[Spotlight] Crypto talk and what is blockchain

This video was really helpful in helping me understand what blockchain is

and this

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Also thought you might find this helpful @p.j

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annnd saw this today… on travela.com you can book holiday/flights on crypto!

As @danny_hearn did a spotlight talk last night (“The future is blockchain? It’s not just a slow database!”) I’ve adjusted the thread title, so we can host a post-wednesday discussion here.

Among the links shared on the etherpad, we have:

Thanks @Ed_S and to add… Singularity.net is joining Cardarno which is an AI engine. Interesting interview with founder here - SingularityNet Decentralized AI and Cardano's DEFI advantage with Ben Goertzel | The Cardano Aura 11 - YouTube

Cryptography is an excellent, interesting, and useful field. Hashing, signing, encrypting, sharing keys securely, are all useful and ingenious.

Using those primitives to build a distributed ledger: a record which we can only append to, and which is widely accessible, replicated, and requires trust of only a majority of participants, is also ingenious, and possibly useful.

Using a distributed ledger to track ownership of assets, terms of contracts, transactions - I can see how that could be useful.

However… I don’t want to be too negative here, but… I have reservations about cryptocurrencies in general and bitcoin in particular.

To be really general, most of my reservations are about trust.

  • It’s very difficult to distinguish an investment opportunity from a scam, or from a Ponzi scheme.
  • It’s difficult to distinguish a price rise because of rising values from a price rise because of speculation.
  • Also about trust, one of the themes from those interested in cryptocurrencies is the theme of distrusting central banks, and their policies on interest rates, printing new money, and inflation.
  • One of the difficulties of using cryptocurrency is the trust rested in one’s computer, one’s backup procedure, the client software, the cryptocurrency exchange. Computers are not terribly trustworthy, backups are usually missing, software is usually buggy, and exchanges often fail with suspicious amounts of missing money.
  • Trust in one’s own understanding is important too. How do I choose a coin to buy? How do I create and manage keys or identities? How will I (eventually) redeem my purchase?

I will confess I have not watched the videos linked above, but I have had many conversations and done a bit of reading over the years. So far, I have felt no inclination to get involved. And of course I must recognise the spectacular gains I’ve failed to make as a consequence - although I would only have made them if I had done everything right, including the buying and the selling.

Edit: oh, and the cost to the environment!

Bitcoin has a carbon footprint comparable to that of New Zealand, producing 36.95 megatons of CO2 annually, according to Digiconomist. The cryptocurrency consumes more electricity than the entire annual energy consumption of the Netherlands, Cambridge University researchers say.5 Feb 2021

I’d like to respond in detail @Ed_S as I think you make some interesting points…

In the meantime, interesting articale on why decentralisation is Web 3.0 and why tech giants don’t like it

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And some thoughts on future of crypto currency from the guy that confounded eth and Ada https://youtu.be/36BMWCB9I2w

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Interesting thing on the backups @Ed_S is that many of the wallet systems for these coins (I can’t speak for all of them) have a paper backup - usually a seed in the form of a bunch of English language words to regenerate you private key with a (somewhat) human-friendly means of entering the code.

Does depend on software, but essentially ownership based on Private Keys.
Hardware wallets are an option too, but I’ve not looked too deeply into those.

———
The distrust of central banks is interesting, with limited supply on many coins (structurally deflationary) vs money printing in fiat currency (inflationary).

I found the upward trend flipping to a sizeable drop when both India and Nigeria announced legislation to ban trading interesting. The head of the BoE also released a statement on the risks in the same timeframe, along with lots of stories on the risks. (US inauguration may have settled down some dollar uncertainty for a bit too).

Then it flipped back into upward trend a few days later (the Tesla thing was a big boost, but it started rising before that).

Definitely feels like a bubble right now, which undermines some of the deflationary hopes since, if you got in at the wrong time and there’s a market correction, you lose value vs your original stake.

———-

Another interesting area is guaranteeing fungibility (interchangeability) to reduce outside control - e.g.
Bitcoin: you unwittingly receive tokens tainted by illegal activity easily traced in the public blockchain - exchanges or other users refuse to accept it to avoid the association. Your tokens aren’t worth the face value whereas other random tokens on the same blockchain are.
Fiat: you’re a political dissident in a country with power to freeze/seize assets. Your holdings can be taken to zero.

