Category: Web/Tech
What’s really wrong with Wikileaks?
From Theodore Dalrymple in 2010, also known as Prophets of the City Journal:
The actual effect of WikiLeaks is likely to be profound and precisely the opposite of what it supposedly sets out to achieve. Far from making for a more open world, it could make for a much more closed one. Secrecy, or rather the possibility of secrecy, is not the enemy but the precondition of frankness. WikiLeaks will sow distrust and fear, indeed paranoia; people will be increasingly unwilling to express themselves openly in case what they say is taken down by their interlocutor and used in evidence against them, not necessarily by the interlocutor himself. This could happen not in the official sphere alone, but also in the private sphere, which it works to destroy. An Iron Curtain could descend, not just on Eastern Europe, but over the whole world. A reign of assumed virtue would be imposed, in which people would say only what they do not think and think only what they do not say.
The dissolution of the distinction between the private and public spheres was one of the great aims of totalitarianism. Opening and reading other people’s e-mails is not different in principle from opening and reading other people’s letters. In effect, WikiLeaks has assumed the role of censor to the world, a role that requires an astonishing moral grandiosity and arrogance to have assumed. Even if some evils are exposed by it, or some necessary truths aired, the end does not justify the means.
For the pointer I thank Robert Dietrich.
*Blockchain and the Law*
The authors are Primavera De Filipp and Aaron Wright, and the subtitle is The Rule of Code and it is published by Harvard University Press. I am sent many books on crypto and blockchains, but this is the one I feel is useful to an educated readership. It’s not for specialists, but if you have a good general economics and also law background, as one would expect from MR readers, but don’t “get” crypto, this is the book-length treatment for you. It sees merit and potential in crypto, without buying into any particular claim just for the sake of hype.
It is striking that crypto learning and debate really has not occurred through books much at all, nor in the mainstream media. It has been through white and yellow papers, various on-line fora, Medium essays, Twitter, Reddit threads, and a variety of other venues. I believe this is a paradigmatic example of how knowledge spreads these days and it should be studied very seriously as such, because it is the most extreme case of the new methods I know.
Where do our best ideas come from?
A correspondent writes to me:
Isn’t it weird that the best ideas we have just…. pop into your head? I have no idea how to trace them. They just show up.
@Tyler any research into this area?
Dean Keith Simonton springs readily to mind, noting he has a new book coming out this year on genius. Here are some overview pieces on simultaneous discovery, and of course those tend to stress environmental factors. Here are some approaches to the multiplicative model of creative achievement. I am a fan of that one. What else?
Towards An International Court of Smart Contract Arbitration
Firms involved in international commerce routinely contract that disputes are to be resolved by private courts of arbitration such as the International Court of Arbitration, the London Court of International Arbitration or the Singapore International Arbitration Center. These courts of arbitration compete for clients and thus have an incentive to resolve disputes fairly, quickly and inexpensively. Courts compete, for example, to provide arbiters who are experts not simply in the law but in the relevant area of commerce. The New York Convention of 1958 says that private arbitration decisions will be enforced by the national courts of any of the 159 signatories; thus private arbitration leverages national enforcement but is otherwise not tethered to national law (e.g. in US see, Mitsubishi v. Soler Chrysler, National Oil v. Libyan Sun). Over time private courts of international arbitration have developed a system of law that transcends nations, an anational law–this is the new lex mercatoria.
I propose that courts analogous to the courts of arbitration that govern international commerce be created to govern smart contracts in virtual space. Arbitration of smart contracts will develop a new private law that will evolve to meet the needs of virtual commerce, a true lex cryptographia. At first, it might seem contradictory to advocate for courts of smart contracts and the development of lex cryptographia. Isn’t the whole point of smart contracts that no courts or lawyers are needed? Similarly, lex cryptographia is usually understood to refer to the smart contracts themselves–code is law–rather than to law governing such contracts. In fact, it is neither desirable nor possible to divorce smart contracts from law.
