Tag Archives: Michael J. Casey

Another CryptoTulip Contender: StableCoins

The race for CryptoTulip of the Year certainly isn’t over.

Yet another technology may slip in at the end:  so-called StableCoins.

The idea of a “stablecoin” is to create a cryptocurrency that is pegged to the dollar or some other fiat currency at a stable rate.  The goal is to mitigate the exciting uncertainty of fluctuating exchange rates that makes cryptocurrencies difficult to use in the still dominant “fiat” economy.  If your Bitcoin is worth $10,000 today and $7,000 tomorrow and who knows what next week, it can be hard to trade for dollar denominated goods or services.  How do you buy a carton of milk, if you pay with a token that may be worth a lot more or less tomorrow?   Who would want to sell you a carton of milk for this kind of crazy pseudomoney?

Basically, a lot of people would like a cryptocurrency that is worth a set number of Tulips, no matter how the Tulip market fluctuates.  The advantages of a free market without the risks of the free market.  That sounds good!  Does that sound plausible?

Until recently, the most popular StableCoin was Tether, which was supposed to be pegged to the USD.  The thing is, guaranteeing a fixed exchange rate requires a (centralized) service that maintains liquidity in dollars and crypto.  This variant of “reserve banking” isn’t especially Nakmotoan, and there are fundamental questions about the business model.  Just where do all the dollars and coins come from?  What kind of rake-off is done to support the system?  Is it sustainable?

In the case of Tether, long standing questions about liquidity and ownership (not to mention basic honesty) were exacerbated by the failure to deliver a promised audit. These troubles have come to roost as users walk away.  (The Tether coin was trading below the pegged $1 value—kind of a problem.)

There are other “stablecoins”, with varying exchange rates to the dollar.  The news is full of recently launched GeminiCoin is backed by the Winklevosses [3].  The big names give credibility and deep pockets to this otherwise pedestrian efforts. The start power and deeply wishful thinking have GUSD trading considerably above the nominal $1 mark (which doesn’t seem either logical or sustainable to me).

As they come and go, these “stable” tulips don’t seem particularly stable [2].

But more important, they are pretty totally anti-Nakamotoan.  Pegging cryptocurrency to the hated “fiat currency” is just wrongity, wrong, wrong, and I challenge you to justify it based on the sacred text [5]. Bitcoin is supposed to disrupt and obsolete the dollar, not extend the value of the dollar into cryptoland.

(We could also note that the GeminiCoin seems to carry extra value due to the patronage of celebrities [1]. This “trustless” system relies on “trust”—trust in famous people.  This is certainly not part of the Nakamotoan vision of how economics, or “trust”, should work.)


I have to say that stablecoin technology has both the “this is surely the wrong way to go” and the “this is deeply dubious” vibe that marks a strong contender for Cryptotulip of the Year.  Plus, the very spectacle of the instability of something called a stable coin” is so very, very Tulip-y.

Stablecoins have to be in the consideration for the award this year.



  1. Michael J Casey (2018) The Delicate Psychology of Stablecoins. Coindesk, https://www.coindesk.com/the-delicate-psychology-of-stablecoins/
  2. Nikhilesh De (2018) Stablecoins All Want to Be $1, But They’re Not Worth the Same. Condesk, https://www.coindesk.com/which-stablecoin-is-the-riskiest-the-crypto-market-is-pricing-that-in/
  3. David Floyd (2018) Gemini Stablecoin Volume Doubles on Top 10 Exchange Amid Tether Turmoil. Coindesk, https://www.coindesk.com/gemini-stablecoin-volume-doubles-top-10-exchange-bibox-tether-turmoil/
  4. David Floyd (2018) Bitfinex Is Publishing Data for a Tether Market That Doesn’t Exist. Coindesk,  https://www.coindesk.com/bitfinex-is-publishing-data-for-a-tether-market-that-doesnt-exist/
  5. Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System. 2009. http://bitcoin.org/bitcoin.pdf

 

Cryptocurrency Thursday

Bitcoin’ Unsustainable Energy Consumption

Nakamotoan Cryptocurrencies are designed to suck CPU cycles, which means sucking electricity. The entire concept rests on a deliberately inefficient computation, which prevents replay and other attacks by being too difficult (expensive) to replicate [3].

This is a clever and successful technique, that yields a robust, global ledger at relatively low costs, at least to the end-users.

But there is a massive side-effect, and that is the power consumption of the decentralized network.  Any given node is just a computer, but the whole idea is that there are zillions of notes.

