Tag Archives: Alyssa Hertig

Cryptocurrency Spins Out Into The Woods?

Is cryptocurrency technology heading down a path to disaster?

This summer Bitcoin is dominated by the ongoing crisis of “governance”, which is leading to fork after fork. It is increasingly evident that Nakamotoan “decentralized” and “consensus” based decision making is less than optimal for something serious like digital money.

The Bitcoin “community” (and we must use the term loosely) is, as Alyssa Hertig trenchantly says, a “Culture of Infighting”.

Sigh.

This has also been a year of multiplying “Initial Coin Offerings”, ICOs. Aided by an ever more automated process, practically anyone can whip up their own tokens, have a quick online auction, and pick up a quick mill or more. Cool!

(And I do mean “quick”. ICOs are infamous for their opaque online auctions that last a few minutes and are sucked up by big players.)

If this sounds like selling unregistered securities (on unregulated markets), the US Securities and Exchange Commission agrees. The SEC Guidance is pretty simple: if it looks like a security, then it is covered by US laws. Period.

Has this dampened enthusiasm? Not much, though it has been a boon for lawyers as people try to thread the needle to avoid regulation, yet still cash in.

As Avtar Sehra comments, the world of ICOs is now exploring various “workarounds” that resemble the “creative” business models of Pachinko parlors. These efforts basically try “to execute undercover securities issuances”.

It’s questionable how well this will work. The SEC tends to be pretty unforgiving of such shenanigans.

And Sehra makes the important point that pouring effort into this penny ante quick money stuff is neglecting the real opportunities that may exist to use this technology within the legal framework.

These workarounds “may be limiting the vision and creativity required to see the true scale of what ICOs and digital tokens could represent; blinding many in the industry to possible risks if they take the wrong path.”

Honestly, it seems to me that cryptocurrency technology is charging down the wrong path, ignoring warning signs and shoving aside the grown ups.


  1. Alyssa Hertig, Bitcoin’s Battle Over Segwit2x Has Begun Coindesk.August 30 2017, https://www.coindesk.com/bitcoins-battle-segwit2x-begun/
  2. Avtar Sehra, The New Pachinko? Exploring the Economics of Initial Coin Offerings Coindesk.August 20 2017, https://www.coindesk.com/the-new-pachinko-exploring-the-economics-of-initial-coin-offerings/
  3. US Securities and Exchange Commission, SEC Issues Investigative Report Concluding DAO Tokens, a Digital Asset, Were Securities. 2017: Washington, DC. https://www.sec.gov/news/press-release/2017-131

 

 

Cryptocurrency Thursday

Up, Up, and Away! Cryptocurrency Optimism Files High

Shaking off an endless stream of frauds, thefts, arrests, and convictions; ignoring warnings and regulatory stop signs; and even blowing through the minor glitch of a catastrophic and fatal fatal fork of Bitcoin; the cryptocurrenty community cruises to new heights of techno-optimism.

Even supposedly rational capitalists seem to be carried away.


For examplet, NVIDIA corporation is have another good year, driven by the sales of GPUs. (All alums of Illinois are proud to see how important these descendants of the much laughed at Illiac IV have become.)

Jen-Hsun Huang, the CEO of NVIDIA, recently expressed glowing optimism that GPUs will continue to grow not only for graphics but also for cryptography and cryptocurrency mining.

It’s hard to say what fraction of the $1.9 billion income is attributed to cryptocurrency, though the total amount of Bitcoin mined in a year is less than $200 million. No matter how you slice it, cryptocurrency alone cannot really support a billion dollar hardware industry.

Nevertheless, these results do show that, while cryptocurrency may not be benefitting the world or disrupting money quite yet, it certainly is sucking down computing resources and the requisite electricity to run them.

Overall, the huge GPU industry is sustained by completely imaginary and economically inexplicable activities—such as video games, digital television (including porn), and, evidently, the scratch-off lottery of cryptocurrency mining.

NVIDIA’s Jen-Hsun Huang believes that cryptocurrency and blockchain are “here to stay” and will continue to be an important market for GPUs.  I have to wonder about this prediction. It’s far from clear that the current exuberance is rational, and with the catastrophic forking and reforking of Bitcoin, one wonders when the bottom will drop out.

