Metastablecoins

Source

Ever since the Global Financial Crisis (GFC) in late 2008, central banks have kept real interest rates close to, and for much of the time below, zero. Around the beginning of this year it started to become obvious that the end of the era of "free money" was approaching, and that interest rates were going to go up. That real interest rates haven't yet risen much above zero is because of the rampant monopolization of the US economy; companies with market power have seized on the supply chain crisis and the Russian invasion of Ukraine to raise prices and thus the inflation rate.

Source

Given this flood of "free money" since the GFC, investors bid up the price of assets such as the technology stocks in the NASDAQ index. In The tech sector teardown is more catharsis than crisis by John Thornhill writes:

There is certainly a strong argument that the extraordinary boom in tech stocks over the past decade was largely fueled by the unprecedented low-interest-rate policies in response to the global financial crisis of 2008. With capital becoming a commodity, it made sense for opportunistic companies such as Uber to grab as much cash as VC firms would give them to “blitzscale” their way to market domination.

This madcap expansion was accelerated by funding provided by a new class of non-traditional, or tourist, investors, including Masayoshi Son’s SoftBank and “crossover” hedge funds such as Tiger Global.

Below the fold, I look at how this is now all unwinding.

Storage Update: Part 3

This is part 3 of my storage update; see Part 1, on DNA storage, and Part 2, on SSD reliability. This is Part 3, on the 2022 Library of Congress "Designing Storage Architectures" meeting. The agenda with links to the presentations is here. Below the fold I have comments on some of them.

A "Blockchain Certificate of Deposit"

Front

Thanks to cryptocurrencies being decentralized they can eliminate the middleman, which leads to the fabulous offer from middleman Hex.com to revolutionize my finances that arrived unsolicited in my US mailbox last Wednesday.

How could I refuse to not just "earn up to 38% APY" but also receive "significant price appreciation" from the "fastest-appreciating digital asset in history"? It is a "blockchain Certificate of Deposit" and I know that Certificates of Deposit are issued by banks and are:

Back

a safer and more conservative investment than stocks and bonds, offering lower opportunity for growth, but with a non-volatile, guaranteed rate of return.

Middleman Hex.com says:

This common investment tool is used by hundreds of millions of people worldwide with a market value in the trillions.

HEX uses blockchain technology to offer the same concept without the middleman.

The top national guaranteed rate for a 5-year bank CD is currently 3.15%, so clearly eliminating the bank middleman who seems to be taking a 35% cut means a blockchain CD guaranteed by middleman Hex.com is a winner with no additional risk!

Below the fold I look this gift horse in the mouth.

Probabilistic Fault Tolerance

In our 2003 SOSP "Best Paper" Preserving Peer Replicas By Rate-Limited Sampled Voting (also here, expanded version here) we introduced a number of concepts. The most important was consensus based on sampling the electorate at random, in contrast to the traditional Byzantine Fault Tolerance (BFT), which at every step solicits votes from the entire electorate. The advantages of this mechanism are so significant that, a decade and a half later, it was re-discovered and improved upon in the context of a blockchain protocol. Below the fold I explain our original consensus system, and describe how the basic idea has been adopted and enhanced.

Fixed Supply, Variable Demand

BTC transaction fees

As I've been writing for a long time, because there is an auction for inclusion in the fixed supply of transactions, when no-one wants to transact they are cheap, but when everyone wants to transact they get very expensive. Vitalik Buterin is unhappy about this:

Buterin didn’t predict the rise of NFTs, and has watched the phenomenon with a mixture of interest and anxiety. ... their volume has overwhelmed the network, leading to a steep rise in congestion fees, in which, for instance, bidders trying to secure a rare NFT pay hundreds of dollars extra to make sure their transactions are expedited.

