Non-Fungible Token Bubble Lasted 10 Months

Although the first Non-Fungible Token was minted in 2014, it wasn't until Cryptokitties bought the Ethereum blockchain to its knees in December 2017 that NFTs attracted attention. But then they were swiftly hailed as the revolutionary technology that would usher in Web 3, the Holy Grail of VCs, speculators and the major content industries because it would be a completely financialized Web. Approaching 5 years later, it is time to ask "how's it going?"

Below the fold I look at the details, but the TL;DR is "not so great"; NFTs as the basis for a financialized Web have six main problems:

1. Technical: the technology doesn't actually do what people think it does.
2. Legal: there is no legal basis for the "rights" NFTs claim to represent.
3. Regulatory: much of the business of creating and selling NFTs appears to violate securities law.
4. Marketing: the ordinary consumers who would pay for a financialized Web absolutely hate the idea.
5. Financial: like cryptocurrencies, the fundamental attraction of NFTs is "number go up". And much of the trading in NTFs was Making Sure "Number Go Up". But, alas "number go down", at least partly because of problem #4.
6. Criminal: vulnerabilities in the NFT ecosystem provide a bonanza for thieves.

A White Swan Event

Bitcoin Fails to Produce 1 Block for Over an Hour by Oliver Knight makes it sound like something went wrong:

It took more than an hour to mine a block of bitcoin (BTC) on Monday, leaving thousands of transactions stuck in an unconfirmed state.

According to on-chain data from several block explorers, the interval between the two latest blocks mined by Foundry USA and Luxor was 85 minutes.

According to Mempool, over 13,000 transactions were pending before the latest block was mined.

Last week Bitcoin underwent a difficulty adjustment to ensure block confirmations kept taking place every 10 minutes. With mining difficulty surging to 35.6 trillion it becomes more expensive to mine bitcoin, which heaps pressure on a mining industry that is dealing with soaring energy prices and a crypto bear market.

But the tail of Knight's post contradicts that:

Tadge Dryja, founder of the Lightning Network, tweeted that an 85-minute interval between blocks can be expected to happen once every 34 days, not taking into account difficulty changes.

Below the fold I explain that Dryja is right, the system is behaving as designed.

The Power Of Ethereum's Merge

The laudable goal of Ethereum's "Merge", the long-awaited transition from Proof-of-Work to Proof-of-Stake, was to eliminate more than 99% of the massive environmental damage caused by Ethereum's consuming about half as much power as Bitcoin. There are many reasons to criticize Proof-of-Stake, but the Merge definitely achieved this goal. We can no longer point the finger at Ethereum and its users and claim they are wrecking the climate half as much as Bitcoin.

However, as usual when cryptocurrency advocates tout claims like "more than 99%" it is necessary to apply skepticism. From the planet's point of view the issue is not whether the Merge reduced Ethereum's carbon emissions, but whether the Merge reduced the carbon emissions of cryptocurrencies as a whole. The answer is "not so much". Below the fold I discuss the details and estimate the real reduction to be ~35%, because most of the power has been diverted to mining Bitcoin.

The "DNA Typewriter"

It is time to catch up on a few developments in the field of storing data via chemicals, such as DNA. Below the fold I discuss a half-dozen recent reports.

Piercing The Veil

In Deconstructing ‘Decentralization’: Exploring the Core Claim of Crypto Systems Prof. Angela Walch gets to the heart of what the claim that a system is "decentralized" actually means:

the common meaning of ‘decentralized’ as applied to blockchain systems functions as a veil that covers over and prevents many from seeing the actions of key actors within the system. Hence, Hinman’s (and others’) inability to see the small groups of people who wield concentrated power in operating the blockchain protocol. In essence, if it’s decentralized, well, no particular people are doing things of consequence.

Going further, if one believes that no particular people are doing things of consequence, and power is diffuse, then there is effectively no human agency within the system to hold accountable for anything.

In other words, it is a means for the system's insiders to evade responsibility for their actions.

If the system were truly decentralized, with a large number of insiders none of whom had significantly more power over it than any other, this veil might be effective. But this is never the case in the real world. As I described in Are Bloockchains Decentralized?, based on Prof. Walch's work, the report from Trail of Bits and Kwon et al's Impossibility of Full Decentralization in Permissionless Blockchains, there are always loci of control behind the veil for regulators to address.

Below the fold I discuss recent moves by US regulators that indicate they agree.