We also should note that much of the market for cryptocurrency equipment is driven by and dark markets. These folks may remain a robust consumer base for NVIDIA, but it’s hard to see that as a great thing for the world.

Even more important, as quantum computing comes online in the next decade, GPUs will no longer be the top of the line. QC will be overwhelmingly faster, and GPUs will be next to useless for cryptography or cryptocurrency. That means that even if cryptography and cryptocurrency continue to grow, they will no longer be using GPUs, and certainly will not pay premium prices for them.


On another front, the Blockstream company has literally left the planet, with the launch of the first of many satellites designed to make Bitcoin available everywhere. The stated use case is Africa and other places with poor Internet access. In particular, you can’t run a full node (let along a mining operation) without significant network bandwidth, so Bitcoin isn’t fully available in many places.

I think the idea of this scheme is to provide a dedicated satellite network that connects Bitcoin nodes into the global net with relatively low cost ground equipment. This base station would be pretty much dedicated to Bitcoin, and connected to nothing except other Bitcoin nodes.

I have to wonder what use such a node would be to anyone, especially if the ‘last kilometer’ is marginal. I also have to wonder how this could possibly be financially viable. Space programs are obscenely expensive, so this doesn’t seem like the path to low cost connectivity on its face. We’ll see.

I will note that the general scenario would be that with this inexpensive ground station, “you could be transacting globally with bitcoin”. “Transaction globally” means “moving money offshore”, which is probably of interest to some people in Africa, but may or may not be a positive for the local economy and society. Again, we’ll see.


  1. Alyssa Hertig, Blockstream Is Using Satellites to Beam Bitcoin Down to Earth Coindesk.August 15 2017, https://www.coindesk.com/blockstream-using-satellites-beam-bitcoin-earth/
  2. Stan Higgins, Nvidia CEO: Cryptocurrencies Are ‘Here to Stay’ Coindesk.August 11 2017, https://www.coindesk.com/nvidia-ceo-cryptocurrencies-stay/

 

Cryptocurrenty Thursday

Coindesk’s Crypto “Consensus 2017”: Lot’s Of Talk, Not Much Consensus

Last month saw Coindesk’s “Consensus 2017”, one of, if not the biggest Cryptocurrency and blockchain conferences. Everyone who is anyone was there (well—not me). It’s all too much, I can’t even work through the Coindesk reports, let alone all the presentations, panels, and demos. (Coindesk’s summary recap is here.)

There was a lot of excitement, although I haven’t seen much new technology or actual businesses. The promised land is still just over the horizon, as it has been for several years.

Even the generally enthusiastic Coindesk recognized some of the excess, with headlines like . “Consensus 2017: Even Academics Can’t Keep Pace With Blockchain Change”. A report on the separate Ethereum-centric Ethereal Summit has the memorable headline, “’Spiritual Experience’: Hot, Wild Ethereum Summit is Sign of the Times” <<link>> Castor comments,

If there were a sign that blockchain may be overhyped, or that the industry is in the midst of a massive bubble, the Ethereal Summit may well have been it.

Quite.

The most significant news from the Consensus meeting itself was a somewhat opaque diplomatic communiqué from the Digital Currency Group, announcing a Bitcoin Scaling Agreement.

This is the latest step in the two plus year-long process that is attempting to deal with the perfectly routine engineering issue of adjusting a data structure to keep up with traffic. This issue has demonstrated the dysfunction of the so-called “consensus” governance of Bitcoin, and has nearly broken Bitcoin into multiple competing currencies.

So, “agreement” would be welcome.

Unfortunately, this grand announcement in fact announced that the same steps agreed to February 2016, which were never executed. This group has endorsed a plan that has been languishing for more than a year. (And there is no implementation in sight.)

As Coindesk reports, the underlying technical, business and political issues remain. The technical issue is pretty straightforward, but there are many people and companies using the protocol and network, and their interests conflict.

The decentralized decision-making process has been unable to find sufficient common ground to date, and has exposed deep divides in the “community”. The standard “consensus” process in such a case is for dissident factions to “fork” and do their own thing. That would mean two or more incompatible versions of Bitcoin, multiple protocols and virtual networks. This kind of fork works (sort of) for software, but isn’t a great model for what is supposed to be a universal shared resource.