Last Saturday evening I looked at Molly White's invaluable timeline Web3 is going just great and saw that the top two entries summed up this problem to a tee. Below the fold, I explain

Grayscale Bitcoin Trust

Amy Castor's Welcome to Grayscale’s Hotel California is a fascinating account of one of the Alice-in-Wonderland market ecosystems that grew from cryptocurrencies:

Grayscale wants to convert its Grayscale Bitcoin Trust (GBTC) into a bitcoin ETF after flooding the market with shares. GBTC is trading 25% below its net asset value, and investors are rightfully pissed off. Grayscale wants them to be upset with the SEC, but the regulator isn’t really to blame. If anything, the SEC should have warned the public about GBTC years ago.

Below the fold, I provide some commentary:

Meta: Fifteen Years Of Pontification

Fifteen years ago today I posted Mass-market scholarly communication to start this blog. Five years ago today I posted A decade of blogging, and a couple of months later noticed it had exceeded one million page views. Now, the blog has accumulated:

• 812 posts, including my personal all-time favorite, 2014's Economies of Scale in Peer-to-Peer Networks.
• 4038 published comments.
• Over 3.4M page views, of which 367K (~11%) were of last February's short-notice EE380 Talk. Apart from that anomaly, it is an average of about 35K/month.
  

A Downside Of Privacy

Monero claims that:

Observers cannot decipher addresses trading monero, transaction amounts, address balances, or transaction histories.

This is all very well for individuals transacting with each other in the Monero ecosystem, but unless they are cryptojacking (mining using malware), miners need to pay bills for power and hardware in fiat currency. And miscreants using Monero to launder the loot need to convert Monero to fiat in order to buy the Lamborghini. So the Monero ecosystem needs exchanges, and thereby hangs a tale I pursue below the fold.

Ethereum Has Issues

I first wrote about the problem of bots front-running transactions a year and a half ago in The Order Flow, citing Dan Robinson and Georgios Konstantopoulos' Ethereum is a Dark Forest from August 2020 and samczsun's Escaping the Dark Forest. But I should have paid more attention. It turns out that front-running is the tip of an iceberg of fundamental problems that Ethereum and similar systems suffer. In replicating the functions of Wall Street they have replicated, and in some ways enhanced, its pathologies, Below the fold I survey these and related issues.

Cryptocurrency Weekend

It appears that this last weekend was "cryptocurrency weekend" for the mainstream media. The Washington Post and Bloomberg each had three big articles on the topic. Below the fold I comment on them.

Dangerous Complacency

The topic of web archiving has been absent from this blog for a while, but recently Sawood Alam alerted me to Cliff Lynch's post from January entitled The Dangerous Complacency of “Web Archiving” Rhetoric. Lynch's thesis is that using the term "web archiving" obscures the fact that we can only collect and preserve a fraction of "the Web". The topic is one I've written about many times, at least since my Spring 2009 CNUI Plenary, so below the fold I return to it.

Vitalik Buterin vs. Reality

Time's cover story by Andrew R. Chow, The Man Behind Ethereum Is Worried About Crypto's Future, is supplemented by his I Spent 80 Minutes Inside Vitalik Buterin's Brain. Here's What I Learned. What I learned from these two pieces of hagiography was that Buterin is having a lot of difficulty dealing with the failure of Ethereum to live up to the goals he had for it. Below the fold I provide specifics.

Storage Update: Part 2

This is part 2 of my latest update on storage technology. Part 1, covering developments in DNA as a storage medium is here. This part was sparked by a paper at Usenix's File And Storage Technologies conference from Bianca Schroeder's group at U. Toronto and NetApp on the performanmce of SSDs at scale. It followed on from their 2020 FAST "Best Paper" that I discussed in Enterprise SSD Reliability, and it prompted me to review the literature of this area. The result is below the fold.

Storage Update: Part 1

It is past time for an update on storage technology. There is so much to write that I need to break it into multiple parts. Below the fold, I start with two papers reporting developments that could increase the performance of DNA data storage significantly.

