The Most Important Scarce Resource Is Legitimacy | Hacker News Reader

The Most Important Scarce Resource Is Legitimacy

vitalik.ca

121 pointsve5569 comments

>Why is it that Elon Musk can sell an NFT of Elon Musk's tweet, but Jeff Bezos would have a much harder time doing the same? Elon and Jeff have the same level of ability to screenshot Elon's tweet and stick it into an NFT dapp, so what's the difference? To anyone who has even a basic intuitive understanding of human social psychology (or the fake art scene), the answer is obvious: Elon selling Elon's tweet is the real thing, and Jeff doing the same is not. Once again, millions of dollars of value are being controlled and allocated, not by individuals or cryptographic keys, but by social conceptions of legitimacy.

It seems like Vitalik has stumbled into another restatement of the famous essay "What Colour are your bits?"[1] ... which is basically a poetic way of saying "What _Provenance_ are your bits?"

Provenance matters.

(But I'm not claiming that NFTs will have enduring value. I can't tell if they will be a fad or not.)

[1] https://ansuz.sooke.bc.ca/entry/23#:~:text=Having%20identica....

> ... but Jeff Bezos would have a much harder time doing the same?

I question that assumption. Let's keep in mind that we have already accepted that URLs pointing to a video or jpeg become valuable once they are put on a blockchain. So let's keep an open mind here.

NFTs have value because people believe they have value, and people currently believe they have value because a lot of people are telling good stories about why the should.

So, while Jeff could not sell Elon's tweet while claiming to the Elon, he could easily sell it by telling a different story. The more attention-getting the better.

He could easily sell it is part of his limited collection of "!00 stupidest tweets of all time" or something like that.

The hype-machine would kick in and everyone would want to "own a part of it."

Oh I bet Jeff could sell a tweet from Elon, it just won't got for as much.

you have no idea. justin sun seems to have infinite <stup...> ehem money.

Jeff (or anyone else) could easily sell Elon’s tweet by pretending to be Elon, just like the other day someone was pretending to be Simon Stålenhag to sell his art as NFT.

(This hypothetical scenario works best if impersonation target is not aware of or not inclined to engage with NFTs, of course.)

This wouldn't work at all. Who buys something from ebay that is made by "ElonMusk534" without looking up if Elon himself has confirmed via another venue that it's actually him?

Same goes for NFTs.

This is true if you expect Elon to care to register his handle on every NFT marketplace. Which may be true for him, but not the majority of people.

What does that have to do with anything? You wouldn't confirm if Elon on Marketplace #1 by checking his profiles on Marketplace #2 (neither of which you know is actually is Elon). You would check Marketplace #1 and #2 by going to some place where he is verified like Twitter.

So somebody who isn’t verified on mainstream social media or generally hasn’t made themselves publicly available for a comment is a fair target then?

Besides, where does the idea that NFT purchasers even care who listed the NFT? They bought and own the actual item (artwork, tweet, etc.), who sold it is secondary—just as Mona Lisa doesn’t suddenly become something different if sold by a thief.

> So somebody who isn’t verified on mainstream social media or generally hasn’t made themselves publicly available for a comment is a fair target then?

Fair target of what? If someone gains a reputation using a anonymous wallet and sell their NFTs via that wallet, then that wallet is the author people would follow, no mainstream social media needed.

> Besides, where does the idea that NFT purchasers even care who listed the NFT?

Because the value of the NFT is around the chain of ownership, not sure why it's so hard for people to wrap their head around this fact.

No, Mona Lisa painted by Moron #1 won't be as popular as Mona Lisa painted by Leonardo da Vinci. One could say the only reason Mona Lisa is popular, is because it's made by Leonardo da Vinci, otherwise it would get lost in the river of other, better art made around the same time.

People don't actually care about the bytes. They care about who published the bytes, and that they now can be written as the owner of those bytes. Sure, you can copy the bytes, but if the ledger doesn't change to reflect that you now "own" those bytes, it's not hitting the same feeling as the ownership via NFT gives.

