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The blockchain paradox: Why DLTs may do little to transform the economy

211 points by jboynyc 9y ago

empath75 9y ago
I agree with this in as much as I don't think cryptocurrencies are ever going to replace 'fiat' currency. That doesn't mean that they don't provide economic value or are worthless, however.
- sharemywin 9y ago
  Especially in places or by individuals where fiat currencies are seen as corrupt.
- sowbug 9y ago
  The article didn't discuss that issue.
  - jasode 9y ago
    It does if you take USA's "governance of Fed Reserve Notes" and EU "governance of Euro" as examples of the author's "governance of technology" or "governance paradox".
    - empath75 9y ago
      Yeah, I was specifically referring to the crypto ideologues who have a fundamental distrust of fiat currency and think that bitcoin somehow solves governance problems. The eth hard fork to protect the investments of developers and early adopters should have disabused people of that notion.
sharemywin 9y ago
A while back I wondered if networks like facebook, electrical grids should have more direct user decision making. https://news.ycombinator.com/item?id=14293114 https://news.ycombinator.com/item?id=14293114 I think eventually networks need to figure out distributed decision making.
- jpereira 9y ago
  Here's[0] an interesting take on a possible way forward to achieve that, very much inline with the recent ICO trend. In general I think the token design space is an extremely interesting one, and seeing how different models lead to different social structures and outcomes will be extremely interesting. Of course this is not new (currently reading Debt: the first 5000 years), its just radically easier than before, to design, deploy, and use. As a result we'll see an explosion of variety, diversity, and competition, which'll be fascinating to see. Already the differences in ICO mechanisms are extremely interesting, though they have a long way to go. [0] https://blog.bigchaindb.com/tokenize-the-enterprise-23d51bafb536 https://blog.bigchaindb.com/tokenize-the-enterprise-23d51baf...
  - sharemywin 9y ago
    I doubt facebook does it you need tokens to buy out existing shares or something. To not get sued. Also, tokens get traded and accumulate. There needs to be some way to manage competing interests fairly(whatever that means) and efficiently.
jankotek 9y ago
Blockchain already transformed economy; it brought fast international payments with small fees.
- isubkhankulov 9y ago
  dollar for dollar, traditional money transfer companies are faster and cheaper. unless the user is trying to conceal the source of funds or is evading capital controls.
- ceejayoz 9y ago
  You could claim the blockchain will transform the economy some day, but to claim it has is plainly false. It's still a niche system, and Bitcoin's seeing rapidly rising transaction fees (https://bitinfocharts.com/comparison/bitcoin-transactionfees.html https://bitinfocharts.com/comparison/bitcoin-transactionfees...) because of the block size issue right now.
- rb808 9y ago
  One of the reasons there are fees for international payments is to comply with the legal requirements set up by governments to monitor and control such transactions. The cost of transferring FX wholesale is near zero. If a bitcoin based processor implements the controls, the costs will be the same as a regular payment provider. So bitcoin can only become cheaper than tradition payments if you bypass the legally required controls.
  - qqg3 9y ago
    While you're not wrong, the fees for international payments vary wildly depending on how you do it, which service or bank you use, how much you transfer etc. Which makes it hard to sell the "its about governance" line for justifying those fees.
- NeutronBoy 9y ago
  Yes, as long as you don't want to convert your crypto currency into fiat currency at either end.
jasode 9y ago
I agree with Vili Lehdonvirta's analysis about governance and wrote a similar conclusion previously.[1] Yes, the concept of "money" existed before governments and therefore doesn't require government. That said, today's modern money is very much an instrument of government power. This is why alt-coins will not overthrow fiat currencies like some enthusiasts believe because Bitcoin does not come with its own Bitcoin-police-force and Bitcoin-law-courts. The distributed block chain may eventually prove useful for other recordkeeping such as real estate property transactions (e.g. no need to pay $300 fee for title searches in the future), or maybe buy/sell internet domain names (e.g. don't need Verisign as middleman to buy dot com domains). Those scenarios are more realistic than Bitcoin/Ethereum replacing government approved fiat currencies. DLTs may still transform the economy -- but not in the ways people expect. There's definitely some interesting applications of distributed consensus ledger but the idea of bypassing government money is overhyping its potential. [1] https://news.ycombinator.com/item?id=11934120 https://news.ycombinator.com/item?id=11934120
- rlpb 9y ago
  > Bitcoin does not come with its own Bitcoin-police-force and Bitcoin-law-courts My government will enforce a contract even if it is denominated in some foreign currency, will it not? Currency used is independent of jurisdiction. They may award damages in legal tender, rather than in Bitcoin, but I have to pay taxes in legal tender anyway, so there will always be a market to convert back. Right now they might be confused by Bitcoin enough that they won't effectively be able to assess damages, but that's not necessarily a permanent state of affairs.
  - jasode 9y ago
    >My government will enforce a contract even if it is denominated in some foreign currency, will it not? Sure, if usage of that other currency is trivial enough volume that it doesn't threaten the government's currency. That's the sticking point. Bitcoin is allowed to exist at the whim of the government.
    - mercutio2 9y ago
crb002 9y ago
The economic benefit of mostly automating governance is huge. Large financial institutions push so much through COBOL/DB2 on mainframes. The cost of updates to the contracts is horrid and mostly manual taking months if not years. The biggest loser is IBM and it's largest z/OS clients.
DrNuke 9y ago
Black and grey uses, the financial sector is pretty happy with this tool and cyber-criminals too, I suppose.
redm 9y ago
I was having a similar conversation with a colleague given about 3-rd party enforcement. The news that a Jaxx wallet user had $400,000 in Bitcoin stolen just came out. [1] Who do you turn to reverse that? There's no one really. I'm not sure DLT's are mature enough for serious global investment yet. https://www.cryptocoinsnews.com/users-report-losing-400000-due-to-jaxx-wallet-vulnerability/ https://www.cryptocoinsnews.com/users-report-losing-400000-d...
pravinva 9y ago
So the worry is that you need govt courts and police to enforce rules? That's not a great argument. The number of private police today is far greater than govt employed ones. Most international trade disputes are settled by private arbitration and not the govt courts. What's the real worry?
- tdb7893 9y ago
  The problem is that at the point where there is a trusted party to arbitrate disputes why do you need a blockchain? It seems ironic that it seems like we need some trusted governance over a system that is literally built upon the idea of distributed trust.
wildbunny 9y ago
He misses the point that the developers do not control bitcoin; the miners control bitcoin. The developers suggest improvements which will only be adopted if the miners support those improvements. The miner's interests are purely profit based, so they will not adopt changes which reduce their chance of profit.
- jwildeboer 9y ago
  Thank you for pointing out that the users of bitcoin (and other cryptocurrencies) have effectively no say in the design of the system they have to trust. This will ultimately limit the very trust needed to keep it alive IMHO.
  - serg_chernata 9y ago
    I would say that this is exactly why Proof of Stake seems to be in higher regard than Proof of Work for new currencies as well as Ether's eventual transition later this year. Among other reasons, of course.
    - gjem97 9y ago
      Is it generally accepted that this is inevitable? Or is it going to be a SegWit/Unlimited sort of situation?
      - serg_chernata 9y ago
        PoS seems to be definitely happening for Ether.
        gjem97 9y ago
        Could you expand on that any? What's your basis for that belief?
        Jenya_ 9y ago
Rabei 9y ago
Because bottom line, the only thing it improves is that there is no longer need to move the money around in armored cars, and that is not high impact in the bottomline of the economy You lose the following: 1 - Ability control monetary policy 2 - Reduction in theft via cost in effort (same thing as with e-voting and rigging elections) Because of that you have seen that blockchain stuff works on countries where 1 is badly handled. everywhere else nobody really cares except for the hype.
- rubber_duck 9y ago
  It's also convenient for purchasing illegal stuff instead of having to go trough stuff like western union (if you think BTC fees are huge I have a surprise for you). Surprisingly acquiring bitcoin was the hardest part of acquiring controlled substances (coinbase transaction failed twice with my credit card and had a tedious registration process requiring photo, scan of ID, etc. etc. - ended up buying from localbitcoin using bank transfer but it felt risky and the markup was considerable) - the rest was as simple as using a online shop and it shipping to home address - even got free shipping for a bigger order :)
  - Rabei 9y ago
    You are right of course, i would argue though that that use case is a deterrent of mainstream adoption rather than an incentive. Edit: proper english.
- simias 9y ago
  I think for the libertarian crowd (which seems to be a big chunk of the bitcoin enthusiasts out there as far as I can tell) the fact that a government can't easily enforce any kind of monetary policy on bitcoin is a feature, not a bug.
yoz-y 9y ago
I always thought of bitcoin as a commodity, not a currency. It seems to solve the same problems and follow the same rules. E.g.: a commodity (such as gold) can not be created, but it is an important feature for a currency. Without inflation it will never be a good choice for currency anyways because it will always be a more interesting to hold on it rather than use it.
- blfr 9y ago
  If bitcoin achieved (a big if) wide adoption, it would be like keeping all your money in an index fund whenever you're not actively spending it. Its value would follow the growing economy.
  - altcognito 9y ago
    Except deflation instead of inflation. Instead of sticky wages you'll be pressured to drop your hourly rates. Borrowing money would increase the cost of the loan, depending on the rate of value increase, you're looking at negative interest rates. Everything about deflation makes zero sense.
    - PKop 9y ago
      You've identified who suffers and who benefits from the reversing of value positions caused by deflation vs inflation. But you haven't explained why its "worse"? So borrowers are disadvantaged compared to lenders (savers). And wage earners are in a better position relative to wage payers.. ? That's what I take away from your statement. But, one's ability to buy things seems to be improved... Should we want an inflationary economy more college-tuition, healthcare-cost-like... or computing & software-like? Continually falling prices for all things computing related have done wonders for that industry no? Would consumers be better or worse off having to spend less on food clothing housing energy? Would they have more or less disposable income with flat or falling prices? Ok now assume increases in those costs... better or worse off? More or less disposable income?
