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Wednesday, December 27, 2017

Why Americans Don't "Get" Blockchain

It is said that a main appeal of "cryptocurrencies" like Bitcoin, and ethereum, is their ability to replace the need to "trust" intermediaries in transactions with a cryptographic, mathematic-based consensus that does away with the requirement that one trust a third party.

Major institutions in the post-industrial, information-age Western world are still considered to be trustworthy by customers and the general public. This is despite the huge data breaches sustained by customers of the credit bureau agency Equifax, the internet company Yahoo!, and even some government agencies.

The institutional advantage in selling "peace of mind" to consumers should have been eroded by these events, unless consumers and the general public have become resigned to the inevitability of data breaches and other malfeasance by bad actors, lumped into a catch-all category referred most often to as "hackers."

Nonetheless, the Western world's consumer markets still hold faith in large companies. This may explain some (but not all) of the skepticism about the overall value of digital protocols which are traded, on one exchange or another, and used as alternative, non-government-issued stores of value. The cryptographic nature of some of the protocols has given rise to the term "cryptocurrency."

This skepticism persists, despite and perhaps even because of the recent rise in most cryptocurrencies' trading prices. Bitcoin has risen from $3,000 to $16,000 in little more than three months, and from $1,000 just twelve months ago. 

However, this skepticism may illustrate the huge difference between the post-industrial West and the "rest of the world," and hint at why cryptos are being valued the way they are.

Modern economies' naysayers say that Bitcoin and similar protocols should have no value because they are intangible and represent "nothing."

These theories mistakenly project Western experiences over the rest of the world. In the process, they reveal a thorough misunderstanding of the cultural, economic and government systems most prevalent in the rest of the world.

In most of the world, institutions are simply not trusted. The Western paradigm is flipped on its head; banks, governments and even churches are often overtly distrusted and assumed to be corrupt, untrustworthy or incompetent.

In those societies, an electronic form of value transmission is a needed, essential avenue to safeguard and transfer data. In the absence of trusted repositories for portable assets, or for intangible assets such as electronic data, access to cryptographically secure systems for ensuring an "original state" of data deposits, or a non-corruptible transaction ledger, may have a value of ... infinity.

In short, the value of Bitcoin and its blockchain technology foundation can only be appreciated by those who understand the value of a system of economic transfer which does not require its users to "trust" (or more accurately, to "hope" in the honesty of) institutions or other intermediaries whose past performance or behavior has often demonstrated their untrustworthiness.

Westerners from nations with relatively developed economic and legal systems most often do not have (or don't realize they haven't had) the experience of institutional betrayal from once-trusted institutions. 
Until Westerners at large and the financial community in general realize they cannot trust the institutions in their societies to safeguard their assets, their data or their rights, they will not fully appreciate the value, potential and utility of blockchain technology. In the interim, those from non-Western cultures will have a big head-start in developing and implementing this groundbreaking technology.

Eric Dixon is a New York-based lawyer and strategic advisor who got involved in the cryptocurrency space in 2013. He has two blockchain technology inventions, was an influential commentator on the New York State "Bitlicense" upon its proposal and revision in 2014, drafted the first United States Congressional bill on blockchain technology regulation (111th Cong., H.R. 5777), and has met with state regulators on related industry issues. He advises several blockchain startups including Synapse Foundation's smart contract data "oracle" technology initiative called the Zap Project, and Blockchain Technologies Corporation.  

Tuesday, December 5, 2017

The Mike Flynn Lesson: The Less You Say, The More Free You Stay

More recent news cycles have moved from the guilty plea by former Trump Administration national security adviser Michael Flynn, to the Democratic Party drumbeat for a Trump impeachment, to the Trumpian attempt to discredit the special counsel's Russian-collusion investigation by alleging improper (and material) political bias by one of the federal agents who interviewed General Flynn this past January. 

I am ignoring the partisan noise surrounding this issue, or even the larger legal issues about the propriety of the investigation. The subsequent removal of the agent from Special Counsel Robert Mueller's investigative team, ostensibly due to some partisan political messages on social media, has not quelled that distraction. We don't know yet, and we might never know, whether those political posts indicated a bias or otherwise improper animus towards Flynn.

We do know there was an interview, that Flynn answered questions, and that those responses were summarized in a report on the FBI's Form 302. The "302" is a summary, often compiled soon after an interview, of the responses and findings from the question and answer session. It is based on notes and recollections of the agents present. It is not based on a recording, none at all.

In an era where police officers routinely work with "dash cams" and other recording devices which record their activities and encounters, it's certainly possible and feasible to have investigators record their question and answer sessions. Particularly when what was actually said doesn't just possibly indicate whether a crime occurred, or answer the "who," "what," "when," "where" or "how" questions. Rather, a recording can establish exactly what was said, when the response is (as with Flynn) the very core of the alleged felony.

But did you know the FBI has had a policy against recording witnesses in interviews?!  Yes it has. Check out this internal FBI memo, obtained by the New York Times back in 2006, on establishing procedures for when to record interviews.

Without a recording, we can have competing claims as to what was really said. In the Flynn case, this means we can have doubt about what was said, and whether it was "materially false" enough to warrant a criminal felony charge.

One would think that an agency committed to upholding the law and fighting (and deterring) serious federal crime would have the institutional confidence to allow interviews to be tape-recorded or video-recorded.  After all, if the subject of the interview is willing to be recorded, what's the problem, right?  A recording ensures accuracy and minimizes the potential for misunderstanding, misrepresentation and outright misconduct, doesn't it?

Therein may lie the problem. Perhaps the government very much wants to avoid recordings of interviews. That way, it can induce and compel reliance on written reports, produced by none other than the FBI, as the best -- and only -- documentary evidence of what was and was not said in that interview.

