Beyond the boring blockchain bubble, TechCrunch

Beyond the boring blockchain bubble

The foolish season resumes. Speculators are piling into the cryptocurrency space in the hopes of–sometimes very literally–making money swift. As I write this Ethereum’s value has halved since June but is still 20x since January. Litecoin is up 12x since then. Even Bitcoin has tripled, again. It seems like everyone now has an opinion on, and a position in, cryptocurrencies.

And hey, if you want to speculate, and casinos seem too sedate and managed to you, then more power to you, leap right in. But for those of us who are interested in the technology, not the money — who think that blockchains are primarily interesting because, unlike most modern technology, they decentralize power — so far this has actually been a mostly disheartening year.

This has been the year of the ICO, in which an astonishing amount of money has been raised by the issuance of fresh cryptocurrencies in exchange for existing ones, the value of which is then inevitably measured in… US dollars, which says something. Tezos, which is basically “a more limber Ethereum” (just as Ethereum was, to vastly oversimplify, “a more supple Bitcoin”) raised

$230 million. Bancor, which “enables anyone to create a fresh type of cryptocurrency,” raised

$150 million. Status, “an open source messaging platform and mobile browser to interact with decentralized applications that run on the Ethereum Network,” raised $95 million. TenX, “Making Cryptocurrencies Spendable Anytime Anywhere,” raised

Do you notice anything that these massive fundraises have in common? That’s right; they’re projects which benefit cryptocurrencies which manipulate and/or hope to supersede other cryptocurrencies. Much, if not most, of the big-money high-profile ICOs this year have been self-referential Crypto Inception. They’re built on the (often unquestioned) assumption that decentralized blockchain apps will be widespread and enormously valuable, and therefore, blockchain tooling and infrastructure will be as well.

That implicit assumption sounds nice; it even sounds plausible, if you squint the right way and accept a few awkward assumptions; but — uh — tooling and infrastructure for what, exactly? Bitcoin has fought its way into a valuable and significant niche as a widely recognized, fairly widely used, decentralized currency and alternative to gold, which is remarkable… albeit as pointed out by Adam Back, CEO of Blockstream, crypto OG, and generally utterly perspicacious man, the rise of other cryptocurrencies is arguably a threat to the entire notion of blockchains-as-currency:

a future where a clone-coin over-takes Bitcoin is not good, as it damages confidence in store-of-value & even digital scarcity as concept.

When you get beyond Bitcoin, tho’, and more specialized currencies such as ZCash and Monero, what exactly are blockchains being used for? Where is the colossal value implied by these eye-popping valuations for ICOs for blockchain contraptions and infrastructure?

35/Bottom line, a cryptocurrency has ZERO fundamental value if the dapp has no value to a human

Well. Uh. About that.

As we will see, most of these projects are unlikely to be useful. And of those that have a chance of being useful, most don’t seem to clearly need the tokens that were sold and don’t have a clear path to provide value to the token holders, or are likely to be quickly forked into less rent-seeking forms.

That’s from a pessimistic but trenchant analysis by Lyle Cantor a whopping six weeks ago. It does not seem any less accurate today. Consider the forthcoming Filecoin ICO; then consider “the analysis Filecoin doesn’t want you to read.” Does this still seem like a healthy market to you? Does it truly?

(Aside from this parenthetical I’m not even going to talk about the millions of dollars’ worth of currency that has been stolen or outright lost because of bugs and/or insecure code. I’m actually not too worried about that in the long run. Every fresh technology is ridden with security flaws early in its lifespan. Think of cryptocurrencies as a technology with massive built-in bug bounties.)

Most blockchain apps we’ve seen to date which aren’t focused on the cryptocurrency space itself address the same few areas: namespaces, identity management, decentralized storage, decentralized cloud computing, and prediction markets. What concerns me is that it remains at best very unclear whether a decentralized solution is better in any of these areas than a centralized one, for anything more than a petite minority of users. As I’ve said before: when it comes to consumer apps, blockchains are the fresh Linux, not the fresh Internet.

The calls for a glorious fully-tokenized fat-protocol future are stirring. I want to believe. But when the rubber hits the road, and they consider concrete examples, these glorious futures tend to come to a screeching halt. They talk of value being collective among all users of the network, instead of accruing to a single company … but they tend to elide the fact that such a network would be slower, more sophisticated, and tighter to use, in exchange for very little end-user value.

Consider Facebook. Imagine that Facebook was a decentralized social network that returned fully half of its revenue (not profits, revenue) to its users. That means the average Facebook user would receive … a entire US$1 a month. That is not enough to make people want to use a clumsier, slower Facebook that innovates far less rapidly. It isn’t enough for decentralized networks to be more equitable. They have to be better. Or they have to do something that centralized networks cannot.

