Tag Archives: Stan Higgins

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

Decentraland: Virtual World with Blockchain

Blockchain technology is a flavor of the month, as is Virtual Reality. So, lets mash them up together and create, Decentraland is “A blockchain-based virtual reality world”.

The virtual world is implemented with the ubiquitous (and high quality) Unity engine, which is the basis for both the “browser” to visit the world and the editor to create new places to visit. Unity has built in support for VR (it is literally as easy as checking a box), so Decentraland can be visited via popular VR goggles.

The blockchain itself is used as a decentralized land registry, i.e., to manage the virtual “land” that you can build on and visit.

Many virtual worlds “mint” new land area under the control of the central server and the company running the game. In some cases (such as Second Life) players buy land from the company, and may trade among themselves. Minecraft lets anyone set up a server and create land there, and then use it or trade it to other players.

Decentraland goes another way. Land is “mined” through a Nakamotoan consensus algorithm, as well as purchased or traded with other players. This approach replaces one of the critical functions of the game server with the distributed blockchain maintained by all the nodes. There is neither a “Linden Labs” that doles out new land, nor the opaque free for all of Minecraft servers.

Essentially, its blockchain acts as a registry of land, with each new transaction block signifying a new plot. If a player mines that block, they get ownership of the land allotment, which can be later traded away to other players.

From the perspective of game play, Decentraland has a long road to success. The vast majority of players are not really interested in the virtual real estate business, or even business at all. So Decentraland will need compelling stories and experiences. I’m not envisioning that the blockchain land registry will be very relevant to the gameplay, but I’m willing to be surprised.

From the perspective of blockchain technology, this might be a useful tutorial tool, a way to visualize how blockchain records work.   In particular, this world illustrates one of the most important use cases for blockchain technology, as a registry for land or other assets.

It would be especially cool to have an in-game, VR viewing experience to illustrate the blockchain. For example, a virtual data vault, with some kind of interface that lets you find and “pull out” records from the blockchain. It might also offer a dashboard to show ongoing transactions. That might be neat.

On the other hand, this game also shows just how limited the “land registry” use case is. Most of the game isn’t touched by the blockchain. And most of the game is pretty much the same as other virtual worlds that don’t use blockchain.

In other words, this is a classic example of “why do I even need a blockchain?”

It is also possible that the virtual world might be a tutorial for some of the shortcomings of blockchain technology. If there is a major bug or hack, you might get a cool visual representation of a hard fork in action: duplicate land with different owners, and other chaos. If the economy takes off, you might also get an education in macroeconomics. Game operators tend to use land not only as a source of revenue (“taxes”) but also as a throttle and brake on the economy. Minting more land sucks cash out of the world economy, slowing inflation, pulling back pumps up the value of existing assets, accelerating the economy.

The decentralized land “mining” cannot be controlled in this way, so the economy has one less macroeconomic lever (and no one is manning the levers, anyway). This could well lead to wide swings in the business cycle, including devastating episodes inflation or deflation. This might be an demonstration of economics, but they probably not so much fun to play.

It is early days yet, so we’ll have to see if anyone is interested in this world. My own view is that it is interesting only for its technical novelty, and it isn’t really that exciting technically. But who knows?


  1. Decentraland. Decentraland: A blockchain-based virtual reality world. 2017, https://decentraland.org/.
  2. Stan Higgins, Blockchain-Powered VR World Enters New Testing Phase. Coindesk.March 15 2017, http://www.coindesk.com/blockchain-powered-vr-world-enters-new-testing-phase/

 

Cryptocurrency Thursday

Kartik Hegadekatti on Extra-terrestrial Blockchains

In a new paper, Kartik Hegadekatti considers the use of cryptocurrency in space colonies, e.g., a human settlement on Mars. He presupposes that such settlements will, sooner or later, develop economies similar to Earth, and therefore will find a use for “money” in all its varied forms.

So what would be the best approach?

Hegadekatti starts with a rather shallow analysis of the impracticality of shipping physical coins and notes from Earth to the colony. Unless launch costs drop dramatically (which might happen with a space elevator), this is a truly silly idea.

For some reason, he leaps from this fact right to the conclusion that cryptocurrency is the best alternative. He ignores the more conventional notion of a local mint, which could create tokens from local materials. He also skips over the use of other sorts of digital commerce, e.g., systems operated by local banks.