The message one must recognize is this:  Trust any government official to accurately portray anything you say, and you do so at the risk of losing your freedom due to the credibility automatically imputed by many if not most jurors towards anyone wearing a uniform or badge. 

For civilians, of course, not talking, or insisting on a recorded interview and declining to talk under any other circumstances, is a safer, more prudent and, in all fairness, essential course of action.  This approach, which should only be considered by those who sincerely believe in both their innocence and the open-mindedness of the investigators to consider the possibility of one's actual, factual innocence (and furthermore, still believe such after relying on the advice of trusted, experienced counsel).

The bottom line:  Any conversation you have with any federal employee -- FBI agent or not -- places you at risk of criminal prosecution.  (You need refer only to the small print sentence about Section 1001 of the United States Code, Title 42 on most federal agency forms and applications; the false statements felony is set forth in a different Section 1001, in Title 18 of the United States Code.)  Your risk may depend considerably, if not entirely, on the honesty and integrity of the agent or employee you encounter.  If you have someone who's tired, doesn't remember accurately, or is willing to embellish, misrepresent or flat-out lie, you could risk going to jail without in fact having done anything wrong.

In his excellent article from 2011, noted criminal defense lawyer (and campus free speech advocate) Harvey Silverglate (author of an equally excellent 2008 book, "Three Felonies a Day: How The Feds Target The Innocent") warned of the false statements risk, and the danger of coercing false testimony from witnesses. He wrote: 
So what happens when the sole arbiter of what a witness says in an FBI interview is the 302 Report written by an FBI agent? If that witness should later be compelled to testify at a grand jury proceeding (leading to an indictment of the target of the investigation) or at the trial itself, he is under tremendous pressure to testify consistently with what the 302 report claims he told the agents when interviewed. Should a witness give testimony that is in conflict with the 302 report, he opens himself up to a felony conviction –either he had lied to the FBI in his initial interview, or he is lying to the grand jury or the court (or the congressional committee) in his testimony. Either way, he remains stuck between the Scylla of perjury and the Charybdis of a false-statements charge. Few question the veracity of the 302 report; after all, who will a jury more likely believe, a single witness or two upstanding FBI agents swearing that what they wrote in their 302 report accurately represents what the witness said when interviewed? 
Without a tape-recording of what you actually said, it's much easier for the FBI to prosecute you by simply using its 302 to claim you said something -- that you never said. It's your word against theirs. 

Why would the government do this? 

Maybe prosecutors cannot prove you've done anything wrong -- or when you're totally innocent -- but your testimony or "cooperation" is thought useful, and the leverage of an unfavorable sentencing recommendation (think: jail versus probation as the prosecutors' recommendation) may help a reluctant (or scrupulously honest) witness say what is considered the truth.  Of course, this notion collides with some bedrock presumptions, such as that truth and guilt are objective values which matter, or that the government has responsibilities to its citizens and not vice versa. 

Think about these risks when a government official wants to ask questions. The friendly interview you have, when you think you are doing the right thing, may actually be a spider web designed to trap and catch the unwary in arguably false or contradictory statements or omissions.  You walk in innocent and leave guilty.  

Often, the difference between someone ultimately being guilty of something, or never being charged, is as simple as having the emotional maturity to resist outside pressures to conform one's actions or statements to please someone else. When we were younger, this was called by its simple name: peer pressure. Human nature doesn't change, temptations and vulnerabilities rarely change. 

Now, had General Flynn's interview with the feds been recorded, perhaps there might be much more "reasonable doubt" about whether he lied. 

Best of all, had General Flynn literally not cared about public opinion, what his peers or the Washington, D.C. / Northern Virginia cocktail circuit  thought about him, he might have exercised the judgment to (1) consult a lawyer before speaking with investigators, and (2) in all likelihood, to have followed the advice he likely would have received to decline to speak at all. 

Almost certainly, had he followed the advice in (2), he might be thought crooked or shady or whatever, but would he be a felon today?

Better to be silent, and be thought a crook, than to talk, and give the government all the opportunity to make you one.

Friday, December 1, 2017

The Michael Flynn False Statements Charge (Expected)

Multiple sources are reporting that former National Security Advisor Michael Flynn will enter a guilty plea to at least one false statements federal criminal charge when he appears in Washington, DC federal district court later this morning.

Stay tuned, because more information will come out. But this much is certain: Flynn is making an appearance in federal court this morning and that means he is either being arraigned (and entering a not guilty plea) or pleading guilty to at least one charge.

One federal criminal charge will reportedly be for lying to Federal Bureau of Investigations agents. This is a good reminder what people who are innocent (or think they are innocent) should do

A lying-to-federal-agents charge can be brought under Title 18, Section 1001 of the United States Code, a criminal section which provides that someone who:

"...knowingly and willfully--

 -- falsifies, conceals, or covers up by any trick, scheme, or device a material fact;

 -- makes any materially false, fictitious, or fraudulent statement or representation;  or

 -- makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry;

shall be fined under this title, [or] imprisoned not more than 5 years..." (Emphasis in bold)

It isn't enough to lie; the lie has to be "material." It also has to be "knowingly and willfully" made.

In a 1995 ruling (opinion written by the late, great Associate Justice Antonin Scalia), the Supreme Court ruled that a material false statement must have  "a natural tendency to influence, or [be] capable of influencing, the decision of the decisionmaking body to which it was addressed."

Now, where did this false statement get made? It might have been very early this year. Flynn reportedly spoke with FBI agents about Russian involvement in last year's presidential election, just days after President Trump was inaugurated.