Tag Archives: Brady Dale

A New “Use Case” for Bitcoin?

The “new” idea is a Nakamotoan cryptocurrency (Stacks) that uses “Proof of Transfer” (PoX) instead of classic Proof of Work [3] .  Specifically, you “mine” STX by paying Bitcoin.  It’s kind of like tethering, except tethering to (untethered) Bitcoin.  Or, you could think of it as a form of “permissioned” blockchain, where nodes can buy their way into the network.

Proof of Transfer is a proposed design that uses Bitcoin’s Proof of Work (PoW) to launch new blockchains that are anchored in Bitcoin’s security” (from [1])

From the point of view of the new cryptocurrency, this solves some of the big problems booting up a new blockchain:  too few nodes to be secure, and minimal initial value in the crypto tokens.  This is either “bootstrapping” a new blockchain, or parasitism, depending on your point of view.

From the point of view of Bitcoin miners and users, this is, I guess, a potential “use case”* [3]. In the sense that it is something new you can spend your Bitcoin on.  I’m not sure it adds much else to the Nakmotoan comics multiverse.

From the point of view of a user, I have difficulty seeing why I would want STX any more than I would want any other mutant cryptocurrency.  The advocates make a big point that Bitcoin is “secure” because it has the largest network and the most users by far.

But, as I have said many times, security is an end-to-end property, and STX is no more secure than the weakest link.  So who knows?  (I’m particularly skeptical of the possibility that wealthy nodes can buy their way into control of the STX system.)

The materials indicate that a big part of the idea is to do “smart contracts” which Bitcoin does not support well, but using Bitcoin equivalent cryptocurrency.

“PoX can enable a powerful smart contract language like Clarity on a new blockchain that benefits from Bitcoin’s security without any modification to Bitcoin.” (from [1])

Whether this is a great idea or not, executable contracts are certainly not “secure” just because it uses Bitcoin.

I don’t really know what to make of this.  It doesn’t seem to me to have much possible use.  I guess we’ll see what happens.


* By the way, this is not really the correct original meaning of the term “use case”, which means an analysis of how a system could be used, not just another use for the system.   Marketing people repurposing engineering jargon just makes me think they don’t know what they are talking about. Sigh.


  1. Muneeb Ali, Realizing Web 3.0: Proof of Transfer Mining with Bitcoin, in Blockstack, February 6, 2020. https://blog.blockstack.org/realizing-web-3-proof-of-transfer-mining-with-bitcoin/
  2. Blockstack, PoX: Proof of Transfer Mining with Bitcoin. Blockstack PBC, 2020. https://blockstack.org/pox.pdf
  3. Brady Dale (2020) Blockstack’s New Consensus Mechanism Creates New Use Case for Bitcoin. Coindesk, https://www.coindesk.com/blockstack-nodes-will-be-paid-in-btc-not-stx-to-secure-the-network

 

Cryptocurrency Thursday

Tulipphilia: Faith-based Nakamotoan Economics

Layer1, a company notable for its astonishingly opaque website, is reportedly “plans to bring wind-powered bitcoin mining rigs to West Texas early next year.” [1]  (Brady Dale notes that Peter Thiel has invested in this project, which I assume he imagines is an endorsement.)

As far as I can tell, Layer1 are building wind farms to power their Bitcoin mining machines, thus “driving its business plan straight into the “bitcoin wastes too much energy” argument”, and argument which you have heard from me and others.

Dale’s headline terms this “renewable Bitcoin MIning”, though it is actually “wasting renewable energy” instead of just “wasting energy”.

To me, this business plan actually makes the Bitcoin is Evil argument all the stronger:  building windfarms that do not displace existing Carbon emissions is, well, not helpful. Less evil than recommissioning retired coal fired plants, but a waste of perfectly good turbines.

Layer1 CEO Alexander Liegl is sure this is a good idea because, and I quote, “Bitcoin is the only thing we believe in….” (Alexander Liegl quoted in  [1])

Wow!

The essence of Nakamotoaism! Pure, unadulterated.

In the article, Liegl gives another very revealing comment, noting that “Bitcoin mining is pretty compelling to people out there [in Texas] because it’s pretty analogous to how oil and gas works.” (Liegl, quoted in  [1])

Again, wow!

