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# Awesome sensemaking for crypto/web3
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# Awesome critique of crypto/web3
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## 👉 April 2022 [Website for the web3 sensemaking project](https://web3.lifeitself.org/) 👈
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## 🎉 Nov 2022 [Full guide to web3 & crypto including evaluation of claims pro and con](https://web3.lifeitself.org/guide/) 🎉
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Awesome rigorous evaluation of crypto/web3, etc. Contributions are welcome.
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Awesome critique of crypto/web3, etc. Contributions are welcome.
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## Critique
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@ -165,7 +161,6 @@ Non-fungible tokens.
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* [Don’t Understand Bitcoin? This Man Will Mumble An Explanation At You](https://www.youtube.com/watch?v=4APcgsRdW6w) by ClickHole - 2015-07-7
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* [If Cryptocurrency was Honest](https://www.youtube.com/watch?v=GUs5y9leCyA)
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* [If NFTs were Honest](https://www.youtube.com/watch?v=sG_v4bb2e4k)
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* [Brave New Web](https://medium.com/coinmonks/brave-new-web-7bae50e916eb) - ani utopian Web3 satire by Nikolay Vlasov - 2022-04-10
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### Twitter users
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version https://git-lfs.github.com/spec/v1
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version https://git-lfs.github.com/spec/v1
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version https://git-lfs.github.com/spec/v1
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size 1000806
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---
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title: "Web3 provides better mechanisms for financializing non-financial value"
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description: "In this essay we explore three subclaims inherent to the overarching claim: 1) more financialization of non-financial value is itself desirable; 2) the current monetary and financial systems are deficient in their ability to capture what we think is really valuable; and 3) Web3 technology is capable of addressing these deficiencies. While we accept subclaim 2 to be true, overall we conclude that web3 does not seem to provide many plausible means for better financializing value."
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category:
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- claim: y
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- featured: y
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- interview: n
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- deepdive: n
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claim:
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- evaluation: N
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- confidence: H
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---
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# Overview
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## Key points
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* Financializing value in this context means capturing things considered as intrinsically valuable, such as some artistic or social value, in units of financial value capable of being allocated. This contrasts with the traditional definition of financialization as the expansion of the financial sector, which we cover [elsewhere.](/notes/fintech-incrementalism-and-responsible-innovation)
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**Steel-manning subclaim 1: more financialization of non-financial value is itself desirable**
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* Financialization is useful as it allows us to effectively direct resources towards the things we care about.
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* The dysfunctionalities present in our current financial sector are not inherent to financialization itself. Financial value can be a powerful enabler of other types of value creation, without any of the negative impacts on other values (e.g. a well functioning environment) currently associated with money and finance.
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* Besides, whether we like it or not, we live in a financialized world; our only recourse is to embrace the reality of hyper-financialization and try to make it work for everyone.
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**Steel-manning subclaim 2: the current monetary and financial systems are deficient in their ability to capture what we think is really valuable**
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* Value can be better or more extensively financialized than is possible under the current system.
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* This is shown by the funding shortfall for things that matter to us e.g. education and climate change prevention; and there are cases where significant resources are devoted to things that don’t have social value e.g. the whole host of financial instruments totally detached from the productive economy.
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* Left to their own devices markets won’t create a socially optimal allocation of resources, as market prices won’t naturally “internalize” externalities such as environmental damage.
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* Positive social impacts, e.g. of art, are often not internalized into market prices.
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**Steel-manning subclaim 3: Web3 technology the route to addressing these deficiencies**
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* Web3 offers new means of financializing value through tokenization. We're not touching on those targeting public goods funding, as we've explored these [elsewhere.](/claims/can-solve-public-goods-problem)
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* NFTs: By locking artistic value into the NFT format and selling this directly to buyers, the true value of art can be better financialized as artists receive financial compensation for their work that is actually commensurate with its value.
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* Alternative currencies: Communities can come together and decide on the rules for how they represent value. This can be done by creating tokens to represent all sorts of value and, in turn, better manage resource flows between them.
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**Evaluating subclaim 1: more financialization of non-financial value is itself desirable (likely false, either totally or mostly)**
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* There are many reasons to be skeptical of this claim.
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* In trying to financialize all that we hold valuable we risk losing touch with what makes it valuable in the first place. The essence of some value isn't reducable in this way; can we really capture all of the value of the natural world in financial terms, for example? This depends on one's philsophical understanding of what value is, or certain values are.
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* More financialization may lead to a world we find undesirable, irrespective of the level of non-financial value it generates
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* Financialization may perpetuate self-serving dynamics we see in today’s society as people seek to game the system to optimize for the _rewards_ for value generation rather than value itself.
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* There is concern about becoming a “market society”, where the mentalities, relations and incentives of the market come to dominate all areas of our lives.
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* There may be opportunity costs to more financialization. It may just be a suboptimal route to generating more non-financial value, compared with alternatives.
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**Evaluating subclaim 2: the current monetary and financial systems are deficient in their ability to capture what we think is really valuable (true)**
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* There is clear evidence of this in the world, with the unfolding environmental catastrophe being the most obvious.
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**Evaluating subclaim 3: Web3 technology is the route to addressing these deficiencies**
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* NFTs
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* NFTs do not guarantee artists better remuneration for their work.
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* Minting NFTs costs many smaller artists more money than they make and there is still a reliance on centralized marketplaces.
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* The technical complexity of NFT creation means that many artists are excluded or forced to partner with more tech-literate others in often extractive agreements.
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* The apparent pop of the wider crypto bubble, which was the source of high rates of return for some artists using NFTs, has been accompanied by a slump in the NFT market.
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* Digital marketplaces may help artists reach new audiences but are not unique to web3 and in fact already exist.
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* NFT markets are a private market just like any other, open to the same exploitation by middle-men and “whales”.
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* We must distinguish between the social value of art and “the arts”. The positive externalities of the arts sector are to some degree nonexcludable, creating a [public goods problem](/concepts/public-goods-problem) which cannot be addressed through markets.
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* Centralized arts funding is a far more promising solution to this problem than tokenization.
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* Alternative Currencies
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* Past a certain point of complexity, every state has coalesced on a single, state-backed numeraire. We always end up with exchange problems otherwise.
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* Many societies in history have had systems where alternative currencies could be created, but these did not work well. They were highly susceptible to fraud, failure, and created difficulty trying to trade between regions which used different monetary systems.
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* Using tokens to represent goods such as reputation has the potential to turn dystopian, as the social credit system in China shows.
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* The utility of atlerantive currencies requires they have a material impact on obtaining other things we value. This means we either need something akin to the social credit system, where non-tradeable tokens impact access to other goods in a potentially dystopian manner, or a tradeable market for tokenized currencies which leads us to the exchange problem above.
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* Something needs to underpin the value of a currency for it to be meaningfully worth something. In traditional currency terms the value of a currency is underpinned by the fact that the state collects tax in that currency. The state’s monopoly of violence can also backstop trust for trade, as it can enforce the terms of contracts.
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* Either alternative currency systems rely on radical shifts in individual ways of being such that everyone becomes entirely trustworthy and cooperative all the time, or they must rely on some state-like entity to underpin them.
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* The former case is such a radical shift that if it were to take place, the nature of our currency system would pale as a source of impact.
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* The latter (more likely) case has huge implications; it requires either massive political action such that existing states adopt new currency systems or secession by small groups to use their own currencies.
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* If we can get a state to act so radically as to shift its entire currency system, then why not just get it to unilaterally legislate away our problems by other means?
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* States don’t tend to view secession very kindly; the community enforcement activity required to monopolize violence and underpin a stable currency system would inevitably violate the laws of existing nations. Plus, they'd still need to e.g. pay tax in mainstream currency.
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* Even if alternate currencies were the answer, there’s no need for the blockchain. All currencies which do not serve the purpose of direct exchange can be tacked onto existing monetary systems without the need for blockchain.
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* The idea of internalizing externalities has existed in orthodox economics for some time. There are lots of “traditional” mechanisms for doing this e.g. taxes and subsidies. They're not used enough because of political will, not technological shortfall.
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* A further reason why traditional currencies fail to capture so much non-financial value is that much of what we deem valuable is incredibly hard to measure. The measurement problem is the hard part. If we can solve this, how we then represent value i.e. traditional or alternative currency is incidental.
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* Alternative currencies partly seek to address the lack of democratic rules for recognising diverse value. But doing this doesn't need blockchain. Remuneration rights funds and participatory budgeting methods fix this issue more easily if well designed.
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* The reason our current monetary and financial systems don’t adequately “financialize” the totality of social value is not a technical question of the medium of value representation (i.e. money) they use, but is more of a political and social question of how they are structured and governed.
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## Evaluation: Largely false (medium-high confidence)
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Web3 does not seem to provide many plausible means for better financializing value. NFTs have failed to live up to their promise regarding value distribution in practice, and even the theory behind them is spurious upon closer examination. Both the economics and political economy of alternative currencies appear highly questionable such that we have a low confidence in their capability to work in practice. There may be room for them to act as a complementary layer on top of traditional currency systems, for example as enhanced versions of eBay seller ratings carried through wider society. This in one sense might be understood as financializing value better. But, as China’s social credit system shows it is questionable whether this would even be desirable at all, and such systems certainly do not appear to require Web3 tokens to function.
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The main reason we are giving our evaluation “medium/high” confidence rather than simply “high” is that we have had to grasp our understanding of how alternative currencies are meant to function in practice from publications by alternative currency projects, which we have found lacking in the meaningful detail required for a deep understanding of how they are intended to function at the social scientific level. Rather than cynically assume that this is because such detail does not exist, we instead wish to acknowledge that we are evaluating an incomplete picture and express our desire to engage those working on alternative currency design in productive discourse.
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## Evidence of claim being made
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**CoinDesk. ‘The Financialization of Everything: DeFi-Ning the Next Era of Financial Services’, 19 May 2022. https://www.coindesk.com/sponsored-content/the-financialization-of-everything-defi-ning-the-next-era-of-financial-services/.**
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“One of the key elements of DeFi is that it can go into areas that aren’t covered by TradFi. One is that it can create an underlying value for assets that were previously untouched by finance. It can make these assets liquid and fungible and so be used for transactions in the traditional sense, such as collateral for loans or margins for trading.”
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**Macdonald-Korth, D., V. Lehdonvirta, and E. Meyer. ‘The Art Market 2.0: Blockchain and Financialisation in Visual Arts’, 2018. [https://ora.ox.ac.uk/objects/uuid:a4c8847c-6755-4781-ba9c-9c0864608201](https://ora.ox.ac.uk/objects/uuid:a4c8847c-6755-4781-ba9c-9c0864608201).**
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“Art market liquidity and value are likely to soar if digital ledger technologies are successfully introduced, creating new side industries, such as a boom in art-based lending, and making art an integral part of the financial industry.”
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**Deloitte Private and ArtTactic ‘Art & Finance Report 2021’ [https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/financial-services/artandfinance/lu-art-finance-report-2021.pdf](https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/financial-services/artandfinance/lu-art-finance-report-2021.pdf)**
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“Tokenization, however, has the potential of transforming non-bankable assets into liquid assets, making them accessible to a much wider audience.
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[...]
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[Distributed ledger technology] can not only improve the way art is traded by keeping a secure digital record of every owner, but it can also enable new forms of ownership and introduce smaller players into the market...This will shift the paradigm of art investment and the regulations tied to them, creating a more accessible, fair, and democratized art ecosystem.”
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**The MetaCurrency Project 'FAQ’ [https://metacurrency.org/faq/](https://metacurrency.org/faq/)**
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"Entire communities — people, villages, cities, regions, companies, NGOs, public services, countries — are undermonetized. They do have wealth –competencies, resources, time, love, genius, assets, entrepreneurship skills, culture– but exchanges don’t happen. Not because of lack of wealth, but because of lack of transactional units: money...Open currencies allow for sufficient, non-scarcity based systems for tradable wealth."
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# Full analysis
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## Some preliminary notes
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What is “financializing value”? Here we use the term to refer to capturing things considered as intrinsically valuable, such as some artistic or social value, in units of financial value capable of being allocated. In other words, attaching financial value to forms of non-financial value. For example, a project might create tokens designed to capture the social value of land that is free from debris and pollution, or the value of a piece of artwork. This analysis brackets deeper philosophical questions around how we should understand value as a concept and what should count as valuable. It focuses on things whose value is fairly uncontroversial, such as creating beautiful art and avoiding climate breakdown). This definition contrasts with the traditional definition of financialization as the expansion of the financial sector, which we cover [elsewhere.](/notes/fintech-incrementalism-and-responsible-innovation)
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We use ‘_monetary and financial systems_' to refer to the economic infrastructure underpinning how we represent and exchange value. We also assume that these claims refer to economically developed countries unless otherwise stated; as these are where monetary and financial systems are supposed to work best they are the most appropriate contexts in which to evaluate the strongest versions of the claims.
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## Subclaims:
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* P1: More financialization of non-financial value is itself desirable
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* P2: The current monetary and financial systems are deficient in their ability to capture what we think is _really _valuable; we could financialize value better or more extensively
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* P3: Web3 technology is the route to addressing these deficiencies
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## Steel-manning the claims
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### P1: More financialization of non-financial value is desirable
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Financialization itself is a useful thing, as it allows us to effectively direct resources towards the things that matter in our societies. Financialization creates a common value metric for making allocation decisions; when we can think of everything in financial terms it allows us to more easily divide resources between our social priorities. It also allows for financial instruments to facilitate investment into valuable activities, for example as means to allow long term borrowing to fund investment. It is exactly these mechanics which underpin modern economies, and they have seen economic development give rise to huge increases in living standards. Note, this holds not just under a conception of markets being the primary driver for development, but financialization is also required for governments to make effective allocation decisions. Governments need to know how to trade-off investment in health versus education or between certain industries given finite resources, and financialization is a means of doing this.
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It is of course true that financialization has become somewhat of a dirty word to many in the modern era. It is associated with vast financial sector profits divorced from productive economic activity in the real economy, and the instability of financial bubbles and crashes. However, the problem isn’t that money or financial assets are being used as a numeraire to mediate between other forms of value, the problem is _how_. None of these dysfunctionalities are inherent to financialization itself, as can be seen by historical examples such as the investment-led approach to economic development favored by the “Asian Tiger” economies in the late 20th century, where governments used financialization as a tool to direct resources to the areas required for economic development (and without the bubble dynamics we saw in the West in the lead up to the 2008/9 financial crisis)[^1]. We can live in a world where financial value is a powerful enabler of all other types of value creation, without any of the negative impacts on other values (e.g. a well functioning environment) currently associated with money and finance.
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An alternative argument in support of this claim is, whether we like it or not, we live in a financialized world. Pandora's box has already been opened, and retracting simply isn’t an option. Under these circumstances our only recourse is to embrace the reality of hyper-financialization and try to make it work for everyone. We can’t fight against the tide, we can only steer it for our benefit.
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### P2: The current financial system is deficient in its ability to capture what we think is really valuable
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We could financialize value better or more extensively than is possible under the current system. This claim can be supported both intuitively and through more academic concepts. First, basic intuition. We might ask ourselves, is there currently enough monetary and financial support for the whole spectrum of what we think is valuable? In the inverse, are there cases where significant monetary and financial resources are devoted to things we don’t think have much social value?
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We can very plausibly answer no to the first question. As an example we might see the shortfalls of funding for education[^2], the arts or even climate change prevention[^3] common even in many rich nations. We can just as plausibly answer yes to the second. Consider the complex financial derivatives of subprime mortgages which underpinned the 2008 financial crash[^4] and the host of other financial instruments totally detached from the productive economy which exist today[^5]. In sum: there’s a gap between where our current monetary and financial systems direct resources, and where we’d intuitively think resources _should_ go if we only cared about the things that are truly valuable in life. This can be seen as powerful evidence that our societies are not adequately financializing value. If they were, this gap would not exist.
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We can also draw on economic concepts, particularly that of externalities. Externalities refer to indirect costs or benefits accruing to third parties from the activity of other actors. They can be positive, for example the benefits to my neighbors of me making my front garden look beautiful, or they can be negative, such as the air pollution resulting from car use. It is commonly accepted across even orthodox economics that markets have negative externalities which can lead to market failures; left to their own devices markets won’t create a socially optimal allocation of resources, as market prices won’t naturally “internalize” externalities. This is because, as externalities don’t show up as direct costs to firms, they have no incentive to price them in (even if they could measure and incorporate them easily, which is another matter entirely).
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Environmental damage is one prominent case of negative externalities not being fully internalized into prices. As we note in our analysis around the [Web3 and the public goods problem](https://web3.lifeitself.org/claims/can-solve-public-goods-problem), the price of carbon does not reflect the environmental damage of emissions. This also holds for almost every product utilizing carbon intensive inputs. For example, a McDonald’s Big Mac would cost considerably more if the environmental impact of intensively farming cows were fully internalized[^6].
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Art provides another interesting economic case that something is amiss. Art generates significant social value, and yet many artists remain poor even as they become reasonably well known. At one level we may consider this to be a further failure to internalize externalities, with the positive social impacts of artistic creation not being internalized into the prices artists are paid for their work. We can also draw on the Marxian notion of _surplus value extraction_[^7], to point to another economic failure. When applied to creative value, this notion lays the blame at the door of the middlemen such as record labels in the music industry, who buy up intellectual property and extract the monetary gains from its consumption while only passing a fraction of this onto the original producers[^8]. Here, inadequate financialization of value is less an issue of value not being captured, but of a system which does not see it captured by the correct actors. One may argue that this is not really a problem of inadequate financialization; in many areas of, for example, the overall music industry, financial value generation does seem to reflect broader social value generation even if this financial value isn’t shared with artists to what many would deem a fair degree. However, given discussions of Web3’s power to benefit artists through fairer distribution is treated as a matter of financialization by proponents[^9] we will avoid getting bogged down by semantics and follow in the same vein for our analysis. Note here that, whatever one’s view of Marxian economics or the notion of surplus value extraction, the seeming disconnect between the relative impoverishment of many artists and the huge value we attach to art at the social level should be an indicator that something is going wrong with respect to the financialization of this value.
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### P3: Web3 technology is the route to addressing these deficiencies
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Web3 offers new means of financializing value through tokenization. This refers to creating digital representations of value (tokens) on the blockchain. The two forms of tokenization which we’ll focus on for this analysis are NFTs and alternative currencies. Note, much of the Web3 work around public goods funding is also a matter of financializing their value, however we won’t deal with them here as we give this area its [own analysis elsewhere](https://web3.lifeitself.org/claims/can-solve-public-goods-problem).
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[NFT](https://web3.lifeitself.org/concepts/nft) stands for “non-fungible token”. These are unique digital assets stored on the blockchain. Most tokens are fungible, meaning one token is the same as the next; they’re interchangeable. NFTs, in contrast, have a unique digital signature cryptographically encoded into them. This means that even two qualitatively identical NFTs will not be numerically identical. Two identical pictures can become distinct digital assets, for example.
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NFTs are best known for their use in creating tradeable digital artwork. The major purported advantage here is that NFTs can be traded in a peer-to-peer fashion, meaning that they allow artists to retain all of the financial value of their artwork. Artists can lock artistic value into the NFT format and sell this directly to those who recognise the true level of this value, receiving the entirety of the proceeds from the sale. In this manner, the true value of art can be better financialized as artists receive financial compensation for their work that is actually commensurate with this value.
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Second is the design of alternative currencies, as embodied by groups such as the [MetaCurrency project](https://metacurrency.org/). At the outset we should note that such groups may take issue with the specific term “financialization” given that they are actively trying to shift away from money as the only representation of value and director of resources, and financialization can imply that we’re just trying to better _monetize _value[^10]. This is understandable, but again to get bogged down in semantics would be a mistake. We can reconfigure the claim in line with these aspirations to argue that Web3 will allow value to be better represented and for resources thus to be directed more effectively towards what is valuable. This core idea appears very much shared by alternative currency projects and so we will still discuss them here, acknowledging that “financialization of value” is a perhaps imperfect shorthand for their aspiration.
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The idea behind alternative currencies is that communities can come together and decide on the rules for how they represent value. This can be done by creating tokens to represent all sorts of value and, in turn, better manage resource flows between them. To take some toy examples, my community might decide to create reputation tokens which are allocated to individuals on the basis of their trustedness by others, or joy tokens which people can receive for making others smile and laugh.
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Alternative currencies provide a means to deliberately engineer economic systems to better capture what we think is valuable in society, and to direct resources towards this. We can create new rules of the game for what we want to be recognised as valuable and for how we want to distribute our resources. We can create token-based currencies for just about anything, and can intentionally guide the establishment of the rules for their creation and distribution by our sense of what matters in life. This is a marked contrast to traditional monetary and financial systems, whose dynamics default to extraction and accumulation even while many of us would not actively desire this. To borrow an analogy, you can be incredibly wise and ethical and yet experience the same outcome when playing a game of monopoly: one person ending up with everything and everyone else ending up with nothing[^11]. Escaping this trap requires rewriting the rules, and alternative currencies allow us to do this.
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## Evaluation: Largely false (medium-high confidence)
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### P1: More financialization of non-financial value is itself desirable (probably false, totally or mostly)
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Whether finance is the right means of supporting non-financial value creation is a highly complex issue, and one’s conclusions will depend to a large degree both on one’s broader philosophical commitments as well as assessments of the outcomes of financialization. Each of these contingencies could be the subject of their own analysis and so we will deliberately give them only a brief treatment here. The core point is simply that it is far from obvious that more financialization of non-financial value is desirable.
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At the outset we might think that, as long as financialization leads to more of what we value then it can only be a good thing. This is not a given, and one can make the case that in trying to financialize all that we hold valuable we risk losing touch with what makes it valuable in the first place. We should consider the type of societies and ways of being which result from such systems; they might superficially create non-financial value while, in their reductionist efforts towards financialization, lose a lot of what makes this value _valuable_. To take an admittedly crude example, monoculturing as a form of greenwashing can be seen as the result of a highly financialized approach to environmental preservation, where all plant life is reduced down to a common metric irrespective of its form[^12].
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|
||||
Relatedly, we may worry that such financialization will foster ways of behaving and seeing the world which are undesirable. It is hard to envision a world where all value is financialized divorced from a world which is also intensely marketized. We may worry that the path to simply trying to optimize financial incentives to generate value is a dead end, leading us further down the path that got us into our current state of deep inequity and decline. We might argue that while we should of course set up our economies to provide for people’s basic needs and respect planetary boundaries, we would be better placed to then focus on creating cultures which foster human flourishing and the pursuit of peoples’ gifts and passions out of _intrinsic motivation_.
|
||||
|
||||
Trying to make value generation simply a matter of extrinsic incentives risks continuing the harmful social mindset we see currently. It may even perpetuate the self-serving dynamics we see now as people eventually seek to game the system to optimize for the rewards for value generation rather than value itself. This is akin to “reward hacking” in AI training - optimizing for a proxy of what we want has the potential to lead to unintended outcomes[^13]. This can hold irrespective of our philosophical position on the “true nature” of the value we’re financializing, which is what’s at the heart of the first worry above. Concerns of this flavor relate to the work of thinkers such as neuroscientist Ian McGilChrist, who posits that Western society has become overtaken by a “left brain” mode of thinking (analytical, logical, reductionist and goal-orientated) and has lost touch with a more gestalt mode of engaging with the world characterizing the right brain hemisphere[^14]. The financialization of all value appears paradigmatic of a left hemispheric approach to problem solving. You can read our [summary of The Master and His Emissary here](https://lifeitself.org/2018/05/01/mcgilchrist-master-and-his-emissary-notes/), which gives more detail. Similarly, while we acknowledge that hyper-marketization may not be intended to go along with this financialization (although we find it hard to see how the two detach), Karl Polanyi’s dire warnings about the “market society”, where the mentalities, relations and incentives of the market come to dominate all areas of our lives, should also provide pause[^15]. A final such worry comes from the idea of “technological solutionism” popularized by Evgeny Morozov’s _To Save Everything, Click Here_[^16]_. _
|
||||
|
||||
_Solutionism, in his view, takes for granted that social issues can be recast in the form of clearly described “problems” with easily computed “solutions.” It assumes that there are always multiple possible solutions to any given problem, that some solutions are better or worse than the others, and that the criteria for evaluating them are self-evident. In reality, of course, the terms of public conflicts are always complex and contested: different stakeholders may have wildly different criteria for evaluating acceptable solutions, and some may deny that a solution is needed at all. The ideal solutionist scenario bulldozes this plurality in favor of a kind of Schumpeterian marketplace in which a progression of novel “fixes” continually disrupts existing solutions. Morozov cautions that this “never-ending quest to ameliorate” favors short-term tweaks over systemic change: “It very well may be that, by optimizing our behavior locally […] we’ll end up with suboptimal behavior globally.” The danger of solutionism lies not its solutions, but in how narrowly it defines its problems._
|
||||
|
||||
…
|
||||
|
||||
_“Most public institutions should not be held to the same standards as their private counterparts,” since “their mission is to provide goods and services that markets cannot or should not provide.” Such institutions will almost inevitably appear “broken” when judged according to the bottom-line economic measures favored by business-minded solutionists: efficiency, for instance, or productivity._[^17]_ _
|
||||
|
||||
Again, the parallels are clear. The question may not be whether financialization “gets results” but whether it casts all that is valuable in human existence as a matter for technical optimization problems. If this is as insidious as Morozov argues, then we have a problem irrespective of success on the former metric.
|
||||
|
||||
Finally, we should note that all of the above worries are based on financialization in some sense “working” - that the value capture aimed for is possible to an adequate degree and that it will at least at some level increase the generation of non-financial value and lead to better social outcomes for value generators. This claim itself can be countered: the financialization of non-financial value is undesirable because, even if it might do _something _(see sub-claim 2 below) it will be ineffective at leading to the level of non-financial value generation required. This is an argument from _opportunity cost_[^18] - beyond the lowest hanging fruit we’re better off focusing our efforts elsewhere if we want to support the creation of non-financial value. This relates to the point about fostering intrinsic motivation above, but is a more technical economic argument which doesn’t rest on any philosophical claims on the nature of society or the good life. It simply says that, beyond a point, more financialization isn’t the most effective tool to get what we want. We’ll explore why this is the case in our evaluation of sub-claim 3.
|
||||
|
||||
|
||||
### P2: The current financial system is deficient in its ability to capture what we think is really valuable (true)
|
||||
|
||||
As we note in our reference to carbon pricing above, this claim is quite obviously true. Current monetary and financial systems do not sufficiently internalize economic externalities and as such are leading to dire environmental consequences and material resource distributions which do not at all reflect social value creation.
|
||||
|
||||
|
||||
### P3: Web3 technology is the route to addressing these deficiencies (almost certainly false)
|
||||
|
||||
|
||||
#### NFTs
|
||||
|
||||
We will evaluate NFTs and alternative currencies in turn. There are two glaring things to note with NFTs. First, in practice NFTs do not in any way guarantee artists better remuneration for their work. Evidence shows that minting NFTs costs many smaller artists more money than they make[^19] and there is still a reliance on centralized marketplaces to sell them who often extract large amounts of value and leave the artists with little direct remuneration (just like the so often critiqued middle-men of traditional marketplaces)[^20]. Further, the technical complexity of NFT creation means that many artists are excluded or forced to partner with more tech-literate others in often extractive agreements which mirror the dynamics of the traditional artworld. All of this is aside from the slump in the NFT market which has accompanied the apparent pop of the speculative bubble, which was the source of high rates of return for some artists in the first place[^21]. Digital marketplaces may help artists reach new audiences but are not unique to web3 and in fact they already exist. They certainly do not enable better financialization of value if this is understood as better compensation for artists.
|
||||
|
||||
One of the major problems here is that NFTs are a private market just like any other. Private markets favor those with high levels of resources, leaving the market open to the same exploitation by middle-men and “[whales](/concepts/whale)” regardless of whether it is digitized or not. Small artists will have very little market power wherever they are. More importantly, however, is the distinction between the social value of “the arts” and an individual work of art. The arts sector is more than the sum of its parts. Individuals may value a flourishing arts sector far more than they value a given piece of art in a marketplace. Even as a society we predominantly care about the sector as a whole rather than any individual contributor to it (save a few major figures, who are already well compensated). The problem is that the positive externalities of the arts sector are to some degree nonexcludable; I can benefit from living somewhere “cultured” whether I individually buy art or not, and this benefit often far exceeds the benefit I get from owning a piece of art directly. We thus have somewhat of a public goods problem, which as we have explored elsewhere [cannot be addressed through markets](https://web3.lifeitself.org/claims/can-solve-public-goods-problem). Ensuring the social value of a flourishing arts sector is passed on to the artists underpinning it can almost definitionally never be a matter of better financialization of individual pieces of art. This is why centralized arts funding exists, and is a far more promising solution to this problem than tokenization.
|
||||
|
||||
|
||||
#### Alternative Currencies
|
||||
|
||||
We should flag at the outset that, to our knowledge, there’s little detailed technical documentation as to how economies reliant on alternative currencies will function nor case studies of them underpinning value generation and exchange to a meaningful degree in the “real economy” on the technical definition of the term[^22]. Thus our evaluation is necessarily addressed towards the somewhat vague descriptions we have found online. We would welcome the opportunity to speak with those involved in alternative currency projects to gain a better understanding and hear responses to our concerns.
|
||||
|
||||
First, we should examine why we have the current monetary and financial systems we do. Even conceding the role of corruption, greed and undue influence in creating certain specific circumstances, one fact remains clear: every state has, past a certain point of complexity, coalesced on a single, state-backed numeraire. There are reasons for this, the main one being that exchange problems will always rear their head otherwise. While we may want to expand the definition of currency to a broader notion of value representation, the primary purpose of currency remains directing resources to securing the things we think are valuable in life. Given this, we will need to be able to exchange currency. This is both because what I value and what you value might be different, and because some degree of division of labor within societies remains valuable (requiring us to be able to somehow exchange the fruits of our labor). These tenets of classical economics hold almost irrespective of one’s ideology, with the only real, yet undesirable, alternative being standardized, centralized provision of everything in life in equal proportions to everyone.
|
||||
|
||||
So we need a way of comparing value. How many of your cabbages is my chicken worth? Or even how many cabbages is my painting worth? Traditional money universally emerges because it is massively more efficient than direct barter exchange of valuable items, and this efficiency requires it to be universal.
|
||||
|
||||
Many societies did historically have systems where alternative currencies could be created. To say these systems of private money did not work very well would be an understatement. They were highly susceptible to fraud (there’s little to stop me just printing huge amounts of private money, exchanging it for something valuable and then running off), failure, and created headaches trying to trade between regions which used different monetary systems[^23]. Even if our aspiration is a society full of micro-communities each run by their own rules–a la the libertarian ideal of _Anarchy, State and Utopia_[^24]–it would still make sense for them to agree to use a shared currency system if they wanted to economically interact with one another at all.
|
||||
|
||||
We acknowledge that projects such as MetaCurrency explicitly state that they intend for currency to extend beyond just money as we know it today, and for currency to be more than just a medium of exchange. However, it is hard to see what this might look like in practice, much less how this might add meaningful value to society. One example which has been raised is representing goods such as reputation. We might see one’s reputation as a value beneficial to capture in currency form, which might impact one’s treatment in a community (e.g. via terms of trade or resource access). This even seems a potential solution to the fraud risk from private money outlined above.
|
||||
|
||||
This tokenization of reputation is possible and may be useful, as the example of eBay seller ratings shows. However, there’s real potential for these to slide into dystopia, as the social credit system in China shows.[^25] Even under democracy there is potential to persecute certain groups; we only need to look at how perceptions of those claiming unemployment benefit show up in much mainstream Western media to see the dangers of such a system, let alone the repeated concessions of systemic racism by major institutions. When systemic bias exists within populations, an uncontroversial fact in most reasonable circles, then democratic control of the rules by which reputation tokens are allocated is no defense against dystopia.
|
||||
|
||||
Further, as in China, these alternate “currencies” can exist perfectly easily alongside regular money, and, as in eBay, there’s nothing that needs the blockchain. All currencies which do not serve the purpose of direct exchange can be tacked onto existing monetary systems without issue. China’s example should give us pause as to whether this would risk shifting society for the worse.
|
||||
|
||||
Further, while such systems may technically financialize otherwise uncaptured value, it appears unlikely to move the needle on the huge gaps in value generation in things that matter. We might allocate “joy tokens” to those people who make us smile, but how much extra joy will this really foster unless these tokens can be exchanged for something else we value? There doesn’t seem to be a benefit for representing certain values as tokenized currencies unless this has a material impact on our access to other things we value. This either means something akin to the social credit system, where non-tradeable tokens impact one’s access to other goods in a potentially dystopian manner, or a tradeable market for tokenized currencies which leads us again to the exchange problem outlined at the start. If the idea is that alternative currencies are going to somehow facilitate value exchange, then the tendencies which led to our current monetary system will again likely cause convergence into a single numeraire nearly indistinguishable from what we have now.