(As Stan Higgins comments in Coindesk, “The paper’s timing is notable, given India’s controversial push away from paper currency and a rise in bitcoin purchase activity in the country.” )

Considering cryptocurrencies, he ponders the effects of the long communication latencies, which would seem to prohibit the use of s single blockchain on, say, Earth and Mars. He believes that the Moon, with a few seconds round trip latency, is close enough to be a “province” of Earth’s economy. Maybe. But Mars and beyond are clearly too far away for a unified system.

He also blithely claims that these blockchain-based executable contracts “will make it possible for rules, regulations and laws to be enforced in space without the need for human supervision or intervention”. My own view is that this sort of DAO will work just about as well in space as on Earth, with the additional fact of gigantic latencies to deal with. (It would be interesting to see some serious simulations of this particular case.)

Hegadekatti speculates on the use of tiny “mining chips” embedded in devices throughout the solar system, similar to Earthbound concepts for using blockchains in IoT and other embedded devices.


Obviously, this is an interesting idea to think about. But I think Hegadekatti takes a rather narrow view of the topic, missing some critical issues.

First of all, he appears to be focused on the vision of s solar system with and integrated economy controlled from Earth. So, he sees the moon as “just another “province” of Earth”. He seems to assume that colonies would want to import banknotes from Earth if that were possible.  And so on.

My own view is that such political dependency is unlikely. Such settlements will be difficult to control from Earth, and almost certainly will become politically independent sooner rather than later. They will want their own local economies and currencies. Dr. H. should know this:  look to the history of his own country, which was “just another province” of England for many decades, until independence.

Furthermore, as in most economies, the bulk of activity will be local. Most transactions will be within the local settlements, only a small fraction will be “foreign trade” with other settlements and Earth. Technology designed for a large economy such as planet Earth is hardly needed for a small, sparsely populated settlement.

So, there are at least three factors—latency, politics, and locality—that will push toward a patchwork of local economies and polities. These entities will want to trade, for sure, but this will resemble international trade.

Blockchain systems are poorly matched for this scenario, because in these small scale economies the network cannot be very large. There are other ways to run a digital economy which will just as likely to be tried as blockchains.

In this view, trade with other planets and settlements are more like international trade on Earth. In particular, local economies will have their own currencies, and trade will involve exchange rates and relative efficiencies. It will not be tightly integrated like Earth’s current system.

While we are thinking about these things, I’ll refer the reader to the foundational work on the Interplanetary Network (IPN) , which would be the underpinning for the envisioned commerce. This work is exploring protocols that could actually work over interplanetary distances, which are significant extensions of Earthbound protocols. (Actually, the working group is currently only considering the inner solar system. Longer distances and delays are progressively harder to handle.)

It is important to note that the effective round trip latency is much longer than the light speed time, due to overhead and errors. You also need to have really gigantic buffers, to hold messages that are in transit for long times. And lots of things get really crazy, such as the notion of “now”, which is really difficult to define across even relatively small interplanetary distances.

Interplanetary politics and economics have been explored for decades in fiction. (If you want to think about how the Moon will be “province” of Earth, you can start with Robert A. Heinlein’s “The Moon In A Harsh Mistress” (1966) )

These issues have seen limited academic attention, though you might peek at Paul Krugman’s “The theory of interstellar trade [2] and references. Solar system trade isn’t as difficult as interstellar, but the same concepts apply. For one thing, you need to pay a lot of attention to clocks and even, as Krugman suggests, inertial frames.

With respect to cryptocurrencies, per se, one might look at Charles Stross’s “Neptune’s Brood” [3] (which is certainly worth reading for its own sake). The novel’s plot hinges in part on a cryptocurrency transaction across multiple solar systems, and the complications that ensue from transactions at that temporal scale (centuries).

We might also ask what the role of “trust” will be, and whether the use of “trustless” protocols is a plus or a minus. There are two cases that are particularly interesting here.

First, within a space settlement (on a planet, small body, orbital platform, spacecraft, or combination of these) will be small and tightly knit. If everyone doesn’t know everyone, they will surely be only two degrees of separation. This is not only a matter of population size, it is a matter of survival: everyone depends on everyone to stay alive. Think “submarine crew”, for a terrestrial model. The economic system will scarcely need complicated “trustless” systems, because there is a high level of both trust and transparency.

Second, assuming that distant settlements have their own economies and blockchains, trade between them will be trade across the boundaries of separate systems. The internal economy and any blockchain based transactions or contracts will be pretty opaque fro the outside, if only due to the cost and delay of communication. In this situation, you certainly can’t “trust” a contract on someone else’s blockchain, any more than you could trust a contract enforced by their legal system. It will be critical to establish trust, probably in the old fashioned way—though personal reputations.


