It'd be cool to have digital cash, but I think we're decades away.
Unfortunately, it seems that cryptocurrency enthusiasts focus more on the crypto than on the currency. To be taken seriously, there need to be realistic approaches to things like monetary policy. The ungoverned money supply of cryptocurrencies seems to be touted as a feature, but AFAICT, it's a fatal bug.
Think of the money supply as the denominator and total addressable value as the numerator; the goal with a stable currency is to keep the ratio constant over time (or as close as possible).
The fixed money supply of bitcoin is a joke. If the currency were successful, bitcoin's fixed supply (a constant denominator) wouldn't keep up with global growth (a growing numerator), which would make the currency more valuable over time. This would result in a deflationary spiral (no one spends the money b/c they're better off waiting and letting it appreciate, which leads to less spending, which leads to even more deflation, etc.)
The etherium money supply is said to be TBD, but why would anyone be optimistic? Consider the layers of analysis underpinning the last Fed statement in May:
A) political philosophy (for the Fed, the goal is to maximize employment and stabilize prices),
B) macroeconomic understanding (for example, the relationship between money supply and growth),
C) economic data collection (employment, prices, inventory, output, etc.)
That's incomplete, but consider: how much of that kind of thing is even approached by any cryptocurrency community? Does anyone think the same kind of extreme care taken by the Fed is going to be replicated?
When know-nothing articles like this one pass for news, well... let's just say the emperor's naked.
>It'd be cool to have digital cash, but I think we're decades away.
Maybe for the US, but China is already prepping for it and have released statements earlier this year of completing a trial run for it. Putin just spoke with Ethereum founder this weekend as well.
Money is technology, both are power. China and Russia can make decisions on this quicker because they are ran by few people at the top. Macron has a Ledger Blue from his time as minister of economy. Italy, Australia, and Japan treats cryptocurrency now or very soon as a currency. Think Russia is taking the US route and treating it as a property for now.
And extreme care from the fed? It's the blind leading the blind. There's no exact science to economics. Should I replay Greenspan's admittance that his model of the world was wrong?
And we only have to worry about the current coin community if it takes over. But there are already coins that are getting backing from large financial institutions. Governments can also create their own centralized coins so it'll end up being pretty much the same as it is now.
It's all ultimately debatable of course, but for a lot of crypto enthusiasts, fixed money supply IS a feature, and a great one.
Two main points I see lacking in your analysis:
1. The deflationary spiral is presented as some "fact". There is no evidence that this is what happens if there is a fixed supply. It's absolutely logical that people WILL spend less if they know the money will be worth more next year. But how much less? Is that a bad thing? In many ways, all the recent economical troubles have been caused by exactly people spending too much, spending the money they don't have. Maybe deflationary supply is exactly what is needed for people to buy what they need, not go on buy-all-sprees just because they know their money won't be worth anything soon (as it is now in the inflationary model).
2. World history regarding the price of gold. As an example from Creature From Jekyll Island (a book), in ancient Rome, to buy a custom tailor-made suit and a pair of custom-made shoes cost 1 ounce of gold. This is approximately the same order of magnitute of what it costs today, by today's gold prices.
All while Gold is, by many standards, is deflationary as well. (Well you might say that new gold bricks are mined, but it's very limited. In the same way new bitcoins are also still mined and will be so for hundreds of years.) So what happened? If fixed supply is such a bad thing, why don't people just hoard gold and the price is through the roof?
On the contrary, the history shows many examples where after societies went from the gold standard to the more "fluid" money supply, when governments started to mix other metals in the coins, when they removed gold at all - that's when the economic troubles started. Human-controlled money supply has proven itself time and time again non-functional. The people in positions of this power cannot avoid abusing this power.
There are a lot of things that point to the notion that it is in fact the "deflationary spiral scare" that is a joke, and a fixed supply is what is needed in the long run to make money work most effectively.
> It's absolutely logical that people WILL spend less if they know the money will be worth more next year.
That's not the problem. The problem is that it causes currency to become an investment vehicle.
If the expectation is that the currency will be worth 5% more next year than this year then everyone with an investment with <5% returns will sell it and hold currency instead.
Then you get two big problems.
First, it screws up your economy, because people can hoard currency instead of investing in economically productive activity. Which means higher interest rates, which makes it harder to start a business.
Second, it causes high volatility in currency prices, because most of the currency is held by speculators. We have seen this with Bitcoin already. This is a problem for people using the currency as a medium of exchange because you can lose your entire margin and then some if the value of the currency can change by a double digit percentage in the short time that you're holding it. And this is what causes the deflationary spiral on the upswing -- which is really an investment bubble that causes yet more problems when it pops.
> World history regarding the price of gold.
Gold hasn't really ever been primarily a currency. It has always had several competitors as a medium of exchange (silver, jewels, wheat, pelts, barter), fractional-reserve banking has existed for hundreds of years, and it has a built-in hedge because the more expensive it becomes anywhere the more incentive there is to mine more of it or import it from other countries. As a result its price has almost always been determined more by its value as a commodity than its use as a currency.
If it was otherwise then the price stability against other commodities is not what we would see. Imagine there was only one ounce of gold in the world but only two tailors used it to alternate buying suits from each other. If you want to allow there to be another two tailors doing the same thing somewhere else then either you need another ounce of gold for them to use (increase the money supply) or the price of a suit has to come down so each pair of tailors only needs half an ounce of gold (deflation).