|
||||
|
||||
Putting all this to the side, let’s say we can make a system of alternative community currencies work with respect to exchange, and that these systems are worth replacing or even meaningfully complementing existing currencies with. We are still presented with a further problem which has again led us to the current currency systems we have today: something needs to underpin the value of a currency for it to be meaningfully worth something. Otherwise, I might say one unit of currency is worth one orange, and you may say it is worth two. Or, I might think my joke is worthy of one joy token being allocated and you may disagree. Even if we initially agree on terms of valuation, what’s to stop me changing my mind and refusing to honor them? In general, how can I be sure that the currency we’re using today will be worth anything tomorrow, such that I can plan my life around how much of it I possess?
|
||||
|
||||
In traditional currency terms this is where the state comes into play. The value of a currency is underpinned by the fact that the state collects tax in that currency, the knowledge of which means it will always be worth something to everyone living under state jurisdiction[^26]. And the state’s collection of tax comes from its monopoly on violence; the state is the actor with the police and the army who can compel people to pay up and respect the commonly accepted value of a currency. Individuals can rely on this monopoly of violence as a backstop to trusting trade. I can happily agree with you on a shared value for a unit of currency via a contract (e.g. that it’s worth the one chicken I’ve given you) on the understanding that if you suddenly change your mind, I can ask the state to intervene and enforce our agreement on my behalf. So, I always know the currency will be worth something tomorrow such that I can plan and I can be confident that I have recourse should others deviate from agreed understandings of how value should translate to currency.
|
||||
|
||||
Alternative currency systems seem to rely on communities coming together and agreeing on terms for the system e.g. what should be represented by token/currency? How much certain values should be “worth” in new currencies/tokens? And so on. But how does this work in practice? Either they rely on radical shifts in individual ways of being such that we all become enlightened and wholly cooperative _or_ they must rely on some state-like entity to underpin them. The former case is such a radical shift that, were we to reach such a world, the nature of our currency system would pale as a source of impact. If we could all just get along and cooperate in absolute trust without any worry for self-interested defection then basically all our problems are solved there and then. Suffice to say, such a world sadly remains unlikely for the time being. That means we must probably need something like a state. This is both to stop things descending into chaos, disagreement and uncertainty and because, as game theoretic evolutionary modeling shows, even if everyone does behave well it only takes one hawk in a system of doves to destroy the harmonious order[^27].
|
||||
|
||||
If we do need a state then this has huge implications. It will require either massive political action such that existing states underpin new currency systems or secession by small groups. If we can get a state to act so radically as to shift its entire currency system, or even meaningfully support a complementary one to a significant degree, then why not just get it to unilaterally legislate away our problems by other means? For example by stringently enforced legal minimums for pollution, or massive taxation of immovable capital and wealth to fund the arts. This level of political action is so far from our reality and so utopian that, again, our currency system of choice becomes incidental.
|
||||
|
||||
Alternatively, if the idea is that small groups use these currencies internally instead of regular money, then if this is to happen in today’s world it requires a form of secession. Groups would have to not only agree to use these currencies, but agree on sanctioning and enforcement mechanisms to underpin their value and use. In the real world, this necessitates force. Excluding people from the group is not as simply as a vote to do so in a DAO, and extracting unfairly gained material resources from a resistant party may require physical violence. Not only is such a system difficult and costly to enact, states don’t tend to view secession very kindly; the community enforcement activity required to monopolize violence and underpin a stable currency system would inevitably violate the laws of existing nations. Such communities risk being bulldozed by the states they exist in at the point their hosts inevitably find out about them. There would also be the challenges of still needing to do things like pay tax in regular currency while one still exists inside a broader nation state. It would seem that under any reasonable conception there still needs to be a place for normal money, and, given this, there needs to be an impressive commitment to not simply drift back into the use of the dominant currency. This drift can be seen in the failure of complementary community currencies such as the Bristol Pound to really gain traction[^28].
|
||||
|
||||
The above arguments present significant difficulties for alternative currency systems. But, there are further concerns stemming from the _reasons_ traditional currencies don’t adequately reflect the true value of the things they’re used to represent. To reiterate, the idea of internalizing externalities has existed in orthodox economics for some time, with lots of “traditional” mechanisms for doing this (e.g. taxes and subsidies). The reason this hasn’t happened adequately isn’t a matter of the technical limitations of existing currencies, it's a matter of political will. One only has to see the perpetual watering down of succeeding COP agreements to see the role of politics in action. We expand on this point in our related analysis of [Web3 and the public goods problem](https://web3.lifeitself.org/claims/can-solve-public-goods-problem).
|
||||
|
||||
A further reason why traditional currencies fail to capture so much non-financial value is that much of what we deem valuable is incredibly hard to measure. It is in some sense tacit; we might be able to describe all the features of a Kandinsky painting that make it a great work, but there is an element of how we are made to feel which is not amenable to being reduced to these technical features. Some significant part of the value just isn’t able to be explicitly outlined, just as the experience of seeing the color red can never be truly understood by someone who is colorblind. Given this, finding a way to fully financialize or capture this value in a unit of currency will always be doomed to extreme difficulty if not impossibility.
|
||||
|
||||
Similarly, we might wish to compensate or recognise someone creating joy in the community. Creating collective joy is not something we can easily put a number on. It’s fitting these tacit values into a quantitative frame that’s the crucial problem. If we can solve this then the particular unit we then allocate on this basis, be it an alternative currency token or unit of fiat money is secondary.
|
||||
|
||||
Part of the problem with existing monetary and financial systems that alternative currencies are seeking to solve is that there aren’t democratically agreed rules for recognising diverse forms of value. This may be true, but again lots of this seems fixable through a more democratic traditional economy. For example, we can create remuneration rights funds[^29] to compensate creators of value, and democratically agree the formulae by which these funds make allocations. We can similarly envision certain participatory budgeting setups to similar ends (e.g. the community decides to earmark a pot of funds of X amount for joy, and then the fund is allocated on the basis of who gets the most peer votes). The technical tools are already available to fix the issue, they’re just not being used. The problem is not the technical features of existing currencies, but how they’re used and allocated.
|
||||
|
||||
As has become a recurring theme in many of our web3 evaluations, the deficiency of alternative currencies as a solution is that they use technology to try to fix a problem which does not require, and in fact is not particularly amenable to, a technological solution. Even aside from the severe difficulties we envision these alternative currency systems would face in practice, the reason our current monetary and financial systems don’t adequately “financialize” the totality of social value is more of a political and social question of how they are structured and governed than it is a technical question of the superficial medium of value representation (i.e. money) they use. Reform at the level of political economy and culture appears far more plausible as a route to better financialization of value than trying to bypass these highly difficult processes through tokenized currencies.
|
||||
|
||||
# Related content
|
||||
|
||||
## Deep dives and notes
|
||||
|
||||
* [Analysis: Web3 Can Solve the Public Goods Problem](/claims/can-solve-public-goods-problem)
|
||||
* [Deep Dive: A Macroeconomics Perspective on Cryptocurrencies ](/notes/a-macroeconomics-perspective-on-cryptocurrencies)
|
||||
* [Deep Dive: Market Fundamentalism](/notes/market-fundamentalism)
|
||||
* [Notes on Dan Olson's 'Line Goes Up'](/notes/olson-2022-line-go-up)
|
||||
* [Notes on Münecat's 'Web3.0: A Libertarian Dystopia'](/notes/web3-dystopia)
|
||||
|
||||
## Concepts
|
||||
|
||||
* [Art](/concepts/art)
|
||||
* [NFTs](/concepts/nft)
|
||||
* [Cryptoasset](/concepts/cryptoasset)
|
||||
* [Predatory inclusion](/concepts/predatory-inclusion)
|
||||
* [Externalities](/concepts/externalities)
|
||||
* [Bandwagon bias](/concepts/bandwagon-bias)
|
||||
* [Fictitious commodity](/concepts/ficticious-commodity)
|
||||
* [Fiat money](/concepts/fiat-money)
|
||||
* [Finanical asset](/concepts/financial-asset)
|
||||
* [Price formation](/concepts/price-formation)
|
||||
* [Assets](/concepts/assets)
|
||||
* [Private money](/concepts/private-money)
|
||||
* [Fundamental value](/concepts/fundamental-value)
|
||||
* [Governance token](/concepts/governance-token)
|
||||
* [Public goods problem](/concepts/public-goods-problem)
|
||||
* [Blockchains](/concepts/blockchain)
|
||||
* [Bubble](/concepts/bubble)
|
||||
* [Liquiduty](/concepts/liquidity)
|
||||
* [Speculation](/concepts/speculation)
|
||||
* [Commodity](/concepts/commodity)
|
||||
* [Market value](/concepts/market-value)
|
||||
* [Market](/concepts/market)
|
||||
* [Cryptoasset](/concepts/cryptoasset)
|
||||
* [Currency](/concepts/currency)
|
||||
* [Value](/concepts/value)
|
||||
* [NFT](/concepts/NFT)
|
||||
* [Whale](/concepts/whale)
|
||||
|
||||
## FAQs
|
||||
|
||||
* [Are NFTs good for artists?](/claims/is-nfts-artists)
|
||||
* [Is Web3 decentralized?](/claims/is-web3-decentralized)
|
||||
* [Are crypto assets predatory investments?](/claims/is-predatory)
|
||||
|
||||
# Notes
|
||||
|
||||
[^1]:
|
||||
[Robert Wade, ‘What Can Economics Learn from East Asian Success?’, The Annals of the American Academy of Political and Social Science 505 (1989): 68–79.](https://www.zotero.org/google-docs/?IAMZRK)
|
||||
|
||||
[^2]:
|
||||
[Education Policy Institute, ‘Current Estimates of School Funding Pressures’, Education Policy Institute, accessed 12 December 2022, https://epi.org.uk/publications-and-research/current-estimates-of-school-funding-pressures/.](https://www.zotero.org/google-docs/?giHhIH)
|
||||
|
||||
[^3]:
|
||||
[‘Analysis: Why Climate-Finance “Flows” Are Falling Short of $100bn Pledge - Carbon Brief’, accessed 12 December 2022, https://www.carbonbrief.org/analysis-why-climate-finance-flows-are-falling-short-of-100bn-pledge/.](https://www.zotero.org/google-docs/?Wylsiv)
|
||||
|
||||
[^4]:
|
||||
[‘How Derivatives Could Trigger Another Financial Crisis’, The Balance, accessed 12 December 2022, https://www.thebalancemoney.com/role-of-derivatives-in-creating-mortgage-crisis-3970477.](https://www.zotero.org/google-docs/?3KvlKu)
|
||||
|
||||
[^5]:
|
||||
[Deniz Igan, Divya Kirti, and Soledad Martinez Peria, ‘The Disconnect between Financial Markets and the Real Economy’ (International Monetary Fund, 2020).](https://www.zotero.org/google-docs/?xOW07L)
|
||||
|
||||
[^6]:
|
||||
[Milo Boyd, ‘Big Mac and McNuggets among Most-Loved McDonald’s Items Awful for Environment’, mirror, 1 November 2021, https://www.mirror.co.uk/news/uk-news/revealed-beloved-mcdonalds-items-worst-25277394.](https://www.zotero.org/google-docs/?sPIG7U)
|
||||
|
||||
[^7]:
|
||||
[‘Vigodsky - Surplus Value’, accessed 12 December 2022, https://www.marxists.org/archive/vygodsky/unknown/surplus_value.htm.](https://www.zotero.org/google-docs/?3SeFRe)
|
||||
|
||||
[^8]:
|
||||
[Aleksandr V. Buzgalin and Andrey I. Kolganov, ‘The Anatomy of Twenty-First Century Exploitation: From Traditional Extraction of Surplus Value to Exploitation of Creative Activity’, Science & Society 77, no. 4 (October 2013): 486–511, https://doi.org/10.1521/siso.2013.77.4.486.](https://www.zotero.org/google-docs/?4g4qIP)
|
||||
|
||||
[^9]:
|
||||
[Li Jin [@ljin18], ‘Everything Is Already Financialized, but Today People Who Contributed Value Aren’t Being Compensated It. Web3 Unlocks People Owning the Product of the Financialization of Everything.’, Tweet, Twitter, 17 September 2021, https://twitter.com/ljin18/status/1438699940478398465.](https://www.zotero.org/google-docs/?Js8Yll)
|
||||
|
||||
[^10]:
|
||||
[‘FAQ’, The MetaCurrency Project, accessed 12 December 2022, https://metacurrency.org/faq/.](https://www.zotero.org/google-docs/?C7jyeg)
|
||||
|
||||
[^11]:
|
||||
Ibid.
|
||||
|
||||
[^12]:
|
||||
[‘The Soil Grab Greenwashing by Agribusiness’, accessed 12 December 2022, https://www.twn.my/title2/susagri/2022/sa979.htm.](https://www.zotero.org/google-docs/?paoANQ)
|
||||
|
||||
[^13]:
|
||||
[Joar Skalse et al., ‘Defining and Characterizing Reward Hacking’ (arXiv, 26 September 2022), http://arxiv.org/abs/2209.13085.](https://www.zotero.org/google-docs/?1pYY1L)
|
||||
|
||||
[^14]:
|
||||
[Iain McGilchrist, The Master and His Emissary: The Divided Brain and the Making of the Western World, New expanded edition (New Haven: Yale University Press, 2019).](https://www.zotero.org/google-docs/?UfmFy1)
|
||||
|
||||
[^15]:
|
||||
[Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time, 2nd Beacon Paperback ed (Boston, MA: Beacon Press, 2001).](https://www.zotero.org/google-docs/?VH9I58)
|
||||
|
||||
[^16]:
|
||||
[Evgeny Morozov, To Save Everything, Click Here: The Folly of Technological Solutionism (New York: PublicAffairs, 2013).](https://www.zotero.org/google-docs/?AAVvTW)
|
||||
|
||||
[^17]:
|
||||
[Kevin Driscoll, ‘The God That Failed: Evgeny Morozov’s “To Save Everything, Click Here”’, Los Angeles Review of Books, 17 March 2013, https://lareviewofbooks.org/article/the-god-that-failed-evgeny-morozovs-to-save-everything-click-here/.](https://www.zotero.org/google-docs/?6jYyZd)
|
||||
|
||||
[^18]:
|
||||
[‘Opportunity Cost Formula, Calculation, and What It Can Tell You’, Investopedia, accessed 13 December 2022, https://www.investopedia.com/terms/o/opportunitycost.asp.](https://www.zotero.org/google-docs/?rGRtHM)
|
||||
|
||||
[^19]:
|
||||
[‘NFTs Don’t Work the Way You Might Think They Do | WIRED’, accessed 13 December 2022, https://www.wired.com/story/nfts-dont-work-the-way-you-think-they-do/.](https://www.zotero.org/google-docs/?c2vXUP)
|
||||
|
||||
[^20]:
|
||||
Ibid.
|
||||
|
||||
[^21]:
|
||||
[‘NFT Prices Slump as FTX’s Collapse Shadows Digital Collectibles’, accessed 13 December 2022, https://www.cbsnews.com/news/ftx-nft-nonfungible-token-crypto-prices-bored-ape/.](https://www.zotero.org/google-docs/?aGXWI2)
|
||||
|
||||
[^22]:
|
||||
[‘Real Economy’, accessed 13 December 2022, https://dictionary.cambridge.org/dictionary/english/real-economy.](https://www.zotero.org/google-docs/?ftm59Z)
|
||||
|
||||
[^23]:
|
||||
[Ha-Joon Chang, ed., Rethinking Development Economics, Anthem Studies in Political Economy and Globalization (London: Anthem Press, 2003).](https://www.zotero.org/google-docs/?tNgn3S)
|
||||
|
||||
[^24]:
|
||||
[Robert Nozick, Anarchy, State, and Utopia, Nachdr. (Malden, MA: Blackwell, 2012).](https://www.zotero.org/google-docs/?3QyAAa)
|
||||
|
||||
[^25]:
|
||||
[Condé Nast, ‘The Complicated Truth about China’s Social Credit System’, Wired UK, accessed 13 December 2022, https://www.wired.co.uk/article/china-social-credit-system-explained.](https://www.zotero.org/google-docs/?1CGkhX)
|
||||
|
||||
[^26]:
|
||||
[Dror Goldberg, ‘The Tax-Foundation Theory of Fiat Money’, Economic Theory 50, no. 2 (June 2012): 489–97, https://doi.org/10.1007/s00199-010-0564-8.](https://www.zotero.org/google-docs/?8vsmIE)
|
||||
|
||||
[^27]:
|
||||
[Omar Tonsi Eldakar, ‘Hawk-Dove Model, The’, in Encyclopedia of Personality and Individual Differences, ed. Virgil Zeigler-Hill and Todd K. Shackelford (Cham: Springer International Publishing, 2020), 1905–10, https://doi.org/10.1007/978-3-319-24612-3_1645.](https://www.zotero.org/google-docs/?F688Ak)
|
||||
|
||||
[^28]:
|
||||
[‘Why Did the Bristol Pound Fail - and How Can We Support Local Businesses Now? | BristolWorld’, accessed 13 December 2022, https://www.bristolworld.com/business/end-of-the-bristol-pound-why-did-it-fail-and-what-next-3339270.](https://www.zotero.org/google-docs/?yvqYDo)
|
||||
|
||||
[^29]:
|
||||
[Rufus Pollock, The Open Revolution (London: A/E/T Press, 2018).](https://www.zotero.org/google-docs/?OhdeX4)
|
||||
|
|
@ -1,252 +0,0 @@
|
|||
---
|
||||
title: "Web3 can revolutionize human cooperation"
|
||||
description: "The claims being evaluated here are a) cooperation in the Web3 sphere is in some sense better than the way we tend to cooperate now, b) Web3 technology provides a unique value add, and c) The unique value add provided by Web3 is sufficient to shift human cooperation more broadly i.e. make this better form of cooperation dominant."
|
||||
category:
|
||||
- claim: y
|
||||
- featured: y
|
||||
- interview: n
|
||||
- deepdive: n
|
||||
claim:
|
||||
- evaluation: N
|
||||
- confidence: H
|
||||
-
|
||||
---
|
||||
## Evaluation: Largely false (medium-high confidence)
|
||||
Web3 organizations such as DAOs may well model better ways of collaborating, at least in the context of some private or third sector organizations. The popularity of Web3 may well provide inspiration which has a positive impact on how such organizations are structured or operate in the future, such that there is potential for Web3 to bring about a change.
|
||||
|
||||
However, not only are we doubtful that this would amount to a revolution, we note that this inspiration and education is not what the spirit of the claim gestures to. When it comes to the idea that Web3 technology itself will be vital to, and underpin, a paradigmatic shift in how humans cooperate with one another, we can confidently assert that this is false. The more democratic and decentralized forms of cooperation characterizing DAOs have largely existed in other forms, be they cooperatives or Teal organizations, before Web3 rose to prominence. The reason they have not become dominant has not been one of insufficiently powerful technology. Further, unique features of Web3 technology particularly seem on closer inspection to add little to actors’ ability to cooperate effectively that is not already provided by off-chain technologies.
|
||||
|
||||
## Evidence of claim being made
|
||||
|
||||
Andreessen Horowitz “How to Win the Future: An Agenda for the Third Generation of the Internet” October 2021: https://a16z.com/wp-content/uploads/2021/10/How-to-Win-the-Future-1.pdf
|
||||
|
||||
> “web3 - a group of technologies that encompasses blockchain, cryptographic protocols, digital assets, decentralized finance and social platforms, NFTs, and DAOs - is the third generation of the internet. These innovations… will serve as the basis for new forms of economic and social interaction arising from platforms that allow people to collaborate, create, exchange, and take ownership of their digital identity and assets… We are radically optimistic about the potential of these solutions to restore trust and enable new kinds of cooperation and governance.”
|
||||
|
||||
OECD. ‘Blockchain at the Frontier: Impacts and Issues in Cross-Border Co-Operation and Global Governance’. OECD Business and Finance Policy Papers. Vol. 04. OECD Business and Finance Policy Papers, 25 May 2022. https://doi.org/10.1787/80e1f9bb-en.
|
||||
|
||||
> “Blockchain technology is expected to drive digital transformation in the way businesses, governments and societies interact in the years ahead, including at an international level.”
|
||||
|
||||
[...]
|
||||
|
||||
> “blockchain innovations have already yielded promising results across sectors, and the technology is being harnessed with the aim to deliver efficiency gains to business and public sector processes through digitalisation, decentralisation and automation. Uses to date have also hinted at its potential to create novel markets and alternative systems of economic and social interaction. Some of these innovations may offer marginal improvements, others might prove to be transformative.
|
||||
|
||||
> In some quarters the technology has also prompted a re-imagination of current systems of governance, using more automated and decentralised systems. Examples of such hypothetical systems include “trust chains” that use blockchain and other emerging technologies to create entirely new trade systems, fully integrating digital currencies, payments, credentials, taxation, shipping and customs processes (Pentland, 2021), or a “global social contract”, with the rules and objectives of global governance and cross-country co-operation encoded onto a decentralised network, hosted by governments and civil society, and with agreements monitored and enforced by smart contracts (De Filippi, 2021[13]). While these may seem like distant possibilities, they illustrate future scenarios where blockchain is woven into the fabric of economic, financial and social life.”
|
||||
|
||||
Hypha. ‘What Is a DAO?’ Hypha (blog). Accessed 25 October 2022. https://52.211.147.246/what-is-a-dao/.
|
||||
|
||||
> “We are at a transformational moment in time, as DAO’s create a fertile space for many new opportunities for global collaboration and coordination. While corporations were built for the industrial age, DAOs are built for the information age. Hypha builds for the age of Systemic Regeneration and the fundamental evolution of civilization.”
|
||||
|
||||
Ethereum. ‘Decentralized Autonomous Organizations (DAOs)’. ethereum.org. Accessed 25 October 2022. https://ethereum.org.
|
||||
|
||||
> “Starting an organization with someone that involves funding and money requires a lot of trust in the people you're working with. But it’s hard to trust someone you’ve only ever interacted with on the internet. With DAOs you don’t need to trust anyone else in the group, just the DAO’s code, which is 100% transparent and verifiable by anyone.
|
||||
|
||||
> This opens up so many new opportunities for global collaboration and coordination.”
|
||||
|
||||
#
|
||||
# Full analysis
|
||||
## Subclaims
|
||||
|
||||
* P1: Cooperation in the Web3 sphere is in some sense better than the way we tend to cooperate now
|
||||
* P2: Web3 technology provides a unique value add
|
||||
* P3: The unique value add provided by Web3 is sufficient to shift human cooperation more broadly i.e. make this better form of cooperation dominant
|
||||
|
||||
|
||||
## Claims steel-manned
|
||||
|
||||
|
||||
### P1: Cooperation in the Web3 sphere is in some sense better than the way we tend to cooperate now
|
||||
|
||||
Revolutionizing human cooperation first requires that the form of cooperation characterizing Web3 interactions is somehow better than ordinary cooperation. For this premise, we’ll focus on DAOs, as this is the area of Web3 which often features in these claims.
|
||||
|
||||
To steel man this claim, let’s take some of the features which are most often lauded in DAOs as an improvement on traditional forms of cooperation:
|
||||
|
||||
* Decentralized, participatory governance and ownership
|
||||
* More fluid forms of association
|
||||
* Recognition of diverse forms of value
|
||||
|
||||
#### Decentralized, participatory governance and ownership
|
||||
|
||||
One of the most lauded features of DAOs is that their governance and ownership (understood as entitlement to the gains of the collaborative enterprise, given many DAOs are not legal objects capable of being owned in a traditional sense) is often far more **decentralized and participatory than traditional organizations.** While specific details such as voting mechanisms and profit allocation calculations may vary, DAOs are generally regarded as **modeling principles of non-hierarchical and egalitarian coordination,** in stark contrast to the command and control governance and concentrated private ownership characterizing much of the wider economy[^1].
|
||||
|
||||
DAOs are also a **breeding ground for experiments with novel decision-making mechanisms such as quadratic and conviction voting**[^2]**.** These are purported to further enhance these participatory governance models by not only making them inclusive but also highly effective in **harnessing the collective intelligence of members to the end of optimal decision-making.**
|
||||
|
||||
#### More fluid forms of association
|
||||
|
||||
DAOs are also seen as unique in the fluidity of their association. **Members can come and go as they please with very little friction,** with ad hoc participation in individual projects able to coexist side by side with full time work carried out over months and years[^3]. This again stands apart from many more traditional forms of organization, where participation is often on the basis of a long term contractual commitment or, where there is flexibility, it is often used in an exploitative manner by firms in ways that create precarity for workers (for example, zero hours contracts or the gig economy). The DAOist movement prides itself on existing outside of either of these opposing poles.
|
||||
|
||||
One notable feature of DAOs which speaks to this fluidity is “rage quitting”. Within the DAO movement, rage quitting refers to the rights of members to leave the DAO if they disagree with decisions or approaches to management, and take their financial investment in the organization with them[^4]. These immediate rights to cash out are painted as marking a significant departure from basic shareholding–where I must find a buyer for my shares if I wish to cash out–and are said to facilitate greater degrees of peer accountability as a result. Deliberately making exit easy is intended to create stronger incentives for DAOs to operate in ways that truly benefit their members.
|
||||
|
||||
#### Recognition of diverse forms of value
|
||||
|
||||
Finally, DAOs are said to hold the potential to allow more diverse forms of value and contribution to be recognised in compensation decisions, compared with traditional organizations. For example, the DisCo Coop model (which we are aware posits itself as a subtly different form of organization as DAOs, but which we use illustratively nonetheless) explicitly incorporates recognition of care work into its internal profit allocation mechanism[^5]. Similarly, tools such as Coordinape[^6] are designed to democratize the process of resource allocation internally to groups, which not only speaks to the governance point above but also leaves room for allocations to reflect activities and contributions which may not be recognised in the compensation decisions of ordinary firms.
|
||||
|
||||
The idea here, then, is that DAOs are uniquely placed to reward all sorts of contribution and value creation. Rather than collaboration which only privileges time banked or directly monetizable activities such as sales made, the emerging DAO infrastructure can facilitate fair rewards for all sorts of activity which directly generate or underpin the creation of value. Given the longstanding critiques of the market economy as it stands and its failure to adequately capture large swathes of the social value generated in our societies (for example from feminist economics, which DisCo Coops draw on heavily) this appears to have the potential to be a revolutionary proposition indeed.
|
||||
|
||||
### P2: Web3 technology provides a unique value add
|
||||
|
||||
Web3 opens up possibilities which were impossible before.
|
||||
|
||||
Blockchain technology can facilitate deep collaboration in the absence of interpersonal relationships of trust. One mechanism for this is the ability to encode rules for cooperation into automatic smart contracts[^7], removing them from the domain of human interpretation or implementation. Ensuring rules are explicitly encoded in a manner that is visible to all ensures that there are shared expectations around the terms of cooperation, and having them be implemented algorithmically means that there is no room for subjective interpretations or personal preferences to muddy how they are applied. Participants can be confident that they are participating on an equal footing under the rules as everyone else.
|
||||
|
||||
Similarly, the activity of organizations, including the results of votes, can be recorded publicly and immutably on the blockchain. This transparency and security can further bolster trust that these processes are operating in a manner that is above board.
|
||||
|
||||
The nature of blockchain based organizations as “trustless systems'' is particularly pertinent when it comes to their often transnational composition. It is argued that part of what makes Web3 revolutionary is its ability, through the above mechanisms, to facilitate cooperation with disparate groups of individuals across national and cultural boundaries, even when these individuals may not otherwise know one another[^8]. The reach and scale of these forms of cooperation thus appears potentially far more expansive than traditional organizations.
|
||||
|
||||
The other pertinent technical feature of blockchain relates to the creation of tokens. Blockchain based organizations can easily create tokens, for example to raise equity or allocate voting rights[^9]. As touched on above, the allocation of these tokens can incorporate the recognition of more diverse forms of value than often feature in traditional compensation decisions[^10]. Crucially, these tokens exist immutably on the blockchain, meaning the potential for powerful members to clean out the company accounts or manipulate their allocations is removed.
|
||||
|
||||
### P3: The unique value add provided by Web3 is sufficient to shift human cooperation more broadly i.e. make this better form of cooperation dominant
|
||||
|
||||
The strongest case we might make is that the revolution in cooperation required must facilitate large scale collaboration which transcends traditional geographical, legal and institutional boundaries. The fact that Web3 facilitates flexibly fluid cooperation between potentially large numbers of diverse actors spread across the globe may gesture to a new future of digitally enabled cooperation. These features can make collaborating in this manner sufficiently easier and more attractive that it may begin to outcompete collaboration through traditional organizations.
|
||||
|
||||
|
||||
## Evaluation: Largely false (medium-high confidence)
|
||||
|
||||
|
||||
### P1: Cooperation in the Web3 sphere is in some sense better than the way we tend to cooperate now (partly true)
|
||||
|
||||
The first thing we should note is that better is a highly context sensitive term. What is better for running a small consultancy may not be better for running a national military. This is a point we have made in our writing elsewhere[^11]. This observation alone should be sufficient to give us pause when considering such huge and sweeping claims as revolutionizing human cooperation. The features outlined above may well make for better forms of cooperation in many contexts, but almost definitionally they cannot be objectively better across all.
|
||||
|
||||
With this caveat aside, let’s narrow our focus to working together outside of the confines of state or government activity. That is to say the private or third sector collaboration which dominates most of our lives. Might we consider the form of collaboration characterized by DAOs as better here? Well, quite possibly. Much of the approach of Web3 organizations aligns very closely with preexisting thinking and ideas, from Teal organisations[^12] to the cooperative movement[^13]. Inasmuch as one thinks that the ideas present in these traditions do indeed point to better ways of working together (even if caveats abound around their own unique difficulties and applicability across the varied contexts even present in the world of work alone) then we may well think that DAOs _do_ point to a form of working collaboration that is somehow better than the current paradigm. Given huge rates of job dissatisfaction, burnout and work related stress[^14], this is perhaps not the lowest of bars to clear.
|
||||
|
||||
### P2: Web3 technology provides a unique value add (false)
|
||||
|
||||
So, qualifications notwithstanding, we might accept that the forms of cooperation found in the Web3 sphere are in some sense superior to their counterparts in many traditional organizations. But, to claim that Web3 itself will revolutionize cooperation, it must be Web3 technology itself that plays a significant role. How might this be so?
|
||||
|
||||
On the understanding posited by most proponents, there is something unique about the underlying blockchain technology itself which makes it potentially revolutionary.
|
||||
|
||||
First, let’s look at the underpinnings of blockchain based organizations as “trustless systems”. Encoding the rules of the game into smart contracts can support shared expectations and a sense of equality under the law. However two things should be noted here. First, it appears that similar effects at least with respect to shared expectations can be achieved by publicly codifying rules by other means, and this is in fact the approach already taken by off-chain decentralized governance models such as Holacracy[^15]. Further, if these codifications are clear enough that they are not liable to contradicting interpretations, and do not leave power over their implementation concentrated in the hands of one or a small number of organization members, then it seems plausible that this can also go a significant way to garnering the requisite trust in shared application required. Automatic execution via smart contract, then, seems to add limited value beyond these other mechanisms which do not require blockchain technology.
|
||||
|
||||
What’s more, smart contracts may actually be actively _undesirable_. The very inflexibility and automation which sets them apart also renders flexibility in the face of unforeseen circumstances impossible. Human-in-the-loop governance systems have the advantage of enabling the application of rules to shift if circumstances necessitate it. For example, let’s say a collaborator misses a deadline and that in our constitution this offense is sufficient to eject them from the organization. If this process is executed via smart contract then the person may find themselves immediately ejected and locked out of the organization’s infrastructure. However under human application there is space to consider exceptional circumstances, for example our collaborator reporting back a day after their deadline to inform us of the death of a close relative which has kept them away from their computer. If this capacity is not actually at odds with trust or shared expectation, then there may be a strong case for retaining it.
|
||||
|
||||
But, even if one remains skeptical of smart contracts, they are admittedly not an intrinsic part of blockchain technology. Recording activities and voting outcomes on a public, decentralized and tamper proof ledger appears to be a more impactful foundation of blockchain organizations’ trustlessness. On one level this assessment is correct - this is a capability that is fairly unique to blockchain technology. The more important question, however, is whether it is legitimately revolutionary. A whole host of non-blockchain based collective decision-making platforms already exist[^16], and organizations such as platform cooperatives[^17] have been undertaking digital cooperation quite successfully for some time also. In each case activities and votes can be coordinated across geographical areas and recorded publicly.
|
||||
|
||||
What sets blockchain apart is that it removes the need for a trusted third party to host this data. We must interrogate whether the limitations of these alternative tools and models is really because there is distrust in the integrity of the data being shared, or real concerns around hacks or other manipulations. This feels like somewhat of a stretch, to say the least, particularly given the evidence provided by the success of the non-blockchain based projects reference prior.
|
||||
|
||||
Finally, it should also be noted that these technical features do not in fact remove trust entirely. One still has to have a degree of trust that the human on the other end of the keyboard will carry out agreed actions in the manner intended. Smart contracts can go wrong, people can be overpaid or deliver work which does not align with the spirit of agreements[^18]. In all these cases, trust is required to ensure that even blockchain based systems are not abused.
