"Cryptocurrency’s failure to scale beyond relatively nascent engineering"
Very interesting essay by "Moxie Marlinspike" consistent with my thinking on cryptocurrency and blockchain; excerpt:
Regarding those "market dynamics," also see our guest writer Louisiana's post from last year on meme stocks. I've been using that post as a notebook to record thoughts about how "cryptocurrencies" are simply gambling tokens, just like shares of stock in worthless companies.“It’s early days still” is the most common refrain I see from people in the web3 space when discussing matters like these. In some ways, cryptocurrency’s failure to scale beyond relatively nascent engineering is what makes it possible to consider the days “early,” since objectively it has already been a decade or more.
However, even if this is just the beginning (and it very well might be!), I’m not sure we should consider that any consolation. I think the opposite might be true; it seems like we should take notice that from the very beginning, these technologies immediately tended towards centralization through platforms in order for them to be realized, that this has ~zero negatively felt effect on the velocity of the ecosystem, and that most participants don’t even know or care it’s happening. This might suggest that decentralization itself is not actually of immediate practical or pressing importance to the majority of people downstream, that the only amount of decentralization people want is the minimum amount required for something to exist, and that if not very consciously accounted for, these forces will push us further from rather than closer to the ideal outcome as the days become less early.
When you think about it, OpenSea would actually be much “better” in the immediate sense if all the web3 parts were gone. It would be faster, cheaper for everyone, and easier to use. For example, to accept a bid on my NFT, I would have had to pay over $80-$150+ just in ethereum transaction fees. That puts an artificial floor on all bids, since otherwise you’d lose money by accepting a bid for less than the gas fees. Payment fees by credit card, which typically feel extortionary, look cheap compared to that. OpenSea could even publish a simple transparency log if people wanted a public record of transactions, offers, bids, etc to verify their accounting.
However, if they had built a platform to buy and sell images that wasn’t nominally based on crypto, I don’t think it would have taken off. Not because it isn’t distributed, because as we’ve seen so much of what’s required to make it work is already not distributed. I don’t think it would have taken off because this is a gold rush. People have made money through cryptocurrency speculation, those people are interested in spending that cryptocurrency in ways that support their investment while offering additional returns, and so that defines the setting for the market of transfer of wealth.
The people at the end of the line who are flipping NFTs do not fundamentally care about distributed trust models or payment mechanics, but they care about where the money is. So the money draws people into OpenSea, they improve the experience by building a platform that iterates on the underlying web3 protocols in web2 space, they eventually offer the ability to “mint” NFTs through OpenSea itself instead of through your own smart contract, and eventually this all opens the door for Coinbase to offer access to the validated NFT market with their own platform via your debit card. That opens the door to Coinbase managing the tokens themselves through dark pools that Coinbase holds, which helpfully eliminates the transaction fees and makes it possible to avoid having to interact with smart contracts at all. Eventually, all the web3 parts are gone, and you have a website for buying and selling JPEGS with your debit card. The project can’t start as a web2 platform because of the market dynamics, but the same market dynamics and the fundamental forces of centralization will likely drive it to end up there.
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Beyond my imagination, bitcoin has achieved the unlikely goal of being even less convenient than gold for actually buying things (the job of a currency). The exchange rate of bitcoin is almost completely a random walk, impossible for anyone to manage (unlike a regular currency), and much worse than even gold.
https://apenwarr.ca/log/?m=202111
I've become convinced that this problem is indeed fundamental. The simplistic version of the problem is this:
*The income to a participant in a P2P network of this kind should be linear in their contribution of resources to the network.
*The costs a participant incurs by contributing resources to the network will be less than linear in their resource contribution, because of the economies of scale.
*Thus the proportional profit margin a participant obtains will increase with increasing resource contribution.
*Thus the effects described in Brian Arthur's Increasing Returns and Path Dependence in the Economy will apply, and the network will be dominated by a few, perhaps just one, large participant.