Note that thus far I’ve been talking about public, permissionless, fully decentralized blockchains. “Private” blockchains are a different story. Their demonstrable application there is to substitute the numerous systems involved in any given type of financial transaction with a single collective blockchain. For example: any given credit card transaction requires systematic coordination inbetween five different parties, as entertainingly related in this latest movie from noted cryptocurrency champions Andreessen Horowitz. It would be simpler, more efficient, and presumably cheaper for all worried, to use a common collective datastore such as–you guessed it–a blockchain.

But as for fresh applications of the technology…

— well, gratefully, largely orthogonal to the crypto/ICO bubble, a few have in fact arisen. There is Brave’s Basic Attention Token, which is nothing less than an entirely fresh business model for online advertising. There is Grid+, which “leverages the Ethereum blockchain to give consumers direct access to wholesale energy markets”; it’s early days yet, but the interesting thing here is that the energy market is, when you consider the growth of home solar, also permissionless and decentralized; it seems like a natural fit.

Most interesting of all, there are numerous initiatives attempting to give Ethereum’s “smart contracts” — code which runs to conditionally perform transactions, or not, depending on certain criteria — the actual force of law. OpenLaw from Consensys. The Accord Project. And Mattereum, from Ethereum release coordinator Vinay Gupta and crypto-accountant-philosopher Ian Grigg among others, which:

is the very first Internet of Agreements infrastructure project, bringing legally-enforceable clever contracts, and enabling the sale, lease, and transfer of physical property and legal rights … achieved by using natural language contracts which specifically delegate legal authority to two outer systems: the wise contract on the blockchain, and an arbitration association which treats disputes.

The kind of blockchain true believers who cause my eyes to roll violently are fond of telling things like “code is law,” which, um, good luck wooing a judge of that. But explicitly incorporating code as law is a far more interesting and productive treatment, and opens a road to a entire fresh panoply of applications and possibilities. Which is supposed to be the entire ultimate point of fresh technology.

So speculate if you like, but don’t pay too much attention to valuation bubbles or cryptocurrency prices or even ICOs. Conversely, don’t be dissuaded by the latest surreality there into thinking that the entire blockchain sector is nothing but snake-oil Dunning-Krugerrands. Once you get past the current wave of sheer ignorant greed, I promise you, you’ll find a lot of interesting things going on.

Beyond the boring blockchain bubble, TechCrunch

Beyond the boring blockchain bubble

The foolish season proceeds. Speculators are piling into the cryptocurrency space in the hopes of–sometimes very literally–making money prompt. As I write this Ethereum’s value has halved since June but is still 20x since January. Litecoin is up 12x since then. Even Bitcoin has tripled, again. It seems like everyone now has an opinion on, and a position in, cryptocurrencies.

And hey, if you want to speculate, and casinos seem too sedate and managed to you, then more power to you, hop right in. But for those of us who are interested in the technology, not the money — who think that blockchains are primarily interesting because, unlike most modern technology, they decentralize power — so far this has actually been a mostly disheartening year.

This has been the year of the ICO, in which an astonishing amount of money has been raised by the issuance of fresh cryptocurrencies in exchange for existing ones, the value of which is then inevitably measured in… US dollars, which says something. Tezos, which is basically “a more limber Ethereum” (just as Ethereum was, to vastly oversimplify, “a more supple Bitcoin”) raised

$230 million. Bancor, which “enables anyone to create a fresh type of cryptocurrency,” raised

$150 million. Status, “an open source messaging platform and mobile browser to interact with decentralized applications that run on the Ethereum Network,” raised $95 million. TenX, “Making Cryptocurrencies Spendable Anytime Anywhere,” raised

Do you notice anything that these massive fundraises have in common? That’s right; they’re projects which benefit cryptocurrencies which manipulate and/or hope to supersede other cryptocurrencies. Much, if not most, of the big-money high-profile ICOs this year have been self-referential Crypto Inception. They’re built on the (often unquestioned) assumption that decentralized blockchain apps will be widespread and enormously valuable, and therefore, blockchain tooling and infrastructure will be as well.

That implicit assumption sounds nice; it even sounds plausible, if you squint the right way and accept a few awkward assumptions; but — uh — tooling and infrastructure for what, exactly? Bitcoin has fought its way into a valuable and significant niche as a widely recognized, fairly widely used, decentralized currency and alternative to gold, which is remarkable… albeit as pointed out by Adam Back, CEO of Blockstream, crypto OG, and generally utterly perspicacious boy, the rise of other cryptocurrencies is arguably a threat to the entire notion of blockchains-as-currency:

a future where a clone-coin over-takes Bitcoin is not good, as it damages confidence in store-of-value & even digital scarcity as concept.