|
||||
|
||||
So, how about tokenization? Using tokens to allocate revenue and/or voting rights certainly has the potential to lead to some interesting approaches to cooperation. However, again, it is hard to see the value added by having these tokens be blockchain-based. Experiments with quadratic voting are already underway off-chain[^19], for example. Similarly, there is nothing to stop organizations from allocating compensation based on non-blockchain based systems which enable recognition of diverse forms of value into their calculation. Again, it appears to be the decentralized and tamper-proof nature of blockchain-based tokens which sets them apart, and again it appears hard to make the case that it is the lack of these features which have been the major hurdle to these approaches to governance or remuneration taking hold.
|
||||
|
||||
To conclude, the unique technical features of blockchain don’t appear to do much for the potential of Web3 to revolutionize coordination. The most interesting areas, from alternative approaches to governance and compensation to collaboration across geographical boundaries, all seem perfectly capable of being carried out using other tools. Often, the major benefit of collaborating via Web3 organizations is that they are largely unburdened by regulation. Being able to form an organization without legal registration and raise seed funding through the sale of unregulated tokenized securities has certainly removed some of the friction from more traditional forms of collaborative enterprise. However this lack of regulation appears unlikely to continue in the longer term and, due to carrying its own risks, is likely undesirable in any case. Given this, there do not seem to be many unique benefits to collaborating via Web3.
|
||||
|
||||
### P3: The unique value add provided by Web3 is sufficient to shift human cooperation more broadly i.e. make this better form of cooperation dominant (largely false)
|
||||
|
||||
Now, even if we were to accept that the cooperation charactersing Web3 is superior, and that this is in some way _because_ of its Web3 foundations, we could nonetheless fall short of endorsing the overall claim. For Web3 to revolutionize human cooperation, it must _scale_. Revolution requires the overthrowing of an old paradigm and its replacement with a new one. So, does Web3 cooperation hold the potential to become a dominant force in the overall picture of human cooperation?
|
||||
|
||||
First, we should note that this evaluation must bracket the discussion of P2 as to whether the features of Web3 are actually capable of underpinning this revolution in the first place. We will therefore proceed on the assumption that we have not just given a negative evaluation of these prospects. We should also note that the revolutionary potential of Web3 collaboration appears fairly inextricably linked to the broader success of the Web3 ecosystem; it is hard to see Web3 revolutionizing cooperation while its other elements fade away. Given the “crypto winter”[^20] which took hold in 2022, the prospects for Web3’s revolutionary potential look somewhat worrying to say the least.
|
||||
|
||||
Second, it is worth acknowledging that depending on how one understands the initial claim, it might be possible for the Web3 field to significantly improve cooperation without Web3 technology itself doing anything particularly special. It may simply be that, through the popularity of Web3, new forms of organizing and cooperating become mainstream and bleed out into other sectors. This could happen without Web3 technology itself making any unique contribution or underpinning the spread of these new forms of cooperation. For example, more off-chain organizations could take inspiration from DAOs in how they approach governance. Similarly, Web3 could generate a renewed interest in cooperative organizational forms[^21], whether these ebe blockchain based or not. This more modest understanding of the contribution of Web3 appears at least potentially plausible, however falls short of what is more often implied by the claim that Web3 will revolutionize cooperation.
|
||||
|
||||
The spirit of the claim is not one of inspiring people towards different organizational forms, but of Web3 itself becoming dominant as a foundation for a new form of cooperation. So, we must ask, do the improvements Web3 might offer have the potential to transform human cooperation overall? That is to say, could they bring about a paradigm shift such that these forms of cooperation become dominant? To answer these questions we must look at _why_ these improved forms of collaboration have not taken off previously. If Web3 has the potential to transform cooperation then this implies that the hindrance to these forms of cooperation prior was fundamentally a technical one;what held people back from organizing in this manner was lack of technical capability, such that Web3 now providing this capability should open the proverbial floodgates.
|
||||
|
||||
Now, whatever one makes of the capability afforded by Web3 technology, it is hard to avoid the conclusion that this narrative feels a little stretched. As discussed, the technical capability to collaborate in ways at least comparable to Web3 have existed for some time. Platform cooperatives and decentralized governance models such as Holacracy and Sociocracy have come into being, while the general picture of human cooperation has shifted relatively little. As with all highly complex phenomena there are a raft of intersecting factors which have a role to play in this reality. For example, the profit motive which is much emphasized and encouraged across the majority of the global economy likely inclines many would be entrepreneurs towards private ownership rather than more communal models.
|
||||
|
||||
Similarly, due to a number of factors including the structure and regulation of the global economy, vast, often multinational, firms employing huge numbers of staff currently dominate[^22]. At least some elements of more static and vertically integrated membership and governance and capital raising through more traditional channels (i.e. VC funding and/or exchange traded share offerings) is plausibly just _easier_ to achieve effectively in these types of organizations. Even if alternative models are capable of operating at these vast scales–with examples such as Mondragon showing that this is at least possible in theory[^23]–the huge forms dominating the global economy today are unlikely to simply disappear, or realize the error of their ways and convert how they organize (particularly when this would likely reduce shareholder profits). Market power, often to the extent of borderline monopoly in the case of some of the largest firms, means that their dominance will be hard to shift[^24]. Even if new forms of collaboration are made possible by Web3, it is hard to see it revolutionizing human cooperation more broadly under these circumstances. Money talks, and it seems that for the moment money is on the side of the old paradigm.
|
||||
|
||||
## Related content
|
||||
|
||||
## Deep dives and notes
|
||||
|
||||
* [Stephen Reid & Rufus Pollock on Worker Cooperatives and DAOs](/notes/on-worker-cooperatives)
|
||||
* [In conversation with Hypha](/notes/in-conversation-with-hypha)
|
||||
* [Deep Dive: Web3 and Post-State Technocracy](/notes/post-state-technocracy)
|
||||
* [On the Potential of DAOs & Web3 with Jordan Hall & Rufus Pollock](/notes/on-the-potential-of-daos-and-web3)
|
||||
* * [Open Collective, Steward Ownership & Exit to Community with Pia Mancini](/notes/pia-mancini-open-collective-dialogue)
|
||||
* * [Making Sense of KlimaDao](/notes/klimadao.finance)
|
||||
|
||||
|
||||
## Concepts
|
||||
* [Distributed Autonomous Organization](/concepts/dao)
|
||||
* [Technosolutionism](/concepts/technosolutionism)
|
||||
* [Techno Collectivism](/concepts/techno-collectivism)
|
||||
* [Hyperfinancialization](/claims/is-hyperfinancialization)
|
||||
* [Decentralization](/concepts/decentralization)
|
||||
* [Externalities](/concepts/externalities)
|
||||
* [Free Rider Problem](/concepts/free-rider-problem)
|
||||
* [Governance tokens](/concepts/governance-token)
|
||||
* [Smart Contracts ](/concepts/smart-contracts)
|
||||
* [Post-state Technocracy](/concepts/post-state-technocracy)
|
||||
* [Consensus algorithm](/concepts/consensus-algorithm)
|
||||
* [Initial Coin Offerings (ICO)](/concepts/ico)
|
||||
* [Regulatory Arbitrage](/concepts/regulatory-arbitrage)
|
||||
* [Crowdfunding](/concepts/crowdfunding)
|
||||
|
||||
### FAQs
|
||||
* [Is the underlying technology of “blockchain” useful for non-monetary purposes?](/claims/is-blockchain-tech)
|
||||
* [Is Web3 decentralized?](/claims/is-web3-decentralized)
|
||||
* [Is Web3 a well-defined term?](/claims/is-well-defined)
|
||||
|
||||
## References
|
||||
|
||||
[^1]:
|
||||
Wright, Aaron. ‘The Rise of Decentralized Autonomous Organizations: Opportunities and Challenges · Stanford Journal of Blockchain Law & Policy’, 30 June 2021. https://stanford-jblp.pubpub.org/pub/rise-of-daos/release/1.
|
||||
|
||||
[^2]:
|
||||
O’Connor, Kelly. ‘Popular Voting Mechanisms Used by DAOs’, 18 January 2022. https://www.code2.io/blog/web3-dao-voting-mechanisms/.
|
||||
|
||||
[^3]:
|
||||
O’Connor, Kelly. ‘Popular Voting Mechanisms Used by DAOs’, 18 January 2022. https://www.code2.io/blog/web3-dao-voting-mechanisms/.
|
||||
|
||||
[^4]:
|
||||
Ibid.
|
||||
|
||||
[^5]:
|
||||
DisCO. ‘Elements Chapter 6: Care before Code: It’s What Makes DisCOs Different’. Accessed 10 November 2022. https://elements.disco.coop/Care-before-Code-Its-What-Makes-DisCOs-Different.html.
|
||||
|
||||
[^6]:
|
||||
‘Coordinape | Reinventing Compensation for Web3’. Accessed 10 November 2022. https://coordinape.com//.
|
||||
|
||||
[^7]:
|
||||
Wright, Aaron. ‘The Rise of Decentralized Autonomous Organizations: Opportunities and Challenges · Stanford Journal of Blockchain Law & Policy’, 30 June 2021. https://stanford-jblp.pubpub.org/pub/rise-of-daos/release/1.
|
||||
|
||||
[^8]:
|
||||
Marin, Samantha. ‘What Is a Trustless System?’ BanklessDAO (blog), 22 September 2021. https://medium.com/bankless-dao/what-is-a-trustless-system-3ded568c8921.
|
||||
|
||||
[^9]:
|
||||
Trajcevski, Milko. ‘A Deep Dive Into Tokenization | CoinMarketCap’. CoinMarketCap Alexandria, 2021. https://coinmarketcap.com/alexandria/article/a-deep-dive-into-tokenization.
|
||||
|
||||
[^10]:
|
||||
Project, MetaCurrency. ‘Currencies Are Records of Currents’. The World of Deep Wealth (blog), 29 July 2020. https://medium.com/metacurrency-project/currencies-are-records-of-currents-f4c6cdc809be.
|
||||
|
||||
[^11]:
|
||||
Cox, Theo, and Geoff Mulgan. ‘Web3 Might Be Exciting, But Tech Alone Can’t Fix Governance’. Untitled 2020 – 2030 (blog), 18 May 2022. https://untitled.community/tech-alone-cant-fix-governance/.
|
||||
|
||||
[^12]:
|
||||
Laloux, Frederic. ‘The Future of Management Is Teal’. strategy+business, 6 July 2015. https://www.strategy-business.com/article/00344.
|
||||
|
||||
[^13]:
|
||||
ICA. ‘Cooperative Identity, Values & Principles’. Accessed 10 November 2022. https://www.ica.coop/en/cooperatives/cooperative-identity.
|
||||
|
||||
[^14]:
|
||||
Segal, Edward. ‘New Surveys Show Burnout Is An International Crisis’. Forbes. Accessed 10 November 2022. https://www.forbes.com/sites/edwardsegal/2022/10/15/surveys-show-burnout-is-an-international-crisis/.
|
||||
|
||||
|
||||
[^15]:
|
||||
Holacracy. ‘Explore Holacracy’. Accessed 10 November 2022. https://www.holacracy.org/explore.
|
||||
|
||||
[^16]:
|
||||
For one example take Loomio, made by our friends from Enspiral: ‘Loomio: Decide Together’. Accessed 10 November 2022. https://www.loomio.com/.
|
||||
|
||||
[^17]:
|
||||
Borkin, S (2019). Platform co-operatives – solving the capital conundrum. https://media.nesta.org.uk/documents/Nesta_Platform_Report_FINAL-WEB_b1qZGj7.pdf
|
||||
|
||||
[^18]:
|
||||
As we explored with the members of HyphaDAO: ‘Hypha DAO & Life Itself in Conversation’, 29 July 2022. https://web3.lifeitself.us/notes/in-conversation-with-hypha.
|
||||
|
||||
|
||||
[^19]:
|
||||
Makridis, Christos. ‘Nashville, Jersey City Experiment With “Quadratic Voting”—A Radical Step’. Forbes, 31 August 2022. https://www.forbes.com/sites/zengernews/2022/08/31/nashville-jersey-city-experiment-with-quadratic-voting---a-radical-step/.
|
||||
|
||||
[^20]:
|
||||
Cronje, Andre. ‘The Crypto Winter of 2022’. Medium (blog), 25 October 2022. https://andrecronje.medium.com/the-crypto-winter-of-2022-3d26c283042f.
|
||||
|
||||
[^21]:
|
||||
‘Stephen Reid & Rufus Pollock on Worker Cooperatives and DAOs’, 28 June 2022. https://web3.lifeitself.us/notes/on-worker-cooperatives.
|
||||
|
||||
[^22]:
|
||||
Orlik, Tom, Justin Jimenez, and Cedric Sam. ‘World-Dominating Superstar Firms Get Bigger, Techier, and More Chinese’. Bloomberg.Com, 21 May 2021. https://www.bloomberg.com/graphics/2021-biggest-global-companies-growth-trends/.
|
||||
|
||||
[^23]:
|
||||
Romeo, Nick. ‘How Mondragon Became the World’s Largest Co-Op | The New Yorker’, 27 August 2022. https://www.newyorker.com/business/currency/how-mondragon-became-the-worlds-largest-co-op.
|
||||
|
||||
[^24]:
|
||||
‘Sheffield Political Economy Research Institute’, 7 November 2022. https://www.sheffield.ac.uk/speri.
|
||||
|
|
@ -1,335 +0,0 @@
|
|||
---
|
||||
title: "Web3 can help solve the public goods problem"
|
||||
description: "The claims being evaluated here are a) traditional mechanisms for resolving the public goods problem are inadequate, b)Web3 can raise significant revenue for addressing public goods, c) Web3 can allocate this revenue more effectively, and d) Web3 can do this for reasons that are innately tied to the technology itself."
|
||||
category:
|
||||
- claim: y
|
||||
- featured: y
|
||||
- interview: n
|
||||
- deepdive: n
|
||||
claim:
|
||||
- evaluation: NN
|
||||
- confidence: HH
|
||||
---
|
||||
## Evaluation: False (high confidence)
|
||||
The [public goods problem](/concepts/public-goods-problem) is fundamentally one of revenue raising, and Web3 cannot offer any mechanisms to raise revenue which can effectively overcome the free-rider problem at scale. Further, the desirability of the privatization and marketization implied by Web3 solutions is doubtful in the first place.
|
||||
|
||||
Web3 experiments may point to better ways of allocating funds which are voluntarily raised, but these do not rely on Web3 technology and are all but redundant when trying to allocate between equally vital public goods under conditions of resource scarcity.
|
||||
|
||||
|
||||
## Evidence of claim being made
|
||||
|
||||
Buterin, Vitalik. ‘Quadratic Payments: A Primer’, 7 December 2019. [https://vitalik.ca/general/2019/12/07/quadratic.html](https://vitalik.ca/general/2019/12/07/quadratic.html) :
|
||||
|
||||
> Quadratic funding is starting to be explored as a mechanism for funding public goods already; Gitcoin grants for funding public goods in the Ethereum ecosystem is currently the biggest example, and the most recent round led to results that, in my own view, did a quite good job of making a fair allocation to support projects that the community deems valuable.
|
||||
|
||||
> one can look at it [quadratic funding] through the "fixing market failure" lens, a surgical fix to the tragedy of the commons problem.
|
||||
|
||||
Commons Stack. ‘Commons Stack’. Accessed 20 September 2022. [https://commonsstack.org](https://commonsstack.org):
|
||||
|
||||
> We are building commons-based microeconomies to sustain public goods through incentive alignment, continuous funding and community governance... Token engineering has the potential to address many of the problems facing humanity by giving us the power to realign economic incentives.
|
||||
|
||||
KlimaDAO. ‘Manifesto’. Accessed 20 September 2022. [https://docs.klimadao.finance/klima.fi-manifesto](https://docs.klimadao.finance/klima.fi-manifesto).
|
||||
|
||||
> To deliver the change required, we need immediate and widespread mobilisation and coordination of those who can contribute, and those who want to participate. The change needs to be managed laterally and cooperatively, rather than top-down by unaccountable "leaders.” Web3 can enable this:
|
||||
>
|
||||
> • DeFi delivers a step change in the way we collectively pool our capital to deliver impact.
|
||||
> • Smart contracts disintermediate, facilitate and automate, and enable novel reward systems.
|
||||
> • Web3 technologies enable coordination, collaboration and innovation, with transparency and accountability.
|
||||
> • Open source software and composability enable rapid scaling of this vision.
|
||||
>
|
||||
> Blockchain technology can and will open up new ways for managing our resources and collaborating across networks in the coming years. It will be the foundation for us to efficiently coordinate resources, outpace stale bureaucratic and political processes, and remove the need to jump through hoops to get exposure to the low carbon economy.
|
||||
|
||||
Owocki, Kevin. ‘Introducing GTC – Gitcoin’s Governance Token’. Accessed 14 October 2022. [https://go.gitcoin.co/blog/introducing-gtc-gitcoins-governance-token](https://go.gitcoin.co/blog/introducing-gtc-gitcoins-governance-token).
|
||||
|
||||
> why we built Gitcoin: A platform to fund builders looking for meaningful, open source work. We’ve pioneered Quadratic Funding, a novel, democratic way to fund public goods in our quarterly Gitcoin Grants rounds. Since its launch in November 2017, Gitcoin Grants has now provided nearly $16M of funding to public goods. This is in tandem with $3.54M in bounties which have been paid to open-source developers from all around the world.
|
||||
|
||||
> Today, Gitcoin allocates millions of dollars of funding to thousands of public goods projects. Tomorrow, Gitcoin will allocate billions of dollars.
|
||||
|
||||
Wiblin, Robert, and Vitalik Buterin. ‘Vitalik Buterin on Better Ways to Fund Public Goods, the Blockchain’s Failures so Far, & How It Could yet Change the World’. Accessed 14 October 2022. [https://80000hours.org/podcast/episodes/vitalik-buterin-new-ways-to-fund-public-goods/](https://80000hours.org/podcast/episodes/vitalik-buterin-new-ways-to-fund-public-goods/).
|
||||
|
||||
> the big problem that quadratic funding is solving is this public goods problem
|
||||
|
||||
> So quadratic funding is basically trying to make a sort of more market-like alternative that encourages the production of public goods that basically says like, we’re going to be neutral, we’re not going to have our own kind of specific opinion about what is a real public good and what isn’t. We’re just going to say, people can donate money and stuff. And if a lot of people are donating money to the same thing, then that’s clearly a project that benefits a lot of people. So that’s a public good. And so we’re going to detect that and we’re going to automatically subsidize it based on a formula.
|
||||
|
||||
#
|
||||
# Full analysis
|
||||
|
||||
|
||||
## Subclaims:
|
||||
|
||||
* P1: Traditional mechanisms for resolving the public goods problem are inadequate
|
||||
* P2: Web3 can raise significant revenue for addressing public goods
|
||||
* P3: Web3 can allocate this revenue more effectively
|
||||
* P4: Web3 can do this for reasons that are innately tied to the technology itself
|
||||
|
||||
|
||||
## What is the public goods problem?
|
||||
|
||||
There are four broad types of economic good:
|
||||
|
||||
[Public goods](/concepts/public-goods) are non-rival and non-excludable (anyone can use this good and someone's use does not diminish someone else's use of the good). The trouble with funding public goods is that if anyone can use this good whether or not they have contributed to the funding or upkeep of the good, how do we motivate people to contribute to the good? This is known as the free-rider problem.[^1] [Public goods problems](/concepts/public-goods-problem.md) thus deal with the problem of how to get people to contribute to things that they have no self-interested incentive to contribute to if left to their own devices.
|
||||
|
||||
The classic solution has been compulsion by the state, typically via tax. The state can also leverage its monopoly on violence to make free riding impossible (or very costly). However, claims are being made that blockchain technology can provide solutions to the public goods problem that are not rooted in compulsion.
|
||||
|
||||
|
||||
## Claim steel-manned
|
||||
|
||||
|
||||
### P1: Traditional mechanisms for resolving the public goods problem are inadequate
|
||||
|
||||
Public goods provision falls pretty drastically short of where most of us would it like to be. This is true at the national/domestic level (how many of us have lamented potholes in our roads?) and is particularly damning at the international level e.g. around climate action (we can consider an unpolluted climate a global public good).[^2]
|
||||
|
||||
|
||||
### P2: Web3 can raise enough revenue to meaningfully address the public goods problem
|
||||
|
||||
Web3 can address the revenue raising problem by creating voluntary incentive mechanisms for the funding of public goods rooted in the free market. Web3 can facilitate people contributing to public goods provision not because they’ve been forced to by the state, but because doing so is a good investment opportunity. Certain blockchain-based projects have managed to align public and private incentives, and have thus created an innovative solution to the public goods problem.
|
||||
|
||||
|
||||
### P3: Web3 can allocate this revenue more effectively
|
||||
|
||||
Blockchain-based innovation in governance has facilitated more effective methods of revenue allocation. Quadratic Funding in particular, a variant on Plural or Quadratic Voting[^3], has been shown to lead to near mathematically optimal allocation of resources across a public goods ecosystem[^4]. Quadratic Funding works using the following mathematical formula: for any given project, take the square root of each contributor's contribution, add these values together, and take the square of the result. Individual, voluntary contributions are bolstered by funds from a central subsidy pool, to make up shortfalls between computed contributions and the money actually put up by individuals. This is the process by which GitCoin funds projects in the Web3 ecosystem[^5]. This near optimal process revolutionizes public goods funding through enabling resource distributions which truly reflect community preferences.
|
||||
|
||||
|
||||
### P4: Web3 can do this for reasons that are innately tied to the technology itself
|
||||
|
||||
Blockchain is decentralized, is an immutable, public ledger, and creates the potential for tokenization. These contribute to blockchain based solutions in a number of ways. Firstly, blockchain can enable democratized investment which does not require one to trust an intermediary such as a broker. Anyone can buy a token in a public goods project, and be sure of its existence via reference to the chain. The removal of third parties can also remove prohibitive costs which might otherwise prevent retail investment[^6]. These mechanisms can also facilitate better participatory decision-making; token holders can easily vote in how their resources are allocated, and be confident in the veracity of the outcomes because they are recorded immutably on the blockchain[^7]. Finally, tokenization itself is a means of creating instruments which can better capture and financialise the full range of social value versus traditional money or other financial products[^8].
|
||||
|
||||
|
||||
|
||||
|
||||
## Evaluation: False (high confidence)
|
||||
|
||||
|
||||
### P1: Current mechanisms for resolving the public goods problem are inadequate (partly true)
|
||||
|
||||
Prima facie this claim is plausible. Public goods provision *does* fall short of where we would like it to be. This is certainly true at the global level, and at the national level in most societies. However, we must interrogate *where* his inadequacy comes from. For Web3 to be able to contribute to the solving of this problem effectively, the nature of the problem would have to be technical; Web3 would have to provide a more effective mechanism for aligning public and private incentives than the state.
|
||||
|
||||
An alternative story is that underprovision of public goods is not intrinsically a technical problem of incentive mechanism design. Instead, it’s a messy and deeply human problem of politics and culture, which goes to the heart of why we sacrifice for others (or not). Particularly for those of us who are more privileged in society, public goods provision must in no small part be about our willingness to contribute to a shared collective enterprise with people we feel in some way bonded to–through ideas of our moral circle–and that no amount of private incentive can completely compensate for that[^9]. If this story is true, then we may be more pessimistic about Web3’s prospects. Through this lens it is not the inadequacy of solutions which is the problem, but a cultural unwillingness to implement them. The obvious solution to the underprovision of public goods is taxation and regulation to ensure their provision - implementing such policies is not technically but rather politically hard in societies with strong individualist sentiments and powerful private actors resistant to such changes.
|
||||
|
||||
Finally, even if we are confident that at least some degree of technical optimisation can impact the public goods problem, we should ask why this must be based on Web3. Experiments modifying institutional arrangements via other means show promise[^10], further bringing into question whether off-chain solutions are really inadequate or just underexplored.
|
||||
|
||||
|
||||
### P2: Web3 can raise enough revenue to meaningfully address the public goods problem (false)
|
||||
|
||||
Public goods provision is made up of two things: revenue raising and revenue allocation. Both need to function effectively to get the outcomes we want. In this section we will focus on the revenue raising problem.
|
||||
|
||||
The mechanisms most lauded in Web3 for addressing the revenue raising problem focus on raising revenue via voluntary private contributions. Charities make up for shortfalls in public goods provision all the time, so what’s new here? The purported answer is that Web3 enables the use of _market mechanisms_ to raise money. How do these market mechanisms work in practice? We’ve analyzed a couple of case studies.
|
||||
|
||||
|
||||
#### KlimaDAO
|
||||
|
||||
KlimaDAO's goal is to become a Climate Carbon-Based Reserve Currency; effectively a semi-algorithmic central bank with DAO governance structures[^11].
|
||||
|
||||
“The DAO serves the role of a "de-central" bank, governing the monetary policy of this new carbon-backed currency, just as a central bank governs the monetary policy of a fiat currency. Over time, we will build an economy around KLIMA by driving adoption and unlocking growth of the crypto-carbon economy.” - KlimaDAO[^12]
|
||||
|
||||
The model is as follows:
|
||||
|
||||
Someone comes along with some currency, eg a dollar or a euro, and then converts that into USDC, the stablecoin equivalent of a US dollar. In exchange for depositing whatever amount of USDC, you get 1 divided by the price of Klima tokens from the Klima treasury.
|
||||
|
||||
Klima then takes the USDC that it has received, converts them back into dollars (or euros or pounds etc) and buys carbon offset certificates. Carbon offset certificates represent carbon sequestration (e.g. tree planting), methane capture, and renewable energy initiatives. The idea is then that certificates of carbon offsets come back into the treasury. Every Klima token that's issued is backed by at least one tonne of carbon offsets. So essentially what is being done is Klima are collecting money together and buying carbon offsets; basically the equivalent of a special purpose vehicle for buying carbon offsets.
|
||||
|
||||
You can also take those Klima tokens and sell them back to the Treasury or create derivative financial products on top of them, which can potentially give you more shares in the entity itself. This is called staking and bonding. This process doesn't change the macro structure of what KlimaDAO is trying to do end to end, it just adds another level for people who are already invested in it to get more invested. So what we have is a DeFi system which uses token staking and bonding to incentivize users to deposit or sell their collateral to the DAO treasury in return for discounted KLIMA tokens which trade on a secondary market and are used for governance in the DAO.
|
||||
|
||||
|
||||
##### Evaluation of the KlimaDAO model
|
||||
|
||||
The KlimaDAO model basically boils down to the creation of a carbon-backed ETF[^13] on the blockchain. Its main innovation is opening up the trade in carbon-permits to retail investors. These permits are largely only available off-chain to institutional investors able to make very large purchases through brokers. The DAO acts as a central vehicle which buys offsets, and then allows people to buy into the vehicle itself at a far lower cost than buying the offsets directly. It should be noted that a major reason why this is possible appears to be the “regulatory arbitrage” possible by operating on the blockchain: it is far quicker and cheaper to set up a DAO to do this than a traditional ETF or equivalent vehicle, who’s creation is highly monitored and regulated.
|
||||
|
||||
We don’t want to spend too much time interrogating the model unto itself here. For a more detailed discussion on KlimaDAO you can watch or listen to our [conversation with KlimaDAO](https://web3.lifeitself.org/notes/in-conversation-with-klimadao-part-one). Instead, here we’re concerned with asking whether such a model can make a meaningful contribution to solving the public goods problem.
|
||||
|
||||
To answer this question, we should take a step back and examine voluntary carbon markets more broadly. The general idea is one of _internalizing externalities_; in other words, attaching monetary value to the environmental damage caused by carbon. This is an idea which has existed in economics for some time. If people have to buy permission to pollute, then the hope is that they will be disincentivized from doing so. By expanding the markets in carbon credits, KlimaDAO and other such efforts are banking on increased demand driving up prices, which in turn drives down pollution via the mechanism above.
|
||||
|
||||
Putting aside accusations of greenwashing and mismanagement of offset projects[^14] there are a few reasons to be skeptical that solutions such as this can do much to solve the public goods problem when it comes to climate change:
|
||||
|
||||
* The size of the voluntary carbon market[^15] is paltry compared to the investment required to reach net-zero by 2050[^16], even when accounting for projected growth.
|
||||
|
||||
* The core of the mechanism is that one can potentially profit from carbon as an investment. This means selling it on to someone willing to pay a higher price than you. Most often, these will be firms that will use the credits to continue to pollute, rather than take them out of circulation to serve decarbonization. Thus, my profit as an investor is tied to a continuation of pollution, which is the key thing these mechanisms seek to reduce[^17]. Now this is a simplification; proponents will argue that eventually prices will reach a level that disincentive effects kick in, and that initial investments help this point be reached sooner. However…
|
||||
|
||||
* Prices are still far far lower than appear to be required to actually disincentivize pollution, particularly by the large firms who are the biggest offenders. It doesn’t appear likely that even with a spike in demand prices will reach a point where they can make a dent in the profits to be made from polluting industries, and thus their disincentive effects will be minimal[^18]. Where carbon markets do have a place, they appear to require international regulation to artificially set the price of carbon far higher than it is now. This then essentially takes us back to state coercion, which was the very thing these mechanisms were meant to bypass.
|
||||
|
||||
In short, these mechanisms, which try to marketise public goods provision, are nothing new. There is a reason why they have not made much of a dent in the underprovision of such goods. The very nature of public goods, particularly their nonexcludability, means it is very hard to turn a profit providing them at anything close to the scale which would be required to adequately address their underprovision. The history of capitalism began with nothing but the free-market deciding allocation decisions; it was _because_ this did so badly in providing these goods that state intervention arose in the first place. Whatever one thinks of carbon markets and their role in fighting the climate crisis, it appears a stretch to think that they can do much to solve the public goods problem, even if they’re on the blockchain.
|
||||
|
||||
#### Regenerative finance
|
||||
|
||||
The regenerative finance (ReFi) movement is seeking to solve the public goods problem via a similar mechanism. One can create a DAO, gather investment in exchange for tokens, and use that investment to provide public goods. People buy-in because they expect their tokens to appreciate in value.
|
||||
|
||||
You can learn more about ReFi in our [discussion with Jeff Emmett](https://web3.lifeitself.org/notes/jeff-emmett-on-regenerative-finance). Jeff is the creator of the CommonsStack, which is explicitly intended as a means of funding public goods provision.
|
||||
|
||||
> "At the common stack we're aiming to build tools that improve a community's ability to raise funds, coordinate on the use of those funds, and make decisions together on how to allocate their collective resources." - Jeff Emmett
|
||||
|
||||
|
||||
##### Evaluation of the ReFi movement
|
||||
|
||||
People make investments because they think they can make money out of the investment; they anticipate a return. How does that work here? Take Jeff Emmett’s [TrashHero](https://blog.goodaudience.com/rewriting-the-story-of-human-collaboration-c33a8a4cd5b8), how do we fund beach clean up as well as getting our money back? How does that add up?
|
||||
|
||||
Jeff’s response was that it isn’t in fact possible for everyone to enter this community and exit with more money than they started. However, with revenue coming in from elsewhere, e.g. the Thai Government, investors can get a return on their money and beaches can get cleaned. The incentive for the Thai Government is that the beach cleaning effort would save them $1million worth of aquatic damage, so by funding this initiative with, say, $500,000, they are still saving $500,000.
|
||||
|
||||
At that point, however, the mechanism for funding public goods has moved from using a DAO, to some other entity funding public goods - in this case, we’re back to the state providing the funding. TrashHero is not solving the public goods problem any more, the Thai Government is.
|
||||
|
||||
Jeff responded: “The new part is not the outcome of the government giving money, the new part is what incentivised the government to give the money. We're not saying this is an entirely new thing, what we're doing is using interesting incentive mechanisms to crowdfund money and give local, democratic, participatory budgeting of those funds.”
|
||||
|
||||
So again, we’re left with a situation where essentially a private firm is established to provide a public good. For all the reasons outlined above it’s very hard to make profit as such a firm, and so the recourse is often to government contracts paid using money from taxation. In terms of revenue raising, this again seems to be nothing new.
|
||||
|
||||
One notable thing about Jeff’s example is the reference to “democratic, participatory budgeting”. But this speaks to the allocation of funds problem, not the revenue raising problem.
|
||||
|
||||
Our evaluation is that Web3 does not appear to offer any legitimate innovation around raising funds for public goods provision. The projects making these claims rely on people investing their money in projects to provide public goods in the hope of turning a profit. This is just a form of privatization, and has existed for some time. Not only does there seem to be little evidence that significant sums of money can even be raised in this way, there is a further, deeper reason for caution.
|
||||
|
||||
Privatization of public service provision of all kinds requires the new, privatized entities to be an attractive investment proposition in the wider market. We live in an era where investment yields of 10% or more have become the norm, and even many “ethical” investors would rather not settle for much less than this in exchange for more socially minded investment[^19]. So, for these mechanisms to work effectively, they need to create investments which can compete at close to an equal footing with more traditionally capitalist firms and funds. In the case of public goods provision it is hard to see a plausible mechanism for this, save a select few cases of securing monopolistic government contracts for provision at extortionate rates (e.g. the government pays my firm large amounts to install and run all the nation’s street lamps) which would need to be both so inefficient as to be unjustifiable outside of ideological zealotry but also again rely at their source on government funding gathered through the exact same mechanism (tax) that these solutions claim to bypass.