Smart contracts execute automatically but only simple contracts such as those involving escrow are really self-enforcing. Most contracts, smart or dumb, involve touchstones with the real world. Canonical examples such as the smart contract that lets you use an automobile so long as the rent has been paid illustrate the potential for disputes. Bugs in the code? Disputes over the quality of the car? What happens when a data feed is disputed or internet service is disrupted? Smart contracts applied to the real world are a kind of digital rights management with all of DRMs problems and annoyances.
Some of these problems can be dealt with online using decentralized mechanisms. But we don’t yet know which decentralized mechanisms are robust or cost-effective. Moreover, when marveling at the wisdom of crowds we should not forget the wisdom of experts. Nick Szabo once remarked that if contract law was suddenly forgotten it would take hundreds of years to recover the embedded wisdom. Contract law, for example, is filled with concepts like mistake, misrepresentation, duress, negligence and intention that are not easily formalized in code. Contract law is a human enterprise. And the humans who write contracts want law with terms like negligence precisely because these terms fill in for gaps which cannot be filled in and formalized in contracts let alone in code.
I am enthusiastic about smart contracts on blockchains. Smart contracts will significantly reduce transaction costs and thus let people create valuable, new private orderings. But it will be more profitable to integrate law and code than to try to replace law with code. Integration will require new ways of thinking. The natural language version of a contract–what the parties intend to agree to–may not map precisely to the coded version. Arbiters will be called in to adjudicate and thus will have to be experts in code as well as in law. Smart contracts can be made by anonymous parties who may want a dispute resolved not just privately but anonymously. Smart contracts can be designed with escrow and multisignatory authority so arbiters will also become decision enforcers. All of these issues and many more will have to be understood and new procedures and understandings developed. The competitive market process will discover novel uses for smart contracts and the competitive market process among arbiters will discover novel law. Law will adjust to business practice and business practice to law.
In short, the best way to create a vital new lex cryptographia is through competitive, private arbitration built on the model that already governs international commerce.
From the comments, Vitalik Buterin
Analyst
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I’ll answer this one here in detail because it’s probably too technical for it to be valuable to put a good answer into a Conversation with Tyler.
> 1. In retrospect, was it a good decision to have ethereum bytecodes executed on every single mining node? And if not, would he have selected sharding and plasma or a different solution?
Ultimately the answer is, yes given the knowledge we had at the time, no given what we know today. If I was doing Ethereum back then with the knowledge that I have today, I would obviously shoot straight for exactly the design that the research team is shooting for today (Casper PoS, sharding), and I would have actively encouraged developers to work on state channels and Plasma from day 1. Layer 1 scaling (sharding) and layer 2 scaling (state channels and Plasma) are complementary; gains from the two are multiplicative with each other, so it’s not a matter of A vs B, it’s A and B.
Ultimately, for a distributed validation system to work, you need to satisfy two properties:
1. There are enough (randomly sampled) nodes on average validating any given piece of data that invalid data will under no circumstances get through.
2. There are mechanisms that can ensure that if bad data *does* get through (eg. because of a 51% attack), then clients can detect this. In a sharded system, there is obviously too much data for clients to verify directly, but there are indirect approaches that can be used that can give equivalent assurances with some additional security assumptions (STARKs, fraud proofs, data availability proofs…)> 2. How confident is he that transitioning to proof-of-stake will be successful? What are the risks of proof-of-stake?
Close to 100% confident that proof of stake is possible in principle; many chains are using (crappy versions of) it already. There’s obviously the question of how strong properties we can achieve with PoS though, and there are some edges of that that are still being worked out. The main risks that I see are (i) weird game-theoretic attacks on the specific design that we end up going with, and (ii) pool centralization.
IMO Satoshi’s PoW is really nice in part because of its sheer simplicity; the simplicity helps with decentralization because pretty much anyone can understand how it works, whereas traditional non-PoW consensus algos like PBFT are far more complex. Casper FFG was designed in part to replicate something close to PoW-style simplicity while still having the safety and liveness properties of traditional BFT consensus algos; and I’m obviously interested in minimizing complexity of the sharding design as well.
Here is the link, he offers several other “highly technical” answers in the comments.
What should I ask Vitalik Buterin?
I will be doing a Conversation with him (no associated public event), what should I ask him?