How many?  A lot.

And they use a Iot of electricity.

Eric Holthaus says that the Bitcoin network consumes 100,000 times the power of the top 500 supercomputers, more than many countries, and may be on track to use more power than the USA.  Congratulations, Bitcoin.  You are out consuming the most notorious energy hogs on the planet.

Personally, this kind of thing deeply offends my engineer’s soul.  Inefficient energy usage is bad, but deliberately wasting electricity is bad engineering, and, well evil.

Apologists for cryptocurrency point out that this usage is equivalent to the conventional banking system.  They also say that some miners are using clean energy.  And so on.

These rhetorical points hinge on the assumption that Bitcoin is a good thing, along with the implicit claim that Bitcoin is displacing conventional financial systems.  (There is no sign of that displacement happening any time soon.)

And, of course, most cryptomining isn’t clean energy, and where it is using renewables it is displacing other users from public sources.  It is hard to be happy about precious electricity pouring down a rathole.


It is important to remember that this isn’t just Bitcoin.  There are many cryptocurrencies and blockchains.  They are smaller than Bitcoin, but they add to the load, and any of them can grow if it becomes “successful”.

These days there is also great interest in “smart contracts”, and Distributed Autonomous Organizations.  These CryptoTulips use the same power-sucking technology to implement their applications.  In principle, these things are doing useful work, though the accounting is really screwy.

Part of the point of the blockchain is that transaction costs are low compared to conventional systems.  But one reason the cost is low is that the cost of the electricity is not born by the people using and profiting from the transactions.  That kind of unaccountability is a formula for overconsumption of the unaccounted resources.

I’ll also note that there are increasing levels of derivative activity built on top of cryptocurrency.  The mania for “Initial Coin Offerings” (unregulated securities on the blockchain) and futures trading mean that there is considerable additional resource usage beyond the basic cryptocurrency itself.  Much of this activity uses conventional technology for most of the work.  So the energy footprint isn’t “Bitcoin versus Conventional”, it is “Conventional + Bitcoin versus Conventional”).


The bottom line is that this all seems unsustainable.  Something will have to give.  There will have to be less cryptocurrency mining, less of everything else, or a lot more power generation.  Even if you think crytocurrency is a great thing, the latter two choices are rather bad for humans and the world.


  1. Michael J. Casey, Bitcoin Mining Wastes Energy? What If That’s Good? Coindesk.January 9 2018, https://www.coindesk.com/bitcoin-mining-wastes-energy-thats-good-thing/
  2. Eric Holthaus, Bitcoin could cost us our clean-energy future, in Grist. 2017. https://grist.org/article/bitcoin-could-cost-us-our-clean-energy-future/
  3. Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System. 2009. http://bitcoin.org/bitcoin.pdf
  4. Adam Rogers, The Hard Math Behind Bitcoin’s Global Warming Problem, in Wired – Science. 2017. https://www.wired.com/story/bitcoin-global-warming/

 

Cryptocurrency Thursday

Books Reviewed 2015

Here is  housekeeping post, collecting all the books reviewed here in 2015.

Looking back at this list, I see that this year saw Terry Pratchette’s last book (a wrenching experience), and new novels by old favorites Stross, Perry, Macguire, Holt, Gaiman, among others. I also read older but still good histories by Goodwin and Graeber. I read several books about banking, Papal and otherwise, and overlapping works about Italy, fictional and (supposedly) real.

Over the year, I reviewed a sampling of important books about contemporary digital life, including cryptocurrency, the “sharing economy”, social media, and “mind change”.   These works covered a spectrum from enthusiasm to dark worry, giving us much to think about. There are many more I did not have time or energy for. (I will say more on this topic in another post)

Throughout 2015 I continued my ongoing investigation of the question, “what is coworking?”, including reviews of two recent (self published) books about coworking by practitioners. (More on coworking in another post.)

Shall I name some “Best Books” out of my list? Why not?

Fiction:

There were so many to pick from. I mean, with Neil Gaiman in the list, how can I choose? But let me mention two that are especially memorable

Radiance by Catherynne M. Valente
Very imaginative and well written, and, for once, not so horribly dark. This book lodged in my memory more than others that are probably equally good.

Telegraph Avenue by Michael Chabon
Published a few years ago, but I didn’t read it until this year. A wonderful, intricate story. The flight of the parrot is still in my memory.

Nonfiction:

There were many important works about digital life, and I shall try to comment on them in another post. But three books that really hit me are:

Debt: The First 5,000 Years by David Graeber
From several years ago, but I didn’t read it until this year. Highly influential on the ‘occupy’ and other left-ish thinking. This is an astonishingly good book, and long form anthropology, to boot. Wow!

