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This week: Tornado Cash, DAOs and surveillance television
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This week, the U.S. Treasury officially sanctioned Tornado Cash, a decentralised cryptocurrency mixing service, which it accused of laundering “more than $7 billion worth of virtual currency since its creation in 2019”, including funds from North Korean hacking team Lazarus Group. That means U.S. citizens and businesses are now prohibited from using it. This morning, an alleged Tornado Cash developer was arrested in the Netherlands, along with the announcement further arrests were “not ruled out”.
Here’s how crypto mixers like Tornado Cash work. A user deposits their cryptocurrency into the protocol, where it is blended with the crypto of random strangers who have similarly deposited their funds. The user can then return later once the process is complete and receive the same amount from the pool of blended funds (minus a fee) and walk away with coins that are no longer linked to the ones they deposited.
Because most blockchains are built with transparency in mind, it is otherwise pretty simple for someone to examine the public ledger and trace the movement of funds from one wallet to another. Protocols like Tornado Cash make that considerably more difficult. There are all sorts of reasons why one might want to cover their tracks — keeping the details of a business transaction private or avoiding persecution, for example — but the one that most easily comes to mind is laundering money. And yes, Tornado Cash has been used to do that, like how Lazarus used it to wash some of the money it obtained from the Axie Infinity hack this year.
What is interesting about this, though, is that Tornado Cash is a protocol made up of a bunch of smart contracts on the Ethereum blockchain. It’s not a platform that lives on a bunch of servers sitting in the basement of a warehouse in North Macedonia, for example. The distributed algorithm can’t actually be destroyed short of somehow eliminating the Ethereum network itself. So much of what Treasury can feasibly do is go after wallet addresses and owners who have received funds via those smart contracts. This has led to a situation where people are sending small amounts of ETH to Jimmy Fallon via Tornado Cash, theoretically exposing him to prosecution.
As has become very clear, much of the crypto world is actually fairly centralised, despite the mythology. So, every bit of consumer plumbing and infrastructure that can feasibly block off Tornado Cash now has, like popular web3 platforms Alchemy and Infura. This means the front-end interfaces that let people actually use the protocol are now gone, so one now requires a little more technical know-how to use it — assuming you’re willing to take the risk.
What most interests me, though, is the odd spectacle of governments trying to arrest the operation of self-executing, distributed algorithms that do not ‘live’ anywhere specifically, and will continue to execute as long as there are still computers on their networks. Whether or not the sanctions and arrests work as intended in this case, there are vistas of genuine weirdness in the direction we’re heading. Authorities trying in vain to stop semi-sovereign algorithms firing off in the ether. Very Neuromancer.
I’d buy that for a dollar
I’m just floating this instance of “corporate synergy” for its RoboCop vibe:
Wanda Sykes is knocking on the door of syndication with a new series that features videos taken from Ring doorbells.
The comedian is to host Ring Nation, a new twist on the popular clip show genre, from MGM Television, Live PD producer Big Fish Entertainment and Ring.
The series, which will launch on September 26, will feature viral videos shared by people from their video doorbells and smart home cameras.
It’s a television take on a genre that has been increasingly going viral on social media.
The series will feature clips such as neighbors saving neighbors, marriage proposals, military reunions and silly animals.
Now that’s vertical integration! (Amazon closed its $8.5 billion acquisition of MGM in March.)
Take a DAO
Earlier this year, there was a brief craze over over how DAOs — decentralised autonomous organisations — were on the cusp of revolutionising human social organisation, supplanting traditional corporate structures and bringing people-powered democracy into realms it had not yet penetrated. By attaching voting rights to blockchain token ownership, the thinking went, new networks and products could bootstrap themselves into existence and be run by a community rather than a top-down hierarchy.
This craze was supported by a bunch of odd, well-capitalised projects which tried to apply the supposed power of decentralised communities to bear on real-world cases, rather than the uninspiring drudgery of governing crypto projects and pumping the value of tokens. You’ll no doubt remember some of them, and I covered a few on The Terminal. There was ConstitutionDAO, which tried to pool user money to buy a copy of the US Constitution at auction. (It failed.) There was Spice DAO, which wanted to do the same for a copy of the production bible for Alejandro Jodorowsky’s unfilmed version of Dune. (It kind of succeeded, and then completely went to shit.) LinksDAO wanted to own and manage a golf course and blur the line between NFT ownership and country club membership. friesDAO planned to acquire a fast food franchise and then leverage blockchain voting to run it according to the “wisdom of the crowd”.
