Vitalik Buterin on Cryptoeconomics and Markets in Everything
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I think that Ethereum's market cap has perhaps created an unearned reputation for solving an essential problem (running any verified, distributed computation) and being the best solution to large-scale verifiable computation, when I would argue that verifying a computation in a distributed system by having each node (or some large subset of nodes, if sharded) perform every step of every computation is not an optimal solution.
The computer and internet I think it was easier to see the practical value there (though not necessarily the final form both would take) but that may be 20/20 hindsight.
> In 1971, Ray Tomlinson, of BBN sent the first network e-mail (RFC 524, RFC 561).[59] By 1973, e-mail constituted 75 percent of ARPANET traffic.
> By 1973, the File Transfer Protocol (FTP) specification had been defined (RFC 354) and implemented, enabling file transfers over the ARPANET.
This is what ARPANET looked like in 1974, or 5 years after its establishment: https://upload.wikimedia.org/wikipedia/commons/0/00/Arpanet_...
Meanwhile Bitcoin is almost 10 years old and all we have is speculation, scams, a near-useless currency and many promises. What we don't have is a useful application that showcases what only cryptocurrencies can do.
We do, and it's been running basically since shortly after bitcoin's creation: buying drugs. If mainstream cryptocurrency interest goes back to zero (which seems totally possible), people will still be using bitcoin/monero to buy drugs online.
The "its still early days!" argument holds no water.
NCSA Mosaic was released in 1993[1], so I think "mid-90's" is convenient for people who can't easily grasp what the internet was prior to the web. The TCP spec was published in 1974 and became a standard in 1983[2].
Consider these milestones in the crypto space[3]...
> 2008 bitcoin whitepaper published
> 2009 first bitcoin transaction sent
> 2010 Mt Gox bitcoin exchange established
> 2011 BTC market cap exceeds $1 billion (indicates activity and liquidity)
> 2015 ethereum launched
> 2017 crypto market cap exceeds $100 billion
We're still seeing early protocols contending to become standards. The analogy isn't perfect, but Bitcoin and Ethereum seem more likely to be analogous to ARPANET than to TCP/IP. It will be a couple more years before blockchain interoperability platforms (like Cosmos[4]) are fully operational, and another year or two after that before we get a killer app that's as widely accepted as the first web browser.
Returning to your final point, the amount of utility already derived from Bitcoin and Ethereum is fairly impressive considering their young age.
[1] https://en.wikipedia.org/wiki/Mosaic_(web_browser) [2] https://en.wikipedia.org/wiki/Internet_protocol_suite [3] https://cryptotimeline.com/ [4] https://cosmos.network/
This is invalid reasoning. People said lots of things about lots of failed technologies too.
Digital scarcity is finally invented, but people feel like it will have no use-cases?
Automated finance bots (smart contracts) that work without keeping a server up has no use-cases?
All fiat currencies are deflated continuously, but you believe 100% of people will prefer this?
The ability to embed money into a digital good has no value?
How can it ever go to zero if there's someone out there who thinks it might be worth accumulating just for the remote chance that one of these ideas works out?
The idea of it going to "zero" seems irrational to me.
Totally untrue. Cryptocurrencies are artificially scarce, not actually scarce; this is most obvious when two chains hard-fork and the sum of their combined value exceeds the total value of the parent chain. You can't "fork" a scarce resource.
Even without a fork, the scarcity is still an illusion because the consensus protocol can be modified to create an infinite number of tokens if that is the prerogative of the developers or community.
> Automated finance bots (smart contracts) that work without keeping a server up has no use-cases
Of course an automated finance bot needs a server, it's just a distributed and computationally expensive one instead of a centralized one that costs pennies to operate (and I say this as someone who has written profitable trading bots)
> All fiat currencies are deflated continuously, but you believe 100% of people will prefer this
The reason people prefer fiat money is because fiat money can be used buy goods and services and cryptocurrencies generally cannot without jumping through a bunch of hoops that offer no clear benefits in return. The OpSec that goes into "being your own bank" is not worth the cost to the overwhelming majority of people.
> How can it ever go to zero
I do agree that it is unlikely to ever go to zero simply because the limited utility cryptocurrencies do provide (irreversible pseudonymous online payments) will always have a niche use case that will keep the price above zero.