|
||||
|
||||
Aside from this, we should consider the broader ramifications of bringing the incentive of private profit into the provision of the core underpinnings of our lives. There is ample evidence that these incentives and the need to compete in the wider market have led to privatized public services being gutted, overleveraged and delivered at (and often below) the bare minimum level of quality we would ever expect[^20]. There is no reason to believe that provision of public goods would be any different. Thus, even if it was plausible to raise significant sums in this way, we should pause to ask whether it would actually be desirable.
|
||||
|
||||
|
||||
### P3: Web3 can allocate this revenue more effectively (possibly true)
|
||||
|
||||
Web3 may not be able to raise revenue for public goods provision more effectively, but perhaps it can provide innovation in revenue allocation. This is the promise of projects such as GitCoin, with their use of quadratic funding. We’ll focus on quadratic funding here as it is the most popular and lauded allocation mechanism in the Web3 sphere.
|
||||
|
||||
As referenced above, there has at least been a theoretical case made that quadratic funding can lead to better allocations of resources for public goods provision. However further evidence of this being borne out in reality is required to confirm this potential value. At best, then, we can tentatively accept that the mechanisms used by certain Web3 projects may support better revenue allocation.
|
||||
|
||||
However, it should be stressed that in the context of public goods provision the issue has never been one of effective allocation. Resource use might be able to be optimized, but the real bottleneck is that there are simply not enough resources in the first place. The question of how to optimally allocate resources between safe and crime free living environments, well maintained basic infrastructure such as roads and a flourishing and non-toxic natural environment seems to be missing the point somewhat. Of course if we have to prioritize then ensuring prioritization decisions adequately reflect population preferences is valuable. However, most of us would likely agree that we’d rather live in societies where we don’t have to prioritize much, or in fact at all, between these things in the first place.
|
||||
|
||||
This is where the actual functioning of these mechanisms diverges from the grand claims made about them. Currently these mechanisms have largely been used to develop Web3 projects and infrastructure[^21], which may be useful but are in fact not vital to basic standards of living. Choosing between an array of options takes on a different significance in this context than in more traditional public goods problem areas, where the goods in question are all to a greater or lesser extent vital. Any purported solution to the public goods problem as a whole which keeps us stuck in conditions of scarcity and retains the necessity of such prioritization doesn’t appear to be much of a solution at all.
|
||||
|
||||
### P4: Web3 can do this for reasons that are innately tied to the technology itself (false)
|
||||
|
||||
Finally, it’s worth turning our attention to the value add of Web3 itself. Even if P2 and P3 were to hold, for the overall claim that Web3 can help solve the public goods problem to be true, this would need to be because of some feature(s) of Web3 technology itself. In other words, it’s insufficient for contributions to the public goods problem simply to be coming out of the Web3 sphere, they need to rest on features of Web3 which make them impossible to replicate elsewhere. This means turning our attention to the blockchain technology underpinning it.
|
||||
|
||||
On examination, the capacities of blockchain technology outlined in the
|
||||
[steel man section](#heading=h.5swpp0lxqtve) do not seem particularly unique to blockchain technology, and where they are, they don’t seem to make much additional contribution to the public goods problem.
|
||||
|
||||
While the removal of third parties might reduce investment costs, we should examine how much of the cost reduction in blockchain projects is due to regulatory arbitrage rather than this simplification. Often most of the speed, ease and price advantages of raising investment via Web3 is a result of the fact that there are few legal safeguards in the sphere yet, rather than because of the removal of third parties. Similarly, while the requirement of one type of trust is reduced, the aforementioned lack of regulation means that one still has to trust that the blockchain project one is investing in will do what it says, and not just take the money and run. The prevalence of “rug pulls” shows that this trust can often be misplaced[^22].
|
||||
|
||||
Additionally, in the case of participatory decision-making, blockchain adds little that other digital voting technologies do not already provide. It is true that the outcomes of votes can be publicly confirmed, but again we must ask whether the hindrance to more participatory forms of budgeting around public goods is really that people lack trust in the outcomes of their votes. More plausible are mechanisms such as time and attention costs. The excitement surrounding blockchain-based innovation relating to governance is often centered around experiments with novel voting mechanisms such as quadratic voting, not the technology itself. Such experiments may legitimately add value which is not present in current off-chain approaches but they are by no means tied to blockchain technology. In fact experiments are already underway to leverage them in off-chain contexts[^23].
|
||||
|
||||
Finally, while tokenization does allow anyone to create new instruments for investment, the major difference between these and traditional financial derivatives is again simply a lack of regulation. These tokens must eventually be tied back to some form of activity or commodity in the off-chain economy, be these off-chain carbon credits or beach cleanup efforts (it should be noted that this connection is absent in many Web3 projects[^24], hence the speculative bubble dynamics which plague the sector). In this picture tokens simply do what all other forms of securities do - provide the ability to raise capital and perhaps allocate voting rights. The only difference is that the legal requirements for their creation are far less stringent.
|
||||
|
||||
So, even if there _were_ plausible mechanisms by which Web3 was meaningfully contributing to the public goods problem through revenue raising and/or allocation, it is hard to see how these contributions could reasonably be attributed to the technology itself. In most cases the major advantage offered by Web3 projects is the capacity for regulatory arbitrage, and this is not something that is a unique feature of the technology itself nor something that is particularly desirable itself in the long run.
|
||||
|
||||
|
||||
## Conclusion
|
||||
|
||||
While it may be the case that traditional mechanisms for resolving the public goods problem are inadequate, we find that Web3 has so far not provided a more effective mechanism for raising significant revenue for funding public goods. In addition, excitement currently surrounding experiments in governance within the Web3 space actually has little to do with the underlying technology, seeing as innovative approaches such as quadratic voting are not reliant on blockchain technology.
|
||||
|
||||
## Related content
|
||||
|
||||
### Deep dives and notes
|
||||
* [Deep Dive: Collective Action Problems & Climate Change](/notes/collective-action-problems-and-climate-change)
|
||||
* [Richard D. Bartlett, Stephen Reid & Rufus Pollock on Critical Exploration of Web3](/notes/richard-bartlett-and-stephen-reid)
|
||||
* [On the Potential of DAOs & Web3 with Jordan Hall & Rufus Pollock](/notes/on-the-potential-of-daos-and-web3)
|
||||
* [Stephen Reid & Rufus Pollock on Worker Cooperatives and DAOs](/notes/on-worker-cooperatives)
|
||||
* [Open Collective, Steward Ownership & Exit to Community with Pia Mancini](/notes/pia-mancini-open-collective-dialogue)
|
||||
* [Regenerative Finance and Web3 for Public Goods](/notes/jeff-emmett-on-regenerative-finance)
|
||||
* [Samer Hassan on Decentralization, Platform Monopolies and Web3](/notes/samer-hassan)
|
||||
* [Deep Dive: Web3 and Post-State Technocracy ](/notes/post-state-technocracy)
|
||||
* [Notes on Jeff Emmett's 'Rewriting the Story of Human Collaboration'](/notes/emmett-2018-rewriting-story-human)
|
||||
* [KlimaDAO & Life Itself in Conversation](/notes/in-conversation-with-klimadao-part-one)
|
||||
* [Making Sense of KlimaDao](/notes/klimadao.finance)
|
||||
|
||||
### Concepts
|
||||
|
||||
* [Distributed Autonomous Organization](/concepts/dao)
|
||||
* [Technosolutionism](/concepts/technosolutionism)
|
||||
* [Techno Collectivism](/concepts/techno-collectivism)
|
||||
* [Hyperfinancialization](/claims/is-hyperfinancialization)
|
||||
* [Decentralization](/concepts/decentralization)
|
||||
* [Externalities](/concepts/externalities)
|
||||
* [Free Rider Problem](/concepts/free-rider-problem)
|
||||
* [Public Goods Problem ](/concepts/public-goods-problem)
|
||||
* [Governance tokens](/concepts/governance-token)
|
||||
* [Smart Contracts ](/concepts/smart-contracts)
|
||||
* [Post-state Technocracy](/concepts/post-state-technocracy)
|
||||
* [Consensus algorithm](/concepts/consensus-algorithm)
|
||||
* [Initial Coin Offerings (ICO)](/concepts/ico)
|
||||
* [Regulatory Arbitrage](/concepts/regulatory-arbitrage)
|
||||
* [Crowdfunding](/concepts/crowdfunding)
|
||||
|
||||
### FAQs
|
||||
|
||||
* [Is the underlying technology of “blockchain” useful for non-monetary purposes?](/claims/is-blockchain-tech)
|
||||
* [Is Web3 decentralized?](/claims/is-web3-decentralized)
|
||||
* [Is Web3 a well-defined term?](/claims/is-well-defined)
|
||||
* [Is Bitcoin a currency?](/claims/is-bitcoin-currency)
|
||||
* [Can I raise money for my non-profit using crypto tokens?](/claims/is-raise-nonprofit.md)
|
||||
* [Can I do a crowdfunded equity raise for my company? ](/claims/is-raise-company)
|
||||
* [Is bitcoin mining harmful to the environment?](/claims/is-environmental-footprint.md)
|
||||
* [Is crypto bringing about the "financialization of everything"?](/claims/is-hyperfinancialization.md)
|
||||
* [What's the opportunity cost of crypto?](/claims/is-opportunity-cost.md)
|
||||
|
||||
|
||||
## References
|
||||
|
||||
[^1]: Pettinger, Tejvan. ‘Definition of Public Good’. Economics Help, 28 July 2019. https://www.economicshelp.org/micro-economic-essays/marketfailure/public-goods/.
|
||||
|
||||
[^2]:
|
||||
Seo, S. Niggol. ‘An Introduction to the Behavioral Economics of Climate Change for Provision of Global Public Goods’. In The Behavioral Economics of Climate Change, 2017.
|
||||
|
||||
[^3]:
|
||||
RadicalxChange. ‘Plural Voting’. Accessed 1 November 2022. https://www.radicalxchange.org/concepts/plural-voting/.
|
||||
|
||||
[^4]:
|
||||
V. Buterin, Z. Hitzig and G. Weyl (2018) - Liberal Radicalism: A Flexible Design For Philanthropic Matching Funds
|
||||
[http://dx.doi.org/10.2139/ssrn.3243656](http://dx.doi.org/10.2139/ssrn.3243656)
|
||||
|
||||
[^5]:
|
||||
Gitcoin - Support open web development. ‘Gitcoin - Support Open Web Development.’ Accessed 1 November 2022. https://gitcoin.co/fund.
|
||||
|
||||
|
||||
[^6]:
|
||||
Chen, Yan. ‘Blockchain Tokens and the Potential Democratization of Entrepreneurship and Innovation’. Business Horizons 61, no. 4 (July 2018): 567–75. https://doi.org/10.1016/j.bushor.2018.03.006.
|
||||
|
||||
[^7]:
|
||||
Fischer, Aron, and María-Cruz Valiente. ‘Blockchain Governance’. Internet Policy Review 10, no. 2 (20 April 2021). https://doi.org/10.14763/2021.2.1554.
|
||||
|
||||
[^8]:
|
||||
See for example the emergence of ‘social tokens’: ‘Forefront Learn’, 22 September 2021. https://forefront.market/learn.
|
||||
|
||||
[^9]:
|
||||
Andre, Claire, and Manuel Velasquez. ‘The Common Good vs Individualism’. Accessed 1 November 2022. https://www.scu.edu/mcae/publications/iie/v5n1/common.html.
|
||||
|
||||
[^10]:
|
||||
‘Why Citizens Don’t like Paying for Public Goods with Their Taxes– and How Institutions Can Change That | USAPP’, 1 September 2015. https://blogs.lse.ac.uk/usappblog/2015/09/01/why-citizens-dont-like-paying-for-public-goods-with-their-taxes-and-how-institutions-can-change-that/.
|
||||
|
||||
[^11]:
|
||||
‘FAQ - KlimaDAO’. Accessed 1 November 2022. https://docs.klimadao.finance/master.
|
||||
|
||||
[^12]:
|
||||
Paul. ‘What Is KlimaDAO And How You Can Use It To Earn Eco-Friendly Passive Income’. Chain Debrief (blog), 17 December 2021. https://chaindebrief.com/what-is-klimadao-klima-tokens/.
|
||||
|
||||
[^13]:
|
||||
Chen, James. ‘Exchange-Traded Fund (ETF) Explanation With Pros and Cons’. Investopedia, 17 October 2022. https://www.investopedia.com/terms/e/etf.asp.
|
||||
|
||||
[^14]:
|
||||
‘Is Carbon Offset a Form of Greenwashing? | Earth.Org’. Accessed 1 November 2022. https://earth.org/is-carbon-offset-a-form-of-greenwashing/.
|
||||
|
||||
[^15]:
|
||||
|
||||
Blaufelder, Christopher, Cindy Levy, Peter Mannion, and Dickon Pinner. ‘Carbon Credits: Scaling Voluntary Markets | McKinsey’. Accessed 1 November 2022. https://www.mckinsey.com/capabilities/sustainability/our-insights/a-blueprint-for-scaling-voluntary-carbon-markets-to-meet-the-climate-challenge.
|
||||
|
||||
[^16]:
|
||||
Kumra, Gautam, and Jonathan Woetzel. ‘What It Will Cost to Get to Net-Zero | McKinsey’, 29 January 2022. https://www.mckinsey.com/mgi/overview/in-the-news/what-it-will-cost-to-get-to-net-zero.
|
||||
|
||||
[^17]:
|
||||
|
||||
Lejano, Raul P., Wing Shan Kan, and Ching Chit Chau. ‘The Hidden Disequities of Carbon Trading: Carbon Emissions, Air Toxics, and Environmental Justice’. Frontiers in Environmental Science 8 (2020). https://www.frontiersin.org/articles/10.3389/fenvs.2020.593014.
|
||||
|
||||
[^18]:
|
||||
|
||||
Black, Simon, Ian Parry, and Karlygash Zhunussova. ‘More Countries Are Pricing Carbon, but Emissions Are Still Too Cheap’. IMF, 21 July 2022. https://www.imf.org/en/Blogs/Articles/2022/07/21/blog-more-countries-are-pricing-carbon-but-emissions-are-still-too-cheap.
|
||||
|
||||
[^19]:
|
||||
Arcidiacono, Davide, Filippo Barbera, Andrew Bowman, John Buchanan, Sandro Busso, Joselle Dagnes, Jess Earle, et al. The Foundational Economy: The Infrastructure of Everyday Life, 2017.
|
||||
|
||||
[^20]:
|
||||
Ibid.
|
||||
|
||||
[^21]:
|
||||
Grants. ‘Grants’. Accessed 9 November 2022. https://gitcoin.co/grants/explorer.
|
||||
|
||||
[^22]:
|
||||
White, Molly. ‘Web3 Is Going Just Great’. Accessed 9 November 2022. https://web3isgoinggreat.com/.
|
||||
|
||||
[^23]:
|
||||
Makridis, Christos. ‘Nashville, Jersey City Experiment With “Quadratic Voting”—A Radical Step’. Forbes, 31 August 2022. https://www.forbes.com/sites/zengernews/2022/08/31/nashville-jersey-city-experiment-with-quadratic-voting---a-radical-step/.
|
||||
|
||||
[^24]:
|
||||
Cox, Theo, and Eilidh Ross. ‘Crypto: Can These Financial Perpetual Motion Machines Work?’, 20 May 2022. https://web3.lifeitself.us/notes/financial-perpetual-motion-machine.
|
||||
|
||||
|
|
@ -1,179 +1,89 @@
|
|||
---
|
||||
title: Crypto will provide better payment and remittance services
|
||||
description: The claim being made here is that a. crypto can provide payment and remittance services by functioning as a currency, and b. crypto can provide better payment rails and remittance services than existing technologies. We find that crypto does not fulfil the definition of a currency is not technologically capable of competing with existing payment rails, and the level of advancement needed to do so should not be considered inevitable. While we do note that crypto does appear to serve the functions of a currency in practice in nations with non-functional financial systems such as Ukraine, this fact should be taken less as a testament to the potential of crypto and more as a sign that political and economic support is needed in these cases.
|
||||
title: Crypto will provide cheaper, faster payment and remittance services
|
||||
description: The claim being made here is that a. cheaper and faster payment and remittance services are desirable, b. crypto can provide this, and c. the benefits of this would outway any negative externalities. We find this claim to fail on points b. and c. and to therefore be false.
|
||||
category:
|
||||
- claim: y
|
||||
- featured: y
|
||||
- interview: n
|
||||
- deepdive: n
|
||||
claim:
|
||||
- evaluation: N
|
||||
- evaluation: NN
|
||||
- confidence: HH
|
||||
---
|
||||
|
||||
## Evaluation: Largely false (high confidence)
|
||||
## Claim Steel-Manned
|
||||
|
||||
Crypto is not technologically capable of competing with existing payment rails, and the level of advancement needed to do so is far from a sure thing. In fact, crypto is not up to acting as a currency at all. It does appear to serve these functions in practice in developing nations with non-functional financial systems, as the example of Ukraine shows. However this should be taken less as a testament to the potential of crypto and more as a sign that political and economic support is needed in these cases. And, being better than poorly functioning legacy systems is not what the spirit of this claim gestures to.
|
||||
### Subclaim 1: Crypto can provide payment and remittance services by virtue of fulfilling the fuctions of a currency.
|
||||
|
||||
Payment systems and remittance services need to pay in something. That something must either be a [currency](../concepts/currency.md) (eg dollars) or a [commodity](../concepts/commodity.md) (eg cows).
|
||||
|
||||
Crypto can provide payment systems and remittance services because it serves the three functions of a currency:
|
||||
1. It can be a unit of account in that it’s a standard and divisible unit of measurement of market value (i.e. it can be used to signal what something is worth).
|
||||
2. It can be a medium of exchange in that we can use it as an intermediary instrument to transact for goods and services.
|
||||
3. It can act as a [store of value](../concepts/store-of-value.md) in that it (at least ideally) retains its purchasing power over time, such that we can retrieve the value of our investment at a later date without making a significant loss.
|
||||
|
||||
### Subclaim 2: Crypto can provide *better* payment rails and remittance services
|
||||
|
||||
Crypto can provide us with better payment rails - i.e. a better Visa, Stripe etc - and more efficient international remittances - I can send money abroad, eg from US dollars to Indian rupees using crypto. These blockchain-based payment rails would have reduced friction and costs resulting in a cheaper, faster, more efficient service.
|
||||
|
||||
## Examples of the claim being made
|
||||
|
||||
BLOCKDATA (2019) ‘Blockchain is disrupting the $700 billion remittance industry’, _Medium_, 7 March. Available at https://medium.com/@blockdata_tech/blockchain-is-disrupting-the-700-billion-remittance-industry-b79a01a95a10 (Accessed: 13 September 2022).
|
||||
|
||||
CMT, B.M.I., CFA (2015) ‘The Value Investor’s Case for... Bitcoin?!’, _Miller Value Partners_, 8 September. Available at: https://millervalue.com/a-value-investors-case-for-bitcoin/ (Accessed: 13 September 2022):
|
||||
BLOCKDATA (2019) ‘Blockchain is disrupting the $700 billion remittance industry’, _Medium_, 7 March. Available at: [https://medium.com/@blockdata_tech/blockchain-is-disrupting-the-700-billion-remittance-industry-b79a01a95a10](https://medium.com/@blockdata_tech/blockchain-is-disrupting-the-700-billion-remittance-industry-b79a01a95a10) (Accessed: 13 September 2022).
|
||||
|
||||
CMT, B.M.I., CFA (2015) ‘The Value Investor’s Case for... Bitcoin?!’, _Miller Value Partners_, 8 September. Available at: [https://millervalue.com/a-value-investors-case-for-bitcoin/](https://millervalue.com/a-value-investors-case-for-bitcoin/) (Accessed: 13 September 2022):
|
||||
> The open ledger combined with the complexity of transaction data makes Bitcoin a very secure method of payment... One of Bitcoin’s biggest advantages over other payment networks like Visa (V) and MasterCard (MA) is minimal transactions fees. While other payments networks typically charge the greater of ~3% and $0.15, Bitcoin’s transaction fee tends to be a negligible fraction of the transaction, if any at all. Lower transaction fees not only enable buyers and sellers to transact at prices that are better for both parties, but they could enable micropayments in markets that are not otherwise compatible with a $0.15 surcharge on low-price, low-margin goods and services.
|
||||
|
||||
Ver, Roger. quoted in COINTELEGRAPH (2013) _Western Union is not yet ready for bitcoin international transfer_, _Cointelegraph_. Available at: https://cointelegraph.com/news/western_union_is_not_yet_ready_for_bitcoin_international_transfer (Accessed: 13 September 2022):
|
||||
Ver, Roger. quoted in COINTELEGRAPH (2013) _Western Union is not yet ready for bitcoin international transfer_, _Cointelegraph_. Available at: [https://cointelegraph.com/news/western_union_is_not_yet_ready_for_bitcoin_international_transfer](https://cointelegraph.com/news/western_union_is_not_yet_ready_for_bitcoin_international_transfer) (Accessed: 13 September 2022):
|
||||
> I think we will know when bitcoin has reached prime time when it is transferring more value each day than Western Union or Money Gram... I think we may see that happen within another two years.
|
||||
|
||||
> I think we will know when bitcoin has reached prime time when it is transferring more value each day than Western Union or MoneyGram... I think we may see that happen within another two years.
|
||||
Nakamoto, S. (no date) *Bitcoin: A Peer-to-Peer Electronic Cash System*. Available at: https://www.ussc.gov/sites/default/files/pdf/training/annual-national-training-seminar/2018/Emerging_Tech_Bitcoin_Crypto.pdf
|
||||
|
||||
## Evaluation: False (high confidence)
|
||||
|
||||
Nakamoto, S. *Bitcoin: A Peer-to-Peer Electronic Cash System*. Available at: https://www.ussc.gov/sites/default/files/pdf/training/annual-national-training-seminar/2018/Emerging_Tech_Bitcoin_Crypto.pdf
|
||||
### Subclaim 1: Crypto *cannot* fulfil the fuctions of a currency.
|
||||
|
||||
Crypto assets are [not currencies](is-bitcoin-currency.md) because they cannot fulfil the definition of [money](../concepts/money.md).
|
||||
|
||||
## Claim steel-manned
|
||||
Crypto assets cannot function as a medium of exchange. The transaction throughput is so small that they don't work as a global system of currency - they can't process transactions fast enough. This is inherent to the proof-of-work process crypto assets use to verify their transactions. This incapacity is therefore baked in.
|
||||
|
||||
Crypto assets also do not appear to hold potential as a store of value given their extremely high price variance. If they were to behave as a [store of value](../concepts/store-of-value.md), they would have to abandon hypervolatility, and there is no easily identifiable economic mechanism for this to happen.
|
||||
|
||||
### Subclaim 1: Crypto can provide payment and remittance services by virtue of fulfilling the functions of a currency
|
||||
### Subclaim 2: Crypto can provide *better* payment rails and remittance services
|
||||
|
||||
Payment systems and remittance services need to pay in something. That something must either be a [currency](/concepts/currency.md) (eg dollars) or a [commodity](/concepts/commodity.md) (eg cows).
|
||||
|
||||
Crypto can provide payment systems and remittance services because it serves the three functions of a currency:
|
||||
|
||||
1. It can be a unit of account in that it’s a standard and divisible unit of measurement of market value (i.e. it can be used to signal what something is worth).
|
||||
|
||||
2. It can be a medium of exchange in that we can use it as an intermediary instrument to transact for goods and services.
|
||||
|
||||
3. It can act as a [store of value](/concepts/store-of-value.md) in that it (at least ideally) retains its purchasing power over time, such that we can retrieve the value of our investment at a later date without making a significant loss.
|
||||
|
||||
|
||||
### Subclaim 2: Crypto can provide _better payment_ rails and remittance services
|
||||
|
||||
Crypto can provide us with better payment rails - i.e. a better Visa, Stripe etc - and more efficient international remittances - I can send money abroad, e.g. from US dollars to Indian rupees using crypto. These blockchain-based payment rails would have reduced friction and costs resulting in a cheaper, faster, more efficient service.
|
||||
|
||||
|
||||
## Evaluation: Largely false (high confidence)
|
||||
|
||||
|
||||
### Subclaim 1: Crypto can provide payment and remittance services by virtue of fulfilling the functions of a currency
|
||||
|
||||
Crypto assets are [not currencies](/claims/is-bitcoin-currency.md) because they cannot fulfill the definition of [money](/concepts/money.md).
|
||||
|
||||
Crypto assets do not currently seem promising as a medium of exchange. Even the latest technologies have yet to show they can reliably process transaction volumes at a similar level to traditional payment rails[^1]. They thus don’t work as a global currency system as they can’t process transactions fast enough.
|
||||
|
||||
Proponents argue that technical innovations, from third party protocols such as the lightning network[^2] to the shift from proof-of-work to alternative validation methods such as proof-of-stake[^3], will help solve this throughput problem. However even with these new technologies in place blockchains are a long way from competing with traditional payment rails in speed and reliability. Significant leaps in capability are required to reach parity, let alone exceed existing payment methods, and these should not be taken as an inevitability.
|
||||
|
||||
One further hurdle to new crypto assets acting as a widespread medium of exchange is privacy. The public blockchains which dominate web3 record all transactions on an openly viewable ledger, meaning even transactions using anonymised wallets are often easily traceable[^4]. Many users are unlikely to be happy with this potential lack of privacy, particularly businesses who are concerned with revealing sensitive information to their competitors. Emerging methods and technologies are targeting the problem of privacy, however again they are a far cry from being able to guarantee widespread transaction privacy on public blockchains any time in the near future.
|
||||
|
||||
Crypto assets also do not appear to hold potential as a store of value given their extremely high price variance. If they were to behave as a [store of value](/concepts/store-of-value.md), they would have to abandon hypervolatility, and there is no easily identifiable economic mechanism for this to happen. It should be noted that this volatility could at least in theory ease with time. However, as we have previously noted, the price dynamics of crypto assets are predominantly determined by bubble dynamics fuelled by economic narratives and [“animal spirits”](https://www.investopedia.com/terms/a/animal-spirits.asp) of investors. The vast majority of crypto projects are detached from productive economic activity and generate assets with no use value beyond speculation. This has been played out in the repeated, large scale crypto crashes of 2022[^5]. Given this, vulnerability to price volatility seems all but guaranteed to continue.
|
||||
|
||||
|
||||
### Subclaim 2: Crypto can provide _better_ payment rails and remittance services
|
||||
|
||||
Since crypto assets cannot function as a currency, they are not useful in building payment rails or remittance services. Crypto assets can be used as an intermediate asset in which trades can be settled in, but this does not serve a technical or financial purpose; it simply introduces an unnecessary conversion step.
|
||||
Since crypto assets cannot function as a currency, they are not useful in building payment rails or remittance services. Crypto assets can be used as an intermediate asset in which trades can be settled in, but this does not serve a technical of financial purpose; it simply introduces an unnecessary conversion step.
|
||||
|
||||
If a person wants to send money abroad, say from US dollars to Indian rupees, they would typically use a service like MoneyGram or WesternUnion. These services charge a transaction fee and do a direct swap of dollars to rupees from the reserves the company holds in both currencies.
|
||||
|
||||
If one postulates using a crypto asset or stablecoin as a means to do remittances then they are still faced with the _last mile problem_[^6]. Their relatives in India still have to convert the crypto asset into the local currency to buy domestic goods and services since supermarkets and stores don't accept crypto assets. So instead of a dollar-to-rupee conversion we would hypothetically do a dollar-to-bitcoin-to-rupee conversion. This introduces [price-risk](/concepts/price-risk.md), [counterparty-risk](/concepts/counterparty-risk.md) and unnecessary conversion fees to accommodate the extraneous third exchange. The process adds unnecessary complexity and is likely more expensive.
|
||||
If one postulates using a crypto asset or stablecoin as a means to do remittances then they are still faced with the *last leg problem*. Their relative in India still has to convert the crypto asset into the local currency to buy domestic goods and services since supermakets and stores don't accept crypto assets. So instead of a dollar-to-ruppee conversion we would hypothetically do a dollar-to-bitcoin-to-rupee conversion. This introduces [price-risk](../concepts/price-risk.md), [counterparty-risk](../concepts/counterparty-risk.md) and unnecessary conversion fees to accommodate the extraneous third exchange. This adds unnecessary complexity and is likely more expensive.
|
||||
|
||||
In addition, if crypto were to provide _cheaper_ and _faster_ payment rails, it’s likely this will have been achieved not via technological advancements, but by removing safeguards. The costs present in most retail financial services have very little to do with the technology. Transaction costs associated with payments are fraud mitigation, transaction reversal, custodial services, customer service, and compliance. Customers want these safeguards. Once we add compliance back to crypto payment rails, it’s unclear that there would be any efficiency increase or cost savings.
|
||||
In addition, if crypto were to provide *cheaper* and *faster* payment rails, it’s likely this will have been acheived not via technological advancements, but by removing safeguards.
|
||||
|
||||
See industry analysts describe this problem in more depth: [Does Bitcoin/Blockchain make sense for international money transfers?](https://www.saveonsend.com/bitcoin-blockchain-money-transfer/)
|
||||
The costs present in most retail financial services have very little to do with the technology. Transaction costs associated with payments are fraud mitigation, transaction reversal, custodial services, customer service, and compliance. Customers want these safeguards. Once we add compliance back to crypto payment rails, it’s unclear that there would be any efficiency increase or cost savings.
|
||||
|
||||
See industry analysts describe this proble in more depth: [Does Bitcoin/Blockchain make sense for international money transfers?](https://www.saveonsend.com/bitcoin-blockchain-money-transfer/)
|
||||
|
||||
## Do developing nations qualify our analysis?
|
||||
## References
|
||||
|
||||
One potential qualification to this analysis is the use of cryptocurrency to bypass traditional economic apparatus which is otherwise dysfunctional. The most prominent recent example has been Ukraine, where both non-state actors and the government itself have raised significant amounts of money in cryptocurrencies to support the war effort[^7]. The standard crypto-skeptic response to this is that there is nothing to stop donations being made via traditional payment rails. While this is in some sense true, the reality is more complex.
|
||||
Amato, M. and Fantacci, L. (2020) _A Fistful of Bitcoins: The Risks and Opportunities of Virtual Currencies_. Bocconi University Press. Available at: [https://www.egeaeditore.it/ita/prodotti/economia/a-fistful-of-bitcoins.aspx](https://www.egeaeditore.it/ita/prodotti/economia/a-fistful-of-bitcoins.aspx).
|
||||
|
||||
First, traditional fundraising platforms often block use of funds for the purchase of weapons and other military equipment, which is a priority for Ukrainian forces currently. More interestingly however, it has been reported that the use of cryptocurrencies and particularly crypto tokens such as USDT in Ukraine was already relatively common due to widespread distrust in the government[^8] , a poorly functioning banking system[^9] and persistently high levels of inflation in the local currency. There is anecdotal evidence that this situation gave rise to a secondary economy in the cryptosphere, where direct crypto to crypto transactions were common for more expensive items[^10]. Use of cryptocurrency to purchase war supplies – which proponents engaged in these efforts claim are paid for directly in crypto itself – has also been identified as quicker and easier than trying to navigate the slow and unreliable banking system to make international purchases in a currency such as USD, even for the government itself[^11].
|
||||
_Blockchains and Cryptocurrencies: Burn It With Fire_ (2018). Berkeley School of Information. Available at: [https://www.youtube.com/watch?v=xCHab0dNnj4](https://www.youtube.com/watch?v=xCHab0dNnj4) (Accessed: 25 February 2022).
|
||||
|
||||
Should this analysis of the situation in Ukraine and other similar contexts hold true, then the following qualifications may be in order:
|
||||
Cembalest, M. (2022) _The Maltese Falcoin: On Cryptocurrencies and Blockchains_, p. 31. Available at: [https://privatebank.jpmorgan.com/content/dam/jpm-wm-aem/global/pb/en/insights/eye-on-the-market/the-maltese-falcoin.pdf](https://privatebank.jpmorgan.com/content/dam/jpm-wm-aem/global/pb/en/insights/eye-on-the-market/the-maltese-falcoin.pdf).
|
||||
|
||||
1) The last mile problem will not hold where economic transactions can be carried out directly in cryptocurrency. This may be in states where parallel crypto-economies have emerged to fill a void left by a dysfunctional financial system, or simply due to cryptocurrency being more widely accepted as a direct payment method for things like online transactions (evidenced by major platforms such as PayPal facilitating the use of cryptocurrency to pay for goods and services).
|
||||
Krugman, P. (2018) ‘Transaction costs and tethers: Why I’m a crypto skeptic’, _The New York Times_, 21.
|
||||
|
||||
2) Better is a relative term. Blockchain may well provide a better payment rail compared to highly dysfunctional traditional systems, such as the financial system of Ukraine.
|
||||
Krugman, P. (2021) ‘Technobabble, Libertarian Derp and Bitcoin’, _The New York Times_, 21. Available at: [https://www.nytimes.com/2021/05/20/opinion/cryptocurrency-bitcoin.html](https://www.nytimes.com/2021/05/20/opinion/cryptocurrency-bitcoin.html).
