Medium Around The Block: #6
Medium is one of the richest sources of information in the crypto + blockchain ecosystem. However, it is very difficult to surface signal amongst all the noise. We share a list of the most interesting pieces we’ve discovered on Medium from the past week — or from the archives. To receive more of The Block’s analysis, insight, original content and curation, visit us at The Block!
Crypto Medium has been *on fire* this month — it just keeps on getting better and continues to hold the best insight and analysis on crypto freely available in one place. We begin with a few key conclusions from Taylor Pearson’s comprehensive “State of Bitcoin” report from early September:
- Nearly all our indicators suggest that the bear market of 2018 will continue for at least the next few months.
- Segwit adoption is up meaningfully which, along with decreased network activity, has brought median transaction fees down under USD $0.10.
- Hashrate, an important measure of Bitcoin’s security and censorship resistance is up over 300% YTD.
- We are probably still at least a couple of years from seeing meaningful adoption of The Lightning Network
- Bitcoin is the most regulatory black/white of the cryptoassets. Despite ETF rejections and some companies in the space engaging in regulatory arbitrage, Bitcoin seems to have pretty favorable regulatory tailwinds.
- Personal custody options have not changed much over the last couple of years, perhaps because the options available are generally seen as being pretty good.
A must read by Tezos’ Jacob Arluck on blockchains and their vision of a “decentralized Web 3.0” vs centralized Web 2.0 startups like Uber and Facebook.
tl;dr: Much of the current thinking about blockchain governance misapplies the paradigms of Web 2.0 to decentralized networks. Some allegedly decentralized governance processes (e.g. forking) actually re-introduce subtle forms of centralization (e.g. VC-backed layer 2 projects). Blockchains are better understood as institutional technology expanding the possibilities of economic coordination on the web. Institutions strike a delicate balance between stability and change. Carefully designed formal governance aims to improve stability, accelerate innovation, and facilitate course correction, all without sacrificing decentralization. Once path dependence takes hold, governance and culture become aspects of a protocol which can’t be easily copied.
A key conclusion: “Once path dependence and historical serendipity take hold, governance and culture will be among the only aspects of a blockchain protocol that can’t be copied.”
According to Brayton Williams of Boost VC, “The #buidl meme is no stronger than in the Dapp community.” Brayton explores the primary reasons why today’s Dapp’s don’t yet see significant usage: not enough focus, need for more user education, slow blockchains, challenging UX around utilizing customer crypto wallets and expense associated with using tokens, eg gas. To overcome these challenges, Dapp developers and the ecosystem at large must focus on infrastructure building, using best practices from Web 2.0 UX and focus on product vs. partnership announcements. And most of all, keep on building through the noise!
According to Nathaniel Whittemore, “Complexity theater is when the presentation of ideas is complicated in order to make those ideas seem more valid. It is not limited to the crypto space, but has wreaked a very particular havoc here.” Nathaniel applies this concept to ICOs where complex ideas presented with complexity has regularly masked flawed projects with no tangible output. This phenomenon has been exemplified by the use of extremely dense white papers rather than clearly described presentations of a project’s accomplishments, goals, governance and structure. It has been particularly problematic when combined with retail investors with limited knowledge and a voracious appetite for investment opportunities. The solution moving forward is to measure projects on their progress and value creation vs their idea complexity.
An exciting initial experiment from Maciek Laskus has morphed into an increasingly ambitious effort to map influence and relationships in the crypto ecosystem. The goal is to empirically identify people influential generally and in specific communities. Maciek and his team plan to open this data up to developers to use in their own applications and services . One can imagine an authoritative base layer influence and “attention score” playing a foundational part in products that rely on establishing professional talent, credibility and reach to function properly.
After exploring synthetic “stablecoins”, Bob McElrath comes to the following conclusion:
The only form of sensible stablecoin or token representing another asset without systemic risk is the fully collateralized kind. The reason to create such a stablecoin is to enhance fiat currencies and imbue them with the cryptographic certainty, fast settlement time, and international transportability of crypto-currencies.
In a recent debate with Roger Ver, Jimmy Song asserted that “BCH is a fiat money.” According to Jimmy:
BTC/BCH have different philosophies. BTC is classically liberal, anarcho-capitalist and Austrian, befitting its cypherpunk roots and is a sound money. BCH is interventionist, paternalistic and Keynesian befitting its corporate roots and is a fiat money.
Jimmy proceeds to highlight a number of flaws he perceives in BCH’s technical execution and governance, particularly with respect to its centralization. Jimmy’s key concern:
The governance process of BCH is centralized. There’s an elite group that decides what the users must upgrade to. They “listen” to the users, but ultimately, they make the decisions. This is evident as the governance process is not transparent at all and the “roadmap” is decided by this elite group. These people decide the hard forks in BCH and force everyone else to upgrade to them. They choose the winners and losers in the market through their choices. They’ve prioritized method-of-payment and smart contract use cases and have subsidized them.
