Glitch Weekly: When the fight over crypto becomes a fight over free speech
Glitch Weekly: When the fight over crypto becomes a fight over free speech
Plus: A new blockchain for video games, CryptoPunks' cultural cachet, and our broken tech "discourse"
Happy Friday! Please enjoy the 2nd edition of Glitch Weekly.
The US government has teed up a crypto-focused fight over the First Amendment
What makes a cryptocurrency application a money transmitter? It’s hard to overstate how important this question is to the future of the technology in the US. Money transmitters are subject to stringent federal regulation that requires them to keep track of their users’ identities. That would pretty much defeat the purpose of building a decentralized and “permissionless” application.
For years, many crypto developers and entrepreneurs have relied on guidance from the Department of Treasury and built applications they were confident fell outside the legal definition of money transmitter. But two recent developments—the indictment of the developers of a Bitcoin privacy application called Samourai Wallet and a new brief from the prosecution in the case against Tornado Cash developer Roman Storm—have shaken that confidence.
The legal conflict here boils down to whether it matters if the software developers of cryptocurrency applications have “independent control” over any of their users’ funds. Until last week, crypto developers believed it safe to assume that as long as they never took “independent control” of user funds, they didn’t need a license.
As we’ve discussed before, the term “independent control” in this context was first used in a 2019 regulatory guidance. At the time, FinCEN stated that whether a wallet application is a money transmitter depends on whether any person acting as an intermediary has “total independent control” over the value.
Now federal prosecutors seem to be arguing that this standard no longer holds. In the Samourai Wallet indictment and the latest Tornado Cash brief, the Department of Justice (DOJ) is adopting a “radically different legal theory of what constitutes money transmission,” according to Peter Van Valkenburgh, research director at the crypto policy advocacy group Coin Center. He called the shift “a threat to liberty and the rule of law” and “nothing less than regulation by criminal enforcement.”
Based on Coin Center’s understanding, no developers or other third parties had independent control over Samourai Wallet users’ bitcoins. Nonetheless, the developers have been arrested and charged with, among other things, operating an unlicensed money-transmitting business.
The DOJ’s new legal theory of what constitutes money transmission—which “basically boils down to any facilitation of the movement of crypto-assets on chain,” according to Van Valkenburgh—is broad enough to charge any developer who has developed software that at all works with cryptocurrency with operating an unlicensed money transmitter, he argued during a Twitter space hosted by the wallet provider Casa.
It all sets the scene for a new conflict over how to interpret the First Amendment of the US Constitution. For nearly three decades, US courts have viewed software code as protected speech. “Licensing software developers as a precondition to their ability to publish software the way they want to write software is a prior restraint on First Amendment protected activities—on speech,” Van Valkenburgh said. In other words, the government seems to want the courts to re-evaluate the notion that all code is speech.
It’s not hard to see how if the DOJ’s view prevails, it would be very bad for crypto in the US. Already, the maker of Samourai Wallet rival Wasabi Wallet, and Bitcoin wallet provider Acinq, have decided to cut off access to Americans.
Maybe CryptoPunks are just art now
Last week, CryptoPunk #635—an 8-bit NFT featuring a blue alien wearing sunglasses and a bandana—sold for $12.4 million (or 4,000 ETH). This jpeg, one of the rarest from a coveted 10,000-piece collection called CryptoPunks, was bought by an anonymous collector and brokered by a small startup called Fountain.
It can be tempting to be snarky about how someone just spent millions on a pixelated jpeg. But in fairness to CryptoPunks, unlike many things in crypto they have also shown impressive staying power—both in terms of value and cultural cachet. Maybe they aren’t “crypto art” anymore. Maybe they are just art.
Either way, since NFTs hit mainstream consciousness a few years ago, Punks have stood out as the face(s) of the decentralized digital art trend. Physical versions have hung in world-famous galleries such as the Louvre in Paris. Punks have been touted by celebrities like Serena Williams and sold by renowned auction houses. Despite a slight decrease in value in 2024, they have also so far largely resisted the ruinous dip in price that has blighted many other once high-flying NFT collections over the last two years (Bored Ape NFTs now cost around 90% less than their price point at all-time highs).
The latest Punk deal was brokered by a startup called Fountain, which since October of last year has brokered a series of white glove deals for NFTs created by Larva Labs, the company behind the Punks. Fountain is helmed by Noah Davis, a former Christie's NFT specialist, and one of the people behind Beeple's $69 million sale in 2021.
The piece in the sale is one of only nine alien Punks, and the third sale of its kind in two months. Two other alien Punks changed hands for north of $16 million each earlier in March. Alien Punks can be identified by their signature blue coloring and distinctive headwear, like a cowboy hat or headband. They are rarely on the market and make up less than 0.1% of the entire CryptoPunks collection.
