Bitcoin is useful for evading currency controls, semi-anonymous digital payments, and speculation
Blockchain is a new type of database that has larger applications that involve the tradeoff between efficiency and trust
To answer your bigger question you have to ask yourself what you define as "progress" - is Bitcoin/blockchain new? Yes. Is either useful? Sure, for people who are looking to move money around semi anonymously, enforce more expensive supply chain tracking solutions, or make money selling new financial products. Is that progress?
If you, like me, don't see new database/financial engineering that benefits a small group of technologists and financiers as potentially equal in value to the raise in standard of living across huge sections of the world brought by electrification, refrigeration, antibiotics, internal combustion engines, public roads, and white goods, then you may be interested in this thesis: https://www.nber.org/papers/w19895
"While no forecast of a future slowdown of innovation is needed, skepticism is offered here, particularly about the techno-optimists who currently believe that we are at a point of inflection leading to faster technological change. The paper offers several historical examples showing that the future of technology can be forecast 50 or even 100 years in advance and assesses widely discussed innovations anticipated to occur over the next few decades, including medical research, small robots, 3-D printing, big data, driverless vehicles, and oil-gas fracking."
Keeping track of an asset without a centralized authority? That’s the point of a blockchain - a sliding scale where increasing decentralization causes a decrease in efficiency, where the trade off makes sense.
> Keeping track of an asset without a centralized authority?
Question was:
"And in what applications are blockchains superior to centralized applications?"
You really did not answer the question. What is the application where it is superior to track the asset without central authority? (I come up with criminal money transfers. I hope someone comes up with something else because I do not think that is too solid a foundation to build a sustainable technology...)
No fees to middlemen, enabling micro-payments at scale (obviously need to drastically reduce blockchain fees, but that is an area of active development). Elimination of charge-backs and a huge amount of fraud, especially in industries that have an abnormally high level of fraud. Borderless payments. The highest density of wealth storage ever invented. Completely different threat model for theft with its own pros and cons.
Everyone immediately jumps to the criminal aspects. The existing financial system has absolutely no problem handling all the crime, the blockchain did not invent money laundering.[0]
1) you pay fees to middleman to make a transaction.
2) micropayments are ridiculously slow and low volume compared to any other payment system.
3) We have all seen that chargeback are possible and already occurred, with the small side effect that also all the other legitimate transactions were rollbacked, as with the dao huge fuckup.
4) There are plenty of frauds involving bitcoins.
5) borderless payments have been possible for ages, and are not dependent on a Chinese network of miners.
1) They are pretty small for most cryptocurrencies.
2) This is false if you understand that Visa/MC do not settle instantly, rather 24-48 hours down the line and their instantaneous consumer network is not identical to that settlement layer. Similar to BTC's blockchain + Lightning network.
3) This is not really a thing outside of Ethereum, but yes, it was a very bad decision.
4) There are plenty of frauds using USD. Way more than BTC. Like, a lot.
5) I'm not sure what this random bit of racism against China has anything to do with anything, but the network's locations of nodes doesn't have much to do with nationality preference.
To clarify: Ethereum didn’t roll back any legitimate transactions (or any transactions at all) when restoring the DAO funds, which conflicts with the original #3 point you responded to.
Having the dev of the network reversing transactions makes a mockery of “decentralized” and “trust-less”.
More hilariously is that there is a branch of Ethereum that still contains the DAO hack transactions, Ethereum Classic . It’s generally assumed that that branch is run by the DAO hacker, which is kind of hilarious to me.
There are fees with bitcoin - the transactions that leave higher fees for the miners get processed quicker. If you don't include fees with your transaction it could take hours to be bundled into a verified block.
People, myself included, jump to the criminal aspects because those are the only real world applications that are currently creating value for Bitcoin "users" (vs. speculators). Getting around borders/currency controls is valuable because it's hard to do/illegal, and Bitcoin makes it easier.
The rest of the things you listed such as "highest density of wealth storage every invented" and "completely different threat model" are not use cases, and are not inherently good/bad, just different (and actually usually bad when optimizing for verification speed/efficiency and transaction clearance over chargebacks/fraud)
PS did you get hired into the crypto/blockchain world, or just more optimistic after doing research? I remember us being in agreement / you being skeptical about it before
> There are fees with bitcoin - the transactions that leave higher fees for the miners get processed quicker. If you don't include fees with your transaction it could take hours to be bundled into a verified block.
As I said, the fee issue is being worked on (scaling, layer 2 networks) but that's a potential of the technology.