Reimagination Station: Creating a Game-Changing In-Home Coworking Space by Lori Kane
An exlectic little self-published book about “home coworking”, which I didn’t know was a thing. Kane walked the walk, and made me think in new ways about community and coworking.

Fangirl’s Guide to the Galaxy by Sam Maggs
Unexpected amounts of fun reading this short book. It does an old, graying nerd no end of good to see that at least some of the kids are OK. Really, really, OK.

List of books reviewed in 2015

Fiction

A Darkling Sea by James L. Cambias
After Alice by Gregory Maguire
Aurora by Kim Stanley Robinson
Bats of the Republic by Zachary Thomas Dodson
Book of Numbers by Joshua Cohen
Chasing the Phoenix by Michael Swanwick
Candy Apple Red by Nancy Bush
Chicks and Balances edited by Esther Friesner and John Helfers
Corsair by James L. Cambias
Count to a Trillion by John C. Wright
Diaspora by Greg Egan
Distress by Greg Egan
Electric Blue by Nancy Bush
Forty Thieves by Thomas Perry
Futuristic Violence and Fancy Suits by David Wong
Get In Trouble by Kelly Link
Good Omens by Terry Pratchett and Neil Gaiman
Karen Memory by Elizabeth Bear
Koko the Mighty by Kieran Shea
Luna: New Moon by Ian McDonald
Mort(e) by Robert Repino
Numero Zero by Umberto Eco
Radiance by Catherynne M. Valente
Rebirths of Tao by Wesley Chu
Redeployment by Phil Klay
Satin Island by Tom McCarthy
Secondhand Souls by Christopher Moore
Seveneves by Neal Stephenson
Shark Skin Suite by Tim Dorsey
String of Beads by Thomas Perry
Telegraph Avenue by Michael Chabon
The Annihilation Score by Charles Stross
The Best Science Fiction & Fantasy of the Year Volume Nine ed. by Jonathan Strahan
The Buried Giant by Kazuo Ishiguro
The Enchantment Emporium by Tanya Huff
The First Bad Man by Miranda July
The Fortress in Orion by Mike Resnick
The Future Falls by Tanya Huff
The Good, the Bad, and The Smug by Tom Holt
The Mark and the Void by Paul Murray
The Relic Master by Christopher Buckley
The Rook by Daniel O’Malley
The Shepherd’s Crown by Terry Pratchett
The Three Body Problem by Cixin Liu
The Unfortunate Decisions of Dahlia Moss by Max Wirestone
The Water Knife by Paolo Bacigalupi
The Wild Ways by Tanya Huff
Time Salvager by Wesley Chu
To Say Nothing of the Dog by Connie Willis
Trigger Warning: Short Fictions and Disturbances by Neil Gaiman
Ultraviolet by Nancy Bush
We Are Pirates by Daniel Handler
Witches Be Crazy by Logan J. Hunder
Zer0es by Chuck Wendig

Non Fiction

Arrival of the Fittest by Andreas Wagner
Blue Mind by Wallace J. Nichols
Debt: The First 5,000 Years by David Graeber
Digital Gold by Nathaniel Popper
Fangirl’s Guide to the Galaxy by Sam Maggs
God’s Bankers by Gerald Posner
LaFayette in the Somewhat United States by Sarah Vowell
Let’s Be Less Stupid by Patricia Marx
Live Right and Find Happiness by Dave Barry
Merchants in the Temple by Gianluigi Nuzzi
Mind Change by Susan Greenfield
Mindsharing by Lior Zoref
Modern Romance by Aziz Ansari
No More Sink Full of Mugs by Tony Bacigalupo
Not Impossible by Mick Ebeling
Pax Technica by Phillip N. Howard
Peers, Inc by Robin Chase
Reimagination Station: Creating a Game-Changing In-Home Coworking Space by Lori Kane
Speculative Everything by Anthony Dunne and Fiona Raby
Team of Rivals by Doris Kearns Goodwin
The Age of Cryptocurrency by Paul Vigna and Michael J. Casey
The Art of Forgery by Noah Charney
The Next Species by Michael Tennesen
The Reputation Economy by Michael Fertik and David C. Thompson
The Social Labs Revolution by Zaid Hassan
The Ugly Renaissance by Alexander Lee
Twentyfirst Century Robot by Brian David Johnson
Women of Will:  Following the Feminine in Shakespeare’s Plays by Tina Packer

 

Book Reviews

 

 

 

 

 

 

 

 

 

 

Essay: Blockchain Engineering–Interesting Times

Something is going on with the Bitcoin network. The entire theoretical (and ideological) foundation of Bitcoin is the assumption that there will be a very large number of nodes forming the world-wide Bticoin network [1, 2]. The consensus mechanism depends on the assumption that “honest nodes control a majority of CPU power” ([1], p.6), and the proof of work “is essentially one-CPU-one-vote.” ([1], p.3).

