Ouija Board Consensus – Decentralization Myths: Part 4

This is the fourth part of a multi-part series on the myths of decentralization. You can read the previous installments here:

Part 1 – Decentralization Redefined
Part 2 – Decentralization Myth
Part 3 – Decentralization comes with People

I’ve written quite a lot about the misconceptions and deliberate misdirection that some proponents in the Bitcoin community choose to spread around in order to shape the public perception of what makes Bitcoin valuable, and as a result change the fundamental value proposition of Bitcoin.  As you all should know by now, “Value does not exist outside the consciousness of Man” – Carl Menger.  So changing people’s consciousness by way of affecting their ideas, affects the value of Bitcoin.  Thus it is important that we re-evaluate our notions of why Bitcoin is valuable every so often with a huge dose of skepticism.ouija_board

In today’s article, I’d like to review what the fundamental security model of Bitcoin is, as intended by its mysterious creator, Satoshi Nakamoto, (at least in my interpretation of it) why that model is the best we can possibly hope for, and why any further attempts at adding extra layers of ‘security’ on top of this model just ends up making it less secure by making it more centralized.

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Core Segwit – Thinking of upgrading? You need to read this!

So, voting on core’s implementation of Segwit is now enabled, and all 3 of the miners that support core have already cast their vote (2 pools and 1 cloud mining MLM), totalling about 23% of the network.  Adoption seems to have stalled (as of 4Dec16) as the rest of the undecided vote remain undecided.  Perfect time for an analysis breakdown of segwit, the good, the bad, and the ugly.

Segwit, the [un?]controversial softfork

Segwit, the [un?]controversial softfork

Segwit has been called a ‘much needed upgrade’ to the network by core proponents, which has a somewhat jury-rigged way of expanding the effective block size of a block. (to 1.7mb)

Let’s first cut through all the marketing jazz and spin that people supporting Blockstream want to put on it and evaluate it on its technical merits alone, addressing its first its pros, then its cons.

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Hard Fork Risk Analysis: If the worse happens, how bad can it be?

This post is a culmination of about a year’s worth of thoughts and research that I have been informally gathering, which started with a simple question that started last year when I first read a piece which was written in the middle of the Bitcoin XT heyday describing what would be so bad about having 2 persistent forks by core developer, Meni Rosenfeld.

Forks are not scary, they are upgrades!

Forks are not scary, they are upgrades!

The post described the general understanding of forks at the time, and it was in this context that I wrote my original piece which was very much a pro-Core stance on the dangers of hard forks.  I was wrong on some of my assumptions when I wrote that, which I have over the course of the year corrected, but nevertheless that original piece earned me many twitter RTs and ‘follows’ by core devs and supporters at the time (who have mostly now, funny enough, all banned me).

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Bitcoin Fact: Smaller blocks => Financial exclusion => Censorship

I’ll just say it. Small blockers are elitists who want to censor out Bitcoin users who cannot afford to transact on mainchain.  I’ve lost count of how many times I’ve heard the old argument that scaling onchain damages decentralization, which in turn may damage the censorship resistance of Bitcoin.

Free as in Free speech and Free beer!

Free as in Free speech and Free beer!

It is important to realize the hypocrisy in this line of reasoning.  It is subtle, so I bet most of the proponents don’t even know that they are guilty of it.

Simply put, the fee market is a form of censorship. If you cannot pay for a bullet proof car in Mexico city, then you and your family is at risk.  If you cannot afford to install a home alarm system, then you have been prevented, indirectly, from keeping your property safe from burglars.  If you cannot afford insurance, then you are at risk of a fire, or an accident etc.  Similarly, if you cannot afford to pay for the privilege of transacting when you wish in the Bitcoin network, then you must be delegated to 2nd layer networks like Lightning to do your payments. Which will have centralized payment hubs to service you and collect fees from you. How is this any different from the current banking system that we have now?  Isn’t this form of slavery to debt one of the exact reason why Bitcoin was created in the first place to solve?  Why then should Bitcoin treat those of means different from those without?  Shouldn’t all the underserved be equal in the eyes of Bitcoin? Continue reading

On Ponzi’s, Equity Derivatives, and Ethereum

Charles_Ponzi

Many people will talk about ponzi schemes without actually thinking about what that actually means. They say that Ethereum will fail because it was founded on and funded by lies. But when it comes down to it, how are these different from that of the current central banking debt based fiat money system?

Fund first, ask questions later

Ethereum was a project funded with 18m USD of value mostly in BTC. After writing a whitepaper and creating a proof of concept prototype, they hired developers to write it. Most of them were loaned money and worked for free but were promised exorbitant 20% bonuses after the crowd-sale.  They made a windfall after selling ETH before the blockchain was even in operation in what is called an initial coin offering or ICO to the public. Once the money was raised they patted themselves on the back, and all the developers who were promised pay in stock options (ETH) simultaneously breathed a sigh of relief and cheered.

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The DAO: ‘the Way’ — but to what?

Big news for ETH supporters as the DAO finally launched and have their token traded for the first time.  After a day of trading, it seems the DAO tokens closed trading under par. (ETH value).  What went wrong?