A fork gets you nothing on the original chain, just like inventing "new dollars" gets you nothing except what the market decides "new dollars" are worth. Digital scarcity is still there. If I have an item on that blockchain, you can't take it from me by forking. The only way to "move" that asset would be to get my private key. Forks are an anomaly the market is still figuring out.
> Of course an automated finance bot needs a server, it's just a distributed and computationally expensive one instead of a centralized one that costs pennies to operate
This misses the point. If I want to make a trading bot, I have to find a host, initiate a business relationship with them, and keep it running and highly available. If I make an ethereum smart contract, I set and forget. If I want people to interact with my bot and know it's source code, I can do that on ethereum. Is there another way you can think of to do this and have the bot be transparent--in other words a guarantee that the source code you looked at is actually the source code you're interacting with?
> The OpSec that goes into "being your own bank" is not worth the cost to the overwhelming majority of people.
This is only true until people notice the deflation. The ability to convert electricity to money that doesn't automatically shrink (even if it is not ready-cash) is very valuable in places where it is shrinking quickly.
Confiscation of assets is obviously possible via forks as well, but the fact that someone can't take your money without your private key doesn't relate to scarcity.
As long as crypto is pegged to a fiat currency like USD then the scarcity effect is going to be destroyed by speculative valuations.
USD isn't going to stop being fiat because it's too useful for it to be fiat when doing market regulation.
USD might stop being standard currency, but I expect other countries are going to maintain fiat standards because being able to vary the nominal amount of money supply is a better policy tool than merely controlling gold, because it opens up another theater of war beyond maintaining hard power.
I have no idea if 100% of people will prefer it, certainly, some who hold immense amounts of a currency will not, but it was one of the smartest ideas mankind ever had, because it introduced the ability to control the money supply and made currency a very important tool in ensuring stability and made it an effective means of exchange.
Cryptocurrencies are not a means of exchange. They're basically a pile of gold that people imagine themselves sitting on and that increases in value without them doing anything. Which is good if you're one of the few people who have much of it, but it is absolutely detrimental to society at large, which is uninteresting to the libertarianism on steroids that underpins the crypto-craze.
This may or may not be the case, but regardless, individual decisions are usually made based on an individual's self-interest rather than the warm fuzzy feelings about helping society.
> Cryptocurrencies are not a means of exchange.
It is not necessarily true that that will remain the case. Either way, that doesn't matter if society coalesces around one of them as the "WorldWide Ledger" because individuals are incentivized to avoid inflation.
It is in the interest of someone who uses money as a means of exchange and not as a store of value (which is the overwhelming majority of individuals) to reject crypto-currencies in favour of fiat currency.
Your average citizen gains nothing from adopting a currency that is highly volatile, concentrated in the hands of a few, and awful at completing everyday transactions.
Maybe, but those problems are not necessarily permanent, and it can be valuable without targeting the "average citizen." As a counterpoint to your "gains nothing" view, many "average citizens" used bitcoin for transactions in the early days, only to find out that holding some of their currency in bitcoin made them rich, so they did gain something. Even if that is only a small possibility, the possibility is still there.
Confirming that it is preferable to "HODL" than spend this currency...and any gains were at the cost of new bagholders who in turn expected to sell their coins for an even higher price.
A currency is something people want as means of exchanging goods and services, an investment instrument isn't that.
And crypto has performed terribly as an investment instrument as well...can you imagine the chaos if the stock market swung 5-15% from one week to the next for months on end?
Lastly you're conveniently ignoring that stocks can pay dividends, and don't serve only as a speculative asset... Because publicly traded companies generally produce something useful and of tangible value to society, unlike cryptocurrency projects.
The Bretton Woods System ended under Nixon to prop up the military ambitions of this nation, bad move using debt to start pointless wars. Current monetary system structure is deeply flawed, until reform BTFD in BTC.
Note: If you don't feel like paying for the next war, it's a nice bonus in BTC's favor.
That said, inflation isn't always a good thing for some people. Neither is a centrally controlled money supply which also has its own winners and losers
The key point is that Ponzi schemes you are talking about are not an accidental byproduct, they're the entire point. There's no reason to reinvent electronic banking, we already have electronic fiat money that works very reliably.