Derek Edward Schloss highlights the power of digital money:
For the first time in history, it’s possible for anyone with a connection to the internet to quickly and securely send any amount of money, anywhere in the world, at little cost. The advent of permissionless blockchain networks like Ethereum upend our legacy financial systems, and promise to create more economic fluidity than ever before.
He then explores the value of putting a “digital wrapper” on securities, eg a security token, by looking at the history of mail — and how the digital wrapper of “e-mail” changed communication.
The digital wrapper didn’t just envelop correspondence — it enveloped audio, video, and valuable analog content of all different shapes and sizes, empowering each to digitally interoperate their features with one another. As a result, the functionality of message exchange was enhanced, and a new ecosystem of communication flourished.
Derek sees huge benefits to digitally wrapped securities in terms of interoperability, global market exposure, improved regulation, access to fractional ownership and improved design space. Even public securities will benefit due to improved accuracy, reduced cost, faster settlement and reduced. As a result, “with security tokens, we can unlock a significant amount of trapped value, which will usher in new economic fluidity in both our private and public markets.”
Dan Held responds to claims of “waste” in the Proof of Work (PoW) consensus mechanism. Per Dan, “Most people think #Bitcoin’s PoW is ‘wasteful.’ In this article, I explore how everything is energy, money is energy, energy usage is subjective, and PoW’s energy costs relative to existing governance systems.”
Dan makes a strong claim: “Bitcoin’s PoW is the buyer of last resort for all electricity, creating a floor that incentivizes the building of new energy producing plants around disparate energy sources that would have otherwise been left untapped.”
Michele D'Aliessi explains blockchain technology in simple words in a terrific overview from 2016.
Aashish Sharma looks at the coming transition to Web 3.0 and asserts: “Transitioning from web 2.0 to the 3.0 version is going to likely go unnoticed by most people. The applications are going to look almost exactly like what you are currently using, but the change will be on the back-end.”
One of Aashish’s main claims is that users won’t even notice that they are using cryptocurrency in new web 3.0 applications. He describes a number of products and markets, from social networks to media to file storage to online ads, that will be impacted by decentralized technology — and where the user won’t notice a change to their experience:
“Since this is going to be a smooth transition, though, you will notice that it will happen without even using the crypto currency. This means you will still be able to use the methods that you are used to, rather than trading on the crypto exchanges that have been all over the place recently on the value of the coins…According to David Sessford of Ready Steady Sell with the emergence of cryptocurrency you will notice that a lot of the security concerns are going to vanish and the cost of doing a transaction will be quite a bit lower.”
Yaniv Feldman take a look at the impact of traditional financial institutions entering the cryptocurrency market. He explores a few areas of impact including ETFs, stablecoins and Digital Asset Receipts (DARs). DARs are a concept that have not received as much coverage — and are very interesting:
The current implementation of DARs are structured much like an existing financial instrument called American Depository Receipt (or ADR) which provides US-based investors the ability to invest in foreign stocks are not traded in US exchanges.
Based on the way ADRs work, we would assume that DARs are re-introducing the traditional concepts of rehypothecation and fractionalizing assets in between the custody and the instrument. Basically, it is a form of receipts issued to a retail or institutional buyer, as proof of ownership, while a “qualified custodian” is holding the asset itself.
Such a move has good consequences since 99% of the world’s population don’t want to be the real owner of their assets, with all the risks associated with it — Think of your mother losing her private key for the account holding all her savings. Having said that, DARs bring us one step closer to fractional banking. When DARs become a reality, there would be nothing stopping Citigroup from deciding they’ll start lending DAR’s based on a whichever fractional reserve ratio they decide.
Phil J Bonello has a terrific piece with high level overviews of valuation methods for non-SoV cryptoassets. The methodologies he looks at include native profit sharing tokens, work tokens, discount token models, burn and mint and governance tokens. Phil concludes:
It’s striking how similarly most “good” token models operate. They are fundamentally productive assets, some of which resemble securities. Discount tokens, profit sharing tokens, work tokens, and burn and mint tokens are built on an assumed margin or fee that is distributed to the service provider or token holder. With these value accretive tokens, simple net present value formulas can be used to reasonably estimate a token price.
First, a definition from Qiao Wang on an oft-mentioned concept: “The Lindy Effect states that future life expectancy is proportional to current age.” The concept was popularized by Taleb and adopted by some in the cryptocurrency community to argue the strength of older cryptocurrencies like Bitcoin. However, according to Qiao, the Lindy Effect is not persuasive with respect to cryptocurrency strength: “Barring a few anecdotal claims, I have not found any empirical evidence on the Internet that supports the Lindy Effect. Yet people use it to fit their narrative as if it’s a universal truth.”
Thank you for reading what we’re reading this week. Until next weekend, Happy #HODLing! For daily crypto insight and analysis from The Block in your inbox, sign up for our newsletter!
