At best, the investors and exchanges are people who want to reinvent finance but are underestimating its complexity. As Matt Levine says, a lot of crypto is simply repeating financial history’s mistakes. At worst, it’s rich guys teaming up with their buddies to exploit a bubble and help them buy $100 million dollar mansions. It’s time these big companies and regulators stepped to make sure the same standards and data are available to everyone. Until then, buyer beware.
Cryptocurrency is not merely a bad investment or speculative bubble. It’s worse than that: it’s a full-on fraud.
The CryptoArt market is a new way for artists to distribute digital works to collectors: often digital images and video files. The blockchain technology provides secure ownership, traceability, artist commission on second market sales and a thriving market place, with platforms emerging quickly: Nifty Gateway, SuperRare, MakersPlace.. It’s a vibrant and welcoming community, a place to discuss the works with collectors, and it brings a lot of benefits that the Art market fails to provide.With no travel involved, and a mostly digital distribution, this new model looks like it has the potential to become a sustainable practice for artists. That’s until you understand the magnitude of the environmental impacts of the current blockchain: It is a DISAST
Discussions of cryptocurrencies and other blockchain technologies are bedeviled by a nearly universal assumption that attributes that are possible to achieve in theory are guaranteed to be realized in practice. Examples include decentralization and anonymity.Back in June David Gerard asked: How good a business is running a Lightning Network node? LNBig provides 49.6% ($3.7 million in bitcoins) of the Lightning Network’s total channel liquidity funding — that just sits there, locked in the channels until they’re closed. They see 300 transactions a day, for total earnings on that $3.7 million of … $20 a month. They also spent $1000 in channel-opening fees.Even if the Lightning Network worked (which it doesn’t), and were decentralized (which it isn’t), Gerard’s point was that the transaction fees were woefully inadequate to cover the costs of running a node. Now, A Cryptoeconomic Traffic Analysis of Bitcoin’s Lightning Network by the Hungarian team of Ferenc Béres, István A. Seres, and András A. Benczúr supports Gerard’s conclusion with a detailed analysis.
The supposed disruptive and transformational potential of blockchain or distributed ledger technology (DLT) has received widespread attention in the media, from legislators, as well as from academics across disciplines, including law, over the past few years. While much of this attention revolved around the cryptocurrency Bitcoin (and its numerous cryptocurrency offshoots), many see the real promise of blockchain technology in its potential use for organising transactions in real assets, including shares and other securities, as well as for facilitating self-executing “smart contracts”, which replace vague and imprecise natural language with precise and unambiguous computer code.
Focussing mainly on non-currency applications of blockchain technology, I present a simple legal argument that seeks to demonstrate the impossibility of a meaningful blockchain-based economic system. I argue that features present in all major legal systems mean that real assets cannot be traded on blockchain-based systems, unless design choices are made which necessarily remove all advantages the technology offers over existing solutions. The same argument is shown to apply to so-called smart contracts.
The paper further argues that there is no reason to expect legislators to change current legal principles in sufficiently dramatic fashion so as to carve out a space in which (non-currency) applications of blockchain technology can usefully be implemented, since the oft-promised potential efficiency gains supposedly stemming from the adoption of the blockchain technology are based on a flawed analysis of costs and benefits. Legal and practical obstacles therefore mean that, outside its original and circumscribed realm of cryptocurrency, blockchain technology is highly unlikely to transform economic interactions in the real world. Instead, it is argued that – depending on the specific implementation – blockchain technology is either pointless or useless for transactions in traditional assets.
Keywords: Blockchain, distributed ledger technology, smart contracts, crypto assets, cryptoassets, Ethereum, Bitcoin, DLT
And make no mistake, love it or hate it, Libra is a big announcement.
A few years ago the idea that a major corporation would release a cryptocurrency was laughable, much less a consortium of gigantic multinationals releasing one, including stalwarts of the old world financial system like Visa and MasterCard.
But it’s bigger than that. It’s a turning point in monetary history.
It’s an ELE, an Extinction Level Event for the old financial world order. When historians look back they may just point to this moment as the catalyst.
But what does the future look like? How does it all play out?