If you ask me, the DAO is an ambitious project.  It makes Macbeth look like Ben Carson by comparison. In order to understand it to any degree, first you will need to gather some things:

  1. A bottle of Jack Daniels
  2. The DAO whitepaper
  3. 10 cans of Red Bull
  4. 12 hours of free time, preferably in the dark
  5. some psychedelics
  6. 1 towel

Lock yourself into that dark place, and let nature take its course.  If you need to, use the towel.  After the elapsed time, you may emerge understanding DAO well enough to maybe want to put some money into it, or pray to it.  At which point you really should stop what you are doing, and go to sleep (because let’s be frank here, you are probably drunk and hallucinating) and pick up again in a couple days time.

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Bitcoin: Getting to the Moon 101

Easter weekend.  Family reunions, liturgical services, fasting for some, feasting for others, a time for renewal, time to dispel some crypto myths!

Everyone talks about “going to the moon” in crypto but few if any really knows what that means.  Cypherpunks care about privacy and censorship resistance, libertarians care about political ideology and businesses care about making money. But how many of them actually think through how to get there?

I don’t mean in a metaphoric sense, I mean pragmatically. What is the adoption roadmap? What do we mean by ‘moon’? Price?  Resistance to government usurpation? Censorship resistance? Self sustaining system without any oversight?

True, most people who say “To the moon!” are just pumpers or speculators trying to incite a windfall profit from the penny stock altcoin that they purchased for the express purpose of dumping it for a profit on unsuspecting suckers.  But let’s consider a moment the goal of Bitcoin –becoming a widely accepted alternate money to fiat currencies– how does Bitcoin get to there from where it is today?  What challenges and obstacles must it overcome?  What different stages of development and growth must it evolve through?

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The Decentralization Myth

I have often observed that disagreements between smart people inevitably devolve into a difference of opinions based on assumptions which are either ignored by one or both sides or insufficiently proven, which leads to the construction of a belief system built on top of nothing more than reasonable guesses.  Because of this, it takes a long time before one can peel away the layers of conditional truths before you reach the core assumptions over which the principle disagreement is erected upon. (one needs to look no further than the renewed flat earth movement to see how you can rewrite your entire belief system to support your theory). Over the last month as I have debated with the decentralists on the foundations of their “decentralization is the most important thing about Bitcoin”* argument, I believe I have finally discovered the crux of the dispute, the mistaken assumption, upon which all other conclusions are derived upon, the genesis block of the debate, if you will.

Network_topologiesThe problem comes from the fact that the term decentralization has been overloaded to mean so many different things.  From topological point of view the old graphic from Paul Baran (1964) (inset  right) may seem to provide a good enough definition but only from the perspective of a network topology which is certainly not the common usage of the term today.  More recently some folks have improved upon the definition to more clearly indicate that it is the notion of control (the little puppet master hands in the diagram) of the network nodes that make them more or less decentralized.

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How do YOU measure Decentralization?

The disagreements between the ‘big blockers’ and the ‘small blockers’ in Bitcoin are heating up.  Bitcoin Classic is poised to release its first client to compete with Bitcoin Core, and Bitcoin Unlimited has had its first vote on its new feature set.  It is a time of peril in the galaxy…

Now as the credits fade into the star field background picture a big wedge shaped Star Destroyer with the banner reading “Decentralization” filling the screen.  This word is really the Battle Cry of most crypto-currencies, and as I have written in the past, it is so poorly understood.

decentralisation

Everyone wants it, but few know what it is

It is a repurposed term, that simply describes a quality of network topology, transformed into a rallying call of rebellion.  The problem is that almost everyone that I read or encounter in the industry uses this term as a panacea for all the problems that they see in the world today, without actually knowing what it truly means. They believe it because of faith from authority, and through basic reasoning, that it is good and thus must be fought for without actually knowing why.  This is dangerous, as this is how cults start.  The Cult of Decentralization.

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Part 2 – Mining and The Valuation of Bitcoin

DISCLAIMER: this is an OpEd piece. Opinions expressed are my own. Do not take it as or use it as advice on investments.

In part 1 of this article, I discussed how decentralization is really a measure of security in the network and having a more secure network means having one that costs more to corrupt it than to work within its rules.  This in turn results in a system that is trust-minimized, which means you need to trust 3rd parties less to ensure everyone plays by the rules.  This is the basis of why Bitcoin can actually work as a currency, but you have been reading my blog, so you already knew that, right?

In this segment, I would like to breakdown and explain the components that comprise the Bitcoin price, in terms of economic drivers.  I will apply some high level fundamental analysis on Bitcoin, to see if we can tease out what factors affect it’s price, and whether or not that price is stable.

The current market Bitcoin price is composed of 4 components:

  1. Hoarders Value
  2. Mining economics Value
  3. Speculative Value
  4. Medium of Exchange Value

The first people valued it for ideological reasons, from libertarian anarchists to those from the Austrian school of economic thought.  These are the hoarders and will be the last to sell.

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