      - 9y ago
thechut 9y ago
Interesting points about enforcement. But I think the real barrier to adoption is that most people don't mind using centralized systems. If their Visa card works when they swipe it, they don't think beyond that. If it's easier for the end user when systems are centralized, breaking people out of this mindset will be very difficult.
- Nursie 9y ago
  I'm fairly pro privacy, but where it comes to currency, I don't see the benefit. I certainly don't see the benefit of burning the amount of energy the average bitcoin transaction is now responsible for, when (as you say) I have Visa. And with Visa I can charge-back if I get ripped off. Bitcoin is, AFAICT an actively worse proposition for me.
isubkhankulov 9y ago
the article is spot on when it comes to Distributed Ledger Technology (DLT) but misses the point of Bitcoin. Many in the community cite the lack of governance as a strength of Bitcoin. It's resilience is a virture because it becomes difficult to corrupt, unlike centralized governance of traditional payment methods.
- Nursie 9y ago
  I think you might have missed the point of the article - bitcoin is still governed by a small group of people, but its governance is informal and chaotic. It is not governance-free.
  - isubkhankulov 9y ago
    not small at all. any substantial change needs buy in from users, miners and developers. not to mention companies.
    - Nursie 9y ago
      Practically, mining has become relatively confined to a few parties, individual users have fairly little power and the developers hold quite a lot. Regardless of relative size of this group, governance is opaque, political and chaotic, not either absent or purely mathematical.
- dragonwriter 9y ago
  > Many in the community cite the lack of governance as a strength of Bitcoin. Bitcoin has opaque governance; it does not have a lack of governance. > It's resilience is a virture because it becomes difficult to corrupt It is not at all difficult to corrupt. (Arguably, since it's fundamentally based on “them what have they gold, make the rules”, it's foundationally corrupt and takes nothing additional to corrupt. But, in any case, all it takes to corrupt it is will and money.)
  - isubkhankulov 9y ago
quinndupont 9y ago
If there's a new argument to be had here (I'm doubtful, it sounds like a re-hashing of governance issues that have played out over the last year), it's this claim: "This rule-making is what we refer to as governance." This conception of governance is the premise for the conclusion, what Lehdonvirta calls a "paradox": "And this leads me to my final point, a provocation: once you address the problem of governance, you no longer need blockchain; you can just as well use conventional technology that assumes a trusted central party to enforce the rules, because you’re already trusting somebody (or some organization/process) to make the rules. I call this blockchain’s ‘governance paradox’: once you master it, you no longer need it." My own analysis draws on a more expansive definition (from Introna; Saurwein et al.): http://iqdupont.com/assets/documents/DUPONT-2017-Preprint-Algorithmic-Governance.pdf http://iqdupont.com/assets/documents/DUPONT-2017-Preprint-Al... This expansiveness is necessary, as Lehdonvirta recognizes. Contracts are not just enforcement, they also encapsulate the processes of making ("rule-making"), or better, negotiating contracts. So, are we authorized to go from a rule-making notion of governance to the conclusion that once this is addressed blockchain technologies will be redundant? Lehdonvirta doesn't give us any analysis of this move, but I don't think so. Rather, we need to recognize the contested forms, which are the essence of governance, and then create a socio-technical structure around them. Consider: double-entry bookkeeping is just as much a technology for governance as blockchain technology (and, of course, they share a historical lineage). Does double-entry bookkeeping go away because we "address the problem"? Hardly. Rather, we need to recognize the ways that it has developed, and by whom, and for what use. Just like blockchain technologies.
wyc 9y ago
I think that the core value crypocurrencies and blockchains provide is a distributed system of trust. I also think that we people in developed nations have been spoiled by our trustworthy institutions, relatively speaking. I don't know too many people in US/UK/AUS/JP hesitant to put money away in the consumer banks, take out mortgages, or file disputes in the state courts. Those systems work well enough, with acceptable speeds for most use cases. While crypto technologies are improving, they have some glaring drawbacks: - The recent BTC confirmation time (transaction processing duration) was in days[1]. - The consumer loses significant protections because transactions are final. - On a broader note, no centralized controls or responsible entities means no one to point fingers at when something goes wrong. - There are very steep learning curves for all participating parties. These are all being worked on through technology improvements and new blockchains, but they're still issues that prevent blockchains from displacing existing systems. I think they could one day change everything in an Innovator's Dilemma fashion, but not anytime soon (5-20 years). There is already staunch opposition to using clearly superior technologies due to cultural factors, for example: - Americans won't use chip readers partly because the magnetic strip was already widespread[2]. - Developed nations don't use mobile chat operating systems such as WeChat partly because they already had laptops[3]. So in the case of blockchains, not only is there an overwhelming opposing cultural force, but also they happen to make inroads in sensitive industries such as finance/contracts, and the technology is not superior on many levels. This would make adoption very difficult. Where it will work However, some people don't have such great institutions. Look at how successful BTC has been in turmoil-ridden South American nations such as Venezuela and Argentina[3]. The inflation is out of control, and consumers don't trust any of the banks or institutions. In this environment, the blockchain is leaps and bounds better than anything else that these consumers have access to, so it's immensely valuable. You'd be willing to wait several days for transaction clearance. You wouldn't care that the transfer is final. You'll do whatever awkward dance it takes to operate and secure a Bitcoin wallet. There's no better alternative, and financial asset security is important. I think characteristics of an ideal market for blockchain technology today could be: - Very low trust among participants. - No trusted central authority. - Expensive, long, or nonexistent arbitration cycles. - High transaction costs. Its most compelling value is the provision of trust where there is none. An example where this might work well is in the specification and mediation of international contracts for small businesses. There is currently little accountability after getting burned in an international transaction with a small entity, as a small entity. If there were a standard trusted registry of company reputation, transaction histories, and contracts, then it could go a long way to building systems of trust that enable more fluid trade afar. [1] https://blockchain.info/charts/avg-confirmation-time?timespan=30days&showDataPoints=true&start=2017-06-02 https://blockchain.info/charts/avg-confirmation-time?timespa... [2] http://www.digitalcheck.com/emv-will-usa-be-ready/ http://www.digitalcheck.com/emv-will-usa-be-ready/ [3] https://techcrunch.com/2016/06/01/it-might-be-time-to-stop-looking-for-the-wechat-of-the-west/ https://techcrunch.com/2016/06/01/it-might-be-time-to-stop-l... [4] https://reason.com/archives/2016/11/28/the-secret-dangerous-world-of https://reason.com/archives/2016/11/28/the-secret-dangerous-...
dinglebert1234 9y ago
He's missing the big picture. The revolutionary aspect of blockchain isn't about any single currency. It's about the concept itself. Blockchains will be governed independently, but the conglomeration of blockchains as a whole cannot be governed.
leitasat 9y ago
Well, there are some improvements over existing systems (e.g. fiat money): 1. Less costs to switch to a competitor comparing to banks and states which leads to 2. The governance body and all influential members are really in need of public approval of their actions since that is exactly what makes a coin worthy. If they change protocol in a drastic way, the price will immediately plummet leaving them in tatters 3. Same mechanism prevents conflicts within the community In general I would like to see more about the role of law in economics and possible tech implementations of it (meta-protocols?)
- KirinDave 9y ago
  If we're talking about "mass" adoption, which suggests consumer-level adoption? Point #1 is exactly not what you want. It means your currency can lose value almost instantly. Fiat currencies can do this, but only rarely actually do.
deleted 9y ago
[deleted]
rensgspzn 9y ago
TLDR Author thinks Bitcoin is mostly worthless because there is no single organization deciding how Bitcoin should work or enforcing its rules. And ironically, most Bitcoiners believe this is exactly what gives Bitcoin its worth. Sidenote: I also find it ironic that the author, a Faculty Fellow of the Alan Turing Institute, is enamored with governance when it was governance that forced Alan Turing to be chemically castrated.
drcode 9y ago
What this article is missing is the word "decouple". Cryptocurrencies decouple the many roles that are involved in maintaining and using a currency. It doesn't "solve" governance issues, it breaks them into smaller issues that can be (and should be) tackled in isolation. Anyone who doesn't see this and argues "we should just go back to the way we were doing things before" is missing the point.
qznc 9y ago
I don't understand why "competition" should not work? Switching currencies is easier than switching citizenship. There are plenty of alternative cryptocurrencies with different rules. User can switch to different ones (and Ethereum is quite a challenger at the moment). The network effects are great, because otherwise everything would explode into a million different currencies.
- KirinDave 9y ago
  Currencies need to have systems in place that work to make them stable and preserve value, otherwise they're just tools for transactions. This might be a better state of affairs if currencies are backed by something exchangeable (e.g., joules of carbon neutral energy, etc...). We don't have many currencies like that in the world, as I understand it. Most are essentially contracts between governments that may or may not end in violence.
  - throwaway29292 9y ago
    SolarCoin is one such effort.
- bo1024 9y ago
  Right now it is true that there are a variety of cryptocurrencies, but I think the authors' point is valid that, due to network effects, in the future competition will be harder as existing players become more entrenched (no matter how flawed they may be).
