Black Markets, White Markets: A False Narrative


[ANDREAS] Hi, everyone! I’m so glad to
be here at LABitConf. This is my fourth.
I think I’ve only missed one.
Huge thanks to Rodolfo Andragnes, who opened
[the event] with such passion and enthusiasm.
I understood about half of it, because
he speaks very fast in Spanish.
My Spanish is still at the Duolingo ‘level two’ standard.
I won’t be doing my presentation today in Spanish.
Maybe in two years. Every now and then
I try to practice a bit with Duolingo.
It pops up little reassuring messages [such as],
“More Americans are studying foreign languages
on Duolingo than in public schools in America.”
Great statistic, right? It would be true
if only two people were using Duolingo;
[American schools] don’t really teach foreign
languages, but — you know — we are trying there.
Spanish will be my fourth language. I hope I can get
to the level where I can order food in a restaurant…
without embarrassing myself.
That is where [I am] at the moment. Not ready
to [speak about] Bitcoin [in Spanish] quite yet.
[But] I’m really excited to be here.
I would like to talk about a topic that keeps coming up
[around] Bitcoin: black markets. [Haunted noise]
You see, bitcoin is used for black markets. You have
heard about that, yes? It is used for black markets.
Of course, it is also used for some white markets too.
In Argentina, it is used for some blue markets.
[“Blue market”] is what they renamed their black market
because it is such a big part of the economy,
and they want it to sound more palatable.
Bitcoin is colorblind when it comes to markets.
It doesn’t distinguish between black and white markets,
blue and gray, or any other colors in the
rainbow of markets; it just serves markets.
The real question is, what is the difference
between a white market and a black market?
Is the color a good metric for us to understand [how
these] markets function? I think it is a very poor metric.
Calling a market “white” or “black” doesn’t tell us much
about what that market does or how well it works.
The people who use [such] terms would
really like you to think there are a whole set…
of [moral] associations that go along with that color.
‘White markets are good, black markets are bad.’
‘White markets are legal, black markets are illegal.’
‘White markets are [functional],
black markets are [dysfunctional].’
‘White markets are fair, black markets are unfair.’
‘White markets are safe, black markets are unsafe.’
‘White markets are moral, black markets are immoral.’
Bullshit! [Laughter] [Applause]
Not a single one of those statements is true.
White markets and black markets differ
in only one essential component:
white markets are licensed, black
markets are unlicensed. That is it.
Black markets can be moral, safe, just, fair, and efficient;
simultaneously, white markets can be immoral, unsafe,
unjust, [unfair], and inefficient.
We all know this. [Subconsciously], we know it.
The taxi cartel is a white market; Uber is a black market.
I won’t take a bloody taxi. I have been to fifty-three
countries and robbed by taxi drivers in fifty-two.
“The airport is here. My hotel is here.”
“Let’s go that way!” [Dramatic, long-route loops]
“On triple tariffs with seven extras that I just invented.”
This has happened to me in every country in the world.
Why? Because it is a regulated, licensed guild. A cartel.
It is an inefficient, broken market, full of corruption.
Uber works. It is efficient, fair, and
transparent, but it is a black market.
We don’t call it a black market because it is run
by a multinational corporation with nice graphics…
and [a ticker symbol on] the stock market index.
We don’t really want to call it the black
market, but it is, if it is not licensed.
Right outside this place, there are cute
little electric scooters with lime colors.
Have you tried those? They are so much fun.
You can go fifteen miles per hour on the sidewalk or
the street; I’m sure one of the two is illegal, but not sure.
You [must] wear a helmet — I didn’t, I’m sorry, that was
probably illegal — and the service itself is not licensed.
So that is a black market.
In North Korea, you can only have one of six haircuts
if you are a male, which means [mine] is a black market.
It is not one of the approved haircuts. [Laughter]
I call it a haircut, but it is just the result of hair loss.
But I would still like to pretend
for a few more years, while I can.
There is nothing essentially moral about white markets,
nothing essentially immoral about black markets.
General Dynamics selling cluster bombs to the Saudis
is the whitest of white markets; it is not only legal,
it is strongly encouraged [by the U.S. government] and
I [am forced to] pay for some of it [as a] taxpayer.
Is it moral? Hell no, it isn’t.