This assumption is not unreasonable given the large number of computers connected to the Internet, provided that “everyone plays” and most computers are about the same. The Bitcoin software is easily available and not especially difficult to install, and the “mining” payout and opportunity to charge transaction fees offers incentives to run the software.

However, in recent months we have seen some troubling indications that the Bitcoin network is neither uniformly distributed nor growing. These trends could spell disaster for Bitcoin.  Bitcoin is the largest and healthiest cryptocurrency network—other coins are certainly suffering the same ailments.

First, Bitcoin mining has evolved rapidly, first expanding rapidly (as expected in the original concept), then being taken over by very large, specialized computation farms. The latter development has skewed the distribution of “CPU power”, effectively pushed out ordinary computers, and concentrating mining in relatively few hands. These developments have been followed by the steep and persistent drop in the exchange rates for BTC, which have put many miners (and other Bitcoin activities) out of business, further concentrating the CPU power. In principle, a sufficiently large concentration of mining power could undermine the consensus mechanism and render Bitcoin useless.

Second, the Bitcoin network needs many nodes to mirroring the blockchain, providing quick access and highly redundant validity checking. These non-mining nodes are basically a public service, and ideally this should cost very little to provide. However, as the Bitcoin blockchain has steadily grown (hundreds of MB per day), it has become harder for nodes to keep a copy, keep up with transactions, and serve queries to the network. It is reported that the number of nodes has not grown for many months (setting aside reconnaissance nodes). Again, if this segment of the network is too small, it will reduce the usability, and potentially become vulnerable to security attacks and disruption through natural or human events.

I note that a recent hoo-haw about a “Sybil attack” on this network illustrated the potential fragility of the Bitcoin network. One company injected a large number of “fake” nodes in order to collect intelligence. The network is still small enough that this perturbed behavior and accidentally entrapped some clueless software. While arguably legal, such behavior certainly does not raise confidence or improve the service of the Bitcoin network. But I suspect that a larger and more robust network would not even notice such “attacks”.

That this problem is serious can be seen from recent ideas for how to “fix” it. I already noted the “Blockchain in Space” idea, which seeks to create highly available nodes in low Earth orbit. If successful, this and similar efforts would help assure that the data is available.

Another notion is to create special purpose “plug in” processors at a reasonable cost. This reduces the complexity, difficulty, and expense of providing a node to the network, to encourage many people to run nodes. This is basically the terrestrial equivalent of the orbital system, with the typical 1:100,000 cost advantage for Earth based systems.

Other approaches seek to modify Bitcoin protocols in various ways (e.g. [3]). For example, Sidechains aim to create alternative blockchains hanging off the main blockchain, which would help limit the costs of the main blockchain. Another variant is the Lightning network, which aims to allow some transactions to be performed “on the side”, and on send the results to the main blockchain.

I would like to add that these scaling challenges are fairly standard fare for large scale computational systems. From the point of view of an engineer, Bitcoin is actually a (slightly) interesting software system: the software needs to carefully calibrate the computational difficulty (CPU, memory, bandwidth). The protocol cannot be too “efficient” or easy, it must be difficult enough that it is not possible to purchase sufficient computing power to completely dominate the system. At the same time, the computation needs to be tractable enough that vast numbers of computers will run the software. Therefore, the software has been designed and continues to be adjusted in order to hit a happy region, hard but not too hard.

Even more tricky, the Bitcoin “network” is a decentralized collection of volunteer computers which come and go, and which are not controlled or paid for by any central organization. This means that the “happy” goal is actually a moving target, since the constellation of participating computing hardware continues to change. Even in the few years that Bitcoin has operated we have seen the development of purpose built processors (ASICs), designed to implement the Bitcoin computations extremely efficiently. We also have seen a shift to hand held devices and cloud services, which means that users have little computing power in their own hands.

Furthermore, the socioeconomic constellation is also constantly shifting, which has direct impacts. The random jiggle of exchange rates dramatically alters the economics, as do the cross currents of legal and political developments.