> People, myself included, jump to the criminal aspects because those are the only real world applications that are currently creating value for Bitcoin "users"
I simply disagree, if you want me to enumerate all the use cases that aren't criminal I can, but google can help.
> The rest of the things you listed such as "highest density of wealth storage every invented" and "completely different threat model" are not use cases, and are not inherently good/bad, just different (and actually usually bad when optimizing for verification speed/efficiency and transaction clearance over chargebacks/fraud)
Yes, it is a different sort of tradeoff, that may be useful in some cases. It's novel.
> PS did you get hired into the crypto/blockchain world, or just more optimistic after doing research? I remember us being in agreement / you being skeptical about it before
I have posted a lot on cryptocurrency, I have been in the industry for a while, but I am not universally optimistic about all things crypto. But overall I am bullish.
>if you want me to enumerate all the use cases that aren't criminal I can.
Could you start with one? And I mean one that is obviously superior to centralized solutions? What are the measures that make blockchain superior in this use case and why a centralized solution can't achieve those measures? Why the tradeoffs in other measures are insignificant? Let's further assume that decentralization itself is not an acceptable measure.
Do you not see the value of censorship resistance?
There are billions of people in the world currently living under repressive governments. The world does not revolve around the western world with all of our privileged freedoms.
I already accepted that blockchain offers value in criminal money transfers. Obviously censorship resistance is criminal in repressive regimes. It just is a bit difficult in western world to sell a product whose only actual value proposition is criminal money transfer.
I think if you were the target (or initiator) of legal actions that don't involve criminality on your end but do involve discovery, you would think a lot differently about pseudonymous payments, and potentially encrypted communications. Speaking as someone involved in three active civil lawsuits, trust me when I say criminality is not the only reason to hide things. Being subjected to the discovery process where adversaries can uncover things about your personal life is an experience that will change most peoples' feelings about all things privacy.
> People, myself included, jump to the criminal aspects because those are the only real world applications that are currently creating value for Bitcoin "users" (vs. speculators). Getting around borders/currency controls is valuable because it's hard to do/illegal, and Bitcoin makes it easier.
This is definitely false. I buy a lot of things that are completely legal using cryptocurrency and find it to be pretty painless. I am a small-time miner and use the profits to buy computer gear from Newegg or resellers who want BTC and get a pretty huge discount on Amazon gear. I have zero problem spending all of my cryptocurrency on valid electronics if I desire.
So if you want to be safe from censorship, a decentralized Leger is better.
If you do not care about censorship resistance, then you should count yourself lucky and very privileged. There are billions of people in the world who are currently living under repressive governments.
It should also deflate as the economy grows. Wrt the problems of deflation, it may or may not cause some, but it doesn't really matter because people who don't want to participate in Bitcoin don't have to. They can still choose to use inflationary stores of value.
Deflationary "problems" are largely strawmen. We've never had such deflationary money systems to know how it plays out long term.
In the end, people still need to eat and drink, and they're going to pay to meet those needs no matter how much it costs them.
Most of the complaints about deflation are from the Keynesian economists, who for them, it is a major problem. How are they going to pay back all that interest they keep accumulating if people aren't continuously spending?
So, who signs the transactions? When an asset changes hands the transaction needs to be signed, how are those keys managed?
How are blockchain transactions confirmed to match the real world? You have to make sure that physical assets or financial instruments are properly cleared. Not everything can live on the blockchain.
Miners spend a ton of money on electricity, and this is necessary to protect the network from a 50% attack. What systems are in place to incentivize miners to spend the electricity to verify blocks?
Getting back to the article, this is best seen as a variant of 'Banking 1.0'. Remember how in the old days banks would have gold that your paper money could be converted into?
Well, with these new investments you can buy into the Bitcoin goodness much like how our forefathers could have their wealth backed by gold.
With a bank backed by gold the actual gold does not leave the vault very often. It was theoretical that you could go to the bank and get your paper notes changed for actual gold.
In this brave new world of Bitcoin backed investments your transactions to and from the fund do not involve anything being added or removed from the blockchain. There is just a wallet there, in the bank cold storage with however many bitcoins on it. The bank does not have one wallet for its bitcoins it has thousands of the things, so the account is sharded this way.
The difference is that rather than gold being the real backing it is a Bitcoin wallet. If you get out of the fund then the bank won't be selling the contents of that wallet on Coinbase, it will just sit there in the fund ready for the next punter to buy into.