So, things are not only “hot and wild”, but also on fire and adrift. (And QC will cause it all to fall down with a big thud within a couple of years.)

“It’s doomed, I tell you. Doomed!” 🙂


  1. Amy Castor,  Spiritual Experience’: Hot, Wild Ethereum Summit is Sign of the Times Coindesk.May 20 2017, http://www.coindesk.com/spiritual-experience-hot-wild-ethereum-summit-sign-times/
  2. Digital Currency Group. Bitcoin Scaling Agreement at Consensus 2017. 2017, https://medium.com/@DCGco/bitcoin-scaling-agreement-at-consensus-2017-133521fe9a77.
  3. Pete Rizzo and Alyssa Hertig Bitcoin’s New Scaling ‘Agreement’: The Reaction Coindesk.May 24 2017, http://www.coindesk.com/bitcoins-new-scaling-agreement-reaction/

 

Cryptocurrency Thursday

Ethereum Developer’s Conference: Unstoppable Zombie Technology

The Ethereum Developers conference was in Paris a few weeks ago, and despite a really, really bad year, optimism seemed to be high.

I haven’t really sorted through all the proposals floated at this conference, but Coindesk reports on several “improvements”, include private blockchains, “supercharged” contracts, and fundamental changes to the basic protocol. These ideas mostly have been seen before, and we’ll see if Ethereum development is any more agile than Bitcoin. (Ethereum certainly has a track record of quick, if disastrous evolution.)

More remarkable and possibly alarming, Alyssa Hertig reports that, “[d]espite the spectacular demise of The DAO, developers are still excited about the concept”. As Hertig trenchantly comments that these ”developers see such promise in a system whereby businesses decisions are automated to a degree that power and bureaucracy can be limited.”

Sigh.

Given the utter catastrophe of The DAO, many of the efforts have rebranded to avoid that particular term, which keeping the same bogus technology. The folks who brought you The DAO even have a new project, supposedly for charity. Old wine, new bottle.  Who can possibly take this seriously??

A similar idea comes from “Aragon” which hopes to be a platform for “unstoppable companies”. (I guess these people probably like the idea of cars with no brakes.)

Luis Cuende of Aragon gushes that, “The blockchain removes intermediaries by making trust obsolete.” (Really?)

Actually, Cuende’s manifesto is unintentionally brilliant throughout, clearly stating some of the often hidden fallacies underlying this whole enterprise. For example, he claims that, “One of the most basic needs in humans’ lives is to transact.” Actually, not, unless you are a fictional human living in an undergraduate microeconomics textbook.

He let’s that cat out of the bag with his analysis of all those pesky overheads companies have to pay because of “the system”.

“Today, companies spend a huge part of their time and capital just dealing with the system.

“Dealing with compliance, know your customer, tax filings, payroll, international payments, cap table management, board approvals…

“And they also spend a notable chunk of their capital in taxes.”

As he says, “Death to paperwork. Avoid useless intermediaries.” Only chumps follow the law or pay taxes. He imagines that executable contracts will somehow be offshore from everywhere.

Another cunning plan is “Colony ” a “task management” system using Ethereum (for payments) and “smart contracts” to run the show. It looks tome like a pretty vanilla crowdsourcing or project management system, except there is no one actually in charge.

The feature set is pretty similar to, say Loomio. The innovations seem to be that voting is managed by executable contracts rather than humans, and there is a cryptocurrency which makes payments, including micro- and nanopayments feasible.

Is that an important improvement? I honestly don’t know. For small scale and/or local collaborations-such as targeted by Loomio-it is unlikely that you need the Ethereum technology. So, what would be the use case for Colony?

At least Colony seems like it might be useful, maybe, unlike the “unstoppable companies” folks, who are just bonkers.

Overall, there wasn’t all that much innovation, and some really bad ideas that just won’t go away no matter how they fail in the real world.

It is difficult to be optimistic about the future of Ethereum.