And he has a valid point.

The term Bitcoin “mining” is not just a metaphor, or rather, it is an extremely literal metaphor.  Bitcoin mining is an extractive industry, akin got mining and farming. Fundamentally, cryptomining consumes vast quantities of electricity and computation to “extract” a raw material (Bitcoin).  Bitcoin may or may not be used for economically productive activities, but the tokens themselves are useless. Just like petroleum or iron ore.

Texans (and Peter Thiel) may think extractive industries are the bee’s knees, but a lot of us know that they are unsustainable and not good for the planet, at least not for the parts of the planet that humans inhabit.

I guess the good news is that when the Bitcoin mining goes out of business, the windfarms probably will still be useful.


  1. Brady Dale (2019) Peter Thiel Backs $200 Million Valuation for Renewable Bitcoin Mining in the US. Coindesk, https://www.coindesk.com/peter-thiel-backs-200-million-valuation-for-renewable-bitcoin-mining-in-the-us

 

Cryptocurrency Thursday

Facebook’s Libra: Crypto Tulip of the Year?

The Cryptotulip of the Year judges have taken note.  A new 800 pound cryptotulip enters the competition!

Everyone is talking about Facebook’s Libra cryptocurrency and payment system.  As with everything FB does, it’s a big idea simply because of its massive captive user population.  Move over Nakamoto, because whatever cryptocurrency used to be, it is now about Libra.

I haven’t plowed through the official white paper, but the summaries I’ve seen indicate that Libra mashes up features borrowed from many existing cryptocurrency projects [1, 2].  As such, it looks like it is “school of Nakamorto”, but not particularly orthodox.

Of course, as the product of a giant monopolistic corporation, it certainly flies in the face of the libertarian ethos of fundamentalist Nakamotoism.  Replacing a government monopoly on money with a corporate monopoly on money is not what Satoshi’s folks were aiming for.

It should be noted that important aspects of Libra are TBD.  The information to date is hazy about “governance”, which isn’t surprising because cryptocurrencies generally have no clue on this front.  They also envision going to a Proof of Stake some time in the future, following Ethereum’s path.   In this, they certainly capture the look and feel of contemporary cryptocurrency, no?

Libra appears to follow the Nakamotoan concept of pseudo anonymity (ID by public key), which is interesting in so far as it seems to violate FB’s own policies.  And anyone who thinks that they are anonymous on FB run platforms deserves everything they get.

The network is definitely proprietary, and, in fact, the “open” API is a minimal subset of the functionality.  The hoi poloi will be able to have read only access to the blockchain for now, only the big wheels will be able to build real apps.

Oh, and by the way, they created their own programming language and virtual machine.  Because, I guess, the world needs yet another, incompatible, programming environment.  Sigh.

Frankly, Libra doesn’t look fully baked to me.  Libra is supposed to be a stable coin, backed by some kind of basket of assets.  There are other hints about their monetary policies (such as “burning” coins in an effort to maintain a stable money supply).  Other systems have had limited success with these approaches, and we have little idea of just what FB will really do.

Even without regulatory problems (and I guarantee you that there will be massive pushback), it’s not clear how successful this will be. What would success look like?  What is it for, anyway?  Who wants it, who will use it?

Of course, even a limited success would still be the most successful crypto project ever, because FB has billions of users.  It could put every other cryptocurrency out of business. On the other hand, this could be the biggest non-event in the history of crypto—just another alt-coin, but with a really, really big bank roll.

The CryptoTulip Award judges (me) are already seeing a burst rhetorical enthusiasm, pro-Libra, anti-Libra, and hard-to-classify.  And we are very impressed with the “Nakamotoan” coating around FB’s (probably evil) monopolistic ambitions.  So Libra already seems to be the one to beat for this year’s Crypto Tulip of the Year.