How does it matter if you sell your art as NFT or I sell your art while pretending to be you?

An original Mona Lisa sold by an art thief is still Mona Lisa and is as valuable as if it was sold by a gallery. Buying Elon’s tweet NFT from a rando pretending to be Elon still gets you Elon’s tweet. Blockchain doesn’t care.

And if people don’t care about the bytes, then what’s the reason for buying NFTs? Illiquid currency one has trouble using anywhere else?

A curious observation about NFTs that many on HN seems to have missed in other threads:

> Why is it that Elon Musk can sell an NFT of Elon Musk's tweet, but Jeff Bezos would have a much harder time doing the same? Elon and Jeff have the same level of ability to screenshot Elon's tweet and stick it into an NFT dapp, so what's the difference? To anyone who has even a basic intuitive understanding of human social psychology (or the fake art scene), the answer is obvious: Elon selling Elon's tweet is the real thing, and Jeff doing the same is not. Once again, millions of dollars of value are being controlled and allocated, not by individuals or cryptographic keys, but by social conceptions of legitimacy.

Do NFT's really only have value upon their first sale? Wouldn't that be basically a donation to Elon with no expectation of value on the secondary market?

Otherwise known as the reason large art sales exist: Money laundering et al.

It is very convenient when you get to call your money transfer "A Sale". If the thing you're buying has a publicly verifiable (albeit dubious/preposterous) market value, you aren't even committing fraud!

Resale of an NFT is different; since you can look up previous owners of the NFT there's a way to validate "yes this NFT is the one originally sold by Elon".

The NFT has value Because it was the one Elon sold and signified as legit, versus the NFT some random person sold

Yeah but it's still "Elon's 2nd hand NFT"

I think if Jeff Bezos decided to sell an NFT of Elon's first tweet, there would be more value there compared to if some random person sold an NFT representing the same thing

Correct, but maybe you're missing the point if that's your first thought. It now becomes "The NFT that Jeff Bezos made of Elon's first tweet", not the "Elon Musk NFT of Elon Musk", both obviously much more "interesting" (for human reasons? I don't know, don't care) than the "John Smith NFT of Elon Musk"

If Elon can sell his own tweet NFTs better than anybody else can, that's a pretty good argument that they are gonna be a novelty and not some new form of art exchange.

Because what are the buyers of the Elon-tweet NFTs gonna do when they decide they want something else for their 'value'? They are gonna try and sell the Elon-tweet NFT and find out that they lack legitimacy!

You're misunderstanding the argument. Elon can create the NFT due to his legitimacy, but subsequent trading of those NFTs doesn't require legitimacy because ownership is tracked on the blockchain.

No, I'm mocking the whole idea, I understand the difference between origination and selling.

I do legitimately think that novelty is a big factor, and buying an Elon-tweet NFT from some random guy is gonna have way less novelty value than buying it from Elon.

I agree. Overpaying for NFTs is like performance art; the value isn't in owning the NFT itself.

Doesn’t “overpaying” imply that there’s an inherent value that’s non-zero?

I’m not saying there is or there isn’t, but I’m not sure how that would be discerned. There’s a marketplace for artwork - is there a marketplace for tweets?

Also, doesn’t Twitter inherently hold the rights to the content on it’s platform? (Or at the very least a license to reproduce the content indefinitely?).

Maybe Twitter is the legitimate party here, if such a thing even exists.

I'm not sure it's an interesting kind of performance art. Pure waste is like the stereotypical form of a potlatch. That's not expressive of any new idea. The concept was fresh in mid-century Paris (https://monoskop.org/Potlatch) but they didn't do it.

The NFT business is more like this: http://www.yvesklein.com/en/oeuvres/view/6/immaterial/640/tr...

In that case the transferred ownership is considered part of the work. Without the "paperwork" the performance wouldn't have had the same appeal to the artist.

"Legitimacy" is one word for what it takes to successfully issue an NFT for an item. "Authority" is another. If NFTs were integrated into the system of physical property, we would surely be talking about which parties had authority to issue NFTs of which assets.