That’s a double edged sword since it could enable money laundering & other dodginess, but

A related area is NFTs - deliberately Non Fungible Tokens. The potential being to provide (traceable) cryptographic ownership proofs for unique assets - a famous, but frivolous example being “Rare Pepes” - that had quite a meme-turned-tulip-craze feel to it, abit like Dogecoin, but I can see plenty of real use cases.

——-

I find it hard to see where this will end up.

Institutional investment seems to be happening along the lines of ‘Can we afford not to hold some Bitcoin?’, which (with current QE/stimulus) extends FOMO to the level or ‘we may not exist if we miss out’.

Tech Utopians might see it as a way to redistribute wealth and reduce power imbalance in both information systems and finance.

Others might appear in that vain & build in a power imbalance of their own either by mistake/lack of foresight or deliberately or in a “some animals are more equal than others" vibe.

Using economics to shape the internet/information networks in a more balanced way is fascinating. I just don’t have my head wrapped around it yet and think some of the ideas could be played out a bit more in the current web (in a Tim Berners-Lee vein) before moving to blockchain (and the financial speculation that brings).

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Nice short piece from only 6 years ago - not entirely positive:

I should explain myself a little: in general, in Tech Shed and in retrocomputing, I like to see enthusiasm and I don’t much like it when people are negative about something where other people are positive. My usual advice is that if you don’t like something, just let those who do like it chat with each other.

I’m in danger of hypocrisy for even showing up on this thread. My best justification, I think, is that there is hype in this area, and it could do with some balanced discussion. Also, I fear many people stand to lose out, so, much like any bubble, speaking up as a doomsayer feels like it’s doing good. Finally, it’s a reputational thing: I wouldn’t want the forum to advertise our Shed as being all of one mind on this particular thing - some of us are keen, some curious, some sceptical.

I definitely want to keep exploring it - the fact that more people become aware of the technical possibilities being opened up is fantastic.

Even if what’s out there now didn’t become widely adopted, the ideas sparked off likely will.
And as stated in the video @danny_hearn posted, the potential for cross chain exchange makes it less important how long today’s chains are popular.

Oh, indeed, I’m all for the discussion continuing.

I wanted to respond to your points ed… I think you make some good points about BTC specifically but not all points land squarly when looking at some of the ALTs to BTC… Esp ADA - https://cardano.org/

It’s very difficult to distinguish an investment opportunity from a scam, or from a Ponzi scheme.
Yes agreed… with ADA/ Cardarno this is much better managed. The platform is being built for so much more than just a currency, they are creating smart contracts which will open up possibilities to develop lots of different and practical uses

It’s difficult to distinguish a price rise because of rising values from a price rise because of speculation.
True, although as more instiutional investment comes in i think it will level off. Also with ADA/Cardarno they have stake pools. Incentives for people to stake to support the network infrastructure and get ADA in return. This also helps stablise the currency

Also about trust, one of the themes from those interested in cryptocurrencies is the theme of distrusting central banks, and their policies on interest rates, printing new money, and inflation.
Yes and I think this is a positive move. The banks have behaved very poorly in the past, being bailed out on tax payers money, exploiting debt etc… and in JP Morgans case, downplaying BTC then buying on the dips! I find the ideology of a decentralised infrastructure and finance system really appealing.

One of the difficulties of using cryptocurrency is the trust rested in one’s computer, one’s backup procedure, the client software, the cryptocurrency exchange. Computers are not terribly trustworthy, backups are usually missing, software is usually buggy, and exchanges often fail with suspicious amounts of missing money.
There are lots of options here…

  • Are centralised solutions foolproof too? Anyone can be hacked and scammed as has happened numerous times within existing financial systems.
  • In terms of individuals storing the money on their own wallets, I use a USB stick with passcodes etc. However it is possible to store your money in an exchange too.

Trust in one’s own understanding is important too. How do I choose a coin to buy? How do I create and manage keys or identities? How will I (eventually) redeem my purchase

Through research and a bit of considered risk. I looked at quite a few of the coins and fell on ADA. Partly as my cousin developed it (listen here Spotify)

And also I think it is the most rigorously developed technology (they have over 70+ white papers, have all their code peer reviewed, with numours cryptographers and PHD scientists on the team. In contrast with DOGE which was just made as a joke…

Thanks @danny_hearn, here are a couple more thoughts, if you can tolerate me a bit longer: coins are being touted as being a store of value, as being useful as currency, and (some) having useful side-effects such as smart contracts. How do those two or three factors play off against each other?