delegate 9y ago
Interestingly, the way things are right now, when it comes to governance model on a global scale, the Big Bad Banks are more decentralized than Bitcoin or any other crypto currency. Even if it weren't so, I still don't get why total decentralization is an absolute good thing. Nature seems to be a symbiosis between centralized and decentralized systems - at every level; extremes (too much or too little centralization) will lead to isolation/extinction or explosion/implosion - think biological systems or stars in galaxies. I disagree with my crypto anarchist friends who believe that changing the money system will change society (eg. society is a function of money) and I tend to think that the relationship is more symbiotic - society has to change in order for the money to take other roles. Even so, given human nature, it is not clear if a totally decentralized monetary system is a good thing for society as a whole. People trust 'authorities' more than they trust math written by a bunch of 'core' devs and that's because the former can easily apply brute force and coerce the latter. Yes, we're still primates and the bigger/stronger argument is still valid. So I don't think Bitcoin will dramatically change society, but some form of symbiosis between the current banking system and the crypto currencies will emerge eventually - and then we can talk about centralization at a whole different level. Either way, there's no escaping it.
jeffnappi 9y ago
DLTs are inefficient by design. The energy consumption is unsustainable with the technology as it stands. For example Bitcoin consumed an estimated 40 million KWh in the past 24 hours - 137KWh per transaction. Enough to power ~1.3M American homes. Many of the alt-coins are even worse. Source: http://digiconomist.net/bitcoin-energy-consumption http://digiconomist.net/bitcoin-energy-consumption
- hdhzy 9y ago
  I wonder what's the energy consumption of an average credit card transaction (including keeping the infrastructure, charge backs etc.)...
  - _Marak_ 9y ago
    From the article: VISA Network Statistics VISA's estimated annual electricity consumption (TWh) 0.54 Number of U.S. households that could be powered by VISA 50,000 Electricity consumed per transaction (KWh) 0.00651 Number of seconds the electricity consumed by 1 VISA transaction could power 1 U.S. household 19 Number of VISA transactions that could be powered with the electricity consumed by 1 Bitcoin transaction 20,983 `
    - Rmilb 9y ago
      A decentralized network has trade offs associated with it.
  - runeks 9y ago
    The more important point is that VISA is broken by design. Every day hackers steal credit card info and leech millions from the system, which is included in the fee you pay. The only reason it keeps working is because hackers aren't sufficiently sophisticated yet. The solution, of course, is to store a private key on a hardware device, not have the private key be 16+3 decimal digits and an expiration date.
    - UncleMeat 9y ago
rockmeamedee 9y ago
I agree with this article. Proponents of blockchain tech argue its revolutionary quality is its ability to act as a decentralized and trustless database. But I don't ever hear them sort through the issue of how to agree on the schema for this trustless database. For a group of people to use a decentralized DB, they have to agree as to what to store in it, and how to store it. They need to form consensus about how the system will work, and how the data will flow. For example I've seen people on here mention applications such as a decentralized stock exchange, and a decentralized hotel rooms marketplace. For either of these, it's necessary to get all the users of the system in a room and agree what is in scope and what is not, and in general what can be done with the system and how. At this point they already have a consensus, they trust each other, they might as well just set up a centralized database run by a 3rd party that manages the system, keeps it up to date and adds upgrades, instead of building it on the blockchain and hoping there are no major bugs in the cloud code and that it will live off gas. For the stock exchange, that's exactly what we already have. We have institutions that are dedicated to running exchanges, which act as neutral arbiters. They use regular old centralised databases. When they have bugs in their code or the system makes a mistake they can even roll back trades, which they couldn't do on the blockchain. Essentially this is the same argument as OP. The 3rd party's act of ironing out issues, deciding what the rules are and how they interact is synonymous with OP's term "governance". We agree that using/running the system is different than defining/implementing the system and the latter can't be done trustlessly. And also governance gets a lot easier when you also run the system centralized ;)
- darawk 9y ago
  That's not really true. Systems like Ethereum allow for arbitrary data storage and contract structures. The filter for consensus in a distributed environment will be usage. Lots of contracts will get written, a few will get used. Those few will be the ones people agree on. Secondly, the consensus as to the schema isn't trustless even in blockchains. Deciding what to do and how to do it is and always will be trustful. What is trustless is the execution of that decision once its been made. That is the important contribution of blockchains.
- lawrenceyan 9y ago
  They all say that they'll never roll back or retroactively make any changes. But inevitably, they always do. I thought Ethereum might have been different, but of course I had to be disappointed. The problem with blockchains is that they still fundamentally fail to solve the problem of mob rule, though, I suppose you could argue that's one thing you'll never fully get rid while the human element is still involved. Robot overlords or bust?
everybodyknows 9y ago
Takeaway conclusion is existence of a sort of upper bound on the economic potential of blockchains: >Perhaps blockchain technologies can still deliver better technical performance, like better availability and data integrity The supporting argument is so tight that it never even invokes the repeated failures of Bitcoin at the exchange/storage level: Mt Gox, wallets et al.
nemo44x 9y ago
If I had a Bitcoin for every skeptic that posts a blog on why it can't work... This may just be my general observation but I feel like Silicon Valley hegemony has a grudge against crypto currencies and I'm not sure why. For an industry that has constantly tried new things and saw potential where no one else did, I just don't see the love for the potential of smart contracts, DApps, etc. And how this is just the beginning of what is possible and of course it's isn't perfect but it's fascinating to the curious. I do see a lot of enthusiasm from Eastern Europeans and all across Asia and they seem to be leading the charge on what could be the next major technical revolution. My working hypothesis right now is Silicon Valley has been getting fat on the virtually unlimited venture capital power structure and sees this as a threat they've missed out on to their power. Maybe the disrupters are being disrupted?
- gjem97 9y ago
  I think there are a couple of reasons behind a Silicon Valley disillusionment with Bitcoin. First, I think we're probably in a trough in the hype cycle right now. 3-4 years ago there were a lot of very high expectations amongst the Sand Hill Road crew. Bitcoin transaction volumes have been fairly flat (in native BTC terms [1]), whereas the VC crowd expected--required even--exponential growth. Second I think that people in the US--Silicon Valley included--have the benefit of good corporate governance on many of the centralized authorities that underpin the economy. SWIFT, DTCC, etc. People who live in countries where that is not the case have a lot more to gain from the technology. That may explain some of the relative popularity outside the US. [1] https://blockchain.info/charts/estimated-transaction-volume?timespan=2years https://blockchain.info/charts/estimated-transaction-volume?...
- nradov 9y ago
  Bitcoin is mostly popular in Eastern Europe and Asia for transfer payments, fiat currency conversion, money laundering, and evading capital controls (getting money out of China). In the US if you're doing legitimate business with other US entities then there's really no need for such a thing. I can write a check or send a credit card payment or wire transfer to another US bank with a reasonably high level of trust that I won't be cheated, and that I have legal recourse if something goes wrong.
cayblood 9y ago
One aspect of his argument that seems insufficiently explored is an apparent assumption that governance is primarily a binary state, either present or absent. It's important to recognize that different approaches to governance have different levels of effectiveness and efficiency, and one of the most important aspects of blockchain is how it presents the first real improvement on the present state of the art in governance, or the first real competition to our current forms of government. It can help consensus to be achieved more quickly and efficiently and can make corrupt government more difficult. There are further improvements to blockchains being made to make amendable blockchains where changes to blockchain protocols and contracts can be tested in sandbox environments, essentially systems in which laws and contracts can be tested to see if they produce the desired results before implementing them. The Tezos blockchain is the most notable emerging example of this. All of these improvements present much more powerful tools for aiding just governance than our forebears had when they created the constitutional democracies that presently govern the world. Governance is not some Platonic binary that is either absent or present, but it is an ideal towards which we're always striving and taking pragmatic steps to implement. Blockchains afford us new tools with which to achieve better governance. They are not an end in themselves or a replacement for traditional governance so much as a means to implement it more efficiently.
- gjem97 9y ago
  And furthermore that DTLs are a tool for enforcing corporate governance. It's a way of imposing it on organizations that otherwise would not exist.
coverband 9y ago
This is an excellent analysis: insightful and to the point. I'd love to read a counter-analysis that can objectively argue against what I see as the central point here: "Blockchains still need good governance, but once you have good governance in place, you don't need a blockchain."
- mariano54 9y ago
  Here's a thought: I don't think it's black or white, governance solved or not solved. I think it's varying degrees of decentralization in governance. Try to come up with a system that has more decentralized governance than Bitcoin. The core developers in bitcoin don't have all the power. Coinbase doesn't have all the Power. Each user doesn't have all the power. Miners either (if they abuse their power, POW function can be changed) So basically while bitcoin governance is not perfectly decentralized, its much better than anything else. You can try to come up with a system where people vote. But the votes have to be collected and analyzed somewhere, centrally. So you still have central governance. So yes, while 100% solving governance would make bitcoin useless, bitcoin can improve governance (compared to federal Reserve, for example), while providing a lot of value from this decentralization.
