The reasonable yet revolutionary case for blockchain

That is the topic of my latest Bloomberg column, here is one central bit:

Other than using blockchains to organize cryptocurrencies, imagine using them to record and decide who can store information about you. The blockchain is thus a potential substitute for some functions of Facebook, a corporation. Or imagine using the blockchain to allocate rights to your attention in cyberspace, who can send you ads, and who can send you an actionable email or induce you to complete a task, the latter an idea from Balaji Srinivasan of Coinbase.

No, you don’t have to sit down and personally bid on all of these decisions, but your AI bots can use micropayments and trade with other AI bots, based on your initial instructions. This new method of governance holds out the promise of using market mechanisms to order your life online, rather than relying on monopolies to do it for you.

Or, say, virtual reality worlds come to pass, where people plug in to relax, to take an exciting one-hour trip to Paris from their sofa, or to have cybersex. The property rights in those worlds might be allocated by blockchains and cryptocurrencies, again assisted by AI.  That would create a parallel economy and indeed parallel legal systems, and those might spring up more rapidly than current administrative law will handle those new situations. In these new economies and legal systems that spring from blockchains, competition and rapid experimentation would be the norm.

I don’t think that all will happen, but in expected value terms it remains important.

Comments

The potential uses of the blockchain are great, but I wonder about its economics.

The security of the chain rests on the computing power of the miners, which is so large that even a large organization could hardly match it. But the miners maintain this costly infrastructure for us because they have three sources of revenue: seigniorage, speculation, and fees. Seigniorage is planned to stop in a few years. Speculation should slow down as demand for bitcoins flattens out, however long that takes. So my take is that, in the long run, the mining infrastructure will be financed mainly by fees.

Here comes the problem: will users pay a nice fee to a miner? As I understand it, paying a fee allows you to get your transaction registered quicker. If you are not in a hurry, however, you can pay a minimal fee and wait for your transaction to be recorded in the chain. If all you care about is securing your transaction and you don’t mind waiting a bit, you have an incentive to free ride and let others pay for the mining infrastructure.

This could create a tragedy of the commons problem, where mining revenues fall and the chain is no longer secure because it rests on an insufficiently financed infrastructure.

Wells Fargo charges a fee, why do I need to engage shady bitcoin miners if they charge a fee as well?

Please check out IOTA and its cryptotech called «The Tangle». It solves a lot of the concerns you have with traditional cryptotech.

I hope Cowen's judgment isn't clouded by his dislike of government. Cowen's friends Thiel and Srinivasan are making large investments in block chain, over investments in productive capital, for block chain's potential for undermining government (Srinivasan resents the FDA for restricting his ability to make and sell unapproved (by the FDA) drugs even more than Thiel resents anyone who publishes information about his private life). I was disappointed with Ford's decision this week to drop all of its fuel-efficient car lines, keeping only gas-guzzling trucks and SUVs, in North America, but investment in productive capital has to make way for investment in virtual capital.

If you believe much of education is signaling, like Caplan, than blockchain offers a potential alternative.

I am sorry, your hash is incorrect.

Care to elaborate?

The joke was supposed to mean that while blockchain guarantees internal consistency (correct hashes) the connections to external things, especially nebulous things like reputation, are quite tenuous.

>No, you don’t have to sit down and...

What is it with writers pretending that someone suddenly asked them a question in the middle of their article?

It's very childish, sophomoric, NYT-dopes-trying-to-sound-hip-style. Knock it off, you are better than that.

Kudos to TPM for writing in the first person!

Bonus trivia: I like the idea of blockchain micropayments. I want people to tip me 0.000001 BTC for every brilliant post of mine they read and like.

I agree. I would gladly use micropayments to read a specific (FT or Scientific American) article that's behind a paywall without paying for a subscription. But that infrastructure doesn't exist yet. I even could use micropayments to pay *you* for your nice poetry: https://uair01.blogspot.nl/2015/03/blog-comment-poetry.html

No, you don't have to love every device writers resort to. It does not mean you have to react that way.

I don’t think I have ever heard the words “reasonable” and “revolutionary” in the same sentence before!

The issue is still goverance. Unless you design a perfect market algorithm, which is probably impossible, immutability is a bug, not a feature. With the number of events in that log, the full auditability becomes a bug. And the energy use still needs to be a constant use at least twice the value of a single fradulent transaction.

Great ideas, that have nothing what so ever to do with the actual technology of blockchain.

Tyler, this is nonsense, because it still ignores core reasons that make blockchains really hard to use, and have few chances of getting solved.

One is the problem of identity in digital security: How can I create, without an authority that can override all the rules, an identity that is very hard to steal and very hard to lose. It's what lets people steal an entire exchange worth of coins, and also lets a million dollars in a hardware chain get lost forever. Everything we sign in the world with digital security has side channels to deal with those risks. Good luck doing that in a blockchain.

