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Liam's Blog on Philosophy and Governance

#blockchain

X on the Blockchain

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Blockchains are like duct tape. Just because you can use them to do anything, doesn’t mean you should. More specifically, decentralization has been fetishized to the point that even associating oneself with the concept is, frankly, embarrassing.

But I say we ought not throw the baby out with the bath water. The hype in this area is not unfounded; blockchain technology could truly revolutionize the way the world works. The issue is discerning between appropriate and inappropriate uses of the technology.

I propose the following question be used as a litmus test of sorts — to determine whether or not an application ought to be decentralized.

Does it solve a problem, the outcome of which, without decentralization, is unduly influenced by a centralized entity (government, corporation, individual, cartel, etc.)?

In order to understand how to apply this prompt, allow us to consider the following examples,

Bitcoin – Decentralized Money

Is centralized money unduly influenced by a centralized entity? Yes, central banks, in collusion with governments, manipulate the money supply to the detriment of society.

Filecoin – Decentralized Storage

Is centralized file storage unduly influenced by a centralized entity? Not really. In theory it could be, but in practice it is not. Filecoin offers users the ability to efficiently utilize unused storage space, but such a system could easily be achieved with E2E encryption and a centralized backend. The reason the centralized version doesn’t already exist is most likely because there is no demand for it.

Decentralized Property Registries

Are centralized property registries unduly influenced by a centralized entity? Yes, allowing government officials to be the final arbiters over property ownership leads to large scale corruption and theft — and, in some cases, their incompetence causes widespread poverty.

Viola – Decentralized Dating

Is centralized dating unduly influenced by a centralized entity? No… also Viola is a real blockchain-based dating platform and “viola” also happens to mean “rape” in Spanish.¯\_(ツ)_/¯ (thankfully, I and others, alerted them of this and they are changing their name).

Keep in mind, the fact that an idea is prime for decentralization does not mean that any given implementation thereof will be successful. Decentralized applications (dApps) ought to be judged by the same criteria we use for other technologies, products, or businesses; they must be executed properly and positioned to win in the market.

So next time you want to make a dApp, think first: why the hell am I building it this way?

Why I’m Bullish On Ethereum

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I no longer endorse the contents of this article. This was my attempt at applying MMT to the analysis of cryptocurrency when I was just entering the fray (I first learned about bitcoin in, I believe, 2011 — but didn’t get heavily involved until after the publish date of this article). I think there are still a few insights about why smart contracts provide value and stability to blockchains, and that is why I am leaving this up.

In a previous post, I laid out the problem with bitcoin and other crypto-currencies. In summary, even if a crypto-currency is “decentralized”, there are pinpoints of centralization in the software development process and when it interplays with financial markets (i.e. when trading dollars for BTC). My thesis is that, over time, these pinpoints can cause major problems. Due to the constantly deprecating nature of technology, even if we solve the issues pertaining to exchanges and financial markets, there will still be relative centralization in the development process due to the need for constant updates.

I am not an avid follower of Bitcoin, but I am aware that this has become somewhat of an issue. There have been many schisms in the development process and it has been extremely hard for developers to make important changes. Also, a grossly large amount of people keep their BTC in coinbase and other exchanges, which defeats the purpose of Bitcoin altogether.

That being said, all hope is not lost. Ethereum, I believe, has a much better model. To understand why, let’s first look at the US Dollar (USD).

The USD somehow has value, although it is literally a currency made out of thin air by the US government. If I made “Liam Dollars”, which were just arbitrary green pieces of paper that I cut out, I wouldn’t be able to get anybody to use them. But despite massive money printing on the part of the federal reserve, somehow, the value of the dollar is relatively stable.

How can this be?

Well, it’s actually quite simple. The US dollar is backed by violence. If you create wealth in the United States, you are obligated to pay US taxes. If you don’t pay taxes, the US government will arrest you. Since taxes must be paid in dollars, there is automatically a huge demand for dollars to pay said taxes.

Similarly, many currencies around the world are pegged to the dollar, thereby creating demand for dollars by taxation and commerce in other countries.

But it doesn’t stop there. Another huge driver for USD is oil. Most oil contracts are negotiated in dollars. In fact, it has been speculated that the US has toppled regimes in the Middle East simply because they attempted to switch oil contracts out of USD. Since oil is a multi-billion (or maybe trillion?) dollar per year commodity, this also creates massive amounts of demand for USD.

Now think back to Econ 101. The higher the demand, the higher the price.

This makes sense. A currency, just like any other commodity, has a value that corresponds to its supply and demand.

So let’s apply this to Ethereum. With the advent of smart contracts, Ethereum is enabling applications and other crypto-currencies to be built on top of its blockchain.

Just look at the Ethereum Alliance‘s member list: big banks, big oil, and big tech. Massive amounts of very important applications and other crypto-currencies are being built on top of the Ethereum blockchain– and this creates demand for Ether.

Smart contracts create demand for Ether in the same way that oil contracts, pegged currencies, and taxes create demand for USD. And since I perceive that the amount of people building on the Ethereum platform is growing, I am, therefore, bullish on Ether.

That being said, I still think that Ethereum is subject to the criticism in my original article; however, it is much safer because its demand is more entrenched. Bitcoin also has some cool projects, such as Rootstock, that aim to bring smart contract functionality to its blockchain.

Although I like to talk about the shortcomings of crypto-currencies (and there are many problems with even Ethereum), I, on net, like the concept and am even in the process of developing my own currency token on the Ethereum (and maybe eventually, Bitcoin) blockchain. More on this at a later date.


Note: when talking about demand for USD, I did not mention the most obvious one: that US vendors are forced to accept USD and therefore it must be used for commerce in the US.