Over all, this paper is pretty short on detail, and leaves out many of the most difficult questions. But it certainly provoked me to think!


  1. Kartik Hegadekatti, Extra-Terrestrial Applications of Blockchains and Cryptocurrencies. 2016. https://ssrn.com/abstract=2882763
  2. Krugman, Paul, The theory of interstellar trade. Economic Inquiry, 48 (4):1119-1123, 2010. http://onlinelibrary.wiley.com/doi/10.1111/j.1465-7295.2009.00225.x/full
  3. Stross, Charles, Neptune’s Brood, New York, Ace Books, 2013.

 

Space Saturday

Blockchain concepts for supply chains

While the Ethereum saga slowly turns from comedy to tragedy, serious folks are exploring some very promising uses for blockchain technology, including “supply chains” or “logistics”.

Blockchain is interesting for these applications for several reasons. For one thing, “supply chains” benefit from readily accessible and verifiable provenance, and a blockchain can supply and open and standard way to exchange this information. Mahindra and IBM seem to be interested in this use, so that “traceability becomes much easier”, in complicated, multivendor projects.

Blockchain technology may also be useful for financial aspects of this activity. The Delft University project describes thee use cases, “chain financing, supply financing and circular economics”, which I’m sure I don’t really understand. But again, a blockchain may offer an open and standard way to handle these transactions among diverse parties.

I think that the cryptographic signatures and tamper proof records on the blockchain would be pretty useful, though you don’t actually need to use a blockchain per se to accrue the benefits of these technologies. On the other hand, blockchain may be an easy way for multiple independent parties to standardize without requiring painful coordination among disparate vendors.

Unlike the rather frivolous excitement about “disrupting money”, and the absolutely silly fixation on exchange rates (“Bitcoin tests highs for the year”), these use cases are “vegetables”: boring but critical economic infrastructure. Even better, they are socially positive as well as profitable: traceability and efficient supply chains should reduce waste of many kinds (including corruption), and, as far as I can see, don’t threaten workers, families, or civil life.

 

Cryptocurrency Thursday

Cryptocurrencies: A Favorite Technology Of Criminals

Cryptocurrencies in the Nakamotoan vein have always be attractive for extralegal transactions, for tax evasion, sale of contraband, digital extortion or other purposes. Economically, it is the equivalent of a “bag of twenties out in the alley”, and seems deliberately designed as an economic weapon.

Many apologists have tried to claim that the legitimate (for certain values of “legitimate”) use cases are increasing, and that it is unfair to focus so much on a few bad apples. “‘Sin’ Activities No Longer Drive Bitcoin Economy, Researchers Find“, reports Pete Rizzo.

Unfortunately, the picture is not really so rosy, because cryptocurrency continues to be primarily used for extralegal purposes, as age old rackets exploit the speed and efficiency of twenty first century technology. This is readily seen in any sample of headlines.

Bitcoin Has a New Top Dark Market” reports Michael del Castillo. Years after the demise of Silk Road, dozens of dark markets have sprung up to serve your need for drugs, guns, murder for hire, and services. Bitcoin itself has become the bridge between hidden transactions and the legitimate commercial world, i.e., as the laundry. (This function is the basis for some of the claims to increased “legitimacy”: these transactions are classified as “clean”.)

Demand for Zcash Mining Grows as Blockchain Launch Approaches” says Jacob Donnelly. The original Bitcoin concept prominently promised “transparency” as a crucial feature. This has turned out to be a drawback for the many dark transactions on the Internet, so new protocols such as zcash are coming out which are designed to be entirely opaque.   Let’s be very clear here:  these systems have little purpose other than cloaking transactions, mainly to avoid surveillance by authorities. Nothing good can come from this technology.

Cryptocurrency has found favor in some ancient criminal artforms, bringing them up to the minute. Bitcoin has become a favorite tool of for digital extortionists, allowing them to fully automate their racket. “Bitcoin is Not the Root Cause of Ransomware” reports Peter Van Valkenburgh, but it does fit perfectly into the MO that it might have been deisnged for this purpose.

As a computer scientists I am more than a little embarrassed by how automation has made it so easy for anyone to execute what is basically a mindless racket, over and over, whisking away the proceeds via the internet.  Sigh. Beautiful engineering, for such a low purpose.