Are we racing towards a financial renaissance or a cyberpunk nightmare of oligarchical mega-corporations ripped from the pages of William Gibson?
To find out, I do what I do always do, dive in head first and start reading and listening. I connected with people all over the community, asked my patrons to send me the best articles they could find, and I read Facebook’s whitepaper and the corporate propaganda (aka marketing).
What did I find?
Come with me as I show you a brave new world of digital currencies and an all-out war between the titans of industry and the massive nation-states of the modern world.
Eyes Wide Shut and Empire of Tomorrow
To start with, while I’m not afraid to eviscerate what I despise about Libra, I absolutely refuse to throw the baby out with the bathwater.
Just because I hate many aspects of this platform, doesn’t mean there’s not a lot to love.
And there’s a lot the crypto community can learn by paying close attention to what Facebook did here even if this all plays out like a bad episode of Mr. Robot and E-Corp brought to life.
They delivered on three of the five keys to crypto evolution, namely scale, distribution and the killer app. That alone might be enough to conquer the known world.
They also added a few more innovations pulled from the best of the best projects out there.
We’ll start with the user experience. Let’s face it, the user experience in crypto is utterly hideous. Crypto apps are almost universally ugly and impossible to use for the average person. They’re even hard to use for engineers. Early versions of Netscape were better looking.
Crypto apps will never work like this in the future:
You go to an exchange, sign up, get logged in, verify your account, get KYCed, set up two factor authentication, wire in fiat money, buy some crypto, download a wallet, and then load up a wallet just so you can download and use a decentralized version of Instagram to look at cat pictures.
It just cannot work that way for regular people. Try getting your mom into crypto. If you can do it in less than two weeks you’re a genius. This was never the path to global user adoption.
Without a better UX, crypto won’t even get out of the gate.
In 2017, I pointed to WeChat and its ubiquitous mobile messaging platform as the interface of the future. A lot of big crypto project builders came to the same conclusion. We saw Status raise $100 million. Telegram raised a whopping $1.7 billion privately to build their next generation blockchain, messaging and mobile currency platform. Kik saw the same vision of a mobile peer to peer money and chat app.
But Facebook beat them to the punch with tremendous global reach, deep pockets and a consortium of corporate heavyweights who signed on as founding members of the Association, including Visa, MasterCard, Stripe, Paypal, Lyft, Ebay, Uber, Vodaphone, not to mention VC titans like Andreessen Horowitz.
Just as Amazon had the power to make their Kindle ebook reader a platform with their combination of money, tech savvy and connection to book sellers big and small, Facebook and the masters of the financial and tech world have the power to create a platform and push it into the hands of billions.
And Facebook has interfaces down cold. They know how to build a compulsively clickable social media platform and their WhatsApp chat client is one of the most widely used in the world, as is Instagram, the standard social media app for the me generation.
Facebook’s Calibra wallet will easily integrate into WhatsApp, Messenger and Facebook itself. It already looks super simple and easy to use, with the wallet sporting a clean and beautiful UI. Every single project in crypto should go out right now and spend some of their millions of dollars in ICO money on hiring a team of brilliant UI/UX developers. Otherwise it’s an extinction level event for your platform. If it’s not easy to use, it’s DOA.
Killer app solved.
Let’s move on to scale, business model and the power games of multinational corporations.
A number of writers have pointed out that Libra’s consensus system looks a lot like Proof of Stake, but it’s more accurate to say it functions like Delegated Proof of Stake, popularized by EOS and other platforms. It’s a Byzantine Fault Tolerant system based on HotStuff, a consensus system created by researchers at VMware, Cornell and UNC Chapel Hill. Basically they have a bunch of giant validator nodes that process transactions on the network, while risking their own money if they try to cheat the system.
Delegated Proof of Stake is one of the fastest consensus systems in action today, scaling to thousands of transactions per second, versus the paltry 7 of Bitcoin and 15 of Ethereum.
Of course, those big company Association members, like Visa and Mastercard, all paid $10 million dollars for the privilege of functioning as validators on the network.
Why would they do that?
Because they’re going to make a lot of money.
