BTC-e Case: State Arbitrariness + Crypto Traders Negligence

The event happened on July 25 remained almost unnoticed by the leading global mass media. Only several internet news platforms related to cryptocurrencies have commented it without much fuss. However, the same cannot be said of numerous forums of crypto miners & traders (especially the Russian-speaking ones) that have been boiling loudly since that date. In brief, the problem comes to a freezing of about $4 billion of users’ funds on BTC-e crypto currency exchange due to the investigation conducted by FBI against a Russian person who was accused of black money laundering. As this Russian was seemingly a co-founder of BTC-e, the servers of the service were arrested (more details are here and here).

The most curious aspect of the situation lies in the obvious ideological imbalance between the cryptocurrency’s distributed nature and the centralized ecosystem (BTC-e is a company having New Zealand official registration) within which cryptocurrencies were operated. The question is: how was it possible that a huge community of crypto traders, who were clearly aware of the main drawback of every centralized web service — the central server’s vulnerability to intervention, were holding their funds there? Weren’t they apprehensive that sooner or later something wrong was bound to happen? It is unexplainable why all those crypto traders were using the centralized conventional (and, to be frank, obsolete) non-distributed service for trading and exchanging cryptocurrencies — the essence of decentralization!

It seems that their joint irresponsibility has led to the present dire consequences. Perhaps it was their greed that made them leave their funds to chance. Cherishing their self-interest they refused to think about hackers, fraudsters, FBI, and many other third-party powers who were able and interested in affecting such vulnerable and “fat” victim as BTC-e. The amount they have lost — about $4 billion — was sufficient to make even a pure angel give up promises, contractual obligations, and any other patterns of law-abiding behavior. In fact, they have no one but themselves to blame for what has happened.

Nevertheless, it is not correct to blame BTC-e users only for the wrong understanding of the blockchain phenomenon. They used to perceive cryptocurrency in a conventional manner as if it was traditional fiat currency because many crypto traders were focused on only one valuable aspect of the blockchain technology consisting of mining and trading of cryptocurrencies. However, the “money function” is the only one of many others that blockchain can offer. The cashless transactions provided by cryptocurrencies should be accepted as just a tool, a service function available within a blockchain-based decentralization paradigm.

It seems that the core problem of the BTC-e case lies in the fact that all those crypto traders were indifferent towards the actual true decentralization as much as many other crypto communities emphasizing just financial advantages of blockchain. Such negligence can easily lead to the consequences when the arbitrary exercise of the State authorities affects everything they need anytime they wish. Just think of the BTC-e circumstances: an investigation agency from one State arrested assets of a company officially registered in another State making dozens of thousands of people throughout the world lose their money. And this is a norm in the world of centralization!

Probably the case of BTC-e will become a bucket of ice water giving many crypto traders a sober outlook for cryptocurrency speculations. But more meaningful outcome implies making people reconsider their views of the decentralization opportunities containing in the very nature of blockchain. Moreover, there are some progressive blockchain-based projects that propagate various services and DApps capable of establishing truly decentralized interactions between people and organizations in order to make them invulnerable to the State-induced arbitrariness. The projects demonstrate a different, more socially responsible behavior along with more civilized approaches to the problem of State violence and centralized entities’ domination. And even some their “growing pains” such as the lack of strong theoretical and philosophical background cannot compromise their noble efforts to free people up from the old State-centric world order.