Archive of posts with tag 'Crypto'

Centralization is Inevitable →

June 28, 2022 • #

The tension between centralized and decentralized network design is a common theme in network science. Even a “decentralized” system is actually a continuum, not a fixed state. A system moves along an axis degree of distributedness, and depending on its purpose, there’s not one ideal state. Here Gordon Brander writes about the tendency of networks to evolve, beginning as decentralized ecosystems, evolving through stages of consolidation, then collapsing back apart into discrete connected parts.

Here is a map of the internet. The first thing you might notice is that the internet is not evenly distributed. Instead, we see the emergence of densely connected hubs—centralized islands in the net.

This kind of thing is called a scale-free network. It seems that something like scale-free structure emerges repeatedly within evolving networks, including on the internet, the web, social networks, airline routes,co-authorship in scientific papers, power grids,inter-bank payment networks,Bitcoin mining, train routes, gene regulatory networks,protein interactions, ecological food webs,oligarchies, neural networks…

In fact, it turns out that almost all real-world networks have degree distributions with a tail of high-degree hubs like this. (Newman, 2018. Networks.)

If you see a pattern emerge over and over, it’s a solid bet there are evolutionary attractors pulling the system in that direction. And yeah, it turns out scale-free networks have strange and important structural properties.

Scale-free networks are so common largely because of the efficiency they afford. Fully evenly distributed ones might be “better” in some sense from the perspective of survivability or resilience, but that the cost of highly inefficient function:

Hubs act as routers through which information can travel from A to B to C, efficiently. Scale-free networks areultra-small worlds. Hubs let you jump around the network in just a few hops. Distances in a scale-free network are smaller than the distances in a random network. This is why airlines build hubs.

The argument (which is particularly common in web3 circles) to fight for decentralization over all makes light of the advantages that competing scale-free networks will have in costs and efficiency. If you compare two crypto ecosystems with differing philosophies on this like Ethereum (prioritize decentralization, still care about usability) and Solana (prioritize usability, but still cares about decentralization), the second one has some massive advantages in driving the usage necessary for its existence. Again, one is not objectively better, it depends on its purpose.

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Buying the Constitution

November 18, 2021 • #

A group of crypto folks online are congregating with intent to bid on a first edition printing of the US Constitution in an auction.

From the FAQ:

We’re buying the US Constitution.

For the first time in thirty-three years, one of thirteen surviving copies of the Official Edition from the Constitutional Convention will be publicly auctioned by Sotheby’s. It is the only copy that is still owned by private collectors. The proceeds from the auction will be given to a charity that has been established by the current owner.

ConstitutionDAO is a DAO that is pooling together money to win this auction. We intend to put The Constitution in the hands of The People.

Packy McCormick wrote up a great piece on the DAO, as did Ben Thompson. It’s one of those cases where the weird web3, very-online community is breaking through to the mainstream. Packy was even on CNBC talking about it; imagine having only a few minutes to explain enough about crypto, blockchains, DAOs, and memes to understand the project.

I threw my hat into the ring to get my fractionalized slice of US founding history. As Thompson explained (and is mentioned in the FAQ), for somewhat complex reasons, you aren’t truly buying a fractionalized asset — that would make it a security, and therefore subject to additional regulatory scrutiny — rather you’re buying governance tokens for the DAO that afford voting rights on where the document should be displayed, and how the organization should be run.

As of writing this, the DAO has collected 11,460 ETH into its contract on Juicebox, market price in USD: $46.7m. They were originally thinking it’d go for between $15m-20m at auction. Amazing to see.

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Weekend Reading: DeFi, Worldbuilding and Antifragility, and Shiny Exteriors

June 25, 2021 • #

🏦 Understanding Financial Institutions

Arnold Kling has an interesting point this week in reference to decentralized finance. He argues that for DeFi to work, we need folks that understand the moving parts on two complex fronts: crypto and the financial system. Many folks on each side don’t deeply understand the other:

Marvin Ammori understands more than I ever will about decentralized finance (DeFi). Indeed, there are thousands of young techies who understand DeFi better than I do.

But I bet that in order for DeFi to work, you need an understanding of financial institutions in addition to an understanding of blockchain and the layers that have been added to it. I don’t think that young techies understand financial institutions as well as I do. And I think I have a better chance of explaining my knowledge of financial institutions to young techies than they have of explaining DeFi technology to me.

He includes a great reading list at the end, as well.

The web3 side of DeFi needs crypto/finance-bilingual product people that can bring some much-needed usability on-ramps into the system. What DeFi offers in theoretical accessibility to an open financial system is opposed by its practical inaccessibility. The process of getting familiar with wallets, Ethereum addresses, and passphrases is pretty impenetrable, even to the tech-savvy. This is an area where decentralization makes this a hard problem to improve. The best user experiences are on the centralized exchanges like Coinbase and Binance, but those don’t give you the access to the open market liquidity providers or DEXes like Curve or Uniswap.

🌍 Worldbuilding and Antifragility

Alex Danco builds on his excellent post on world-building, this time layering in why antifragility is important when rallying a community:

Here’s the thing, though: your world doesn’t exist in a vacuum; it’s subject to the volatility and unpredictability of the outside world. If you’re trying to create or accomplish anything complex and valuable, you know this lesson all too well: once you set off on a mission to get something done, there is no way you can predict what kind of plot twists or stressors you’ll encounter along the way. Your world is going to face shocks and surprises you can’t foresee.