The person selling bananas on the street, without a
merchant’s license, is the black market. Is it moral?
Hell yes, it is.
Using bitcoin to escape a collapsing currency in
Venezuela is highly illegal and a [grey] market.
Is it moral? It is a human right. It is not just moral,
it is the obligation of a parent to protect their children,
[including] under the U.N. Convention for Human Rights.
[Yet] it is illegal, with heavy penalties.
The things Maduro is doing? ‘White market’ everywhere!
Perfectly legal, fully licensed, and completely broken.
The difference between white and
black markets is an issue of licensing.
What is the natural state of markets?
The big gray [market] in between.
Grey markets don’t emerge, they simply exist.
In the absence of any other forms, all markets are grey.
How do white markets emerge? You have a gray market
in place and someone gives it a license. Now it is white.
[How do black markets emerge?] You have a gray market
in place and someone makes it illegal. Now it is black.
Markets [exist] anytime two [or more] individuals,
without coercion and of their own free will,
decide to transact and agree on a
price they find [mutually] beneficial.
That is a market. That is it. It doesn’t have a color,
didn’t require permission, and doesn’t need a license.
It is a natural human activity that occurs
everywhere, in every time, throughout history.
But we want to invent new terms in order to
somehow provide ‘color’ to these markets;
legitimacy to some, illegitimacy to others.
What is the trajectory of every white market?
Every white market starts off as a grey market.
Then it gets licensed.
Initially, the licensing is sold to you as a way to enforce
some kind of “good behaviour” standard or quality.
After all, you want your doctors to be licensed, [right]?
They always go back to that [example].
In some U.S. states, ten thousand or more
professions require professional licensing.
In Louisiana, the amount of hours you need to become
a cosmetician that does [manicures or pedicures]…
exceeds — by four times — the hours you need to become
an emergency medical technician in an ambulance.
If you try to do nail [manicures] without a license,
you will be arrested because you are operating
in the black- red, teal, and sparkly [markets].
Which [color] you choose is up to you, but
you certainly don’t have the requisite license.
Gradually, guilds and “professional associations”
form, whose primary purpose is to make sure…
there isn’t [too much] competition, to keep out those
who would try to emerge into the market [themselves].
Like the taxi cartel, right?
Licenses gradually become guilds, where it is a matter
of whether you can afford to buy [your way] into it.
The quality standards, the certification, the regulation,
the rules, all gradually disappear into the background.
The regulators stop doing those things and focus
primarily on enforcing [entry into the market].
People forget why the rules exist.
It simply becomes a professional guild.
If you can afford to buy the necessary licenses,
essentially bribe the government to allow you to work,
then you are part of the white market.
All white markets devolve into that state.
Over years, maybe decades or centuries, you arrive
at absurd concentrations of wealth and power,
where you might have only seven families
controlling every business in the country.
The fundamental differences between
markets, white or black, should not be…
measured by how well they are licensed.
We should care about whether
they are fair, open, and free.
In fact, if these markets are open
and free, fairness arises as a result.
If you don’t like it, you can trade elsewhere.
Competition ensures fairness.
Here is the other subtle thing: absent a licensed white
market, the state withdraws [any] services of justice.
This is critical to understand.
Until now, the monopoly on the delivery of justice
services existed primarily in the government’s sphere.
Let’s use tech terms: goverments
provided ‘justice as a service’ (JaaS).
Their ‘justice as a service’ API is only available for a
certain fee to certain people, and it is usually broken.
It [may] take seven years [or longer] to fulfill the request;
nevertheless they offer ‘justice as a service.’
But if you step outside of the white market,
[your access to] ‘justice as a service’ is removed.
You are exposed to the full risk of operating in a market
where you have no justice [services from them],
where you have no recourse [facilities], no ability to
settle disputes, and violence becomes the solution.
That happens even in white markets.
I walked out of the airport here in Chile,
straight into a line of taxi drivers, who see me
looking at my phone and say, “Uber?!” [Laughter]
[Backs away slowly] “Sorry!” What [should] I do then?
Do I [alert] the police officer [about their behaviour]?
No, because in every country I’ve been to,
the cops are working with the taxi drivers…
to beat up the Uber drivers and their passengers.