The bottom line is that Bitcoin (and similar cryptocurrencies) cannot be a final, fixed design.


 

  1. Nakamoto, Satoshi, Bitcoin: A Peer-to-Peer Electronic Cash System. 2009. http://bitcoin.org/bitcoin.pdf
  2. Vigna, Paul and Michael J. Casey, The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order, New York, St Martin’s Press, 2015.
  3. Bruce, J.D., The Mini-Blockchain Scheme. Cryptonite, 2014. http://cryptonite.info/files/mbc-scheme-rev2.pdf

 

 

Cryptocurrency Thursday

 

 

Housekeeping: Books Reviewed in First Quarter 2015

These are the books reviewed here in the past quarter.

Non Fiction

Arrival of the Fittest by Andreas Wagner
Blue Mind by Wallace J. Nichols
Live Right and Find Happiness by Dave Barry
Not Impossible by Mick Ebeling
The Age of Cryptocurrency by Paul Vigna and Michael J. Casey
The Reputation Economy by Michael Fertik and David C. Thompson
The Social Labs Revolution by Zaid Hassan
The Ugly Renaissance by Alexander Lee

Fiction

Candy Apple Red by Nancy Bush
Electric Blue by Nancy Bush
Get In Trouble by Kelly Link
Mort(e) by Robert Repino
Redeployment by Phil Klay
Shark Skin Suite by Tim Dorsey
String of Beads by Thomas Perry
The Enchantment Emporium by Tanya Huff
The First Bad Man by Miranda July
The Fortress in Orion by Mike Resnick
The Future Falls by Tanya Huff
The Wild Ways by Tanya Huff
Trigger Warning: Short Fictions and Disturbances by Neil Gaiman
Ultraviolet by Nancy Bush
We Are Pirates by Daniel Handler

 

Review of The Age of Cryptocurrency by Paul Vigna and Michael J. Casey

Review of The Age of Cryptocurrency by Paul Vigna and Michael J. Casey

I’ve been writing about cryptocurrency for over a year now (not a long time, but a significant fraction of the total lifetime of the technology), and have toyed with the idea of putting together a book myself. For this reason, I was excited to see this book by Paul Vigna and Michael J. Casey (“V&C” hereafter).

Bottom line: While this isn’t precisely the book I would write, it is a very, very good book. This will be an essential reading for anyone wanting to actually understand the first few years of cryptocurrency.

This is the most comprehensive review of these issues I’ve seen, and avoids the crazy rhetoric of the most enthusiastic boosters and detractors.

Most important of all, V&C are deeply aware that this is a cultural story, built on, but not driven by, technology.

[Read the review] [PDF]

Cryptocurrency Thursday

Futurologists Want A Piece of the Cryptocurrency Narrative Action

I have discussed the florescence of cultural narratives that is blooming in the fertile loam of cryptocurrencies (watered by a gentle rain of venture capital and nourished by the poorly digested droppings from many species).  Enabled by new technology, the narratives are scarcely new. It is remarkable, though, how much of an “amateur hour” this has been so far:  any semi-competant programmer can make this technology work, create his own story, and become a “expert”.

It should be no surprise that the old guard futurists want to get into this game. These people are professional story tellers, so they expect to be asked to provide their own narratives.

For example, Andrew Ross Sorkin pontificates on “the future of money” in the NYT.  Unconstrained by even the minimal limitations of actually making Web technology work (I mean, even Twitter gets credit for being implemented not just imagined), futurists are free to imagine anything they want.

Of course, these pundits did not forsee bitcoin very precisely and most would have predicted based on history that if wouldn’t work.  On the other hand, they aren’t so financially conflicted as to cloud their judgement. But they are definitely committed to their own reputation as experts, which can be worse than a simple conflict of interest. But, best of all, many of them know some history and sociology.

The most useful insight seems to be–wait for it–we should be thinking of the whole financial system, end-to-end.

They also have a healthy respect for government backed and regulated, AKA “centralized” and “fiat”, money.  As the cyptocurrency enthusiasts are discovering, sheer “rugged beauty” doesn’t trump centuries of social evolution:  BitCoin is taxable and subject to money laundering laws, and increasingly invested by suits of many kinds.

“Maybe nothing is going to change, really” says one of the experts.

I don’t see anyone picking up on the amazing amount of participatory theater that has grown up around cryptocurrencies.  Money has always been a key prop in our cultural performances, and now cryptocurrencies let anyone at all write and perform their own play about “the future of money”.