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Because while the core innovation of blockchain is a trusted database a context without trust, the core benefit of blockchain is reduced transaction costs. A b

by spir 7y ago

Because while the core innovation of blockchain is a trusted database a context without trust, the core benefit of blockchain is reduced transaction costs. A blockchain is a singleton global computer of program code and data. It turns out this is sufficient to represent capital (money) on that computer. In practice this results in dramatically reduced transaction costs. For example you can transfer money with an API call. Another example is that an API can be "implemented with money". The https://uniswap.io/ https://uniswap.io/ API allows you to exchange currencies without any API keys or middlemen. But, the Uniswap API only works because there's a large amount of liquidity deposited by 3rd parties into its system, much like an inventory of food in a grocery store that shoppers can then access. "What's the big deal?", you might say. "Uniswap sounds just like a bank. Who cares?". Well as I understand it Uniswap was built by a dude in a basement over a few months, not a multi-million dollar bank project. And you can integrate your app with Uniswap in an afternoon. If you don't think that's going to change the world then you might consider spending a few dozen hours reading https://weekinethereumnews.com/ https://weekinethereumnews.com/ and see if your opinion is stable :)

pron 7y ago
> the core benefit of blockchain is reduced transaction costs. No, this is not true. It might incidentally currently be the case with, say, Bitcoin vs. $US, but there's nothing technical that inherently makes it so. In fact, as this article and countless others reiterate, from a technical perspective blockchain is almost always more costly.
- frenchyatwork 7y ago
  Indeed. The main reason why a given bitcoin transaction might be cheaper is because nobody's checking to make sure it's actually legal. It's the same reason why AirBnB is often cheaper: hosts don't pay business fees and don't follow other regulatory requirements like safety inspections.
  - carapace 7y ago
    You just reminded me: A friend of a friend who worked at Autodesk told me once that their inter-office "mail" system was international and didn't go through customs.
  - spir 7y ago
    Yes, I'd agree that, today, typically nobody is checking to make sure that an Ethereum transaction is legal. But, it's important to understand that Ethereum is not a replacement for or opponent of KYC, AML, or checking if transactions are legal. Ethereum is a starting point, a base layer. It is necessary to rebuild all kinds of monetary controls into Ethereum's app layer. I support this development. Within 5-10 years all of the traditional controls will become available on various parts of Ethereum -- KYC, ability for government to freeze accounts, etc.
- spir 7y ago
  Blockchain (ie. Ethereum) is, overall, a reducer of monetary and non-monetary transaction costs. Example of reduced monetary transaction costs: The current Ethereum gas price for a token transfer is $0.04 (https://ethgasstation.info/ https://ethgasstation.info/). Operations on Ethereum are relatively inexpensive and will become much cheaper with Ethereum v2 in a couple of years. The cost of Ethereum operations is orthogonal to the value of the money being manipulated. You can transfer $100M for $0.04. Example of reduced non-monetary transaction costs: Say you wanted to launch an eBay-type app with a single market for a dozen countries. Some customers may bring Euros, others Swiss Francs, some USD. Each market auction selects a currency from a whitelist. All bids for that auction must be in its selected currency. On Ethereum you can bid Swiss Francs which will be dynamically exchanged for USD. Unlike using your VISA for forex, this currency exchange is at the same price that whales and banks get; you pay no spread fee for being an end consumer. The non-monetary transaction cost part is that this Ethereum-based currency exchange API can be permissionlessly integrated in an afternoon. 