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Sunday, June 27. 2021
The Blockchain and Why It Matters
I know many who follow Maggie's may be unfamiliar, at best, or skeptical, at worst, of Bitcoin or any cryptocurrency. But there is a lot of promise in the technology, and the tokens (Bitcoin, Ethereum, etc.) are modern versions of 'value transmission' which are not unlike money. They represent the value of the technology.
So, to understand why cryptocurrencies are important, it may help to understand the technology. Here is a brief video which explains the tech behind the currencies. Not all blockchains are the same, that's an important thing to remember. Improvements are made almost every day on all the different kinds of blockchains, and their uses. It's my personal opinion that the next 'big' one may be Cardano, as it has solved many issues behind the concept of 'smart contracts'.
For what it's worth, if you've heard of NFT (Non-Fungible Tokens) and still aren't clear what they are, the best way to think of them is that an NFT is a representation of a contract of ownership for a product.
Let's say I take a digital photo and I create it as an NFT, and you purchase that NFT. This is like purchasing any other work of art, but instead of getting a certificate which says you own it, you get the NFT. If anyone uses a representation of that NFT, you receive a payment for it. In a way, NFTs are a means by which trademarks and copyrights may be enforced more effectively (there are still issues with this, but they are being overcome).
So while NFTs are not cryptocurrencies, they operate within the cryptocurrency 'system' because they utilize the blockchain (and many utilize cryptocurrencies as a means of payment). While a currency is fungible - that is, it can be exchanged or used for a variety of different things - many things of value are not fungible (or at least easily fungible). You can use a currency to buy a loaf of bread, or instead of bread you can use it for soup, or a pack of gum. It's fungible because it can be used to purchase any substitutable product or service. A work of art is non-fungible because, well, you're not paying for a cup of coffee with that Degas print you purchased.
Posted by Bulldog in The Culture, "Culture," Pop Culture and Recreation at 14:07 | Comments (20) | Trackbacks (0)
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If I am in control of electricity and I turn it off (the grid), does block chain still work?
How do we make sure the authoriities don't do this to other countries or peoples?
What if a virus is enabled into every computer to control the block chain?
It calls for a lot of trust in an untrustworthy time.
Exactly, 1) the video shows the chain of title for a piece of land. Even title companies don't do that right all the time so ordinary citizens will understand what they see? 2) You're cutting out lawyers, good luck with that one, Bulldog can't like that very much. 3) Certainly something to think about, thanks Bulldog for posting.
Quantum computing, theoretically, can 'break' the blockchain. Viruses aren't likely to. Nothing is impossible, though.
That said - do you 'trust' the current system?
Do you 'trust' lawyers and banks?
Generally I do not. But markets THRIVE on trust. Without trust, our nation would not exist. Our world would not exist. I know it seems odd - most people think we have systems to assure trust. WRONG. Our systems only provide a veneer of options to punish if those who break the trust are caught and can be prosecuted - which sometimes they CAN'T.
So yes, people will trust this more than our current system. Because it's transparent and AUDITABLE - unlike many current financial exchanges today (I know, having done several audits in my own industry and realizing the level of 'fudging' that goes on to pass an audit).
Now I did mention quantum computing is a potential threat - but they already working on methods of using quantum computing to improve and update the blockchain - and overcome those obstacles - because cryptos are open source programming. Nobody "owns" them except the people who own the 'coins'. Crypto is the most democratic system of finance available.
As the grid decentralizes (as it is, slowly - just like crypto), the answer will be yes.
Let me twist your question another way, and this also addresses some of the questions regarding 10,000 cryptos in the comment below.
When governments fail, do their currencies survive? In most cases, no. Assuming our governments are all stable, or will survive, is a leap of faith which provides the support for all modern currencies. It works until it doesn't anymore.
Cryptos, too, will rise and fall. Some are better than others, or will do certain things better than others. Nation 1 may find Bitcoin to work best for them for X, Y and Z reasons, while Nation 2 may find Ethereum or Cardano to be better.
What cryptos CAN do - and indeed are doing right now - is playing a role that no currency can provide. They are essentially a clearinghouse for determining the real value of all major currencies. As Bretton Woods developed, in order to maintain fixed rates, Keynes recommended the development of a worldwide "currency" to act as a clearinghouse - the Bancor. Having surpluses or deficits in Bancor (as a result of trade imbalances) could provide a means to rebalance trade.
Unfortunately, things like this rarely work the way they are proposed, and as supranational currencies go, Keynes' idea was set aside for a less useful or beneficial Special Drawing Rights (SDR), which allowed the dollar to become the primary reserve currency (a great benefit to any nation which wants to inflate its way out of economic woes - again, a concept that works until it doesn't anymore).
Cryptos, being transparent (rather than opaque like our modern Federal Reserve system) and auditable (unlike our Fed) means that rebalancing reduces shocks and eases imbalances.
It's easy to see why cryptos look like a Ponzi scheme, if you don't understand them or the technology that underlies them. And some may very well be like Ponzi schemes (I'm convinced Dogecoin is, though I did buy a little of it just because...what do I know?).
But most of them are certainly not Ponzi schemes. "Meme" coins like Doge probably are. Really useful ones, like BTC, ETH or Cardano and Algorand, can solve major problems that exist in financial markets by decentralizing major issues of finance.
Suppose there are eventually 1,000,000 cryptocurrencies out there. Will they all have value? How will it be possible to keep track of them all? If they all work on the same technology would some have value and some not? What will differentiate them?
As a vendor, how do you price your goods and/or services in cryptocurrency, particularly if there are multitudes of them?
