12 ms·

I honestly don't understand where the perception comes from that this technology is only useful for laundering and speculation. Certainly it is currently being

by v64 7y ago

I honestly don't understand where the perception comes from that this technology is only useful for laundering and speculation. Certainly it is currently being used for those purposes. But to say there is no imaginable use outside of that seems unwarranted. I've commented in the past here that the use of public blockchains to automate the functions of clearinghouses and escrow services will be a huge cost reduction for many industries such as finance. The technology as of today is not ready to handle that use case, but with the developments currently in the pipeline for Ethereum v2, progress is being made in that direction. If you look at what MakerDAO is doing with the Dai stablecoin, they've proven that it's possible to create a synthetic asset closely pegged to the dollar purely through financial incentives, and they did it all just using Ethereum v1. A holder of Dai can earn 4% APY through a Dai Savings Account, and a vote is currently in place to raise the rate to 6%. I personally find it incredible that an asset exists on the blockchain that's equivalent in value to USD, with a higher APY than you can get from any US bank. And because everything is on the blockchain, there's a public ledger of exactly how much is being collected in interest from those who are collateralizing their Ether for a Dai loan, how much of that interest is being paid to savings account holders, and how much is being collected by the system as surplus. It's the closest thing we have right now to a decentralized bank. Whether or not you buy into the technology, it's improving by the day and more and more use cases and applications are being tried out and built. If all you see in blockchain is money laundering and speculation, you haven't been paying attention.