If you have been living under a rock, here is his Wikipedia page. Here is his Twitter account. Here is his personal website.
The Economic Limits of Bitcoin and the Blockchain
From Eric Budish at the Booth School of Business at Chicago:
The amount of computational power devoted to anonymous, decentralized blockchains such as Bitcoin’s must simultaneously satisfy two conditions in equilibrium: (1) a zero-profit condition among miners, who engage in a rent-seeking competition for the prize associated with adding the next block to the chain; and (2) an incentive compatibility condition on the system’s vulnerability to a “majority attack”, namely that the computational costs of such an attack must exceed the benefits. Together, these two equations imply that (3) the recurring, “flow”, payments to miners for running the blockchain must be large relative to the one-off, “stock”, benefits of attacking it. This is very expensive! The constraint is softer (i.e., stock versus stock) if both (i) the mining technology used to run the blockchain is both scarce and non-repurposable, and (ii) any majority attack is a “sabotage” in that it causes a collapse in the economic value of the blockchain; however, reliance on non-repurposable technology for security and vulnerability to sabotage each raise their own concerns, and point to specific collapse scenarios. In particular, the model suggests that Bitcoin would be majority attacked if it became sufficiently economically important — e.g., if it became a “store of value” akin to gold — which suggests that there are intrinsic economic limits to how economically important it can become in the first place.
I like the framework of this paper, though I wonder if there shouldn’t be more on the coordination costs of mounting a “double spending” attack, namely how exactly the returns from the attack should be divided. Perhaps the most positive scenario for Bitcoin is if those coordination costs rise with the returns to the attack itself, in which case a much higher market value for Bitcoin still might be stable.
My Conversation with David Brooks
David was in top form, and I feel this exchange reflected his core style very well, here is the audio and transcript.
We covered why people stay so lonely, whether the Amish are happy, life in Italy, the Whig tradition, the secularization thesis, the importance of covenants, whether Judaism or Christianity has a deeper reading of The Book of Exodus, whether Americans undervalue privacy, Bruce Springsteen vs. Bob Dylan, whether our next president will be a boring manager, and last but not least the David Brooks production function.
Here is one excerpt:
COWEN: Walt Whitman, not only as a poet, but as a foundational thinker for America. Overrated or underrated?
BROOKS: I’d have to say slightly overrated.
COWEN: Tell us why.
BROOKS: I think his spirit and his energy sort of define America. His essay “Democratic Vistas” is one of my favorite essays. It captures both the vulgarity of America, but the energy and especially the business energy of America. But if we think the rise of narcissism is a problem in our society, Walt Whitman is sort of the holy spring there.
[laughter]
COWEN: Socrates, overrated or underrated?
BROOKS: [laughs] This is so absurd.
[laughter]
BROOKS: With everybody else it’s like Breaking Bad, overrated or underrated? I got Socrates.
[laughter]
BROOKS: I will say Socrates is overrated for this reason. We call them dialogues. But really, if you read them, they’re like Socrates making a long speech and some other schmo saying, “Oh yes. It must surely be so, Socrates.”
[laughter]
BROOKS: So it’s not really a dialogue, it’s just him speaking with somebody else affirming.
COWEN: And it’s Plato reporting Socrates. So it’s Plato’s monologue about a supposed dialogue, which may itself be a monologue.
BROOKS: Yeah. It was all probably the writers.
And on Milton Friedman:
BROOKS: I was a student at the University of Chicago, and they did an audition, and I was socialist back then. It was a TV show PBS put on, called Tyranny of the Status Quo, which was “Milton talks to the young.” So I studied up on my left-wing economics, and I went out there to Stanford. I would make my argument, and then he would destroy it in six seconds or so. And then the camera would linger on my face for 19 or 20 seconds, as I tried to think of what to say.
And it was like, he was the best arguer in human history, and I was a 22-year-old. It was my TV debut — you can go on YouTube. I have a lot of hair and big glasses. But I will say, I had never met a libertarian before. And every night — we taped for five days — every night he took me and my colleagues out to dinner in San Francisco and really taught us about economics.