An investment fund that has gold as the backing store of wealth is able to track the value of the gold, same with Bitcoin. If Bitcoin goes up then your investment is worth more, the fund takes its percentage and it all works fine.
This is what Bitcoin has come to, if you strip away all the 'fintech' mumbo-jumbo buzzword legalese this is all it is, a variant on 'Banking 1.0'.
Public blockchains like Bitcoin where anyone can download the software, the previous transaction history, and start participating as a node are very different than the private blockchains you are asking about.
At a fundamental level, it tracks digital assets with certainty. This can be bitcoins, software licenses, whatever can be 100% digital. The link between the real world and the blockchain is an area of active research and innovation. Stablecoins backed by audited bank accounts are an area getting a lot of interest lately.
Also, your previous criticism of blockchain being worthless because “it’s 10 years old” is meaningless. The first email was sent in the 1970’s. Technology takes time.
Why would a software vendor want that? Why would anyone else participate in that chain? There are a ton of existing systems to cover these needs, and there has to be a compelling reason to shift over to the blockchain.
I’m not sure I’d go with stablecoins, since the main one appears to be a massive fraud. It’s still unclear why you would want a “decentralized” stablecoin that’s actually managed by a central trusted authority that, pinky swear, has the backing cash.
The assertion was made that blockchains are new, and I pointed out that’s nonsense. I never said that old=worthless, you made that up.
The innovation is that assets can be tracked and traded without any third party saying it’s OK. Essentially we now have programmable money with no middlemen. What comes from this innovation is anyone’s guess, but if you are an entrepreneur, this is a very intriguing technology in which to start new ventures. It may remain niche, or it may fundamentally alter the financial industry (currencies, securities, payments...) and perhaps many others. Time will tell!
> The innovation is that assets can be tracked and traded without any third party saying it’s OK.
That is exactly the opposite of what most software vendors and similar want. They want more control over the assets they release, not less.
If the asset is financial in nature, this is basically illegal. KYC and AML laws still apply, even to crypto, as do other related securities law.
If the asset is physical, you have to solve the issue of making the blockchain match reality. I know you said there's a ton of work being done in that space, but I have yet to see a lot of solutions.
> Essentially we now have programmable money with no middlemen.
Given the rate of bugs in "smart" contracts, that is not an appealing pitch.
I also find that the people angriest at the middlemen often know the least about why the middlemen exist. Hint: they often provide a service to match their fees.
> What comes from this innovation is anyone’s guess, but if you are an entrepreneur, this is a very intriguing technology in which to start new ventures.
It's also a fantastic way to lose your shirt.
> It may remain niche, or it may fundamentally alter the financial industry (currencies, securities, payments...) and perhaps many others.
You basically said "anything could happen". If your prediction is basically "anything", why bother prognosticating?
> That is exactly the opposite of what most software vendors and similar want. They want more control over the assets they release, not less.
Maybe? The ability for something like this didn't exist before, maybe an entrepreneur will come up with something new and valuable around the licensing use-case. I also don't know if such a blanket statement about "most software vendors" can be asserted.
> If the asset is financial in nature, this is basically illegal. KYC and AML laws still apply, even to crypto, as do other related securities law.
Major companies like Coinbase and Circle are not violating any laws. They have lawyers, licenses, and so on. Just because something is regulated, doesn't mean an entrepreneur can't invent a new and innovative product - they just comply with the laws and regulations.
> If the asset is physical, you have to solve the issue of making the blockchain match reality. I know you said there's a ton of work being done in that space, but I have yet to see a lot of solutions.
Time will tell, I agree.
> Given the rate of bugs in "smart" contracts, that is not an appealing pitch.
Active area of research and development, such as formally verified computation. I would bet that technologists are more likely to solve this issue than not.
> I also find that the people angriest at the middlemen often know the least about why the middlemen exist. Hint: they often provide a service to match their fees.
Sure, but if the same service can be provided at drastically reduced cost, then it's a win, and blockchain may be able to do this. Middlemen exist for reasons, but that doesn't mean they can't be disrupted.
> It's also a fantastic way to lose your shirt.
Investing in anything is risky, let alone seed-stage startups on unproven technology, but luckily there is an industry that funds such risky endeavors.
> You basically said "anything could happen". If your prediction is basically "anything", why bother prognosticating?
You are making the bear-case for crypto and blockchain, while I am an optimist making the bull-case. I'm basically saying that a huge amount of potential is there, and writing it all off as worthless or barely useful at best in October 2018 is very premature.
