When so much of our lives is mediated by giant corporations like Apple, Amazon, and Google, how do we deal with our data? Sure, it is behind a password in the cloud, but someone at whichever storage provider you pick has the keys to some of your data, and most if not all your metadata. This is one of the reasons I like working at Apple - I believe in our commitment to privacy, even if it is just a ploy for market differentiation. Ultimately, this means that I trust Apple, and that the engineers who work on these products are doing the right thing. I could also trust Satoshi, or Vitalik, or Linus’ Law but ultimately, I have to trust someone, and hope that they’ve done their homework.
The kinds of things that mathematics allow us to do are pretty insane. I spent a few hours trying to wrap my head around the ideas that Vitalik explains in this series, but a lot of it went over my head. Made me want to go back and learn higher level math.
A quick read that might even interest the skeptics. In essence, Gil sees potential in the store of value story, the payments story, the securitization story, and the digital goods story. Strangely he subdivides SoV into investment and offshore, but I see those two as the same. I’m personally most excited in securitization/smart contracts, which he calls money wrapped in code.
What makes banking different from other peer to peer platforms like Airbnb, Uber, or Tinder? Not the kind of question that I expected someone at the Bank of England to be thinking about.
Can blockchains be to governance and public goods what the modern corporation and public markets were to private goods? I am pretty bullish on this overall, even if it is hard to see where this paradigm change is taking us.
On my last post I mentioned this EconTalk episode was coming, and it did not disappoint. Out of all the suggestions, I think the rethinking of property tax is the most interesting, and possibly the most non-consensus. I want to read this book.
Coordination problems are fascinating, and this review of Posner and Weyl’s new book gives a taste of their ideas on political economy, with a nice dose of crypto. From immigration, to private property, to the gig economy, the authors seem to have controversial but well founded solutions on how to tackle some of the hardest coordination problems facing society today. Game theory and technology are a great pairing, and one that I don’t think has been explored enough. I can’t wait for this EconTalk episode to come out.
Sadly, Szabo has not yet released the second part of this series yet. He argues that we’ve forgotten that money used to exist outside of the State’s purview, and it is implied in his argument that cryptocurrencies are just a reversion to older models of money without state intervention.
When people in 2018 think of money, they think of it much like we think of the nation state - this is how things work in the world, we are all citizens of some country, and that country issues its state-sponsored currency. Most people don’t consider that history has followed different paths, and that we’re not at the end of history. Within our lifetimes these institutions will probably shift shapes.
This post describes one of the reasons why “micropayments” just don’t work. Yes, I’m in theory willing to pay a cent to read some article or blog post, and I could spend $N/month on content, but having to think about whether or not I want to pay for something or not adds significant friction. This is also why you’d rather open Netflix and scroll for ten minutes through bad content instead of opening the iTunes Movie Store and scroll for two.
Yes, crypto. If you’ve been following along for a while, and have read about the ideas behind Bitcoin, there isn’t much new here for you, but it’ll be a good refresher. If you want to get a good introduction to the topic, this is a good place to get started.
Yes, more crypto. I’ve slowly started to become more bullish on the idea of the Ethereum network taking over Bitcoin, and Gil makes several good points in that direction here. In a vacuum, I think that Ethereum has more fundamental value, making it stronger even without the network effects that come from being the first mover, but what will end up deciding whether the number one network is BTC, ETH, LTC or some other coin, is a substantial reduction transaction costs while increasing throughput. Whether that means Lightning, Plasma, Truebit or something else (Gil mentions Bulletproofs), will matter just as much as other versions of SGML matter to us today when using HTML on the web.
Ok, last crypto one. The last month or two have been crazy, but I still think we have a fundamentally different thing going on with the crypto market. And when I say fundamentally that’s exactly the word I’m looking for. When people discuss valuations, cash flows, and discount rates, they’re using concepts that were invented by people to explain prices. Humans made these up, too. That the current model doesn’t apply here doesn’t mean there isn’t fundamental value underneath, it means it is time we come up with a new way to explain prices.