Details of the transaction are available for all to see on the blockchain. But who was Fountain’s buyer? As is often the case in crypto and NFTs, we may never know.
How much would YOU pay for a jpeg of a pixelated blue alien, Anon?
Is Balaji an ethnic cleanser or is Balaji being ethnically cleansed?
Believe it or not, this was the subject of a Twitter feud last week, after the New Republic dropped a profile that framed tech investor and “network state” champion Balaji Srinivasan as “the tech baron seeking to ‘ethnically cleanse’ San Francisco.”
The article grabbed most of its content from a podcast episode where he rails against the “woke” establishment in San Francisco, and jokes that the “grays” (his word for tech people who don’t identify with the politics of either the Red or Blue tribes), should organize a Gray Pride Parade with drones flying overhead, genetic experiments bubbling in beakers, bitcoin laser eyes trotting on parade sticks, and odes to the AI flying spaghetti monster. He then goes on to claim (more than three hours into the conversation and clearly in a joking tone) that “what blues want is to ethnically cleanse grays out of the city,” himself included. What he doesn’t do—definitively—is use the words “ethnically cleanse” next to his own political aspirations.
A few angry tweets later and the article title has been updated: “The Tech Baron Seeking to Purge San Francisco of “Blues.”
The episode reflects how fractured (and just ridiculous) the discourse around tech stuff has become. On one hand, you have Srinivasan claiming that the tech class should think of itself as an embattled ethnic group, using extremely politically charged language (even if he was joking), and casting techno-optimists as something like The Avengers. And then you have the New Republic, so hoping to nail Srinivasan as a fascist that they’ll misrepresent his comments to drive clicks.
Whatever his political leanings really are, there’s no denying he’s a world-class troll. And sometimes he inspires his detractors to play right into his hands.
How games are driving blockchain innovation
WARNING: contains crypto jargon. We’ve talked a lot about blockchain Layer 2s, optimistic rollups (a type of Layer 2), and the “OP stack” (open-source rollup technology developed by a startup called OP Labs). Optimistic rollups are designed to make blockchains faster and cheaper by computing batches of transactions in a separate computing environment, and then adding the data from each batch to the main chain so it can be checked. Two of the buzziest “web3” projects out there—Base, the Layer 2 that Coinbase developed, and the NFT marketplace Zora—have used the OP Stack to launch their own optimistic rollups on Ethereum, using the OP Stack. Now Lattice, a startup focused on fully onchain games, aka autonomous worlds, has launched one too.
We’ve also talked a lot about games whose entire set of rules and logic is encoded in smart contracts, meaning no one can shut them down. Ever since the rise of the crypto cult classic onchain game Dark Forest a few years ago, a small tribe of developers has devoted itself to building similar digital promised lands.
Called Redstone, the new chain is designed to achieve cheaper, smoother gameplay. Unlike Base and Zora, Redstone is a substantial variation on the fundamental OP Stack design. The major difference is that instead of using the standard way an optimistic rollup adds data to the main chain, known as blobs (let’s not get into it right now), Redstone stores the data offchain and only posts a hash, or cryptographic fingerprint, of that data on the main chain. This makes Redstone transactions “considerably cheaper,” according to Lattice.
Redstone still has to make all that data available so that anyone can check it all and ensure it’s correct—that’s one of the defining tasks for rollups. If someone simply asks Lattice for the data, “we can give it to them for free,” Lattice’s Justin Glibert recently told Project Glitch. But there’s also a smart contract on the Ethereum main chain that people can use to force Lattice to post all the data there. “If you force us to make the data available and we don’t, because we try to rug people, then the chain is going to stall and then is going to roll back to right before that,” Glibert said.
According to Glibert, Redstone’s approach doesn’t compromise security, since the protocol guarantees that Lattice can’t rug the users. The main compromise relates to “liveness”: if Lattice misbehaves, the chain might shut down for up to weeks at a time so it can reset and allow people to withdraw their assets if they so desire.
You can see for yourself if the technical compromises Redstone made are worth the benefits to gameplay. Seven games are set to go live this month on Redstone:
Biomes, an “onchain Minecraft-like sandbox”
DEAR, which features “whimsical pixel-based artwork and a struggle between good and evil”
DF Archon, a reiteration of Dark Forest
Downstream, an “infinitely moddable MMO” developed by a startup called Playmint
Sky Strife, a real-time strategy and combat game developed in-house at Lattice
This Cursed Machine, a “science fiction body horror fulfillment center simulator” created by the Berlin-based indie game studio Moving Castles
words3, an onchain version of Scrabble developed by another indie developer, Small Brain Games.
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