RcouF1uZ4gsC 7y ago
> If you look at what MakerDAO is doing with the Dai stablecoin, they've proven that it's possible to create a synthetic asset closely pegged to the dollar purely through financial incentives, and they did it all just using Ethereum v1. A holder of Dai can earn 4% APY through a Dai Savings Account, and a vote is currently in place to raise the rate to 6%. >I personally find it incredible that an asset exists on the blockchain that's equivalent in value to USD, with a higher APY than you can get from any US bank. I also find this “incredible”, but in the old sense of the meaning as “not believable”.
- ianferrel 7y ago
  Seriously. The risk adjusted return on whatever that crazy contraption is is almost certainly negative, and probably incalculably so. The idea that any sane financial instrument could increase its return by two points by the holders of it voting to do so is... I haven't the words.
  - induetimesir 7y ago
    In a way, you're absolutely right. In another way, you're totally missing the point. Net ROI hasn't been great for people who were earning x% interest on their ETH while it tanked 50%+. But the _idea_ the animates DAI, the dream of a decentralized synthetic digital bearer asset, that's a worthwhile dream imo. It's not a simple idea to understand. And it's not simple to implement technically/socially. But DAI has been a beautiful experiment in attempting to create this new-fangled thing. and while the jury is still out on whether the model/architecture they've chosen will hold up, the experiment itself should, in my view, be declared a massive success - it has, for the most part, worked very well. And DAI opens the door to new experiments. And they'll come. A trickle at first. but in 10yrs, it'll be an entirely different landscape when it comes to complex financial instruments. They'll be available in the way stocks can be had on Robinhood. and more. bcs financial instruments that are currently too complex or expensive to be practical, will be within reach. The rabbit hole is deep. and it is real. You can dive in and start learning. Or yell at clouds until your boat gets lifted by a wave of innovation...
  - v64 7y ago
    > The idea that any sane financial instrument could increase its return by two points by the holders of it voting to do so is... I haven't the words. Raising the savings rate will also raise the interest rate that those holding loans must pay. If a loan holder doesn't agree with the new interest rate, they are free to close out their loan.
    - jacobsenscott 7y ago
      I'm not familiar with this product. How do you "close out" one of these loans? If you mean pay it off, nobody would take a loan they can just pay off at anytime, or where the interest rate can be just arbitrarily voted up.
kspacewalk2 7y ago
>the use of public blockchains to automate the functions of clearinghouses and escrow services will be a huge cost reduction for many industries such as finance. But we don't want financial transactions to be fully automated and immutable. We want escrow services to be subject to laws, we want a judicial undo and modify button. So if you remove the whole "no one can change history" bit because it's an anti-feature, it is unclear why we need blockchain in the first place. I'll redily accept that my understanding of blockchain is limited, so I'm open to being told why I'm wrong. Consider this a strong opinion weakly held.
- v64 7y ago
  There are definitely cases where transactions need to be reversed, and this functionality can be built into a clearinghouse system. Immutability is a plus here because you have an unalterable audit log showing the original transaction and then the subsequent transaction that reverses the first. The cost savings comes from the fact that instead of having to hire independent auditors to verify the paper trail, the blockchain serves as an immutable audit log and can be verified programmatically.
  - 99052882514569 7y ago
    >The cost savings comes from the fact that instead of having to hire independent auditors to verify the paper trail, the blockchain serves as an immutable audit log and can be verified programmatically. I don't know enough about the financial industry to know if a real actual problem is being solved here. I do assume that any bank in this industry is already required by law to keep a record of all transactions, and that it's all digitally processed and stored. You'd have to hire an auditor to verify the blockchain software too, and even on the ongoing basis, to audit the infrastructure to make sure it hasn't been improperly modified.
    - v64 7y ago
      > I do assume that any bank in this industry is already required by law to keep a record of all transactions, and that it's all digitally processed and stored. This is true, but it's not necessarily organized in a straightforward way, and standards can differ from organization to organization despite everyone attempting to follow GAAP. This is why entire firms exist to audit large corporations. > You'd have to hire an auditor to verify the blockchain software too, and even on the ongoing basis, to audit the infrastructure to make sure it hasn't been improperly modified. Not necessarily. Each transaction on the blockchain is cryptographically signed, so all you would need to audit for each transaction is that the claimed signatures verify. It's not possible, even through a bug, to forge a signature if you don't hold the private key.
induetimesir 7y ago
Well said. pegged decentralized synthetic digital bearer assets. That's a mouthful. Each word has a purpose and together they describe a hugely innovative and valuable technology. It is my belief that there are very, very few people who have an understanding of how important this innovation is. And too few people understand the importance of the more simple digital bearer asset, of which bitcoin is the prime example. This still surprises me, especially amongst HN readers, who are certainly more insightful than the average bear when it comes to most existing and emerging technologies... Surprises me. but also gives me hope. There is so much room to grow. Long road. Massive upside.
- asdfasgasdgasdg 7y ago
  This is exactly what I'm talking about, though. Bearer bonds have been illegal to issue in the US for the last forty years precisely because their principle advantage over registered bonds is that they make it easier to break the law. I'm not saying I can't see the utility of Bitcoin or blockchains in general for criminals. That much is plain. Speculators as well. The question is whether there is any utility for anyone else.
  - Sargos 7y ago
    The government doesn't have to use it. Or like it. We don't really care what they think of these decentralized instruments. They are for us to use as we see fit and to build on top of and so far they have shown they are very useful and overall a great thing for the financial system they live in. Like you say we will find out if people find them useful but even now nearly a billion dollars is being used in defi for legal and top of the table use cases so at least some people already find it useful to them. We are seeing a flourishing system of financial experiments being built as truly anything goes in this new digital worldwide ecosystem. Not all of the experiments will work but at least they will be tried and the market will decide whether or not they are useful and valuable to this digital society.
iamaelephant 7y ago
> A holder of Dai can earn 4% APY through a Dai Savings Account, and a vote is currently in place to raise the rate to 6%. Why not just vote to make it a million percent?
- v64 7y ago
  Because then you'd have to change the interest rate charged to loan holders to a million percent, and those people would close their loans rather than pay that interest rate.
  - asdfasgasdgasdg 7y ago
    But why are the lenders even paying 6% when they could go get a SoFi loan for four percent and on top of that have the balance in a more convenient form?
    - v64 7y ago
      Because SoFi doesn't allow you to use Ether as collateral for a loan. Many holders of Ether may not necessarily have the credit required to get a loan on more favorable terms.
      - asdfasgasdgasdg 7y ago
        I don't understand. Cash and other liquid assets are not typically used as collateral for a loan. Etherium is a crypto-currency, right? I.e. it's liquid? Collateral is almost always something like a house, or shares in a business. If you already have liquid assets in the amount you're borrowing, why are you taking a loan and paying interest as opposed to just using those liquid assets?
        v64 7y ago
        If you sell the Ether, you no longer have the Ether. If while you're holding the loan the price of Ether goes up, you benefit from that. Of course, if the price of Ether goes down, you're at risk of having your loan liquidated, but that's a requirement imposed by the system to maintain the Dai peg.
nradov 7y ago
Please explain exactly how blockchain technology can reduce costs for clearinghouses. Because they're already extremely efficient. There is very little transaction cost left to cut.
- v64 7y ago
  Ernst & Young have published some interesting data about the costs of private vs public blockchains, and how they've developed tools built on Ethereum to reduce those costs. https://www.forbes.com/sites/benjessel/2020/01/06/ernst--young-doubles-down-on-their-bet-with-ethereum/ https://www.forbes.com/sites/benjessel/2020/01/06/ernst--you... https://www.ey.com/Publication/vwLUAssets/ey-total-cost-of-ownership-for-blockchain-solutions/$File/ey-total-cost-of-ownership-for-blockchain-solutions.pdf https://www.ey.com/Publication/vwLUAssets/ey-total-cost-of-o...
Can_Not 7y ago
I think your average developer will interpret everything you said as mostly technobabble and not understand why something like MySQL wouldn't just work.

