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Comment by bobcostas55 | Hacker News Reader

Here's the best possible view of crypto:

When the internet first got going, everything worked with protocols. Protocols are open, decentralized, interopable. Think email. Anyone can send an email as long as they follow the protocol.

Then people figured out that you can't make any money from protocols. Instead we got platforms: closed, centralized, and most importantly monetizable. Think facebook.

Cryptocurrencies are a way to combine open protocols with making money. Instead of building a cloud-storage business, you build a cloud-storage protocol and make money on the coin that is used within that protocol. ICOs are how you fund development of these protocols.

Now, in reality, a huge number of coins are borderline useless or outright scams, and the current valuations are absurd. But long-term I think it's a very valuable technology.

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Instead of building a cloud-storage business, you build a cloud-storage protocol and make money on the coin

But this makes zero sense! What purpose does the coin serve here? Imagine coins had somehow gotten tied in with email protocols. The person who came up with the protocol somehow gets to magically siphon off money every time someone sends an email? Why? How?

Because a protocol with a finite number of coins has an inherent value to it, by virtue of the fact that other people are there and you can only use it if you have a token. Imagine I have a club, and it costs $5 to enter. You can always just create your own club for $2, but it's not a given that people will come. This is how a completely open-source protocol can monetize.

The same is true with Bitcoin or Ethereum. You can fork it and make your own, but the majority of the people want to use one of the original protocols, and you can only use the protocol if you pay with the proper protocol token (either BTC or ETH).

Because a protocol with a finite number of coins has an inherent value to it.

But not value that can be captured by the creator of the protocol. Let's go back to cloud storage. Sellers of storage sell 1GB-Month for 1 token (or whatever). Buyers of storage eventually run out of tokens because they've given them all to sellers. So they have to purchase the tokens back from sellers for dollars. How much will sellers charge? The cost of storage (plus whatever profit they can get away with).

At that point buyers of storage are paying exactly what they'd pay for storage if the token system didn't exist. It's just this goofy middle layer of scrip. There's no magical extra money that the protocol creator can siphon off.

Step back and look at the big picture. The only way for a protocol creator to make money is for either sellers of storage to charge less than they otherwise would or for buyers of storage to pay more. Why would either of those two groups ever want to do that?

...uhh, or people could rent storage and get paid a token fee, thus generating revenue

Yes, sellers (or renters) of storage can make money. Sure.

I'm saying that the creator of the protocol won't.

The creator of the protocol makes money because they issue 20% of all tokens to themselves, and then wait until later to sell it (once the token is in high demand).

I don't see how that works either. People know that 20% is out there just waiting to move the market so that has to have an impact on spot prices which either means that buyers or sellers of storage (or both) are getting a bad deal. Again, why would they do this?

If a distributed cloud storage protocol became as ubiquitous as e-mail, the difference would be that buyers could buy tokens from anyone and not concern themselves with who actually stores their data. Also, anyone with spare storage capacity could join the network to squeeze a small amount of value from it until they have something more productive to do with it.

That's also how proof-of-work systems should have worked with surplus compute cycles, except ... ASICs. I basically consider Bitcoin broken because of this.

As to how the protocol creator makes money, they can sell storage like everyone else, but creating a protocol doesn't require the same initial capital as starting a whole cloud storage company.

I think its rather like the owner gives the storage to people for some money and from thereon it's your storage. You can keep and use it or sell it to whatever value you (and probably the market) thinks it is worth for.

Even if there is a finite number of coins, at that point it's just speculation and economics of supply and demand. That still doesn't explain any "value" added attribute to it. Oil has a finite number of supply, that affects its pricing and supply and demand, but it also serves a purpose( which would explain its value. Someone coming up with an ICO to fund a project that has no benefit or value whatsoever other than to say here's a finite number of coins well that's clearly speculation and if anything pump and dump 101.

The value of the token comes from the value and purpose of the protocol the token is used for. For example, Etherium's value itself is backed by the ability to run "smart contracts" on the Etherium platform itself. Most of the classic (hash) coins are pretty much fiat currency, the value coming from the ability to speculate, trade, and spend, like with any real-world currency. Et cetera.

Except when the smart contract with 1/2 the ether in it, does exactly what it's programmed to do, then you hard fork and pretend it didn't happen.

Because? Value?

Sorry, I really lost a lot of faith after that one.

"Because a protocol with a finite number of coins has an inherent value to it"

No, it doesn't. Being scarce, by itself, is not valuable at all. Being useful is was gives something value. In fact, I'd argue a protocol that I have to have a coin for is much, much, much less useful, and therefore less valuable, than one that doesn't.

>But this makes zero sense! What purpose does the coin serve here? Imagine coins had somehow gotten tied in with email protocols. The person who came up with the protocol somehow gets to magically siphon off money every time someone sends an email? Why? How?

They don't, why would they?

The person who came up with the protocol needn’t profit. In theory Satoshi hasn’t profited off Bitcoin. To our knowledge the coins they mined to bootstrap the chain haven’t been sold.

The only people who need to be magically paid are the ones executing the contract... miners, signers, etc.

