July 2, 2023

by Stephen Stofka

This week’s letter is about lying and some types of lies, the key part they play in our society and the steps we take to uncover and counter lying. This week’s picture by David Clode on Unsplash is that of a butterfly wing, not an owl.

Like many animals, humans survive by signaling. A growl, the curl of a tail or a frown on a face are forms of signaling. Lying is a signaling tool that we use to get something we want. We may want protection from some threat so we lie. We may want approval from others so we lie. Lies come in several colors. Lies told for some social or public purpose are called white lies. In the 1969 Frazier v. Cupp decision, the Supreme Court ruled that the police could make false statements to gain a confession. These are known as blue lies. There are red lies told to hurt someone or their reputation. We tell green lies to gain some financial advantage.

People are so good at lying that public agencies and private companies spend billions per year to prevent fraudulent claims. As Jennifer Pahlka (2023) noted in her book Recoding America, policymakers will spend far more than a $1 to prevent paying out $1 of a fraudulent claim even if it means that legitimate claimants have to wait longer to receive their benefits. Policymakers are rarely as responsive to people’s needs as they were during the pandemic. In a rush to serve millions of people laid off during the pandemic, many fraudulent claims flooded state unemployment offices. According to an indictment filed in May, recently elected Congressman George Santos (R-NY) was one of those who made a fraudulent claim with New York State and received $24,000 while already employed.

Politicians like Santos attract news coverage but it is not clear that they are any more dishonest than the population in general. It is true that those who are uncomfortable with lying are cautioned not to run for office. Lying is an accepted tactic to confound the opposition, gain a policy foothold or some electoral advantage. Within a democracy, the electoral process is a competition of lies and boasts that political scientists call branding. There is no “truth in advertising” standard that politicians must adhere to when they run for office. It is the voters who must beware when they “buy” whatever ideological concoction a politician is selling. The voters are supposed to act as a giant sieve, straining out the fabrications, the incompetent and crackpots. It is not a perfect system.

The Bitcoin algorithm was designed to “crowd-source” property claims, spreading the verification process to the many nodes in a historical transaction chain. Yet the 15 year history of Bitcoin and other digital currencies has been punctuated with episodes of large scale fraud. According to a Justice Dept. investigation, in 2011, customers of Bitcoin exchange Mt. Gox learned that most of the bitcoin stored on the exchange had disappeared. Over a three year period, Russian hackers with unauthorized access to the exchange’s server had stolen most of the Bitcoin stored there. Dishonesty 1, digital security 0.

Forms of digital communication like email allowed scammers to send a lie for a fraction of a penny, far below the cost of bulk mailing. The Federal Trade Commission reported that consumers lost $8.8 billion to fraudsters in 2022. Money transfers, both legitimate and criminal, happen with the flip of some ones and zeroes. Digital currencies can be stolen at far less personal risk than holding up a physical bank so it is surprising that more crypto is not stolen each year. CNN reported an estimate that $3.8 billion worth of digital currency, most of it DeFi, not Bitcoin, was stolen in 2022. That’s just 0.45% of the $840 billion in the market cap of cryptocurrencies at the end of 2022, as tracked by Coin Gecko. The technology that underlies digital currencies could be adapted to verify other forms of transactions.

A century from now, we may put digital currencies in the same historical bucket with the worthless stock certificates of hundreds of railroads and mines issued in the 19th and early 20th century. History is littered with broken dreams destroyed by deceit. Dig down to the ideological foundations of digital currency, however, and there is an enduring idea that will outlast whatever the current form of digital currency trading and transfer. That idea is as old as the Constitution – checks and balances. Money is information and information is power. Unless that power is checked, it accrues into an autocratic regime or an economic monopoly. Digital currency represents a yearning for a check on the accumulation of economic and political power. That idea will not go out of fashion.

///////////////////

Show 20230702ButterflyWing.png

Photo by David Clode on Unsplash

Keywords: honesty, crypto, Bitcoin,

Pahlka, J. (2023). Recoding America: Why government is failing in the Digital age and how we can do better. Metropolitan Books, Henry Holt and Company.