Chen Yongwei / Wen & nbsp; in December 2018, the southern Florida District Court of the United States received a petition. The plaintiff is a digital Telecom strategic company called United Corp. the defendants include bitmain and its executive director Wu Jihan, bitcoin.com and its founder Roger ver and cryptocurrency exchange Kraken. The plaintiff claims that the defendant jointly participated in the competition by unfair means and controlled and manipulated bitcoin cash network in a collusive way, thus causing significant losses to United Corp and other bitcoin cash stakeholders.
If viewed from the perspective of pure competition law, the prosecution is just a common conspiracy charge, which is nothing special in itself. In fact, compared with other major anti-monopoly cases, the prosecution itself has a lot of “unprofessional” in technology. However, because the content of the case involves blockchain as a new scientific and technological field for the first time, it has attracted people’s attention. It’s no exaggeration to say that no matter what the outcome of the trial of “the first case of blockchain anti-monopoly” is, it may have a huge impact on the whole “chain circle” and “currency circle”, and even change the development process of blockchain industry to a certain extent.
The origin of bitcoin cash
What is the cause of this case? Before explaining this, we need to spend some time to introduce one of the keywords in this case & mdash; & mdash; & ldquo; bitcoin cash & rdquo; (BCH). By name, it looks like the familiar bitcoin, but it’s actually another cryptocurrency. However, it does have a very close relationship with bitcoin & mdash; & mdash; or more precisely, it is evolved from a fork of bitcoin (Note: the so-called fork, in general, is the network split caused by users of blockchain network accepting different protocols).
When Nakamoto first designed bitcoin, he set the block capacity of bitcoin at 1MB. At that time, this capacity was enough. However, with the rapid expansion of user scale, 1MB capacity is no longer able to meet the needs of transaction confirmation. Therefore, the expansion of the block has become a top priority. However, there are two different ways to expand capacity.
One idea is called “isolated witness” (segwit). The idea of this idea is to keep the upper limit of the original bitcoin block capacity unchanged, and to design a two-layer network on this basis. First, the real-time transaction of bitcoin is settled in the two-tier network, and then the result is submitted to the main chain of bitcoin blockchain for registration, which can effectively reduce the workload of bitcoin network. Another idea is called bitcoin & nbsp; unlimited, which advocates to let go of the block size limit so that bitcoin network can process enough data at one time.
Each of the above two ideas is reasonable and has its own supporters, so there was a stalemate for a while. In this case, both parties resort to the rules set by Nakamoto in that year & mdash; & mdash; vote with computing power. If one party holds more than half of the computing power, they will expand the capacity according to the same idea. Finally, the bitcoin bifurcated scheme bip91 based on the & ldquo; isolated witness & rdquo; idea was supported by the whole network computing power. It was agreed to upgrade the isolated witness first and upgrade the block size of the underlying blockchain to 2m within the next six months.
However, viabtc, a mining pool owned by bitmain, a mining giant, opposed the plan. It has prepared a set of hard branching system, launched bitcoin cash based on the original bitcoin chain, and expanded the block to 8MB at one stroke. On August 1, 2017, bitcoin began to mine cash, and a new cryptocurrency was born. At first, bitcoin cash was only considered a branch or heresy of bitcoin. But soon, it was recognized by the market as a cryptocurrency on par with bitcoin.
The battle of computing power and its influence
It will soon be November 2018. At this time, bitcoin cash needs to upgrade the protocol regularly. Unexpectedly, in this upgrade, the network developers again have differences, and soon split into two camps & mdash; & mdash; & ldquo; bitcoin ABC & rdquo; (bitcoin & nbsp; ABC) and & ldquo; bitcoin SV & rdquo; (bitcoin SV). &The supporters of “bitcoin ABC & rdquo; include bitcoin, bitcoin.com & rdquo; and so on. They claim that the block size of bitcoin cash should be maintained at 32MB, and its function should be developed in the direction of infrastructure public chain, so as to develop more potential application scenarios like Ethereum. The main proponent of the & ldquo; bitcoin SV & rdquo; scheme is Craig Wright of the & ldquo; aobencong & rdquo;. This scheme hopes that BCH’s blockchain can focus on the development of the transfer transaction itself and make changes to the block size, with the final setting of 128MB.
Since there are differences, it’s still the old rule to solve the problem according to computational power. Anyway, bitcoin cash itself is the result of computational power. However, this duel is different from the previous one. In the previous & ldquo; isolated witness & rdquo; and & ldquo; bitcoin infinite & rdquo; duels, because of the use of replay protection, where the miners stand on the network will only affect which fork they follow in the future, and the impact is relatively small. But this duel did not set up this mechanism, so the loser will be wiped out by the whole chain, and the miners in the wrong team will lose their lives. In other words, if the original calculation power duel is regarded as a match up to the point, then this calculation power duel is a real battle of life and death.