by v64 7y ago

RcouF1uZ4gsC 7y ago

> If you look at what MakerDAO is doing with the Dai stablecoin, they've proven that it's possible to create a synthetic asset closely pegged to the dollar purely through financial incentives, and they did it all just using Ethereum v1. A holder of Dai can earn 4% APY through a Dai Savings Account, and a vote is currently in place to raise the rate to 6%. >I personally find it incredible that an asset exists on the blockchain that's equivalent in value to USD, with a higher APY than you can get from any US bank. I also find this “incredible”, but in the old sense of the meaning as “not believable”.

ianferrel 7y ago
Seriously. The risk adjusted return on whatever that crazy contraption is is almost certainly negative, and probably incalculably so. The idea that any sane financial instrument could increase its return by two points by the holders of it voting to do so is... I haven't the words.
- induetimesir 7y ago
  In a way, you're absolutely right. In another way, you're totally missing the point. Net ROI hasn't been great for people who were earning x% interest on their ETH while it tanked 50%+. But the _idea_ the animates DAI, the dream of a decentralized synthetic digital bearer asset, that's a worthwhile dream imo. It's not a simple idea to understand. And it's not simple to implement technically/socially. But DAI has been a beautiful experiment in attempting to create this new-fangled thing. and while the jury is still out on whether the model/architecture they've chosen will hold up, the experiment itself should, in my view, be declared a massive success - it has, for the most part, worked very well. And DAI opens the door to new experiments. And they'll come. A trickle at first. but in 10yrs, it'll be an entirely different landscape when it comes to complex financial instruments. They'll be available in the way stocks can be had on Robinhood. and more. bcs financial instruments that are currently too complex or expensive to be practical, will be within reach. The rabbit hole is deep. and it is real. You can dive in and start learning. Or yell at clouds until your boat gets lifted by a wave of innovation...
- v64 7y ago
  > The idea that any sane financial instrument could increase its return by two points by the holders of it voting to do so is... I haven't the words. Raising the savings rate will also raise the interest rate that those holding loans must pay. If a loan holder doesn't agree with the new interest rate, they are free to close out their loan.
  - jacobsenscott 7y ago
    I'm not familiar with this product. How do you "close out" one of these loans? If you mean pay it off, nobody would take a loan they can just pay off at anytime, or where the interest rate can be just arbitrarily voted up.

kspacewalk2 7y ago

>the use of public blockchains to automate the functions of clearinghouses and escrow services will be a huge cost reduction for many industries such as finance. But we don't want financial transactions to be fully automated and immutable. We want escrow services to be subject to laws, we want a judicial undo and modify button. So if you remove the whole "no one can change history" bit because it's an anti-feature, it is unclear why we need blockchain in the first place. I'll redily accept that my understanding of blockchain is limited, so I'm open to being told why I'm wrong. Consider this a strong opinion weakly held.

v64 7y ago
There are definitely cases where transactions need to be reversed, and this functionality can be built into a clearinghouse system. Immutability is a plus here because you have an unalterable audit log showing the original transaction and then the subsequent transaction that reverses the first. The cost savings comes from the fact that instead of having to hire independent auditors to verify the paper trail, the blockchain serves as an immutable audit log and can be verified programmatically.
- 99052882514569 7y ago
  >The cost savings comes from the fact that instead of having to hire independent auditors to verify the paper trail, the blockchain serves as an immutable audit log and can be verified programmatically. I don't know enough about the financial industry to know if a real actual problem is being solved here. I do assume that any bank in this industry is already required by law to keep a record of all transactions, and that it's all digitally processed and stored. You'd have to hire an auditor to verify the blockchain software too, and even on the ongoing basis, to audit the infrastructure to make sure it hasn't been improperly modified.
  - v64 7y ago
    > I do assume that any bank in this industry is already required by law to keep a record of all transactions, and that it's all digitally processed and stored. This is true, but it's not necessarily organized in a straightforward way, and standards can differ from organization to organization despite everyone attempting to follow GAAP. This is why entire firms exist to audit large corporations. > You'd have to hire an auditor to verify the blockchain software too, and even on the ongoing basis, to audit the infrastructure to make sure it hasn't been improperly modified. Not necessarily. Each transaction on the blockchain is cryptographically signed, so all you would need to audit for each transaction is that the claimed signatures verify. It's not possible, even through a bug, to forge a signature if you don't hold the private key.