Cryptocurrencies are digital gold and basing an economy on them would be like bringing the gold standard back. The problem being that every economist will tell you, for good reasons, that this is a terrible idea. Cryptocurrencies are not a technological innovation, they're a technological regression. They make things that we already can do more complicated and energy expensive which is the opposite of what technology is supposed to do.
What if someone just programs more programmable money?
Also why would anyone want to use a system where over 71% of all money is owned by a small group of anonymous oligarchs?
Presale ICO / Premine ( max cost $0.50 USD per ETH )
= 72,009,990 ETH
Total Supply today (Jul 19th 2018)
= 100,773,797 ETH
Source:
https://etherscan.io/stat/supply
But it wasn't Vitalik who created that; what he did was extend it into an application platform. That platform is working, with live applications including decentralized exchanges, Maker (stable currency and collateralized loans) and Augur (prediction market with decentralized bet resolution).
Sharding is one of the main things he and the research team are working on now (along with proof of stake). The current design uses 4000 shards, so unless you consider 1/4000 to be a large subset, it would answer your objection if they manage to get it working.
I don't know how active the Maker userbase is, but Augur has 700 monthly active users.
It seems like it would be possible to manipulate the validator set for a particular shard - also, isn't part of the point of ethereum to be able to access information from other contracts? How do you guarantee that that contract is on the same shard?
Augur just launched a couple weeks ago.
Preventing validator set manipulation is an important part of sharding research. Part of the solution is getting good random numbers that can't be manipulated, and there are several approaches for that.
Cross-shard communication gets complicated. There are some ideas for it, but that's several years down the road. It'll still be a big step up to have lots of shards, each with the capacity of the full blockchain today, sharing the security of all of them but not getting swamped with traffic if something gets really popular on another shard.
$1M in new loans issued every 3.5 days for the last 7 months at 0.5% APR.
[0]: https://twitter.com/vitalikbuterin/status/940744724431982594...
> ...I try to make myself maximally accessible in a bunch of ways, try to bring different people in different communities together, perform a kind of social coordination function, which is probably, from an economist’s point of view, similar to some aspects of management, but without the aspects of management that evoke images of centralized control in all those different things...
Question dodge level 9000.
Personally, if Vitalik wasn't involved in Ethereum I probably wouldn't have been as interested in the project initially. But, for Ethereum to really take off in the public realm, the cryptocurrency and its creator need to be decoupled more. And I think this response from Vitalik gets this point across.
VITALIK BUTERIN: I guess it involves a combination of things. Some of it is reading what various economists on the internet say. Some of it is reading papers. Sometimes, if I want to dig into some topic more deeply, I end up reading books, like I read one on urban transportation economics a while back.
One of the things people need to realize is that you can't learn economies or behavioral science by reading. Sure you know concepts but unless you have implemented and gone through a full economical cycle, what you have in hand in terms of knowledge is just hypothesis - not actual facts. Every downturn has upended what people previously known about depression. And same goes for upturns. Sure, there are analysis after the fact but nothing in-between the cycles.
Additionally, I remember Buterin quoting Debt: The First 5,000 Years as gospel truth of economies. While the book is good and provides one perspective of looking at things it is not the whole and sole of the theory. So, I really doubt Buterin's knowledge on economics.
Before someone asks, I don't doubt his understanding on cryptocurrencies.
And frankly, this whole learning by reading is good for foundations. But I see many people in crypto field jumping to release a, let's say voting blockchain, because they read some papers/books on voting. And then they release an ICO to test their theoretical knowledge. This doesn't help anyone.
To paraphrase Matt Levine on Bloomberg, cryptocurrencies seems to be learning about every mistake made earlier. Just on a bigger and faster.
Question one: is there any successful economy that doesn't require endless population growth?
> In that case, you can take the simple model and say a cryptocurrency’s valuation is the net present value of the transaction fees that it’s getting. This, by itself, surprisingly does give fairly decent valuations.
> For example, Ethereum’s transaction fees tend to be about $500,000 a day recently, which is about $180 million a year. If you tried to value the ether market cap as some kind of corporation, then the “P/E ratio” is only somewhere in the low 200s, which is high for a company, but not off-the-charts absurdly high.