Since it’s a battle of life and death, both sides naturally devote themselves to it. Because a lot of computing power in the whole network has been put into this senseless internal friction, the function of bitcoin cash network has been greatly affected, and the market price of bitcoin cash has also dropped.
As the saying goes, when gods fight, ordinary people suffer. The battle between the “sword clan” and the “Qi clan” in bitcoin cash really made many outsiders suffer. United Corp, the plaintiff of this case, is one of the numerous enterprises passively involved in this storm. United Corp’s main business is to provide blockchain solutions. It has two important projects: blocknum project allows people to use ordinary phone numbers to perform blockchain operations; blockchaindome project uses the heat generated in the process of “mining” cryptocurrency to heat the greenhouse. At the same time, the company itself participates in & ldquo; Mining & rdquo; and holds bitcoin cash. Obviously, from the perspective of business and company assets, the operation of United Corp is greatly affected by the trend of bitcoin cash. Seeing that the “battle of computing power” has been going on and bitcoin cash has been falling all the way, unitedcorp finally can’t bear it. In a rage, it has sued many companies and individuals who support the “ABC” program of bitcoin.
Disputes on the trend of cases
From a social impact point of view, the lawsuit by United Corp certainly makes sense. However, as we pointed out earlier, from the professional perspective of competition law, there are still a lot of things that appear to be “unprofessional” and “unreasonable”. So, what are the major problems in this case? In summary, there are mainly the following:
1. Dispute on plaintiff’s qualification
The court should accept a case on the premise that the prosecutor should have the qualification to be the plaintiff.
In the anti-monopoly litigation in the United States, the most important reference law for the plaintiff qualification of private anti-monopoly litigation is Clayton law. According to Article 4 of the act, & ldquo; any person who suffers business or property damage due to another person’s violation of the antitrust law, regardless of the amount of the dispute, may sue in any district court of the United States where the defendant lives, is located, or where his agent is located;. However, there are still many controversies about what is “business or property damage caused by other people’s violation of antitrust law”.
In the “Illinois & nbsp; brick Co. v. Illinois” case of 1977, the court once explained the above clause: “the plaintiff must prove that they are directly injured by the defendant’s actions, rather than just that they have been injured to some extent while doing business somewhere in the value chain”;. The implied meaning can only be used as a plaintiff if it is injured directly.
In this case, the losses suffered by unitedcorp were caused by the calculation war between & ldquo; bitcoin ABC & rdquo; and & ldquo; bitcoin SV & rdquo. There seems to be a big doubt about the extent to which such losses can be considered to be directly caused by the actions of the accused. If United Corp does not have sufficient reasons to prove the immediacy of the damage, it is likely that it does not even qualify as a plaintiff.
2. Disputes over the role of the plaintiff
For different roles, there are totally different legal claims for their infringement. In the prosecution, United Corp did not know its identity, which made it difficult to confirm the nature of the case. So, in what role can United Corp Sue? Now there are three possible answers:
The first possible answer is in the role of an investor, but that doesn’t seem to make much sense. In reality, none of the advocates of & ldquo; bitcoin ABC & rdquo; provide direct services to unitedcorp, so its investment behavior is not affected by the former. In this situation, its investment is more like an independent behavior. The so-called “willing to gamble and admit defeat”, so it seems unreasonable to prosecute.
The second possible answer is in the role of “miner”. If unitedcorp claims damages as a miner (with mining equipment), the court will need to determine who directly provided services to the miner. The most reasonable answer seems to be agreement developers, who provide the infrastructure for miners to operate.
However, this answer raises another question, that is, it is difficult to determine whether the & ldquo; Service & rdquo; provided by the agreement developer is the service concerned by the anti-monopoly law. Anti monopoly law guarantees the business activities of operators & mdash; & mdash; as long as they are economic activities (that is, part of the business and market mechanism), it is not important whether the activities are provided free of charge (it is free to participate in bitcoin cash). According to this standard, whether the development of blockchain protocol can be applied to anti-monopoly law is controversial. The reason is simple: it should be a research and education project rather than a market project to a greater extent. Although the blockchain protocol can be used to support market related activities, this does not mean that the blockchain protocol itself must be commercial. It’s as if while Linux versions are available for commercial sale, engaging in Linux development does not necessarily make programmers market participants.
