidence that this applies across “a wide range of key-sectors” is various hypothetical claims about what blockchain could do, and occasional vendor-funded pilot programmes that never seem to reach production.

Energy and Environmentally Friendly Applications

2. Underscores that DLT can transform and democratize the energy markets and allows households to produce environment-friendly energy and peer-to-peer exchange it;

Tokenised electricity consumption and production is a common recent ICO theme.

In all cases, there’s a central authority, who could and should be tracking this stuff in a database they run.

Also, the tokens so far run on the public Ethereum blockchain, which uses “proof of work” — that is, it literally just wastes electricity as a method for miners to compete. This is the opposite of “environment-friendly”.

3. Underlines that consensus mechanisms based on “proof-of-work” concepts (like the Bitcoin blockchain) are energy wasting and environmentally unsustainable; Alternative consensus mechanisms (e.g. “proof-of-stake” or “proof-of-authority”) are less energy demanding and more desirable;

At least they didn’t try to claim “actually, Proof of Work’s stupendous and hideous waste of power is a good thing.”

In cryptocurrency, Proof of Stake means those with the most coins get to mine the next lot of coins — “thems what has, gets.” There are various schemes to try to make this less obvious. However, it tends to centralisation even more rapidly than Proof of Work. At this point, you should just be using a database.

Proof of Authority is a fancy name for having a small whitelist of nodes that validate transactions. Decentralisation is so much more efficient if you centralise it! At this point, you should just be using a database.

Healthcare Sector

4. Highlights the potential of DLT to improve the data efficiency and clinical trials reporting of the health sector;

Putting personally identifiable health information into an immutable public database in which nothing can ever be corrected, updated or deleted is an idea with a number of problems, the least of which is the GDPR.

Blockchain claims about facilitating clinical trials reporting usually rest on the idea of patients selling access to their on-chain personal data that they control — via the mechanism I mentioned above, that there are zero working examples of.

Note also that this requires the user to manage their own encryption keys. This has the same problem Bitcoin has — that “be your own bank” means “be your own financial institution Chief Security Officer” — but applied to the whole population.

Blockchain proponents literally expect ordinary people — e.g., your least-technical relative — to manage incredibly brittle encryption keys against loss or misuse, at the price of their entire health record being lost irretrievably if they ever make a mistake.

5. Notes that DLT allows citizens to protect and own their health data, including their use with insurance companies;

This is the same nonexistent claim again.

6. Calls on the Commission to explore DLT-based use-cases in the management of health-care systems and identify standards and requirements that enable high quality data-entrances and interoperability among the DLTs;

Let’s fund a study, which can produce a report by cutting and pasting previous unfounded aspirational claims!

Supply Chains

7. Underlines the significance of DLT in improving supply chains, the quality of forwarding and tracking as well as the monitoring of the origin and the verification of quality of products along the supply chains, protecting consumers and preventing counterfeiting;

The supply chain use case founders on the oracle problem — how do you know that the real-world data has been entered accurately? Garbage in, garbage out.

Your threat model here is fraud — and if they’ll fake paperwork, they’ll fake data entered into a blockchain-based system.

Chapter 10 of the book, on the problems with smart contracts, devotes a section to this. It’s one of the fatal problems in applying smart contract systems to the real world — even if you’ve dealt with the engineering problems in creating a computer program you can’t easily fix once it’s been deployed.

Actual supply chain inspection involves human inspectors going out to visit the suppliers — inspectors who know the scams and know what to look for. You’re putting an all-but-unchangeable smart contract up against infinitely creative humans.

For the non-fraud case of usual daily business, you optimise the supply chain by using open standards for data interchange formats. This is something that happens already — and doesn’t benefit from added blockchain.

Education

8. Stresses the potential of DLT in encrypted educational certification (e.g. “blockcerts”), verified accreditation, and credit-transfer mechanisms;

Literally all accreditation is based on centralised bodies determining who has been awarded a credential, and what institutions are accredited to award credentials. The entire process is centralised.

A copy of the accreditation ledger would be a use case for the data structure — have the central body send out a checkable list, with cryptographic tamper-proofing — but it doesn’t require a whole blockchain infrastructure.

And nobody proposing this has in any way established that this is a problem Europe has. Like most “but with blockchain” proposals, it solves a part of the issue that isn’t a problem.

9. Calls on the Commission to create a network that makes the use of the technology possible amongst the educational institutions of the Union;

The technology is freely available and mostly open-source. Most institutions will have the expertise to set it up themselves if they need it. Many public and private blockchains already exist.

It is entirely unclear what this “network” would be for, or why the EU should work to create it if the institutions didn’t already feel they had a use case for it.

