For me, the promise of crypto is in fairer and more transparent markets. I believe markets are the best mechanism for resource allocation. Yet, I also believe markets are imperfect and that we can have collective goals as a society that markets alone cannot solve. The view that we both need markets and social coordination is only a controversial take in the most radical circles. One of the most powerful aspects of crypto is its ability to create a parallel financial system that does not require a central authority to exist. Crypto is a technology with a unique power to challenge authority. Crypto need not ask permission. This lowers barriers to entry and fosters a far more competitive and efficient market.
However, in building and deploying new technology, we must not look solely to the benefits; we must also acknowledge and, where possible, mitigate the negative consequences. For all the talk of accelerationism lately, some things require careful thought and are not amenable to moving fast and breaking things.
What negative consequences are we mitigating? Because Bitcoin was so easily traceable, mixers were developed very early on. The purpose of mixers was to enable anyone to transact privately. Here, a trade-off must be acknowledged: privacy can enable illicit activity. And yet, despite this, privacy is something that we must support and protect. I am old enough to remember the fight for PGP in the 90s and the efforts to restrict the export of encryption out of the US. This effort ultimately failed, and I believe the same will happen with ant-privacy legislation in crypto. Without privacy, we are far too vulnerable to despotism and coercion. So, how do we balance these two competing goals of fostering privacy while preventing illicit activity? As a society, we must find ways to coordinate that do not sacrifice privacy yet mitigate and discourage illicit activities.
This is not a novel concept. Privacy is a huge check on authority and power.
“The essence of anarchism is the conviction that the burden of proof has to be placed on authority and that it should be dismantled if that burden cannot be met.” - Noam Chomsky.
We must never stop questioning authority because power begets power. Once in power, humans tend to optimise for more power. This is why both privacy and permissionless technologies are so critical.
In building Infinex, I have given a lot of thought to this. What are the trade-offs, and what do I personally believe we should avoid? Many of the thoughts I will present I have previously discussed in blog posts and on X. However, many of my older thoughts were in relation to Synthetix; Infinex has different considerations in that it is a wallet infrastructure rather than a protocol. I believe protocols have a higher threshold of credible neutrality, which they must maintain to be adopted. In protocols, wherever possible, immutability and censorship resistance should be optimised. Wallets have more freedom to make opinionated choices about which tradeoffs they optimise for.
Here are the things I believe Infinex should optimise for in no particular order:
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Transparency: put as much onchain as possible
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Credibly neutral: have a robust governance mechanism that is resistant to capture
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Non-custodial: never have access to funds. See point one
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Open access: do not block access to any legitimate users
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Prevent illicit activity: actively prevent the platform from being used by bad actors
Now, point five is contentious, and I must admit my perspective has shifted on this in recent years. One of the people who has influenced my perspective on this most profoundly has been @tayvano, but others have also contributed to my belief that simply not supporting bad actors is not equivalent to actively working to thwart them. There are obvious tradeoffs in this approach. Any platform that attempts to prevent usage by bad actors will have to be opinionated to some extent, and this could impact credible neutrality, but I believe with a robust governance process and maximising transparency by keeping everything onchain, it is possible to balance these competing goals.
That is why I have written a proposal to implement a transaction monitoring service which uses onchain analysis to prevent illicit funds from passing through the Infinex platform. In this proposal, I make the case that alternative approaches like geoblocking are security theatre and are trivially easy to bypass. The even more aggressive approach of attempting to block VPNs is also bypassable. Still, even if this were perfect technology, the trade-off is too harsh in my view and unnecessarily sacrifices privacy.
Because all Infinex Accounts are onchain, the platform is somewhat useless to obscure funding sources. However, it is still worth implementing this step to ensure sanctioned funds and the proceeds of hacks do not touch through the platform. However, the applied rules must be transparent, so the XIP contains clear guidelines for when an Infinex account will be blocked. While this is not yet implemented onchain, that is the eventual goal; until then, manual intervention will be required to block accounts flagged by the rule set.
This is an evolving space, and I welcome any feedback on the proposal before it is presented to the Infinex community and council for voting.
Balancing tradeoffs is never easy. Any action or even a decision not to act can easily become contentious. Against this, our best weapon is open and transparent debate.
References:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4563364&download=yes