The third possible answer is the role of the consumer. In a sense, United Corp may indeed be seen as a consumer of bitcoin cash, because its two important projects, blocknum and blockchaindome, are heavily dependent on bitcoin cash. However, if a lawsuit is filed in this capacity, it should be the miner who deals with the user’s proposal that serves it directly. However, in the lawsuit, United Corp didn’t explain in detail the operation details of its projects, so whether it can finally file a lawsuit in this capacity remains a question.
From the above points, we can see that unitedcorp will face certain legal problems no matter what kind of status it takes to file a lawsuit. In the subsequent trial, this may cause many problems.
3. Disputes on the nature of the damage
From the perspective of anti-monopoly, there are two kinds of damages caused by monopoly: one is the damage to consumers, the other is the damage to the competition process. However, in the prosecution, United Corp did not establish a clear causal relationship between its financial losses and the above two kinds of damages, so it left many questions.
If we consider the damage to the interests of consumers, what channel does the damage come from? Specifically, the battle between & ldquo; bitcoin ABC & rdquo; and & ldquo; bitcoin SV & rdquo; may indeed lead to the devaluation of bitcoin cash, but how can we say that such devaluation will definitely harm the interests of unitedcorp as a consumer? To answer this question, we have to answer the previous question about the role of United Corp in the cryptocurrency ecosystem. If unitedcorp is regarded as an investor, the damage may be caused by the depreciation inhibiting the interest and sales of its issued products; if unitedcorp is regarded as a miner, the damage may be caused by the depreciation reducing the profits distributed to mining enterprises. If unitedcorp is regarded as a pure consumer, this kind of damage may be achieved by increasing the cost of blocknum system.
Another question is, even if we saw the price of bitcoin cash decline in November 2018, what kind of causal relationship does this decline have with the “battle of computing power”? In fact, while the price of bitcoin cash has declined, other currencies such as bitcoin have experienced a similar decline. It can be inferred that there are likely to be some common factors behind the market, and it is not easy to establish the exact causal relationship between the “calculation power war” and price changes.
If we adopt the idea of damage to the competition process, we need to consider two other issues, namely, what kind of way unitedcorp uses to compete with the defendant, and what kind of behavior the defendant uses to distort the competition behavior. But it’s hard to start a lawsuit according to this idea. In fact, whether we choose bitcoin cash mining market, cryptocurrency mining market, or provide mining or blockchain trading system as the relevant market of this case, it is difficult for us to find the evidence & mdash; or more precisely, even the exact index to measure the degree of & mdash; competition.
4. Dispute on whether collusion damages competition
Even if bitcontinental and its stakeholders do reach some kind of collusion, it is worth studying whether this collusion is an unreasonable trading strategy and whether it will bring anti competitive effect.
First of all, although bitcoin did collude with its stakeholders in a certain sense in order to implement the “ABC” program. But from the result, it mainly promotes the expansion of the market, and the anti competitive effect is not obvious. The antitrust regulation is mainly those collusion which hinders competition and brings about price rise. However, there is still controversy on how to regulate the collusion which promotes market expansion but does not bring about price rise.
Secondly, although bitcoin has united some stakeholders and adopted some strategies that affect computing power in the process of implementing the “bitcoin ABC & rdquo”; plan, its opponents, supporters of the “bitcoin SV & rdquo”; plan, have adopted the same strategy. In this case, whether this collusion of gangs should be regarded as an anti market means or a normal competition behavior, I’m afraid, remains to be discussed.
Third, even if United Corp doesn’t focus on the fact of conspiracy itself, but on prosecuting bitcontinental’s manipulation of the process, the case still seems to be hard to establish.
If United Corp wants to accuse bitcoin of manipulating the process, there are two possible reasons: first, the bitcoin white paper points out that the mining process should adhere to the principle of “decentralization” and “democracy”, which is clearly violated by bitcoin’s collusion. Second, bitcoin cash developers added a checkpoint to the code shortly after the split. The so-called checkpoint is to prevent the protocol from reorganizing the code of the block below the checkpoint block. It can ensure that even if someone obtains control over most of the mining capabilities, they cannot change the blockchain before the checkpoint. In the view of United Corp, this is a way for developers to consolidate the status of blockchain, represented by bitcoin ABC & rdquo.
But it seems hard to be persuasive to use these two reasons to accuse bitland of manipulation. On the one hand, the bitcoin white paper can only be regarded as a common principle shared by people in the “currency circle”, which has no legal effect. It seems far fetched to accuse bitland of violating the principles of the white paper. On the other hand, although the establishment of checkpoints is controversial from the perspective of governance, it is not uncommon in practice. Most of the time, they are often seen as a security and efficiency mechanism.