" If the currency were successful, bitcoin's fixed supply (a constant denominator) wouldn't keep up with global growth (a growing numerator), which would make the currency more valuable over time. This would result in a deflationary spiral (no one spends the money b/c they're better off waiting and letting it appreciate, which leads to less spending, which leads to even more deflation, etc.)"
One of the best things about crypto is that its actually going to test keynesian economic dogma in a free market of competing currencies.
The fed firehosed 6 trillion dollars into the accounts of big banks since the GFC, which hasn't done much other than inflate the stock market or sit idle. Is that extreme care?
Don't bother arguing - within a few years we will find out the truth.
Most of that was overnight and short term loans quickly paid back to ensure solvency of balance sheets to avoid a depression instead of recession no?
I was also thinking it'd be interesting to have a fixed supply currency be tapered towards the UN and analysts predictions towards the apex of human population. Quite a few of the charts predict humans will level off around 10 billion in the year 2050. If that's the case, it might not make sense for the pie to be continually growing as it does now since the population continues to increase.
But inflation with a growing population at moderate levels is generally seen to be a positive thing and I think the fed has even had trouble keeping up with the inflation targets they're comfortable with as of late (although I think last year was something like 2.4% which is pretty reasonable).
Generally seen as positive by whom? A few people calling themselves economical scientists who have managed to come up with a jargon complex enough to not be understood by an average person, and thus make this average person think that he needs other people who do understand economics?
There is no "science" behind this, it's all a giant experiment. There is no true "data" showing that you can really manipulate inflation like they have been doing, and that it will somehow make the economy better.
The idea we shouldn't trust an entire field of experts who've spent their lives studying something because all the answers aren't known perfectly would lead to huge subsets of people who don't believe in things like climate change or evolution...
Oh wait.
Why should the average person need to understand the jargon of an economics expert? The average person should be able to buy bread and shelter. Isn't that the understanding they need?
Just like, why should the average person need to understand the different types of ozone depleting gasses? The average person should be able to breathe clean air and live in a city/state/nation that's not literally being swallowed by the ocean.
Does the average person need to understand what a software engineer means when they talk about concurrent asynchronous calls kept in check by a byzantine generals algorithm to ensure consistency across nodes?
I'm sure if the average person spent 100 hours studying economics they could grasp the basic concepts quite firmly.
But, quite literally, the entire point of having experts in a society due to the advent of specialization stemming from the agricultural revolution is so that people can do and learn different things and the sum of the parts can be greater than the whole.
If you want to learn more about economics than go do it, but attacking an entire field because you can't be bothered to learn its particular jargon seems shortsighted at best.
No one's saying "trust everything blindly", either.
Well... I'd say we've got a long ways to go before an extremely volatile transaction rate limited currency which can't be exchanged at the vast majority of businesses primarily measured based on it's exchange rate with the USD is a viable alternative to the USD ;-). Especially when it's currently consuming about a power plants output worth of electricity to perform primarily meaningless hash calculations in a world where many people don't even have electricity and electricity use is killing our planet.
Things like power outages making it impossible to perform transactions (although for some people that'd be true with credit cards) is another big issue.
Not that there's not a lot of neat stuff to the block chain and crypto currencies, and I think ethereum is really neat. I'm not anti cryptocurrency, but I'd say it remains to be seen if it's a viable alternative to fiat currencies.
A bit off-topic perhaps, but you misunderstand the purpose of mining (hash calculations).
They are not meaningless by any measure.
Calculating hashes is required for the network to prevent double-spends. There is no other known technology that can do the same thing in a distributed network. This property of the network (it being distributed), along with the basic functionality of a currency has obviously been valued by the market. This means that there are people out there who gain from using it. This means that calculating hashes is valuable and has utility for people. The way that utility is implemented is just a technical design question.
If your statement was correct, one could easily extend it and say that Internet is consuming a whole lot of power for the meaningless purpose of powering the switches and routers that make up the backbone of the network. That all that energy goes to waste to have some machines standing somewhere in a datacenter that noone sees.
Obviously, those machines transform the energy into practical utility, and so do ASICs calculating Bitcoin hashes.
Yes well if I were to put my response in a more politically correct manner, it would be something like: a statement "It's generally understood by technology experts that SSLv1 is insecure for most purposes and should be avoided" - that's one thing, with it's own level of certainty. When someone is saying "it's understood by economy experts that inflation of 2% is best for the economy" - there is an order of magnitude less certainty in that statement, because the whole field is just one giant experiment, where they make up things as they go, while having little to no real means of critically measuring their results.
I don't think that economy experts are necessarily doing a poor job, it's just that the field itself is much more uncertain. And since we are discussing their performance here, it's only fair that this would come up.
We already have electronic money - I can pay using electronic euros just fine. The point of creating Bitcoin was to make something different, a digital currency that couldn't be managed. What would be the point of creating a copy of existing currencies?
I'm completely ignorant about the future of Bitcoin, but the reason I like it is because it's an experiment. If nothing else, at least it might serve as evidence for mainstream theories if and when it fails.
In any case, it's not strictly true that Bitcoin's supply is fixed, you can have fractional-reserve banking.
Fractional reserve banking is exactly what Bitcoin has evolved to prevent :)
But yes, if nothing else, the MtGox fiasco has showed that fractional reserve can in reality function in Bitcoin world for a while.
> Does anyone think the same kind of extreme care taken by the Fed is going to be replicated?