To me it seems that NFTs could include some part of the bundle of IP rights that typically go along with an artistic work.

For example, the artist could create a license that allows only the current owner of the NFT to make a physical copy, or a right to be credited whenever a physical copy is exhibited or something like that.

I suppose I'm thinking in terms of what an ultra rich person gets from owning a famous artwork, if they then lend it to a public gallery and allow everyone to see it - I presume it's the right to have a little card next to it that says 'on loan from the collection of X'. I think NFTs could provide something of the same experience for 'owners' of digital assets.

To me it seems that NFTs could include some part of the bundle of IP rights that typically go along with an artistic work.

One might think that. One would usually be wrong. Read the terms for Top Shot or Mintable.

I meant it more as a suggestion than a description of how things are currently. But i did look up top shot. It's interesting that they do mainly operate through the use of special licenses to make use of the artwork.

I struggle to find legitimate use cases for NFTs - and I say this with confidence that it’ll age like warm milk.

That said, the one really obvious use case that jumps out at me is in-game loot. At least the inherent value of the NFT is tied back to something that people may want but otherwise can’t just copy-and-paste on their own.

The only problem with the above is that it doesn’t benefit publishers to allow third parties to freely buy-and-sell commercial content without a cut, so I can’t see why they’d ever go for it.

The smart contract could give a cut to the publisher. But ultimately if an NFT can only be used in one game why not just store it as a database entry on the game server?

> But ultimately if an NFT can only be used in one game why not just store it as a database entry on the game server?

That's the nice thing. Once you've created something with the ERC721 interface, it can be used in multiple places. Let's say you attach a hash pointing to a .glTF 3D object as well, and now multiple games can share the same items between them.

Imagine buying a in-game hat in Counter-Strike and later bringing it to Fortnite. Silly? yes, but also useful in that world of sillyness and fun? Yes.

Exactly this, but my thinking was that it might have some value to the publisher to build a marketplace around the content.

As an example - games like Fortnite, Warzone and Apex Legends rely on loot as the sole driver of revenue. Having in-game rare items freely tradable akin to the trading card concept that NFTs are constantly compared to could have value in itself.

If I’m a real fan of one of those games and I stumble upon a diamond-encrusted level 100 golden sniper rifle (sorry I’ve no idea what a good example of a rare item is in one of those games), then the money someone may pay for that is (e.g.) $1k.

Giving me the ability to sell that on to someone could not only drive publicity for the game (EVE online made world news years ago because of the real monetary value lost in their battles) but encourage me to play that game over rivals as there’s perceptible real-world value for my invested time and effort.

The downside I was thinking of above is that the publisher may not want to enable that for a bunch of reasons - the suggestion above sounds like a good way to resolve their revenue on the transactions, but the status quo of the items being non-transferable may be preferable as they’ll overall sell more loot directly to individual customers under the current system.

Domain names are a perfect use case for NFTs. That what the Ethereum Name Service is doing. Doesn't have to tie back to real world anything. It's like a digital plot of land.

I can create a Ethereum fork and transfer ownership of the domain in that fork. What gives the first fork more legitimacy than my private fork that nobody other than me gets to control?

You can't transfer ownership of the domain in your fork without either changing the rules—in which case it won't be accepted as a valid Ethereum blockchain by any other Ethereum node—or else rewinding the blockchain back to a point before the domain was first claimed by anyone and starting over. In the end your private fork is pointless unless visitors to the domain actually refer to it as a source of information about the domain. Transferring the domain from the current owner in a way other nodes will accept requires private keys you don't have. Rewinding the blockchain means that your fork is much shorter than the first fork and has a lower cumulative proof of work, so other nodes following the consensus-based rules of the Ethereum blockchain will ignore it.

Isn't the whole NFT a piramide scheme where "Auction" platforms incentivize artist A and B to buy each other arts (while taking a cut) in the hope it will boost "fame" and have someone unadvised of the deal think it's worth anything?