Later, he stayed close to me. I called him a mentor. I didn’t become a libertarian, never quite like him, but a truly great teacher and a truly important influence on my life and so many others. He was a model of what an academic economist should be like.
Recommended. (And I actually thought David did just fine in that early exchange with Friedman.)
Blockchains and the Opportunity of the Commons
Tyler asks which goods and services are most likely to be bought and sold on a blockchain that is paid for with token issuance and appreciation?
- The services with high mark-ups? Low mark-ups?
- Big consumer bases?
- Well informed and well coordinated consumer bases?
- “Influencer” consumer bases, in the Gladwellian sense?
- “Trivial” consumer bases, that you don’t mind risking?
- Some other properties?
I will go with 6. Blockchains and tokenization are a way to incentivize the creation of a commons. A commons is an unowned place, platform, or protocol that helps people to meet, communicate and transact. Commons underlying modern life include TCP/IP, SMTP, HTTP, GPS and the English language. We don’t see these commons clearly because they are free, ubiquitous and, like air, taken for granted. What we do see are platforms like Airbnb, Uber and the NYSE and places to meet and communicate like OkCupid, Twitter, Facebook and YouTube. What blockchain and tokenization offer is the possibility of creating commons to replace all of these services and much more.
As the examples of AirBnb, Facebook and YouTube indicate, it’s possible for private firms to create platforms that serve the same purposes as a commons but these platforms are not a commons since they are privately owned. Private ownership is great but not without tradeoffs. Bill Gates hinted at one problem when he defined a platform:
A platform is when the economic value of everybody that uses it, exceeds the value of the company that creates it.
The platform dilemma is that a company that controls a platform wants to maximize the company’s value rather than the economic value of everybody that uses it. Company value and social value are correlated but they are not the same. There are three problems. First, the company will want to grab up as large a share of the social value as possible. That’s ok for efficiency but not ideal for platform users who, because of network effects and coordination issues, may find that they need to use the platform even though it leaves them with only a small surplus. Second, the company may take actions that increase its value but reduce social value. On some margins, for example, Facebook and YouTube profit from advertising that reduces social value. The third problem is that in creating a platform where many people meet and transact, a small number of companies come to control and access more data than may be ideal. Big centralized data is worrying for libertarian reasons but also because big, centralized data is a honeypot for bad actors and hence insecure.
The first set of internet commons like TCP/IP and HTTP were created by government and independent researchers. The unique use-case of blockchains is that blockchains can be used to incentivize the creation of unowned platforms, i.e. commons. The creator of a blockchain need not control the blockchain and indeed can credibly commit not to control it. Thus, the creator of a blockchain can commit to never taking actions to maximize profit at the expense of social value and it can commit to never taking actions to redistribute more of the social value to itself. The blockchain creator, however, can be rewarded through token issuance. Moreover, since the value of the token and the social value of the blockchain are positively correlated the blockchain creator has strong incentives to create a commons that maximizes social value.
To give an example, LBRY–one of the blockchain firms that I advise–is a kind of YouTube on the blockchain. The protocol that LBRY has created is unowned. LBRY’s incentives are to create something that will maximize the value of both content creators and content consumers. The social value created could well exceed that of any owned platform and if LBRY earns a small share of this social value they will be well compensated. Token issuance and appreciation is what incentivizes the creation of the commons.
Creating a commons on the blockchain isn’t easy, however. Decentralized institutions are much more difficult to design than centralized institutions. Decentralized databases are a big advance but making them work at scale-size and speed is a challenge. Precisely because the blockchain is unowned the designers have to get much more correct, right out of the gate. Changing a commons on the fly, forking, is costly, disruptive and not always possible. All of this explains why in the history of the world almost all decentralized institutions, such as markets and language, were not designed but arose through evolutionary forces. Hayek called decentralized institutions spontaneous orders because he implicitly assumed that all such decentralized institutions were spontaneous, i.e. unplanned. Only in very recent years have economists and computer scientists developed the understanding and tools that are necessary to design decentralized orders–orders that are planned but not controlled. Today smart contracts on blockchains like Ethereum have the potential to create a sophisticated set of global common resources that will form the foundation for much of the economic and social structure of this century–this is the opportunity of the blockchain commons.