Isn't this completely circular? He's saying that the value of the transaction fees per year measured in dollars equates to some reasonable fraction of the market cap measured in dollars... but wouldn't this be true if the market cap were much higher or much lower? It's just a comparison of the total supply to the amount being circulated, rather than a substantive claim about how each token (or the market cap) should be valued in dollars.
That's a big "if" though. I'm not sure what portion of transactions are related to trading/speculation vs. something more useful.
It's nice to see one of the most important figures in cryptocurrencies state plainly that cryptocurrencies aren't solving problems that have been impossible to solve before.
For example, Ethereum’s transaction fees tend to be about $500,000 a day recently, which is about $180 million a year. If you tried to value the ether market cap as some kind of corporation, then the “P/E ratio” is only somewhere in the low 200s, which is high for a company, but not off-the-charts absurdly high.
Those transaction fees are revenues and NOT earnings. I have no idea how profitable ETH mining is but earnings are going to be significantly less after including operating costs (hardware and energy mostly). Also being somewhat new and still unproven, I would add a hefty risk premium to the discount factor. All in all I would say that a P/E of 50 would be optimistic and dependant on getting a lot more transaction throughput. Based on that you could argue that ETH is currently overvalued by a factor of maybe 10-30.
There’s also this model of store of value, where people hold it because they expect more people to hold it in the future, and because people keep getting richer and the population keeps growing. As long as prices grow slow enough, it can be stable in the long term.
Duh?! That suspiciouly sounds like the definition of a pyramid scheme?
Even if you disagree with my assessment (and I'm sure many on HN will be more than happy to do so) I think you will find at least some interesting tidbits in this podcast that will make it worth your time to listen.
He is not a computer scientist. And he is different than one. He should be called crypyoecononomy architect.
Computer scientist requires a lot of more work in research and development, and at the same time he has done a lot more work that is outside of the computer scientist scope.
To be honest, while I think he's a very bright person, I have kind of tired of what feels to me like a contrarian "shtick". I kind of prefer his co-blogger Tabarrok's writings in that he's pretty much a straight up libertarian. Some things I disagree with, but it just seems a bit more direct.
https://www.sourcewatch.org/index.php/Mercatus_Center
BTW due to recent relaxation of IRS disclosure requirements, we will be increasingly blind to this kind of funded sentiment generation from very moneyed interests.
Cowen, OTOH, seems to relish the contrarianism a lot. For example, a hot issue right now is housing, and the deleterious effects of local government regulations (zoning) are something that many on both left and right agree on.
But on more than one occasion, Cowen seems to take some other tack that maybe all that regulation is good, somehow. It's like he's just going against the grain in order to be seen as a 'thinker' or something. I can't quite put my finger on it.
He's a bright guy, and I've bought and enjoyed some of his books, and I used to read the blog, but I've started skipping it lately.
There isn't nearly the kind of vast funding, and certainty not focused as the Koch funding is to generate ideas and support for more social constructs and support of ideas in the direction of maybe the market really shouldn't determine everything - or at least markets where there is massive asymmetry between participants.
That said, there are lots of good insights to be had by studying economists with a libertarian bent, and I frankly have a hard time finding any economic writing based on a different economic tradition that is very compelling - Some of the writing of Jaron Lanier is pretty good, but he's not an economist. (I guess lots of folks like Thomas Piketty, but I have a hard time personally getting much insight out of his work, for whatever reason.)
I actually get a lot of insight when economists go against their political 'tribe'.
Paul Krugman on cheap labor, for instance: http://www.slate.com/articles/business/the_dismal_science/19...
Or Greg Mankiw writing in favor of a carbon tax.
That's not to say they're wrong when, say, the libertarian economist argues against some regulation, or someone like Krugman argues for it, just that it's more 'the usual'.
This book is not without controversy, but much of the criticism is generated from the very same network of entities that is criticized by the book.
https://www.chronicle.com/article/A-New-History-of-the-Right...
If the book is too long, I might at least listen to this interview of the author.
https://www.blubrry.com/jacobin/34546244/the-dig-democracy-i...
https://www.sourcewatch.org/index.php/American_Legislative_E...
Analysis: Koch brothers a force in anti-union effort
https://www.reuters.com/article/us-usa-wisconsin-koch-idUSTR...
Who's Behind Friedrichs?