I don’t want to inflame the wrath of anyone by expressing an opinion on that, but it’s probably worth seperating two things:

1) The concept of NFTs - essentially a tradeable hash that infers rights to digital content.

2) What that digital content is and what its being used for currently.

I can easily believe (1) has some very real use cases. Off the top of my head - game publishers could sell seat licenses direct to consumers - essentially digital games that you can trade-in when finished. Not sure if they’d want to as the status quo involves them getting a majority of the revenue for every player currently.

As for (2) and what’s being traded currently being worth what’s being paid for it? It certainly seems like Euphoria to my eyes, but that’s one person’s opinion that could well be wrong. It’s 2021, nothing should surprise anyone at this point.

I think they're clearly useful for tracking ownership of genuinely-unique physical entities - I could sell farming rights to a bit of land or sell my car without the state DMV or a county government having to coordinate the transaction.

But I don't understand the application to digital art. I can watch a movie or read a book without owning the movie/book's NFT, just as I can what a movie or read a book for which there exists no NFT. So it seems clear that NFTs cannot function as a DRM mechanism.

It seems that nearly every "public good" in the Ethereum ecosystem got gobbled up by VCs and pivoted to for-profit endeavors. I don't mind VCs and I don't mind people seeking profit, but this moral high ground that Ethereum has been trying to build for itself is delusional. In practice it is just a marketing gimmick.

An astute observer may have noticed that Vitalik has a habit of coming up with definitions that only himself and the Ethereum foundation can meet the standards of.

The reality is everyone is just trying to make money. I think we are better off coming to terms with that instead of living in a collective fantasy.

> The reality is everyone is just trying to make money. I think we are better off coming to terms with that instead of living in a collective fantasy.

The reality is that not everyone does the same thing for the same reasons. No, not everyone working in the Ethereum ecosystem does so just to make quick money, just like not everyone is working in the military just to kill people, some try to help make the world better.

Ethereum has promise. At least they are willing to fix the flaws even if they fail at this task. Bitcoin is basically frozen in time. It has nothing going for it other than first move advantage and that first mover advantage is just a bunch of "bag holders" trying to get rid of their MLM product.

Public goods are by definition non-rivalrous and non-excludable. How can they be gobbled?

https://en.wikipedia.org/wiki/Public_good_(economics)

(I'm not being pedantic here. The concept of a public good, in this technical sense, is a very important concept to have -- and it's specifically the kind of "public goods" the article was talking about, along with ideas for improving their tendency to be under-supplied. Goods that can be gobbled up by someone tend to be produced at closer to the optimum amount, since there's a less diffuse private incentive for their production.)

Presumably the parent commenter is talking about providers (or potential providers) of public goods being gobbled up, leading to the classic economic problem that public goods tend to be under-produced.

Yea partially that, and also the fact that multiple projects used "public goods" language to bootstrap themselves and then pivoted into VC funded for profits.

Ok show me examples.

From the article pjscott linked:

> Public goods include knowledge, official statistics, national security, and common languages. Additionally, flood control systems, lighthouses, and street lighting are also common social goods.

How do you gobble up street lighting? How do you gobble up national security?

You seem to have misunderstood my point.

Then next time try being clearer

Public goods ... Welfare economics ... Social choice theory, Arrow's, Indifference curve: https://en.wikipedia.org/wiki/Indifference_curve

People do collectibles; commemorative plates.

Tragedy of the Commons

Services on a public good, are different than a public good. The blockchain is a public good, the cost to use it is the gas cost.

DEXs are a service, the cost to use them is the gas cost + fee.

Investors who invested in the DEX, and made money, don't take away the utility of the DEX or the blockchain. It's like saying people can't take advantage of Amazon's services because early investors made money from investing in it.