This is probably the best survey I’ve read about BTC’s growing pains and the tech being developed to solve them. It doesn’t dive too deep, but will expose you to a bunch of ideas, from the Lightning Network to MimbleWimble (yes that’s a thing). I’m only bullish on crypto long term because I know the community is working hard to build solutions to these problems, even if vanilla BTC is not the one to succeed.
I recently read the Basecoin whitepaper which is intriguing, even if a bit too utopic. Having a currency that is pegged somehow to the values in the real economy is a must if we want to transition into a non-fiat world. Paying rent, receiving a salary, or buying bread and eggs with something as volatile as BTC is a non-starter, and one of the tough problems to be solved in the space.
This feels completely outdated by now (three weeks is a long time in the cryptocurrency world!) but I decided to share it anyway. Scaling a company is hard. Scaling a company at the pace that Coinbase is doing it seems impossible. They will hiccup along for a while, but having even a tiny glimpse of how things work on the inside is quite interesting.
This post is full of non-crypto/non-blockchain interesting ideas, from basic coordination and incentives, all the way to full fledged frameworks to replace democracy, like Hanson’s Futarchy (which I had never heard of before, and found super intriguing!). Framing the problem of governance as one of dispersed information in a changing environment is very Hayekian, which lines up nicely with what I’ve been reading recently. Toward the end, Ehrsam suggests players should focus on the metaprogramming of systems (ie, the decision making workflows/processes by which these systems evolve) instead of the systems themselves. I like this view.
A good intro, with both the bull and the bear cases well summarized. As usual, Suster does a good job of making complex topics available to non-technical users. This seems especially important these days.
In an otherwise boring article, Cecchetti and Schoenholtz wonder whether derivatives markets will negatively affect the valuation of crypto assets. This seems possible, and I think its a prudent point of view. Not much else is new in this post. These two have been skeptical of cryptocurrencies for a long time, and here they take the fundamentals’ “no way to do a DCF on this” side. Specifically, they argue that bitcoin looks like a bubble since “investors buy solely because they see the price rising, without any change in the discount rate, in risk tolerance, or in the projected dividend stream.” As my brother Max mentioned, this one can make the same argument against gold, or as Naval Ravikants keeps repeating “Money is the bubble that never pops.”
A lucid explanation of the technological breakthroughs of Bitcoin and other cryptographic assets. A bit long, but worthwhile. Ludwin’s main point is that this technology created a new kind of asset - one that enables decentralized applications to be financed and operated. Whether there is a real need for these DApps is still TBD, but Ludwin is (cautiosly) bullish in the long term. The Dimon thing is just clickbait, and Ludwin hedges his bets by acknowledging the frothiness in the crypto market. As an aside, Nick Tomaino’s The Slow Death of the Firm from earlier this week is even more bullish on decentralized applications, and also a good read.
As I’ve mentioned again and again, the value of ICOs, tokens, and cryptocurrencies is in the new economic structures they enable. In her post, Ou goes through some late 90s/early 00s history of failed protocols and ideas which are now actually possible thanks to blockchains. However, the point of her post is that the potential benefit of the introduction of blockchain comes hand in hand with an increased friction in the form of transaction costs. Whether the benefit of deploying these ideas is greater than the friction introduced remains to be seen, and that is what will make or break each of these crypto projects.
The reason cryptocurrencies, and the technology behind them, are exciting for me is not their insane returns, but the economic and political implications of creating totally new incentive systems. Matt Levine has a good summary of how these differ from the traditional VC backed company in yesterday’s Money Stuff, but Elad Gil’s post goes much more in depth into what kinds of corporate structures are enabled by crypto.
I have been reading a lot of Levine’s writing lately (mostly his Money Stuff series/newsletter) and this is a great example of it: a nice mix of crazy, technology, and politics, viewed through the lens of finance. “People are worried that people aren’t worried enough” and “Blockchain blockchain blockchain,” are recurring sections that have kept me coming back.
The human side of technology and business are much harder than the technology and the business themselves. Decision making is hard, whether you ran an ICO or raised a series A. Convincing people that you should go one way or another takes leadership. Development in system design, focusing on how to align incentives for the long term is one of the best things that will come out of the current crypto-craze.