jcoffland 9y ago
There are plenty of examples where one party or a collation of parties set up the rules for a decentralized system that then goes on to operate successfully with little to no further enforcement. Email or TCP/IP are examples of such decentralized systems. The fact that someone must make the rules and future actors may attempt to change those rules are problems but they do not invalidate the idea of decentralized systems. I believe the author is reacting to his colleges misunderstanding of crypto technologies. He has bought in to their argument that what cryptocurrency needs to solve it's current problems is centralized control or governance. This, of course leads to the logical conclusion that if you must have centralized control then why use a blockchain at all. The fallacy is in accepting that after the initial rules are set, that you must continue to have governance to solve the inevitable disagreements. On the contrary, continued governance is the problem faced by cryptocurrencies and other blockchain technologies. Their stability depends on adherence to the original agreement. Any change to that agreement is an existential threat. It would however be a mistake to think that this problem completely invalidates such decentralized systems. They can and do continue to provide utility even in the face of attempts at continued governance. It's not about these systems working for eternity. It's about them working for long enough for life to happen.
- jasode 9y ago
  >Email or TCP/IP are examples of such decentralized systems. I'm not sure about those analogies. SMTP email and TCPIP require DNS to route packets. DNS root authority is centralized. (Yes, DNS for performance purposes is implemented across distributed computers worldwide but ultimate authority still traces back to the root servers.) Even without DNS lookup, the numerical IP addresses are assigned by a central authority. (Yes, if we're only talking about playing with protocols instead of actual global connectivity, one could run private SMTP on an isolated network with no central authority but that's not the analogy we're interested in.) Maybe your analogies and my disagreement with them is a perfect illustration of what the author is talking about: centralized governance is still there even if we don't notice it.
  - runeks 9y ago
    It's not about eliminating centralization, it's about minimizing the fragility it causes in key areas. We minimize it by locating bottlenecks and finding solutions in these areas, not throwing our hands in the air unless we have 100% decentralization (assuming we even want that). Sensible proponents of Bitcoin shouldn't argue that centralization is "wrong", but that monetary centralization creates perverse incentives, and that Bitcoin is a potential solution to this.
dnautics 9y ago
this is a really great article, because it highlight a very important dialectic that many blockchain enthusiasts, developers, entrepreneurs, and speculators don't acknoweldge. I would however, suggest that the issue of governance is not an "all-or-nothing" choice. Probably some of the blockchain technologies that try to do things like "link to a central bank", will suffer from a difficulty in establishing product differentiation from traditional currencies and transaction schemes; but the blockchain technologies that live on the more distant side of the spectrum (providing an, if imperfect, implementation of distributed trust) like the original bitcoin, will survive.
randomThoughts9 9y ago
There are currencies with governance built in: PIVX and DASH are the two main exampled I know of. Basically the nodes that have a stake in the system are allowed to vote on the direction the project is going. My personal impression is that currently this model is still very rudimentary, but in the future I could still an almost autonomous system taking off.
erikpukinskis 9y ago
The most disruptive thing cryptocurrencies will do is undermine the legal distinctions between currencies, commodities, and stocks. There's no real difference between any of them, but they are treated legally quite differently. Cryptocurrencies will flood the gaps in between these categories with so many examples that it will DoS the legal system with questions it can't answer, social adoption will outstrip courtroom resolution, and there will have to be a post-hoc reckoning with a new legal framework.
kbuchanan 9y ago
I pose this as a question as much as a statement: Bitcoin does not have to solve the governance problem. It need merely perform some functions better than a fiat currency. Consider economists' Taylor Rule. It represents an effort to impost constraints on a bureaucratic institution and how people manage the dollar. Cool, we pass a law called the Taylor Rule. Now just don't enforce it. People who want stuff are hard to constrain. In other words, the Bitcoin community doesn't have to be uncompromising and immutable, like its technology, for the currency to succeed—it just has to do better than its alternative (even in narrow applications). Thoughts?
anothercomment 9y ago
You can begin to see the beauty of Bitcoin when you want to accept payments. All you need to do is download a wallet, generate an address and put it online. You don't need anybody's permission, as would be the case with PayPal or the likes. The risk of somebody deciding on a whim to freeze your funds is also greatly diminished (again, very different from PayPal and the likes). "Governance" and "Accountability" seem to be the antithesis to that. No, Bitcoin doesn't need that and doesn't want that. Yes, it is a bit scary, it is a system that develops on its own, depending on the way it is being used (network effects and so on). I guess economists freak out because they are unsure about the rules, and they can't have that. But it is also not true that it would be a huge problem if there were forks. Why would it be? People will simply use what works best for them, controlled by market forces (they need other people to use the same fork). Who decides how Bitcoin develops? Ultimately the users do, by using it or not. Developers and miners merely provide proposals. And why does a system need 100% agreement on everything? Such a system may well never exist.
- SkyMarshal 9y ago
  >But it is also not true that it would be a huge problem if there were forks. Why would it be? People will simply use what works best for them, controlled by market forces (they need other people to use the same fork). It's a problem for any tech that aspires to go mainstream and thus must contend with the already high cognitive loads on the majority of people who don't follow the tech in detail, don't know what a hard fork/chain split entails, what it means for their money, or the economy. Most mainstream users, when confronted with having to understand something like that to safeguard their money, will conclude, rightfully, it's best left in a traditional bank or under the mattress.
  - anothercomment 9y ago
    Maybe true, but in a way, classical investments are even more complicated. Some of them are even deliberately complicated to obfuscate their risky nature to naive investors.
    - 9y ago
zilchers 9y ago
This article pretty well sums up my overarching opinion that, at this point, bitcoin is the only actual killer app for blockchain. I'm always looking for the next kill app, but haven't seen it yet. With bitcoin, the idea of no governance or centralization is very much a feature, not a bug. When you get to other blockchain solutions (like stocks or real estate), blockchain just becomes a code word for immutable, public history, which is doable with many different technical means (not just a blockchain).
- RexetBlell 9y ago
  I think it makes a lot of sense to build a DNS system using contacts. Names can be auctioned off and given automatically to the highest bidder. It is also possible to set up a contract where you could trustlessly sell names. "Send $200 to an address and you will get the name". This solves the prisoners dilemma that is mentioned in the video at least for your dns addresses. There is an auction like this in progress already, and you can participate now if you like http://ens.domains http://ens.domains
  - zilchers 9y ago
    Ya, that's not a bad point, I guess really any completely virtual item that distributes on a first come, first serve basis could work. That's sort of a generalization of bitcoin itself (if you think of the proof of work is a first come claim on the new bitcoins).
    - RexetBlell 9y ago
      You could do even more interesting things than that trustlessly. For example say, you own a valuable domain. You could borrow money and use the domain as collateral. If you do pay back, or stop making monthly payments the domain is automatically and trustlessly transferred to the lender. Or it can be put up for a trustless public auction with the proceeds going to lender to repay the loan and the rest to you, the ex-owner of the domain who failed to pay back his loan. The cool thing is that it's possible to build all of this today and people are working on it right now.
abrkn 9y ago
Here are some things you can do in Bitcoin today: - Send any amount of money anywhere in the world. Fee is around $1 - Be your own bank. Your money cannot be frozen or seized - Use a service such as put.io or VPN without giving up your identity (pseudonymouysly) - Exchange Bitcoin for cash when traveling in countries such Thailand more cheaply than ATMs - Buy controlled substances, for medicinal or recreational use - Store any amount of money in your head, on a usb stick, or on paper. If price movements worry you, just hedge, a service offered by several companies - Bet on sports regardless of your geographic location Sounds transformative to me.
joeyspn 9y ago
Bitcoin and the rest of cryptos need an IETF-style organism issuing standards and guidelines... that could solve many of the governance problems, including forking dramas (SegWit, DAO, etc)
yanivleven 9y ago
I do not believe that a deregulated system can catch to massive economic scale because there is a trust involved with currency. The minute a currency is distributed with no regulation it can be monopolized and its price shifted up and down by the power of the monopoly.
ninjakeyboard 9y ago
The article ignores incentives - that the effort in trying to find a new block may be better than the double spend. You'd have to buy a big ticket item, and get really lucky as well so you have a fairly small window to catch up and get head. So bitcoin works partly because the incentives to be an honest member outweigh the potential benefit of attack vs the cost and risk of simply not winning in the window within which you can double spend. I'd consider some of the other uses of block chain such as permission-based approaches, and the other applications like luxury goods in supply chain to prevent counterfeit goods from entering.
pessimizer 9y ago
How did blockchains start to pick up the same grammatical quirk that "chiropractic" has? The blockchain, a blockchain, blockchains, blockchain technology, fine. "so many people are so excited about blockchain today"? Bizarre.
spectrum1234 9y ago
I agree with the article yet the article fails to address a large benefit of DLTs, reducing transaction/3rd party fees. A ~2% reduction in costs is still enormous at scale. Another benefit that is overlooked is adaptation. Once mature, creativity and innovation will happen faster with DLTs.

