April 24, 2017

Archives for June 2013

The low-transaction-fee argument for Bitcoin is silly

A common argument advanced by Bitcoin proponents is that unlike banks and credit cards, Bitcoin has low (or even zero) transaction fees. The claim is a complete red herring, and in this post I’ll explain why.

Let’s assume for the purposes of argument that Bitcoin transaction fees are, in fact, zero. There are small mining-related transaction fees, but it seems plausible that these fees will always be far smaller than those associated with traditional banking.

Why do banks and credit cards charge those annoying fees? A major reason is fraud. Banks eat the cost of fraudulent transactions, but pass on the cost to the customer by taking a cut of each legitimate transaction. Fraud is not an artifact of a particular system that we can design away — it is inherent to every form of money handled by humans. To compare Bitcoin meaningfully with traditional banking, then, we must ask how big fraud-related losses are for Bitcoin users.

Framed this way, the comparison is not a happy one for Bitcoin. From thefts of wallets to hacks of Bitcoin exchanges, fraud in the Bitcoin ecosystem is rampant. It only gets worse when we add sources of risk other than fraud. A recent study found that 45% of Bitcoin exchanges shut down. Several of the rest have suffered attacks and losses.
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On the Legal Importance of Viewing Genes as Code

The Supreme Court yesterday issued its opinion in the much–awaited Myriad case, which challenged the validity of patents on isolated human genes. The Court held that the isolated genetic sequences claimed in Myriad’s patents did not satisfy the inventive threshold for patentability, although the complementary DNA (cDNA) claimed in the patents did. One of the more interesting elements of the case for me is the extent to which the outcome turned on a single conceptual choice: When assessing patentability, should the legal analysis focus on the isolated DNA’s chemical structure or its information-coding function? The Court decided that the information-coding function was the proper focus. That choice led the justices to the inevitable conclusion that the isolated sequences were not patentable. The Court of Appeals for the Federal Circuit, by contrast, had focused on the sequences’ chemical structure and had reached the opposite conclusion.

Why did this conceptual choice turn out to be so consequential? To be patentable, an invention must be the product of human ingenuity. Products of nature and natural phenomena are excluded from the scope of patent protection. The leading case in the domain of patents on living organisms is Diamond v. Chakrabarty, in which the Court said that patent protection could extend to “anything under the sun that is made by man.” The scope is very broad (i.e., “anything under the sun), but it isn’t unlimited (i.e., it has to be “made by man”).  The question courts must ask to separate products of nature from products of human ingenuity is whether the claimed invention is “markedly different” from something that is found in nature.
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Do Judges Play a Role After the NSA Call Records Have Been Collected?

Those who defend the NSA’s massive call records collection program point out that although the program allows indiscriminate data collection, it also meaningfully restricts data analysis and use. They note, in particular, this paragraph from Director of National Intelligence Clapper’s June 6, 2013, press release:

By order of the FISC, the Government is prohibited from indiscriminately sifting through the telephony metadata acquired under the program. All information that is acquired under this program is subject to strict, court-imposed restrictions on review and handling. The court only allows the data to be queried when there is a reasonable suspicion, based on specific facts, that the particular basis for the query is associated with a foreign terrorist organization. Only specially cleared counterterrorism personnel specifically trained in the Court-approved procedures may even access the records.

It seems to me that some have probably misunderstood this paragraph to suggest that the judges of the FISA Court (FISC) play a role in approving each individual query made to the data, the way a judge approves a warrant to search for or seize evidence in a criminal case. An article in Slate explained, somewhat approvingly, that “the rules that most of us would apply at the collection stage—reasonable suspicion, specific facts, court approval—are applied instead at the query stage”. A blog post author on Forbes explained that “[i]n order to analyze the data at hand, the NSA must get a court order justified by the reasonable suspicion of an imminent terrorist act.” Some legal scholars may be making the same assumption.
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