Not only have they removed ‘justice as a service,’
they deliver injustice as a service
[within] a [noncompetitive] blockade.
You don’t go to the cops, because that is too dangerous.
But I don’t get my Uber ride, what is the big deal?
Think about all the markets in which
‘justice as a service’ has been removed,
where you cannot enforce property rights; where [a
currency exchange desk gives you] counterfeit money.
Do you call the police? No, you don’t call the police.
You can’t call the police. That service [was] removed.
You have some funny situations,
like the [inexperienced] high school student trying
to buy marijuana from some dude on the street.
They get a bag of oregano [instead] and
don’t know the difference, so they think,
‘I don’t [know if] I should smoke this. Smells like a salad.
Now what do I do? Do I call the cops? I can’t call cops…’
“Excuse me, sir. The illegal drugs I just bought
are not correct!” Some people [actually] do that.
They go to the police and say, “This cocaine isn’t good!”
They soon discover that they [have a bigger] problem.
Again, that’s a little funny story and
you might think they deserve what they get.
After all, they are breaking the law
and so they should be punished.
Now, think about the immigrant cleaner…
who had their passport taken from them by
a coyote who [escorted] them across the border,
now holding their passport hostage.
They are terrified to go to the police and live in
a locked compound with bars on the windows.
They cannot exercise their human rights, virtually
kept as slaves within an industrialized society.
That happens today, in the United States,
to hundreds of thousands of people.
Slavery is on the uptick all around the world. Why?
Being an illegal human being — I don’t even
know what that means — has resulted in…
the removal of ‘justice as a service’
from entire categories of people.
Apply that to sex workers, engaging
in acts of consensual sex or prostitution,
even just people stripping and making funny movies.
They have no ‘justice as a service.’
Violence, rape, and domestic abuse are
massive problems in any illegal industry.
Black markets emerge where the need is great,
where the demand causes an emergence of supply,
whether that is capital flight from Argentina, recreational
drugs, or whatever else you might want to find.
If there is no white market, the black market exists…
but it charges a massive risk premium,
sprinkled with a heavy dose of violence.
Until now, justice could only be
provided as a government service.
You cannot enforce property rights
without a court of law… or can you?
What if we used a very large number,
multiplied against another on an elliptic curve?
[What if, in combination with other factors],
that crazy idea [of computer science and math]…
would allow me to enforce global property rights?
What if I could use a smart contract in order to
create a matching service between buyers and sellers,
that ensures there is no forgery, no fraud?
What if I could use a smart contract to escrow money
in the process of buying any product?
Now I can ensure [people] don’t get cheated.
What if I could use a smart contract [for] reputation
services like Uber does, giving me a degree of comfort…
without the centralized company?
What if I could get ‘justice as a service’ from a network?
That is what happened. The world has changed.
It is not a distinction between the licensed market,
where you have some justice, and the
unlicensed market, where you have no justice.
Bitcoin doesn’t care. Ethereum doesn’t care.
[Open] blockchains don’t see colors.
They don’t see borders and they don’t
see [authorities]. They only see rules.
They can deliver ‘justice as a service’ no matter
what color your market is: white, black, or grey.
Bitcoin, Ethereum, [and other open blockchains]
serve markets wherever there is supply and demand.
They serve markets globally,
without distinction for borders.
Here is another little secret you don’t remember:
state ‘justice as a service’ only
applies within a specific geography.
The Chilean justice provider only
works within the borders of Chile.
What can you do with that [limitation] as an individual?
Not much. What can multi-national companies do?
They can screw you in a hundred
and ninety-four different countries.
Unless they are in [the same jurisdiction
as you], you don’t have much recourse.
Then again, they [may have] also bought your legislators,
so you don’t have recourse in that one either.
Blockchain ‘justice as a service’ works globally.
It doesn’t care whether you are
inside or outside that border.
The other little [secret] we often forget: when people
say a product is illegal, your first question should be:
“Illegal where?” ‘Legal’ and ‘illegal’ are
geography-bound terms. Illegal where?
Illegal here? What if I’m not here, but in another country?
Is it legal there? These are highly relative notions.
They imply a strong morality component that
you may not share. Is it legal to buy a Bible?