211 points by jboynyc 9y ago

I agree with this in as much as I don't think cryptocurrencies are ever going to replace 'fiat' currency. That doesn't mean that they don't provide economic value or are worthless, however.

sharemywin 9y ago
Especially in places or by individuals where fiat currencies are seen as corrupt.
sowbug 9y ago
The article didn't discuss that issue.
- jasode 9y ago
  It does if you take USA's "governance of Fed Reserve Notes" and EU "governance of Euro" as examples of the author's "governance of technology" or "governance paradox".
  - empath75 9y ago
    Yeah, I was specifically referring to the crypto ideologues who have a fundamental distrust of fiat currency and think that bitcoin somehow solves governance problems. The eth hard fork to protect the investments of developers and early adopters should have disabused people of that notion.

sharemywin 9y ago

A while back I wondered if networks like facebook, electrical grids should have more direct user decision making. https://news.ycombinator.com/item?id=14293114 https://news.ycombinator.com/item?id=14293114 I think eventually networks need to figure out distributed decision making.

jpereira 9y ago
Here's[0] an interesting take on a possible way forward to achieve that, very much inline with the recent ICO trend. In general I think the token design space is an extremely interesting one, and seeing how different models lead to different social structures and outcomes will be extremely interesting. Of course this is not new (currently reading Debt: the first 5000 years), its just radically easier than before, to design, deploy, and use. As a result we'll see an explosion of variety, diversity, and competition, which'll be fascinating to see. Already the differences in ICO mechanisms are extremely interesting, though they have a long way to go. [0] https://blog.bigchaindb.com/tokenize-the-enterprise-23d51bafb536 https://blog.bigchaindb.com/tokenize-the-enterprise-23d51baf...
- sharemywin 9y ago
  I doubt facebook does it you need tokens to buy out existing shares or something. To not get sued. Also, tokens get traded and accumulate. There needs to be some way to manage competing interests fairly(whatever that means) and efficiently.

jankotek 9y ago

Blockchain already transformed economy; it brought fast international payments with small fees.

isubkhankulov 9y ago
dollar for dollar, traditional money transfer companies are faster and cheaper. unless the user is trying to conceal the source of funds or is evading capital controls.
ceejayoz 9y ago
You could claim the blockchain will transform the economy some day, but to claim it has is plainly false. It's still a niche system, and Bitcoin's seeing rapidly rising transaction fees (https://bitinfocharts.com/comparison/bitcoin-transactionfees.html https://bitinfocharts.com/comparison/bitcoin-transactionfees...) because of the block size issue right now.
rb808 9y ago
One of the reasons there are fees for international payments is to comply with the legal requirements set up by governments to monitor and control such transactions. The cost of transferring FX wholesale is near zero. If a bitcoin based processor implements the controls, the costs will be the same as a regular payment provider. So bitcoin can only become cheaper than tradition payments if you bypass the legally required controls.
- qqg3 9y ago
  While you're not wrong, the fees for international payments vary wildly depending on how you do it, which service or bank you use, how much you transfer etc. Which makes it hard to sell the "its about governance" line for justifying those fees.
NeutronBoy 9y ago
Yes, as long as you don't want to convert your crypto currency into fiat currency at either end.

jasode 9y ago

I agree with Vili Lehdonvirta's analysis about governance and wrote a similar conclusion previously.[1] Yes, the concept of "money" existed before governments and therefore doesn't require government. That said, today's modern money is very much an instrument of government power. This is why alt-coins will not overthrow fiat currencies like some enthusiasts believe because Bitcoin does not come with its own Bitcoin-police-force and Bitcoin-law-courts. The distributed block chain may eventually prove useful for other recordkeeping such as real estate property transactions (e.g. no need to pay $300 fee for title searches in the future), or maybe buy/sell internet domain names (e.g. don't need Verisign as middleman to buy dot com domains). Those scenarios are more realistic than Bitcoin/Ethereum replacing government approved fiat currencies. DLTs may still transform the economy -- but not in the ways people expect. There's definitely some interesting applications of distributed consensus ledger but the idea of bypassing government money is overhyping its potential. [1] https://news.ycombinator.com/item?id=11934120 https://news.ycombinator.com/item?id=11934120

rlpb 9y ago
> Bitcoin does not come with its own Bitcoin-police-force and Bitcoin-law-courts My government will enforce a contract even if it is denominated in some foreign currency, will it not? Currency used is independent of jurisdiction. They may award damages in legal tender, rather than in Bitcoin, but I have to pay taxes in legal tender anyway, so there will always be a market to convert back. Right now they might be confused by Bitcoin enough that they won't effectively be able to assess damages, but that's not necessarily a permanent state of affairs.
- jasode 9y ago
  >My government will enforce a contract even if it is denominated in some foreign currency, will it not? Sure, if usage of that other currency is trivial enough volume that it doesn't threaten the government's currency. That's the sticking point. Bitcoin is allowed to exist at the whim of the government.
  - mercutio2 9y ago

crb002 9y ago

The economic benefit of mostly automating governance is huge. Large financial institutions push so much through COBOL/DB2 on mainframes. The cost of updates to the contracts is horrid and mostly manual taking months if not years. The biggest loser is IBM and it's largest z/OS clients.

DrNuke 9y ago

Black and grey uses, the financial sector is pretty happy with this tool and cyber-criminals too, I suppose.

redm 9y ago

I was having a similar conversation with a colleague given about 3-rd party enforcement. The news that a Jaxx wallet user had $400,000 in Bitcoin stolen just came out. [1] Who do you turn to reverse that? There's no one really. I'm not sure DLT's are mature enough for serious global investment yet. https://www.cryptocoinsnews.com/users-report-losing-400000-due-to-jaxx-wallet-vulnerability/ https://www.cryptocoinsnews.com/users-report-losing-400000-d...

pravinva 9y ago

So the worry is that you need govt courts and police to enforce rules? That's not a great argument. The number of private police today is far greater than govt employed ones. Most international trade disputes are settled by private arbitration and not the govt courts. What's the real worry?

tdb7893 9y ago
The problem is that at the point where there is a trusted party to arbitrate disputes why do you need a blockchain? It seems ironic that it seems like we need some trusted governance over a system that is literally built upon the idea of distributed trust.

wildbunny 9y ago

He misses the point that the developers do not control bitcoin; the miners control bitcoin. The developers suggest improvements which will only be adopted if the miners support those improvements. The miner's interests are purely profit based, so they will not adopt changes which reduce their chance of profit.

jwildeboer 9y ago
Thank you for pointing out that the users of bitcoin (and other cryptocurrencies) have effectively no say in the design of the system they have to trust. This will ultimately limit the very trust needed to keep it alive IMHO.
- serg_chernata 9y ago
  I would say that this is exactly why Proof of Stake seems to be in higher regard than Proof of Work for new currencies as well as Ether's eventual transition later this year. Among other reasons, of course.
  - gjem97 9y ago
    Is it generally accepted that this is inevitable? Or is it going to be a SegWit/Unlimited sort of situation?
    - serg_chernata 9y ago
      PoS seems to be definitely happening for Ether.
      - gjem97 9y ago
        Could you expand on that any? What's your basis for that belief?
        Jenya_ 9y ago

Rabei 9y ago

Because bottom line, the only thing it improves is that there is no longer need to move the money around in armored cars, and that is not high impact in the bottomline of the economy You lose the following: 1 - Ability control monetary policy 2 - Reduction in theft via cost in effort (same thing as with e-voting and rigging elections) Because of that you have seen that blockchain stuff works on countries where 1 is badly handled. everywhere else nobody really cares except for the hype.

rubber_duck 9y ago
It's also convenient for purchasing illegal stuff instead of having to go trough stuff like western union (if you think BTC fees are huge I have a surprise for you). Surprisingly acquiring bitcoin was the hardest part of acquiring controlled substances (coinbase transaction failed twice with my credit card and had a tedious registration process requiring photo, scan of ID, etc. etc. - ended up buying from localbitcoin using bank transfer but it felt risky and the markup was considerable) - the rest was as simple as using a online shop and it shipping to home address - even got free shipping for a bigger order :)
- Rabei 9y ago
  You are right of course, i would argue though that that use case is a deterrent of mainstream adoption rather than an incentive. Edit: proper english.
simias 9y ago
I think for the libertarian crowd (which seems to be a big chunk of the bitcoin enthusiasts out there as far as I can tell) the fact that a government can't easily enforce any kind of monetary policy on bitcoin is a feature, not a bug.

yoz-y 9y ago

I always thought of bitcoin as a commodity, not a currency. It seems to solve the same problems and follow the same rules. E.g.: a commodity (such as gold) can not be created, but it is an important feature for a currency. Without inflation it will never be a good choice for currency anyways because it will always be a more interesting to hold on it rather than use it.

blfr 9y ago
If bitcoin achieved (a big if) wide adoption, it would be like keeping all your money in an index fund whenever you're not actively spending it. Its value would follow the growing economy.
- altcognito 9y ago
  Except deflation instead of inflation. Instead of sticky wages you'll be pressured to drop your hourly rates. Borrowing money would increase the cost of the loan, depending on the rate of value increase, you're looking at negative interest rates. Everything about deflation makes zero sense.
  - PKop 9y ago
    You've identified who suffers and who benefits from the reversing of value positions caused by deflation vs inflation. But you haven't explained why its "worse"? So borrowers are disadvantaged compared to lenders (savers). And wage earners are in a better position relative to wage payers.. ? That's what I take away from your statement. But, one's ability to buy things seems to be improved... Should we want an inflationary economy more college-tuition, healthcare-cost-like... or computing & software-like? Continually falling prices for all things computing related have done wonders for that industry no? Would consumers be better or worse off having to spend less on food clothing housing energy? Would they have more or less disposable income with flat or falling prices? Ok now assume increases in those costs... better or worse off? More or less disposable income?
    - 9y ago

thechut 9y ago

Interesting points about enforcement. But I think the real barrier to adoption is that most people don't mind using centralized systems. If their Visa card works when they swipe it, they don't think beyond that. If it's easier for the end user when systems are centralized, breaking people out of this mindset will be very difficult.