What are some examples of where "the extreme care" has resulted in long term positive outcomes?
The paradox is that a modern society needs a unit of exchange (money), however, the management (adding and subtracting) of that medium of exchange is extremely problematic.
For better or worse Bitcoin isn't at all similar to the current bank/central bank system we currently have and without the ability to increase the money supply to prevent bank runs never will be. But the federal reserve's evolving strategy is just an experiment. And their effectiveness remains to be seen.
Monetary policy in the sense of the Fed can easily be implemented in cryptocurrency; an Ethereum token can be trivially minted and burned according to its owner's wishes.
Decentralized and semi-autonomous monetary policy is an emerging topic. The Maker/Dai project (http://makerdai.org/) is working on formulating smart contracts that give rise to a price-stable token backed in excess by diverse collateral cryptoassets.
Here's what I don't understand about the alleged ills of a deflationary currency: wouldn't the buyer's incentive to hoard the currency rather than buying, be exactly equal to seller's incentive to acquire the currency as an investment, and therefore priced into the transaction?
A merchant has to basically turn around and sell the currency for more merchandise right away, so it's worth less to them because they'll never see the deflationary gains -- they're compelled to trade now.
The only people who do see gains are people who hold amounts in excess of their short term needs -- bitcoin's monetary policy is building the notion that the rich get richer while everyone else is coerced to transact at suboptimal prices right into the heart of it. Bitcoin is fundamentally about exploitation to benefit the wealthy true believers.
Wouldn't the same logic apply with the seller and their vendor? At the end of the chain, someone ends up holding the Bitcoin, and they have an incentive to pay a little extra, assuming a reliable and consistent level of deflation.
In a sense, this already happens in dollars, in the form of opportunity costs for relatively stable investments like mutual funds. Assuming zero transaction costs, what's the difference between spending Bitcoin that would otherwise appreciate 5% value per year, vs. spending dollars, thereby foregoing the opportunity to invest in a 5%/year mutual fund?
(Obviously, I'm assuming an ecosystem of both fiat and crypto; it might be a different story if we were debating a deflationary-crypto-only marketplace.)
Also: it's worth noting that the steady influx of new coins, deflationary and otherwise, means that if one looks at the entire crypto ecosystem rather than just Bitcoin, the deflationary problem may end up being practically non-existent. For better or worse, the whole thing is effectively a live experiment in the Free Banking model: creating markets for currency itself.
"what's the difference between spending Bitcoin that would otherwise appreciate 5% value per year, vs. spending dollars, thereby foregoing the opportunity to invest in a 5%/year mutual fund?"
Risk. The decreasing yield of mining ensures that the future value of bitcoin will appreciate (assuming demand stays flat). There is no risk that supply might suddenly increase.
Unpack that for me? Assume we're already past the point where no new coins are being mined, and Bitcoin is appreciating value at a steady rate. (Volatility is a separate concern from deflation.)
In that scenario, how is spending Bitcoin any different, micro-economically, than foregoing the opportunity to invest in a similarly-appreciating mutual fund? What's absent from my model?
Your model is not considering risk; the time value of bitcoin is risk-free positive, whereas any other instrument (in fiat) is either low risk break even, after inflation, or risk positive.
Assuming people are rational actors, they would spend as little as possible and hoard the rest.
So then we need to ask: "how is holding bitcoin different than investing in a similar mutual fund".
Holding bitcoin decreases the money supply driving up value artificially, whereas investing in a mutual fund increases the money supply available for investment and drives economic growth.
If bitcoin is the only world currency and money velocity is constant, it will rise/fall by the same percent as the world economy. We already have a similar financial instrument - Vanguard total world stock ETF. Why this ETF does not produce a deflationary spiral? I think the answer is the same for bitcoin.
The velocity of index funds is far different from that of currency. The former doesn't even fulfill the requirements of currency, try buying a haircut with that fund...
> no one spends the money b/c they're better off waiting and letting it appreciate, which leads to less spending, which leads to even more deflation
Do you have actual scientific and researched proof for that or you just pulled it from air? The bitcoin money processor (bitpay) said that every spike in price results in a spike of sales; that goes against what you are saying. If the price of a currency increases significantly, the purchasing power of the holder of that currency increases too. Which means he can spend more.
But I don't have any data to back my claim either, and bitpay doesn't release their volume numbers.
Russ Roberts, the host of EconTalk and economics professor, also doesn't think that Bitcoin's fixed supply would lead to destructive deflation.
> Isn’t a fixed supply of money dangerous?
> It’s certainly different. “Elaborate controls to make sure that currency is not produced in greater numbers is not something any other currency, like the dollar or the euro, has,” says Russ Roberts, professor of economics at George Mason University. The consequence will likely be slow and steady deflation, as the growth in circulating bitcoins declines and their value rises.
> “That is considered very destructive in today’s economies, mostly because when it occurs, it is unexpected,” says Roberts. But he thinks that won’t apply in an economy where deflation is expected. “In a Bitcoin world, everyone would anticipate that, and they know what they got paid would buy more then than it would now.”
This is not some general consensus, this is a viewpoint that exists. Among many others.
Also this:
> Elaborate controls to make sure that currency is not produced in greater numbers is not something any other currency, like the dollar or the euro, has
Is very obviously incorrect. Fed and the congress have absolutely been producing new money in great numbers without any controls by the people. Ever seen the national debt watch? If you have not researched how Fed works and how (and when) new money has been produced during recent decades, you should really do that. You will be scared.