The advantages of P2P networks arise from a diverse network of small, roughly equal resource contributors. Thus it seems that P2P networks which have the characteristics needed to succeed (by being widely adopted) also inevitably carry the seeds of their own failure (by becoming effectively centralized). Bitcoin is an example of this.
https://blog.dshr.org/2014/10/economies-of-scale-in-peer-to-peer.html
My only surprise is that the twilight of Securities Act hasn’t led more private equity firms to just start raiding the nearly 600 listed zombie companies and turning them into exchanges and crypto pump and dump farms on the back of existing brand recognition. If I was a corporate raider my head would be spinning with dollar signs with the opportunity to basically gut large portions of the NYSE and squeeze every last bit of value out of them into an offshore crypto slush fund completely beyond the reach of the tax authorities. Once PE firms finally realize this, there are literally trillions to be made from the regime change of the United States from rule of law into hypercapitalist digital anarchy. If you want to profit from collapse, this is easiest and surefire way to secure your chunk of the American economic carcass in some offshore tax haven so you can sip mojitos from the beach and watch the end.
https://www.stephendiehl.com/blog/equities.html
The real world has fundamental constraints that make the technology unworkable, whenever it has to interact with the outside world the benefits of decentralization disappear and the solutions end up simply recreating slower and worse versions of processes and structures that already exist. Despite that, for the last thirteen years these projects have done nothing but scam people by creating synthetic asset bubbles for gambling and destroying the environment. There are fundamental limitations to the scalability of blockchain-based technologies, and every use case is better served by another simpler technology except for crime, ransomware, extralegal gambling, and sanctions evasion; all of which are a drain on society not a benefit. Taken as a whole the technology has no tangible benefits over simply using trusted parties and centralized databases. Crypto coins are simply speculative gambling products that only create a massive set of negative externalities on the world. It is introducing artificial volatility into markets untethered to any economic activity and creates an enormous opportunity cost where the only investment opportunity is as an economically corrosive synthetic hedge against all productive assets.
https://www.stephendiehl.com/blog/against-crypto.html
On a compute basis, blockchain networks don’t scale except by becoming the very same plutocratic and centralized systems they allegedly were designed to replace. There is an absurd cost to trying to do censorship resistant computation. In this regime there is a hard incentive to minimize program execution time because the entire network is forced to recompute every single program as part of it’s insanely wasteful process of attempting to reach consensus about a giant global state machine. This inevitably drives the cost per program instruction into the stratosphere. The Ethereum virtual machine has the equivalent computational power of an Atari 2600 from the 1970s except it runs on casino chips that cost $500 a pop and every few minutes we have to reload it like a slot machine to buy a few more cycles. That anyone could consider this to be the computational backbone to the new global internet is beyond laughable. We’ve gone from the world of abundance in cloud computing where the cost of compute time per person was nearly at post-scarcity levels, to the reverse of trying to enforce artificial scarcity on the most abundant resource humanity has ever created.
https://www.stephendiehl.com/blog/web3-bullshit.html
After years of studying it, I believe that cryptocurrency is an inherently right-wing, hyper-capitalistic technology built primarily to amplify the wealth of its proponents through a combination of tax avoidance, diminished regulatory oversight and artificially enforced scarcity. Despite claims of “decentralization”, the cryptocurrency industry is controlled by a powerful cartel of wealthy figures who, with time, have evolved to incorporate many of the same institutions tied to the existing centralized financial system they supposedly set out to replace. The cryptocurrency industry leverages a network of shady business connections, bought influencers and pay-for-play media outlets to perpetuate a cult-like “get rich quick” funnel designed to extract new money from the financially desperate and naive.
https://twitter.com/ummjackson/status/1415353984617914370
Bitcoin carries with it the seeds of its own destruction by virtue of it being effectively a pyramid scheme that depends on the greater fool theory and consistent inflows to sustain the collective delusion in the viability of infinite recursive speculation on hot air and libertarian fantasies. If we as citizens in democratic countries simply restrict the inflows and on-ramps, the entire scheme will collapse on its own in a highly predictable and politically expedient way without much effort. And the world will be better off without it.
https://www.stephendiehl.com/blog/destroy-bitcoin.html
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