Crypto’s upgrade anxiety – POLITICO

With help from Mohar Chatterjee

U.S. regulators might soon gain a lot more leverage over the world’s second-largest blockchain network, a prospect that has been the subject of growing crypto-world concern in recent days.

Ethereum developers are moving closer to a tentative date for a long-anticipated network upgrade called “the Merge,” which will update and speed up the way it processes transactions.

As that happens, industry fears are growing that the post-Merge network would be more susceptible to government control — particularly Treasury Department sanctions.

Currently, a small number of services that administer Ethereum deposits on behalf of their owners are positioned to have an outsized say in which new blocks of data will be recognized by the network after the Merge. (Think of it as roughly analogous to the power delegated to large asset managers like BlackRock to cast corporate governance votes on behalf of clients.)

Most of those big services are subject to U.S. jurisdiction. So, despite crypto’s promise of decentralization, they might, collectively, have the power to block sanctioned addresses from the Ethereum network.

And the day of reckoning is drawing near: The Merge is currently scheduled for Sept. 15.

Many crypto firms have already blacklisted sanctioned addresses from accessing their blockchain-based services, but the fear in the industry is that, post-Merge, U.S. regulators will take enforcement one step further, forcing the depository services to block transactions involving sanctioned addresses from making it onto the Ethereum blockchain at all.

Such a policy could take several forms, and it’s not clear how most large service providers would respond.

(Last week, Brian Armstrong, CEO of Coinbase, which runs one of the most popular services, said on Twitter that he would be inclined to give up that part of the business altogether rather than block certain transactions from the Ethereum blockchain.)

Several factors add to the uncertainty of how a post-Merge sanctions push might play out. Pro-compliance and anti-compliance factions of network operators might each try to gang up on the other camp to enforce their preferred approach, or the camps could part ways, with each administering its own version of the Ethereum blockchain.

Some researchers argue that this uncertainty might make it difficult for regulators to know what action to take, and therefore increase the chances that they do little.

Jeff Dorman, chief investment officer at digital asset manager Arca, argued that the feared sanctions push is unlikely to materialize anytime soon, if it all, given a general tech-friendly drift among U.S. regulators.

And if U.S.-based operators were hobbled by sanctions requirements, Dorman predicted, that activity would quickly move overseas.

“Others would step in,” he said, “to fill that void.”

As the federal government works to implement more “trustworthy” AI in their application processing, asylum seekers may get caught up in the debate over what that means.

The U.S. Citizenship and Immigration Services office disclosed their use of an artificial intelligence tool last week that relies on machine learning and data graphing to identify plagiarism in asylum applications — often an indication of fraud. The Asylum Text Analytics tool scans the “digitized narrative sections” in asylum application forms, in search of “common language patterns.” The Department of Homeland Security didn’t provide more details on the type of language patterns.

I talked to linguistics researcher Jeremy Rud of UC Davis about the AI tool, and his concerns that it would create more obstacles for weary asylum-seekers.

Rud called the USCIS’ adoption of the text analytics tool “alarming for several reasons”. The legal standards for what an asylum-seeker’s life experience narrative should look like are rigid and already difficult to meet, especially given linguistic and cultural differences, he explained.

“If we have these incredibly high expectations for what a narrative should read, sound and be performed like, yet we consider boiler-plate language or common language patterns as fraudulent, this is going to create impossible standards for credible fear claims in asylum applications,” Rud said.

DHS did not respond to a request for comment. — Mohar Chatterjee

The Urban Legend of Social Media Politics: While the influence of social media giants on the country’s politics is fresh on our minds, here’s a Digital Future-friendly longread from Benjamin Wofford at Wired Backchannel that delves into the paid TikTok influencers who are selling not just products but political ideologies.

In “Meet the Lobbyist Next Door” Wofford details the business model of the adtech start-up Urban Legend that has carefully recruited “700 social media influencers who command varying degrees of allegiance from audiences that collectively number in the tens of millions.”

Ahead of the midterm elections, Senate hopefuls like John Fetterman are seeing the value of courting the youth vote on TikTok. And Urban Legend is certainly well positioned to provide their sponsored content services to political “power brokers” in Washington who are “quietly inching toward a full embrace of influencers.” — Mohar Chatterjee

In Albuquerque, New Mexico, a family-owned business is ready toleaseautonomous security robots.

… And while we’re on autonomy, a decentralized blockchain company has unveiled a new kind of smart contract whose legal provisions activate without human or bot interaction.

Not to get too existential, but what does it mean for a robot to know itself? Researchers at Columbia’s Creative Machines Lab find out.

Meanwhile, Chinese researchers have found a new machine learning technique to restore over-compressed social media videos.

And ICYMI: 3D printing is finding a homein the defense industry.

Stay in touch with the whole team: Ben Schreckinger ([email protected]); Derek Robertson ([email protected]); Mohar Chatterjee ([email protected]); Konstantin Kakaes ([email protected]); and Heidi Vogt ([email protected]). Follow us on Twitter @DigitalFuture.

Ben Schreckinger covers tech, finance and politics for POLITICO; he is an investor in cryptocurrency.

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