Cryptocurrency isn't what you think it is.

Oct 14 2021

Is crypto a scam? It’s much more than a scam.

Crowdfunding Lambda #

How much does AWS compute cost? Well, I can tell you that it amounts to 💰 and 💰 of digital cash. Cloud computing is expensive. How is a grassroots organization or a non-profit going to afford it?

You are a geneticist and you aren’t super tech-savy. However, you are super passionate about The Human Genome Project and you benefit from their research. The HGP is asking not for money donations, but for compute power. Sequencing DNA takes a lot of it.

Your daily routine includes checking emails and drafting proposals, powering a laptop for an average of 4 hours a day. You don’t use most of your hardware. Pretend that the HGP offers a mining program with a 2-click install. You download it, set it up and start mining. The mining program uses your unused CPU and RAM to detangle and process small blocks of DNA data. As a reward for donating your electricity and hardware, you get an HGP Token of Appreciation. Now, you can flaunt your token to people, saying you contributed to the project.

Blockchain itself isn’t about profit, it’s just peer-to-peer networking technology. Cryptocurrency isn’t about profit, it’s about automating the exchange of currency.

At my university, the Fundraising Department advertises the fact that they’re building a wall. You can buy a brick with your name engraved on it, and that brick will become part of the wall for display. Many alumni purchase useless bricks for a useless memorial. Why? I don’t know. All I know is that the logic behind buying a bespoke brick is the same logic behind buying NFTs or supporting non-profit projects.

Brick wall with engraved bricks

Photo from Bricksrus.com

Trustless Witnesses #

Human witnesses are unreliable, but for capital crimes, you don’t have much choice except to rely on them. Luckily, for mundane affairs, blockchain is well-suited to verifying trust.

For any large transaction, you want a few witnesses. Otherwise, when you sign a contract without witnessness, you will get scammed. Do you want your realtor to able to scam you out of a home? Nowadays, transactions are codified on a piece of paper and signed by a witness, such as a notary.

What happens if you lose your document in flames, or someone forges it, or you go on vacation for a few years and your relatives claim you as dead and get a deed reprinted in their name? That’s what the notary is for. Their logbook has a signature that confirms that the transaction was conducted, at least. But anyway, this is still done on pen and paper, and if you’re extra unlucky, the notary dies, the ledger gets lost and nobody can find it anymore. You think this wouldn’t happen in a 1st-world country since there’s too much surveillance, but unfortunately it still happens. Victims of identify theft get all forms of credit denied, and you have no way to prove you’re not the person that debtors are looking for. Except you are, so pay up.

Also, can we just say that as soon as your father is pronounced dead, there are grave robbers waiting to open new credit lines?

Imagine through sheer unluck, your landlord illegally collectes your SSN (because they think they’re a bigshot equivalent to a government official). As a guillable renter, you wrote it down to get a roof over your head. Then your landlord has a data breach and your SSN gets stolen. Incompetent government workers tell you, “We can’t just give you a new SSN, and even if with did, have fun trying to convert your old one to the new one.” Sucks to be unlucky in 2021.

Imagine that in 2050, your national identification number isn’t SSN or Aadhar anymore, but a blockchain wallet “seed phrase.” As long as you can remember the order and spelling of 12 words, you can input your Identity Phrase into a program, only available at your local government office much like an ATM for banking, and prove yourself as the owner of a contract.

With the addition of a “private key,” which is a master key and your Identity Phrase, you also have a “view-only” or “public key” that can be used to verify transactions. Instead of inputting your IP into all of these websites for banking and tax-paying, you upload a snapshot of your “public key” QR code.

Aside
If technology advances, we’d have a wallet generated by our “biometrics data” so that identity theft can’t happen, but that would also be complicated because it’s hard to fingerprint a baby. Maybe wallets can be generated from your DNA, but then this would just spawn a biometrics forgery industry. This is good science-fiction stuff and kinda spooky. Blockchain is still very early in maturity.

"I don’t trust technology to help me solve human problems. #

What if I lose my wallet and my money permanently? How will I get it back? I don’t like the sound of this digital money. Instead, I’ll give my gold ingots to the bank. They can keep 'em safe for me."

Look, stop thinking about money.

Imagine trying to get identity theft resolved. The only person assigned to work on your case is an underpaid data entry worker who takes one look at the database, then tells you, “According to our system, you’re dead to us.”

“Even though I’m standing right in front of you?”

“Yeap. According to the system, you’re dead. We’ll change your status to alive but not everyone will recognize it.”

Sorry, you’ll have to spend several years trying to convince people you’re alive. You think this is a dytopia caused by blockchain? It’s already like this. We already trust computers more than we trust your word. To a stranger, your identity is nothing more than 0’s and 1’s. It’s easier for a man to give birth than to resurrect the dead.

But to start with, how exactly does one actually get accidentally declared dead in the first place? It turns out in pretty much every nation, most of the time simply via clerical error. In modern times, this usually just means a typo or the like. So, yes, particularly for you U.S. citizens reading this, just go ahead and think about that your life could be ruined, or at least a good portion of it, by a simple typo made by some random person at any given moment…
—Karl Smallwood, How Exactly Do You Prove You’re Alive if You’re Accidentally Declared Dead?