In particular, if you’re not setting up some specific important facility which makes use of a cryptocoin, why would you choose only one? Isn’t this in effect a gamble on the future outcome with your chosen coin(s), and so isn’t it better to have a portfolio? That’s what one would do in conventional investing, and possibly also in conventional gambling - a gambler will not (usually) stake everything on a single choice.

Of course, from a technical perspective, I’d prefer to see something which has sound mathematics and engineering behind it, and anything with a security aspect I’d hope for some peer review or adversarial analysis. I’d surely prefer something with a lower, rather than higher, energy cost.

(From a speculative perspective, this is something of a Keynesian beauty contest - pick something which other people are picking. I suspect the smart money is very happy to see an unregulated arena with mostly unsophisticated traders. In the long run, in my thinking, the rich get richer and the poor lose their shirts.)

coins are being touted as being a store of value, as being useful as currency, and (some) having useful side-effects such as smart contracts. How do those two or three factors play off against each other?

When you invest in a coin what your investing in is;
The technology/platform/organisation that developed it. Your betting that the platform that runs that particular coin will be monetised in lots of different ways in the future. With Cardarno, users get incentivised to stake their coins to a pool (and not spend it). That pool operator also gets payouts for running a node that runs the network. This network will then be utilised for the wider platform and infrastructure. So the more nodes, the more staking the stronger the network… So thats how I understand the intersection. File coin is another good example https://filecoin.io/ .

In particular, if you’re not setting up some specific important facility which makes use of a cryptocoin, why would you choose only one? Isn’t this in effect a gamble on the future outcome with your chosen coin(s), and so isn’t it better to have a portfolio? That’s what one would do in conventional investing, and possibly also in conventional gambling - a gambler will not (usually) stake everything on a single choice.
I agree… which is why i largly invested in coins that ‘do something’. Although I can still see a benefit in a crypto coin, that allows you on principal to not give your money to banks. As they are starting to create payment through BTC people can shift the power and control away from banks. - Apple Pay Bitpay Bitcoin Support News | HYPEBEAST

Of course, from a technical perspective, I’d prefer to see something which has sound mathematics and engineering behind it, and anything with a security aspect I’d hope for some peer review or adversarial analysis. I’d surely prefer something with a lower, rather than higher, energy cost.
I really think you should look at cardarno. It was setup by a mathmatican. Here is all the research that this crypto has done (70+ whitepapers) - Research papers - IOHK Research

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Here’s a piece on prediction markets, in this case using a blockchain to register predictions and (presumably) to collect payouts:

Prediction Markets: Tales from the Election (won $50k, much of it on bets placed after the election!)

Prediction markets are a subject that has interested me for many years. The idea of allowing anyone in the public to make bets about future events, and using the odds at which these bets are made as a credibly neutral source of predicted probabilities of these events, is a fascinating application of mechanism design. … And as Augur and Omen, and more recently PolyMarket, have shown, prediction markets are a fascinating application of blockchains (in all three cases, Ethereum) as well.

Do you think that by just having your money in a bank account your also making a bet… A bet that inflation won’t devalue your funds, and that interest rates will rise?

Slight change of direction.

One of the interesting parts of Blockchain research is using economics to bake in incentives to try to make things self-sustaining.

Aside
The DAO (digital autonomous organisation) is perhaps the ultimate example of where that might go.

It’s a brilliant, fascinating (potentially terrifying) concept, based on coding in the economics and governance to make a sustainable org - the original DAO deployed on Ethereum had a flaw that was exploited, but the idea is still going.

Back on Topic
Off the back of the CleanAir call earlier, this chain came to mind. I came across it a few years ago while looking at options for IoT networking.
https://www.helium.com/

The core idea being to incentivise the useful proof of work of keeping gateways online and/or contributing data, potentially improving the “unplugged device” issue.

There is a bunch of articles & research in the Economy of Things (EoT) area.

Woo so are you saying we should create a crypto clean air coin! You get rewards in crypto for running air sensors :smiley:

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Interesting commentary on where the value is shifting from crypto coins to blockchain applications