  1. Brady Dale (2019) Libra White Paper Shows How Facebook Borrowed From Bitcoin and Ethereum. Coindesk, https://www.coindesk.com/libra-white-paper-shows-how-facebook-borrowed-from-bitcoin-and-ethereum
  2. Christine Kim and Ian Allison (2019) Facebook’s Libra Cryptocurrency: A Technical Deep Dive. Coindesk, https://www.coindesk.com/facebooks-libra-cryptocurrency-a-technical-deep-dive
  3. Libra Association, Welcome to the official Libra White Paper. Libra Association, 2019. https://libra.org/en-US/white-paper/

 

Cryptocurrency Thursday

Ethereum Use Case: Crypto Loan Sharking?

Uh, oh!  When you start having speeches about “a narrative shift”, you know it’s going to end badly.

As Brady Dale reports in Coindesk from the Ethereal Summit NY,  there was a clash of “narratives” [1].  Is Ethereum going to reinvent “everything”, or is it going to be a platform that “reinvents” finance.

For long time true believers, Ethereum is going to change everything.  Of course, that’s neither a plan nor a sustainable business model.  What else have you got?

In recent months, there has been a great deal of excitement about “decentralized finance”, apparently known to all as “DeFi”.  This could mean many things, but it seems to be mainly about automated loans using Ethereum “smart contracts”.

The Coinbase report indicates that the leader in this area is MakerDAO, which offers a “stablecoin” (pegged to a fixed exchange rate with fiat currency or assets), and innovations such as loans and “collateralized debt position” (loans) and “fair credit for everyone” (loans).

So basically, a loan company.  (And some say, a loan shark.)

Unsurprisingly, unregulated lending is a business plan, and a very popular one. There are minor details such as complaints about sky high fees and the prospect of pesky regulators.  But,  enthusiasm is high enough that the DeFi tail wants to wag the Ethereum dog.

To get a flavor of the (irrationa?l) exuberence, consider a quote from Tulip DeFi enthusiast Ameen Soleimani of MakerDAO:

“The announcement that I’m waiting for is the first small nation to announce they are issuing their own currency on ethereum.” (quotes in [1])

Um.  This is Ethereum we’re talking about, right?

The cryptocurrency that suffered grievous oopsies.  The cryptocurrency that rolled back transactions and split into two chains, to undo some of the oopsies.  The cryptocurrency that is run by a small coterie of insiders, and features frequent hard forks.  And the MakerDAO is another layer of insiders and opacity.  (And why would you want “DAO” in your name?)

How could a nation state risk the complete subversion or destruction of their currency?  Why would a nation state take such a risk?

And, supposing that a nation state or even major banks did start using this DeFi.  What happens to Ethereum 2.0 (or 2.5, or 3.0, or whatever). These financial users will be very, very resistant to changing the infrastructure that their assets depend on. And they will be a position to veto any technical changes.

This would probably result in the technical obsolescence of Ethererum in a few years.  (Ask IBM about the difficulty of maintaining infrastructure without being able to change anything.)

I’m not saying that there will never be a day when central bank might use blockchain technology.  But Ethereum 1,0 in 2019?  I don’t think so.

If the Crypto Tulip Award hinges on pure hubris, DeFi will certainly be highly competitive.


  1. Brady Dale (2019) The Big Question at Ethereal Summit NY: Is DeFi Enough for Ethereum? Coindesk, https://www.coindesk.com/the-big-question-at-ethereal-summit-ny-is-defi-enough-for-ethereum

 

Cryptocurrency Thursday

Say It Aint So: EOS Has Vote Buying Problems

EOS is certainly pushing hard for the coveted CryptoTulip of the Year Award this year.

This month we’re Shocked, Shocked! to learn that EOS blockchain voting can be corrupted.

Just as predicted.


Actually, the story is far more complex and interesting.  As Brady Dale reports, this blockchain based governance system not only has technical flaws, it has grievous vulnerabilities to vote buying and just plain vote stealing [2].  Not exactly the brave new world Nakamoto imagined.

Even worse, this system has blundered into real life, very non-Nakamotoan geopolitics, as Chinese and American users vie to control the network.

“we saw EOS holders announcing that they’d no longer vote for any China-based block producers at all.”

Hmm.  What is wrong with this picture?

EOS is supposed to be governed by a “constitution”, which every participating node is supposed to agree to and implement.  Shockingly enough, it seems that not everyone is faithfully following this constitution, and the consensus mechanisms aren’t doing much to prevent or work around the problem.  (Who’d a thunk it?)