And that is where the business plan comes into clear focus. Facebook built a killer business model for their validators. Before any of them develop a single app for the ecosystem they will rake in money hand over fist.
Unlike other cryptocurrencies with a fixed money supply that’s slowly released over time, Libra’s currency gets created or destroyed as money comes into the system. If you exchange $50 for Libra, the equivalent amount of Libra coins are minted. If you take money out of the system, the money gets destroyed.
A number of writers pointed out the similarity to the IMF’s SDR (Special Drawing Rights) system but it’s better than SDR and goes a lot further. In fact, it’s borderline genius.
Here’s how it works. Libra is backed by a reserve of fiat money. That will work out to a beautiful ROI for the validators. Fiat money will flow in from all over the world as people change it out for Zuckbucks. The validators could hold that money, invest it, swap it and trade it. If they hold it in the traditional banking system the interest alone is enough to make their original $10 million dollars look like chump change.
In other words, the validators keep the interest and you get nothing.
Your Internet funny money won’t increase in value like many other cryptos, so you won’t get interest and you won’t get new value. That’s because the Libra coin is designed to stay stable. It won’t swing wildly like Bitcoin and the other deflationary coins because it’s pegged to a basket of currencies, like the Yen, Dollar, Euro and Pound, which means it inherits the inflationary monetary policy of central banks.
And that’s just the beginning. This isn’t just a blockchain with some stable money. In fact, it’s not even a blockchain at all despite them using the term over and over in the whitepaper. It’s a post-blockchain, federated database.
According to the paper:
“The Libra Blockchain is a cryptographically authenticated database maintained using the Libra protocol. The database stores a ledger of programmable resources, such as Libra coins. A resource adheres to custom rules specified by its declaring module, which is also stored in the database.”
It also has its own smart contract language, called Move, that looks strong and is designed to avoid the security issues of earlier smart contract systems. Even the first implementation is a good choice, written in Rust because Rust doesn’t face as many security problems as other languages due to its emphasis on safe code.
“With “safe code,” objects are managed by the programming language from the beginning to end. The developer doesn’t do any pointer arithmetic or manage memory, as can be necessary in C or C++ programs.”
But blockchain or no blockchain and new smart contract language or none, what Facebook built is a complete platform and that is what matters most and what the crypto community is missing as they build the future piecemeal.
Platform is the key word here. It all functions in perfect harmony together like a well rehearsed orchestra.
Beyond pulling in huge swaths of fiat money to earn interest, the validators will develop apps and programs to run on the system, as well as goods and services. In other words, it’s a place to buy and sell things.
That makes it a post-blockchain stablecoin, safe smart contract programmable resource manager, messaging system, and ecommerce platform in one.
Ecommerce is the essential component in the mix. Without that, all you have is monopoly money but nowhere to spend it, which is why most coins remain the darling of speculators but almost nobody buys coffee or Playstations with crypto.
If crypto projects want to gain real traction and compete with this mega-platform they need to wise up and build a real business model like what Facebook has done here.
It’s not enough to make money out of thin air if you have nowhere to spend it.
You need an interface, governance, money and things to buy and sell all rolled into one epic ecosystem.
The Return of the Dutch East Indies Company
And that brings us to one of the most interesting side effects of the Libra coin.
With a complete ecosystem and ability to drive rapid adoption across Facebook’s billions of users, it will be the first platform to really challenge the sovereignty of state sponsored money, the traditional banking system and the power of the state to print and distribute money.
Who’s not in the coalition is just as interesting as who’s in it.
No banks. Not one.
It’ll be interesting to know if any banks have back end deals with the Association. Its members will be storing a lot of money and banks will want to know the origin of that cash flow.
The choice to peg Libra to a basket of currencies is fascinating as well. By pegging it to a flurry of other currencies they’ve started the planet down the path of ditching the dollar as the default world currency.
The flip side to this argument is that it may actually cement the dollar as the world currency once and for all. As the Association mops up all the fiat in the world they’ll likely turn it into dollars on the back end anyway, so Euros and Yen become Dollars and cents.