|
||||
|
||||
We should be measured in judging the implications of these qualifications for the overall claim, however. The spirit of the claim is that Web3 can provide better payment rails than the best of existing technology. The fact that Web3 may provide a better payment rail than very poorly functioning versions of traditional financial infrastructure does nothing to further this.
|
||||
Plant, L. (2022) _The technological case against Bitcoin and blockchain_, _Luke Plant’s home page_. Available at: [https://lukeplant.me.uk/blog/posts/the-technological-case-against-bitcoin-and-blockchain/](https://lukeplant.me.uk/blog/posts/the-technological-case-against-bitcoin-and-blockchain/) (Accessed: 6 March 2022).
|
||||
|
||||
Further, while the last mile problem can be overcome, the high price volatility in particular of cryptocurrency, and the now well documented risks to the stability of prominent stablecoins[^12], means that crypto assets still appear unsuitable as an effective medium of exchange in all but the most dire of circumstances.
|
||||
Steele, G. (2021) ‘The Miner of Last Resort: Digital Currency, Shadow Money and the Role of the Central Bank’, _Technology and Government, Emerald Studies in Media and Communications, Forthcoming_ [Preprint].
|
||||
|
||||
These observations point to a deeper point it is worth acknowledging. It does seem at least plausible that crypto assets are currently supporting financial activity in certain highly unstable and dysfunctional economies[^13]. However, it is problematic to use this observation to argue that replacing traditional financial infrastructure with blockchain based alternatives is desirable. Technical interventions such as the creation of parallel crypto-economies are akin to sticking plasters - they may address the most severe symptoms in the short term but they are not a feasible long term solution, and do not address the real roots of the problem. Well functioning and stable economies which meet the basic needs of everyone on the planet should be a fairly uncontroversial aspiration. Freedom from runaway inflation and currency depreciation, trustworthy banking and financial systems, the ability to hold money without fear of it being lost or taken, and to quickly and easily make both domestic and international transactions (even during times of crisis and war) are real possibilities. More than that, they are the everyday reality for most of us already in the global north. These can be obtained for everyone on earth, but the levers for doing so lie at the level of political economy _not_ technology. Acknowledging that crypto assets have been used to some effect to bypass the worst symptoms of economic dysfunction should not mean we give up on trying to improve domestic economies or the global economic system more broadly. Claims that we can simply bypass this work through technological means are a dangerous red herring.
|
||||
Stinchcombe, K. (2017) _Ten Years In, Nobody Has Come Up With a Use for Blockchain_, _Hackernoon_. Available at: [https://hackernoon.com/ten-years-in-nobody-has-come-up-with-a-use-case-for-blockchain-ee98c180100](https://hackernoon.com/ten-years-in-nobody-has-come-up-with-a-use-case-for-blockchain-ee98c180100) (Accessed: 25 February 2022).
|
||||
|
||||
## Conclusion
|
||||
White, M. (2022a) ‘Anonymous Cryptocurrency Wallets Are Not So Simple’, _Molly White_, 12 February. Available at: [https://blog.mollywhite.net/anonymous-crypto-wallets/](https://blog.mollywhite.net/anonymous-crypto-wallets/) (Accessed: 25 February 2022).
|
||||
|
||||
Crypto is not technologically capable of competing with existing payment rails, and the level of advancement needed to do so is far from a sure thing. In fact, crypto is not up to acting as a currency at all. It does appear to serve these functions in practice in developing nations with non-functional financial systems, as the example of Ukraine shows. However this should be taken less as a testament to the potential of crypto and more as a sign that political and economic support is needed in these cases. And, being better than poorly functioning legacy systems is not what the spirit of this claim gestures to.
|
||||
White, M. (2022b) ‘Blockchain-based Systems Are Not What They Say They Are’, _Molly White_, 9 January. Available at: [https://blog.mollywhite.net/blockchains-are-not-what-they-say/](https://blog.mollywhite.net/blockchains-are-not-what-they-say/) (Accessed: 25 February 2022).
|
||||
|
||||
## Related content
|
||||
White, M. (2022c) _Cryptocurrency off-ramps, and the shift towards centralization_, _Molly White_. Available at: [https://blog.mollywhite.net/off-ramps/](https://blog.mollywhite.net/off-ramps/) (Accessed: 25 February 2022).
|
||||
|
||||
### Deep dives
|
||||
|
||||
* [Deep Dive: Fintech Incrementalism And Responsible Innovation](/notes/fintech-incrementalism-and-responsible-innovation)
|
||||
* [A Macroeconomics Perspective on Cryptocurrencies](/notes/a-macroeconomics-perspective-on-cryptocurrencies)
|
||||
|
||||
### FAQs
|
||||
|
||||
* [Is an unregulated transnational payment system desirable?](/claims/is-transnational-payment)
|
||||
* [Is bitcoin a currency?](/claims/is-bitcoin-currency)
|
||||
* [Is Web3 a means to rebuild the global financial system?](/claims/is-new-financial-system)
|
||||
* [Is crypto providing faster payment rails or better remittance services?](/claims/is-better-payments)
|
||||
* [Are crypto tokens a hedge against the “debasement” of the dollar?](/claims/is-hedge-debasement)
|
||||
* [Are crypto assets a hedge against inflation?](/claims/is-hedge-inflation)
|
||||
* [Are crypto assets a risk to the dollar?](/claims/is-threat-dollar)
|
||||
* [What type of asset is a crypto token?](/claims/is-type-of-asset)
|
||||
* [How do we value a crypto token?](/claims/is-valuation-model)
|
||||
* [What consumer protections exist for crypto assets?](/claims/is-consumer-protections)
|
||||
* [Are crypto assets a form of predatory inclusion?](/claims/is-predatory)
|
||||
* [Is crypto a solution for the unbanked?](/claims/is-crypto-unbanked)
|
||||
|
||||
### Concepts
|
||||
|
||||
* [Money](/concepts/money)
|
||||
* [Currency](/concepts/currency)
|
||||
* [Crypto exchanges](/concepts/crypto-exchanges)
|
||||
* [Bank](/concepts/bank)
|
||||
* [Income Cashflows](/concepts/income-cashflows)
|
||||
* [Assets](/concepts/assets)
|
||||
* [Capitalism](/concepts/capitalism)
|
||||
* [Store of value](/concepts/store-of-value)
|
||||
* [US dollar](/concepts/dollar)
|
||||
|
||||
|
||||
## Notes
|
||||
|
||||
[^1]:
|
||||
Fonda, Daren. “Solana Could Be the Visa of Crypto Networks. Not So Fast, Says Visa.” _Barrons._ January 2022. [https://www.barrons.com/articles/solana-could-be-the-visa-of-crypto-networks-not-so-fast-says-visa-51642091862](https://www.barrons.com/articles/solana-could-be-the-visa-of-crypto-networks-not-so-fast-says-visa-51642091862)
|
||||
|
||||
[^2]:
|
||||
[‘Lightning Network’, accessed 15 December 2022, https://lightning.network/.](https://www.zotero.org/google-docs/?MKXFNL)
|
||||
|
||||
[^3]:
|
||||
[‘The Merge | Ethereum.Org’, accessed 15 December 2022, https://ethereum.org/en/upgrades/merge/.](https://www.zotero.org/google-docs/?qlUcNZ)
|
||||
|
||||
[^4]:
|
||||
[Molly White, ‘Anonymous Cryptocurrency Wallets Are Not So Simple’, Molly White (blog), 12 February 2022, https://blog.mollywhite.net/anonymous-crypto-wallets/.](https://www.zotero.org/google-docs/?QOjAeD)
|
||||
|
||||
[^5]:
|
||||
[‘Post FTX Collapse Reflections on Crypto | Making Sense of Crypto and Web3’, accessed 15 December 2022, https://web3.lifeitself.org/notes/post-ftx-collapse.](https://www.zotero.org/google-docs/?eItLvY)
|
||||
|
||||
[^6]:
|
||||
[‘Last Mile: What It Means in Reaching Customers’, Investopedia, accessed 15 December 2022, https://www.investopedia.com/terms/l/lastmile.asp.](https://www.zotero.org/google-docs/?xXTIBW)
|
||||
|
||||
[^7]:
|
||||
[‘Ukraine Readies NFT Sales as Crypto Donations Top $60 Million’, Bloomberg.Com, 5 April 2022, https://www.bloomberg.com/news/articles/2022-04-05/ukraine-readies-nft-sales-as-crypto-donations-top-60-million.](https://www.zotero.org/google-docs/?QeIYqD)
|
||||
|
||||
[^8]:
|
||||
Gallup. ‘World-Low 9% of Ukrainians Confident in Government’. Gallup.com, 21 March 2019. [https://news.gallup.com/poll/247976/world-low-ukrainians-confident-government.aspx](https://news.gallup.com/poll/247976/world-low-ukrainians-confident-government.aspx).
|
||||
|
||||
[^9]:
|
||||
Kramer, Andrew E. ‘In Ukraine, Not Even the Top Banker Trusts the Banks’. The New York Times, 1 November 2016, sec. World. https://www.nytimes.com/2016/11/02/world/europe/ukraine-banks-corruption.html.
|
||||
|
||||
[^10]:
|
||||
Patel, Nilay. ‘How Ukraine’s Wide Use of Cryptocurrency Is Playing out during the War’. The Verge. Accessed 22 November 2022. https://www.theverge.com/23138465/decoder-ukraine-war-cryptocurrency-michael-chobanian-interview-bitcoin-usdt
|
||||
|
||||
[^11]:
|
||||
Ibid.
|
||||
|
||||
[^12]:
|
||||
[Steven Ehrlich, ‘Tether Falls From Its $1 Price Peg Amid Market Turmoil Across Multiple Exchanges’, Forbes, accessed 15 December 2022, https://www.forbes.com/sites/stevenehrlich/2022/11/10/tether-falls-from-its-1-peg-amid-market-turmoil/.](https://www.zotero.org/google-docs/?nDiLx2)
|
||||
|
||||
[^13]:
|
||||
[‘Cryptocurrencies: Developing Countries Provide Fertile Ground’, Financial Times, 5 September 2021.](https://www.zotero.org/google-docs/?0GMJeD)
|
||||
White, M. (2022d) _Cryptocurrency’s Robinhood effect_, _Molly White_. Available at: [https://blog.mollywhite.net/cryptocurrencys-robinhood-effect/](https://blog.mollywhite.net/cryptocurrencys-robinhood-effect/) (Accessed: 25 February 2022).
|
||||
|
|
@ -1,163 +1,75 @@
|
|||
---
|
||||
title: Crypto is harmful to the environment
|
||||
description: Evaluating the claim that crypto is harmful to the environment.
|
||||
category:
|
||||
- claim: y
|
||||
- featured: y
|
||||
- interview: n
|
||||
- deepdive: n
|
||||
claim:
|
||||
- evaluation: YY
|
||||
- confidence: HH
|
||||
---
|
||||
|
||||
# Claim Steel-Manned
|
||||
|
||||
Crypto is harmful to the environment because crypto [mining](../concepts/mining.md) has a huge environmental footprint. The design of the [Proof of Work](../concepts/proof-of-work.md) (PoW) [consensus algorithm](../concepts/consensus-algorithm.md) is energy wasteful as part of its design.
|
||||
|
||||
# Evidence of claim being made
|
||||
|
||||
Diehl, S. (2021) ‘The Crypto Chernobyl’, 10 February. Available at: https://www.stephendiehl.com/blog/chernobyl.html (Accessed: 25 February 2022).
|
||||
|
||||
> It is an enormously power-hungry and wasteful system that involves doing massive number of trial computations (a process called mining) in parallel across the world in a form of lottery in which computers race to confirm transactions. The more power you can waste, the more bitcoins you can probabilistically win in exchange for your energy waste...
|
||||
> The protocol itself is a runway environmental disaster that incentives an ever increasing amount of waste that can only increase with time. Increasing energy waste is an central and irremovable part of the design.
|
||||
|
||||
Elon Musk [@elonmusk]. ‘Tesla & Bitcoin Https://T.Co/YSswJmVZhP’. Tweet. Twitter, 12 May 2021. https://twitter.com/elonmusk/status/1392602041025843203.
|
||||
|
||||
> Tesla has suspended vehicle purchases using Bitcoin. We are concerened about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, espeically coal, which has the worst emissions of any fuel.
|
||||
|
||||
Igini, M. (2022) 8 Bitcoin Facts: Why is This Cryptocurrency Bad for The Environment?, Earth.Org. Available at: https://earth.org/bitcoin-facts/ (Accessed: 20 September 2022).
|
||||
|
||||
> Bitcoin’s energy consumption is off the charts and each transaction consumes more energy than countries like Sweden or the Netherlands.
|
||||
|
||||
Martin, Katie, and Billy Nauman. ‘Bitcoin’s Growing Energy Problem: “It’s a Dirty Currency”’. Financial Times, 20 May 2021.
|
||||
|
||||
> Bitcoin alone consumes as much electricity as a medium-sized European country,” says Professor Brian Lucey at Trinity College Dublin. “This is a stunning amount of electricity. It’s a dirty business. It’s a dirty currency.
|
||||
|
||||
# Evaluation
|
||||
|
||||
Bitcoin [mining](../concepts/mining.md) **is** enormously harmful to the environment. There are three factors that give rise to its inordinate environmental footprint which is incommensurate with its generated utility.
|
||||
# Is crypto mining harmful to the environment?
|
||||
**Bitcoin [mining](../concepts/mining.md) is enormously harmful to the environment**. the design of the Proof of Work (PoW) [consensus algorithm](../concepts/consensus-algorithm.md) is energy wasteful as part of its design. There are three factors that give rise to its inordinate environmental footprint which is incommensurate with its generated utility.
|
||||
|
||||
1. E-waste from discarded or broken ASIC mining equipment, graphics cards and servers.
|
||||
2. Carbon release from fossil fuels used to power mining data centres.
|
||||
3. Opportunity cost of the energy used to run [consensus algorithm](../concepts/consensus-algorithm.md) compared to more efficient [real time gross settlement systems](../concepts/rtgs.md) and traditional payment rails such as SWIFT, SEPA, Visa and ACH.
|
||||
2. Carbon release from fossil fuels used to power mining data centres
|
||||
3. Opportunity cost of the energy used to run [consensus algorithm](../concepts/consensus-algorithm.md) compared to more efficient of efficient [real time gross settlement systems](../concepts/rtgs.md) and traditional [payment rails](is-transnational-payment.md) such as SWIFT, SEPA, Visa and ACH.
|
||||
|
||||
BItcoin mining has the equivalent power consumption of the state of Argentina, a country with a population of 45 million people. Bitcoin mining has an e-waste footprint comparable to that of entire population of Germany.
|
||||
|
||||
Bitcoin mining collectively consumes more power than all data centres run by Google, Amazon, Microsoft, Apple, Netflix, Facebook and YouTube put together.
|
||||
|
||||
Bitcoin is simply one of thousands of crypto assets which use PoW algorithm, including the second largest asset Ethereum, which together with all other assets sum to an even larger and difficult to calculate environmental footprint.
|
||||
Bitcoin is simply one of thousands of crypto assets which use PoW algorithm, including the second largest asset Ethereum which together with all other assets sum to an even larger and difficult to calculate environmental footprint.
|
||||
|
||||
## References
|
||||
|
||||
Ahl, A. _et al._ (2019) ‘Review of blockchain-based distributed energy: Implications for institutional development’, _Renewable and Sustainable Energy Reviews_, 107, pp. 200–211. Available at: [https://doi.org/10.1016/j.rser.2019.03.002](https://doi.org/10.1016/j.rser.2019.03.002).
|
||||
|
||||
Amenta, C., Riva Sanseverino, E. and Stagnaro, C. (2021) ‘Regulating blockchain for sustainability? The critical relationship between digital innovation, regulation, and electricity governance’, _Energy Research & Social Science_, 76, p. 102060. Available at: [https://doi.org/10.1016/j.erss.2021.102060](https://doi.org/10.1016/j.erss.2021.102060).
|
||||
|
||||
Ante, L., Steinmetz, F. and Fiedler, I. (2021) ‘Blockchain and energy: A bibliometric analysis and review’, _Renewable and Sustainable Energy Reviews_, 137(October 2020), p. 110597. Available at: [https://doi.org/10.1016/j.rser.2020.110597](https://doi.org/10.1016/j.rser.2020.110597).
|
||||
|
||||
Badea, L. and Mungiu-Pupazan, M.C. (2021) ‘The Economic and Environmental Impact of Bitcoin’, _IEEE Access_, 9, pp. 48091–48104. Available at: [https://doi.org/10.1109/ACCESS.2021.3068636](https://doi.org/10.1109/ACCESS.2021.3068636).
|
||||
|
||||
Benetton, M., Compiani, G. and Morse, A. (2021) ‘When Cryptomining Comes to Town: High Electricity-Use Spillovers to the Local Economy’, _SSRN Electronic Journal_ [Preprint]. Available at: [https://doi.org/10.2139/ssrn.3779720](https://doi.org/10.2139/ssrn.3779720).
|
||||
|
||||
Bogensperger, A. _et al._ (2021) ‘Welche Zukunft hat die Blockchain-Technologie in der Energiewirtschaft?’ Available at: [https://www.econstor.eu/handle/10419/237670](https://www.econstor.eu/handle/10419/237670).
|
||||
|
||||
Brilliantova, V. and Thurner, T.W. (2019) ‘Blockchain and the future of energy’, _Technology in Society_, 57, pp. 38–45. Available at: [https://doi.org/10.1016/j.techsoc.2018.11.001](https://doi.org/10.1016/j.techsoc.2018.11.001).
|
||||
|
||||
Buth, M.C. (Annemarie), Wieczorek, A.J. (Anna) and Verbong, G.P.J. (Geert) (2019) ‘The promise of peer-to-peer trading? The potential impact of blockchain on the actor configuration in the Dutch electricity system’, _Energy Research & Social Science_, 53, pp. 194–205. Available at: [https://doi.org/10.1016/j.erss.2019.02.021](https://doi.org/10.1016/j.erss.2019.02.021).
|
||||
|
||||
Campbell-Verduyn, M. (2021) ‘Conjuring a Cooler World? Blockchains, Imaginaries and the Legitimacy of Climate Governance’, _Global Cooperation Research Papers_, 28. Available at: [https://doi.org/doi:10.14282/2198-0411-GCRP-28](https://doi.org/doi:10.14282/2198-0411-GCRP-28).
|
||||
|
||||
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1. Scharnowski, Stefan, and Yanghua Shi. ‘Bitcoin Blackout: Proof-of-Work and the Centralization of Mining’. SSRN Electronic Journal, 2021. https://doi.org/10.2139/ssrn.3936787.
|
||||
1. Schinckus, Christophe. ‘The Good, the Bad and the Ugly: An Overview of the Sustainability of Blockchain Technology’. Energy Research and Social Science 69, no. May (2020): 101614. https://doi.org/10.1016/j.erss.2020.101614.
|
||||
1. Schneiders, Alexandra, and David Shipworth. ‘Community Energy Groups: Can They Shield Consumers from the Risks of Using Blockchain for Peer-to-Peer Energy Trading?’ Energies 14, no. 12 (2021). https://doi.org/10.3390/en14123569.
|
||||
1. Schulz, Karsten, and Marian Feist. ‘Leveraging Blockchain Technology for Innovative Climate Finance under the Green Climate Fund’. SSRN Electronic Journal 7 (2020): 100084. https://doi.org/10.2139/ssrn.3663176.
|
||||
1. Sedlmeir, Johannes, Hans Ulrich Buhl, Gilbert Fridgen, and Robert Keller. ‘Ein Blick Auf Aktuelle Entwicklungen Bei Blockchains Und Deren Auswirkungen Auf Den Energieverbrauch’. Informatik-Spektrum 43, no. 6 (2020): 391–404. https://doi.org/10.1007/s00287-020-01321-z.
|
||||
1. Sedlmeir, Johannes, Hans Ulrich, Buhl Gilbert, and Robert Keller. ‘The Energy Consumption of Blockchain Technology : Beyond Myth’. Business & Information Systems Engineering 62, no. 6 (2020): 599–608. https://doi.org/10.1007/s12599-020-00656-x.
|
||||
1. Stoll, Christian, Lena Klaaßen, and Ulrich Gallersdörfer. ‘The Carbon Footprint of Bitcoin’. Joule 3, no. 7 (2019): 1647–61. https://doi.org/10.1016/j.joule.2019.05.012.
|
||||
1. Teng, Fei, Qi Zhang, Ge Wang, Jiangfeng Liu, and Hailong Li. ‘A Comprehensive Review of Energy Blockchain: Application Scenarios and Development Trends’. International Journal of Energy Research 45, no. 12 (2021): 17515–31. https://doi.org/10.1002/er.7109.
|
||||
1. Teufel, Bernd, Anton Sentic, and Mathias Barmet. ‘Blockchain Energy: Blockchain in Future Energy Systems’. Journal of Electronic Science and Technology 17, no. 4 (2019): 100011. https://doi.org/10.1016/j.jnlest.2020.100011.
|
||||
1. Truby, Jon. ‘Decarbonizing Bitcoin: Law and Policy Choices for Reducing the Energy Consumption of Blockchain Technologies and Digital Currencies’. Energy Research and Social Science 44, no. June (2018): 399–410. https://doi.org/10.1016/j.erss.2018.06.009.
|
||||
1. Valdivia, A. Diaz, and M. Poblet Balcell. ‘Connecting the Grids: A Review of Blockchain Governance in Distributed Energy Transitions’. Energy Research and Social Science 84 (2022): 102383. https://doi.org/10.1016/j.erss.2021.102383.
|
||||
1. Vries, Alex De. ‘Bitcoin’s Energy Consumption Is Underestimated : A Market Dynamics Approach’. Energy Research & Social Science 70, no. July (2020): 101721. https://doi.org/10.1016/j.erss.2020.101721.
|
||||
1. Vries, Alex de. ‘Bitcoin’s Growing Energy Problem’. Joule 2, no. 5 (2018): 801–5. https://doi.org/10.1016/j.joule.2018.04.016.
|
||||
1. Vries, Alex de, and Christian Stoll. ‘Bitcoin’s Growing e-Waste Problem’. Resources, Conservation and Recycling 175, no. September (2021): 105901. https://doi.org/10.1016/j.resconrec.2021.105901.
|
||||
1. Wanat, Emanuel. ‘Are Crypto-Assets Green Enough? – An Analysis of Draft EU Regulation on Markets in Crypto Assets from the Perspective of the European Green Deal’. Osteuropa Recht 67, no. 2 (2021): 237–50. https://doi.org/10.5771/0030-6444-2021-2-237.
|
||||
1. Yan, Lei, Nawazish Mirza, and Muhammad Umar. ‘The Cryptocurrency Uncertainties and Investment Transitions: Evidence from High and Low Carbon Energy Funds in China’. Technological Forecasting and Social Change, 2021, 121326. https://doi.org/10.1016/j.techfore.2021.121326.
|
||||
1. Yapa, Charithri, Chamitha de Alwis, and Madhusanka Liyanage. ‘Can Blockchain Strengthen the Energy Internet?’ Network 1, no. 2 (2021): 95–115. https://doi.org/10.3390/network1020007.
|
||||
1. Yildizbasi, Abdullah. ‘Blockchain and Renewable Energy: Integration Challenges in Circular Economy Era’. Renewable Energy 176 (2021): 183–97. https://doi.org/10.1016/j.renene.2021.05.053.
|
||||
1. Zannini, Alice. ‘Blockchain Technology as the Digital Enabler to Scale up Renewable Energy Communities and Cooperatives in Spain’, 2020.
|
||||
1. Zhu, Shuai, Malin Song, Ming Kim Lim, Jianlin Wang, and Jiajia Zhao. ‘The Development of Energy Blockchain and Its Implications for China’s Energy Sector’. Resources Policy 66 (2020): 101595. https://doi.org/10.1016/j.resourpol.2020.101595.
|
||||
|
|
|
|||
|
|
@ -1,7 +1,5 @@
|
|||
# Is crypto building a new internet?
|
||||
|
||||
## Analysis
|
||||
|
||||
The meme of a "new internet" is a consistent and persistent marketing term that has always existed in technology, to the point where the term itself is widely considered a joke. Many technologies are described as being a new iteration of the internet as a way of generating hype or marketing themselves to the public or regulators as important "innovation". [Crypto assets](../concepts/cryptoasset.md) continue on in this marketing trend, yet the underlying reality of the tech is completely removed from any level of paradigm shift that the early internet ushered in.
|
||||
|
||||
The early internet was a collaboration between the United States defense sector and private academic institutions to build early networking solutions, originally for defence applications to connect different national laboratories. The evolution of the internet expanded with the development of the world wide web in 1989, whose initial development at CERN in Switzerland allowed the dissemination of scientific research in a new form called *hypertext* which would form the foundation for the now ubiquitous HTML.
|
||||
|
|
|
|||
|
|
@ -1,6 +1,6 @@
|
|||
---
|
||||
title: "Opportunity for gain"
|
||||
description: "Evaluating the thesis that unregulated crypto markets are desirable due to the opportunity for gain. We find the adverse effects of crypto trading to outweigh any benefits, and as such find this claim to be false."
|
||||
title: Unregulated crypto markets are desirable because of the opportunity for gain
|
||||
description: Evaluating the thesis that there is money to be made in unregulated crypto markets, and therefore unregulated crypto markets are desirable. We find the negative externalities of an unregulated crypto market to outweigh the benefits, thus this claim fails: an unregulated crypto market is *not* desirable.
|
||||
category:
|
||||
- claim: y
|
||||
- featured: y
|
||||
|
|
@ -15,19 +15,20 @@ claim:
|
|||
|
||||
## Claim Steel-Manned
|
||||
|
||||
### Opportunity for gain: Retail traders (individual, non-professional market participants)
|
||||
#### Retail traders (individual, non-professional market participants)
|
||||
|
||||
Investing in crypto has the possibility of gaining me huge assymetric returns. I've heard other people making huge gains by investing in crypto, therefore it is possible that I can make huge gains aswell.
|
||||
* Investing in crypto has the possibility of gaining me huge assymetric returns.
|
||||
* I've heard other people making huge gains by investing in crypto, therefore it is possible that I can make huge gains aswell.
|
||||
|
||||
### Opportunity for gain: Quants and hedge funds
|
||||
|
||||
If I'm allowed to trade products that are massively [asymmetric](../concepts/asymmetric-information.md) and disadvantageous to retail traders, then I can and I will. Markets are a force akin to evolution: inefficient players will be elimated, and the strongest will be rewarded.
|
||||
#### Quants and hedge funds
|
||||
|
||||
Even if I know it’s a [greater fool asset](../concepts/greater-fool-theory) and has no [fundamental value](/concepts/fundamental-value.md), if I have access to non-public information and more capital I can (and should) use it and exit before the other fools.
|
||||
* If I'm allowed to trade products that are massively [asymmetric](../concepts/asymmetric-information.md) and disadvantageous to retail traders, then I can and I will. Markets are a force akin to evolution: inefficient players will be elimated, and the strongest will be rewarded.
|
||||
* There is no non-public disclosure about the risks of these assets. Everyone is going in with their eyes open that this is the wild west.
|
||||
* Even if I know it’s a [greater fool asset](../concepts/greater-fool-theory) and has no [fundamental value](/concepts/fundamental-value.md), if I have access to non-public information and more capital I can (and should) use it and exit before the other fools.
|
||||
* If the market allows [market manipulation](../concepts/market-manipulation.md) ([pump and dumps](../concepts/pump-and-dump.md), insider trading, [wash trading](../concepts/wash-trading.md)) this is public knowledge and it is reflected in the price formation of the assets.
|
||||
* Some people legitimately did make money trading on [bubbles](../concepts/bubble.md): South Sea Bubble, Dotcom Bubble, Tulip Mania. These booms and busts are just a natural part of market cycles.
|
||||
|
||||
If the market allows [market manipulation](../concepts/market-manipulation.md) ([pump and dumps](../concepts/pump-and-dump.md), insider trading, [wash trading](../concepts/wash-trading.md)) this is public knowledge and it is reflected in the price formation of the assets. There is no non-public disclosure about the risks of these assets. Everyone is going in with their eyes open that this is the wild west.
|
||||
|
||||
Some people legitimately did make money trading on [bubbles](../concepts/bubble.md): South Sea Bubble, Dotcom Bubble, Tulip Mania. These booms and busts are just a natural part of market cycles.
|
||||
|
||||
## Evidence of claim being made
|
||||
|
||||
|
|
@ -41,35 +42,25 @@ Mann Group chief in [Silverman, Gary. ‘Crypto Has “No Inherent Worth” but
|
|||
> Bitcoin offers a compelling risk/reward profile for patient, long-term investors willing to spend the time to truly understand Bitcoin.
|
||||
|
||||
[HQ, Ikigai. ‘The Case for a Small Allocation to Bitcoin’. Kana and Katana, 1 March 2019:](https://www.kanaandkatana.com/valuation-depot-contents/2019/4/11/the-case-for-a-small-allocation-to-bitcoin)
|
||||
> Bitcoin offers a unique opportunity for a non-material exposure to produce a material outcome. It would be irresponsible to have an exposure to Bitcoin that one cannot afford to lose because the risk of losing the principal is very real. But it would be almost as irresponsible to not have any exposure at all.
|
||||
> Bitcoin offers a unique opportunity for a non-material exposure to produce a material outcome. It would be irresponsible to have an exposure to Bitcoin that one cannot afford to lose because the risk of losing the principal is very real. But it would be almost as irresponsible to not have any exposure at all.
|
||||
|
||||
## Evaluation
|
||||
## Evaluation: False (High confidence)
|
||||
|
||||
### Risk to traders
|
||||
#### Risk to individuals
|
||||
|
||||
Investing in crypto assets is a [negative sum game](../concepts/zero-sum-game.md) as defined in game theory and economics. Negative sum games result in a net loss across participants and multiple losers associated with every one winner.
|
||||
While some people have made gains trading crypto, there is a strong sample bias in self-reported winnings of crypto assets: participants who make outsized returns [gambling](../claims/is-gambling.md) on the [bubble](../concepts/bubble.md) are more likely to report these returns compared to the vast majority of those who lose money investing in crypto assets.
|
||||
|
||||
Since crypto assets are [investments](../concepts/security.md) the purpose of buying a crypto asset is to buy it at a lower price and sell it at a higher price to generate a return denominated in a [real currency](../concepts/currency.md). However as an investment, crypto assets have no [income-cashflows](../concepts/income-cashflows.md) therefore the only money that exists to pay out investors is money that is brought in by later investors. This makes the entire scheme a [zero sum game](../concepts/zero-sum-game.md). All money won by [speculation](../concepts/speculation.md) is ultimately money that is equally lost by another participant.
|
||||
|
||||
This is comparable to the analogy of a game of poker and other [gambling](../concepts/gambling.md) games The only money that can be won in a poker game "pot" provided by the players of the card game. The act of playing poker does not generate any money, it simply redistributes to participants according to a game of chance. If the "house" or casino takes a percentage of the pot on every round of the game played then the size of the pot must decrease over time. This turns the zero-sum game into a negative-sum game which admits a negative [expected return](../concepts/expected-return.md).
|
||||
|
||||
Investing in crypto assets is statistically guaranteed to lose money for almost all market participants because as investments they have no [income-cashflows](../concepts/income-cashflows.md). This differs drastically from [productive assets](../concepts/productive-asset.md) such as [stocks](../concepts/stock.md), [bonds](../concepts/bond.md) and [real-estate](../concepts/real-estate.md).
|
||||
|
||||
While there is evidence of some people making gains trading crypto, there is a strong sample bias in self-reported winnings of crypto assets: participants who make outsized returns gambling on the bubble are more likely to report these returns compared to the vast majority of those who lose money investing in crypto assets.
|
||||
|
||||
And in such an asymetric and "wild west" market, the chances of a minow beating out the sharks is tiny.
|
||||
And in such an [asymetric](../concepts/asymmetric-information.md) and "wild west" market, the chances of a minow beating out the sharks is tiny.
|
||||
|
||||
Everything that has been illegal for 80 years is suddenly allowed: [wash trading](../concepts/wash-trading.md); [front running](../concepts/front-running.md); [insider trading](../concepts/asymmetric-information.md); price manipulation and [order book](../concepts/order-book.md) tampering;[refusing cash withdrawels](../concepts/counterparty-risk.md); [pump and dumps](../concepts/pump-and-dump). Exchanges are basically like bucket shops from the 1920s.
|
||||
|
||||
What we are seeing is a captive market for fictitious commodities that is controlled by opaque unregulated market making and an economic cartel. This is great if you're inside the cartel. Not so great if you aren’t. Wealth transfer from the public to insiders is all but guaranteed by the [information asymmetry](../concepts/asymmetric-information).
|
||||
What we are seeing is a captive market for fictitious commodities that is controlled by opaque unregulated market making and an economic cartel. This is great if you're inside the cartel, but not so great if you aren’t. Wealth transfer from the public to insiders is all but guaranteed by the [information asymmetry](../concepts/asymmetric-information).