The other “innovation” is that the consensus is not simply peer-to-peer a la Nakamoto.  The nodes “vote” to select 21 nodes to execute each round.  The theory is that this type of crowd sourcing will self regulate, picking only well behaved and efficient nodes.

Astonishingly enough, this voting scheme has been plagued by extraneous politics and the whiff of old fashioned corruption.  (Who’d a thunk it?)

And, the icing on the cake is that the tokens are distributed in the usual pattern:  the founders control an overwhelming amount of the wealth and votes [1].  So, whatever the “community” may want, and however users may behave, a handful of people have the power to control the rules.

Very “decentralized”.


Clearly, EOS is successfully “disrupting” the Nakmotoan paradigm, and exploring some new ways for really old problems to be implemented.

EOS must certainly be a strong contender for the CryptoTulip of the Year.


 

  1. Brady Dale (2018) Block.One Is Taking a Bigger Role With EOS (And That’s a Big Deal). Coindesk, https://www.coindesk.com/block-one-is-taking-a-bigger-role-with-eos-and-thats-a-big-deal/
  2. Brady Dale (2018) Vote Buying Scandal Stokes Fears of EOS Governance Failure. Coindesk, https://www.coindesk.com/vitalik-called-it-vote-buying-scandal-stokes-fears-of-eos-failure/

 

Cryptocurrency Thursday

Ethereum Facing A Gresham’s Law

Ethereum continues its strong play to retain the Crypto Tulip of The Year award.

This summer sees the rise of legal sports betting everywhere in the US (thanks, SCOTUS!), and cryptocurrencies are just the thing for this new gold rush.

Ethereum offers even more:  dapps using Ethereum contracts are just perfect for betting schemes, legal or otherwise.  And the difference between an honest game of chance and a scam is a very, very thin line.

Even Coindesk, generally enthusiastic about crypto technology, reports concerns.  While Brady Dale reports on “Non-Believable Tokens” (Cryptokitties was only the beginning), Christine Kim is even clearer:  “Ethereum has a gambling problem.”

Dale recounts “The 7 Strangest Crypto Collectibles”, which are clogging up the Ethereum network and blockchain.  As in the case of CryptoKitties, each of these ‘harmless’ pastimes is sucking CPU and bandwidth from the Ethereum network, potentially crowding out “real” work.  At the very least, the commons is being exploited for socially dubious purposes.

“CryptoKitties has been seen as a harbinger of things to come for blockchain believers, one that opens up new possibilities in the world of video games, real estate and precious metals, among other things.”

If it were all harmless trading cards, that would be bad enough.  These CryptoKitty knock offs seem quaint and charming compared to the flood of gambling dapps. Ethereum smart contracts are perfect for betting games, though they are so opaque that it is difficult to know exactly what the game may be.  Some of them are surely Ponzi schemes or worse.

“Ethereum has a gambling problem.

“Since July, products resembling Ponzi schemes, a fraudulent form of investment promising high returns for little cost, have topped the charts among decentralized applications (dapps) running on the world’s second-largest blockchain, outpacing even the popular CryptoKitties.”

These dubious activities are, as Kim says, “Unstoppable scams”. But the entire Nakamotoan enterprise is founded on the desire for unstoppable transactions, so this is a feature, not a bug, of Ethereum.


It is becoming clear that the Nakamotoan erm ”trustless” really means “you’re on your own”—which isn’t good for business.  True-blue Nakamotoans see “trustlessness” as an important feature.  But it’s clear that people want to trust dapps, even though they really shouldn’t.  When these scams inevitably blow up, people will feel cheated, and Ethereum and “legitimate” apps will be smeared with the bad reputation.

If you can’t tell scams from legit, how can you use the system at all?

To put it in terms that Nakamotoans might understand, there is a form of Gresham’s Law here. Bad dapps are driving out good.  And, hint, hint, “let the buyer beware” has never been a formula for fixing this problem.


Even the honest but silly collectables are enacting a tragedy of the commons.  These enterprises are built on the principle that the blockchain is “free” for everyone to use. Why spend money on infrastructure when the Ethereum network will do the work for you?  Sit back and collect the profits, let “the internet” pay the bills.