When you get beyond Bitcoin, tho’, and more specialized currencies such as ZCash and Monero, what exactly are blockchains being used for? Where is the colossal value implied by these eye-popping valuations for ICOs for blockchain instruments and infrastructure?

35/Bottom line, a cryptocurrency has ZERO fundamental value if the dapp has no value to a human

Well. Uh. About that.

As we will see, most of these projects are unlikely to be useful. And of those that have a chance of being useful, most don’t seem to clearly need the tokens that were sold and don’t have a clear path to provide value to the token holders, or are likely to be quickly forked into less rent-seeking forms.

That’s from a pessimistic but trenchant analysis by Lyle Cantor a whopping six weeks ago. It does not seem any less accurate today. Consider the forthcoming Filecoin ICO; then consider “the analysis Filecoin doesn’t want you to read.” Does this still seem like a healthy market to you? Does it indeed?

(Aside from this parenthetical I’m not even going to talk about the millions of dollars’ worth of currency that has been stolen or outright lost because of bugs and/or insecure code. I’m actually not too worried about that in the long run. Every fresh technology is ridden with security flaws early in its lifespan. Think of cryptocurrencies as a technology with massive built-in bug bounties.)

Most blockchain apps we’ve seen to date which aren’t focused on the cryptocurrency space itself address the same few areas: namespaces, identity management, decentralized storage, decentralized cloud computing, and prediction markets. What concerns me is that it remains at best very unclear whether a decentralized solution is better in any of these areas than a centralized one, for anything more than a puny minority of users. As I’ve said before: when it comes to consumer apps, blockchains are the fresh Linux, not the fresh Internet.

The calls for a glorious fully-tokenized fat-protocol future are stirring. I want to believe. But when the rubber hits the road, and they consider concrete examples, these glorious futures tend to come to a screeching halt. They talk of value being collective among all users of the network, instead of accruing to a single company … but they tend to elide the fact that such a network would be slower, more sophisticated, and firmer to use, in exchange for very little end-user value.

Consider Facebook. Imagine that Facebook was a decentralized social network that returned fully half of its revenue (not profits, revenue) to its users. That means the average Facebook user would receive … a entire US$1 a month. That is not enough to make people want to use a clumsier, slower Facebook that innovates far less rapidly. It isn’t enough for decentralized networks to be more equitable. They have to be better. Or they have to do something that centralized networks cannot.

Note that thus far I’ve been talking about public, permissionless, fully decentralized blockchains. “Private” blockchains are a different story. Their demonstrable application there is to substitute the numerous systems involved in any given type of financial transaction with a single collective blockchain. For example: any given credit card transaction requires systematic coordination inbetween five different parties, as entertainingly related in this latest movie from noted cryptocurrency champions Andreessen Horowitz. It would be simpler, more efficient, and presumably cheaper for all worried, to use a common collective datastore such as–you guessed it–a blockchain.

But as for fresh applications of the technology…

— well, gratefully, largely orthogonal to the crypto/ICO bubble, a few have in fact arisen. There is Brave’s Basic Attention Token, which is nothing less than an entirely fresh business model for online advertising. There is Grid+, which “leverages the Ethereum blockchain to give consumers direct access to wholesale energy markets”; it’s early days yet, but the interesting thing here is that the energy market is, when you consider the growth of home solar, also permissionless and decentralized; it seems like a natural fit.

Most interesting of all, there are numerous initiatives attempting to give Ethereum’s “smart contracts” — code which runs to conditionally perform transactions, or not, depending on certain criteria — the actual force of law. OpenLaw from Consensys. The Accord Project. And Mattereum, from Ethereum release coordinator Vinay Gupta and crypto-accountant-philosopher Ian Grigg among others, which:

is the very first Internet of Agreements infrastructure project, bringing legally-enforceable clever contracts, and enabling the sale, lease, and transfer of physical property and legal rights … achieved by using natural language contracts which specifically delegate legal authority to two outer systems: the clever contract on the blockchain, and an arbitration association which treats disputes.

The kind of blockchain true believers who cause my eyes to roll violently are fond of telling things like “code is law,” which, um, good luck persuading a judge of that. But explicitly incorporating code as law is a far more interesting and productive treatment, and opens a road to a entire fresh panoply of applications and possibilities. Which is supposed to be the entire ultimate point of fresh technology.

So speculate if you like, but don’t pay too much attention to valuation bubbles or cryptocurrency prices or even ICOs. Conversely, don’t be dissuaded by the latest surreality there into thinking that the entire blockchain sector is nothing but snake-oil Dunning-Krugerrands. Once you get past the current wave of sheer ignorant greed, I promise you, you’ll find a lot of interesting things going on.

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