I think there's a misunderstanding. Russ Roberts is saying in that sentence you quoted, basically, "USD and EUR can be produced in huge amounts just because the monetary authorities want to". Are you sure you think he's incorrect?
> This would result in a deflationary spiral (no one spends the money b/c they're better off waiting and letting it appreciate, which leads to less spending, which leads to even more deflation, etc.)
The deflationary spiral can happen, but not as easily as you think and not when everyone is acting rationally. Let's say the economy (your numerator) is growing by 5% per year. then deflation would also be 5% in your model. If you have a project that returns 10%, you would still spend the money. However, if you have a project that returns 4%, you would keep it. So in you case, it would only be the below-average projects that are not being implemented, which is not such a bad thing as it means that there are more resources left for the high-return projects.
If you are aware of an economic model that allows for deflationary spirals under rational expectations, please let me know.
It has never made sense to have turing complete currencies. Ethereum will continue to be a great idea in the short term and a terrible idea in the long term.
I can easily imagine a dystopian future where basic sciences are no longer taught and Galileo seems irrelevant and quaint compared to the everyday chores one must do to avoid being repurposed as stock for the local Soylent Green factory.
Yeah, I was expecting something insightful, but it's just an Ethereum promo. Nothing against Ethereum (although I'm personally not very excited about/interested in it).
My feelings are very similar. Ethereum does a ton of things right -- GHOST for fast blocks, Merkle root of balance tree instead of transaction tree, nonce-based double-spend protection instead of UTXO gymnastics, simple transaction semantics, fixed reward instead of decreasing reward.
But then on top of that there's this Turing-complete language that basically makes every client hugely complex while enabling use cases which are little more than zero-sum games.
It's totally possible that Ethereum will be wildly successful and overtake Bitcoin -- the advantages above are significant. But I have to imagine that just as non-standard transactions in Bitcoin never took off, so the contract support in the future will be seen as a slightly embarrassing anti-feature that continues to exist but is increasingly rarely used, like 402 "Payment Required" or any other similar remnants.
An understanding of how to authenticate the blockchain and transactions is obviously essential, however, I haven't seen the same level of discussion on the affects of managing (or lack of managing) the crypto-currency's money supply. With bitcoin the total number is finite. With etherium, it appears that money supply management is being debated. IMHO this management of the money supply is a huge issue.
At any given time the supply of etherium is what it is, as with fiat currency. It's still finite, even as it continues to grow. The value of etherium is a function of the current and anticipated future supply, just as the value of Bitcoin is a function of the expected current supply (some amount is known to have been lost, some amount is "known" to have been lost, some amount is expected by some parties never to be touched again, etc.)
In practical terms I don't see how this is necessarily a huge issue in the one case and not in the other.
> In practical terms I don't see how this is necessarily a huge issue in the one case and not in the other.
In the case of fiat currency, the supply of money is based primarily on 1) Increases/Decreases in the loans provided by banks and to a lessor extent 2) a central banks balance sheet.
I don't believe it's possible to add to the supply of bitcoins simply by loaning them into existence vs. fiat currency. That is, there isn't a closed-loop system similar to the banking system that allows for this elasticity of bitcoin units.
I'm not advocating that this is a requirement or even desirable, it's just a limitation that I don't see often discussed.
I don't believe it's possible to add to the supply of bitcoins simply by loaning them into existence vs. fiat currency.
Of course you can. People deposit BTC in your bank, and you then loan that out to others while telling the depositor that they can withdraw at any time.
and that credit won't be accepted by anyone who doesn't trust the creditor (bank in this case). so it's useless unless you only intend to spend the credit at certain locations that accept this credit
cash, on the other hand, doesn't suffer from this predicament, since it's legally must be accepted. so Bitcoin lending via credits can't work, if at all.
> Of course you can. People deposit BTC in your bank, and you then loan that out to others while telling the depositor that they can withdraw at any time.
First, without a change in bank legislation and/or rules, I'm not sure a bank could take bitcoins as a deposit. Second, even if they could, if a bank loaned out more bitcoins than it possessed it would be subject to the possibility of a run on depositor's bitcoins. Finally, unlike fiat currency, the central bank in order to end the run could not produce "temporary" new bitcoins to make depositors "whole". I use quotation marks because sometimes new fiat is not temporary and all depositors in the system are not necessarily made whole.
As far as I know, at least in the US, the central bank is not involved in bank runs. That's the job of the FDIC, which doesn't print new money, it keeps a reserve from funds levied upon private banks. All of which could certainly exists in a Bitcoin world.
> As far as I know, at least in the US, the central bank is not involved in bank runs.
The FDIC is involved if the bank fails, the central bank is involved to prevent the bank from failing. So the central bank is very much involved in the prevention of bank runs.
> That's the job of the FDIC, which doesn't print new money, it keeps a reserve from funds levied upon private banks.
That reserve is a small fraction +/- 1% of deposits.
> All of which could certainly exists in a Bitcoin world.
An FDIC-like institution could exist in the Bitcoin world, however, the central bank powers as well as bank's power to increase the bitcoin supply at will could not. For better or worse, this would put us back in pre-fed banking world prior to 1913.
> Decentralized P2P systems based on cryptography were not new in 2009 (you probably heard of Kazaa and Bittorrent prior). What these earlier decentralized systems lacked was economic incentives, and the lack of baked in economic incentives is arguably what stifled these early P2P systems from persisting and thriving over time.
