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First, people should separate the technology of cryptocurrency from speculation on centralized exchanges and other bank-like behavior that actually takes money

by ilaksh 4y ago

First, people should separate the technology of cryptocurrency from speculation on centralized exchanges and other bank-like behavior that actually takes money off-chain. Almost everything that people are talking about when they say "crypto" is explicitly NOT using cryptocurrency but rather collecting money with cryptocurrency to help with marketing and onboarding but then speculating with it off chain in the traditional system. There are three fundamental advances that cryptocurrency brings to digital money: digital signatures which allow transactions without disclosing account secrets, mathematically verifiable public ledgers which prevent cheating, stealing and irresponsible behavior (such as with FTX), and smart contracts that enforce agreements for structured transactions. Actually problems with FTX and doubts about Tether should make the advantages of cryptocurrency _more_ obvious for those who understand it. Because fundamentally the issue is the secret unverifiable nature of the ledgers, and manual "legal"-(non)enforcement of agreements (as opposed to automated contracts), in the traditional system.

spinchange 4y ago
"...Because there is no central authority controlling who can participate, decentralized consensus systems must defend against Sybil attacks, in which the attacker creates a majority of seemingly independent participants which are secretly under his control. The defense is to ensure that the reward for a successful Sybil attack is less than the cost of mounting it. Thus participation in a permissionless blockchain must be expensive, so miners must be reimbursed for their costly efforts. There is no central authority capable of collecting funds from users and distributing them to the miners in proportion to these efforts. Thus miners' reimbursement must be generated organically by the blockchain itself; a permissionless blockchain needs a cryptocurrency to be secure. Because miners' opex and capex costs cannot be paid in the blockchain's cryptocurrency, exchanges are required to enable the rewards for mining to be converted into fiat currency to pay these costs. Someone needs to be on the other side of these sell orders. The only reason to be on the buy side of these orders is the belief that "number go up". Thus the exchanges need to attract speculators in order to perform their function. Thus a permissionless blockchain requires a cryptocurrency to function, and this cryptocurrency requires speculation to function Why are economies of scale a fundamental problem for decentralized systems? Participation must be expensive, and so will be subject to economies of scale. They will drive the system to centralize. So the expenditure in attempting to ensure that the system is decentralized is a futile waste." https://blog.dshr.org/2022/02/ee380-talk.html?m=1 https://blog.dshr.org/2022/02/ee380-talk.html?m=1

by ilaksh 4y ago

spinchange 4y ago

"...Because there is no central authority controlling who can participate, decentralized consensus systems must defend against Sybil attacks, in which the attacker creates a majority of seemingly independent participants which are secretly under his control. The defense is to ensure that the reward for a successful Sybil attack is less than the cost of mounting it. Thus participation in a permissionless blockchain must be expensive, so miners must be reimbursed for their costly efforts. There is no central authority capable of collecting funds from users and distributing them to the miners in proportion to these efforts. Thus miners' reimbursement must be generated organically by the blockchain itself; a permissionless blockchain needs a cryptocurrency to be secure. Because miners' opex and capex costs cannot be paid in the blockchain's cryptocurrency, exchanges are required to enable the rewards for mining to be converted into fiat currency to pay these costs. Someone needs to be on the other side of these sell orders. The only reason to be on the buy side of these orders is the belief that "number go up". Thus the exchanges need to attract speculators in order to perform their function. Thus a permissionless blockchain requires a cryptocurrency to function, and this cryptocurrency requires speculation to function Why are economies of scale a fundamental problem for decentralized systems? Participation must be expensive, and so will be subject to economies of scale. They will drive the system to centralize. So the expenditure in attempting to ensure that the system is decentralized is a futile waste." https://blog.dshr.org/2022/02/ee380-talk.html?m=1 https://blog.dshr.org/2022/02/ee380-talk.html?m=1