In Saudi Arabia, it’s not. In Saudi Arabia, it was also
illegal to drive unless you fulfill both requirements:
a driver’s license and a penis. [Laughter]
Well, until recently. They fixed that one.
Now you can drive without [the second] one.
But you might still get beaten up by the cops, because
they are “protecting their morality.” Not my morality.
Is it legal to buy certain substances?
Is it legal to buy bombs to [attack] another country?
Again, legality is bound by geography [and authority].
Blockchains are not. With the blockchain,
you can enforce justice across borders.
You can enforce justice across the world,
whether you consider the markets within the narrow…
scope of your own country [to be]
white or black, grey or blue.
Blockchains serve justice. They can deliver
free, open, and fair markets worldwide.
Does that mean you can use blockchains
for the black market? Hell yes, it does.
There is a demand for that. To make white markets
better? Yes. And every [color] in between? Yes.
It is not about white. It is not about black.
It is about free, open, and fair. Thank you!
[Applause]
[AUDIENCE] Hello. It is really great to be
able to see you live, after all these years.
My question is, how will you be able to enforce
‘justice as a service’ from a blockchain?
There is a monopoly on force, but there is also a judge,
[who have judicial monopolies] in the state.
[ANDREAS] Again, the word “enforcement” contains
the word “force,” but does it have to [in practice]?
How much of our current commercial transactions really
require that level of recourse, where you have force?
Force can be applied to a certain degree, but once you try to apply it to too many people, too many things,
for too many reasons…
You [must] pay people to apply the force, and by that
time you have messed your currency up so well…
that you can’t pay the enforcers.
In Venezuela, for example. I watched a great video the other day, which showed some enforcers for Maduro…
smiling in front of a camera, holding the privileges
of their position, which were two toilet paper rolls.
That is how low payment for the
enforcement service [has become].
How far away [are they] from the moment
when they [decide], ‘This is not worth it!’
Enforcement and force are aspects
of the human condition and society.
What we are talking about here is enforcing justice…
through rules agreed on by everyone in
a consensus system without violence.
This is a non-violent mechanism for enforcement.
It is primarily financial enforcement.
It works through a series of incentives
and punishments, game theory.
What we found through markets and game theory is
that those [non-violent] mechanisms work better.
They don’t expect people to be good,
they only expect people to act in their self-interest.
If everybody acts in their self-interest in a system
of rules that punish bad and reward good behaviour,
then good behaviour emerges
naturally from the system.
I don’t know how well it [will] work, but
let’s build some things and test them out.
I certainly know, one of the beautiful things about
operating on digital platforms, one of the reasons…
why people want to run drug markets on the internet,
is because you cannot be stabbed over TCP/IP.
[ORGANISER] Next question?
I think there was one in the back.
[AUDIENCE] Hi, I want to ask you about
black markets, white markets, and banks.
[ANDREAS] Yes. [AUDIENCE] We have so
many problems with banks “de-risking.”
Let me know what you think about that,
because it is part of [how they keep control].
[ANDREAS] Well, that is the final
culmination of a white market.
When the rules that start off as “consumer protection”
eventually become “banker protection.”
As a result, they become protection
from competition, which leads to a guild.
Once a guild is powerful and organised enough,
we have a different word for that. It is called a cartel.
We don’t use the word “cartel” to refer to banks,
because they have such a big cartel. [Laughter]
Banks no longer serve many of the important functions
that you would expect the banks to serve.
They don’t [even] bank people. The number of unbanked
is not decreasing, twenty-five years into the internet.
They are not serving [more people]. I was [giving a talk]
at a security conference that was full of bankers.
I was describing how bitcoin, as a form of money,
can serve populations that are doing remittances…
to foreign countries, but who don’t have bank accounts
because they are not properly documented.
They are illegal immigrants or migrants into a country.
As a result, they can’t open a bank
account and pay enormous fees…
to be robbed by the grey market of Western Union
and [various] check cashing services.
During my presentation, this lady in the back asked,
“But why should we give bank accounts to illegals?”
At least half of the people in the room
were decent enough to gasp. [Laughter]
But the other half were really interested in the answer,
so I said, “No, you shouldn’t. Don’t. We will.” [Applause]
[ORGANISER] Okay, one more question?
[AUDIENCE] Hi, Andreas. [ANDREAS] Hello.