Maybe that’s why so many regulators are looking so closely at it. Money is the ultimate in frozen concentrated power and states will not give that power up without a fight, even to the massive corporations backing this brave new coin.
It’s a war the crypto community always knew was coming but never really had the power to win. All the crypto projects to date are a rag-tag insurgency, using guerrilla tactics, staying anonymous and spreading out, but they’ve never had much of a chance standing up against the true might of the state if the state turned the eye of Sauron upon them.
In a way, Facebook just did the community a massive favor.
They’ll draw the fight away from smaller projects and Bitcoin to a more conventional enemy, a top down, hierarchical enemy. This is an enemy the state understands well. There’s nothing states love more than cutting off the “head of the snake.”
But this is no easy fight.
This is a well funded and powerful opponent. The governments of the world aren’t facing eGold, they’re facing the Association, the modern equivalent of the Dutch and British East India companies. All that’s missing is their own company armies. This isn’t some small band of brothers project, working in secret, trying to keep their Github online and their exchanges from getting shut down by hostile governments. It’s an alliance. An alliance with a war chest.
The Association behind Libra has the money and clout to write and change laws. And when their Buy n Large platform boots up, that power will grow with each passing second as more and more fiat money flows into their coffers. Any country that stands in their way will face a flurry of lobbyists and NGOs that will punish regulators and rewrite laws in their favor or starve that government of brand new wealth while other countries flourish.
It’s cyberpunk come to life. Massive multinational corporations against the power of state.
And if cyberpunk tells us anything, it’s that corporations eventually win.
The Sky Above the Port was the Color of TV Tuned to a Dead Channel
For years I’ve warned that if the crypto community didn’t move fast the big boys and governments would take their ideas and warp them to fit the status quo.
That time is now.
If you want to corrupt the free-the-money movement, the formula is simple:
Take a dash of power-to-the-people corporate marketing, like banking the unbanked:
“Reinvent money. Transform the global economy. So people everywhere can live better lives.”
Just like Pepsi selling a fight the man message so you drink more sugary sweet cola, they’ve tugged at our heart strings with all those poor 3rd world people who just can’t get a bank account and buy things.
Next you rope in the old world financial titans who’ve been patenting up the most basic and obvious ideas in the blockchain space to sue the hell out of any competitors to their global hegemony.
After that, make it simple and easy to use so that people who don’t care about trivial things like their privacy because they have “nothing to hide” will lap it up like good little lemmings.
Lastly, trim it all down with key escrow and you’ve safely shut down the crypto revolution.
Don’t worry Citizen, Facebook helpfully keeps your private keys for you so you don’t have any control over your money, just like the regular banking system!
And of course, they won’t tie your money to an ID according to the whitepaper:
“The Libra Blockchain is pseudonymous and allows users to hold one or more addresses that are not linked to their real-world identity.”
But we know that’s not true because “Calibra will require users to go through an intensive Anti-Money Laundering (AML) and Know Your Customer (KYC)” on-boarding for every user.
That’s just one of dozens of contradictions if you look close and read between the lines.
We have a blockchain, non-blockchain. We have a permissioned system that will “transition to a permissionless system” with no explanation whatsoever of how they will pull off that little feat. We have a currency not tied to an ID but an intensive AML process.
Just like the Indian Aadhaar “voluntary” ID system where the system wasn’t supposed to keep people’s history and link it all together, all it took was the Indian government passing a law and now they have to keep the data. Then the government followed that by making an Aadhaar ID essential to open a bank account or keep your bank account open and suddenly voluntary is mandatory and we’ve slid as far down the slippery slope as possible.
Pretty soon a centralized digital ID will be absolutely required just to use the system, all for your protection. And then companies and governments will know everything you do and everywhere you go and everything you spend your money on as they track you with advanced AI/ML algorithms.
If the dream of crypto enthusiasts was to restore self-sovereign money, they failed.
Either that or this is a major setback and the rebel alliance needs to fall back and regroup fast.
Luke lost his hand. The Empire struck back hard.
Vader is and always was your daddy.
These companies took the best ideas of the crypto community and channeled them safely back through known choke points.
Maybe you thought you were working on the hope of the future when you got into crypto? All it would take was some patience and time and you could tunnel your way out of captivity.