> It seems that nearly every "public good" in the Ethereum ecosystem got gobbled up by VCs and pivoted to for-profit endeavors

And this is because.... we don't have good public goods funding and so once the teams' capital needs get higher they have no choice but to pivot to VC/for-profit. I've talked to many of these teams personally, they are not greedy, but it's just unrealistic to expect people to turn away an opportunity for 100x more money. Turn away 2-5x, sure, but not 100x.

And this lack of public goods funding is exactly what I'm saying the ecosystem needs to focus on solving.

In this context, "legitimacy" is mostly "value from popularity". This becomes clear in the collectables market. Beanie Babies are not particularly good dolls, but through marketing, they became "collectable".

Collectable plates used to be a thing, back when people had large cabinets with glass-fronted doors for displaying dinnerware. You can still get them on eBay. "Lot of 3 Vintage Lena Liu Country Accents Numbered Bradford Exchange 1995 Plates Pre-Owned $24.99"[1] Zero bids. There's a vast amount of stuff like that. Nobody makes much money off of it other than the manufacturers. Even they don't do that well. Warner Bros. once bought the Franklin Mint, around the time they bought AOL and Time. That didn't work out well.

That's what the NFT proponents are trying to replicate - mass-market collectables. With an additional "fear of missing out" component. The high-dollar one-offs are promotional items for a projected flood of bulk collectables. (If they're even real. Those hyped multi-million dollar items, if they sell at all, do not seem to be closing as legitimate arms-length transactions where real money changes hands. See the Beeple fiasco.)

As a store of value, NFTs are terrible. None of this stuff is very liquid. Too many different items, and no market price. You have to put the thing up for sale and wait. Wait too long, and nobody cares. This Three Stooges collectable plate [2] can be yours very cheaply. The shipping and handling is more than the price, so the transaction cost is more than it's worth.

At least NFTs don't have high storage costs.

[1] https://www.ebay.com/itm/Lot-of-3-Vintage-Lena-Liu-Country-A...

[2] https://www.ebay.com/itm/Three-Stooges-Pop-Art-The-Franklin-...

If you take something rather silly (lotteries) and donate some of the proceeds to a good cause (state lotteries supporting education) then that makes it more acceptable and respectable, and perhaps more likely to stick around, because people are less likely to turn against it. So, perhaps the same could be done with NFT’s?

But Vitalik says this more diplomatically than me.

The idea of NFTs is odd to me.

I get the idea of a digitally validated consumable (concert tickets, for example). I get the idea of owning a piece of digital art.

But as far as I understand, a lot of NFT transactions are for digital "ownership" without many of the rights normally associated with ownership.

They seem more like baseball cards than Picassos.

Maybe I just don't get the current frenzy, and that's that--but a lot of the buzz around NFTs make me think there are likely a ton of wash sales that fake run up the price to unload lower priced ones on speculators.

It just has my spider sense tingling that something shady is going on. Think of all the farmland or Bitcoin or stock in copper miners you could buy with these sums. How could the joy of ownership over a collectible compete? Or do these people really believe that these things will appreciate from these prices?

> Clearly, this expenditure pattern is a massive misallocation of resources. The last 20% of network hashpower provides vastly less value to the ecosystem than those same resources would if they had gone into research and core protocol development. So why not just.... cut the PoW budget by 20% and redirect the funds to those other things instead?

I would prefer probably the other way for Bitcoin: keeping at least 1% inflation for securing via proof of work would be great, but as it's immutable (unlike Ethereum), the two networks will be even more different over time. I view this as a great thing, we don't need the same system twice. I love how boring Bitcoin is just like I love to see the new UniSwap version with its great improvements.

"Clearly, this expenditure pattern is a massive misallocation of resources. The last 20% of network hashpower provides vastly less value to the ecosystem than those same resources would if they had gone into research and core protocol development. So why not just.... cut the PoW budget by 20% and redirect the funds to those other things instead?"

"even though we could easily identify some valuable public goods to redirect some funding to as a one-off, making a regular institutionalized pattern of such decisions carries risks of political chaos and capture that are in the long run not worth it."