Nursie 9y ago
I'm fairly pro privacy, but where it comes to currency, I don't see the benefit. I certainly don't see the benefit of burning the amount of energy the average bitcoin transaction is now responsible for, when (as you say) I have Visa. And with Visa I can charge-back if I get ripped off. Bitcoin is, AFAICT an actively worse proposition for me.

isubkhankulov 9y ago

the article is spot on when it comes to Distributed Ledger Technology (DLT) but misses the point of Bitcoin. Many in the community cite the lack of governance as a strength of Bitcoin. It's resilience is a virture because it becomes difficult to corrupt, unlike centralized governance of traditional payment methods.

Nursie 9y ago
I think you might have missed the point of the article - bitcoin is still governed by a small group of people, but its governance is informal and chaotic. It is not governance-free.
- isubkhankulov 9y ago
  not small at all. any substantial change needs buy in from users, miners and developers. not to mention companies.
  - Nursie 9y ago
    Practically, mining has become relatively confined to a few parties, individual users have fairly little power and the developers hold quite a lot. Regardless of relative size of this group, governance is opaque, political and chaotic, not either absent or purely mathematical.
dragonwriter 9y ago
> Many in the community cite the lack of governance as a strength of Bitcoin. Bitcoin has opaque governance; it does not have a lack of governance. > It's resilience is a virture because it becomes difficult to corrupt It is not at all difficult to corrupt. (Arguably, since it's fundamentally based on “them what have they gold, make the rules”, it's foundationally corrupt and takes nothing additional to corrupt. But, in any case, all it takes to corrupt it is will and money.)
- isubkhankulov 9y ago

quinndupont 9y ago

If there's a new argument to be had here (I'm doubtful, it sounds like a re-hashing of governance issues that have played out over the last year), it's this claim: "This rule-making is what we refer to as governance." This conception of governance is the premise for the conclusion, what Lehdonvirta calls a "paradox": "And this leads me to my final point, a provocation: once you address the problem of governance, you no longer need blockchain; you can just as well use conventional technology that assumes a trusted central party to enforce the rules, because you’re already trusting somebody (or some organization/process) to make the rules. I call this blockchain’s ‘governance paradox’: once you master it, you no longer need it." My own analysis draws on a more expansive definition (from Introna; Saurwein et al.): http://iqdupont.com/assets/documents/DUPONT-2017-Preprint-Algorithmic-Governance.pdf http://iqdupont.com/assets/documents/DUPONT-2017-Preprint-Al... This expansiveness is necessary, as Lehdonvirta recognizes. Contracts are not just enforcement, they also encapsulate the processes of making ("rule-making"), or better, negotiating contracts. So, are we authorized to go from a rule-making notion of governance to the conclusion that once this is addressed blockchain technologies will be redundant? Lehdonvirta doesn't give us any analysis of this move, but I don't think so. Rather, we need to recognize the contested forms, which are the essence of governance, and then create a socio-technical structure around them. Consider: double-entry bookkeeping is just as much a technology for governance as blockchain technology (and, of course, they share a historical lineage). Does double-entry bookkeeping go away because we "address the problem"? Hardly. Rather, we need to recognize the ways that it has developed, and by whom, and for what use. Just like blockchain technologies.

wyc 9y ago

I think that the core value crypocurrencies and blockchains provide is a distributed system of trust. I also think that we people in developed nations have been spoiled by our trustworthy institutions, relatively speaking. I don't know too many people in US/UK/AUS/JP hesitant to put money away in the consumer banks, take out mortgages, or file disputes in the state courts. Those systems work well enough, with acceptable speeds for most use cases. While crypto technologies are improving, they have some glaring drawbacks: - The recent BTC confirmation time (transaction processing duration) was in days[1]. - The consumer loses significant protections because transactions are final. - On a broader note, no centralized controls or responsible entities means no one to point fingers at when something goes wrong. - There are very steep learning curves for all participating parties. These are all being worked on through technology improvements and new blockchains, but they're still issues that prevent blockchains from displacing existing systems. I think they could one day change everything in an Innovator's Dilemma fashion, but not anytime soon (5-20 years). There is already staunch opposition to using clearly superior technologies due to cultural factors, for example: - Americans won't use chip readers partly because the magnetic strip was already widespread[2]. - Developed nations don't use mobile chat operating systems such as WeChat partly because they already had laptops[3]. So in the case of blockchains, not only is there an overwhelming opposing cultural force, but also they happen to make inroads in sensitive industries such as finance/contracts, and the technology is not superior on many levels. This would make adoption very difficult. Where it will work However, some people don't have such great institutions. Look at how successful BTC has been in turmoil-ridden South American nations such as Venezuela and Argentina[3]. The inflation is out of control, and consumers don't trust any of the banks or institutions. In this environment, the blockchain is leaps and bounds better than anything else that these consumers have access to, so it's immensely valuable. You'd be willing to wait several days for transaction clearance. You wouldn't care that the transfer is final. You'll do whatever awkward dance it takes to operate and secure a Bitcoin wallet. There's no better alternative, and financial asset security is important. I think characteristics of an ideal market for blockchain technology today could be: - Very low trust among participants. - No trusted central authority. - Expensive, long, or nonexistent arbitration cycles. - High transaction costs. Its most compelling value is the provision of trust where there is none. An example where this might work well is in the specification and mediation of international contracts for small businesses. There is currently little accountability after getting burned in an international transaction with a small entity, as a small entity. If there were a standard trusted registry of company reputation, transaction histories, and contracts, then it could go a long way to building systems of trust that enable more fluid trade afar. [1] https://blockchain.info/charts/avg-confirmation-time?timespan=30days&showDataPoints=true&start=2017-06-02 https://blockchain.info/charts/avg-confirmation-time?timespa... [2] http://www.digitalcheck.com/emv-will-usa-be-ready/ http://www.digitalcheck.com/emv-will-usa-be-ready/ [3] https://techcrunch.com/2016/06/01/it-might-be-time-to-stop-looking-for-the-wechat-of-the-west/ https://techcrunch.com/2016/06/01/it-might-be-time-to-stop-l... [4] https://reason.com/archives/2016/11/28/the-secret-dangerous-world-of https://reason.com/archives/2016/11/28/the-secret-dangerous-...

dinglebert1234 9y ago

He's missing the big picture. The revolutionary aspect of blockchain isn't about any single currency. It's about the concept itself. Blockchains will be governed independently, but the conglomeration of blockchains as a whole cannot be governed.

leitasat 9y ago

Well, there are some improvements over existing systems (e.g. fiat money): 1. Less costs to switch to a competitor comparing to banks and states which leads to 2. The governance body and all influential members are really in need of public approval of their actions since that is exactly what makes a coin worthy. If they change protocol in a drastic way, the price will immediately plummet leaving them in tatters 3. Same mechanism prevents conflicts within the community In general I would like to see more about the role of law in economics and possible tech implementations of it (meta-protocols?)

KirinDave 9y ago
If we're talking about "mass" adoption, which suggests consumer-level adoption? Point #1 is exactly not what you want. It means your currency can lose value almost instantly. Fiat currencies can do this, but only rarely actually do.

deleted 9y ago

[deleted]

rensgspzn 9y ago

TLDR Author thinks Bitcoin is mostly worthless because there is no single organization deciding how Bitcoin should work or enforcing its rules. And ironically, most Bitcoiners believe this is exactly what gives Bitcoin its worth. Sidenote: I also find it ironic that the author, a Faculty Fellow of the Alan Turing Institute, is enamored with governance when it was governance that forced Alan Turing to be chemically castrated.

drcode 9y ago

What this article is missing is the word "decouple". Cryptocurrencies decouple the many roles that are involved in maintaining and using a currency. It doesn't "solve" governance issues, it breaks them into smaller issues that can be (and should be) tackled in isolation. Anyone who doesn't see this and argues "we should just go back to the way we were doing things before" is missing the point.

qznc 9y ago

I don't understand why "competition" should not work? Switching currencies is easier than switching citizenship. There are plenty of alternative cryptocurrencies with different rules. User can switch to different ones (and Ethereum is quite a challenger at the moment). The network effects are great, because otherwise everything would explode into a million different currencies.