Markets in everything
Meditation app Calm provides what it calls “bedtime stories for grown-ups” (an eclectic mix of lullabies, fairy tales, and short stories in audiobook form). But it’s now added highlights from the GDPR legislation to its roster, narrated aloud by former BBC radio announcer Peter Jefferson, who is famous in the UK for his readings of the Shipping Forecast — a nightly maritime weather report that’s cherished by non-maritime listeners for its repetitive and ritual qualities.
Jefferson doesn’t read the entire legislation (“which would take more than all night”), but he picks out more than half an hour of material, which is enough to send anyone to sleep. You can listen to an excerpt for yourself below, or download the app from Google Play or the App Store. Unfortunately, you have to pay to unlock the full GDPR reading (and a number of other Calm features), but you can test them all with a seven-day free trial.
Here is more, via the excellent Samir Varma.
GDPR is centralizing the market
GDPR, the European Union’s new privacy law, is drawing advertising money toward Google’s online-ad services and away from competitors that are straining to show they’re complying with the sweeping regulation.
The reason: the Alphabet Inc. GOOGL +2.58% ad giant is gathering individuals’ consent for targeted advertising at far higher rates than many competing online-ad services, early data show. That means the new law, the General Data Protection Regulation, is reinforcing—at least initially—the strength of the biggest online-ad players, led by Google and Facebook Inc.
Here is the full WSJ story.
The ongoing experiment with bootstrap equilibria, also known as tokens
There are many economics papers on bootstrap equilibria, for instance if agents in an economy expect it will do well, maybe that translates into actual results through the mechanisms of confidence, investment, and so on.
Right now we have a huge and unprecedented laboratory for testing claims about bootstrap equilibria, namely crypto and in particular the markets for tokens. Imagine you are a private entrepreneur, and you have a new idea for how a money or store of value should be run. Yet, to give your asset some value, you need to convince others your idea is valid.
One option is to write better software than that governing existing crypto-assets.
Another option, increasingly popular, is to use your market power in some good or service to make your “gift certificate” (read: token) more focal. Let’s say for instance that you have invented a new computer game that in some regards is better than that of the competitors. The “old school” approach was to sell the game for a profit, and of course that still often goes on.
Yet there is now another option. Try to cash those potential profits into yet higher profits by using them to build focality for a new money. Issue tokens that can be used to play the game. You hope that will create a demand for the new money you are issuing and thus bootstrap its value. If requiring money to be used to buy a “get out of jail card for having paid your taxes” works for Uncle Sam, might not “get to play this computer game token/card” give your money positive value too?
Let’s say the market can support 4000 different monies, one public the others private. In equilibrium, which are the services that get tokenized? Is it?:
1. The services with high mark-ups? Low mark-ups?
2. Big consumer bases?
3. Well informed and well coordinated consumer bases?
4. “Influencer” consumer bases, in the Gladwellian sense?
5. “Trivial” consumer bases, that you don’t mind risking?
6. Some other properties? What I observe so far is that crypto-assets are being created by nerdy tech types, and thus they are linked to goods and services that also are created by those same nerdy tech types — a classic economies of scope, lack of trust on the supply side question. I doubt if many of the top executives at Nordstrom are sitting around wondering whether their next Fall sale should be attached to a crypto-token. But exactly why not? This probably boils down to trust issues, rather than any intrinsic suitability of the product.
Is there any good theory paper on these questions?
Note that Heinrich Rittershausen, writing in the early twentieth century, thought that eventually most goods and services would be self-financing through their own currencies.
What theory of bootstraps can we divine from the data on which tokens meet the market test? (Or is it too early to say?…but surely we can start in on a measurement…) Am I correct in thinking that the really successful consumer products just want to take the profits and run, without bothering with tokenization? There is no such thing as an Apple token, is there?
Help! And no, I am not giving away free tokens…for any good or service.
Is surfing the internet dead?
I saw a few people asking this on Twitter lately, but my views don’t quite fit into a tweet. Ten to fifteen years ago, I remember the joys of just finding things, clicking links through to other links, and in general meandering through a thick, messy, exhilarating garden.