If that doesn’t sound sustainable, that’s because it isn’t sustainable.


I’ll add a history lesson.

In the early days of computing, most universities provided time shared computer services as a “commons” like the library. (Generally, this was on “the computer”, singular. :-))  Everyone had access for minimal cost, with minimal supervision.

But soon enough, games and other pass times became popular and started sucking down resources, crowding out “real” research and class work. And people created dating programs and other enterprises that used the commons for private profit.

In every case, the shared system had to be rationed, and certain uses banished to the middle of the night or banned altogether.  This is the inevitable trajectory of a shared computing system, or, indeed, almost any commons.

Nakamotoan “decentralized” systems are designed to be open commons, just like time shared centralized systems.  I would predict that they are subject to the same trajectory as any other common: they will be over used and flooded by exploitative users which crowd out other uses.

However, Nakamotoan systems have no authority and no technical capability to actually ration access*, so they will have to run to destruction.

There will be an end, there always must be an end. It will not be pretty.


* Technically, the system is supposed to be rationed via fees and the supposed incentive structures in the protocol. These mechanisms do not and cannot work.  If you don’t believe me, stay tuned.  You’ll see.


  1. Brady Dale (2018) Non-Believable Tokens: The 7 Strangest Crypto Collectibles. Coindesk, https://www.coindesk.com/the-7-strangest-non-fungible-tokens-for-cryptos-collectors/
  2. Christine Kim (2018) Unstoppable Scams? Ethereum’s Gambling Problem Is Only Getting Worse. Coindesk, https://www.coindesk.com/unstoppable-scams-ethereums-gambling-problem-is-only-getting-worse/

 

Cryptocurrency Thursday

CryptoTulip of the Year: Ethereum Could Repeat

As noted last week, “The ICO” is clearly a strong candidate for this year’s not-at-all-coveted “CryptoTulip of the Year” award.

But it would be a mistake to count out last year’s winner, Ethereum, for a repeat.  For one thing, everything that carried Ethereum to recognition is still happening.  In particular, the Great Oopsie of 2017 is still unresolved, with no resolution in sight.

Nor is the underlying governance crisis settled. In fact, no progress has been made this year [2].   One “innovation” this year has been the “Council of Ethereum Magicians”,  which seeks to solve the dilemmas of deadlocked democracy through an unelected group of technocrats, Philosopher Kings.  In this, Ethereum recapitulates Plato’s Republic, described circa 380BCE.  This is also the secret of “success” for the European Union (see [3]) and the Euro.

Of course, Ethereum is also the platform of choice for ICOs, as well as many other crypto manias, including flat out Ponzi schemes and  even an assassination market. There is nothing quite like fraud built on top of a faulty technical platform, with no one in charge!  It’s bogosity all the way down!

“Larry Cermak, an analyst, described the situation on Sunday as “depressing.”

“”Legitimate use cases like [decentralized exchanges] and prediction markets are not gaining any traction while scams and useless games are thriving,” Cermak tweeted.” (quoted in [4])

It’s going to be a very competitive race for this year’s CryptoTulip Award.  We’ll see how the second half of the year plays out.

  1. Brady Dale and David Floyd (2018) Ponzi Games Are Breaking Out on the Ethereum Blockchain. Coindesk, https://www.coindesk.com/scam-or-be-scammed-ponzi-games-are-breaking-out-on-ethereum/
  2. Rachel Rose O’Leary (2018) Ethereum’s Most Heated Tech Debate Is Proving It’s Far From Over. Coindesk, https://www.coindesk.com/ethereums-most-heated-tech-debate-is-proving-its-far-from-over/
  3. Yanis Varoufakis, Adults in the Room: My Battle with the European and American Deep Establishment, New York, Farrar, Straus and Giroux, 2017.
  4. Rachel Rose O’Leary (2018) What Scams? Ethereum’s Vision for Apps Is Only Growing Bolder. Coindesk, https://www.coindesk.com/what-scams-ethereums-vision-for-apps-is-only-growing-bolder/
  5. David Floyd (2018) The First Augur Assassination Markets Have Arrived. Coindesk, https://www.coindesk.com/the-first-augur-assassination-markets-have-arrived/

 

 

Cryptocurrency Thursday