In FoodCoin the cooks would get paid, the health inspectors would get paid, the poisoning investigators would get paid, the underwriters would get paid when those people do their jobs and lose their stakes when they don’t. The eaters would pay.

These people are paid for doing work in alignment with the contract incentives. A good cryptocontract makes it hard to get rewarded for work that goes against the planned incentive scheme. A bad one fails at this.

In order for this to work without a centralized payment gateway like PayPal, you need to issue tokens. Those tokens will have a value of TOTAL_TRANSACTED_PER_AVERAGE_HOLDING_PERIOD. Their price will depend on speculation about that value over time. Contracts finding more use will tend to have a bigger TOTAL_TRANSACTED_PER_AVERAGE_HOLDING_PERIOD.

If the protocol is open, why do you need to use a certain coin to use it? Isn't that just the definition of another type of 'closed'?

Its not closed, since the data and code is out for anyone to use typically, you could even fork and create your own. What is different is the incentive to provide storage and compute for others. Over simplified, you lend your storage and compute (that's called mining) and get paid in crypto tokens in return.

Because mostly its all about the coin, there are no users, only speculators... ahhh but build it and they will come mentality rules here!

> Think email. Anyone can send an email as long as they follow the protocol.

Email is not centralized under a single authority, but I disagree that it's so decentralized that "anyone" can do it.

The openness worked so well in the short-term that spammers and scammers started using it, so all the major email providers started running serious spam filtering. As an individual, I can't realistically set up a mail server to send email to anyone, like I could in 1995, since Gmail will reject it.

SMTP is a pretty simple protocol but now I have to use major third-party services for both sending and receiving internet email.

In the case of email, that's fine, because there was never a centralized alternative. In the case of currency, what's the point? Isn't it just going to circle back around to (mostly) centralization again, and so what was the point?

> As an individual, I can't realistically set up a mail server to send email to anyone, like I could in 1995, since Gmail will reject it.

I'm an individual who runs his own mailserver and all emails are accepted by Gmail.

Sure, today a mailserver must be absolutely properly configured. Not just to play with Gmail, but with all other players as well. The HELO string, DNS settings and especially reverse DNS settings must be correct. Don't run it in a non-dynamic IP range. And for IPv6, better have correct SPF/whatever records.

This is initial effort, for sure, but absolutely doable for an idividual who plays with their own server/VM anyway. Pro tip: It is more fun if you share the infrastructure with friends.

And there are properly configured projects with ready-to-use VM images and good tutorials out there.

In some sense it is even easier than HTTPS, because for SMTP+TLS and IMAP+TLS a self-signed certificate is sufficient, you don't need Let's Encrypt certificates, let alone pay dubious CAs for certs if you are commercially active.

I am too individual running my own mail server and gmail don't reject my mails. I don't even have SPF or DKIM on my domains. I think most common mistake is making mail server out of cheap VPS. Don't do that. Your IP reputation depends your digital neighborhood. Blocks happen even /16 level, entire VPS provider networks are on special lists in some mailservice providers. Additionally, those IP-s are reused, so there is nice chance to get some hit-and-run spammer IP and that is lots of work do clean that up.

Maybe I'm dumb but I don't follow. If I invent a new messenger protocol, how does a cryptocurrency enable me to make money on that protocol better than any other method? Just because I make an ICO for my new protocol?

Seems like a bit of wand waving going on in your description there.

You certainly have a point: it doesn't make sense for all kinds of protocols. I would say that coins are a good fit for contexts that involve decentralized service provision of some sort. Also in situations that could benefit from a decentralized database (blockchain), though those are surprisingly rare.

There actually already exists a coin connected to messaging protocols, Kin. I don't see much practical use for it however.

This feels like it’s going to provide a horrible amount of friction as a user. It’s basically adding multiple use specific currencies to everyday life. I predominately work across pounds, dollars, euros and Icelandic krona the latter for day to day and the rest for occasional transactions. If I have to add to that multiple service tokens just to access storage or chat or services x, y and z it adds a whole lot of trading and market following overhead. Particularly given the volatility we’ve seen in crypto currencies, especially amongst those with niche uses. Further following Bitcoin it seems like the decentralisation aspects are theoretical rather than practical as those able to provide a service such as mining seem to do better at scale and end up centralising anyway.

You can issue the ICO first, and then when the money pours in, disappear and you don't have to bother with that pesky "work" part.

> If I invent a new messenger protocol, how does a cryptocurrency enable me to make money on that protocol better than any other method?

This is my limited understanding:

1) You want to allow users to send and businesses to receive (micro-)payments within your messenger/protocol.

2) You want to allow users donate/vote/gift/award other users/groups/posts with their tokens within your messenger.

3) You want to allow users create custom (chat-)bots which could apply some scripted logic to send/receive tokens; etc.

Inventing a new distributed messenger/protocol with cryptocurrency, you essentially create (and own) a new platform with services operating on "virtual money". Rules of money (tokens) distribution in theory must be guaranteed by your protocol implementation (usually presented via whitepaper).

