tag:blogger.com,1999:blog-4503292949532760618.post6044938486405199965..comments2024-03-16T18:42:21.178-07:00Comments on DSHR's Blog: The Economics Of Bitcoin TransactionsDavid.http://www.blogger.com/profile/14498131502038331594noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-4503292949532760618.post-38390222274140642722019-11-22T09:23:52.605-08:002019-11-22T09:23:52.605-08:00In Bitcoin’s Fatal Flaw: The Limited Adoption Prob...In <a href="https://philadelphiafed.org/-/media/bank-resources/supervision-and-regulation/events/2019/fintech/resources/bitcoin-fatal-flaw-john-saleh.pdf?la=en" rel="nofollow"><i>Bitcoin’s Fatal Flaw: The Limited Adoption Problem</i></a>, Franz J. Hinzen and Kose John of NYU's Stern School, and Fahad Saleh of McGill University's Desautels School have published a model of the economic behavior of Proof-of-Work blockchains that reinforces Auer's conclusions. Their abstract reads:<br /><br />"Bitcoin remains sparsely adopted even a decade after its birth. We demonstrate theoretically that this limited adoption arises as an inescapable equilibrium outcome rather than as a transient feature. We establish such a result for a wide class of blockchains that employ Proof-of-Work. Our results arise due to three features: (1) an artificial supply constraint, (2) free entry to the validator network,and (3) a need for consensus. Network delay precludes relaxing the supply constraint as a solution. Nonetheless, we demonstrate that permissioned blockchains may obtain widespread adoption, thereby highlighting the need for research on alternatives to Bitcoin."<br /><br />I'm skeptical that the theoretical advantages their model shows for Proof-of-Stake would be realized in practice, as the history of Ethereum shows.David.https://www.blogger.com/profile/14498131502038331594noreply@blogger.comtag:blogger.com,1999:blog-4503292949532760618.post-45409294138854624362019-09-02T20:11:06.782-07:002019-09-02T20:11:06.782-07:00David Gerard notes that:
"A quarter of Light...<a href="https://davidgerard.co.uk/blockchain/2019/09/02/news-tether-clogs-ethereum-quadriga-venue-move-kodakone-sends-copyright-trolling-email-telegram-ton-proceeding-no-official-chinese-stablecoin-lightning-in-decline-dont-be-your-own-bank/" rel="nofollow">David Gerard notes that</a>:<br /><br />"A quarter of Lightning Network channels have closed since March 2019 — <a href="https://cryptobriefing.com/ln-nodes-lightning-network/" rel="nofollow">from 36,200 to 28,000</a>. Reddit <a href="https://www.reddit.com/r/Buttcoin/comments/cw5wan/a_quarter_of_ln_nodes_were_closed_since_this_year/ey8rwzl/" rel="nofollow">comment</a>: “And that is what basically no one talks about. In practice, the LN channels are uni-directional. From small players like myself to large players like gatecoin, bitstamp, etc. There is no channel capacity on the receiving side. Only sending.”David.https://www.blogger.com/profile/14498131502038331594noreply@blogger.comtag:blogger.com,1999:blog-4503292949532760618.post-31971536064771543672019-06-16T20:01:09.396-07:002019-06-16T20:01:09.396-07:00Izabella Kaminska's How blockchain takes us ba...Izabella Kaminska's <a href="https://ftalphaville.ft.com/2019/06/14/1560516935000/How-blockchain-takes-us-back-to-medieval-times/" rel="nofollow"><i>How blockchain takes us back to medieval times</i></a> starts:<br /><br />"The marketing spiel about ... distributed ledger technology (DLT) often promises to liberate financial institutions from the costly burden of having to pledge billions of dollars in margin to clearing houses on the basis that trades complete instantaneously, meaning counterparty risks are eliminated.<br /><br />But this, according to a <a href="https://www.greenwich.com/steampunk-settlement-report-download" rel="nofollow">new report</a> by Greenwich Associates' Ken Monahan, is a wrong-headed way to think about things. Monahan, who in other respects is quite complimentary of DLT, notes that in most cases those savings arguments are moot. This is because what real-time gross settlement of securities offers with one hand it simultaneously takes away many times over with the other hand in terms of pre-funding costs."<br /><br />The report points out the similarity between the various "blockchain instantaneous settlement" ideas and the economic disaster that ensued after the Venetian Senate mandated pre-funding of transactions in 1584.David.https://www.blogger.com/profile/14498131502038331594noreply@blogger.comtag:blogger.com,1999:blog-4503292949532760618.post-81704850207760972682019-05-09T18:28:08.400-07:002019-05-09T18:28:08.400-07:00David Gerard reports on today's release by the...David Gerard reports on <a href="https://davidgerard.co.uk/blockchain/2019/05/09/fincens-guidance-on-crypto-business-models-are-you-a-money-transmitter/" rel="nofollow">today's release by the US Financial Crimes Enforcement Network</a> (FinCEN) of <a href="https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20CVC%20Guidance%20FINAL.pdf" rel="nofollow"><i>Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies</i></a>. It relates mostly to obligations under the Bank Secrecy Act incurred in the process of transmitting value using cryptocurrencies. It looks likely to apply to all possible cryptocurrency exchanges, ICOs, etc. requiring them to observe the Know Your Customer/Anti-Money Laundering laws and other restrictions that cryptocurrencies were invented to evade. And in particular it looks like a <a href="https://davidgerard.co.uk/blockchain/2019/05/09/fincens-guidance-on-crypto-business-models-are-you-a-money-transmitter/" rel="nofollow">death knell for the Lightning Network</a>:<br /><br />"The FinCEN paper doesn’t mention the Lightning Network at all. But it seems obvious to me, and others, that running an intermediary node would really obviously involve money transmission, would not hit any listed exemption, and would require you to engage in anti-money-laundering compliance to the full extent of the BSA."David.https://www.blogger.com/profile/14498131502038331594noreply@blogger.comtag:blogger.com,1999:blog-4503292949532760618.post-61146122976452960122019-04-09T13:15:35.976-07:002019-04-09T13:15:35.976-07:00China is kicking out Bitcoin mining — what happens...