|
||||
|
||||
#### Wider risk
|
||||
|
||||
Crypto assets have the characterstic price behaviour that resembles many other [bubbles](../claims/is-bubble.md) and [market manias](../concepts/market-mania.md) throughout history.
|
||||
We have no idea how much [leverage](../concepts/leverage.md) is baked into the entire market, induced by products like unbaked [stablecoins](../concepts/stablecoin.md) which can seemingly produce limitless amounts of unsecured debt products on demand.
|
||||
|
||||
Where [bubble](../concepts/bubble.md) assets have complex financial instruments built on top, there is risk of far reaching systemic damage. The 2008 subprime crisis provides a demonstration of what happens when a range of complex financial products are completely dependent on the cash flows of a fundamentally unstable asset. Just as a fall in house prices caused mass mortgage defaults by borrowers in precarious financial positions, and in doing so brought down the entire financial system propped up by their repackaged debt, the cautionary tale of Terra shows the very same vulnerability throughout the system of [decentralized finance](../concepts/defi.md) (DeFi), which hinges on speculation-driven token value.
|
||||
|
||||
In her 2022 paper ‘DeFi: Shadow Banking 2.0?’ Prof. Hilary Allen warns that the current defi system risks emulating the “shadow banking” services (functional equivalents for banking products which operate outside the regulated banking sphere) which contributed to the 2008 banking crisis:
|
||||
In her 2022 paper ‘DeFi: Shadow Banking 2.0?’ Prof. Hilary Allen warns that the current [decentralized finance](../concepts/defi.md) system risks emulating the “shadow banking” services (functional equivalents for banking products which operate outside the regulated banking sphere) which contributed to the 2008 banking crisis:
|
||||
|
||||
“if DeFi is permitted to develop without any regulatory intervention, it will magnify the tendencies towards heightened leverage, rigidity, and runs that characterized Shadow Banking 1.0.”
|
||||
|
||||
|
|
@ -77,7 +68,7 @@ Commentators have raised concerns about stablecoins in particular, describing th
|
|||
|
||||
“If something were to shake confidence in stablecoins’ acceptance in the DeFi ecosystem (this ‘something’ could range from a hack, to a problem with the reserve of assets backing a stablecoin, to a problem with the smart contracts managing the value of a decentralized stablecoin), we could then expect holders to exchange their stablecoins for fiat currency and exchanges to seek redemption, forcing stablecoin issuers to start liquidating the reserve of assets backing the stablecoin, depressing the market value of those assets, and cutting off credit for the corporations in which MMFs usually invest through the commercial paper market.”
|
||||
|
||||
This fragility and extreme vulnerability pervades the entire crypto-economy. The core mechanism – of minting tokens with no use value and who’s market price is artificially driven by speculative hype – underpins almost the whole system. What might appear as a recipe for perpetual growth and financial gain in fact appears highly likely to have created a speculation fuelled [bubble](../concepts/bubble.md).
|
||||
This fragility and extreme vulnerability pervades the entire crypto-economy. The core mechanism – of minting tokens with no use value and who’s market price is artificially driven by speculative hype – underpins almost the whole system. What might appear as a recipe for [perpetual growth](../notes/financial-perpetual-motion-machine.md) and financial gain in fact appears highly likely to have created a speculation fuelled [bubble](../concepts/bubble.md).
|
||||
|
||||
Where does all this lead to?
|
||||
* If the crypto marklet is left unregulated, [systemic risk](..claims/is-systemic-risk.md)
|
||||
|
|
@ -89,23 +80,22 @@ Where does all this lead to?
|
|||
* [Moral hazard](../concepts/moral-hazard.md) - public is incentivized to take on disproportionate risk expecting a bailout.
|
||||
* A terribly pathological form of [capitalism](../concepts/capitalism.md) that doesn't result in price formation on collective enterprise, goods or services.
|
||||
|
||||
# References
|
||||
## References
|
||||
|
||||
Akerlof, G.A. (1978) ‘The market for “lemons”: Quality uncertainty and the market mechanism’, in Uncertainty in economics. Elsevier, pp. 235–251.
|
||||
Akerlof, G.A. (1978) ‘The market for “lemons”: Quality uncertainty and the market mechanism’, in _Uncertainty in economics_. Elsevier, pp. 235–251.
|
||||
|
||||
Allen, H.J. (2022) ‘DeFi: Shadow Banking 2.0?’, SSRN Electronic Journal [Preprint]. Available at: https://doi.org/10.2139/ssrn.4038788.
|
||||
Allen, H.J. (2022) ‘DeFi: Shadow Banking 2.0?’, _SSRN Electronic Journal_ [Preprint]. Available at: [https://doi.org/10.2139/ssrn.4038788](https://doi.org/10.2139/ssrn.4038788).
|
||||
|
||||
Burilov, V. (2019) ‘Regulation of Crypto Tokens and Initial Coin Offerings in the EU: De lege lata and de lege ferenda’, European Journal of Comparative Law and Governance, 6(2), pp. 146–186. Available at: https://doi.org/10.1163/22134514-00602003.
|
||||
Burilov, V. (2019) ‘Regulation of Crypto Tokens and Initial Coin Offerings in the EU: De lege lata and de lege ferenda’, _European Journal of Comparative Law and Governance_, 6(2), pp. 146–186. Available at: [https://doi.org/10.1163/22134514-00602003](https://doi.org/10.1163/22134514-00602003).
|
||||
|
||||
Cumming, D.J., Johan, S. and Pant, A. (2019) ‘Regulation of the Crypto-Economy: Managing Risks, Challenges, and Regulatory Uncertainty’, Journal of Risk and Financial Management, 12(3), p. 126. Available at: https://doi.org/10.3390/jrfm12030126.
|
||||
Cumming, D.J., Johan, S. and Pant, A. (2019) ‘Regulation of the Crypto-Economy: Managing Risks, Challenges, and Regulatory Uncertainty’, _Journal of Risk and Financial Management_, 12(3), p. 126. Available at: [https://doi.org/10.3390/jrfm12030126](https://doi.org/10.3390/jrfm12030126).
|
||||
|
||||
Dhawan, A. and Putnins, T.J. (2020) ‘A New Wolf in Town? Pump-and-Dump Manipulation in Cryptocurrency Markets’, SSRN Electronic Journal [Preprint]. Available at: https://doi.org/10.2139/ssrn.3670714.
|
||||
Dhawan, A. and Putnins, T.J. (2020) ‘A New Wolf in Town? Pump-and-Dump Manipulation in Cryptocurrency Markets’, _SSRN Electronic Journal_ [Preprint]. Available at: [https://doi.org/10.2139/ssrn.3670714](https://doi.org/10.2139/ssrn.3670714).
|
||||
|
||||
Ferrari, V. (2020) ‘The regulation of crypto-assets in the EU – investment and payment tokens under the radar’, Maastricht Journal of European and Comparative Law, 27(3), pp. 325–342. Available at: https://doi.org/10.1177/1023263X20911538.
|
||||
Ferrari, V. (2020) ‘The regulation of crypto-assets in the EU – investment and payment tokens under the radar’, _Maastricht Journal of European and Comparative Law_, 27(3), pp. 325–342. Available at: [https://doi.org/10.1177/1023263X20911538](https://doi.org/10.1177/1023263X20911538).
|
||||
|
||||
HQ, I. (2019) The case for a small allocation to Bitcoin, Kana and Katana. Available at: https://www.kanaandkatana.com/valuation-depot-contents/2019/4/11/the-case-for-a-small-allocation-to-bitcoin (Accessed: 14 September 2022).
|
||||
HQ, I. (2019) _The case for a small allocation to Bitcoin_, _Kana and Katana_. Available at: [https://www.kanaandkatana.com/valuation-depot-contents/2019/4/11/the-case-for-a-small-allocation-to-bitcoin](https://www.kanaandkatana.com/valuation-depot-contents/2019/4/11/the-case-for-a-small-allocation-to-bitcoin) (Accessed: 14 September 2022).
|
||||
|
||||
Huang, M. (2020) Bitcoin for the Open-Minded Skeptic, Matt Huang. Available at: https://www.matthuang.com/posts/bitcoin_for_the_open_minded_skeptic (Accessed: 14 September 2022).
|
||||
Huang, M. (2020) _Bitcoin for the Open-Minded Skeptic_, _Matt Huang_. Available at: [https://www.matthuang.com/posts/bitcoin_for_the_open_minded_skeptic](https://www.matthuang.com/posts/bitcoin_for_the_open_minded_skeptic) (Accessed: 14 September 2022).
|
||||
|
||||
Lefevre, E. (2004) Reminiscences of a stock operator. John Wiley & Sons.
|
||||
Malkiel, B.G. (1999) A random walk down Wall Street: including a life-cycle guide to personal investing. WW Norton & Company.
|
||||
Lefevre, E. (2004) _Reminiscences of a stock operator_. John Wiley & Sons.
|
||||
|
|
|
|||
|
|
@ -6,7 +6,7 @@ NB: following common usage we are using Ethereum for both the protocol itself, i
|
|||
|
||||
## Properties
|
||||
|
||||
Ethereum is based on the [consensus algorithm](consensus-algorithm.md) known as Proof of Stake (having shifted from Proof of Work in late 2022)
|
||||
Ethereum is based on the [consensus algorithm](consensus-algorithm.md) known as Proof of Work [mining](mining.md).
|
||||
|
||||
Ethereum is not a [currency](currency.md). Ethereum is a protocol and Ether is a protocol token and not a currency.
|
||||
|
||||
|
|
|
|||
File diff suppressed because one or more lines are too long
|
Before Width: | Height: | Size: 1.3 MiB After Width: | Height: | Size: 1.3 MiB |
|
|
@ -1,367 +0,0 @@
|
|||
---
|
||||
|
||||
excalidraw-plugin: parsed
|
||||
tags: [excalidraw]
|
||||
|
||||
---
|
||||
==⚠ Switch to EXCALIDRAW VIEW in the MORE OPTIONS menu of this document. ⚠==
|
||||
|
||||
|
||||
# Text Elements
|
||||
Market Maker ^5WzZYtKo
|
||||
|
||||
Broker ^6R5PXGoB
|
||||
|
||||
Trader ^YA5hsWiM
|
||||
|
||||
Clearing House ^Lc5Hoyzx
|
||||
|
||||
All 4 should be separated ...
|
||||
|
||||
|
||||
In many crypto exchanges these
|
||||
are 1! ^Dt9LZf2w
|
||||
|
||||
%%
|
||||
# Drawing
|
||||
```json
|
||||
{
|
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"type": "excalidraw",
|
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"version": 2,
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"source": "https://excalidraw.com",
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{
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"x": -164.65234375,
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File diff suppressed because one or more lines are too long
|
Before Width: | Height: | Size: 88 KiB |
709
guide/index.md
709
guide/index.md
|
|
@ -6,30 +6,15 @@ Big claims are being made for the potential of crypto and web3. We have engaged
|
|||
|
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We have spoken with technologists, economists, computer scientists, crypto skeptics and crypto enthusiasts. Much of the resulting material is published on this site. The culmination of our efforts is this guide.
|
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It is divided into two parts. The first part is an introduction to the key concepts related to crypto and web3. The second part sets out the key claims and aspirations for crypto and web3 together with an evaluation of those claims.
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This main part of the guide is organized by aspiration. Under each aspiration can be found the associated claim(s) with a brief description of the claim and our evaluation along with links to further detail, related concepts, FAQs and a reading list. For example, we identified one common claim along the lines that crypto and web3 can democratize finance. This, in turn is tied to a deeper aspiration of a fairer and/or more innovative economy.
|
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|
||||
It is important that we make good choices about crypto and web3. Ultimately, we must decide whether to support, improve or restrict them. And to do so in as constructive, intersectional and depolarizing way as possible. This guide is a resource for doing so.
|
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|
||||
The guide is split into 3 sections:
|
||||
## Table of Contents
|
||||
|
||||
* **Full analyses** provide comprehensive and authoritative analyses of the biggest claims being made in the space. We analyse the following claims:
|
||||
* [Bitcoin will (and should) become the new gold standard](#claim-bitcoin-will-and-should-become-the-new-gold-standard)
|
||||
* [Crypto will provide better payment and remittance services](#claim-crypto-will-provide-better-payment-and-remittance-services)
|
||||
* [Crypto can help solve the public goods problem](#claim-crypto-can-help-solve-the-public-goods-problem)
|
||||
* [Web3 can help revolutionize cooperation](#claim-web3-can-help-revolutionize-cooperation)
|
||||
* [Crypto can provide better means of financializing non-financial value](#claim-crypto-can-provide-better-means-of-financializing-non-financial-value)
|
||||
|
||||
* **Deep dive notes** are detailed analysis notes from our deep dive conversations, which have not yet been formatted and expanded into full analyses. [You can help!](/meta/editing.md) We've undertaken deep dives on the following claims:
|
||||
* [Blockchain can (and should) be used to create “networked states” to replace existing nation states](#claim-blockchain-can-and-should-be-used-to-create-networked-states-to-replace-existing-nation-states)
|
||||
* [Crypto can act as an anti-authoritarian force](#claim-crypto-can-act-as-an-anti-authoritarian-force)
|
||||
* [The crypto space is just an unfettered market, and there’s nothing wrong with that](#claim-the-crypto-space-is-just-an-unfettered-market-and-theres-nothing-wrong-with-that)
|
||||
* [Crypto is just the latest evolution of fintech, and is leading us towards a better financial system](#claim-crypto-is-just-the-latest-evolution-of-fintech-and-is-leading-us-towards-a-better-financial-system)
|
||||
* [Crypto should remain outside of securities regulation](#claim-crypto-should-remain-outside-of-securities-regulation)
|
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|
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* **FAQs** are brief responses to some common questions asked about crypto and web3. They form a useful starting point for further research, such as reading their references in our [library.](https://web3.lifeitself.org/library)
|
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|
||||
#
|
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# Foundational concepts
|
||||
|
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Before getting started, it's worth ensuring you're familiar with these basic concepts, as they will underpin a lot of the analysis below.
|
||||
# Foundational Concepts
|
||||
|
||||
* [Web3](/concepts/web3)
|
||||
* [Blockchain](/concepts/blockchain)
|
||||
|
|
@ -39,249 +24,633 @@ Before getting started, it's worth ensuring you're familiar with these basic con
|
|||
* [Cryptoasset ](/concepts/cryptoasset)
|
||||
* [Mining ](/concepts/mining)
|
||||
* [Decentralization](/concepts/decentralization)
|
||||
#
|
||||
# Full analyses
|
||||
These provide detailed and fully referenced analyses of some of the boldest claims being made about web3 and crypto. They are capable of acting as authoritative sources in debates about these claims.
|
||||
|
||||
## Claim: Bitcoin will (and should) become the new gold standard
|
||||
# Foundational FAQs
|
||||
|
||||
### Claim summary
|
||||
* [What does Web3 mean?](/is-well-defined)
|
||||
* [Is crypto legal?](/claims/is-legal)
|
||||
* [Is Bitcoin a currency?](/claims/is-bitcoin-currency)
|
||||
* [Why do people invest in crypto tokens?](/claims/is-why-invest)
|
||||
* [What type of assets are crypto tokens?](/claims/is-type-of-asset)
|
||||
* [Is crypto mining harmful to the environment?](/claims/is-environmental-footprint)
|
||||
|
||||
Bitcoin is a digital gold, a gold standard was a good idea, and thus that a "bitcoin-standard" – i.e. a new gold-standard built on bitcoin – is a good idea.
|
||||
|
||||
#### Subclaim 1: Bitcoin is better than gold
|
||||
Bitcoin is a better gold: it shares the features of gold which make it a good choice for a currency (or something to peg a currency to). In addition, Bitcoin has specific features which may make it better than gold
|
||||
# Aspiration 1: a better economy
|
||||
|
||||
#### Subclaim 2: The gold standard is a good idea
|
||||
This is for two reasons: First, because it reduces the scope for governmental or central bank intervention in the money supply. Intervention is bad because it leads to inflation which is harmful to the free market and commerce. In addition, Second, more philosophically, government / central bank intervention in the money supply is inherently undemocratic; the will of the few imposed on the many.
|
||||
A more stable, more efficient, and more transparent economy.
|
||||
|
||||
## Claim: Blockchain technology can facilitate the reduction of state intervention in the money supply
|
||||
|
||||
### Evaluation: False (high confidence)
|
||||
### Description
|
||||
|
||||
Both key sub-claims are weak and since both are required the overall claim for a bitcoin-standard is very weak. Bitcoin does not resemble gold as a store of value. The gold-standard was deflationary and dysfunctional especially in times of economic stress and a bitcoin-based gold standard would be worse.
|
||||
This section contains information relating to the claim that Bitcoin can be the next gold standard. Those making this claim argue that the gold standard is good because government/central bank intervention in the money supply will inevitably lead to inflation, which is harmful to the free market and commerce.
|
||||
|
||||
Bitcoin has no consistent track record of being a reliable store of value, it's price movements are extremely volatile and thus is not a reliable place to store value on long time scales. Bitcoin's price behavior is uncorrelated with gold and is largely correlated with the broader stock market making it an unreliable safe haven in times of market volatility since it is directly exposed to the price action of the Nasdaq.
|
||||
According to advocates of Bitcoin as the new gold standard, Bitcoin shares the features of gold which make it a good choice to use as a currency, but also has additional features which make it an even better choice than gold for a currency.
|
||||
|
||||
Bitcoin has limited track record of being a store of value and lacks the millenlia of history that gold as a commodity has achieved. Unlike gold it also lacks a use-value for the physical asset which consistently generates demand. Bitcoin also has a upkeep cost in the form of mining which forces the asset to behave like a negative-sum speculative asset instead of a store of value.
|
||||
### Evaluation: False
|
||||
|
||||
Further, The gold-standard and the notion of sound-money are undesirable foundations for a currency and were subject to extreme shocks and deflationary spirals. As such they were abandoned in the mid 20th century in favour of the central-banks and fiat monetary system.
|
||||
Bitcoin as a new gold standard would not achieve a more stable, more efficient economy:
|
||||
|
||||
* the gold standard is inherently deflationary and moderate inflation is far preferable;
|
||||
* the flexibility offered by the ability for governments/central banks to intervene is highly useful;
|
||||
* the gold standard can lead to the reverberation of shocks through the global economy;
|
||||
* there are ways to democratize the fiat system without returning to gold;
|
||||
* unlike gold, Bitcoin has no potential as a store of value due to its inherent hypervolatility
|
||||
* Bitcoin, unlike traditional commodities, has a negative price elasticity of demand. For this reason, Bitcoin looks like a speculative bubble, which at some point will inevitably crash.
|
||||
* Bitcoin does not share gold’s uniquness due to the emergence of many ‘alternative coins’.
|
||||
|
||||
### Content
|
||||
|
||||
* [Deep Dive: Web3, Bitcoin and Neo-metallism](/notes/neo-metallism)
|
||||
* [Shri T Rabi Sankar. Cryptocurrencies – An Assessment ](/notes/cryptocurrencies-an-assessment)
|
||||
|
||||
### Concepts
|
||||
|
||||
* [Austrian economics](/concepts/austrian-economics)
|
||||
* [Bank](/concepts/bank)
|
||||
* [Currency](/concepts/currency)
|
||||
* [Currency peg](/concepts/currency-peg)
|
||||
* [Central banks](/concepts/central-banks)
|
||||
* [Deflationary](/concepts/deflationary)
|
||||
* [Externalities ](/concepts/externalities)
|
||||
* [Fiat money](/concepts/fiat-money)
|
||||
* [Gold](/concepts/gold)
|
||||
* [Gold standard](/concepts/gold-standard)
|
||||
* [Inflationary](/concepts/inflationary)
|
||||
* [Keynesian economics](/concepts/keynsian-economics)
|
||||
* [Libertarianism](/concepts/libertarianism)
|
||||
* [Money](/concepts/money)
|
||||
* [Network Effect ](/concepts/network-effect)
|
||||
* [Private money](/concepts/private-money)
|
||||
* [Reserve currency](/concepts/reserve-currency)
|
||||
* [Sound money](/concepts/sound-money)
|
||||
* [Store of value](/concepts/store-of-value)
|
||||
* [Techno Collectivism](/concepts/techno-collectivism)
|
||||
* [Technolibertarianism](/concepts/technolibertarianism)
|
||||
* [US dollar](/concepts/dollar)
|
||||
|
||||
### FAQs
|
||||
|
||||
* [Is bitcoin a currency?](/claims/is-bitcoin-currency)
|
||||
* [Are crypto assets a risk to the dollar?](/claims/is-threat-dollar)
|
||||
* [Does Bitcoin threaten the US dollar as reserve currency?](/claims/is-threat-dollar)
|
||||
* [Are crypto tokens a hedge against the “debasement” of the dollar?](/claims/is-hedge-debasement)
|
||||
* [Are crypto assets a hedge against inflation?](/claims/is-hedge-inflation)
|
||||
* [Is private money desirable?](/claims/is-private-money)
|
||||
* [Is Web3 decentralized?](/claims/is-web3-decentralized)
|
||||
|
||||
### Library
|
||||
|
||||
* [Neo-metallism Zotero Library](https://www.zotero.org/groups/4600269/web3/collections/U7CJT3RQ)
|
||||
|
||||
### Full analysis
|
||||
## Claim: Blockchain based financial innovation will create more efficient markets
|
||||
|
||||
See here for our full analysis of the claim: [Web3, Bitcoin and Neo-metallism](https://web3.lifeitself.org/notes/neo-metallism)
|
||||
### Description
|
||||
|
||||
This claim argues that we are evolving towards a 24/7 real-time, always-trading international market with greater complexity and lower friction than at present and that crypto is the next step in this evolution.
|
||||
|
||||
## Claim: Crypto will provide better payment and remittance services
|
||||
According to the capitalist notion that greater [financialization](/claims/is-hyperfinancialization) is an engine for progress, added market efficiency will result from increase in financialization through the development of more complex, [blockchain](/concepts/blockchain)-based [financial products](/concepts/financial-asset) (ranging from better payment rails to more efficient clearing systems).
|
||||
|
||||
### Claim summary
|
||||
#### Subclaim 1: Crypto can function as a currency to pay or send remittances with
|
||||
Payment systems and remittance services need to pay in something. That something must either be a currency (eg dollars) or a commodity (eg cows).
|
||||
This position assumes that c[apitalism](/concepts/capitalism) is net positive in the world, and a fairer, more efficient and transparent economy benefits everyone.
|
||||
|
||||
Crypto can provide payment systems and remittance services because it serves the three functions of a currency:
|
||||
### Evaluation: False
|
||||
|
||||
* It can be a unit of account in that it’s a standard and divisible unit of measurement of market value (i.e. it can be used to signal what something is worth).
|
||||
* It can be a medium of exchange in that we can use it as an intermediary instrument to transact for goods and services.
|
||||
* It can act as a store of value in that it (at least ideally) retains its purchasing power over time, such that we can retrieve the value of our investment at a later date without making a significant loss.
|
||||
“Innovative” blockchain-based financial instruments and financial services would introduce an unacceptable amount of risk into the markets, thus not acheiving a more stable, more efficient, and more transparent economy.
|
||||
|
||||
### Content
|
||||
|
||||
* [Deep Dive: Fintech Incrementalism and Responsible Innovation](/notes/fintech-incrementalism-and-responsible-innovation)
|
||||
* [Deep Dive: Are Crypto Tokens Securities? ](/notes/are-crypto-tokens-securities)
|
||||
* [Deep Dive: Market Fundamentalism](/notes/market-fundamentalism)
|
||||
* [A Macroeconomics Perspective on Cryptocurrencies ](/notes/a-macroeconomics-perspective-on-cryptocurrencies)
|
||||
* [Shri T Rabi Sankar. Cryptocurrencies – An Assessment ](/notes/cryptocurrencies-an-assessment)
|
||||
* [Allen, Hilary J. 'DeFi; Shadow Banking 2.0?' ](/notes/defi-shadow-banking-2-0)
|
||||
* [Speech by Fabio Panetta, Member of the Executive Board of the ECB, at Columbia University New York, 25 April 2022](/notes/ecb-fabio-panetta-crypto-needs-regulation-columbia-2022-04-25)
|
||||
* [Crypto: can these financial perpetual motion machines work?](/notes/financial-perpetual-motion-machine)
|
||||
* [Notes on Dan Olson's 'Line Goes Up'](/notes/olson-2022-line-go-up)
|
||||
* [Terra Crash May 2022 ](/notes/terra-crash-may-2022)
|
||||
* [Bindseil, Ulrich. et al. ‘The encrypted threat: Bitcoin’s social cost and regulatory responses](/notes/the-encrypted-threat)’
|
||||
* [Notes on Secretary of the Treasury, Janet L. Yellen's remarks on digital assets policy, innovation, and regulation](/notes/yellen-treasury-remarks)
|
||||
|
||||
### Concepts
|
||||
|
||||
* [Artificial demand](/concepts/artificial-demand)
|
||||
* [Artificial scarcity](/concepts/artificial-scarcity)
|
||||
* [Automated Market Maker (AMM)](/concepts/amm)
|
||||
* [Assets](/concepts/assets)
|
||||
* [Capitalism](/concepts/capitalism)
|
||||
* [Capital Formation](/concepts/capital-formation)
|
||||
* [Consensus algorithm](/concepts/consensus-algorithm)
|
||||
* [Counterparty Risk ](/concepts/counterparty-risk)
|
||||
* [Cryptoasset](/concepts/cryptoasset)
|
||||
* [Crypto exchanges](/concepts/crypto-exchange)
|
||||
* [Decentralized Finance (DeFi)](/concepts/defi)
|
||||
* [Decentralized exchange](/concepts/dex)
|
||||
* [Derivative](/concepts/derivative)
|
||||
* [Distributed Autonomous Organization (DAO)](/concepts/dao)
|
||||
* [Exit-scam](/concepts/exit-scam)
|
||||
* [Externalities ](/concepts/externalities)
|
||||
* [Financial asset](/concepts/financial-asset)
|
||||
* [Fundamental Value](/concepts/fundamental-value)
|
||||
* [Income Cashflows ](/concepts/income-cashflows)
|
||||
* [Leverage](/concepts/leverage)
|
||||
* [Liquidity ](/concepts/liquidity)
|
||||
* [Liquidity Pool ](/concepts/liquidity-pool)
|
||||
* [Market](/concepts/market)
|
||||
* [Market Fundamentalism ](/concepts/market-fundamentalism)
|
||||
* [Narrative-economics](/concepts/narrative-economics)
|
||||
* [Platform Risk ](/concepts/platform-risk)
|
||||
* [Regulation](/concepts/regulation)
|
||||
* [Regulatory Arbitrage](/concepts/regulatory-arbitrage)
|
||||
* [Security](/concepts/security)
|
||||
* [Smart contract](/concepts/smart-contracts)
|
||||
* [Speculation](/concepts/speculation)
|
||||
* [Stablecoin](/concepts/stablecoin)
|
||||
* [Staking ](/concepts/staking)
|
||||
* [Systemic Risk ](/concepts/systemic-risk)
|
||||
* [Technolibertarianism](/concepts/technolibertarianism)
|
||||
* [Techno-obscurantism ](/concepts/techno-obscurantism)
|
||||
* [Yield Farming](/concepts/yield-farming)
|
||||
* [Zero Sum Game ](/concepts/zero-sum-game)
|
||||
|
||||
|
||||
### FAQs
|
||||
|
||||
* [Is bitcoin a currency?](/claims/is-bitcoin-currency)
|
||||
* [Is crypto bringing about the “financialization of everything”?](/claims/is-hyperfinancialization)
|
||||
* [Is an unregulated transnational payment system desirable?](/claims/is-transnational-payment)
|
||||
* [Is crypto providing faster payment rails or better remittance services?](/claims/is-better-payments)
|
||||
* [Are crypto assets a systemic risk to the economy? ](/claims/is-systemic-risk)
|
||||
* [What is the narrative economics of crypto assets?](/claims/is-narrative-economics)
|
||||
|
||||
### Library
|
||||
|
||||
* [Fintech Incrementalism Zotero Library](https://www.zotero.org/groups/4600269/web3/collections/C56BYQD3)
|
||||
|
||||
---
|
||||
# Aspiration 2: A fairer and freer society
|
||||
---
|
||||
|
||||
## Claim: The state can and should be hollowed out and blockchain technology can facilitate this
|
||||
|
||||
### Description
|
||||
|
||||
#### Subclaim 2: Crypto can provide better payment rails and remittance services
|
||||
Crypto can provide us with better payment rails - i.e. a better Visa, Stripe etc - and more efficient international remittances. I can send money abroad, eg from US dollars to Indian rupees using crypto. These blockchain-based payment rails would have reduced friction and costs resulting in a cheaper, faster, more efficient service.
|
||||
This claim argues that states are no longer desirable and that blockchain technology can be used to hollow out the state and replace its functions. Advocates of this claim argue that the internet is the new basis of human life, and, as the internet is a global force, borders should no longer exist. We can replace all legacy functions of the state with software, and the public goods that states once supported can be replaced by either the private sector or blockchain apps.
|
||||
|
||||
### Evaluation: Largely false (high confidence)
|
||||
In addition, modern nation states are too big. Blockchain technology can be used to achieve a more optimal form of human self-organization.
|
||||
|
||||
Crypto assets are not currencies because they cannot fulfill the definition of money.
|
||||
### Evaluation: False
|
||||
|
||||
Since crypto assets cannot function as a currency, they are not useful in building payment rails or remittance services. Crypto assets can be used as an intermediate asset in which trades can be settled in, but this does not serve a technical or financial purpose; it simply introduces an unnecessary conversion step as most things can't be paid for directly in crypto.
|
||||
The entire argument is predicated on the technology being able to do the things being claimed. This is falsely treated as a technical reality and an inevitability. States exist for a very good reason. It’s the only structure proven to sustain public goods at a civilization level and be the guarantor of last resort for justice, defense, and monetary issuance.
|
||||
|
||||
In addition, if crypto were to provide cheaper and faster payment rails, it’s likely this will have been achieved not via technological advancements, but by removing safeguards.
|
||||
### Content
|
||||
|
||||
We acknowledge that it does seem at least plausible that crypto assets are currently supporting financial activity in certain highly unstable and dysfunctional economies, as the example of Ukraine seems to show. However, it is problematic to use this observation to argue that replacing traditional financial infrastructure with blockchain based alternatives is desirable; being better than ill-functioning versions of a traditional system does not make blockchain systems innately superior.
|
||||
* [Deep Dive: Web3 and Post-State Technocracy ](/notes/post-state-technocracy)
|
||||
* [Cory Doctorow on Blockchain, Crypto & Web3](/notes/cory-doctorow-on-blockchain)
|
||||
* [Bindseil, Ulrich. et al. ‘The encrypted threat: Bitcoin’s social cost and regulatory responses](/notes/the-encrypted-threat)’
|
||||
|
||||
### Concepts
|
||||
|
||||
### Full analysis
|
||||
* [Bank](/concepts/bank)
|
||||
* [Post-state-technocracy](/concepts/post-state-technocracy)
|
||||
* [Cryptoanarchism](/concepts/cryptoanarchism)
|
||||
* [Technosolutionism](/concepts/technosolutionism)
|
||||
* [Narrative-economics](/concepts/narrative-economics)
|
||||
* [Private-money](/concepts/private-money)
|
||||
* [Anarchocapitalism](/concepts/anarchocapitalism)
|
||||
* [Reserve Currency](/concepts/reserve-currency)
|
||||
* [Sanctions Enforcement ](/concepts/sanctions-enforcement)
|
||||
* [Techno Collectivism](/concepts/techno-collectivism)
|
||||
* [Technolibertarianism](/concepts/technolibertarianism)
|
||||
|
||||
### FAQs
|
||||
|
||||
* [Do crypto assets pose a risk to the state?](/claims/is-risk-to-state)
|
||||
* [Does Bitcoin threaten the US dollar as reserve currency?](/claims/is-threat-dollar)
|
||||
* [What is the narrative economics of crypto assets?](/claims/is-narrative-economics)
|
||||
* [Is the underlying technology of “blockchain” useful for non-monetary purposes?](/claims/is-blockchain-tech)
|
||||
* [Is Web3 decentralized?](/claims/is-web3-decentralized)
|
||||
|
||||
See here for our full analysis: [Crypto will provide better payment and remittance services](https://web3.lifeitself.org/claims/is-better-payments)
|
||||
### Library
|
||||
|
||||
* [Post-State Technocracy Zotero Library](https://www.zotero.org/groups/4600269/web3/collections/G4ILACKC)
|
||||
|
||||
## Claim: Crypto can help solve the public goods problem
|
||||
## Claim: Web3 can facilitate financial inclusion
|
||||
|
||||
### Claim summary
|
||||
### Description
|
||||
|
||||
Public goods are non-rival and non-excludable (anyone can use this good and someone's use does not diminish someone else's use of the good). The trouble with funding public goods is that if anyone can use this good whether or not they have contributed to the funding or upkeep of the good, how do we motivate people to contribute to the good? This is known as the free-rider problem. Public goods problems thus deal with the problem of how to get people to contribute to things that they have no self-interested incentive to contribute to if left to their own devices.