Both Kazaa and Bittorrent worked because of economic incentives.
For example-- if you visited what.cd before it got shut down, you would find all these beefy seedboxes just sitting there waiting to shoot data at noobs to improve their ratios.
If there's a distinction to be made, it's that the P2P filesharing ratios aren't fungible.
The main reason I don't own any bitcoin is that I don't think the economics of mining make sense in the long term.
Specifically: bitcoin depends on distributed mining power in order to prevent individual miners from being able to manipulate the blockchain.
However, if you accept that (1) there are economies of scale in mining, and (2) miners are rational and will only mine when they can make a profit, then I see no reason to believe mining power should stay "distributed" rather than develop into a monopoly.
I realize this hasn't happened yet, but I don't think it makes sense to base a currency on such shaky foundations.
The basic argument is also made in the paper discussed here:
Don't be so sure... there are already mining pools that collectively control far more than 50% of the network's mining capacity. This is supposed to be existentially problematic for bitcoin, but the majority sentiment appears to be ¯\_(ツ)_/¯
The situation reminds me a little bit of the Keynesian beauty contest: what matters isn't what I think of bitcoin, it's what other people think.
Do I think the average person buying bitcoin today is even aware of these problems? Not a bit. Are they going to wise up soon? Probably not.
So maybe it makes sense to bet that Bitcoin will be popular and unaffected by these issues for a while. (I mean, you can still use it to buy heroin, right? Growth potential.)
On the other hand, ignoring the long-term problems feels a little like knowingly buying into a pyramid scheme.
Exactly, markets are based in perception. Doesn't matter what is the true value of anything, it depends what majority thinks. To quote GOT "Power lies where we think it lies".
To be clear, at this time no single pool has >50%, and your concern is that a minimum of 6 pools would need to collude to achieve >50% of hashrate. No?
My concern is that in the long term you'll see more and more consolidation of mining power, because economic forces will tend to push things in that direction. (That's what the articles I linked to above are saying.)
At some point, it might not take "collusion" to manipulate the currency because somebody will be able to do it unilaterally.
I plan to leave if hashrate distribution starts to look too consolidated. If one entity gets close to 51%, the security of the chain is compromised and we move on.
Right now Bitcoin is cool for a whole lot of reasons, discounting it because maybe possibly someday it will fail is silly.
I've been searching for the perfect word that encapsulates everything we do in the blockchain space and I guess "cryptoeconomics" is really the best fit. It talks about crypto but it also alludes to the motivations of participants in one word and seems to be able to be applied to both blockchain engineering and smart contract protocols. I guess I'll be using this term in the future
Plus smart contracts, in Ethereum's case. As a very rough analogy:
Bitcoin is a massively replicated database with a single table having accountid and accountBalance, with a stored procedure that lets you transfer some of your own account's balance to any other user.
Ethereum is a massively replicated database with that same table, but you also have developer rights. You can make your own tables and stored procedures, and other people can use them.
(Some reasons that's just an analogy: they aren't actually SQL databases, Bitcoin uses UTXOs instead of accounts and has limited scripting, and Ethereum's "stored procedures" themselves have accountIds, with their own balances.)
You will have to define "safe", but in general things like infinite loops are effectively bound by the amount of gas provided. Mistakes are still expensive, and it is easy to get the code wrong (the DAO hack and quadrigacx screw up this week are obvious examples), but the network itself is fairly stable, which is priority number one.
Is there an analysis/post-mortem on the QuadrigaCX snafu anywhere? I would be very interested in reading a detailed account of exactly what went wrong.
Also, it's normal practice for a contract to throw an exception if ETH is sent to any function that doesn't know how to deal with it. This includes the "fallback function," which is what runs if no other function in the contract is called. With recent versions of Solidity, this throw is built in, unless you mark a function "payable." But they were using an older contract, and there was no protection built into their fallback, and that's what made them vulnerable to this issue in the first place.
There is still the issue of the halting problem. But programs that would run infinitely have a finite amount of gas, and will eventually stop executing. Even if you staged an attack using a large sum of ether to fund a large amount of gas, the EVM still has a hard limit on the number of computational steps per block.
There is also still the issue of a developer writing a buggy contract (see the DAO exploit). But static analyzers and automated proofs can help address this in the future.
Indeed it is, aside from the fact that you pay a transaction fee for every step so at some point you run out of money.
Some other things that run on Turing-complete code: passenger jets, medical equipment, self-driving cars, and nuclear reactors.
I write and audit Ethereum scripts for a living. It takes a lot of care, but it's manageable because the scripts are typically under a thousand lines total, implementing simple business rules rather than complicated algorithms. It's feasible to make it very solid if you take your time, make the code as simple and clear as possible, write lots of unit tests, hire expert review, publish the code and maybe post a bounty. It's also good practice to build in something to handle emergencies, just in case.
People are working on formal verification for Ethereum contracts, so down the road we should be able to actually prove their properties.
Because it sounds like an attack vector for running abitrary code on every node in the network. Additionally there is the halting problem, you can not know if the program will halt by looking at it.
The consensus rules ensures that everybody (eventually) stays on the same chain and the PoW mechanism ensures that (after a few confirmations) it would be too costly to change the blockchain for a double spend.
