Papers associated with Bitcoin and related topics in law: Part XV

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This article was first published on Dr. Craig Wright’s blog, and we republished with permission from the author. Read Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8, Part 9, Part 10, Part 11, Part 12, Part 13, and Part 14.

In examining the literature surrounding the perception of blockchain technology as businesses understand it, multiple problems can be discerned. For instance, Falcone et al. (2021) have sought to research managerial understanding in the supply-chain industry based on concepts of Rawlsian distributed justice. In examining blockchain technology, Falcone et al. (2021) approach supply-chain managers not with questions of efficiency or the ability to improve business operations, but rather with questions of fairness and equity outside of business operations. Such an approach has ignored business concerns and focused on political issues attributable to taxation and wealth redistribution.

Ribalta et al. (2021) investigate the different understandings of blockchain technology as it applies to technology and accounting applications. The examination takes the approach that the blockchain is a tool that can help accountants and auditors, and that it may be problematic if systems are not developed that allow human mistakes and data-entry problems to be corrected. The analysis by Ribalta et al. (2021) contains some methodological errors based on common misunderstandings of the technology, but, for the most part, attempts to examine the technology without bias.

Sedlmeir et al. (2020) examined the topical issue of energy consumption as it applies to methods such as proof-of-work. In their examination, the authors present a highly biased and misleading examination of the technology, while failing to note the involvement and funding in relation to an alternative consensus methodology applied with the Ethereum platform. In this examination, the authors misrepresent the energy consumption of Bitcoin by falsely claiming that the proof-of-work (PoW) algorithm is directly tied to the number of transactions and that systems such as Bitcoin must thereby necessarily remain inefficient, while misleadingly claiming that alternatives, including Ethereum, that the authors work upon, can be made more efficient.

The overall implications of the papers are that many researchers failed to comprehend the technology and that the common misapprehensions concerning the functioning of Bitcoin and blockchain technology skew research results. Additionally, authors such as Sedlmeir et al. (2020) present misleading information when they fail to contextualise the bias in the approach and the funding that the authors do not disclose.

Finally, researchers such as Falcone et al. (2021) demonstrate how misleading information can undermine research where authors seek to introduce topics across incompatible fields. For example, by treating businesses as a source of distributed justice and providing an argument that it incorporates the desire of managers, while failing to disclose the underlying assumption the authors make, that removing power from businesses is a goal of Bitcoin and related systems, the researchers introduce a thinly veiled bias that continues to discredit the industry.

Annotated Bibliography

Ribalta, C. N., Lombard-Platet, M., Salinesi, C., & Lafourcade, P. (2021). Blockchain Mirage or Silver Bullet? A Requirements-driven Comparative Analysis of Business and Developers’ Perceptions in the Accountancy Domain. Journal of Wireless Mobile Networks, Ubiquitous Computing, and Dependable Applications, 12(1), 85–110. https://doi.org/10.22667/JOWUA.2021.03.31.085

Ribalta et al. (2021) have examined the concept of distributed ledgers or blockchain technology, taking an approach concerning business needs in their analysis. The researchers note that mainstream media promotes the concept that blockchain technology provides a silver bullet for solving issues of “trust, transparency and privacy,” but also demonstrate that “most of these claims seem to be a by-product of the tamper-resistant nature of blockchain, and little evidence support [sic] them” (2021, p. 86). Ribalta et al. (2021, p. 86) further contend that “these remarks mostly come from technical companies, rather than companies for which these topics are primordial, such as accounting.”

The analysis provided in this paper demonstrates that technology companies are promoting a desired outcome radically different from those of other corporations, such as accounting and finance firms. In reference to the concept of transparency, the article correctly notes that “there is no single agreed definition of transparency in academia” (2021, p. 87). Consequently, the authors present a definition used within the work and relate the concept of transparency to “disclosure, or access, to information” (2021, p. 87). The definition is extended to refer to disclosures between individuals that must be understandable, accurate, and reliable, while maintaining the integrity of the communication.

In documenting the definitions of transparency and trust, the authors rely upon the IFRS accounting standards and framework without integrating the definitions from the sources. Trust is introduced as reliance on information and actions from another party. Ribalta et al. (2021) demonstrate that while blockchain technology has been referred to as a trust-free technology, the mere introduction of information on-chain does not mitigate trust. Further, the authors note that the “concept of “honest user” and “trusted parties”, who always follow exactly the protocol specifications, without trying to gain or retain information from the protocol that they are not supposed to have” (Ribalta et al., 2021, p. 88).