Last night my cousin asked me, “wait, so I heard bitcoin split, how does that work?” to which I replied, “it is not quite a split,” and pointed him to this article. The implications of value creation via new blockchains, and how that value affects the pre-existing base is something I had not thought about until now. It might be that inflation in the world of crypto comes from the creation of new chains. A lot of thinking to do about this. Also recommended, Levine’s follow-up “Bitcoin Forks and Unicorn Fakes”. In general, I’ve been enjoying Levine’s writing a lot lately.
A good point about governance, shareholder influence, and, in a way, democracy. If the shareholders are idiots, you end up making bad decisions. But if the shareholders are really smart but skilled in a different area, you end up making bad decisions too.
I have mixed feelings about the fact that ZCash is on Radiolab. On the one hand, it’s great to see good reporting on cryptocurrencies, and they do a pretty good job of making it accessible to laymen, but on the other hand they hide the math behind mysticism and science. It is ok to explain simplified versions of the concepts, but even the title of the episode gives it a magical connotation that I can’t come to terms with.
I generally can’t stand Tim Ferriss, but this is a good episode. Nick’s blog is great (if you haven’t read him, start here).
In a strange melding of worlds, Ben moves away from the usual tech talk and goes deep into the history of financial manias. Using Yuval Harari’s notion of shared myths, this post makes a clear difference between bubbles of irrationality, and bubbles of timing. I firmly believe that crypto is one of the latter.
Evans with the counter-narrative: “It’s easy to envision how and why an interwoven mesh of dozens of decentralized blockchains could slowly, over a period of years and years, become a similar category of crucial infrastructure […] while ordinary people remain essentially blissfully unaware of their existence.” Ah, and nice Fred Wilson burn. I also thought the Rare Pepe story was nuts.
What are the implications of crypto for central banking? The written-in-stone aspect of the blockchain makes monetary policy way more credible, which is a good thing, but at the same time crypto knows no borders, making adjustments by one group of users spill over to others quite easily. A more in depth look here.
Initial coin offerings (ICOs) are all the rage these days. Some people will get screwed in this process, and I am staying away from buying any ERC20 tokens for a good chunk of time.
I have previously discussed Szabo, and his view on human institutions as “trust-offloading mechanisms.” In a way, money is the ultimate trust-offloading abstraction. Until the last few years, money – American Dollars, the Euro, or the Costa Rican Colon – still relied on trusting several points of failure – states, the payments networks, the certificate authorities – and our human interactions simply assumed those costs. Bitcoin and the internet have started to changed that, and further developments in technology promise much more. This is a post I’ll probably re-read again soon.
Something that surpised me about monetary policy rules when I studied them in college was how much their usefulness depended on people’s expectations of their usefulness. Individual agents’ beliefs on the predictability and stability of a state’s decisions about its monetary policies were the fulcrum of all the models we studied in these intermediate economics classes. Thinking about how these rules can be baked into a crypto currency, such as bitcoin’s pre-defined velocity rule, or freicoin’s holding fees, is really interesting. Like Albert, I’m excited about these experiments.
The confluence of artificially cheap electricity, price controls on imported goods, and hyper-inflation are making Bitcoin more and more mainstream in places like Venezuela. While the great majority of the population probably has no idea of what cryptocurrencies are, or how to use them, it is really interesting to hear about how the fringe slowly drifts.
Humans have learned to defer decision making and process to “things” since time immemorial. The main goal of this is to offload brain cycles into simple rules, and ease our interactions with the world around us. Szabo brings up examples like clocks ands traffic lights, which enable coordination between humans that would require way more effort otherwise. We can also think of learned heuristics, encoded in folklore and religion, as other means of offloading. Clocks ease friction as long as we agree on their time, just like ideas of good and evil ease friction as long as we agree on their base truth. Clocks and religion are trust-offloading mechanisms.
It takes guts to describe your company as the “…most popular way to buy, sell, and use bitcoin” or, more humbly, a “bitcoin wallet and platform” and then come out and say that something else is better, and possibly more sustainable, than BTC. Smells like a soft pivot to cryptocurrencies in general could be coming.