>This approach has historically been thought of as insecure (the nothing at stake problem and the long-range attack have been two of the major unsolved vulnerabilities), but Vitalik and team have been diligently working on solutions to these problems. Ethereum now runs on proof-of-work, but the expectation is to switch to proof-of-stake in the next 12–18 months.
Well with all the other stuff on his plate solving a very difficult problem in the next 12-18 months will be easy and luckily there's no actual time limit aside from the same one he baked into etherium.
Etherium is a panacea for anyone hoping to reduce contractional friction, and I believe we're at the tip of the tip of the iceberg if the tech and ether are here to stay.
Bitcoin, on the other hand, still concerns me. If/when BTC is makes its appearance in the every day lives of ordinary people, its anonymity value will have eroded significantly. Traditional currencies have not yet started to compete with BTC, but they can and they will if necessary. Try getting a mortgage, car loan, business loan with BTC as collateral as one example of where my concerns rest. Look at the grossly inverted price of BTC and gold prices (artificially assuming 1BTC = 1Oz).
Before BTC there was growing dissatisfaction with money center currencies that persists today. BTC 'took the edge off' for many in those circles and may have relieved pressure on gold prices.
I don't necessarily believe this, but I've read in economic revisionist circles that BTC would be means for certain central banks to redirect some demand and attention for precious metals away from their vaults and toward an asset class they, better than anyone, are capable of mining with their existing computing infrastructure. So, by invention or acquiescence, BTC serves money center interests, for now, but not indefinitely.
BTC remains a highly speculative and risky asset/network in my mind.
I think the killer drawback to BTC will be the implementation of its proof-of-work consensus which present these major issues:
- The throughput for BTC transactions is incredibly low and will not improve significantly in the future. In theory, its block-time is 10 minutes, in practice it can take as long as 20 minutes for a single transaction. This is in fact by design and deters attackers-- more frequent blocks make it easier for competing chains to get out of sync.
In comparison, Ethereum has 15 second block times, 3 minute verification. It fixes the security risks with an implementation based on GHOST.
- BTC mining is highly centralized and expensive. By 2020 it is estimated the amount of electricity used globally to mine BTC will be as much as Denmark consumes.
Ethereum already decentralizes mining by nullifying the advantages of using ASICs. And it will fix the energy consumption issue by switching from proof-of-work to proof-of-stake.
BTC will be seen as the first effort that introduced the blockchain to the public. But I doubt its longevity. We have witnessed this multiple times with tech. Consider:
- Personal computer (Altair, Apple, later Commodore, Tandy, Atari)
- Internet (Altavista, Yahoo)
- Social web (Myspace, Digg)
- PDAs and mobile phones (Palm, Nokia)
In each of these scenarios, a second generation technology always came along and ate the lunch of the one first out of the gate. Why? Robustness (more use cases, platforms), efficiency/cost, and more user friendly.
"Why? Robustness (more use cases, platforms), efficiency/cost, and more user friendly."
More fundamentally, the second platform benefits from the hindsight of the first platform's experiences, having the opportunity to fix any mistakes that happened to be hardcoded into the first platform's design.
Yes, cryptocurrencies and tokens have a lot of speculation from a dollar price perspective, and there are still non-believers and manipulators, but the blockchain and smart contracts technology is brilliant and the idea is already on people's mind, and it will only become stronger, despite of the price.
Social Network: For years I've seen people complaining about Facebook, others building alternatives. If there is one way that Facebook could be defeated and decentralized is by using a P2P blockchain social network. Take for example Steem, not perfect but proof of concept works.
Advertisement: another example is BAT (by the JS inventor), funded in 30 seconds, it could be a real threat to Google. Just pair it with Mist browser and ENS, and you can see the potential.
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I think it's no longer about Bitcoin, it's about a profound decentralization of the Internet. Some call it the Web 3.0.
Why do you need a block chain for a decentralized social network?
Also what actual benefits would a "decentralized" social network bring? Facebook works because it got a lot of things right it let people communicate and share ideas rather than being a glorified geocities where bands come to die like MySpace and it got a critical mass of users which drove it home.
Blockchain will not decentralize the internet it might decentralize the World Wide Web, but even then considering the power costs and the fact that bandwidth still costs a ton of money even in developed nations why would you want to "decentralize" a bandwidth rich service in the current landscape.
I can understand the usefulness of a blockchain for certain applications e.g. clearing houses.
But every time some one says it's like X but decentralized and runs on the hot new blockchain I just want to head bang a wall, I could be too old or too dumb to get my head around it but it simply looks to me that there is a cool toy that every one wants to use as a hammer which makes them look at everything that they want to build as a nail regardless if it makes sense or not.
[Edit: Moved paragraph to top] I agree, too many people throw around "blockchain" as if it was a magic incantation.
However, focusing on the "decentralized" part of social networks, here are some possible goals/benefits:
1. You control your own content, in the sense of having a "walk away with my photos and posts" primary copy at all times.
2. Users can publish -- and subscribe -- without a single-point-of-censorship owned by a corporate or governmental gatekeeper.
3. More direct control over your "feed" of information so you can get what you want/need and be done, as opposed to Facebook's algorithms which put a higher priority on keeping you hooked into a stream of advertising.
4. Less "one platform to rule them all" lock in. Fundamentally Facebook doesn't want you to ever click out to another site with content. They want to do their best to force you to re-publish the same content in their own framework for their own ads.