You didn’t realize your prison escape club was sponsored by the prison association all along.
You were just tunneling into another part of the prison.
But there’s still hope.
Proprietary platforms often take an early lead because they can do just what Facebook did, design a fabulous interface, scale fast and hurl tons of money at the problem. Eventually though, open platforms catch up. Open source software ate proprietary software in the enterprise and the cloud over the last decade. Every major innovation starts in open source now, whether that is big data, or cloud, or AI.
Open projects are slow moving, made by rebels and misfits standing against the galactic empire. They start off ugly but eventually find their way through a slow evolution that wins out over the directed evolution of proprietary systems.
At least that’s what I keep telling myself.
It doesn’t always work out that way.
Apple builds walled gardens that work surprisingly well and it made them the biggest company in the world.
Sometimes the rebel alliance pulls it out at the last minute, just like in the movies, but sometimes the empire wins.
It’s hard not to get depressed the more I look at Libra.
It’s everything I wanted for the crypto community, scalability, usability and a robust ecosystem of merchants and businesses supporting it with their hard earned money. They even built in a secondary investment coin for their corporate titans, basically a deflationary coin that rewards their oligarchy, and gamified money, because validators can give away Libra as rewards, just like I’ve been pushing for years.
And yet it’s everything that we should hate and fear.
Panopticon money. Lack of control. Identities linked to everything we do so that companies know where we live, where we shop, who we’re sleeping with, who we’re friends with and more. They can track our digital and real life right down to the nanosecond. And they can see through your wallet like Superman seeing through walls and into your past, present and even into your future with predictive analytics. They will control the flow of money and make or break businesses, communities and geographies.
These days, it’s not a shared drill that’s redefining trust and supplanting institutional intermediaries; it’s the blockchain. Botsman now says that the blockchain is the next step in shifting trust from institutions to strangers. “Even though most people barely know what the blockchain is, a decade or so from now, it will be like the internet,” she writes. “We’ll wonder how society ever functioned without it.”
The ambitious promises all sound very familiar.
It’s hard enough to get enterprises that compete with each other to work together as a team, but it’s especially tricky when one of those rivals owns the team.Shipping giant Maersk and tech provider IBM are wrestling with this problem with TradeLens, their distributed ledger technology (DLT) platform for supply chains.Some 10 months ago, the project was spun off from Maersk (the largest container shipping company on the planet) into a joint venture with IBM. But in that time the network has enticed only one other carrier onto the platform: Pacific International Lines (PIL), one of eight shipping lines in Asia and 17th in the world based on cargo volumes.As those involved admit, that’s not enough.
Blockchain has been wildly mis-sold, but underneath it is a database with performance and scalability issues and a lot of baggage. Any claim made for blockchain could be made for databases, or simply publishing contractual or transactional data gathered in another form.Its adoption by non-technical advocates is faith-based, with vendors’ and consultants’ claims being taken at face value, as Eddie Hughes MP (Con, Walsall North) cheerfully confessed to the FT recently.”I’m just a Brummie bloke who kept hearing about blockchain, read a bit about it, and thought: this is interesting stuff. So I came up with this idea: blockchain for Bloxwich,” said Hughes.As with every bubble, whether it’s Tulip Mania or the Californian Gold Rush, most investors lose their shirts while a fortune is being made by associated services – the advisors and marketeers can bank their cash, even if there’s no gold in the river.For example, Fujitsu offers fast-track consulting services starting at £9,900 to tell you if blockchain is appropriate for your project (that’s something we can confidently tell you for nothing: no, it isn’t).And the magic B-word enabled doomed tech quango Digital Catapult to conduct a Houdini-like escape.Now that’s magic.A modest proposalPerhaps technology consultancy and marketing should be as tightly regulated as financial consultancy, where mis-selling can (in theory) lead to a lifetime ban from the industry, something the US Securities and Exchange Commission can do for people who violate securities law, like Michael Milken.
A new study that was undertaken by Queen Mary University of London and the University of Cambridge, UK, came to some interesting conclusions about how blockchain could fit into the EU’s complex regulatory structure.