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Nicholas Baker's avatar

You certainly might be right! But this is not a very convincing piece because you don't actually address the damning technical problems that well-informed critics of blockchain technology point to, perhaps because- as you candidly admit- this is a subject that's well outside your own area of expertise.

But the technical details are kind of the point. If you start from the assumption that "blockchain incentives, consensus mechanisms, and smart contracts can do it all in a fundamentally different, more decentralized way" then yes, obviously that's a big deal. But the question is whether that's true! And there's very good reason to think it isn't.

If we take the example of Bitcoin specifically, people have been making all of the exact same promises about radical decentralization and mass adoption for more than a decade now, but- at least in the narrow case of Bitcoin- it's all complete horseshit.

Economies of scale meant that mining became extremely centralized early on, and a handful of men (I believe they're all men) now control the overwhelming majority of all mining power, meaning that Bitcoin is not actually "trustless" in any real sense. So, uh, why not just have those same guys run a database that keeps track of who owns which Bitcoins and save us all ~180TWh of electricity every year?

Meanwhile mass adoption is a practical impossibility because the whole system has a *hard theoretical limit* of ten transactions per second (it's about half that in actual practice). For comparison, the Visa network does about 1,700 transactions per second and could hypothetically do many more. Bitcoin boosters are generally either not aware of this inconvenient fact, or will gesture wildly in the direction of some piece of vaporware (like the much-hyped and utterly harebrained Lightning Network) that's always just a few years away. And this is not some hypothetical future problem! The network *already* ground to halt in 2017, with hundreds of thousands of unconfirmed transactions getting stuck in limbo, and has largely ceased to function as an actual payment system since then.

And the truly wild thing is that none of this mattered for the price of Bitcoin! The price just kept going up even as it became clear that the network is fundamentally broken! It was almost as though the technology was never really the point, anymore than the specific qualities of the tulips or the Beanie Babies were the point in past speculative manias.

So I don't know, maybe some of these Ethereum apps are actually different, and not just efforts to spark their own little bubbles. (After all, the Ethereum network can handle a whopping 30 transactions per second. Look out VISA!) But this stuff sounds *exactly* like the hype I've been hearing from Bitcoiners for a decade now, so you'll have to forgive me for being skeptical.

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Frank Hecker's avatar

Like Will I have dabbled a little bit in crypto (I'm "frankhecker.eth"), and like Will I have thoughts:

1. Cryptocurrencies, along with the “metaverse” and half of the present-day TV line-up, can be thought of as one aspect of a general yearning for magic to (re)enter our ordinary lives: wave a wand and change the world or build a new one (like in Minecraft), conjure riches from base elements like earth and fire (use electricity and silicon to mint currencies), bind others to your will through spells that cannot be broken (smart contracts). And as with traditional magic there's a catch: like a wizard or demon you have a “true name” (your private key) which if discovered by others will enable them to seize all your powers and possessions.

2. The whole space is obviously soaked in libertarian ideas and ideals, not just distrust of fiat money and centralized governments, but the dream of a world in which rationality rules and from which “force and fraud” are banished, the former by moving to the digital realm, the latter by building that realm upon supposedly fool-proof algorithms designed to promote cooperation and deter defection.

3. Like other innovations before it (liberal democracy, limited liability corporations and the stock market, the Internet and the free software/open source movement), the promise of decentralization, individual empowerment, and shared prosperity is real but only partial, and elites will still rule, albeit refreshed with some new blood. As noted by others, “proof of work” schemes (Bitcoin, current Ethereum) are dominated by those able to deploy vast amounts of computing power. More efficient “proof of stake” schemes (proposed future Ethereum) and DAOs, like public companies, essentially run on the principle of “one dollar, one vote”, with influence disproportionately wielded by the rich and those who bought in early (often the same people). Power law dynamics will ensure that almost all participants in the NFT/crypto-driven “creator economy” will earn little or nothing, that only a few will earn middle class incomes (with chances much better for those in developing countries where the price of middle class status is lower, like the Filipinos who kicked Will's ass), and that the vast majority of economic rewards will be captured by the 0.1%. In the worst-case scenario an increasing fraction of global wealth held in deliberately deflationary cryptocurrencies will concentrate control of the world’s economy in the 0.0001% (10,000 people out of almost 8 billion hold one-third of all BTC), and a future William Jennings Bryan will decry the “cross of crypto”. (Recall that Bryan lost that election.)

4. In the end crypto will probably take its place along the other innovations I mentioned above: As with the early stock market, “pump and dump” schemes, other scams, and crypto-related criminality in general will be reduced (but not eliminated) over time (in large part through government regulations), with any dubiously-acquired fortunes becoming respectable as they pass down through inheritance and their origins are forgotten. As with the free software/open source movement, hierarchies will (re)establish themselves, albeit on a more inclusive basis, with most people participating in governance only on a cursory basis. And as with liberal democracy and limited liability corporations, new possibilities may arise for humanity to organize its affairs for the improvement of all, but realizing those possibilities will require more than unalloyed boosterism and a laissez-faire approach on the one hand, or a visceral refusal to engage with the topic on the other.

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