[AUDIENCE] It is a pleasure to meet you, thank you
for being a great teacher and inspiring everyone.
My question is about blockchains,
not in general but as an educator myself.
I am trying to battle every start-up that says “blockchain”
without [using] a blockchain or [doing] decentralisation,
disintermediation, just a database.
What is [your] recommendation
for us to battle that movement?
To call everything “blockchain” while not
doing anything innovative or decentralised?
[ANDREAS] You don’t need to “battle” anything.
What you need to do is just remove your attention…
and interest from these projects,
because they serve no purpose.
You [must] ask yourself, when you hear
that someone’s project has “blockchain”-
Well, nowadays what they usually say is:
“We are introducing a revolutionary new system.”
“Blockchain, artificial intelligence, and internet-of-things,
using neural networks to [magic noise] give me money.”
At that point, you [should] stop listening or ask, “Is it borderless, open, neutral, global, censorship resistant?”
If it is not, you don’t need a blockchain. Those are the
features provided by open, decentralized blockchains.
Ask those five questions, ask for the five pillars.
If it is none of those things, then it is just a database.
It is a centralized and very inefficient, slow,
expensive database that is difficult to develop…
and has a really shitty user interface.
In the era of Microsoft databases and Oracle, it takes
a lot of effort to produce an even shittier interface.
The bottom line is, this is not a good solution for
anything if you are not looking for those features.
Do you need to fight that market [of bullshit
blockchain projects]? No, don’t fight it.
Let them spend $100 million training developers and
consultants in this industry, while producing bullshit.
Once that project fails, those developers will look
around and [wonder], ‘What do we do now?’
‘I heard about this other project,
I would like to work on that.’
And then they go work on a real open-source,
decentralized blockchain. I [was] saying this in 2013,
that [banks] will [pay to] train developers and those
developers will discover Bitcoin and open blockchains.
[They will think], ‘These are much more interesting
projects.’ When I was visiting Singapore, it happened.
I sat down next to a kid who said to me, “I’m really
excited, this is my first Bitcoin conference.”
“I watched one of your videos.”
“You know… I have been working with blockchains for a
year, but I had not heard about Bitcoin until yesterday.”
[Taken aback] [Laughter] I asked, “What?
How? Tell me more, I want to hear!”
[He said], “A year ago, I went to this presentation by Bank
of America about decentralized ledger technology.”
“Eventually, at some point in the slides, they
mentioned the ‘b’ word.” Not Bitcoin, but “blockchain.”
“They told us this would be the greatest technology.”
“They managed to go through all thirty slides
without mentioning the other ‘b’ word at all.”
This person worked with Hyperledger, R3, and
all of these other companies in the “DLT space.”
And those were… interesting, but not that interesting.
Then one day, they discovered Bitcoin and thought,
‘Whoa! This is where it came from? This seems
very weird and a bit exciting!’ [Laughter]
And we gained one more developer,
perfectly trained and ready to go.
They just needed to re-learn some basic concepts,
and they are good to go on a nice open-source project.
Don’t fight that market.
Let them waste bank money on trying to co-opt
and distort the ideas of what we’re building,
then run straight into the wall of their
centralized, sclerotic, dinosaur organisations.
Then the project fails to deliver anything
and gets chopped by the board of directors,
who are no longer impressed by the word ‘blockchain.’
The people [from that project] take their Christmas
bonus [and use it to open] a start-up in January,
in order to compete with [their former bank bosses].
[The banks] pay for their own demise. [Applause]
[ORGANISER] Thank you so much! Time is up.
[ANDREAS] For the people who asked questions,
please come and see me at the edge of the stage here.
I would like to give you a copy of my book, ‘Internet del
Dinero,’ the Spanish edition of [‘The Internet of Money’].
I will be signing books tomorrow after the fireside chat;
[you can] see me then, I would be happy to sign [them].
Thank you so much! [Applause]
[ORGANISER] We want you to sign something else.
This is [art of] you as ‘Mr. Bitcoin Superman.’ We will
auction this off on the last day of the conference.
For a good cause. [ANDREAS] Fantastic!
[ORGANISER] Made by artist Luis Buenaventura.
[ORGANISER] Please sign it with your ‘private key.’
[ANDREAS] My pleasure. [Laughter]

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