The research extended into an investigation into the definitions of trust, including an interview process where people in multiple development or technology firms and those in accounting firms were provided with an opportunity to describe their understanding of blockchain-based systems. While the technologists understood blockchain technology, many accountants still did not retain information concerning how it would impact their role; some had never heard of blockchain technology. The interview structure and method provide a suitable framework for questioning that may be valuable in my research.

Sedlmeir, J., Buhl, H. U., Fridgen, G., & Keller, R. (2020). The Energy Consumption of Blockchain Technology: Beyond Myth. Business & Information Systems Engineering, 62(6), 599–608. https://doi.org/10.1007/s12599-020-00656-x

Sedlmeir et al. (2020) examined the concept of energy consumption and the beliefs held by many within government and commerce concerning the efficiency of systems based on a blockchain. Unfortunately, in this analysis, the authors incorrectly analysed Bitcoin and made the common error of mistaking Bitcoin for an alternative that is passing off as the original system. Equally, the researchers erroneously claimed that Hyperledger was a blockchain.

In the analysis, it is argued “that the energy consumption associated with a widespread uptake of PoW cryptocurrencies is not likely to become a major threat to the climate in the future” (Sedlmeir et al., 2020, p. 600). Yet, the authors do not approach the scenario by looking at the energy consumption of a PoW blockchain when scaled, but rather examine alternatives to proof-of-work. In this analysis, the authors summarise what they believe are the technological basics of a system like Bitcoin. Yet, using terms such as permissionless and the arguments over Sybil attacks misrepresent the functioning of nodes within the Bitcoin network.

The authors provide a series of formulas based on using an upper bound for energy requirements in PoW consensus systems formulated upon a fixed and invariant block size. Throughout the analysis, the authors introduce alternative consensus mechanisms to PoW, failing to understand the technical functioning of proof-of-work or the alternative systems. Most radically, at no point do the authors understand that the block size is in no way linked to the discovery of a proof-of-work solution and hence that the number of transactions can be increased undoubtedly and unboundedly, without increasing the energy requirements of the system, or that doing so would reduce the overall energy consumption.

Overall, the authors have produced a biased analysis based on a series of unfounded contentions. Additionally, in seeking to promote Ethereum and the move to a proof-of-stake system, Sedlmeir et al. (2020, p. 606) have misrepresented “Vitalik Buterin’s ‘scalability trilemma,’” failing to note the source of this purported trilemma or that the assumption of decentralisation is itself unfounded, describing it in terms outside of those used within network science or business communities. Lastly, the calculations within the paper are based upon flawed concepts designed to promote Ethereum, without explicitly saying so. The primary author also fails to disclose his extensive connections and support associated with Ethereum-based sources, demonstrating a deep bias that has not been disclosed within the paper.

Falcone, E. C., Steelman, Z. R., & Aloysius, J. A. (2021). Understanding Managers’ Reactions to Blockchain Technologies in the Supply Chain: The Reliable and Unbiased Software Agent. Journal of Business Logistics, 42(1), 25–45. https://doi.org/10.1111/jbl.12263

Falcone et al. (2021) researched the perceptions of blockchain technology as expressed by those within the supply-chain industry. As the authors demonstrate, the supply chain requires integration across a network of partners, and such a process “is more complex than internally focused technologies” (Falcone et al., 2021, p. 25). The paper introduces blockchain technology, and examines some potential use cases, including the addition of software agents and the integration with Internet of things (IoT) and supply-chain logistics.

The authors note that the promise of distributed ledger technology is the development of a real-time data network that can provide a “single definitive version of the truth” (Falcone et al., 2021, p. 27). In researching business perceptions, Falcone et al. (2021) examined the existing perceptions by people in supply-chain and logistics industries and compared it with the willingness to use such a system. The analysis examines a combination of trustworthiness, risk, and concepts of procedural justice. While investigating risk and data integrity is warranted, the hypothesis investigating managerial perceptions of procedural justice and distributed justice seems strangely out of place.

Falcone et al. (2021, pp. 30, 31, 35) extend the research into the concept of “interactional justice,” and introduce arguments over the willingness of managers to use blockchain technology based upon concepts of Rawlsian distributed justice (Rawls, 2001). Unfortunately, such an approach seems misplaced at best and fails to examine the needs of businesses to any extent. For example, supply-chain companies are not in the business of providing distributed benefits to the population, but rather to the movement of goods and services. As such, examining the use of blockchain technology based on the concept of distributed justice seems misplaced.

References

Rawls, J. (2001). Justice as Fairness: A Restatement. Harvard University Press.

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