  1. Colony, Colony Beta Overview, in Medium. 2017. https://blog.colony.io/colony-beta-product-summary-2121a357d61d – .rjtkokfou
  2. Luis Cuende, Introducing Aragon: Unstoppable companies, in Medium. 2017. https://medium.com/aragondec/introducing-aragon-unstoppable-companies-58c1fd2d00ce – .3y7vj015z
  3. Alyssa Hertig,  Rebranding The DAO: The Contentious Blockchain Concept is Back. Coindesk.Feburary 20 2017, http://www.coindesk.com/rebranding-dao-controversial-blockchain-concept-back/

 

Cryptocurrency Thursday

The Ethereum Saga: Hard Fork of the Month

The Ethereum saga continues this month with the “third hard fork in the last four months.”  This one includes a mechanism to let “developers” delete empty records that have been injected to slow the system. That’s right, this “decentralized” system is yet again modifying code to enable “centralzed” sysadmins to fix things.

As I have pointed out before, these kinds of operations are necessary and routine in most software systems, but they are difficult, politically controversial, and messy in decentralized blockchain systems. (Alyssa Hertig recounts that one group accidentally executed the patch—I mean, “the hard fork”—at the wrong time, effectively dividing the network fo ra time by accident.)

This story reveals some of the peculiarity imposed by the Nakamotoan ideology. The common and necessary practice called “issuing a patch” is a traumatic and newsworthy “hard fork”, which can go horribly wrong. The completely ordinary role of sysadmin cannot exist, and so must be simulated by a cadre of “developers” whose authority may or may not be recognized. This is no way to run a railroad!

As for Ethereum itself, by now, it is almost silly to consider it a “decentralized” system. The developers are clearly taking charge and actively managing the health of the code and the network. That’s a good thing engineeringwise, but it isn’t really a proper “blockchain” thing, is it?

 

Cryptocurrency Thursday

Yet More Cryptocurrency “Smart Contracts” Concepts

This year has proved to be a demonstration of just how “smart” smart contracts are in practice. I could say they are “not so smart”, but that misses the point. Executable contracts actually can be really clever, but they will never be perfect.   Buggy software is normal, buggy software that involves financial transactions but cannot be corrected if buggy is, well, a problem.

The entire concept of Bitcoin and smart contracts is that once a transaction is entered on the blockchain it can never be deleted or altered. This is basically the key feature of cryptocurrency and “smart contracts” extend the pattern with unalterable code that is robotically executed as part of a transaction.

Basically, the blockchain is permanent, write-once memory, and “smart contracts” are permanent, write-once programs. (We’ll skip over the fact that the humans involved aren’t authenticated, which is a whole other kettle of fish.)

In most of life, we don’t generally use either memory or code that can never be modified. We need to update and fix data and software. All the time. (Pretty much my entire decades long career as a software engineer was issuing patches and upgrades.)

We now see the cryptocurrency community trying to simulate erasable memory on top of the blockchain. This isn’t easy to do, and, worse, violates the fundamental feature of the blockchain: any ability to “take back” or “revise” a transaction already on the chain has to ba anathema.

Two examples of this process have been discussed recently. Alyssa Hertig writes for coindesk that “Ethereum Bug Sends Smart Contracts Back to the Drawing Board”. The bug in question is actually in the implementation of one of the programming languages used for writing contracts—one of the links in the chain, which is sometimes overlooked. Remember, uniike conventional programs which can be erased or updated, the output of this compiler is put out on the blockchain and can never be changed or deleted.   Even fixing the bug in the compiler can’t undo the damage already done.

The discussion of how to mitigate the problem would be funny if it weren’t so sad. One solution is to use “centrally controlled” contracts, which would allow you to modify the buggy contract. Huh? Why use a blockchain, if you have a central control?  Just use a DBMS, people.

For decentralized contracts, there is little that can be done, except to put on time limits or, well, try not to make mistakes. You should “do a proper formal analysis of the bytecode of the contract.” (Tools to do this will be available Real Soon Now.)

How do we know that the formal analysis is correct?

Anyway, if you haven’t bailed out of using Ethereum contracts by now, you are not likely to pay any attention to anything I say anyway.


On the Bitcoin front, Hertig discusses a concept for an “Anti-Theft Feature” for transactions on blockchains. In this case, the goal is to be able to put Bitcoin in a “vault” where it is difficult to remove even if you have the key. If a thief gets your key, he will try to transfer your Bitcoin to his own accounts. The “vault” enforces a delay on this transfer, and allows a second key to cancel the transfer.