1) your content and posts are online it doesn't prevent anyone from copying them, not to mention that while you can design a blockchain and that allows you to permanently delete content it doesn't prevent anyone from storing revisions of the blockchain that had that content or republishing that content again; sure it won't be signed with your key but those drunk photos you took during spring break will still be there.
2) There is still a single point of censorship; distributed internet isn't distributed unless you control the physical infrastructure a government can simply shut your blockchain down.
3) RSS
4) What does this has to do with a blockchain?
Again nothing here requires a blockchain, some of it might actually be harder to implement in the manner you speak off with one.
You seem to be having problem following the conversation. Please look at the first two sentences of Dogma1138's post, which contain two questions: (A) Why blockchain (B) Why decentralized.
My reply can be summarized as: (A) I agree, blockchain isn't needed (B) ...but decentralization can help in these areas.
> But how is it different from hosting my own homepage
How is a "distributed social network" different from "a homepage"? ...Really?
It implies a hell of a lot more than a static website. Subscriptions. Message-passing between nodes. Establishing (and breaking) bidirectional friends-links. Protocols for content-types, privacy restrictions, and metadata...
> without the blockchain fanciness
Yes, that is intentional. Like I said in my post, I'm very cynical about how much "blockchain" actually brings to the table. I'm focusing purely on the "decentralized" part.
I think people might have been interpreting your comment about blockchains as being along the lines of "people try to apply blockchains to /other/ things that they don't help much with", rather than meaning that they don't seem to do much for social networking sites.
Also, while I like blockchains for some stuff, I agree with much of what you are saying here.
First, it's not what I want, it's what I perceive – only my opinion.
Why a blockchain for social network? To really control my data and my online persona. It doesn't have to be a public blockchain, can be private and shared to my friends, if I wanted to.
I agree with you, that in poor countries the infrastructure is not prepared yet, but the world wasn't prepared also when the Internet was on dippers, this is just the beginning, I believe.
> To really control my data and my online persona.
But HOW does blockchain give you "control over your data" in a way that uniquely requires a blockchain? You can do a heck of a lot just with existing tools, like asymmetric crypto and hashing.
The only use I can think of right now is to globally prove that user X really did publish Y at some time Z in the past. In other words, preventing anyone from "backdating" a piece of content.
Now, while that may be useful, it's not really offering you more control over your public persona. It's really just restricting what everyone can do in order to curb a certain kind of abuse.
But again what technical (as in operational, functional etc.) benefits would a social network built on a blockchain would have vs a standard website?
Unless you'll use some sort of a thick client you would still need an application server that would take the data which I'll assume you'll store in the blockchain and present it to the user.
How would a distributed database that need to hold even 0.001% of the information stored in say Facebook be even feasible on consumer devices?
Why would you want to wrap that data with expensive PoW/PoS algorithms and how would this give you any sort of control over your personal information considering it's a public (even if it's a private blockchain) database that anyone with access to it can store any copy or revision of it they would like.
I'm not trying to be coy or rude I simply do not understand the point of using a blockchain for any purpose other than finance, it gives you account consolidation, compliance, transaction and balance ledger all in one tool this is great but for anything else... I simply can't see it.
While I think we ought to be skeptical of "tons of money poured in, therefore it's a good idea" sort of arguments, I agree that there is definitely value here.
Cryptocurrencies promise to nativize scarcity on the web. The absence if which has led to some amazing things, but has also caused some troubles. Ideally, we'll now be able to capture the best of both worlds. A free and open internet, but with opt-in monetary incentives and scarcity.
There's definitely value in cryptocurrencies, in the sense of significant promise of being useful for new types of financial instruments and transactions. This does not preclude the possibility of there being a crypto bubble, i.e. demand/excitement causing the price of the currency to rise far far above its current level of usefulness.
The ultimate usefulness of cryptocurrencies is determined by things that may take years or decades to figure out a way to do: everything from 'is it a good store of value' to 'can I shop with it on Amazon?' to 'can I use it to issue equity for my startup?' This gradual growth in usefulness does not really match the tendency of coins to double in price in very short periods of time, so the question is whether the temporary bubbles and disappointments are severe enough to disrupt the gradual growth in base value. This is no different from real estate bubbles potentially making things painful for people who just want to buy a house to live in it.
Ya, definitely agreed. Although I would add the caveat that the rapid growth in value of these coins is not necessarily that crazy. The market cap of the entire ecosystem is still less than 100 billion. Which, no question, is a lot but it's still less than 1/7th of Apple, which is only a single company. So while I agree we might be in a bubble, I don't think the current crypto valuations are at least prima facie necessarily a bubble.
I really like what Buterin writes - but Cryptoeconomics is a misleading name - it more like crypto-game-theory i.e. much narrower than the name suggests.
I have a short section on cryptoeconomics in my upcoming book, which I'll post below (still developing, and still in draft). Unlike practically every other description of the "field", I don't take it for granted and don't uncritically adopt it.
(Feedback always welcome!)