Cryptocurrency technology can also be employed in pyramid schemes and similar scams. Some cryptocurrencies are widely believed to be essentially nothing other than pyramid sales schemes, dressed up in fancy terminology.

London Police Investigate OneCoin Cryptocurrency Scheme” reports Stan Higgins.  In this case, the scam, if any, would be in the story surrounding the technology, and the associated sales programs. The Onecoin scheme is no different from any of hundreds of other multilevel marketing schemes, except they use cryptocurrency as a sort of window dressing, and, of course, to efficiently whisk away the profits. Sigh.

Having reinvented the universally abandoned Gold Standard, and made the world safe for money launderers, cryptocurrency is now invigorating age old crimes and scams with new, highly efficient technology.

This is certainly “disruptive”, though no points are awarded for “innovation”.

How is this a good thing?

 

Cryptocurrency Thursday

Apple Offers Lesson In End-to-end Thinking About Cryptocurrencies

I have consistently pointed out the need for End-to-end thinking about cryptocurrencies. You cannot focus exclusively on the blockchain, the network protocols, APIs, or “consensus” processes. You have to engineer and design the whole picture from user to service and to other users.

This is particularly important in (often overheated) discussions of “decentralization”, which describe the great virtues of blockchain based protocols and digital signature based transactions. But the real world systems still employ many “centralized” services, including exchanges (which are routinely attacked) and other software (such as PayPal and Amazon, which have their own agendas).

This month saw another illustration of this point, thanks to Apple.

As anyone who has tried to develop software for iOS devices knows, the only way to publish your app is via the Apple Store, and they (Apple) have final say on whether or not you can do so.

Regardless of how well you researched your market and developed your app, Apple reserves the right to tell you that it can’t be sold or even given away to users of iPhones and iPads. This review process is more than a little opaque, as Apple appears to apply a mix of corporate goals, some semi-subjective design objectives, and some legal criteria.

In the realm of cryptocurrencies, this process has played out in typically mysterious ways.

First of all, we should note that Apple has it’s own products in the digital payment world, and would like nothing else than to have you pay with “iMoney” or whatever (and probably get loans from the “iBank”). So cryptocurrencies not controlled by Apple do not fit their strategic plan at all.

Therefore, it was not very surprising that until 2014 Apple basically blocked key software that use any cryptocurrency. Given that these directly compete with Apple Pay, it is easy to see the logic of this position.

So, no matter how “decentralized” Bitcoin might be, and how “uncensorable” the Internet might be, the most popular mobile devices are controlled by a single, aggressively monopolistic, company. And Apple can, and has at times, “censored” access to Bitcoin on its devices.

In 2014 this policy moderated, with a new guideline”

Apps may facilitate transmission of approved virtual currencies provided that they do so in compliance with all state and federal laws for the territories in which the app functions.

Since that time, Apple has “approved” Bitcoin, Litecoin, and Ethereum (all with substantial legitimate corporate power), but not others, such as darkcoin/dash (favored by black markets) and, interestingly, Ethereum “classic” (the rump branch of the Ethereum fork). Also, Apple reflects local laws, blocking some apps due to legal restrictions in some jurisdictions (e.g., China).

Overall, it is a hazy and unpredictable situation. This is, as I said, pretty much the norm for the Apple Store. The “look and feel” of iOS publishing, if you will.

As far as cryptocurrencies are concerned, the Apple Store is a reminder that all the decentralization in the world does not help when there is a “centralized” gatekeeper, including one run by an opaque powerful multinational corporation. And, I would note, that Apple has no interest at all in “disruption”, except by Apple.

Of course, there is no shortage of other ways to access cryptocurrencies, even if you can’t use your iPhone for what you want to do.

I would say that the main harm is that for all the trendy people who love their iPhone because it looks cool will have a harder time using cryptocurrencies in everyday life. Anyone whose iPhone is all they know about the Internet will have a distorted view of cryptocurrencies (and everything else). If nothing else, cryptocurrencies aren’t “cool” in the Apple world, which matters more than it should to people who ought to know better.

But honestly, Apple’s filtering is a general problem.  As a developer of free software for academic and scientific use, with very limited funding, I found the iOS approval process almost impossible to deal with. Every release of every app has to go through a labor intensive, 30+ day, crap shoot?  For something we are giving away?  That’s just not feasible.

Now that’s something I’d like to see “disrupted”.

 

Cryptocurrency Thursday