|
||||
This claim argues that cryptocurrencies are a liberatory and egalitarian force that democratizes company formation, lowers barriers, and allows all types of common enterprises that were previously prohibited by law. In addition, crypto can facilitate the financial inclusion of the unbanked.
|
||||
|
||||
### Evaluation: False
|
||||
|
||||
#### Subclaim 1: Traditional mechanisms for resolving the public goods problem are inadequate
|
||||
Public goods provision falls pretty drastically short of where most of us would it like to be.
|
||||
Financial inclusion via cryptocurrencies is not something to be desired. The crypto markets are currently drastically under regulated, resulting in unacceptable levels of risk to individuals and risk to the broader financial system. Web3 facilitates [predatory inclusion](/concepts/predatory-inclusion): individuals are encouraged to join a volatile and risk-laden marketplace rife with fraud and [asymmetric information](/concepts/asymmetric-information). This method of "financial inclusion" therefore cannot faciliate a fairer, freer society.
|
||||
|
||||
#### Subclaim 2: Web3 can raise significant revenue for addressing public goods
|
||||
Web3 can address the revenue raising problem by creating voluntary incentive mechanisms for the funding of public goods rooted in the free market.
|
||||
In addition, crypto is not a solution for the unbanked, because by its deflationary design it cannot function as a currency. It is therefore unusable as a scalable means for purchasing goods and services.
|
||||
|
||||
#### Subclaim 3: Web3 can allocate this revenue more effectively
|
||||
Blockchain-based innovation in governance has facilitated more effective methods of revenue allocation. Quadratic Funding in particular, a variant on Plural or Quadratic Voting, has been shown to lead to near mathematically optimal allocation of resources across a public goods ecosystem
|
||||
### Content
|
||||
|
||||
#### Subclaim 4: Web3 can do this for reasons that are innately tied to the technology itself
|
||||
Blockchain is decentralized, is an immutable, public ledger, and creates the potential for tokenization. This can enable democratized investment, facilitate better participatory decision-making and help create instruments which can better capture and financialize the full range of social value versus traditional money or other financial products.
|
||||
* [Deep Dive: Are Crypto Tokens Securities?](/notes/are-crypto-tokens-securities)
|
||||
* [Deep Dive: A Macroeconomics Perspective on Cryptocurrencies](/notes/a-macroeconomics-perspective-on-cryptocurrencies)
|
||||
* [Deep Dive: Market Fundamentalism](/notes/market-fundamentalism)
|
||||
* [Richard D. Bartlett, Stephen Reid & Rufus Pollock on Critical Exploration of Web3](/notes/richard-bartlett-and-stephen-reid)
|
||||
* [Stephen Reid & Rufus Pollock on Worker Cooperatives and DAOs](/notes/on-worker-cooperatives)
|
||||
* [Crypto: can these financial perpetual motion machines work?](/notes/financial-perpetual-motion-machine)
|
||||
* [Notes on Münecat's 'Web3.0: A Libertarian Dystopia'](/notes/web3-dystopia)
|
||||
|
||||
### Concepts
|
||||
|
||||
## Evaluation: False (high confidence)
|
||||
* [Asymmetric information](/concepts/asymmetric-information)
|
||||
* [Bank](/concepts/bank)
|
||||
* [Crowdfunding](/concepts/crowdfunding)
|
||||
* [Unbanked](/concepts/unbanked16dd3ddcd7bfc19ae2113bb5/concepts/unbanked.md)
|
||||
* [Crypto exchanges ](/concepts/crypto-exchange)
|
||||
* [Predatory inclusion](/concepts/predatory-inclusion)
|
||||
* [Ponzinomics](/concepts/ponzinomics)
|
||||
* [Gambling](/concepts/gambling)
|
||||
* [Externalities ](/concepts/externalities)
|
||||
* [Bandwagon Bias ](/concepts/bandwagon-bias)
|
||||
* [Pyramid Scheme ](/concepts/pyramid-scheme)
|
||||
* [Cryptoanarchism](/concepts/cryptoanarchism)
|
||||
* [Technosolutionism](/concepts/technosolutionism)
|
||||
* [Mobile-payments](/concepts/mobile-payments)
|
||||
|
||||
The public goods problem is fundamentally one of revenue raising, and Web3 cannot offer any mechanisms to raise revenue which can effectively overcome the free-rider problem at scale. Further, the desirability of the privatization and marketization implied by Web3 solutions is doubtful in the first place.
|
||||
### FAQs
|
||||
|
||||
Web3 experiments may point to better ways of allocating funds which are voluntarily raised, but these do not rely on Web3 technology and are all but redundant when trying to allocate between equally vital public goods under conditions of resource scarcity.
|
||||
* [Is Bitcoin a currency?](/claims/is-bitcoin-currency)
|
||||
* [Is crypto a solution for the unbanked?](/claims/is-crypto-unbanked)
|
||||
* [Are crypto tokens a negative-sum investment?](/claims/is-negative-sum)
|
||||
* [Why do people invest in crypto tokens?](/claims/is-why-invest)
|
||||
* [Is an unregulated transnational payment system desirable?](/claims/is-transnational-payment)
|
||||
* [Can I raise money for my non-profit using crypto tokens?](/claims/is-raise-nonprofit)
|
||||
* [Can I do a crowdfunded equity raise for my company? ](/claims/is-raise-company)
|
||||
* [Are crypto assets predatory investments?](/claims/is-predatory)
|
||||
* [Are crypto assets a form of gambling?](/claims/is-gambling)
|
||||
|
||||
## Full analysis
|
||||
### Library
|
||||
|
||||
See here for our full analysis: [Web3 can help solve the public goods problem](https://web3.lifeitself.org/claims/can-solve-public-goods-problem)
|
||||
* [Market Fundamentalism Zotero Library](https://www.zotero.org/groups/4600269/web3/collections/Y5NM665F)
|
||||
* [Securities Regulation Zotero Library](https://www.zotero.org/groups/4600269/web3/collections/ANAGFNVQ)
|
||||
|
||||
## Claim: Crypto is an anti authoritarian force
|
||||
|
||||
## Claim: Web3 can help revolutionize cooperation
|
||||
### Description
|
||||
|
||||
This analysis focuses on DAOs as a much lauded way of working better together.
|
||||
According to this claim, cryptocurrencies provide a privacy-friendly way to store or transfer funds in situations where the state is an adversary – for example, when opposing a repressive regime.
|
||||
|
||||
### Claim summary
|
||||
### Evaluation: Mostly False
|
||||
|
||||
#### Subclaim 1: Cooperation in the Web3 sphere is in some sense better than the way we tend to cooperate now
|
||||
Crypto has very limited potential as an anti-authoritarian force. More importantly, any positive value is heavily outweighed by the potential downside in terms of enabling malign uses: money-laundering, fraud, terrorism etc. In summary:
|
||||
|
||||
Some of the features which are most often lauded in DAOs as an improvement on traditional forms of cooperation:
|
||||
* Decentralized, participatory governance and ownership
|
||||
* More fluid forms of association
|
||||
* Recognition of diverse forms of value
|
||||
#### Subclaim 2: Web3 technology provides a unique value add
|
||||
Blockchain technology can facilitate deep collaboration in the absence of interpersonal relationships of trust. This includes via automating organizational rules via smart contract, and recording everything publicly on an open ledger. Tokenization also acts to recognize more diverse forms of value than in traditional organizations.
|
||||
#### Subclaim 3: The unique value add provided by Web3 is sufficient to shift human cooperation more broadly i.e. make this better form of cooperation dominant
|
||||
The fact that Web3 facilitates flexibly fluid cooperation between potentially large numbers of diverse actors spread across the globe may gesture to a new future of digitally enabled cooperation. These features can make collaborating in this manner sufficiently easier and more attractive that it may begin to outcompete collaboration through traditional organizations.
|
||||
* the malign uses outnumber the benign;
|
||||
* Bitcoin is traceable;
|
||||
* for most uses, Bitcoin must be cashed out by those in charge of the monetary supply, most often the very regime the transferor is seeking to circumvent.
|
||||
* the argument for bitcoin as a hedge against authoritarianism suffers from fallacy of composition and selection bias.
|
||||
|
||||
### Evaluation: Largely false (medium-high confidence)
|
||||
### Content
|
||||
|
||||
Web3 organizations such as DAOs may well model better ways of collaborating, at least in the context of some private or third sector organizations. The popularity of Web3 may well provide inspiration which has a positive impact on how such organizations are structured or operate in the future, such that there is potential for Web3 to bring about a change.
|
||||
* [Deep Dive: Bitcoin as an Anti-Authoritarian Force ](/notes/bitcoin-as-anti-authoritarian)
|
||||
|
||||
However, not only are we doubtful that this would amount to a revolution, we note that this inspiration and education is not what the spirit of the claim gestures to. When it comes to the idea that Web3 technology itself will be vital to, and underpin, a paradigmatic shift in how humans cooperate with one another, we can confidently assert that this is false. The more democratic and decentralized forms of cooperation characterizing DAOs have largely existed in other forms, be they cooperatives or Teal organizations, before Web3 rose to prominence. The reason they have not become dominant has not been one of insufficiently powerful technology. Further, unique features of Web3 technology particularly seem on closer inspection to add little to actors’ ability to cooperate effectively that is not already provided by off-chain technologies.
|
||||
### Concepts
|
||||
|
||||
### Full analysis
|
||||
* [Technolibertarianism](/concepts/technolibertarianism)
|
||||
* [Cryptoanarchism](/concepts/cryptoanarchism)
|
||||
* [Techno Collectivism](/concepts/techno-collectivism)
|
||||
* [Technopopulism](/concepts/technopopulism)
|
||||
* [Decentralization](/concepts/decentralization)
|
||||
* [Illicit Financing](/concepts/illicit-financing)
|
||||
* [Censorship Resistance](/concepts/censorship-resistence)
|
||||
* [Shadow Bank ](/concepts/shadow-bank)
|
||||
* [Pseudonymous](/concepts/pseudonymous)
|
||||
|
||||
See here for our full analysis: [Web3 can revolutionize human cooperation](https://web3.lifeitself.org/claims/can-revolutionize-human-cooperation)
|
||||
### FAQs
|
||||
|
||||
* [Is Bitcoin a currency?](/claims/is-bitcoin-currency)
|
||||
* [Is an unregulated transnational payment system desirable?](/claims/is-transnational-payment)
|
||||
* [Is crypto legal?](/claims/is-legal)
|
||||
* [Is Web3 decentralized?](/claims/is-web3-decentralized)
|
||||
|
||||
## Claim: Crypto can provide better means of financializing non-financial value
|
||||
### Library
|
||||
|
||||
### Claim summary
|
||||
* [Antiauthoritarianism Zotero Library](https://www.zotero.org/groups/4600269/web3/collections/B3RVHR65)
|
||||
|
||||
#### Subclaim 1: More financialization of non-financial value is itself desirable
|
||||
## Claim: Web3 is a means to accelerate the collapse of capitalism and rebuild the global financial system
|
||||
|
||||
Financialization is useful as it allows us to effectively direct resources towards the things we care about.
|
||||
### Description
|
||||
|
||||
The dysfunctionalities present in our current financial sector are not inherent to financialization itself. It is therefore possible that financial value can be a powerful enabler of other types of value creation without any of the negative impacts on other values (e.g. a well functioning environment) currently associated with money and finance.
|
||||
This claim is based on the notion that we need to reconfigure the entire global economy and that Crypto can lead us there. Whatever happens on the other side of that financial reconfiguration can only be better than what we currently have.
|
||||
|
||||
Whether we like it or not, we live in a financialized world; our only recourse is to embrace the reality of hyper-financialization and try to make it work for everyone.
|
||||
Advocates argue that we can reinvent money independent of existing power structures and that by doing so we can redefine value and power and achieve a fairer distribution of wealth.
|
||||
|
||||
#### Subclaim 2: The current monetary and financial systems are deficient in their ability to capture what we think is really valuable
|
||||
### Evaluation: False
|
||||
|
||||
Value can be better or more extensively financialized than is possible under the current system. Our societies are not adequately financializing value: there is a shortfall of funding for things that matter to us e.g. education and climate change prevention; and there are cases where significant resources are devoted to things that don’t have social value e.g. the whole host of financial instruments totally detached from the productive economy. Left to their own devices markets won’t create a socially optimal allocation of resources, as market prices won’t naturally “internalize” externalities such as environmental damage. Furthermore, positive social impacts, eg of art, are often not internalized into market prices.
|
||||
Crypto is not a means to accelerate the collapse of capitalism. The crypto ideology is an extension of the neoliberal project that aims to expand the scope and reach of markets to all aspects of human life, a concept often referred to as hyperfinancialization. Since crypto tokens aim to expand the scope of capitalism, they cannot bring about anything but more capitalism.
|
||||
|
||||
#### Subclaim 3: Web3 technology is the route to addressing these deficiencies
|
||||
### Content
|
||||
|
||||
Web3 offers new means of financializing value through tokenization.
|
||||
* [Deep Dive: Web3 and Post-State Technocracy](/notes/post-state-technocracy)
|
||||
* [Deep Dive: Fintech Incrementalism And Responsible Innovation ](/notes/fintech-incrementalism-and-responsible-innovation)
|
||||
* [Crypto: can these financial perpetual motion machines work?](/notes/financial-perpetual-motion-machine)
|
||||
* [Notes on Dan Olson's 'Line Goes Up'](/notes/olson-2022-line-go-up)
|
||||
|
||||
NFTs: By locking artistic value into the NFT format and selling this directly to buyers, the true value of art can be better financialized as artists receive financial compensation for their work that is actually commensurate with its value.
|
||||
### Concepts
|
||||
|
||||
Alternative currencies: Communities can come together and decide on the rules for how they represent value. This can be done by creating tokens to represent all sorts of value and, in turn, better manage resource flows between them.
|
||||
* [Money](/concepts/money)
|
||||
* [Currency](/concepts/currency)
|
||||
* [Accelerationism](/concepts/accelerationism)
|
||||
* [Capitalism](/concepts/capitalism)
|
||||
* [Market](/concepts/market)
|
||||
* [Marxism](/concepts/marxism)
|
||||
* [Financial Nihilism](/concepts/financial-nihilism)
|
||||
* [Technosolutionism](/concepts/technosolutionism)
|
||||
|
||||
### Evaluation: Largely false (medium-high confidence)
|
||||
### FAQs
|
||||
|
||||
Web3 does not seem to provide many plausible means for better financializing value. NFTs have failed to live up to their promise regarding value distribution in practice, and even the theory behind them is spurious upon closer examination. Both the economics and political economy of alternative currencies appear highly questionable such that we have a low confidence in their capability to work in practice. There may be room for them to act as a complementary layer on top of traditional currency systems, for example as enhanced versions of eBay seller ratings carried through wider society. This in one sense might be understood as financializing value better. But, as China’s social credit system shows it is questionable whether this would even be desirable at all, and such systems certainly do not appear to require Web3 tokens to function.
|
||||
* [Is web3 a means to rebuild the global financial system?](/claims/is-new-financial-system)
|
||||
* [Is an unregulated transnational payment system desirable?](/claims/is-transnational-payment)
|
||||
* [It Bitcoin a currency?](/claims/is-bitcoin-currency)
|
||||
* [Are crypto assets a hedge against the "debasement" of the dollar?](/claims/is-hedge-debasement)
|
||||
* [Are crypto tokens a means to destroy capitalism?](/claims/is-collapse)
|
||||
* [Is Web3 decentralized?](/claims/is-web3-decentralized)
|
||||
|
||||
The main reason we are giving our evaluation “medium/high” confidence rather than simply “high” is that we have had to grasp our understanding of how alternative currencies are meant to function in practice from publications by alternative currency projects, which we have found lacking in the meaningful detail required for a deep understanding of how they are intended to function at the social scientific level. Rather than cynically assume that this is because such detail does not exist, we instead wish to acknowledge that we are evaluating an incomplete picture and express our desire to engage those working on alternative currency design in productive discourse.
|
||||
### Library
|
||||
|
||||
### Full analysis
|
||||
* [Post-state Technocracy Zotero Folder](https://www.zotero.org/groups/4600269/web3/collections/G4ILACKC)
|
||||
* [Fintech Incrementalism Zotero Library](https://www.zotero.org/groups/4600269/web3/collections/C56BYQD3)
|
||||
|
||||
See here for our full analysis of the claim: [Web3 provides better mechanisms for financializing non-financial value](/claims/can-financialize)
|
||||
## Claim: NFTs are good for artists
|
||||
|
||||
#
|
||||
# Deep dive notes
|
||||
### Description
|
||||
|
||||
These notes are attached to deep dive conversations covering certain claims or sets of claims. They do rigorously analyze the positions they explore, however these analyses are in note form and are thus rougher and less ocomprehensive than the ones above. If you'd like to help improve them then take a look at our [contributor guide](/meta/editing.md). For an example of what a complete evaluation looks like, see our [analysis of web3 and the public goods problem](/claims/can-solve-public-goods-problem.md).
|
||||
This claim is based on the notion that Web3 can create an economy where workers/creators can own the means of production. This claim argues that NFTs can facilitate a fairer deal for artists.
|
||||
|
||||
## Claim: Blockchain can (and should) be used to create “networked states” to replace existing nation states
|
||||
### Evaluation: False
|
||||
|
||||
### Summary
|
||||
This position aspires to transition from the existing US-led international order to a world in which blockchain technology and technocracy are the new foundations for global human governance. This would be achieved by a "networked state", a "social network with an agreed-upon leader, an integrated cryptocurrency, a definite purpose, a sense of national consciousness, and a plan to crowdfund physical territory.”
|
||||
The economic structure of NFTs is almost identical to that of multilevel marketing schemes. NFTs are a form of predatory inclusion that on average does not liberate artists. Instead most artists will engage in the token sales at a loss, making almost nothing in return.
|
||||
|
||||
### Full deep dive
|
||||
The full deep dive episode and accompanying notes can be found at: [Web3 and Post-State Technocracy](/notes/post-state-technocracy.md)
|
||||
### Content
|
||||
|
||||
* [Deep Dive: A Macroeconomics Perspective on Cryptocurrencies](/notes/a-macroeconomics-perspective-on-cryptocurrencies)
|
||||
* [Deep Dive: Market Fundamentalism](/notes/market-fundamentalism)
|
||||
* [Notes on Dan Olson's 'Line Goes Up'](/notes/olson-2022-line-go-up)
|
||||
* [Notes on Münecat's 'Web3.0: A Libertarian Dystopia'](/notes/web3-dystopia)
|
||||
|
||||
## Claim: Crypto can act as an anti-authoritarian force
|
||||
### Concepts
|
||||
|
||||
### Summary
|
||||
Bitcoin (and crypto more generally) is an anti-authoritarian force and can help undermine tyranny by providing a state-resistant payment rail. A global supranational payment system which is censorship resistant against nation state actors would allow parties from any jurisdiction to move value anonymously and with no controls. Via such a payment system, individuals living under oppressive regimes as well as those resisting the regime could receive money and funding from anywhere in the world.
|
||||
* [Art](/concepts/art)
|
||||
* [Artificial scarcity](/concepts/artificial-scarcity)
|
||||
* [NFTs](/concepts/nft)
|
||||
* [Cryptoasset ](/concepts/cryptoasset)
|
||||
* [Artificial Demand](/concepts/artificial-demand)
|
||||
* [Sign Value ](/concepts/sign-value)
|
||||
* [Predatory Inclusion](/concepts/predatory-inclusion)
|
||||
* [Externalities ](/concepts/externalities)
|
||||
* [Bandwagon Bias](/concepts/bandwagon-bias)
|
||||
* [Fictitious commodity](/concepts/ficticious-commodity)
|
||||
|
||||
### Full deep dive
|
||||
The full deep dive episode and accompanying notes can be found at: [Bitcoin as an Anti-Authoritarian Force](/notes/bitcoin-as-anti-authoritarian.md)
|
||||
### FAQs
|
||||
|
||||
* [Are NFTs good for artists?](/claims/is-nfts-artists)
|
||||
* [Is Web3 decentralized?](/claims/is-web3-decentralized)
|
||||
* [Are crypto assets predatory investments?](/claims/is-predatory)
|
||||
|
||||
## Claim: The crypto space is just an unfettered market, and there’s nothing wrong with that
|
||||
### Library
|
||||
|
||||
### Summary
|
||||
The trader or market fundamentalist view likely represents a majority of interest and activity in crypto. The ideology encompasses the viewpoint that crypto is about making money i.e. that crypto investing and trading can make those who engage in it a lot of money. More deeply it is the view that the unfettered and unregulated nature of crypto-markets is a good thing and represents a "freer" and better form of financial markets.
|
||||
* [Market Fundamentalism Zotero Library](https://www.zotero.org/groups/4600269/web3/collections/Y5NM665F)
|
||||
|
||||
### Full deep dive
|
||||
The full deep dive episode and accompanying notes can be found at: [Market Fundamentalism](/notes/market-fundamentalism.md)
|
||||
## Claim: Web3 is a means to dismantle the American tech hegemony
|
||||
|
||||
### Description
|
||||
|
||||
## Claim: Crypto is just the latest evolution of fintech, and is leading us towards a better financial system
|
||||
This claim is premised on the notion that web3 technology can be used to build a decentralized web, which will hand back agency to individual users and will dismantle the monopoly held by companies like Google, Facebook, Amazon.
|
||||
|
||||
### Summary
|
||||
The fintech incrementalist position is that fintech (financial technology) is a force for effecting change in financial services and building a more stable, efficient and transparent economy. Here we evaluate the claim that blockchain-based financial technology can be a vehicle for more efficient markets through the development of more complex, blockchain-based financial products.
|
||||
### Evaluation: False
|
||||
|
||||
### Full deep dive
|
||||
The full deep dive episode and accompanying notes can be found at: [Fintech Incrementalism and Responsible Innovation](/notes/fintech-incrementalism-and-responsible-innovation.md)
|
||||
Web3 is not a means to disrupt the American tech hegemony. Blockchain technologies have intractable scalability problems; the only means by which they can scale is by recentralization thereby recreating just another corporate monolith.
|
||||
|
||||
### Content
|
||||
|
||||
## Claim: Crypto should remain outside of securities regulation
|
||||
* [Deep Dive: Web3 and Post-State Technocracy](/notes/post-state-technocracy)
|
||||
* [Walch, Angela. Deconstructing 'Decentralization'; Exploring the Core Claim of Crypto Systems](/notes/deconstructing-decentralization)
|
||||
* [Samer Hassan on Decentralization, Platform Monopolies and Web3](/notes/samer-hassan)
|
||||
|
||||
### Summary
|
||||
There is currently debate about how crypto investments fall under the existing securities regulatory framework. Currently, crypto tokens exist partially outside this framework; even many tokens identified as unregulated securities continue to be traded (although as of December 2022 stronger regulation appears on the horizon). Many crypto enthusiasts argue that the space should remain free from this regulation, as this unregulated securities trading is desirable. Thay argue that it enables easier and more democratized equity raising more broadly, and guards agaiunst tyranny by enabling equity raising outside of the rule of law.
|
||||
### Concepts
|
||||
|
||||
### Full deep dive
|
||||
The full deep dive episode and accompanying notes can be found at: [We Shouldn't Regulate Cryptos as Securities](/notes/are-crypto-tokens-securities.md)
|
||||
* [Decentralization](/concepts/decentralization)
|
||||
* [Recentralization](/concepts/recentralization)
|
||||
* [Techno Collectivism](/concepts/techno-collectivism)
|
||||
|
||||
### FAQs
|
||||
|
||||
* [Is web3 a means to dismantle the American tech hegemony?](/claims/is-disrupt-hegemony)
|
||||
* [Is crypto building a new internet?](/claims/is-new-internet)
|
||||
* [Is the underlying technology of “blockchain” useful for non-monetary purposes?](/claims/is-blockchain-tech)
|
||||
* [Is Web3 decentralized?](/claims/is-web3-decentralized)
|
||||
|
||||
### Library
|
||||
|
||||
* [Post-State Technocracy Zotero Library](https://www.zotero.org/groups/4600269/web3/collections/G4ILACKC)
|
||||
|
||||
---
|
||||
# Aspiration 3: Financial Gain Through Financial Liberty
|
||||
---
|
||||
|
||||
## Claim: Traders and investors can make large financial gains in free, unregulated crypto-markets
|
||||
|
||||
### Description
|
||||
|
||||
#
|
||||
# FAQs
|
||||
This claim is rooted in the notion that unfettered and unregulated markets are efficient markets; unregulated markets allow companies to do what they're supposed to do, which is maximize returns to shareholders. As the crypto markets are currently unregulated, those who subscribe to the market fundamentalist ideology argue that these markets therefore have the potential to make those who invest in crypto assets a lot of money. The trader or market fundamentalist view likely represents a majority of interest and activity in crypto.
|
||||
|
||||
Shorter responses to common questions about web3 and crypto. While we’re confident in our views these fall short of full analyses, and we encourage you to use them as starting points for further independent research to draw conclusions. The references for each stub are a good place to begin, as is our [curated web3 library](https://web3.lifeitself.org/library) more broadly.
|
||||
### Evaluation: Mostly False
|
||||
|
||||
Markets work best when we have abundant public information and minimize fraud and collusion in price formation. Due to the unregulated nature of crypto markets, the markets are rife with fraud and asymmetric information. We also have no idea how much leverage is baked into the system due to the existence of complex financial instruments built upon assets with no fundamental value. The result is inequality (money flows to the sharks), individual and systemic risk, and moral hazard.
|
||||
|
||||
* [Can crypto just keep increasing in value?](/notes/financial-perpetual-motion-machine.md)
|
||||
* [Is bitcoin a currency?](/claims/is-bitcoin-currency.md)
|
||||
* [Are crypto assets a risk to the dollar?](/claims/is-threat-dollar.md)
|
||||
* [What type of asset is a crypto token?](/claims/is-type-of-asset.md)
|
||||
* [How do we value a crypto token?](/claims/is-valuation-model.md)
|
||||
* [Are crypto assets a systemic risk to the economy?](/claims/is-systemic-risk.md)
|
||||
* [Are crypto assets a bubble?](/claims/is-bubble.md)
|
||||
* [Are crypto assets a form of gambling?](../claims/is-gambling.md)
|
||||
* [Are crypto tokens an inflation hedge?](/claims/is-hedge-inflation.md)
|
||||
* [Is private money a desirable system?](/claims/is-private-money.md)
|
||||
* [Is bitcoin compataible with ESG investing?](/claims/is-bitcoin-esg.md)
|
||||
* [What consumer protections exist for crypto assets?](/claims/is-consumer-protections.md)
|
||||
* [Are crypto assets a form of predatory inclusion?](/claims/is-predatory.md)
|
||||
* [Is crypto a solution for the unbanked?](/claims/is-crypto-unbanked.md)
|
||||
* [Is crypto providing faster payment rails or better remittance services?](/claims/is-better-payments.md)
|
||||
* [Are NFTs good for artists?](/claims/is-nfts-artists.md)
|
||||
* [What is the narrative economics of crypto assets?](/claims/is-narrative-economics.md)
|
||||
* [Are crypto assets legal?](/claims/is-legal.md)
|
||||
* [Are crypto tokens a negative-sum investment?](/claims/is-negative-sum.md)
|
||||
* [Why do people invest in crypto tokens?](/claims/is-why-invest.md)
|
||||
* [Is an unregulated transnational payment rail even desirable?](/claims/is-transnational-payment.md)
|
||||
* [Are crypto tokens a hedge against the "debasement" of the dollar?](/claims/is-hedge-debasement.md)
|
||||
* [Can I raise money for my non-profit using crypto tokens?](/claims/is-raise-nonprofit.md)
|
||||
* [Can I do a crowdfunded equity raise for my company using crypto tokens?](/claims/is-raise-company.md)
|
||||
* [Is bitcoin mining harmful to the environment?](/claims/is-environmental-footprint.md)
|
||||
* [Is crypto bringing about the "financialization of everything"?](/claims/is-hyperfinancialization.md)
|
||||
* [What is the opportunity cost of crypto?](/claims/is-opportunity-cost.md)
|
||||
* [Is the underlying technology of "blockchain" useful for non-monetary purposes?](/claims/is-blockchain-tech.md)
|
||||
* [Is web3 even a well-defined term?](/claims/is-well-defined.md)
|
||||
* [Is web3 decentralized?](/claims/is-web3-decentralized.md)
|
||||
* [Is web3 the next generation of the internet?](/claims/is-new-internet.md)
|
||||
* [Is web3 a means to dismantle the American tech hegemony?](/claims/is-disrupt-hegemony.md)
|
||||
* [Is web3 a means to rebuild the global financial system?](/claims/is-new-financial-system.md)
|
||||
* [Are crypto tokens a means to accelerate the collapse of capitalism?](/claims/is-collapse.md)
|
||||
### Content
|
||||
|
||||
* [Deep Dive: Stephen Diehl & Rufus Pollock on Unfettered & Unregulated Financial Markets](/notes/market-fundamentalism)
|
||||
* [Deep Dive: Market Fundamentalism](/notes/market-fundamentalism)
|
||||
* [A Macroeconomics Perspective on Cryptocurrencies ](/notes/a-macroeconomics-perspective-on-cryptocurrencies)
|
||||
* [Shri T Rabi Sankar. Cryptocurrencies – An Assessment ](/notes/cryptocurrencies-an-assessment)
|
||||
* [Examples Of Retail Investors Speculating ](/notes/examples-of-ordinary-people-speculating)
|
||||
* [Crypto: can these financial perpetual motion machines work?](/notes/financial-perpetual-motion-machine)
|
||||
* [Notes on Dan Olson's 'Line Goes Up'](/notes/olson-2022-line-go-up)
|
||||
* [Bindseil, Ulrich. et al. ‘The encrypted threat: Bitcoin’s social cost and regulatory responses](/notes/the-encrypted-threat)’
|
||||
|
||||
### Concepts
|
||||
|
||||
* [Artificial Demand](/concepts/artificial-demand)
|
||||
* [Asymmetric information](/concepts/asymmetric-information)
|
||||
* [Bandwagon Bias ](/concepts/bandwagon-bias)
|
||||
* [Bank Run](/concepts/bank-run)
|
||||
* [Bubble ](/concepts/bubble)
|
||||
* [Capitalism](/concepts/capitalism)
|
||||
* [Cartel](/concepts/cartel)
|
||||
* [Crypto exchanges](/concepts/crypto-exchange)
|
||||
* [Exit-scam](/concepts/exit-scam)
|
||||
* [Expected Return](/concepts/expected-return)
|
||||
* [Externalities ](/concepts/externalities)
|
||||
* [Fictitious commodities](/concepts/ficticious-commodity)
|
||||
* [Financial Asset ](/concepts/financial-asset)
|
||||
* [Front running](/concepts/front-running)
|
||||
* [Gambling](/concepts/gambling)
|
||||
* [Greater fool theory](/concepts/greater-fool-theory)
|
||||
* [High Control Group ](/concepts/high-control-group)
|
||||
* [Income Cashflows](/concepts/income-cashflows)
|
||||
* [Keynesian economics](/concepts/keynsian-economics)
|
||||
* [Leverage](/concepts/leverage)
|
||||
* [Liquidity ](/concepts/liquidity)
|
||||
* [Madness Crowds ](/concepts/madness-crowds)
|
||||
* [Market](/concepts/market)
|
||||
* [Market Fundamentalism ](/concepts/market-fundamentalism)
|
||||
* [Market Mania ](/concepts/market-mania)
|
||||
* [Market Manipulation](/concepts/market-manipulation)
|
||||
* [Market Value ](/concepts/market-value)
|
||||
* [Memecoin ](/concepts/memecoin)
|
||||
* [Meme-stock](/concepts/meme-stock)
|
||||
* [Moral hazard](/concepts/moral-hazard)
|
||||
* [Narrative-economics](/concepts/narrative-economics)
|
||||
* [Paper-wealth](/concepts/paper-wealth)
|
||||
* [Platform Risk ](/concepts/platform-risk)
|
||||
* [Ponzinomics ](/concepts/ponzinomics)
|
||||
* [Pre Mine ](/concepts/pre-mine)
|
||||
* [Predatory inclusion](/concepts/predatory-inclusion)
|
||||
* [Present Value](/concepts/present-value)
|
||||
* [Price formation](/concepts/price-formation)
|
||||
* [Price risk](/concepts/price-risk)
|
||||
* [Pump and dump scheme](/concepts/pump-and-dump)
|
||||
* [Pyramid Scheme ](/concepts/pyramid-scheme)
|
||||
* [Speculation](/concepts/speculation)
|
||||
* [Systemic Risk ](/concepts/systemic-risk)
|
||||
* [Regulation](/concepts/regulation)
|
||||
* [Risk](/concepts/risk)
|
||||
* [Technolibertarianism](/concepts/technolibertarianism)
|
||||
* [Value](/concepts/value)
|
||||
* [Zero Sum Game](/concepts/zero-sum-game)
|
||||
|
||||
### FAQs
|
||||
|
||||
* [Is Bitcoin a currency?](/claims/is-bitcoin-currency)
|
||||
* [Is crypto legal?](/claims/is-legal)
|
||||
* [Is bitcoin compatible with ESG investing?](/claims/is-bitcoin-esg)
|
||||
* [Why do people invest in crypto tokens?](/claims/is-why-invest)
|
||||
* [Are crypto tokens a negative-sum investment?](/claims/is-negative-sum)
|
||||
* [Are crypto assets a bubble?](/claims/is-bubble)
|
||||
* [Do crypto assets have a verifiable valuation model?](/claims/is-valuation-model)
|
||||
* [Are crypto assets a form of gambling?](/claims/is-gambling)
|
||||
* [What is the narrative economics of crypto assets?](/claims/is-narrative-economics)
|
||||
* [What consumer protections exist for crypto assets?](/claims/is-consumer-protections)
|
||||
* [Are crypto assets predatory investments?](/claims/is-predatory)
|
||||
* [Are crypto assets a systemic risk to the economy?](/claims/is-systemic-risk)
|
||||
|
||||
### Library section
|
||||
|
||||
* [Market Fundamentalism Zotero Library](https://www.zotero.org/groups/4600269/web3/collections/Y5NM665F)
|
||||
|
||||
---
|
||||
# Aspiration 4: Overcoming governance problems
|
||||
---
|
||||
|
||||
## Claim: Web3 can revolutionize systems of governance and thus facilitate cooperative solutions to collective action problems
|
||||
|
||||
### Description
|
||||
|
||||
This claim argues that blockchain technology can support more democratic, distributed governance and that, by revolutionizing systems of governance, web3 can facilitate cooperative solutions to collective action problems such as climate change.