My hat's off to you for getting rich in cryptocurrency, but for the life of me I don't know why anyone would accept electrons backed by no one, in exchange for tangible goods and services.
Cryptocurrency looks like a cousin to the ponzi scheme to me, with a few very rich winners and scads of losers when the music stops.
I guess it's all too complex for my feeble mind to understand.
I sure understand the skepticism but at this time in the world their are no currencies, crypto or paper, that are backed by anything other than faith in the government or the currency provider. At one time the Swiss and the US had a backed currency but that is no longer true. It is interesting to follow currency valuations, including cryptos, on Elliott Wave International.
>Suppose there are eventually 1,000,000 cryptocurrencies out there. Will they all have value?
There might be a million non-crypto currencies today. Think of all the loyalty programs, travel points, video game currencies, etc. They all have objective "value" because people can and do exchange dollars and/or labor to get them.
Going back further in history, it was common for banks and companies to issue local currency and/or negotiable instruments.
>How will it be possible to keep track of them all?
You won't (or only via an computer agent of sorts). You'll only mentally keep track of a couple that are relevant to your niche in life.
Great answer, thank you.
I was going to respond today that, back in 1987, I remember an article that said "Frequent Flyer Miles are a new currency". That was, in fact, not really true. But there were elements of truth. It wasn't true because there was no market for FFMs back then, at least not a well-connected and verifiable one.
In addition, in the years since, multiple articles have been written about other loyalty programs which represented "new currencies" - fact is, most of them aren't REALLY currencies. But more like "local currencies" that you mentioned which were common years ago (and not so long ago - think Ithaca Hours and other local 'currencies').
Cryptos will help these programs do more, over time, and act as the grease for the system to interlink them all effectively. After all, what good are 1mm FFMs for United to me if I'm not flying? Not much. But if crypto markets can help me transform these into something more useful (and this is being developed), then suddenly FFMs on United/American/etc have gained a unique value.
You can track your cryptos quite easily. Just like you can track your points. Or your bank account.
I like gold, too.
But gold has a host of problems, such as questions of ownership as well as the chance of having it devalued by cutting it with other metals. If I don't know enough about gold, and I buy some, or take some for exchange of goods/services from you - and you devalue it by mixing it with another metal, I may not realize it.
Physical possession does solve the other problem of gold - but it's a problem that most people who 'own' gold don't even know they have. They are just holding a piece of paper that says they own some gold in a vault somewhere. Except if those slips of paper were all cashed in at once, there's not enough gold to fulfill all the obligations, because the gold in the vaults is 'loaned' out several times over on paper.
On the one hand, a vault can 'sell' gold to me on paper and then loan it out to a short - the paper claims 'balance out' and the only person who actually owns it is the original owner....until I decide to come collecting it, creating a short squeeze. Then things get very messy.
That's the value of opaque financial systems - you can play these kinds of games and nobody is the wiser. But cryptos can't be played that way (yet...and maybe never).
Junk silver coins are probably the safest precious metal investment as most people recognize what they are and few would try to counterfeit dimes and quarters pre 65. I think the old pre 65 dimes are now worth about $2.20 apiece.
Nailed it! Which is why Our Betters insist that "gold is not money!!!"
When the people behind Bitcoin had disagreements about the technology and a techno-schism occurs resulting in TWO e-currencies where once was one, THAT makes me distrustful of the whole concept. Where one schism can happen, another can as well, and another and another.
Let's face it, geeks and nerds are not the most socially-stable folks around and possessed of the ability to resolve disagreements.
That's not technically true.
Forks are common. There are good reasons for forking. Just because programmers have differences and then fork the programming doesn't mean the system is compromised. It's pretty common in open source coding.
Useful? yes. Ubiquitous? Maybe in certain situations such as the online distribution of copyrighted content, but as ubiquitous as a greenback or a credit card? I'd say the jury is still out.
Lots of money, and even things that are somewhat substitutes for money like stocks or bonds and revolving credit, exist only as notations in somebody's ledger already. Converting those entries into crypto imposes a cost, and nobody's going to pay that cost without good reason. If you're in a low trust situation like people reusing copyrighted content on the internet you're willing to pay the cost to make up things like digital NFTs. Making all those book entries into NFTs or other cryptos implies a move from a high trust to a low trust environment. If that's the situation then it's likely we've got way more important things to worry about. Welcome back Weimar, for example.
Gold and silver are bets against currency collapse. In which case, you need guns and ammo. In fact, in an economic collapse, ammunition becomes money, a .22 lr for a quarter, etc.
It depends on what you mean by collapse. Are we talking Zimbabwe/Venezuela style hyperinflation, a return to the Dark Ages, or Mad Max.
“And give themselves the sole authority to change”
Ahh, yes. Perfect, incorruptible elected officials in charge of the data.
I can feeeeeeeel the trust growing and building.
Cryptos as currency probably won't be used in the mainstream until many people are familiar with using them for other, more boring purposes. Contracts, proof of purchase or ownership, shipping and receiving, warranties, etc.
What I don't understand is why BTC and ETH are consistently the top coins. They're both relatively slow and expensive to use. Other than brand-name recognition and behind-the-scenes manipulation, is there any good reason why they are so valuable?
Much like socialism, he theory and principles behind blockchain technology are sound (or at least sound reasonable). It's the implementation - or rather the implementers (the people using it) - that is the problem. We are relying on humans with non-binary, analog thinking to consistently and reliably think in digital and binary terms. Might as well expect cats to bark.