2nd example of reduced non-monetary transaction costs: https://www.pooltogether.us/ https://www.pooltogether.us/ is a no-loss, audited, provably fair lottery built on Ethereum. The way the lottery works is -- you always get your money back, but your money bears interest during the lottery period, and all the interest goes to a single lottery winner. So the cost of the lottery is the time value of your money. PoolTogether is built on other Ethereum projects, that's why the lottery proceeds earn interest. The non-monetary transaction cost part is that PoolTogether is able to access interest-bearing deposits as easily as you can use jQuery. Also anyone in the world can participate - reduced cost of being in another country.
Tomte 7y ago
> In practice this results in dramatically reduced transaction costs. For example you can transfer money with an API call. Just as a relational database with a web frontend would.
csande17 7y ago
The key in your explanation is "without any middlemen". It's really easy to build a system that lets you send tokens to other people with low transaction costs: just trust someone to run a central database of all the account balances. This is how you can trade Team Fortress 2 hats with virtually no fees or settlement time, for example. What blockchain ostensibly allows you to do is create that system without having to trust anyone to run the central database. But why would Coca-Cola ever need to do this? There will always be a trusted central party who can maintain the Coca-Cola bottle production database: the Coca-Cola company itself.
yzmtf2008 7y ago
Isn’t the Coca-Cola trial was about supply chain management not transferring money? How is transaction cost relevant in this scenario?
- spir 7y ago
  Here's how monetary and non-monetary transaction costs are relevant to a Coca-Cola supply chain -- Blockchain (ie. Ethereum) excels when a heterogenous network of 3rd and 4th parties come together in a commons and interact permissionlessly based on a set of rules enforced by the system. Ethereum is basically the World Wide Web with hyperlinks except with programs in general and money can live inside those programs. An Ethereum-based supply chain system could do a lot of things. Not sure if these are valuable because I'm not a supply chain expert. But I can speculate. Coca-Cola's Ethereum-based supply chain system could... 1. associate an eBay-style reputation with each supply chain participant. These reputations could then be used by more parties (eg. Pepsi) than if they were locked in a centralized system. Coca-Cola might retain the option to override any reputation. 2. provide a global audit trail of supply tracking. Similar to FedEx's "track my shipment", except you could transfer payment for supplies in the same blockchain transaction that updated their status. And those updates could automatically feed into the reputation system. 3. pay for supplies with a security. For example, Coca-Cola could tokenize a portion of its common stock and pay suppliers tokens of common stock in the same transaction that pays them currency. Or Coca-Cola could automatically distribute a pro rata stock grant to the entire supply chain each quarter. This could better align a global, heterogenous supply chain with the long term interests of Coca-Cola. 4. integrate with other Ethereum-based systems. For example supply payments held in escrow could automatically earn interest in https://compound.finance/ https://compound.finance/. Payments crossing international borders could automatically exchange currencies at a very competitive, no-fee rate (eg. https://dex.ag/ https://dex.ag/). Should Coca-Cola embrace an Ethereum-based supply chain? I have no idea. But after spending hundreds of hours studying Ethereum I feel very confident that there is something very special going on here.