Another key problem is the off-blockchain operation. You can make sure that a blockchain is self consistent (that's all it actually does), but there's no way to make sure that people's actions outside the blockchain match that blockchain reality. Just like I could go to Target's inventory system and create 10K tvs in a store, that doesn't make said tvs appear in reality. Therefore, any off-chain operations, whether digital or real, can give the middle finger to the blockchain. You could limits its use to a chain that is computational in nature, but then EVERYTHING would have to be done within said blockchain, and that is dumb, resources wise, regardless of whether you use proof of work, proof of stake, or proof that everything you drink is at least 100 proof.

And there's of course the fact that you have to find reasons to mine this thing, yet no so many as to let people attack it. It's not just 51% attacks: There's all kinds of fun trickery you can do with a smaller, yet significant percentage of a mining pool. We just don't hear much of this because of how few blockchain uses are really out there, despite the levels of nonsensical SV hype.

You really need to pay attention to those edges to think about blockchains semi-accurately, it's just that if you do, the number of situations where you want them shrink well below the 1 billion dollar limit VCs care about, so any VC that considers the technical details seriously just wouldn't invest in blockchains anyway. And quite a few of them don't: That's why we see ICOs, and downright fraudulent ones. You can get 100 million our of the blockchain millionaires far easier than you can get 2 million from Sequoia.

Let's face it. The blockchain technology has been around for 9 years and none of what you can do with it "feels like magic" compared to what was there before.

Glad to see that Conversations with Tyler can really have such a strong effect :) (I heard the last one and I can see where the change of heart comes from).
No mather what technical problems the current block chains have, the fact that a number of transactions that were previously impossible or extremely expensive (because trusted intermediaries would not offer them at any price point) is reason to be excited.

I know a reasonable amount about blockchain and cryptocurrency technology, but I did not understand the applications being suggested in Tyler's column. And I am not sure he really understands them either.

* "To drive the point home, a blockchain is actually a form of governance and that is what makes it such a potentially radical idea. We’ve had families, and businesses, and governments, all as methods for making decisions. Now we have blockchains. That could be huge, but is it going to take off? "

A provocative and highly misleading formulation. Blockchains can attain consensus only because the rules for attaining consensus are built into the blockchain (the blockchain software actually) beforehand. Blockchain-based consensus can then prevent malicious attempts to include transactions without proper signatures, and can resolve discrepancies that result from technical problems like lost messages and transaction timing. This is not "governance".

The stuff about using the blockchain to specify who can access your personal information makes little sense. Today's problem is that Facebook records everything that you do and then shares that information. Does Tyler think that Facebook will someday check some blockchain to see if it has permission to do that? Or that social networking will be somehow implemented on top of a blockchain so that personal data is protected by default. It's not clear what Tyler envisions or if it makes any sense whatsoever. And when Tyler gets to the VR stuff it just sounds like technobabble. Maybe this whole article is a prank to mock the bitcoin cultists.

"imagine using them to record and decide who can store information about you"

Okay: I record my Facebook privacy settings on a blockchain, as opposed to simply telling them directly as is done today. This would prevent Facebook from lying about what privacy settings I've chosen. But they don't do this and have no reason to (besides the fact that it would be illegal). They simply rely on open defaults and alternatives being too confusing for most to manage correctly. They also don't allow access to their popular service at all without a fairly permissive agreement to store user data. So recording this data on the blockchain accomplishes nothing except making it even harder for users to ever get away from default settings.

Having blockchains "decide" who gets to store what data is not technically possible. Blockchains have no ability to prevent people from doing things outside the system. They just commit to information.

The same problems affect the related bad ideas of storing who can show me ads or send me an email.

not to be flip, but 'blockchain' tech and its attendant jargon is being used to create private currencies that circumvent existing regulations. there are no efficiency gains. there is no there, there, but it doesn't matter: you can get enough people to coordinate on beliefs about future expected growth to create alpha - get a huge 10000%+ return - through pure marketing.

it's gross.

There should be little doubt regarding the Blockchain technology, it is the absolutely incredible thing to hit the world. However, everything is not exactly perfect, especially for investors. We got to go through mini-traps and figure out BEST options. That is exactly why option like Hyperion is just revolutionary option. So, with Hyperion’s team aims at setting the standard of the industry as it provides investors with simplicity, security and peace of mind at low cost!

There are many reasons in the rise of Blockchain technology. Almost every field it’s adapting it and anyone who thinks that it’s not going to move forward, it’s just living in dreams. Blockchain technology is the present and is going to be the FUTURE. With endless projects that are meant to change the scheme of things, it’s just NEVER going to get back. DeskChain is amongst one such heavy weight project. So, you just can’t move forward in thinking that it’s not good.

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