Interestingly, Kraken, an exchange, was also specifically named as the defendant in the United Corp complaint. As an exchange, Kraken didn’t directly engage in the battle of computing power, but marked & ldquo; bitcoin SV & rdquo; as unsafe, which led users to turn to & ldquo; bitcoin ABC & rdquo; and other substitutes. In United Corp’s view, this behavior may limit the dynamic competition between cryptocurrencies and affect users’ free choice of cryptocurrencies. The accusation immediately led the case in a more complicated direction, namely, the vertical collusion between the power owner and the exchange. As for whether such collusion will have an impact on competition and consumer welfare, more in-depth analysis is needed to reach a conclusion.
Reflections on cases
Up to now, this & ldquo; blockchain anti monopoly first case & rdquo; is still in progress. According to the practice of anti-monopoly cases in the United States, it is estimated that the case will not come to an end for a while. However, this case has left us a lot of problems to think about.
On the one hand, under the condition of blockchain, what is our identity? This may become a problem. In the traditional environment, although we also play different social roles, sometimes consumers, sometimes producers, the role switching is often separated in time. However, on the blockchain, these roles themselves may be one. Just like the plaintiff United Corp in this case, we may contribute to the network as “miners” at the same time, enjoy the return brought by cryptocurrency as investors, and accept the services provided by the network as consumers, all of which are staggered. In this context, “who am I” becomes a question. If this is just a philosophical thinking, then the problem is not big, but more often, it may become the focus of a legal dispute, as in this case, at this time we have to deal with it seriously.
On the other hand, under the condition of blockchain, how to restrict power has become a problem.
When Nakamoto proposed the concept of bitcoin, what he wanted to do was to apply blockchain technology to break the monopoly of the real world and create a fair new world. In his ideal, bitcoin based on blockchain technology should be an efficient and low transaction cost democratic currency. In order to ensure this kind of initiative, he painstakingly designed the “51% Rule”, which stipulates that only with more than half of the computing power of the whole network, the network architecture can be modified. In his opinion, in the decentralized network, it is not easy to achieve this ratio of computing power. Only those proposals that meet the public opinion and can be accepted by the majority of users can be accepted.
However, from the later development, we can see that the blockchain and bitcoin did not fully follow the path originally envisaged by Nakamoto. In reality, the transaction cost of bitcoin is very high, and the currency value fluctuates greatly, so it almost loses the function of the transaction medium of currency, and more people only regard it as an asset to speculate or store. What’s more, bitcoin attracts capital power when its value is high. By controlling computing power, they soon established their own power in this originally free kingdom. As a result, the ideal of “decentralization” is gradually fading, while the trend of “decentralization” is gradually emerging. All kinds of cryptocurrency systems after bitcoin, including bitcoin cash, have experienced this trend almost without exception.
For the power of the traditional world, we have a relatively complete legal system to restrict them. For the power generated in the real market, we can regulate it through the anti-monopoly law. Although the law may encounter some problems in the face of new organizations such as platforms, in general, it can work. However, are we ready for the new world created by blockchain? I’m afraid not yet. If we simply apply the framework of anti-monopoly law to analyze collusion or abuse of market dominance under the condition of blockchain, the first problem is to investigate its relevant markets. But what is this market? It seems that the traditional “principle of substitution” and the resulting ssnip are difficult to answer. Even if the relevant market is determined, how can we determine the dominant position of the market, analyze the rationality of the behavior of the subject involved in the case, and evaluate the performance consequences of the case? All this, it’s hard to give an answer. From this point of view, in addition to the existing anti-monopoly law and other existing laws, we are afraid that we need to prepare some special legal tools for blockchain.
Not long ago, when general secretary Xi Jinping presided over the collective learning of the Politburo of the CPC Central Committee, he emphasized that the integrated application of block chain technology played an important role in new technological innovation and industrial transformation. We should take blockchain as an important breakthrough in independent innovation of core technology, clarify the main direction of attack, increase investment, focus on tackling a number of key core technologies, and accelerate the development of blockchain technology and industrial innovation.
This important speech by General Secretary Xi did come in time. It can be predicted that with the encouragement and advocacy of the central government, China’s blockchain technology and related industries will usher in a round of rapid development, which will have a huge role in promoting China’s economic and social development. However, we must also realize that, just like any kind of technology, blockchain technology has its two sides. While creating huge value, it may also produce many problems. In the name of developing blockchain, outlaws may go to “cut leeks”, while others may seek their wealth and strength by controlling the computing power in blockchain network. In this process, they do not hesitate to damage the interests of ordinary participants. In the face of such a problem, how should we deal with it? I’m afraid it’s worth thinking about. However, the emergence of “the first anti monopoly case of blockchain” just provides us with some perspectives to think about these issues. In this sense, we have reason to continue to pay attention to the progress of this case.