He gets the premise entirely wrong here. The chaos in these blockchain protocols is due to there not being a clear and well defined process for doing consensus rule upgrades. PoW miners control these chains. The power over the chain by PoW miners has become centralized into increasingly smaller number of participants with their own selfish interests. No upgrade will happen without their embracing it. Overriding the miners then becomes a vague and undefined matter of 'economic consensus' which means different things to different people and is not measurable.

Decred has consensus rules for upgrading its consensus rules. The hybrid PoW/PoS system allows for the security and fair distribution provided by PoW while allowing PoS... the economic stakeholders with the the most to lose, to make the decisions about the future of the chain.

Lead Developer for Decred, Dave Collins, outlines this concept nicely. (4 min) https://www.youtube.com/watch?v=WJs4T0WGe7k

Legitimacy sounds very much like consensus

It is.

The software engineer finally understands political science. I would ask you for your opinions on certain issues but unfortunately they are but unsolvable with technical solutions.

Technology got us into most of these political messes. The only way out, is through.

> they were successfully stopped

ish. at best. Hive achieved it's own legitimacy, substantiated itself.

but there's no way i'd make a grandiose claim about legitemizability in general, that this phoenix act is repeatable or cost free. this article feels.lile it argues too strongly for forces of cohesion that i don't think exist. right now blocks all have the ability to do whatever precisely because there is low cohesion, that they could just redefine & begin using the the alt system, but that freedom to redefine eeks out of systems, they solidify & set.

as an engineer I find that (the ever setting nature of social systems) horrific & wish very much for social rehcohesionability, re-structyring. vitalik's example is good to see. but it feels rare. very undependable. too often legacy & history have too strong a claim on legitemacy.

Is it me or Vitalik seems to be going a bit far...

> The powerful social force that is creating this effect is worth understanding. As we are going to see, it's also the same social force behind why the Ethereum ecosystem is capable of summoning up these resources in the first place (and the technologically near-identical Ethereum Classic is not)

The dude is turning megalomaniac, and is not realizing that a portion of miners are not happy with the protocol changes. His answer to that seems to be that he is the "legitimate" source of truth? I guess it's time to short Ethereum or run from your long.

*: Not trading advice.

Honestly, who cares about the miners? As far as I can tell, Proof of Stake is better in every way, for ETH users and developers.

I will enjoy the schadenfreude knowing you're shorting ETH.

The largest downfall in PoS is how the new coins go to existing coin holders, causing the rich to get richer .. centralizing the ownership of the network. PoW miners have hard cost to pay in the competitive market and the profit margins tend towards zero. This real cost means that miners have to sell coins if they need to recover production costs. The selling creates downward pressure until the market settles at a natural price floor. Gold buyers have understood the market price floor in relation to production costs for a long time. This lack of production costs with pure PoS systems leads to centralized ownership and a manipulated market, and this is why we see pure PoS coins with manipulated sky high market caps. I will never buy a pure PoS coin because a manipulated price doesn't satisfy legitimacy by fairness.

The term "Proof of Vitalik" was coined to explain the difference in market value between Ethereum and Ethereum Classic after the split.

The value of having a Vitalik is clearly considerable, but it isn't infinite. He fundamentally must persuade, because he has no ability to command.

That's his legitimacy: people mostly do what he wants, even though they don't have to. If he loses the legitimacy, that's what he loses.

NFT minted by Elon Musk is exactly equivalent to NFT by Jeff Bezos in their primary mean: real value of them is exactly zero and it is universally stupid to exchange any viable resource (being money or anything else) for them. The only sane exchange for NFT is another NFT.

Are we forgetting to account for the lack of centralized banking and everything that comes along with it when factoring in the cost of Bitcoin? No need for tellers and bank branches, no fiat, all of these things should be included in the comparison, along with tons of stuff I can’t even think of that it takes to run a centralized banking system.

Heck just the absence of a federal reserve with the ability to do stupid things to the currency might pay for itself.

I’d gladly trade away some of my legitimacy for more hours in the day.

Honestly, who cares what other people think.

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