Creative industries and Copyrights

10. Underlines that DLT enables the “tokenizing” of creative content, tracking and managing intellectual property and protect copyrights and patents;

This is the music industry hype case, which I deal with in chapter 12 of the book. The excerpt on Hypebot covers this — see the list of “musical blockchain initiatives” regarding tokenizing, tracking and managing.

Data will change — erroneous or fraudulent claims, copyright lawsuits changing ownership information, you litigate your way free of your awful first contract, a musician dies. How is your “immutable” blockchain corrected?

The case for protecting copyrights is largely unrealised ICO hype — KodakCoin is the most egregious recent example. I’ve yet to see even proposed ICO hype for protecting patents with a blockchain. (Though patent trolls are trying quite hard to own the blockchain.)

DLT Ecosystem

Self-sovereignty, Identity and Trust

11. Underscores that DLT enables users to identify themselves while they maintaining the control of their personal data; stresses though that data in a public ledger are pseudonymous (not anonymous);

The first part is the same hypothetical claim about personal control of data.

The second part is the first statement in this motion that is entirely sensible and reasonable to raise — blockchains are pseudonymous, not anonymous.

12. Notes that encrypted data that are not accessible are compliant with the General Data Protection Regulation GDPR, even if they are located in public ledgers and allow greater user control of their data through private keys than current platforms do;

This assumes that you can even do this “private” public data trick.

13. Stresses that trust in DLT is enabled by cryptographic algorithms that replace the third party intermediary through a mechanism that performs validation, safe-guarding of transactions and transactions preservation;

The cryptography is solid — but the ecosystem surrounding it is laughably insecure, and the cryptocurrency sector is famously saturated with hacks and scams.

This is the bitcoin argument, that it’s “secured by math” — advocates point out the six-inch steel blast door, the rest of us point out that you put it in a cardboard frame.

Smart Contracts

14. Emphasizes that smart contracts is a backbone facility of the DLTs;

This is arguably true of the hyped version … though the very name obscures that these aren’t in fact “contracts” in any reasonable or legal sense — they’re automatically-triggered fragments of computer code.

15. Calls on the Commission to explore both the technical standards at ISO and CEN-CENELEC and the legal frameworks that will permit smart-contracts to be legally enforceable across the Digital Single Market and not within the fragmented legal frameworks used in individual Member States;

This would make smart contract code — a pile of ill-tested buggy JavaScript — literally the legally-binding version of the contract.

Thus, the DAO hack would not have been a “theft” — because the code allowed it, so it must be good! The hard fork to reverse the theft would then be an attempt to interfere with a legal contract. Also, calling the legal withdrawal of $50 million of other people’s ether a “theft” would be prima facie defamatory.

“Smart contracts” aren’t legal contracts and don’t work like legal contracts. You can define a square as a circle, but it’s still not going to make a good wheel.

Interoperability, Standardization and Scalability

16. Stresses that there is a constellation of DLT technologies with various technological characteristics as well as different governance (permissioned and permission-less distributed ledgers) and consensus mechanisms;

Well, yes — there are no use cases for the full ridiculous Bitcoin mechanism other than cryptocurrencies.

Some do very well with stuff that’s just the data structure — an append-only ledger, with cryptographic checksums to make it tamper-evident. Estonia’s KSI Blockchain is a good example — it’s a useful data structure, that they only called “Blockchain” for marketing purposes.

17. Notes that interoperability (i) between DLTs, (ii) between applications built on the same DLT, and (iii) between DLTs and legacy systems is essential to ensure efficiency;

It’s not clear to me what this is actually code words for — does anyone reading this know?

18. Welcomes the initiatives of organizations like ISO in creating standards in DLTs. Calls on the Commission to continue its collaboration with other international organizations in standards setting;

If a blockchain is supposed to work with “trust” evolving, then “standards” will evolve — e.g., the ERC-20 standard that ICO tokens run on. It’s not clear there’s a case for the ISO process as yet.

19. Underlines that trust generation through DLTs requires extended numbers of robust and expanded distributed ledgers to avoid data concentrating in the hands of few market-players that might lead to collusion;

These appear to be empty feel-good statements. (Unless they’re code words for something that I missed.)

Infrastructure security

20. Recalls the importance of DLT infrastructure protection;

It’s not clear what this is asking for. What particular protections do DLTs need that networked computers in general don’t?

21. Calls on the Commission to closely monitor technological developments (such as quantum computers), assess technological risks and support cybersecurity and data protection projects that ensure the sustainability of DLT platforms;

If practical quantum computing comes about, blockchains will be the least of our cryptographic worries.

Strategic Importance of the DLTs for Public Infrastructure

22. Underlines the efficiency potential of DLT for the public-sector services and management;

There isn’t any. They do nothing for government that databases don’t, and have no known use case in optimising bureaucracy.

23. Calls on the Commission to explore the improvement of traditional public services, including land registry, licencing and citizen certifications (e.g. birth-, marriage-certificates);

This is a list of services that don’t benefit from a blockchain, with “but with blockchain!”