> If the asset is physical, you have to solve the issue of making the blockchain match reality. I know you said there's a ton of work being done in that space, but I have yet to see a lot of solutions.
There are no solutions. The perfect oracle does not exist and any such system is going to have all of the same problems that any non-digital, non-blockchain based system could have.
Any token held in the blockchain is only valuable if the token in itself has inherent value. A token which is merely a proxy for some external value is a waste of time.
The only use I see for the blockchain beyond money is for fraud-proof timestamps, since the ledger is also a distributed timestamp server, but even that has limited applicability because there's no way to prove that something did not happen earlier, for which someone just copy-pasted into the blockchain afterwards.
Currently, none. If you wanted to do it right, the correct way would be to treat so-called stablecoins like a bank and audit them accordingly, except with a 100% capital requirement.
It’s highly entertaining to me how many issues with cryptocurrencies have to be resolved with classical financial instruments and regulatory processes. It’s almosf as if these systems were slowly built over a few centuries and are actually pretty good at what they do, and that you can’t just throw computers at the problem and pretend that you know better.
> brought by electrification, refrigeration, antibiotics, internal combustion engines, public roads, and white goods
Most of that stuff required financial engineering. The most developed countries on Earth, with the best of those things, also have the most developed financial markets. Coincidence?
Antibiotics means Fleming, one guy worked it out, I wouldn't be here if it wasn't for him, my grandpa was one of the first to use penicillin and I don't see the bean-counters as having had anything to do with it, however, the war machine did.
Henry Ford was the man that got America and the world motoring. He is an incredibly complex character however, he did not go to the city to raise money and he had no time for bean counters, hence the Jew-bashing nonsense that he got involved in. As for early motor innovation/discovery in Europe and America, it was the bicycle workshop that made it happen, not the bean counters with their 'financial engineering'. We are talking organic growth from paying customers buying bicycles from people that had workshops. The Wright Brothers also started with bicycles, hence the left/right hand thread they also lay claim to.
Public roads also have a debt to the bicycle. Trains came before bicycles and roads ceased to connect towns when the trains were how people travelled. It was actually the bicycle and cyclists that got the roads paved, motorists were to come along a lot later. Your Interstate Highway System was again military-industrial complex, not some wonder brought to the world by bean-counters.
Of course capitalism and the need to raise capital made a lot of things possible, the railways were obviously a massively speculative bubble at first. However, the industrial revolution is not a story of financial engineering. The bean counters had nothing to do with progress. And Henry Ford was not alone in wanting to avoid 'investors' like the plague. In the UK - cradle of the industrial revolution - the prominent industrialists tended to be Quakers with god rather than mammon on their side. (We skip over the slave trade part conveniently here - but you don't want that because that really is 'financial engineering', a.k.a. rape and pillage.)
The discovery is one thing, the mass production and delivery all over the world quite another.
> industrial revolution is not a story of financial engineering
Financial engineering in general is invisible to the general public:
> As well as industry, banking also developed during the Industrial Revolution as the demands of entrepreneurs in industries like steam led to a vast expansion of the financial system.
Cryptocurrencies, thanks to their unstoppable and uncensorable properties, enable organic commerce in a frictionless and scalable way.
At this time, I don't know if you can point out a single "industry" that will be revolutionized by cryptocurrencies.
But what's certain to me is that there will be (subtle at first but no less powerful) lasting shifts in how human societies are organized, which today rely so much on governments for order and enforcement.
Blockchain is a new type of database that has larger applications that involve the tradeoff between efficiency and trust
To answer your bigger question you have to ask yourself what you define as "progress" - is Bitcoin/blockchain new? Yes. Is either useful? Sure, for people who are looking to move money around semi anonymously, enforce more expensive supply chain tracking solutions, or make money selling new financial products. Is that progress?
If you, like me, don't see new database/financial engineering that benefits a small group of technologists and financiers as potentially equal in value to the raise in standard of living across huge sections of the world brought by electrification, refrigeration, antibiotics, internal combustion engines, public roads, and white goods, then you may be interested in this thesis: https://www.nber.org/papers/w19895
"While no forecast of a future slowdown of innovation is needed, skepticism is offered here, particularly about the techno-optimists who currently believe that we are at a point of inflection leading to faster technological change. The paper offers several historical examples showing that the future of technology can be forecast 50 or even 100 years in advance and assesses widely discussed innovations anticipated to occur over the next few decades, including medical research, small robots, 3-D printing, big data, driverless vehicles, and oil-gas fracking."