If potential future users like your idea (whitepaper), they may invest into your new shiny platform via ICO (with other cryptocurrencies) to get some of your initial (limited) tokens. They want to get them while they cost less than they potentially will cost later, if your platform becomes popular. It's assumed that in the case of an open distributed blockchain platform, amount and belonging of tokens won't be able to be painted by you, but guaranteed by algorithms and public network.

We've seen how it works on totally scam projects. And apparently, we'll have a chance to witness how this works out in case of the already popular platform[1].

[1] https://techcrunch.com/2018/01/15/inside-telegrams-ambitious...

Telegram is a great example for me to finally start understanding how this is supposed to work.

It seems like a bit of a chicken-and-egg problem (at least in the way I keep seeing it described): you fund your project/app/scam with money from your ICO, but you only get money from your ICO when people believe in your project enough to put ("real") money in it prematurely.

At best, this is basically the Kickstarter model that everybody likes to trash, is it not?

Your assumption is wrong, that is why you do not understand. The inventor could, or could not receive money. This is the beauty of an open and decentralizes invention. The inventor is not the owner.

But people who participate and invest from the start can make money if the project succeeds. So the economic incentives for those involved are greater than the incentives in a walled garden.

The guy I'm replying to was saying that crypto coins enables someone who invents a protocol to get paid, my dude. It's not an assumption on my part, I was replying to what he said.

but why would you pay for the protocol and bother with switching, if you have a good-enough solution with free protocols and paying for services with ad money.

The main goal I had heard is that the incentivized structure of most crypto-assets will lead to everyone collaborating together - the alternate being the state/government mandating collaboration. The solution is the later, if blockchain and an immutable ledger is the real value and goal, and the problem with the first is the same incentive structure leads to a lot of bad behaviour and unreasonably transfers wealth (or could say distributes or could say steals from uneducated people) weighted towards the earlier adopters; it mimics a decentralized and global Ponzi and Pyramid scheme, the decentralized and global part are what has made it reach the point it has and has allowed marketers and schemers from around the world to collaborate - the truth if ignoring the whitewashing done by spouting all of the supposed benefits.

The missing symmetry in your own analogy is that Cryptocurrencies themselves are protocols with their own inherent (if not requisite) platform problems.

In theory, protocols like the blockchain are open, decentralized, interoperable. Yet in current practice a cryptocurrency only works with platform lock in: if you don't lock people into your platform it isn't monetizable. Market forces push toward closed (artificial scarcity, rising costs for new players to enter the market versus entrenched players/miners/etc) and centralized (central wallets/brokers/exchanges on the one side, complex miner unions as complex political boundaries form on the other side).

I'm not sure cryptocurrencies can save the internet from platform problems when they themselves are platforms.

Except that no what Bitcoin tried to be it wants to be a currency or a value store it doesn’t rely on the internet nor does it need an open internet bitcoin would work just as well for 99.9999% of its users including the mining syndicates if it would run on a completely closed network.

Exactly. A huge amount of excitement about moving away from closed monolithic platforms to distributed protocol operators paid in tokens.

For example, the little guy might be able to make a small income from IPFS/Filecoin that would otherwise be strictly the domain of AWS and other giants.

I imagine the little guy is going to have a hard time beibg price-competitive with companies that can buy HDDs by the truckload.

> build a cloud-storage protocol and make money on the coin that is used within that protocol

In that case it is not an open protocol (at least not in spirit). It is better to go with platforms.

Why is it better?

What Ethereum for instance did is genius. It distributes storage and compute across the world to those willing to share their resources and you get paid by doing so. It's a way to drive decentralization, because there is an incentive for mining. Is it perfect? Not quite yet for various reasons (performance, privacy), but its an interesting new paradigm.

For those of us still trying to wrap our heads around the value you described here (btw I do like the level of simplification you've introduced), can you explain how the coin would effectively be used in the cloud-storage protocol you suggested? I'm just not connecting the dots yet.

https://sia.tech/

Protocol operators running "full nodes" are paid in tokens for performing the service outlined in the protocol. The protocols are ultimately developer tools for user facing apps. Most of the user facing apps aren't mature enough to be notable, just like the internet wasn't all that exciting in the early 90s.

> just like the internet wasn't all that exciting in the early 90s.

Anyone who believes this probably wasn’t alive then.

Everything we take for granted is built on open and free (as in beer) protocols. The people who created and supported TCP/IP, HTTP, XMPP, etc. figured out ways to have successful careers without a micropayment scheme for basic participation.

That is true. And then we ended up with Facebook, Amazon and Google et al to handle the rest. I'll take micropayment schemes over centralized megacorps. At least for now.

And personally, I remember a simultaneous mix of excitement and disappointment from the internet of the 90s.

In bitcoin, miners receive coins in proportion to their computational power. A cloud storage protocol might work by paying out coins to miners in proportion to the storage they provide. Storage users get storage by paying coins to the "miners".

I really like your description - it's easy to understand and is brutally honest.

This explains your point about protocols vs. platforms pretty well I think: https://key2.bluematrix.com/docs/pdf/34dda769-d83d-4504-beed...

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