Shadow Banking 2.0

Source

Prof. Hilary Allen of American University Washington College of Law has a very important 27-page essay entitled DeFi: Shadow Banking 2.0?. In it, she details a whole other set of externalities that, being beyond my limited understanding of banking and finance, I didn't discuss in my EE380 Talk. Prof. Allen summarizes her work:

TL;DR: DeFi is neither decentralized, nor very good finance, so regulators should have no qualms about clamping down on it to protect the stability of our financial system and broader economy.

Her arguments are supported by a less detailed, slightly earlier paper, DeFi risks and the decentralisation illusion by Sirio Aramonte, Wenqian Huang and Andreas Schrimpf of the Bank for International Settlements. Below the fold I comment on both of them.

It Was 40 Years Ago Today

Sun Microsystems was founded 24^th February 1982, and died 27^th January 2010. I spent 1982 on sabbatical in Amsterdam waiting for the Sun/1 we had ordered to show up. IIRC I visited their initial offices on Walsh Ave. in Santa Clara in early 1983, and joined the company in September 1985. I owe Sun, and the people who worked there, a debt of gratitude I could never repay.

In those early days Sun was an extraordinarily interesting company to work for, and throughout its 28-year history it spawned an incredible number of other startups. One of them was Nvidia, which is currently the 8^th most valuable company in the world, but there are far too many others to list.

In It Isn't About The Technology I wrote:

In the late 80s I foresaw a bleak future for Sun Microsystems. Its profits were based on two key pieces of intellectual property, the SPARC architecture and the Solaris operating system. In each case they had a competitor (Intel and Microsoft) whose strategy was to make owning that kind of IP too expensive for Sun to compete. I came up with a strategy for Sun to undergo a radical transformation into something analogous to a combination of Canonical and an App Store. I spent years promoting and prototyping this idea within Sun.

One of the reasons I have great respect for Scott McNealy is that he gave me, an engineer talking about business, a very fair hearing before rejecting the idea, saying "Its too risky to do with a Fortune 100 company". Another way of saying this is "too big to pivot to a new, more “sustainable” business model".

In the terms that Wall St. imposes on public companies, Scott was right and I was wrong. In the 8 years or so from my talk to the dot-com crash SUNW made the stockholders an incredible amount of money. But then the money stopped, in some ways for the reasons I had spotted. Being right too soon is as bad as being wrong.

Talking Their Book

My EE380 talk gained about a quarter-million page views, thanks to @markrussinovich, a shout-out from Prof. Dave Farber, and an enthusiastic review from Cory Doctorow.

Unusually for my blog, the majority of the comments weren't spam, and almost all passed moderation. Here are some hints that will help your comment survive moderation:

• Long blocks of text without paragraph breaks are completely unreadable.
• Long screeds, even with paragraph breaks, will cause readers to stop reading. This isn't fair to the comments that come after yours. Try to make your point in no more than three short paragraphs.
• It helps if you display technical knowledge. One way to do that is to show that you understand how links are made in HTML. Pasting the URL in as text shows you're ether clue impaired, or too lazy to help the reader.
• Just making a link without motivating people to click on it is rude. Quote a snippet, or at least explain why it should be clicked.

Compared to most authors posting criticism of cryptocurrencies I was very lucky. The reason I started the talk by pointing out that I wasn't "talking my book" is that the discourse around cryptocurrencies has become corrupted by HODL-ers "talking their book", and that their response to critics is often toxic.

Below the fold, I look at this problem.

Inadequate OpSec

The February 8^th arrest of Ilya Lichtenstein and Heather Morgan, accused of laundering the proceeds of the August 2016 theft of nearly 120K BTC from the BitFinex exchange, has been all over the media since, fuelled largely by her double life as a Forbes writer and rapper, and her cringe-worthy social media presence. Inside the Bitcoin Laundering Case That Confounded the Internet by Ali Watkins and Benjamin Weiser for the New York Times is an example.