by spir 7y ago

pron 7y ago

> the core benefit of blockchain is reduced transaction costs. No, this is not true. It might incidentally currently be the case with, say, Bitcoin vs. $US, but there's nothing technical that inherently makes it so. In fact, as this article and countless others reiterate, from a technical perspective blockchain is almost always more costly.

frenchyatwork 7y ago
Indeed. The main reason why a given bitcoin transaction might be cheaper is because nobody's checking to make sure it's actually legal. It's the same reason why AirBnB is often cheaper: hosts don't pay business fees and don't follow other regulatory requirements like safety inspections.
- carapace 7y ago
  You just reminded me: A friend of a friend who worked at Autodesk told me once that their inter-office "mail" system was international and didn't go through customs.
- spir 7y ago
  Yes, I'd agree that, today, typically nobody is checking to make sure that an Ethereum transaction is legal. But, it's important to understand that Ethereum is not a replacement for or opponent of KYC, AML, or checking if transactions are legal. Ethereum is a starting point, a base layer. It is necessary to rebuild all kinds of monetary controls into Ethereum's app layer. I support this development. Within 5-10 years all of the traditional controls will become available on various parts of Ethereum -- KYC, ability for government to freeze accounts, etc.
spir 7y ago
Blockchain (ie. Ethereum) is, overall, a reducer of monetary and non-monetary transaction costs. Example of reduced monetary transaction costs: The current Ethereum gas price for a token transfer is $0.04 (https://ethgasstation.info/ https://ethgasstation.info/). Operations on Ethereum are relatively inexpensive and will become much cheaper with Ethereum v2 in a couple of years. The cost of Ethereum operations is orthogonal to the value of the money being manipulated. You can transfer $100M for $0.04. Example of reduced non-monetary transaction costs: Say you wanted to launch an eBay-type app with a single market for a dozen countries. Some customers may bring Euros, others Swiss Francs, some USD. Each market auction selects a currency from a whitelist. All bids for that auction must be in its selected currency. On Ethereum you can bid Swiss Francs which will be dynamically exchanged for USD. Unlike using your VISA for forex, this currency exchange is at the same price that whales and banks get; you pay no spread fee for being an end consumer. The non-monetary transaction cost part is that this Ethereum-based currency exchange API can be permissionlessly integrated in an afternoon. 2nd example of reduced non-monetary transaction costs: https://www.pooltogether.us/ https://www.pooltogether.us/ is a no-loss, audited, provably fair lottery built on Ethereum. The way the lottery works is -- you always get your money back, but your money bears interest during the lottery period, and all the interest goes to a single lottery winner. So the cost of the lottery is the time value of your money. PoolTogether is built on other Ethereum projects, that's why the lottery proceeds earn interest. The non-monetary transaction cost part is that PoolTogether is able to access interest-bearing deposits as easily as you can use jQuery. Also anyone in the world can participate - reduced cost of being in another country.

Tomte 7y ago

> In practice this results in dramatically reduced transaction costs. For example you can transfer money with an API call. Just as a relational database with a web frontend would.

csande17 7y ago

The key in your explanation is "without any middlemen". It's really easy to build a system that lets you send tokens to other people with low transaction costs: just trust someone to run a central database of all the account balances. This is how you can trade Team Fortress 2 hats with virtually no fees or settlement time, for example. What blockchain ostensibly allows you to do is create that system without having to trust anyone to run the central database. But why would Coca-Cola ever need to do this? There will always be a trusted central party who can maintain the Coca-Cola bottle production database: the Coca-Cola company itself.

yzmtf2008 7y ago

Isn’t the Coca-Cola trial was about supply chain management not transferring money? How is transaction cost relevant in this scenario?

spir 7y ago
Here's how monetary and non-monetary transaction costs are relevant to a Coca-Cola supply chain -- Blockchain (ie. Ethereum) excels when a heterogenous network of 3rd and 4th parties come together in a commons and interact permissionlessly based on a set of rules enforced by the system. Ethereum is basically the World Wide Web with hyperlinks except with programs in general and money can live inside those programs. An Ethereum-based supply chain system could do a lot of things. Not sure if these are valuable because I'm not a supply chain expert. But I can speculate. Coca-Cola's Ethereum-based supply chain system could... 1. associate an eBay-style reputation with each supply chain participant. These reputations could then be used by more parties (eg. Pepsi) than if they were locked in a centralized system. Coca-Cola might retain the option to override any reputation. 2. provide a global audit trail of supply tracking. Similar to FedEx's "track my shipment", except you could transfer payment for supplies in the same blockchain transaction that updated their status. And those updates could automatically feed into the reputation system. 3. pay for supplies with a security. For example, Coca-Cola could tokenize a portion of its common stock and pay suppliers tokens of common stock in the same transaction that pays them currency. Or Coca-Cola could automatically distribute a pro rata stock grant to the entire supply chain each quarter. This could better align a global, heterogenous supply chain with the long term interests of Coca-Cola. 4. integrate with other Ethereum-based systems. For example supply payments held in escrow could automatically earn interest in https://compound.finance/ https://compound.finance/. Payments crossing international borders could automatically exchange currencies at a very competitive, no-fee rate (eg. https://dex.ag/ https://dex.ag/). Should Coca-Cola embrace an Ethereum-based supply chain? I have no idea. But after spending hundreds of hours studying Ethereum I feel very confident that there is something very special going on here.