Fuck human witnesses. Do you think we can rely on them? Humans think that the John Smith who lived at your address 50 years ago is the same person as you, because coincidentally you are also named John Smith.

Automate it. This is what the smart contract nerds are talking about when they mention “trustless consensus mechanism.” If we develop a hybrid system of machine and human advocacy, if we democratize the trust process to invite witnesses on a mass scale with distributed networks, we can have a better future. That’s the hope, anyway.

In 2050, through sheer unluck, your landlord has a data breach and your Identity Phrase gets stolen. The government investigates, confirms your report, and announces the stolen IP is fradulent. The change gets propogated to all miners to reject outbound transactions from your old IP. The government issues a new IP wallet for you, and you start over from scratch. In 2050, recovering from identity theft becomes almost as easy as disabling a credit card and getting a new one. Almost.

Losing everything is a part of life, whether it’s due to wildfires or cybercriminals. What’s important is that starting anew will be easier. Right now, if you’re unlucky and get your identity stolen and you don’t report the crime fast enough, your life is ruined. Every government system will think you’re dead or in debt. Collectors will bother your sister about some kind of loan for a charge that shouldn’t exist, and you can’t get a job or any kind of license because your background is fradulent.

Crypto is not a waste of energy #

According to Nic Carter’s article How Much Energy Does Bitcoin Actually Consume?, the energy expenditure to exchange tokens is low. The bulk of energy generation comes from mining new tokens.

Bitcoin mining was designed to simulate gold. From the original Bitcoin whitepaper:

The steady addition of a constant of amount of new coins is analogous to gold miners expending resources to add gold to circulation. In our case, it is CPU time and electricity that is expended.
—Satoshi Nakamoto, pg. 4 of Bitcoin: A Peer-to-Peer Electronic Cash System

How much energy does it take to mine gold?

Employ a shitton of human labor to bang a rock onto another rock.
Heat up a shitton of forges and smelters.
Mint a shitton of coins, then circulate them.
Along the way, your delivery men pocket a few coins.
Hire security guards to make sure they don’t.

Proof-of-work (POW) imitates this process of creating coins. Man, extracting gold sure seems like a waste of energy. Our ancestors were so primitive!

POW may be energy inefficient, but it’s a pioneer. It’s a first-in-class implementation that caught on and scaled reliably. It’s easy to criticize Bitcoin in hindsight, but how else are we supposed to simulate money and minimize the chance that software inflation exploits will render a burgeoning project useless overnight? Pre-mature optimization is the root of all evil.

Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free.

(Once most of the 21 million coins are minted, BTC miners will want to switch to becoming brokers, and energy will instead be used for verifying transactions)

To say that crypto is a waste of energy, you might as well argue that electronic banking and the stock exchange are a waste of energy. You might as well argue that research and experimentation are a waste of energy.

Bitcoin is not the only crypto #

Satoshi Nakamoto chose to make tradeoffs in order to release his invention. It is imperfect. BTC is not truly private and fungible to the standard that money should be. Transaction amounts are publically broadcasted.

The public can see that someone is sending an amount to someone else, but without information linking the transaction to anyone. This is similar to the level of information released by stock exchanges, where the time and size of individual trades, the “tape”, is made public, but without telling who the parties were.
As an additional [defense mechanism], a new key pair should be used for each transaction to keep them from being linked to a common owner. Some linking is still unavoidable with multi-input transactions, which necessarily reveal that their inputs were owned by the same owner. The risk is that if the owner of a key is revealed, linking could reveal other transactions that belonged to the same owner.
— (pg. 6)

Nakamoto acknowledges that with sufficient chain analysis, anyone can track your payments as long as they have one of your addresses. If you generate a new address for every payment and spread out the time of your purchases, the risk of being identified is mitigated, but not completely.

With Twitter’s release of the tipjar, which includes including BTC lightning transactions, the amount of pain and ignorance is going to spread, and people will learn the hard way.

Don’t use BTC for payments you want to keep secret. Use a privacy coin like Monero instead, unless you enjoy having your finances broadcasted in public.

Crypto for the Homeless #

Crypto is magic Internet money. It’s magic because you can get reimbursed for helping the homeless. Check out this charity: Crypto for the Homeless

Their donations and spending are posted on their blog.

Takeaways #

Your life is defined by your relationships. The events that are recorded into public memory belongs to the public, and that’s what crypto and blockchain are for. Your birth, your geneology, your marriage, your crimes, your death. Not all of these things are things you want to reveal, but you alone cannot vouch for yourself. There must always be a witnesses. You can have thousands of computer witnesses confirm your divorce, without actually having thousands of humans know about it.

I don’t think a process like divorce is going to change much. You’ll still have to go to a marriage counselor, you’ll still have to talk to a lawyer, and the contract will still be signed like normal. You won’t notice how blockchain changes your life. It’s for those few crazy ex-spouses who claim they have a right to your money, and try to open a bank account in your name. Due to the lag time between updating the marital record and the bank’s ledger, the ex gets approved. Or, the bank runs a blockchain analysis, and in a few minutes the results come back: denied.

What’s the difference between currency and money? It’s the difference between the Token of Appreciation and the dollars on your paycheck. It’s the difference between Twitter followers and gold. The difference between election ballots and bribes.

Not all currencies are money. Not all currencies should be private. Some have to be.