Today you can’t do that as much. Many media sites are gated, a lot of the personal content is in the walled garden of Facebook, and blogs and personal home pages are not as significant as before. Then there is the email subscription newsletter, whether free or paid. All you can do in fact is visit www.marginalrevolution.com and a few other sites and hope their proprietors have not been sleeping since you last stopped by.
That said, I do not feel that time on the internet has become an inferior experience. It’s just that these days you find most things by Twitter. You don’t have to surf, because this aggregator performs a surfing-like function for you. Scroll rather than surf, you could say (“scrolling alone,” said somebody on Twitter).
And if you hate Twitter, it is your fault for following the wrong people (try hating yourself instead!). Follow experts and people of substance, not people who seek to lower the status of others. And if you’re really feeling the internet to be rather empty, head on over to Twitter search, still the most underrated single thing on the internet today (the MR search function is another underrated corner of the internet). Type in words of interest, such as “Ethiopia,” and what comes up will be gold.
It’s a different method today, and it uses a more centralized portal, but no the internet is not in decline. Not yet at least.
Ben Thompson on data portability and Facebook
The problem with data portability is that it goes both ways: if you can take your data out of Facebook to other applications, you can do the same thing in the other direction. The question, then, is which entity is likely to have the greater center of gravity with regards to data: Facebook, with its social network, or practically anything else?
Remember the conditions that led to Facebook’s rise in the first place: the company was able to circumvent Google, go directly to users, and build a walled garden of data that the search company couldn’t touch. Partnering or interoperating with companies below the Bill Gates Line, particularly aggregators, is simply an invitation to be intermediated. To demand that governments enforce exactly that would be a massive mistake that only helps Facebook.
Link to the post, with further explanation, is here. You can and should subscribe to Ben here. Here is my earlier post on data portability.
Michael Nielsen, standing on one foot
A highly sophisticated MR reader demanded a dose of Michael Nielsen. I wrote to Michael, and he was kind enough to oblige. Everything that follows is from Michael, here goes:
I started with the question “What might amuse Tyler?”, and it became very easy.
Three opinions that may amuse MR readers:
1. Peter Thiel has said: “We wanted flying cars, instead we got 140 (280) characters.” Thiel is wrong: 280 characters are much, much better than flying cars. Twitter is misunderstood as being an online service; it’s merely the online component of a much improved offline experience. Twitter DM’s are a superpower, one of the most valuable ways of connecting people ever invented. More on one way of using Twitter here.
2. Movies are primarily a visual form; movie criticism and the popular conversation about movies are primarily a literary form, and informed by literary sensibilities. This is why good movies such as Transformers are so underrated. People who dismiss such movies are mostly revealing their own ignorance.
3. Many corners of the internet have a culture of judgement or argument. Typical subtexts in online conversation are: is this good or bad? What’s wrong with it? But until and unless healthy conversational norms are formed, argument and judgement are mostly useless status-seeking by participants. Much better is a “Yes, and” culture.
Three books or papers which should be better known:
1. Elinor Ostrom’s book Governing the Commons. Ostrom dismantles the market / government dichotomy, sketching out ways common pool resources (and, to some extent, public goods) can be provided using non-market, non-government solutions.
2. Alex Tabarrok’s paper introducing dominant assurance contracts. Cryptocurrencies have huge potential as a way of creating entirely new types of market, using ideas like this. This potential is mostly unrealized to date.
3. Bret Victor on Media for Thinking the Unthinkable.
Blog posts don’t really get going until about 5,000 words in. Here are three favourites of mine:
1. Thought as a Technology, on how imaginative designers invent fundamentally new modes of thought.
2. If correlation doesn’t imply causation, then what does?
3. Using Artificial Intelligence to Augment Human Intelligence (with Shan Carter).
Despite the fact I’m well short of 5,000 words, I’ll stop here.
You can follow Michael on Twitter here.
1. In retrospect, was it a good decision to have ethereum bytecodes executed on every single mining node? And if not, would he have selected sharding and plasma or a different solution?
2. How confident is he that transitioning to proof-of-stake will be successful? What are the risks of proof-of-stake?