The technical aspects of how law enforcement identified them and seized much of the loot have gained less coverage. Below the fold I look into this aspect of the case, using what information is public.

Talk For Bace Cybersecurity Institute

I was invited to present to the Bace Cybersecurity Institute. My talk was slightly condensed and updated from my talk to Stanford's EE380 course, which was an updated version of my talk to the TTI/Vanguard Conference last December. The latest text with links to the sources and much additional material is below the fold.

EE380 Talk

I was asked at short notice to fill in for a speaker in Stanford's EE380 course who had to cancel. Below the fold is a hastily updated version of a talk from last December.

Update 28^th February: the video of this talk is here.

USA Number 1!

Early last September, before the Omicron surge, I posted Excess Deaths. It was based on The Economist's excess death model. Back then, the model's estimate for the US was about 250 per 100K. I wrote:

Excess deaths in the US and the UK are far from the worst, but my point is that countries at a similar level of development have done far better, and so have much less well-resourced countries. Had the US done as well as the model's estimate for China (38 vs. 250) about 702,000 more Americans would be alive today.

Below the fold, I look at how Omicron has changed the picture.

List And Dump Schemes

Source

In Alternatives To Proof-of-Work I wrote:

The Chia "price" chart suggests that it might have been a "list-and-dump" scheme, in which A16Z and the other VCs incentivized the miners to mine and the exchanges to list the new cryptocurrency so that the VCs could dump their HODL-ings on the muppets seduced by the hype and escape with a profit.

Now, in "You Don't Own Web3": A Coinbase Curse and How VCs Sell Crypto to Retail, Fais Khan takes the idea of "list and dump" and runs with it:

If coins, especially VC-backed coins, consistently underperformed Bitcoin/Ethereum after listing on Coinbase, that says to me that insiders were waiting for a big, dollar-based exchange to list so they could sell - VCs taking profits at the expense of retail. Those insiders include venture capital firms like a16z and, incredibly, Coinbase’s own venture arm, which has a number of investments listed on Coinbase. Other exchanges like Kraken, FTX, and Gemini are also all active in venture, and have listed their own investments.

Below the fold I comment on Khan's excellent analysis.

Izabella Kaminska

Alphaville's farewell tribute to Izabella Kaminska, their editor since 2017, is So long Izzy, we’ll miss you. They write:

Readers will agree that there is no one quite like Izzy in financial media. Her knack for spotting trends and troubles long before the rest of us, and her ability to combine on-point, esoteric references — from the power structures of classical Rome to Soviet-era state planning and Tom Cruise movies — with a deep knowledge of finance has long made her work a must-read when it comes to everything from payments to crypto to the gig economy.

It is mostly a list of her "greatest hits", and especially about cryptocurrencies they are the cream of an outstanding crop:

• Here she is explaining Bitcoin almost nine years ago.
• Here is her appropriately skeptical take on Craig Wright from six years ago.
• Her two year old take on Real-Time Gross Settlement has a sting in the tail for cryptocurrencies.

They still stand up remarkably well. Here's hoping we haven't heard the last from her.

Elon Musk, Threat or Menace Part 2

Last April I wrote Elon Musk: Threat or Menace? flagging three of his externalities; the carbon footprint of his infatuation with cryptocurrencies, the environmental impact and cost of his infatuation with colonizing Mars, and the threat his infatuation with camera-only autonomy for Teslas posed to innocent bystanders. Last August I followed up with Autonowashing, detailing the incredible "depths of irresponsibility involved in Tesla's marketing".