induetimesir 7y ago

Well said. pegged decentralized synthetic digital bearer assets. That's a mouthful. Each word has a purpose and together they describe a hugely innovative and valuable technology. It is my belief that there are very, very few people who have an understanding of how important this innovation is. And too few people understand the importance of the more simple digital bearer asset, of which bitcoin is the prime example. This still surprises me, especially amongst HN readers, who are certainly more insightful than the average bear when it comes to most existing and emerging technologies... Surprises me. but also gives me hope. There is so much room to grow. Long road. Massive upside.

asdfasgasdgasdg 7y ago
This is exactly what I'm talking about, though. Bearer bonds have been illegal to issue in the US for the last forty years precisely because their principle advantage over registered bonds is that they make it easier to break the law. I'm not saying I can't see the utility of Bitcoin or blockchains in general for criminals. That much is plain. Speculators as well. The question is whether there is any utility for anyone else.
- Sargos 7y ago
  The government doesn't have to use it. Or like it. We don't really care what they think of these decentralized instruments. They are for us to use as we see fit and to build on top of and so far they have shown they are very useful and overall a great thing for the financial system they live in. Like you say we will find out if people find them useful but even now nearly a billion dollars is being used in defi for legal and top of the table use cases so at least some people already find it useful to them. We are seeing a flourishing system of financial experiments being built as truly anything goes in this new digital worldwide ecosystem. Not all of the experiments will work but at least they will be tried and the market will decide whether or not they are useful and valuable to this digital society.

iamaelephant 7y ago

> A holder of Dai can earn 4% APY through a Dai Savings Account, and a vote is currently in place to raise the rate to 6%. Why not just vote to make it a million percent?

v64 7y ago
Because then you'd have to change the interest rate charged to loan holders to a million percent, and those people would close their loans rather than pay that interest rate.
- asdfasgasdgasdg 7y ago
  But why are the lenders even paying 6% when they could go get a SoFi loan for four percent and on top of that have the balance in a more convenient form?
  - v64 7y ago
    Because SoFi doesn't allow you to use Ether as collateral for a loan. Many holders of Ether may not necessarily have the credit required to get a loan on more favorable terms.
    - asdfasgasdgasdg 7y ago
      I don't understand. Cash and other liquid assets are not typically used as collateral for a loan. Etherium is a crypto-currency, right? I.e. it's liquid? Collateral is almost always something like a house, or shares in a business. If you already have liquid assets in the amount you're borrowing, why are you taking a loan and paying interest as opposed to just using those liquid assets?
      - v64 7y ago
        If you sell the Ether, you no longer have the Ether. If while you're holding the loan the price of Ether goes up, you benefit from that. Of course, if the price of Ether goes down, you're at risk of having your loan liquidated, but that's a requirement imposed by the system to maintain the Dai peg.

nradov 7y ago

Please explain exactly how blockchain technology can reduce costs for clearinghouses. Because they're already extremely efficient. There is very little transaction cost left to cut.

v64 7y ago
Ernst & Young have published some interesting data about the costs of private vs public blockchains, and how they've developed tools built on Ethereum to reduce those costs. https://www.forbes.com/sites/benjessel/2020/01/06/ernst--young-doubles-down-on-their-bet-with-ethereum/ https://www.forbes.com/sites/benjessel/2020/01/06/ernst--you... https://www.ey.com/Publication/vwLUAssets/ey-total-cost-of-ownership-for-blockchain-solutions/$File/ey-total-cost-of-ownership-for-blockchain-solutions.pdf https://www.ey.com/Publication/vwLUAssets/ey-total-cost-of-o...

Can_Not 7y ago

I think your average developer will interpret everything you said as mostly technobabble and not understand why something like MySQL wouldn't just work.