KirinDave 9y ago
Currencies need to have systems in place that work to make them stable and preserve value, otherwise they're just tools for transactions. This might be a better state of affairs if currencies are backed by something exchangeable (e.g., joules of carbon neutral energy, etc...). We don't have many currencies like that in the world, as I understand it. Most are essentially contracts between governments that may or may not end in violence.
- throwaway29292 9y ago
  SolarCoin is one such effort.
bo1024 9y ago
Right now it is true that there are a variety of cryptocurrencies, but I think the authors' point is valid that, due to network effects, in the future competition will be harder as existing players become more entrenched (no matter how flawed they may be).

delegate 9y ago

Interestingly, the way things are right now, when it comes to governance model on a global scale, the Big Bad Banks are more decentralized than Bitcoin or any other crypto currency. Even if it weren't so, I still don't get why total decentralization is an absolute good thing. Nature seems to be a symbiosis between centralized and decentralized systems - at every level; extremes (too much or too little centralization) will lead to isolation/extinction or explosion/implosion - think biological systems or stars in galaxies. I disagree with my crypto anarchist friends who believe that changing the money system will change society (eg. society is a function of money) and I tend to think that the relationship is more symbiotic - society has to change in order for the money to take other roles. Even so, given human nature, it is not clear if a totally decentralized monetary system is a good thing for society as a whole. People trust 'authorities' more than they trust math written by a bunch of 'core' devs and that's because the former can easily apply brute force and coerce the latter. Yes, we're still primates and the bigger/stronger argument is still valid. So I don't think Bitcoin will dramatically change society, but some form of symbiosis between the current banking system and the crypto currencies will emerge eventually - and then we can talk about centralization at a whole different level. Either way, there's no escaping it.

jeffnappi 9y ago

DLTs are inefficient by design. The energy consumption is unsustainable with the technology as it stands. For example Bitcoin consumed an estimated 40 million KWh in the past 24 hours - 137KWh per transaction. Enough to power ~1.3M American homes. Many of the alt-coins are even worse. Source: http://digiconomist.net/bitcoin-energy-consumption http://digiconomist.net/bitcoin-energy-consumption

hdhzy 9y ago
I wonder what's the energy consumption of an average credit card transaction (including keeping the infrastructure, charge backs etc.)...
- _Marak_ 9y ago
  From the article: VISA Network Statistics VISA's estimated annual electricity consumption (TWh) 0.54 Number of U.S. households that could be powered by VISA 50,000 Electricity consumed per transaction (KWh) 0.00651 Number of seconds the electricity consumed by 1 VISA transaction could power 1 U.S. household 19 Number of VISA transactions that could be powered with the electricity consumed by 1 Bitcoin transaction 20,983 `
  - Rmilb 9y ago
    A decentralized network has trade offs associated with it.
- runeks 9y ago
  The more important point is that VISA is broken by design. Every day hackers steal credit card info and leech millions from the system, which is included in the fee you pay. The only reason it keeps working is because hackers aren't sufficiently sophisticated yet. The solution, of course, is to store a private key on a hardware device, not have the private key be 16+3 decimal digits and an expiration date.
  - UncleMeat 9y ago

rockmeamedee 9y ago

I agree with this article. Proponents of blockchain tech argue its revolutionary quality is its ability to act as a decentralized and trustless database. But I don't ever hear them sort through the issue of how to agree on the schema for this trustless database. For a group of people to use a decentralized DB, they have to agree as to what to store in it, and how to store it. They need to form consensus about how the system will work, and how the data will flow. For example I've seen people on here mention applications such as a decentralized stock exchange, and a decentralized hotel rooms marketplace. For either of these, it's necessary to get all the users of the system in a room and agree what is in scope and what is not, and in general what can be done with the system and how. At this point they already have a consensus, they trust each other, they might as well just set up a centralized database run by a 3rd party that manages the system, keeps it up to date and adds upgrades, instead of building it on the blockchain and hoping there are no major bugs in the cloud code and that it will live off gas. For the stock exchange, that's exactly what we already have. We have institutions that are dedicated to running exchanges, which act as neutral arbiters. They use regular old centralised databases. When they have bugs in their code or the system makes a mistake they can even roll back trades, which they couldn't do on the blockchain. Essentially this is the same argument as OP. The 3rd party's act of ironing out issues, deciding what the rules are and how they interact is synonymous with OP's term "governance". We agree that using/running the system is different than defining/implementing the system and the latter can't be done trustlessly. And also governance gets a lot easier when you also run the system centralized ;)

darawk 9y ago
That's not really true. Systems like Ethereum allow for arbitrary data storage and contract structures. The filter for consensus in a distributed environment will be usage. Lots of contracts will get written, a few will get used. Those few will be the ones people agree on. Secondly, the consensus as to the schema isn't trustless even in blockchains. Deciding what to do and how to do it is and always will be trustful. What is trustless is the execution of that decision once its been made. That is the important contribution of blockchains.
lawrenceyan 9y ago
They all say that they'll never roll back or retroactively make any changes. But inevitably, they always do. I thought Ethereum might have been different, but of course I had to be disappointed. The problem with blockchains is that they still fundamentally fail to solve the problem of mob rule, though, I suppose you could argue that's one thing you'll never fully get rid while the human element is still involved. Robot overlords or bust?

everybodyknows 9y ago

Takeaway conclusion is existence of a sort of upper bound on the economic potential of blockchains: >Perhaps blockchain technologies can still deliver better technical performance, like better availability and data integrity The supporting argument is so tight that it never even invokes the repeated failures of Bitcoin at the exchange/storage level: Mt Gox, wallets et al.

nemo44x 9y ago

If I had a Bitcoin for every skeptic that posts a blog on why it can't work... This may just be my general observation but I feel like Silicon Valley hegemony has a grudge against crypto currencies and I'm not sure why. For an industry that has constantly tried new things and saw potential where no one else did, I just don't see the love for the potential of smart contracts, DApps, etc. And how this is just the beginning of what is possible and of course it's isn't perfect but it's fascinating to the curious. I do see a lot of enthusiasm from Eastern Europeans and all across Asia and they seem to be leading the charge on what could be the next major technical revolution. My working hypothesis right now is Silicon Valley has been getting fat on the virtually unlimited venture capital power structure and sees this as a threat they've missed out on to their power. Maybe the disrupters are being disrupted?

gjem97 9y ago
I think there are a couple of reasons behind a Silicon Valley disillusionment with Bitcoin. First, I think we're probably in a trough in the hype cycle right now. 3-4 years ago there were a lot of very high expectations amongst the Sand Hill Road crew. Bitcoin transaction volumes have been fairly flat (in native BTC terms [1]), whereas the VC crowd expected--required even--exponential growth. Second I think that people in the US--Silicon Valley included--have the benefit of good corporate governance on many of the centralized authorities that underpin the economy. SWIFT, DTCC, etc. People who live in countries where that is not the case have a lot more to gain from the technology. That may explain some of the relative popularity outside the US. [1] https://blockchain.info/charts/estimated-transaction-volume?timespan=2years https://blockchain.info/charts/estimated-transaction-volume?...
nradov 9y ago
Bitcoin is mostly popular in Eastern Europe and Asia for transfer payments, fiat currency conversion, money laundering, and evading capital controls (getting money out of China). In the US if you're doing legitimate business with other US entities then there's really no need for such a thing. I can write a check or send a credit card payment or wire transfer to another US bank with a reasonably high level of trust that I won't be cheated, and that I have legal recourse if something goes wrong.

cayblood 9y ago

One aspect of his argument that seems insufficiently explored is an apparent assumption that governance is primarily a binary state, either present or absent. It's important to recognize that different approaches to governance have different levels of effectiveness and efficiency, and one of the most important aspects of blockchain is how it presents the first real improvement on the present state of the art in governance, or the first real competition to our current forms of government. It can help consensus to be achieved more quickly and efficiently and can make corrupt government more difficult. There are further improvements to blockchains being made to make amendable blockchains where changes to blockchain protocols and contracts can be tested in sandbox environments, essentially systems in which laws and contracts can be tested to see if they produce the desired results before implementing them. The Tezos blockchain is the most notable emerging example of this. All of these improvements present much more powerful tools for aiding just governance than our forebears had when they created the constitutional democracies that presently govern the world. Governance is not some Platonic binary that is either absent or present, but it is an ideal towards which we're always striving and taking pragmatic steps to implement. Blockchains afford us new tools with which to achieve better governance. They are not an end in themselves or a replacement for traditional governance so much as a means to implement it more efficiently.

gjem97 9y ago
And furthermore that DTLs are a tool for enforcing corporate governance. It's a way of imposing it on organizations that otherwise would not exist.

coverband 9y ago

This is an excellent analysis: insightful and to the point. I'd love to read a counter-analysis that can objectively argue against what I see as the central point here: "Blockchains still need good governance, but once you have good governance in place, you don't need a blockchain."

mariano54 9y ago
Here's a thought: I don't think it's black or white, governance solved or not solved. I think it's varying degrees of decentralization in governance. Try to come up with a system that has more decentralized governance than Bitcoin. The core developers in bitcoin don't have all the power. Coinbase doesn't have all the Power. Each user doesn't have all the power. Miners either (if they abuse their power, POW function can be changed) So basically while bitcoin governance is not perfectly decentralized, its much better than anything else. You can try to come up with a system where people vote. But the votes have to be collected and analyzed somewhere, centrally. So you still have central governance. So yes, while 100% solving governance would make bitcoin useless, bitcoin can improve governance (compared to federal Reserve, for example), while providing a lot of value from this decentralization.