Many large corporations derive wealth from regulations and other forms of government intervention (e.g. a central bank designating large banks as primary dealers, and all of the other interventions that make that a valuable position).
Regulations generally limit competition to regulated firms, and increase economies of scale advantages, by imposing fixed costs like lobbying and regulatory compliance.
In areas where we as society agree that regulation needs to be supplied, there then is a set of secondary meta-concern such as of avoiding undue impacts on businesses and competition. But you seem to focus on the general elevation of a whole set of meta-concerns about regulation. I think you cannot use those secondary concerns to invalidate the primary goals and usage of regulation.
That's not an externality. That's just a bad quality product, and in the case of the safety performance not meeting the car maker's advertised claims, it's fraud.
>>But you seem to focus on the general elevation of a whole set of meta-concerns about regulation.
I think regulations are largely a consequence of what you term "meta-concerns", but which are actually the objective of the major forces that are pushing for them. If you look at the push for Airbnb regulations for example, you see a lot of rhetoric about affordable housing, but you see the groups funding the PR campaign are hotel industry groups.
This same pattern can be seen across various industries: incumbents using astroturfing and other PR tactics to convince the public that there is a public interest in creating new regulatory restrictions.
I believe another driver of regulations is basic ignorance about how a complex economy evolves to address inefficiencies. This blind spot leads to people assuming that problems need to be addressed with cookie-cutter rules that are politically imposed.
It's fraud, but a fraud that most consumers can't vet individually, so regulation in that case is the most efficient way to stamp out the fraud.
If you look at airbnb complaints there are also many neighbors who are impacted by added trash and traffic of airbnb encouraging the running commercial rentals in the midst of residential living spaces. This leads to a lot of inefficiency in the lives of full-time residents. Because some hotels have added to the push, doesn't mean all airbnb regulations should be invalidated. Getting the balance right between businesses is a metaconcern, it doesn't invalidate the primary need from people for the regulation.
So you agree with me: it's fraud. As for whether individuals can vet fraud without the government: they clearly can. Government organizations are not the only highly resourced parties that vetting can be delegated to, and government bureaucracies are not the only networks through which product/service information can propagate.
Governments can of course provide certification programs that consumers can rely on. There is no justification for limiting consumer choices to those products that the government has certified, which is what you're endorsing. People should be free to live their life as they wish, including in ways that impose risks on them.
>>If you look at airbnb complaints there are also many neighbors who are impacted by added trash and traffic of airbnb encouraging the running commercial rentals in the midst of residential living spaces.
This is an externality, and not specific to commercial use of property. Applying regulations exclusively to commmercial uses of property, like renting it out on Airbnb, is therefore a disingenuous attempt to control people's private property under the pretense of addressing externalities.
From what I've seen, like the fact that several major pieces of anti-Airbnb legislation followed concerted PR campaigns by the hotel industry, and the fact that the hotel industry association boasted the legislation as a result of its work, the primary cause of people's opposition to Airbnb, and support for restrictions on it, is special interest backed PR efforts, that have convinced the public that there is a pressing public interest need to stop Airbnb rentals.
For Tyler, he frequently ranks high on lists of influential economists among peers (see his wikipedia article) and I personally find his writing compelling, insofar as I can judge it as a non-economist.
Certainly noteworthy is an understatement, it is an epic accomplishment, however it doesn't really reflect on his importance as a computer scientist, especially if we consider prior art (i.e. bitcoin). I am struggling to think of a metric that would qualify Buterin as anywhere near one of the most important computer scientist alive today. When I think "most important computer scientists alive today" I think of people like (in no particular order):
Brian Kernighan, Ken Thompson, Donald Knuth, Bjarne Stroustrup, Larry Wall, Tim Berners-Lee, James Gosling Linus Torvalds, Richard Stallman, Bill Joy, Robe Pike Larry & Sergey, Gudio, Matz, and many many more. The pioneering work of these computer scientists has had ripple effects throughout the world of computing and the economy in general. Ethereum, on the other hand, while technically sophisticated, has had near zero impact outside of the very narrow blockchain niche.
> For Tyler, he frequently ranks high on lists of influential economists among peers (see his wikipedia article) and I personally find his writing compelling, insofar as I can judge it as a non-economist.
Tyler does seem to be a more important individual within his field, but I am not seeing any signs that would indicate he is among the most important economists.