Josh Wolfe of Lux Capital is a very successful and innovative venture capitalist. Maxwell Strachan interviewed him for The ‘To the Moon’ Crash Is Coming. I think Wolfe captures the essence of the problem:

I think a lot of people took the Elon playbook and basically said, If I just promised the moon, I can get too big to fail, I can just keep raising money as I raise expectations. And if I raise expectations, fundamentals don't matter. The only thing that matters is expectations. And if I can keep leading people—or in some cases misleading them—then it'll keep working if I don't get caught. And if I do get caught, in the case of Theranos or in the case of Nikola [Editor’s note: the electric-truck maker that paid a $125 million after the SEC charged the company’s founder with misleading investors over social media], maybe you pay a fine or you have your day in court, and maybe Theranos founder Elizabeth Holmes is found guilty or maybe the zeitgeist of the day surprises and she's not. But so far, there has been really no great penalty for people whose relationship with the truth is less than ideal.

Musk doesn't care about the truth of his statements, or the impact of his companies' policies, because his wealth insulates him from consequences. If regulators or victims come after him he can tie them up in courts until their resources are exhausted or his fan-bois can make them irrelevant. Since Autonowashing I've been collecting illustrations of this attitude, and the time has come to lay out a sample of them below the fold.

Progress On Storage Class Memory

Storage Class Memory (SCM) is fast enough to be used as RAM, but persistent through power loss like flash. The idea of returning to the days of core storage, when main memory was in effect a storage layer, is attractive in theory. There have been many proposed SCM technologies, such as restive RAM, magnetoresistive RAM and phase-change memory. Intel and Micron got Optane resistive RAM into production, but it wasn't a great success. It wasn't as fast as RAM, but it was a lot more expensive than flash. The main barrier to adoption was that exploiting its properties required major system software changes.

Now, Mark Tyson's UltraRAM Breakthrough Brings New Memory and Storage Tech to Silicon reports on a promising SCM development published by Peter Hodgson and a team from Lancaster University in ULTRARAM: A Low-Energy, High-Endurance, Compound-Semiconductor Memory on Silicon. Below the fold, I comment briefly.

Mainstream Media Catching On

Two of the externalities of cryptocurrencies I discussed in my Talk at TTI/Vanguard Conference were the way decentralization and immutability work together to enable crime, and their environmental impact. How well are mainstream media doing at covering these problems? The picture is mixed, as the two examples below the fold show.

Another Layer Of Centralization

Moxie Marlinspike tried building "web3" apps and reports on the experience in his must-read My first impressions of web3. The whole post is very perceptive, but the most interesting part reveals yet another way the allegedly decentralized world of cryptocurrencies is centralized.

Below the fold, I explain the details of yet another failure of decentralization.

Counterpoint on Venture Capital

My personal experience working with VCs was very positive, but it was (a) a long time ago and (b) they were top-flight firms (Sutter Hill and Sequoia). I've been very skeptical of the current state of the VC industry in Venture Capital Isn't Working and Venture Capital Isn't Working: Addendum. Steven J. Dubner's Is Venture Capital the Secret Sauce of the American Economy? presents a far more optimistic view, as does The Economist's The bright new age of venture capital. On my side of the argument are Fred Wilson's Seed Rounds At $100mm Post Money and the Wall St. Journal's The $900 Billion Cash Pile Inflating Startup Valuations.

Below the fold, some discussion of these opposing views.

Blockchain Gaslighting

In Web3/Crypto: Why Bother? Albert Wenger draws an analogy between the PC and "web3" as platforms for innovation:

The late Clayton Christensen characterized this type of innovation as being worse at everything except for one dimension, but where that dimension really winds up mattering a lot (and then over time everything else gets better also as the innovation is widely adopted).

The canonical example here is the personal computer (PC). The first PCs were worse computers than every existing machine. They had less memory, less storage, slower CPUs, less software, couldn’t multitask, etc. But they were better at one dimension: they were cheap. And for those people who didn’t have a computer at all that mattered a great deal.
...
A blockchain is a worse database. It is slower, requires way more storage and compute, doesn’t have customer support, etc. And yet it has one dimension along which it is radically different. No single entity or small group of entities controls it – something people try to convey, albeit poorly, by saying it is “decentralized.”

Below the fold I explain why this is typical blockchain gaslighting.