Much of that energy instantly dissipated with the crypto crash, and it became very obvious — if it wasn’t already — that a large share of participants in these projects were more interested in acquiring and flipping tokens for rapid profit than inaugurating a radical new experiment in human organisation. These projects seemed to have little issues raising funds — it was just everything that came after which didn’t work nearly as well. (It turns out running a business with the same organisational structure as an internet forum can result in institutional paralysis.) I poked my head into the friesDAO Discord this week and found an absolute wasteland, with only a handful of posts every few days; mostly vague updates from the core team about various fast food franchise opportunities falling through.
As Olga Kharif wrote earlier in the year, illustrating some other problems DAOs inevitably face:
With DAOs, often-anonymous cohorts issue tradeable tokens to investors and users and deposit a large chunk of the float into a treasury. Many create their code in haste and get hacked. Even when working, their community-based structure can be hard to manage and operate, with a small group often ending up in control. And bad actors abound: A project called Wonderland, which is trying to become a DAO, recently admitted that a convicted felon with a track record of financial fraud was helping manage its treasury.
There have been several high-profile cases in which a DAO’s founders drained a project’s liquidity and ran. Last year, such “rug pulls” cost users millions of dollars, according to industry expert Chainalysis.
Ergo, most DAOs these days are back to doing the thoroughly unsexy work of operating DeFi protocols, governing crypto projects and facilitating group purchases of NFTs. They’re real enough use cases as far as they go — and its having a genuine impact on the wider financial ecosystem — but it’s not going to excite anyone who isn’t an investor, and their ‘real world effect’, for want of a better phrase, approaches nil.
That’s why I was excited to see another freakish DAO project pick up some mainstream attention, making the same absurd promises of projects that crashed and burned earlier in the year. This one is a retail shop in San Francisco named STORE_0, which founder and CEO Itsuki Daito wants to be fully run by a DAO.
Daito’s pitch goes like this: when the DeStore app is launched this fall, anyone will be able to buy a blockchain-based token that represents ownership in the store, and join the community’s server on Discord, a chat app similar to Slack that includes many elements of more traditional social media platforms. The greater the value of the tokens participants own, the greater their share of voting power. As the store gets up and running, token holders will be able to vote on what brands to stock and sell at the location, what furniture to buy, and even who will work there. What happens to any revenue the store may generate will also be up to a vote.
Personally, I don’t have much faith this idea will shake out much differently to the other broken dreams articulated above, or even that the wisdom of the crowd has much value in the operation of a retail store which one assumes needs to turn a profit to stay viable. But I’m glad everyone’s having fun again.
You may have come across this story about the scandal gripping the world of audiophiles, but if you haven’t it’s very amusing.
“A Hookup App For The Emotionally Mature”. It’s interesting that the solutions offered to some kind of problem caused or worsened by technology — like the forced sociality of Instagram, or the hookup culture of Tinder — are usually just more technology, only arraigned or structured in a different way the developers hope will generate different (and maybe more positive) behaviours.
In the same mode, and relevant now that new platforms like BeReal are selling themselves as authentic, this 2016 essay on authenticity from Rob Horning: “Authenticity is commercialised nostalgia for that way of life that was articulated by a different set of economic relations: precapitalistic, or pre-massified, or pre-globalised — whatever word you want to use to describe how it seemed when you were nine years old, when things were ‘real’.”
20th century media and communications theorists like Marshall McLuhan and Neil Postman are experiencing a little revival of late. Ezra Klein at the New York Times put up both a podcast and a feature touching on the applicability of their ideas to the post-internet world. I thought this was a good response and critique.
In what I can only assume is a healthy signal for the world of digital publishing, it seems like major publishers are now plying their trade with ads in shitty mobile games.
Did you know there’s a giant candy arbitrage scheme happening on Amazon? Now you do.
A short bit on the evolution of TikTok comments, which were originally funny and absurd but now have become as heated and contested as other online places where people congregate.
On an important sociological phenomenon of the 90s: dads who got incredibly obsessed with one video game for a period of time and then never touched another again.
A dive into Praying, “a pseudo-religious minimalist brand for the Very Online and performatively pious”.
This newsletter on storied jewellery brand Tiffany’s foray into weird crypto stuff.