jcoffland 9y ago

There are plenty of examples where one party or a collation of parties set up the rules for a decentralized system that then goes on to operate successfully with little to no further enforcement. Email or TCP/IP are examples of such decentralized systems. The fact that someone must make the rules and future actors may attempt to change those rules are problems but they do not invalidate the idea of decentralized systems. I believe the author is reacting to his colleges misunderstanding of crypto technologies. He has bought in to their argument that what cryptocurrency needs to solve it's current problems is centralized control or governance. This, of course leads to the logical conclusion that if you must have centralized control then why use a blockchain at all. The fallacy is in accepting that after the initial rules are set, that you must continue to have governance to solve the inevitable disagreements. On the contrary, continued governance is the problem faced by cryptocurrencies and other blockchain technologies. Their stability depends on adherence to the original agreement. Any change to that agreement is an existential threat. It would however be a mistake to think that this problem completely invalidates such decentralized systems. They can and do continue to provide utility even in the face of attempts at continued governance. It's not about these systems working for eternity. It's about them working for long enough for life to happen.

jasode 9y ago
>Email or TCP/IP are examples of such decentralized systems. I'm not sure about those analogies. SMTP email and TCPIP require DNS to route packets. DNS root authority is centralized. (Yes, DNS for performance purposes is implemented across distributed computers worldwide but ultimate authority still traces back to the root servers.) Even without DNS lookup, the numerical IP addresses are assigned by a central authority. (Yes, if we're only talking about playing with protocols instead of actual global connectivity, one could run private SMTP on an isolated network with no central authority but that's not the analogy we're interested in.) Maybe your analogies and my disagreement with them is a perfect illustration of what the author is talking about: centralized governance is still there even if we don't notice it.
- runeks 9y ago
  It's not about eliminating centralization, it's about minimizing the fragility it causes in key areas. We minimize it by locating bottlenecks and finding solutions in these areas, not throwing our hands in the air unless we have 100% decentralization (assuming we even want that). Sensible proponents of Bitcoin shouldn't argue that centralization is "wrong", but that monetary centralization creates perverse incentives, and that Bitcoin is a potential solution to this.

dnautics 9y ago

this is a really great article, because it highlight a very important dialectic that many blockchain enthusiasts, developers, entrepreneurs, and speculators don't acknoweldge. I would however, suggest that the issue of governance is not an "all-or-nothing" choice. Probably some of the blockchain technologies that try to do things like "link to a central bank", will suffer from a difficulty in establishing product differentiation from traditional currencies and transaction schemes; but the blockchain technologies that live on the more distant side of the spectrum (providing an, if imperfect, implementation of distributed trust) like the original bitcoin, will survive.

randomThoughts9 9y ago

There are currencies with governance built in: PIVX and DASH are the two main exampled I know of. Basically the nodes that have a stake in the system are allowed to vote on the direction the project is going. My personal impression is that currently this model is still very rudimentary, but in the future I could still an almost autonomous system taking off.

erikpukinskis 9y ago

The most disruptive thing cryptocurrencies will do is undermine the legal distinctions between currencies, commodities, and stocks. There's no real difference between any of them, but they are treated legally quite differently. Cryptocurrencies will flood the gaps in between these categories with so many examples that it will DoS the legal system with questions it can't answer, social adoption will outstrip courtroom resolution, and there will have to be a post-hoc reckoning with a new legal framework.

kbuchanan 9y ago

I pose this as a question as much as a statement: Bitcoin does not have to solve the governance problem. It need merely perform some functions better than a fiat currency. Consider economists' Taylor Rule. It represents an effort to impost constraints on a bureaucratic institution and how people manage the dollar. Cool, we pass a law called the Taylor Rule. Now just don't enforce it. People who want stuff are hard to constrain. In other words, the Bitcoin community doesn't have to be uncompromising and immutable, like its technology, for the currency to succeed—it just has to do better than its alternative (even in narrow applications). Thoughts?

anothercomment 9y ago

You can begin to see the beauty of Bitcoin when you want to accept payments. All you need to do is download a wallet, generate an address and put it online. You don't need anybody's permission, as would be the case with PayPal or the likes. The risk of somebody deciding on a whim to freeze your funds is also greatly diminished (again, very different from PayPal and the likes). "Governance" and "Accountability" seem to be the antithesis to that. No, Bitcoin doesn't need that and doesn't want that. Yes, it is a bit scary, it is a system that develops on its own, depending on the way it is being used (network effects and so on). I guess economists freak out because they are unsure about the rules, and they can't have that. But it is also not true that it would be a huge problem if there were forks. Why would it be? People will simply use what works best for them, controlled by market forces (they need other people to use the same fork). Who decides how Bitcoin develops? Ultimately the users do, by using it or not. Developers and miners merely provide proposals. And why does a system need 100% agreement on everything? Such a system may well never exist.

SkyMarshal 9y ago
>But it is also not true that it would be a huge problem if there were forks. Why would it be? People will simply use what works best for them, controlled by market forces (they need other people to use the same fork). It's a problem for any tech that aspires to go mainstream and thus must contend with the already high cognitive loads on the majority of people who don't follow the tech in detail, don't know what a hard fork/chain split entails, what it means for their money, or the economy. Most mainstream users, when confronted with having to understand something like that to safeguard their money, will conclude, rightfully, it's best left in a traditional bank or under the mattress.
- anothercomment 9y ago
  Maybe true, but in a way, classical investments are even more complicated. Some of them are even deliberately complicated to obfuscate their risky nature to naive investors.
  - 9y ago

zilchers 9y ago

This article pretty well sums up my overarching opinion that, at this point, bitcoin is the only actual killer app for blockchain. I'm always looking for the next kill app, but haven't seen it yet. With bitcoin, the idea of no governance or centralization is very much a feature, not a bug. When you get to other blockchain solutions (like stocks or real estate), blockchain just becomes a code word for immutable, public history, which is doable with many different technical means (not just a blockchain).

RexetBlell 9y ago
I think it makes a lot of sense to build a DNS system using contacts. Names can be auctioned off and given automatically to the highest bidder. It is also possible to set up a contract where you could trustlessly sell names. "Send $200 to an address and you will get the name". This solves the prisoners dilemma that is mentioned in the video at least for your dns addresses. There is an auction like this in progress already, and you can participate now if you like http://ens.domains http://ens.domains
- zilchers 9y ago
  Ya, that's not a bad point, I guess really any completely virtual item that distributes on a first come, first serve basis could work. That's sort of a generalization of bitcoin itself (if you think of the proof of work is a first come claim on the new bitcoins).
  - RexetBlell 9y ago
    You could do even more interesting things than that trustlessly. For example say, you own a valuable domain. You could borrow money and use the domain as collateral. If you do pay back, or stop making monthly payments the domain is automatically and trustlessly transferred to the lender. Or it can be put up for a trustless public auction with the proceeds going to lender to repay the loan and the rest to you, the ex-owner of the domain who failed to pay back his loan. The cool thing is that it's possible to build all of this today and people are working on it right now.

abrkn 9y ago

Here are some things you can do in Bitcoin today: - Send any amount of money anywhere in the world. Fee is around $1 - Be your own bank. Your money cannot be frozen or seized - Use a service such as put.io or VPN without giving up your identity (pseudonymouysly) - Exchange Bitcoin for cash when traveling in countries such Thailand more cheaply than ATMs - Buy controlled substances, for medicinal or recreational use - Store any amount of money in your head, on a usb stick, or on paper. If price movements worry you, just hedge, a service offered by several companies - Bet on sports regardless of your geographic location Sounds transformative to me.

joeyspn 9y ago

Bitcoin and the rest of cryptos need an IETF-style organism issuing standards and guidelines... that could solve many of the governance problems, including forking dramas (SegWit, DAO, etc)

yanivleven 9y ago

I do not believe that a deregulated system can catch to massive economic scale because there is a trust involved with currency. The minute a currency is distributed with no regulation it can be monopolized and its price shifted up and down by the power of the monopoly.

ninjakeyboard 9y ago

The article ignores incentives - that the effort in trying to find a new block may be better than the double spend. You'd have to buy a big ticket item, and get really lucky as well so you have a fairly small window to catch up and get head. So bitcoin works partly because the incentives to be an honest member outweigh the potential benefit of attack vs the cost and risk of simply not winning in the window within which you can double spend. I'd consider some of the other uses of block chain such as permission-based approaches, and the other applications like luxury goods in supply chain to prevent counterfeit goods from entering.

pessimizer 9y ago

How did blockchains start to pick up the same grammatical quirk that "chiropractic" has? The blockchain, a blockchain, blockchains, blockchain technology, fine. "so many people are so excited about blockchain today"? Bizarre.

spectrum1234 9y ago

I agree with the article yet the article fails to address a large benefit of DLTs, reducing transaction/3rd party fees. A ~2% reduction in costs is still enormous at scale. Another benefit that is overlooked is adaptation. Once mature, creativity and innovation will happen faster with DLTs.