🏋🏽 Harder Than It Looks, Not as Fun as It Seems

When you find yourself looking at what others are doing too enviously, it’s good to remember that things aren’t what they seem from the outside. Great piece from Morgan Housel last week:

But it’s always hard to know where anyone sits on that spectrum when they’ve carefully crafted an image of who they are. “The grass is always greener on the side that’s fertilized with bullshit,” the saying goes.

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Weekend Reading: Bubbles, the Magic of Hobbies, and Legitimacy

June 18, 2021 • #

🗯 Well-Behaved Bubbles Often Make History

Byrne Hobart wrote this piece in the inaugural edition of a16z’s new publication, Future. On bubbles and their downstream effects:

Bubbles can be directly beneficial, or at least lead to positive spillover effects: The telecom bubble in the ’90s created cheap fiber, and when the world was ready for YouTube, that fiber made it more viable. Even the housing bubble had some upside: It created more housing inventory, and since the new houses were quite standardized, that made it great training data for “iBuying” algorithms — the rare case where the bubble is low-tech but the consequences are higher-tech. But, even so, there’s always the question of price: how can you tell when it’s worth the hype?

💡 A Project of One’s Own

There’s something special that happens when you allow your kids to treat hobbies like serious endeavors instead of playtime or games. Paul Graham’s latest:

Instead of telling kids that their treehouses could be on the path to the work they do as adults, we tell them the path goes through school. And unfortunately schoolwork tends be very different from working on projects of one’s own. It’s usually neither a project, nor one’s own. So as school gets more serious, working on projects of one’s own is something that survives, if at all, as a thin thread off to the side.

It’s a bit sad to think of all the high school kids turning their backs on building treehouses and sitting in class dutifully learning about Darwin or Newton to pass some exam, when the work that made Darwin and Newton famous was actually closer in spirit to building treehouses than studying for exams.

My interests in history and tech trace straight back to my time in high school building computers to play Civilization II. Personal projects have long term benefit if nurtured.

✅ The Most Important Scarce Resource Is Legitimacy

On the heels of finishing Schelling’s collection of essays on game theory, I read this piece from Vitalik Buterin on legitimacy, a force that underpins any successful coordination game, of which the world of cryptocurrencies and DAOs are prime examples.

In almost any environment with coordination games that exists for long enough, there inevitably emerge some mechanisms that can choose which decision to take. These mechanisms are powered by an established culture that everyone pays attention to these mechanisms and (usually) does what they say. Each person reasons that because everyone else follows these mechanisms, if they do something different they will only create conflict and suffer, or at least be left in a lonely forked ecosystem all by themselves. If a mechanism successfully has the ability to make these choices, then that mechanism has legitimacy.

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ETH's First Quarter, 2021 →

June 16, 2021 • #

James Wang looks at the state of Ethereum as if it was a software company. If it was a business hosting an earnings call each quarter, what would we think of its financial and performance metrics?

2020 was a banner year so far for the platform. Some choice stats, emphasis mine:

Transaction volume
- Decentralized exchange (DEX) volume increased 76x to $177 billion in Q1 2021, compared with $2.3 billion in Q1 2020.
- Decentralized Finance (DeFi) total value locked increased 64x to 52 billion in Q1 2021, compared with $0.8 billion in Q1 2020.
Ecosystem
- Metamask — the popular Ethereum wallet for desktop and mobile—reached 4 million monthly active users (MAUs) in Q1 and crossed 5 million MAUs in April. Metamask mobile saw strong global growth, especially in India, Indonesia, Vietnam, and Nigeria. Metamask’s MAUs is now comparable to mainstream consumer applications such as Robinhood and Clubhouse.
- Visa announced that it now settles payments in the USDC stablecoin on the Ethereum blockchain. This makes Visa the first major payments network to use stablecoin as a settlement currency.

Before “ETH-pilling” myself a couple months ago, I had been boxing Ethereum simplistically in with Bitcoin as “another cryptocurrency”. But once down the rabbit hole, you realize that the only similarity between ETH and BTC is blockchain. What’s built on top of each’s blockchain is wildly different. Bitcoin has largely found its home as “digital gold”, solving the store-of-value problem in a hardened, digital way.

Ethereum is different. It helped me to think of it as a distributed and decentralized “global computer” — a secure hive-mind on top of which you can build entire applications using its native programming language. More than Bitcoin, it’s a store-of-value, smart contract platform, and financial infrastructure for the internet age. Ether, it’s currency, is the coin of the realm to do stuff on the Ethereum network.

The more I read and invest, the more exciting it gets. Ethereum creates a network for trustless interaction between people and organizations, buyers and sellers, creators and consumers, native to the internet.

Until now we’ve had to make do with meatspace-based infrastructure for most of our interactions with one another via the internet. Now we have a burgeoning ecosystem for a true web3.

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DeFi Explainers

May 4, 2021 • #

I’ve gone over off the deep end the last couple weeks trying to wrap my head around DeFi. To date I’ve only dabbled in crypto, being lucky enough to ride some small waves, though nothing life-changing.

DeFi (decentralized finance) is fascinating for its disruption potential (and Ethereum platform on which it’s all built). A basic understanding of the conceptual possibilities shows this stuff is here to stay, even if not in the same form or as loud as meme-ish as it’s been over the past year.

Through Twitter I discovered a channel called Finematics that has a ton of great explainer videos walking through topics like smart contracts, the history of DeFi, NFTs, yield farming, and dozens of others on the esoteric crypto world.

Check out the full channel for the archive.

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Browse the full archive →

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