<a href="https://davidgerard.co.uk/blockchain/2019/04/09/china-is-kicking-out-bitcoin-mining-what-happens-next/" rel="nofollow"><i>China is kicking out Bitcoin mining — what happens next</i></a> is David Gerard's take on today's not-breaking cryptocurrency news. As he writes:<br /><br />"This isn’t new — China started pushing the miners out <a href="https://davidgerard.co.uk/blockchain/2018/01/06/bitcoin-mining-being-pushed-out-of-china-whats-happening-and-how-the-shutdowns-being-managed/" rel="nofollow">over a year ago</a>."<br /><br />And:<br /><br />"The risk to Bitcoin in the longer term is other governments taking their cue from China — and taking Proof of Work more seriously as a problem that needs to be dealt with.<br /><br />The hashpower that went offline in November shows how to mitigate Proof of Work’s <a href="https://davidgerard.co.uk/blockchain/2018/05/22/bitcoins-stupendous-power-waste-is-green-apparently-bad-excuses-for-proof-of-work/" rel="nofollow">reprehensible effects</a> — make Bitcoin mining uneconomical."<br /><br /><a href="https://davidgerard.co.uk/blockchain/2019/04/05/news-sec-on-ico-tokens-theyre-probably-securities-vanbex-fraud-regulating-crypto-mining-crypto-for-care-homes/" rel="nofollow">Other governments are starting to take it seriously</a>:<br /><br />"Missoula County, Montana proposes to require that new crypto mining projects offset their energy use by <a href="https://www.wired.com/story/montana-county-crimp-bitcoin-save-the-earth" rel="nofollow">funding or building new renewable projects</a>. Trivially evadable, but may be worth setting as an expectation.<br /><br />Grant County Public Utility District in Washington is allowed to <a href="https://medium.com/crypto-caselaw-minute/crypto-caselaw-minute-30-4-4-2019-c0d9db7f0482" rel="nofollow">charge crypto miners a 400% rate premium</a>. This is necessary because it turns out <i>in practice</i> that crypto miners don’t in fact <a href="https://davidgerard.co.uk/blockchain/2018/05/22/bitcoins-stupendous-power-waste-is-green-apparently-bad-excuses-for-proof-of-work/" rel="nofollow">incentivise green energy</a>, but swoop in, <a href="https://www.politico.com/magazine/story/2018/03/09/bitcoin-mining-energy-prices-smalltown-feature-217230" rel="nofollow">max out local hydro power capacity</a>, then swoop out."David.https://www.blogger.com/profile/14498131502038331594noreply@blogger.comtag:blogger.com,1999:blog-4503292949532760618.post-5301977302619170222019-04-05T19:20:39.919-07:002019-04-05T19:20:39.919-07:00Nicholas Weaver's interview in Breaker makes s...<a href="https://breakermag.com/cryptocurrency-burn-it-with-fire-says-bitcoin-skeptic-nicholas-weaver/" rel="nofollow">Nicholas Weaver's interview in <i>Breaker</i></a> makes some good points, including (my emphasis):<br /><br />"The problem with cryptocurrency is it’s basically a Venn diagram: those who don’t understand economics intersected with those who don’t really understand computer security. The cryptocurrency defenders tend to attack economists with “Oh, you don’t understand the technology.” And Roubini is really willing to push back against those arguments, because, well, those arguments are irrelevant. <b>The problems with the cryptocurrencies are really economic, not technical.</b>"<br /><br />Something I've been saying <a href="https://blog.dshr.org/2014/10/economies-of-scale-in-peer-to-peer.html" rel="nofollow">since at least 2014</a>.David.https://www.blogger.com/profile/14498131502038331594noreply@blogger.comtag:blogger.com,1999:blog-4503292949532760618.post-65998385406326670712019-04-04T06:15:51.425-07:002019-04-04T06:15:51.425-07:00Colin Platt's behavioral economics perspective...Colin Platt's behavioral economics perspective is well worth considering. <a href="https://medium.com/@colin_/how-i-became-a-crypto-quadrillionaire-without-writing-a-single-line-of-code-bac24af137c8" rel="nofollow"><i>How I became a Crypto Quadrillionaire without writing a single line of code…</i></a> starts:<br /><br />"People that know me know that I think that most “crypto tokens” are a joke. While there certainly are innovations in this wild-world of cryptographic ledgers and even some of the coin based projects built on top of them, for each one of those there are at least 1000 absolute garbage projects. When those projects have tokens or coins, we affectionately call them “shitcoins” in the business. Their only real value in this world is to speculate on a price rise then dump on less sophisticated and unsuspecting n00bs, turning them into your bagholders who have lost so much money they only have an unshakeable belief in the vision you made up left. As my friend Tim Swanson and I have joked, those that have figured this out, and mastered this cycle become “coin nihilists”:"<br /><br />He then lays out the story of PitchToken Klassic (PTK) which, thanks to a little wash trading, rose:<br /><br />"from $0 to, a rather respectable, $3.6 Quadrillion after a mere 3 days."<br /><br />As <a href="https://ftalphaville.ft.com/2019/04/04/1554379684000/How-a-guy-called-Colin-Platt-became-the-richest-person-in-the-world/" rel="nofollow">Izabella Kaminska points out</a>, this is roughly 3 times world GDP.David.https://www.blogger.com/profile/14498131502038331594noreply@blogger.com