<snip>
The technological imperative of smart contacts and blockchain technology presupposes rational contracting, which leads to particular moral and epistemological positions. Early rationalizations of the moral and epistemological position of cryptographically-assured smart contracts can be found in Reagle (1996) and Szabo (1997). Since that time, several authors have further developed the concept, leading to what is today sometimes called “cryptoeconomics.” This emerging field deploys the technological affordances of (public key) cryptography: specifically, the ability to authenticate and verify parties; ensure non-repudiation of data; and in some cases, selectively reveal identities (as with blind signatures) (Chaum, 1982). Leveraging these cryptographic affordances, authors use the closely-related fields of rational choice theory and game theory to construct protocols and arrangements for creating social behaviours. In an early speech, Buterin suggests that, with cryptoeconomics, “as soon as you have a decentralized consensus framework that controls an internal asset and there is this valuation equilibrium where people care about it… the cryptosystem has the capability to have real world consequences…” (Vitalik Buterin: Cryptoeconomic Protocols In the Context of Wider Society, 2014). For instance, Buterin considers a number of rational choice strategies, including the prisoner’s dilemma, Nash equilibria, hawk/dove games, markets, reputation, and an odd characterization of legal courts. Following Nick Szabo’s earlier discussion of smart contracts, Buterin focuses much of his discussion of cryptoeconomics on Schelling points.
Schelling points, or focal points, are a game theory concept developed by Thomas Schelling in his book The Strategy of Conflict (1960). The strategy allows two or more parties to reach agreement in an environment with little information and no possibility of communication. The key insight of Schelling’s theory is that coordination is easier when people’s attention is drawn to prominent or focal points. Schelling offers the example of two people in New York who need to meet in an undetermined location without having prior communication. According to Schelling, on game theory assumptions, each party will likely pick Grand Central Station because in a world in which many possibilities are equally likely, humans look for patterns or unusual focal points of reference. The assumption made by each party is that if I think Grand Central Station is a good meeting spot, the other person may think the same.
Similarly, in his descriptions of cryptoeconomics, Buterin offers the example of picking matching numbers from a list without coordination or communication (Vitalik Buterin: Cryptoeconomic Protocols In the Context of Wider Society, 2014). People will, according to the theory, look for something—anything—that makes one number stand out—perhaps an even number, or a number with many zeros, or a well-known lucky number. Thus, given the following numbers: 2349 65 22 100 932, both parties will likely choose “100.” In Western, decimal-based numeracy, 100 “stands out” from the rest of the numbers, and therefore, lacking any other way to coordinate, the rational choice is to assume a common set of beliefs with the person you are trying to coordinate with. Of course, these choices are culture and context specific. With numbers, other patterns might be significant (such as “lucky” numbers), and the same goes with meeting in New York: as times, people, and places change there might be other possible focal points—Times Square, One World Trade Center, Brooklyn Bridge, or the New York Public Library. In these scenarios, all available options might be “weak” focal points. Consider the following scenario where there might be only weak focal points: negotiations between a workers’ union and a business break down and cannot make progress. On the theory of Schelling points, this might be due to lack of strong focal points, in the sense of shared interests and values. Until some stronger focal point can be found, coordination will not be effective. On the other hand, some focal points are very “hard”—so hard that they curtail negotiation. For example, in most of the Western world, the price tag on a retail good is not usually an invitation to start haggling (Szabo, 1997). The stated price is a hard focal point that communicates the context and sometimes the parameters of the contract.
While the use of Schelling points is quite powerful and can be used to carefully navigate social contexts, it is not without issue. At its heart, like all rational choice and game theory strategies, a rational (or maximizing) actor is usually assumed, along with some kind of contractual framework or rationality. Fundamentally, cryptoeconomics fails to fully recognize that actual societies are also the result of war, exploitation, racism, and patriarchy (Held, 1987, p. 113). Patriarchy is an especially important value to consider for cryptoeconomics, since complete freedom and equality—the ability to sincerely engage in contractual negotiations—is a uniquely male capacity in most modern contexts. Rational choice or game theory assumptions lead to a shallow view of human sociality, which is likely to produce bad ethics and/or lead to significant errors in use and development (as with The DAO in 2016, see Chapter 8). One alternative to this kind of rationality, suggests Virginia Held, is to focus on “relations of concern and caring and empathy and trust” rather than a fiction about ideal contracts (Held, 1987, p. 125). Such a suggestion does not mean that we should dismiss the role of contracts in society (“smart” or otherwise), rather it implies that contracts themselves are embedded in social contexts.
Unfortunately, it seems that cryptocurrency enthusiasts focus more on the crypto than on the currency. To be taken seriously, there need to be realistic approaches to things like monetary policy. The ungoverned money supply of cryptocurrencies seems to be touted as a feature, but AFAICT, it's a fatal bug.
Think of the money supply as the denominator and total addressable value as the numerator; the goal with a stable currency is to keep the ratio constant over time (or as close as possible).
The fixed money supply of bitcoin is a joke. If the currency were successful, bitcoin's fixed supply (a constant denominator) wouldn't keep up with global growth (a growing numerator), which would make the currency more valuable over time. This would result in a deflationary spiral (no one spends the money b/c they're better off waiting and letting it appreciate, which leads to less spending, which leads to even more deflation, etc.)
The etherium money supply is said to be TBD, but why would anyone be optimistic? Consider the layers of analysis underpinning the last Fed statement in May:
https://www.federalreserve.gov/monetarypolicy/files/monetary...
A) political philosophy (for the Fed, the goal is to maximize employment and stabilize prices), B) macroeconomic understanding (for example, the relationship between money supply and growth), C) economic data collection (employment, prices, inventory, output, etc.)
That's incomplete, but consider: how much of that kind of thing is even approached by any cryptocurrency community? Does anyone think the same kind of extreme care taken by the Fed is going to be replicated?
When know-nothing articles like this one pass for news, well... let's just say the emperor's naked.