24. Calls on the Commission to explore the potential of DLT in law enforcement, tracking of money-laundering and shadow-economy transactions as well as DLT-based tax monitoring;

The most prominent DLT implementation, Bitcoin, is famous for its potential in facilitating money-laundering and shadow-economy transactions.

Perhaps this is a proposal to fund software to trace the blockchain. The IRS is actively pursuing DLT-based tax monitoring, by requesting data on possible tax evaders from Coinbase.

The EU should definitely encourage further law enforcement actions along these lines.

25. Asks the Commission to create a strategic plan for building DLT-based infrastructure within and amongst the EU Institutions that can be used by the Member States as a model for their public sector modernization;

There is no use case here.

26. Stresses that a European public-sector blockchain could be the heart of a trusted transactional ecosystem, compliant with the applicable EU Law, consisting of nodes in the 28 Member States, the Commission and the Parliament, aiming to enable cross-border transactions between Member States, regulatory reporting, and data transactions between citizens and the EU Institutions utilising smart contracts;

This is completely aspirational, taking a pile of hypotheticals and assuming there is a practical and feasible use case to even explore.

27. Asks the Commission to evaluate the efficiency of the DLT-based voting and its use in the EU level from the voting operations in the European Parliament to the European Elections;

There is no voting use case for blockchains — and particularly not at the national level.

(For a use case that’s been hypothesised literally for years, I’m surprised never to have seen an existing worked-out proposal for how to run a state or higher level election on a blockchain, that details the existing real-world problems it’s uniquely suited to solving. I’ve asked around for one, too. I’m increasingly sure there isn’t one.)

SMEs, Technology Transfer and Financing

28. Welcomes the potential of DLT to disrupt existing value chains and transform business models and thus promote innovation-driven growth;

This is aspirational buzzword soup.

29. Stresses that SMEs can benefit from disintermediation by reducing transaction costs, intermediation costs and red-tape;

There is no evidence that any of this will happen because of DLTs.

30. Notes that innovative firms and start-ups should be incentivised to create DLT-based projects; Calls on the EIB and the EIF to create funding opportunities that support DLT-based entrepreneurial endeavours to accelerate technology transfer;

This is a request to send public money to Consensys.

31. Asks the Commission to promote DLT applications with Member States, create legal certainty and harmonization within the Union as well as to promote an idea of a European passport of DLT-based projects;

If there were a business case, then businesses would be doing production work with blockchains already.

32. Underscores that Initial Coin Offerings (ICOs) have a strong potential in funding innovation and accelerate technology transfer; ICOs are a distinct asset class with strong potential; Calls on the Commission to propose a framework for ICOs;

This is something we do in fact need — whereas the SEC rules on securities are “if it works like a security, it’s a security” (the Howey test), the EU rules are “if it’s on this long list, it’s a security.” So the answer for any given ICO is: “it depends.” We should definitely declare ICO tokens to be securities under EU law.

33. Welcomes the Commission’s and Council’s decision to include DLTs as a legitimate sector for funding in EFSI 2.0;

This is a reference to the funding for prizes for “Blockchains for Social Good.”

Policies for Boosting DLTs in Europe

34. Stresses that any regulatory approach toward DLT should be innovation-friendly, enabling passporting, and should be guided by the principles of technology neutrality and business-model neutrality;

35. Underlines that the Union should not regulate DLT per se but should try to bring down existing barriers to implementing blockchains. It welcomes the Commission’s approach to follow a use-case method in exploring the regulatory environment around the use of the DLT and the actors using it per sector;

These look like feel-good boilerplate.

One problem with regulating “DLT per se” is that at no point has this document defined DLT. Nor do the listed source documents.

As Bitcoin advocates will tell you at the slightest provocation, you can’t regulate it out of existence. What you can do is regulate what’s done with it, and how it interfaces with the real world, e.g., the financial system. So far the observable “innovation” has been in the field of cryptocurrency financial fraud, and needs more regulation, not less.

36. Notes that the use of cases is essential to the development of best practices in the DLT ecosystem;

They would certainly have helped this motion have a closer relation to reality.

37. Notes that the post-2020 MFF should ensure funding for research initiatives and projects based on DLT;

And in conclusion, give us money.

38. Asks the Commission to undertake policy initiatives that promote the competitive position of EU in the field of DLT;

39. Emphasizes that the Union has an excellent opportunity to become the global leader in the field of DLT and to be a credible actor in shaping its development and markets globally in collaboration with our international partners;

I concur — the SEC and CFTC have been much more effective in practical regulation of the space, even as light-touch as they have been. The People’s Bank of China could also offer some useful cues.

40. Instructs its President to forward this resolution to the Commission and the Council.

This is the point at which you contact your MEPs. You can be sure the Bitcoin fans will!


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