Putting on my Anthropologist hat, I note that Bitcoin is designed to emulate gold bullion, and this mechanism emulates the bank vaults used to slow the transfer of physical bullion. It seems that you can try to “disrupt” the age-old financial industry, but you often end up simply recreating it, piece by piece.

Unfortunately, implementing this simple concept violates the aforementioned immutability feature, and would require a hard fork, i.e., change to the code accepted by everyone. This may prove contentious.

Perhaps with Ethereum’s hard lessons in mind, Hertig inquired about these “covenants”:

When asked if the new scripts were safe, Bitcoin Core developer Greg Maxwell responded: “Trivially so if implemented correctly.“”

Right.  And the Titanic is trivially unsinkable, if steered correctly.


Cryptocurrency is said to be a “trustless” system, but these days you certainly have to place a lot of trust in the correctness of software.


 

Cryptocurrency Thursday

 

Ethereum Follies, October Edition

The Ethereum project continues to give a public tutorial in how not to do secure network software.

Ethereum is built on concepts pioneered by Bitcoin, adding on an additional layer to implement executable contracts (which are usually mis-termed “smart contracts”). This is pretty much uncharted territory, though fundamental computer science teaches us that a Turing complete programming language is going to be vulnerable to all kinds of mischief.

Ethereum deals with the main forms of mischief by throttling the Turing machine (so it is technically a modified TM), running in a restricted virtual machine and using a tax (“called “steam”) on each operation. The idea of the charging  is that trouble makers will be deterred by having a toll booth. “Please insert 25 cents to continue running.”

As a philosophical aside, I note that this approach moves the question of whether Ethereum is vulnerable to the question, “is this (complicated) virtual machine with its coin slot vulnerable?”

Rushing to market, Ethereum went into production with more confidence than hard testing. Then a group decided to go one bridge farther, to create a full blown Decentralized Autonomous Organization on top of Ethereum. Lot’s of people have been talking about DAO’s, imagining that they are solutions to all that ails us. Much of the enthusiasm apparently stems from the “logical” syllogism:

  • Organizations (states, companies, banks) cannot be trusted
  • Organizations are operated by people
  • DAOs operate robotically, i.e., without people
  • Therefore, DAOs can be trusted

Really?

Another philosophical aside: DAOs operated by executing code. Code is created by people. To be fair, proponents of DAOs are mostly concerned that the powers that be simply don’t follow the rules, whatever they are. Robots at least will blindly follow the rules, whatever they are.

Anyway, the rickety tower that was the DAO came crashing down, after a classic, and very brief, tulip mania. The robot assisted tulip mania shattered not only the DAO but Ethereum itself.

Responding to the DAO disaster, Ethereum developers hacked the code to rewrite history. This did not go as well as intended.

Another philosophical aside: the entire point of cryptocurrency in general and Ethereum in particular is that “insiders” should not be able to rewrite history. The forked Ethereum “solved” the DAO problem at the expense of the integrity of the fundamental concept of cryptocurrency.

Since that time, Ethereum has suffered a stream of attacks, likely motivated by the high handed “fix”, as well as the extremely large number of ways you can mess with the system.

Last month, Ethereum did yet another rewrite, this time to fiddle with the pricing. Essentially, the postage was low enough that it failed to deter “spam”. In the crazy world of cryptocurrency, changing the postage rates requires a massive change to the software, and also requires every post office in the world agree to the new rates.

Anyway, this month it is clear that this fix did not solve all the problems. Further hacks are planned.

At this point, is there any reason to think Ethereum is better for all these changes?

Who knows?

It is pretty clear that Ethereum was never subjected to serious adversarial testing before it was released. Essentially, we are watching the grinding, grueling process that should have happened earlier, using the “live” system that people are putting real money into. Best case, this is not great engineering.  (Worst case, this is professional malpractice bordering on negligence.)

I  wonder just how solid the new “pricing” model actually is.  It is abundantly clear that the new “fixes” have not been extensively tested.

Fundamentally, the notion that charging postage will deter misuse—if only we get the price schedule just right—seems pretty iffy to me. There are so many untested assumptions in that model that I can’t believe it can be proven correct or even reasonably safe.

So many bad ideas, so little time to blog about them….

 

Cryptocurrency Thursday