|
||||
|
||||
### Evaluation: Mostly False
|
||||
|
||||
While there are examples of DAOs facilitating distributed governance, we have not managed to find an instance of blockchain technology being used to solve a collective action problem.
|
||||
|
||||
### Content
|
||||
|
||||
* [Deep Dive: Collective Action Problems & Climate Change](/notes/collective-action-problems-and-climate-change)
|
||||
* [Richard D. Bartlett, Stephen Reid & Rufus Pollock on Critical Exploration of Web3](/notes/richard-bartlett-and-stephen-reid)
|
||||
* [On the Potential of DAOs & Web3 with Jordan Hall & Rufus Pollock](/notes/on-the-potential-of-daos-and-web3)
|
||||
* [Stephen Reid & Rufus Pollock on Worker Cooperatives and DAOs](/notes/on-worker-cooperatives)
|
||||
* [Open Collective, Steward Ownership & Exit to Community with Pia Mancini](/notes/pia-mancini-open-collective-dialogue)
|
||||
* [Regenerative Finance and Web3 for Public Goods](/notes/jeff-emmett-on-regenerative-finance)
|
||||
* [Samer Hassan on Decentralization, Platform Monopolies and Web3](/notes/samer-hassan)
|
||||
* [In conversation with Hypha](/notes/in-conversation-with-hypha)
|
||||
* [Deep Dive: Web3 and Post-State Technocracy ](/notes/post-state-technocracy)
|
||||
* [Notes on Jeff Emmett's 'Rewriting the Story of Human Collaboration'](/notes/emmett-2018-rewriting-story-human)
|
||||
* [KlimaDAO & Life Itself in Conversation](/notes/in-conversation-with-klimadao-part-one)
|
||||
* [Making Sense of KlimaDao](/notes/klimadao.finance)
|
||||
|
||||
### Concepts
|
||||
|
||||
* [Distributed Autonomous Organization](/concepts/dao)
|
||||
* [Technosolutionism](/concepts/technosolutionism)
|
||||
* [Techno Collectivism](/concepts/techno-collectivism)
|
||||
* [Hyperfinancialization](/claims/is-hyperfinancialization)
|
||||
* [Decentralization](/concepts/decentralization)
|
||||
* [Externalities](/concepts/externalities)
|
||||
* [Free Rider Problem](/concepts/free-rider-problem)
|
||||
* [Public Goods Problem ](/concepts/public-goods-problem)
|
||||
* [Governance tokens](/concepts/governance-token)
|
||||
* [Smart Contracts ](/concepts/smart-contracts)
|
||||
* [Post-state Technocracy](/concepts/post-state-technocracy)
|
||||
* [Consensus algorithm](/concepts/consensus-algorithm)
|
||||
* [Initial Coin Offerings (ICO)](/concepts/ico)
|
||||
* [Regulatory Arbitrage](/concepts/regulatory-arbitrage)
|
||||
* [Crowdfunding](/concepts/crowdfunding)
|
||||
|
||||
### FAQs
|
||||
|
||||
* [Is the underlying technology of “blockchain” useful for non-monetary purposes?](/claims/is-blockchain-tech)
|
||||
* [Is Web3 decentralized?](/claims/is-web3-decentralized)
|
||||
* [Is Web3 a well-defined term?](/claims/is-well-defined)
|
||||
* [Is Bitcoin a currency?](/claims/is-bitcoin-currency)
|
||||
* [Can I do a crowdfunded equity raise for my company? ](/claims/is-raise-company)
|
||||
|
||||
### Library
|
||||
|
||||
* [Climate Change and DAOs Zotero Library](https://www.zotero.org/groups/4600269/web3/collections/9ET9KDLI)
|
||||
|
||||
---
|
||||
# Aspiration 5: Innovation and Progress
|
||||
---
|
||||
|
||||
## Claim: Web3 is an inevitable paradigm shift akin to the Industrial Revolution
|
||||
|
||||
### Description
|
||||
|
||||
This claim argues that web3 is the path which progress is taking. Historical inventions like the printing press were fraught with concern and risk, and yet humanity survived those paradigm shifts. Blockchain technology is no different than the printing press. We can’t stop runaway phenomena. We simply have to embrace them.
|
||||
|
||||
### Evaluation: False
|
||||
|
||||
Blockchain technology, detached from the sale of crypto assets, has shown no track record of providing benefit for any real world applications. A financial system rooted in blockchain technology is not desirable and the dream of revolutionary systems of governance built on blockchain technology which can support the solving of public goods problems and collective action problems remains unrealized.
|
||||
|
||||
### Content
|
||||
|
||||
* [Deep Dive: Web3 and Post-State Technocracy](/notes/post-state-technocracy)
|
||||
* [Deep Dive: Collective Action Problems & Climate Change ](/notes/collective-action-problems-and-climate-change)
|
||||
* [Regenerative Finance and Web3 for Public Goods](/notes/jeff-emmett-on-regenerative-finance)
|
||||
* [Crypto Is Like The Early Internet](/notes/crypto-is-like-the-early-internet)
|
||||
* [Walch, Angela. Deconstructing 'Decentralization'; Exploring the Core Claim of Crypto Systems](/notes/deconstructing-decentralization)
|
||||
* [Allen, Hilary. 2022. Driverless Finance](/notes/driverless-finance)
|
||||
* [Notes on Dan Olson's 'Line Goes Up'](/notes/olson-2022-line-go-up)
|
||||
* [Our notes on Gary Gensler's Remarks On Crypto Markets, Penn Law Capital Markets Association Annual Conference](/notes/sec-remarks)
|
||||
* [Notes on Münecat's 'Web3.0: A Libertarian Dystopia'](/notes/web3-dystopia)
|
||||
|
||||
### Concepts
|
||||
|
||||
* [Decentralization](/concepts/decentralization)
|
||||
* [Externalities ](/concepts/externalities)
|
||||
* [Recentralization](/concepts/recentralization)
|
||||
* [Technosolutionism](/concepts/technosolutionism)
|
||||
* [Post-state-technocracy](/concepts/post-state-technocracy)
|
||||
* [Crypto-inevitablism](/concepts/inevitablism)
|
||||
* [Central Bank Digital Currency](/concepts/cbdc)
|
||||
|
||||
### FAQs
|
||||
|
||||
* [Is Web3 a means to rebuild the global financial system?](/claims/is-new-financial-system)
|
||||
* [Is crypto building a new internet?](/claims/is-new-internet)
|
||||
* [Is Web3 decentralized?](/claims/is-web3-decentralized)
|
||||
* [Is Web3 green?](/claims/is-web3-green)
|
||||
* [Is crypto bringing about the “financialization” of everything?](/claims/is-hyperfinancialization)
|
||||
* [Does building crypto have an opportunity cost?](/claims/is-opportunity-cost)
|
||||
* [Are crypto tokens a means to destroy capitalism?](/claims/is-collapse)
|
||||
|
||||
### Library section
|
||||
|
||||
* [Post-State Technocracy Zotero Library](https://www.zotero.org/groups/4600269/web3/collections/G4ILACKC)
|
||||
* [Climate Change and DAOs Zotero Library](https://www.zotero.org/groups/4600269/web3/collections/9ET9KDLI)
|
||||
|
|
|
|||
|
|
@ -1,236 +0,0 @@
|
|||
---
|
||||
title: Guide to Crypto and Web3
|
||||
---
|
||||
|
||||
Big claims are being made for the potential of crypto and web3. We have engaged in a [multi-month project of research and analysis](about) to "make sense" of crypto and web3 and to evaluate the various claims being made for and against.
|
||||
|
||||
We have spoken with technologists, economists, computer scientists, crypto skeptics and crypto enthusiasts. Much of the resulting material is published on this site. The culmination of our efforts is this guide.
|
||||
|
||||
It is divided into two parts. The first part is an introduction to the key concepts related to crypto and web3. The second part sets out the key claims and aspirations for crypto and web3 together with an evaluation of those claims.
|
||||
|
||||
This main part of the guide is organized by aspiration. Under each aspiration can be found the associated claim(s) with a brief description of the claim and our evaluation along with links to further detail, related concepts, FAQs and a reading list. For example, we identified one common claim along the lines that crypto and web3 can democratize finance. This, in turn is tied to a deeper aspiration of a fairer and/or more innovative economy.
|
||||
|
||||
It is important that we make good choices about crypto and web3. Ultimately, we must decide whether to support, improve or restrict them. And to do so in as constructive, intersectional and depolarizing way as possible. This guide is a resource for doing so.
|
||||
|
||||
The guide is split into 3 sections:
|
||||
|
||||
* **Full analyses** provide comprehensive and authoritative analyses of the biggest claims being made in the space
|
||||
* **Deep dive Notes** are detailed analysis notes from our deep dive conversations, which have not yet been formatted and expanded into full analyses. [You can help!](/meta/editing.md)
|
||||
* **FAQs** are brief responses to some common questions asked about crypto and web3. They form a useful starting point for further research, such as reading their references in our [library.](https://web3.lifeitself.org/library)
|
||||
|
||||
#
|
||||
|
||||
# Full analyses
|
||||
These provide detailed and fully referenced analyses of some of the boldest claims being made about web3 and crypto. They are capable of acting as authoritative sources in debates about these claims.
|
||||
|
||||
## Claim: Bitcoin will (and should) become the new gold standard
|
||||
|
||||
### Claim summary
|
||||
|
||||
Bitcoin is a digital gold, a gold standard was a good idea, and thus that a "bitcoin-standard" – i.e. a new gold-standard built on bitcoin – is a good idea.
|
||||
|
||||
#### Subclaim 1: Bitcoin is better than gold
|
||||
Bitcoin is a better gold: it shares the features of gold which make it a good choice for a currency (or something to peg a currency to). In addition, Bitcoin has specific features which may make it better than gold
|
||||
|
||||
#### Subclaim 2: The gold standard is a good idea
|
||||
This is for two reasons: First, because it reduces the scope for governmental or central bank intervention in the money supply. Intervention is bad because it leads to inflation which is harmful to the free market and commerce. In addition, Second, more philosophically, government / central bank intervention in the money supply is inherently undemocratic; the will of the few imposed on the many.
|
||||
|
||||
|
||||
### Evaluation: False (high confidence)
|
||||
|
||||
Both key sub-claims are weak and since both are required the overall claim for a bitcoin-standard is very weak. Bitcoin does not resemble gold as a store of value. The gold-standard was deflationary and dysfunctional especially in times of economic stress and a bitcoin-based gold standard would be worse.
|
||||
|
||||
Bitcoin has no consistent track record of being a reliable store of value, it's price movements are extremely volatile and thus is not a reliable place to store value on long time scales. Bitcoin's price behavior is uncorrelated with gold and is largely correlated with the broader stock market making it an unreliable safe haven in times of market volatility since it is directly exposed to the price action of the Nasdaq.
|
||||
|
||||
Bitcoin has limited track record of being a store of value and lacks the millenlia of history that gold as a commodity has achieved. Unlike gold it also lacks a use-value for the physical asset which consistently generates demand. Bitcoin also has a upkeep cost in the form of mining which forces the asset to behave like a negative-sum speculative asset instead of a store of value.
|
||||
|
||||
Further, The gold-standard and the notion of sound-money are undesirable foundations for a currency and were subject to extreme shocks and deflationary spirals. As such they were abandoned in the mid 20th century in favour of the central-banks and fiat monetary system.
|
||||
|
||||
|
||||
### Full analysis
|
||||
|
||||
See here for our full analysis of the claim: [Web3, Bitcoin and Neo-metallism](https://web3.lifeitself.org/notes/neo-metallism)
|
||||
|
||||
|
||||
## Claim: Crypto will provide better payment and remittance services
|
||||
|
||||
### Claim summary
|
||||
#### Subclaim 1: Crypto can function as a currency to pay or send remittances with
|
||||
Payment systems and remittance services need to pay in something. That something must either be a currency (eg dollars) or a commodity (eg cows).
|
||||
|
||||
Crypto can provide payment systems and remittance services because it serves the three functions of a currency:
|
||||
|
||||
* It can be a unit of account in that it’s a standard and divisible unit of measurement of market value (i.e. it can be used to signal what something is worth).
|
||||
* It can be a medium of exchange in that we can use it as an intermediary instrument to transact for goods and services.
|
||||
* It can act as a store of value in that it (at least ideally) retains its purchasing power over time, such that we can retrieve the value of our investment at a later date without making a significant loss.
|
||||
|
||||
#### Subclaim 2: Crypto can provide better payment rails and remittance services
|
||||
Crypto can provide us with better payment rails - i.e. a better Visa, Stripe etc - and more efficient international remittances. I can send money abroad, eg from US dollars to Indian rupees using crypto. These blockchain-based payment rails would have reduced friction and costs resulting in a cheaper, faster, more efficient service.
|
||||
|
||||
### Evaluation: Largely false (high confidence)
|
||||
|
||||
Crypto assets are not currencies because they cannot fulfill the definition of money.
|
||||
|
||||
Since crypto assets cannot function as a currency, they are not useful in building payment rails or remittance services. Crypto assets can be used as an intermediate asset in which trades can be settled in, but this does not serve a technical or financial purpose; it simply introduces an unnecessary conversion step as most things can't be paid for directly in crypto.
|
||||
|
||||
In addition, if crypto were to provide cheaper and faster payment rails, it’s likely this will have been achieved not via technological advancements, but by removing safeguards.
|
||||
|
||||
We acknowledge that it does seem at least plausible that crypto assets are currently supporting financial activity in certain highly unstable and dysfunctional economies, as the example of Ukraine seems to show. However, it is problematic to use this observation to argue that replacing traditional financial infrastructure with blockchain based alternatives is desirable; being better than ill-functioning versions of a traditional system does not make blockchain systems innately superior.
|
||||
|
||||
|
||||
### Full analysis
|
||||
|
||||
See here for our full analysis: [Crypto will provide better payment and remittance services](https://web3.lifeitself.org/claims/is-better-payments)
|
||||
|
||||
|
||||
## Claim: Crypto can help solve the public goods problem
|
||||
|
||||
### Claim summary
|
||||
|
||||
Public goods are non-rival and non-excludable (anyone can use this good and someone's use does not diminish someone else's use of the good). The trouble with funding public goods is that if anyone can use this good whether or not they have contributed to the funding or upkeep of the good, how do we motivate people to contribute to the good? This is known as the free-rider problem. Public goods problems thus deal with the problem of how to get people to contribute to things that they have no self-interested incentive to contribute to if left to their own devices.
|
||||
|
||||
|
||||
#### Subclaim 1: Traditional mechanisms for resolving the public goods problem are inadequate
|
||||
Public goods provision falls pretty drastically short of where most of us would it like to be.
|
||||
|
||||
#### Subclaim 2: Web3 can raise significant revenue for addressing public goods
|
||||
Web3 can address the revenue raising problem by creating voluntary incentive mechanisms for the funding of public goods rooted in the free market.
|
||||
|
||||
#### Subclaim 3: Web3 can allocate this revenue more effectively
|
||||
Blockchain-based innovation in governance has facilitated more effective methods of revenue allocation. Quadratic Funding in particular, a variant on Plural or Quadratic Voting, has been shown to lead to near mathematically optimal allocation of resources across a public goods ecosystem
|
||||
|
||||
#### Subclaim 4: Web3 can do this for reasons that are innately tied to the technology itself
|
||||
Blockchain is decentralized, is an immutable, public ledger, and creates the potential for tokenization. This can enable democratized investment, facilitate better participatory decision-making and help create instruments which can better capture and financialize the full range of social value versus traditional money or other financial products.
|
||||
|
||||
|
||||
## Evaluation: False (high confidence)
|
||||
|
||||
The public goods problem is fundamentally one of revenue raising, and Web3 cannot offer any mechanisms to raise revenue which can effectively overcome the free-rider problem at scale. Further, the desirability of the privatization and marketization implied by Web3 solutions is doubtful in the first place.
|
||||
|
||||
Web3 experiments may point to better ways of allocating funds which are voluntarily raised, but these do not rely on Web3 technology and are all but redundant when trying to allocate between equally vital public goods under conditions of resource scarcity.
|
||||
|
||||
## Full analysis
|
||||
|
||||
See here for our full analysis: [Web3 can help solve the public goods problem](https://web3.lifeitself.org/claims/can-solve-public-goods-problem)
|
||||
|
||||
|
||||
## Claim: Crypto can help revolutionize cooperation
|
||||
|
||||
This analysis focuses on DAOs as a much lauded way of working better together.
|
||||
|
||||
### Claim summary
|
||||
|
||||
#### Subclaim 1: Cooperation in the Web3 sphere is in some sense better than the way we tend to cooperate now
|
||||
|
||||
Some of the features which are most often lauded in DAOs as an improvement on traditional forms of cooperation:
|
||||
* Decentralized, participatory governance and ownership
|
||||
* More fluid forms of association
|
||||
* Recognition of diverse forms of value
|
||||
#### Subclaim 2: Web3 technology provides a unique value add
|
||||
Blockchain technology can facilitate deep collaboration in the absence of interpersonal relationships of trust. This includes via automating organizational rules via smart contract, and recording everything publicly on an open ledger. Tokenization also acts to recognize more diverse forms of value than in traditional organizations.
|
||||
#### Subclaim 3: The unique value add provided by Web3 is sufficient to shift human cooperation more broadly i.e. make this better form of cooperation dominant
|
||||
The fact that Web3 facilitates flexibly fluid cooperation between potentially large numbers of diverse actors spread across the globe may gesture to a new future of digitally enabled cooperation. These features can make collaborating in this manner sufficiently easier and more attractive that it may begin to outcompete collaboration through traditional organizations.
|
||||
|
||||
### Evaluation: Largely false (medium-high confidence)
|
||||
|
||||
Web3 organizations such as DAOs may well model better ways of collaborating, at least in the context of some private or third sector organizations. The popularity of Web3 may well provide inspiration which has a positive impact on how such organizations are structured or operate in the future, such that there is potential for Web3 to bring about a change.
|
||||
|
||||
However, not only are we doubtful that this would amount to a revolution, we note that this inspiration and education is not what the spirit of the claim gestures to. When it comes to the idea that Web3 technology itself will be vital to, and underpin, a paradigmatic shift in how humans cooperate with one another, we can confidently assert that this is false. The more democratic and decentralized forms of cooperation characterizing DAOs have largely existed in other forms, be they cooperatives or Teal organizations, before Web3 rose to prominence. The reason they have not become dominant has not been one of insufficiently powerful technology. Further, unique features of Web3 technology particularly seem on closer inspection to add little to actors’ ability to cooperate effectively that is not already provided by off-chain technologies.
|
||||
|
||||
### Full analysis
|
||||
|
||||
See here for our full analysis: [Web3 can revolutionize human cooperation](https://web3.lifeitself.org/claims/can-revolutionize-human-cooperation)
|
||||
|
||||
|
||||
## Claim: Crypto can provide better means of financializing value
|
||||
|
||||
|
||||
#
|
||||
# Deep dive notes
|
||||
|
||||
These notes are attached to deep dive conversations covering certain claims or sets of claims. They do rigorously analyze the positions they explore, however these analyses are in note form and are thus rougher and less ocomprehensive than the ones above. If you'd like to help improve them then take a look at our [contributor guide](/meta/editing.md). For an example of what a complete evaluation looks like, see our [analysis of web3 and the public goods problem](/claims/can-solve-public-goods-problem.md).
|
||||
|
||||
## Claim: Blockchain can (and should) be used to create “networked states” to replace existing nation states
|
||||
|
||||
### Summary
|
||||
This position aspires to transition from the existing US-led international order to a world in which blockchain technology and technocracy are the new foundations for global human governance. This would be achieved by a "networked state", a "social network with an agreed-upon leader, an integrated cryptocurrency, a definite purpose, a sense of national consciousness, and a plan to crowdfund physical territory.”
|
||||
|
||||
### Full deep dive
|
||||
The full deep dive episode and accompanying notes can be found at: [Web3 and Post-State Technocracy](/notes/post-state-technocracy.md)
|
||||
|
||||
|
||||
## Claim: Crypto can act as an anti-authoritarian force
|
||||
|
||||
### Summary
|
||||
Bitcoin (and crypto more generally) is an anti-authoritarian force and can help undermine tyranny by providing a state-resistant payment rail. A global supranational payment system which is censorship resistant against nation state actors would allow parties from any jurisdiction to move value anonymously and with no controls. Via such a payment system, individuals living under oppressive regimes as well as those resisting the regime could receive money and funding from anywhere in the world.
|
||||
|
||||
### Full deep dive
|
||||
The full deep dive episode and accompanying notes can be found at: [Bitcoin as an Anti-Authoritarian Force](/notes/bitcoin-as-anti-authoritarian.md)
|
||||
|
||||
|
||||
## Claim: The crypto space is just an unfettered market, and there’s nothing wrong with that
|
||||
|
||||
### Summary
|
||||
The trader or market fundamentalist view likely represents a majority of interest and activity in crypto. The ideology encompasses the viewpoint that crypto is about making money i.e. that crypto investing and trading can make those who engage in it a lot of money. More deeply it is the view that the unfettered and unregulated nature of crypto-markets is a good thing and represents a "freer" and better form of financial markets.
|
||||
|
||||
### Full deep dive
|
||||
The full deep dive episode and accompanying notes can be found at: [Market Fundamentalism](/notes/market-fundamentalism.md)
|
||||
|
||||
|
||||
## Claim: Crypto is just the latest evolution of fintech, and is leading us towards a better financial system
|
||||
|
||||
### Summary
|
||||
The fintech incrementalist position is that fintech (financial technology) is a force for effecting change in financial services and building a more stable, efficient and transparent economy. Here we evaluate the claim that blockchain-based financial technology can be a vehicle for more efficient markets through the development of more complex, blockchain-based financial products.
|
||||
|
||||
### Full deep dive
|
||||
The full deep dive episode and accompanying notes can be found at: [Fintech Incrementalism and Responsible Innovation](/notes/fintech-incrementalism-and-responsible-innovation.md)
|
||||
|
||||
|
||||
## Claim: Crypto should remain outside of securities regulation
|
||||
|
||||
### Summary
|
||||
There is currently debate about how crypto investments fall under the existing securities regulatory framework. Currently, crypto tokens exist partially outside this framework; even many tokens identified as unregulated securities continue to be traded (although as of December 2022 stronger regulation appears on the horizon). Many crypto enthusiasts argue that the space should remain free from this regulation, as this unregulated securities trading is desirable. Thay argue that it enables easier and more democratized equity raising more broadly, and guards agaiunst tyranny by enabling equity raising outside of the rule of law.
|
||||
|
||||
### Full deep dive
|
||||
The full deep dive episode and accompanying notes can be found at: [We Shouldn't Regulate Cryptos as Securities](/notes/are-crypto-tokens-securities.md)
|
||||
|
||||
#
|
||||
# FAQs
|
||||
|
||||
Shorter responses to common questions about web3 and crypto. While we’re confident in our views these fall short of full analyses, and we encourage you to use them as starting points for further independent research to draw conclusions. The references for each stub are a good place to begin, as is our [curated web3 library](https://web3.lifeitself.org/library) more broadly.
|
||||
|
||||
|
||||
* [Can crypto just keep increasing in value?](/notes/financial-perpetual-motion-machine.md)
|
||||
* [Is bitcoin a currency?](/claims/is-bitcoin-currency.md)
|
||||
* [Are crypto assets a risk to the dollar?](/claims/is-threat-dollar.md)
|
||||
* [What type of asset is a crypto token?](/claims/is-type-of-asset.md)
|
||||
* [How do we value a crypto token?](/claims/is-valuation-model.md)
|
||||
* [Are crypto assets a systemic risk to the economy?](/claims/is-systemic-risk.md)
|
||||
* [Are crypto assets a bubble?](/claims/is-bubble.md)
|
||||
* [Are crypto assets a form of gambling?](../claims/is-gambling.md)
|
||||
* [Are crypto tokens an inflation hedge?](/claims/is-hedge-inflation.md)
|
||||
* [Is private money a desirable system?](/claims/is-private-money.md)
|
||||
* [Is bitcoin compataible with ESG investing?](/claims/is-bitcoin-esg.md)
|
||||
* [What consumer protections exist for crypto assets?](/claims/is-consumer-protections.md)
|
||||
* [Are crypto assets a form of predatory inclusion?](/claims/is-predatory.md)
|
||||
* [Is crypto a solution for the unbanked?](/claims/is-crypto-unbanked.md)
|
||||
* [Is crypto providing faster payment rails or better remittance services?](/claims/is-better-payments.md)
|
||||
* [Are NFTs good for artists?](/claims/is-nfts-artists.md)
|
||||
* [What is the narrative economics of crypto assets?](/claims/is-narrative-economics.md)
|
||||
* [Are crypto assets legal?](/claims/is-legal.md)
|
||||
* [Are crypto tokens a negative-sum investment?](/claims/is-negative-sum.md)
|
||||
* [Why do people invest in crypto tokens?](/claims/is-why-invest.md)
|
||||
* [Is an unregulated transnational payment rail even desirable?](/claims/is-transnational-payment.md)
|
||||
* [Are crypto tokens a hedge against the "debasement" of the dollar?](/claims/is-hedge-debasement.md)
|
||||
* [Can I raise money for my non-profit using crypto tokens?](/claims/is-raise-nonprofit.md)
|
||||
* [Can I do a crowdfunded equity raise for my company using crypto tokens?](/claims/is-raise-company.md)
|
||||
* [Is bitcoin mining harmful to the environment?](/claims/is-environmental-footprint.md)
|
||||
* [Is crypto bringing about the "financialization of everything"?](/claims/is-hyperfinancialization.md)
|
||||
* [What is the opportunity cost of crypto?](/claims/is-opportunity-cost.md)
|
||||
* [Is the underlying technology of "blockchain" useful for non-monetary purposes?](/claims/is-blockchain-tech.md)
|
||||
* [Is web3 even a well-defined term?](/claims/is-well-defined.md)
|
||||
* [Is web3 decentralized?](/claims/is-web3-decentralized.md)
|
||||
* [Is web3 the next generation of the internet?](/claims/is-new-internet.md)
|
||||
* [Is web3 a means to dismantle the American tech hegemony?](/claims/is-disrupt-hegemony.md)
|
||||
* [Is web3 a means to rebuild the global financial system?](/claims/is-new-financial-system.md)
|
||||
* [Are crypto tokens a means to accelerate the collapse of capitalism?](/claims/is-collapse.md)
|
||||
|
|
@ -0,0 +1,117 @@
|
|||
# Conceps TODO
|
||||
First pass
|
||||
|
||||
- [x] [keynsian-economics](../concepts/keynsian-economics.md)
|
||||
- [x] [libertarianism](../concepts/libertarianism.md)
|
||||
- [x] [market-fundamentalism](../notes/market-fundamentalism.md)
|
||||
- [x] [marxism](../concepts/marxism.md)
|
||||
- [x] [post-state-technocracy](../concepts/post-state-technocracy.md)
|
||||
- [x] [techno-collectivism](../concepts/techno-collectivism.md)
|
||||
- [x] [technolibertarianism](../concepts/technolibertarianism.md)
|
||||
- [x] [technosolutionism](../concepts/technosolutionism.md)
|
||||
- [x] [aml](../concepts/aml.md)
|
||||
- [x] [censorship-resistence](../concepts/censorship-resistence.md)
|
||||
- [x] [defi](../concepts/defi.md)
|
||||
- [x] [deflationary](../concepts/deflationary.md)
|
||||
- [x] [free-rider-problem](../concepts/free-rider-problem.md)
|
||||
- [x] [inflationary](../concepts/inflationary.md)
|
||||
- [x] [kyc](../concepts/kyc.md)
|
||||
- [x] [leverage](../concepts/leverage.md)
|
||||
- [x] [market-maker](../concepts/market-maker.md)
|
||||
- [x] [meme-stock](../concepts/meme-stock.md)
|
||||
- [x] [moral-hazard](../concepts/moral-hazard.md)
|
||||
- [x] [order-book](../concepts/order-book.md)
|
||||
- [x] [public-goods-problem](../concepts/public-goods-problem.md)
|
||||
- [x] [regulatory-capture](../concepts/regulatory-capture.md)
|
||||
- [x] [regulatory-arbitrage](../concepts/regulatory-arbitrage.md)
|
||||
- [x] [shadow-bank](../concepts/shadow-bank.md)
|
||||
- [x] [terminal-value](../concepts/terminal-value.md)
|
||||
- [x] [value](../concepts/value.md)
|
||||
- [x] [wash-trading](../concepts/wash-trading.md)
|
||||
- [x] [web3](../concepts/web3.md)
|
||||
|
||||
Second Pass
|
||||
|
||||
- [x] [private-money](../concepts/private-money.md)
|
||||
- [x] [amm](../concepts/amm.md)
|
||||
- [x] [artificial-scarcity](../concepts/artificial-scarcity.md)
|
||||
- [x] [assets](../concepts/assets.md)
|
||||
- [x] [bretton-woods](../concepts/bretton-woods.md)
|
||||
- [x] [broker](../concepts/broker.md)
|
||||
- [x] [cd](../concepts/cd.md)
|
||||
- [x] [commodity](../concepts/commodity.md)
|
||||
- [x] [counterparty-risk](../concepts/counterparty-risk.md)
|
||||
- [x] [cross-bridges](../concepts/cross-bridges.md)
|
||||
- [x] [deposit](../concepts/deposit.md)
|
||||
- [x] [deposit-insurance](../concepts/deposit-insurance.md)
|
||||
- [x] [dex](../concepts/dex.md)
|
||||
- [x] [exit-scam](../concepts/exit-scam.md)
|
||||
- [x] [free-rider-problem](../concepts/free-rider-problem.md)
|
||||
- [x] [bank](../concepts/bank.md)
|
||||
- [x] [illicit-financing](../concepts/illicit-financing.md)
|
||||
- [x] [mixer](../concepts/mixer.md)
|
||||
- [x] [mining](../concepts/mining.md)
|
||||
- [x] [money-services-business](../concepts/money-services-business.md)
|
||||
- [x] [mutualization](../concepts/mutualization.md)
|
||||
- [x] [narrative-economics](../concepts/narrative-economics.md)
|
||||
- [x] [order-book](../concepts/order-book.md)
|
||||
- [x] [platform-risk](../concepts/platform-risk.md)
|
||||
- [x] [capital-formation](../concepts/capital-formation.md)
|
||||
- [x] [private-key](../concepts/private-key.md)
|
||||
- [x] [pyramid-scheme](../concepts/pyramid-scheme.md)
|
||||
- [x] [mlm](../concepts/mlm.md)
|
||||
- [x] [rtgs](../concepts/rtgs.md)
|
||||
- [x] [staking](../concepts/staking.md)
|
||||
- [x] [systemic-risk](../concepts/systemic-risk.md)
|
||||
- [x] [yield-farming](../concepts/yield-farming.md)
|
||||
- [x] [stablecoin](../concepts/stablecoin.md)
|
||||
- [x] [capital-formation](../concepts/capital-formation.md)
|
||||
- [x] [commercial-paper](../concepts/commercial-paper.md)
|
||||
- [x] [reserve-currency](../concepts/reserve-currency.md)
|
||||
- [x] [pseudonymous](../concepts/pseudonymous.md)
|
||||
- [x] [bearer-instrument](../concepts/bearer-instrument.md)
|
||||
- [x] [memecoin](../concepts/memecoin.md)
|
||||
- [x] [paper-wealth](../concepts/paper-wealth.md)
|
||||
- [x] [endowment-effect](../concepts/endowment-effect.md)
|
||||
- [x] [bandwagon-bias](../concepts/bandwagon-bias.md)
|
||||
|
||||
Third pass
|
||||
|
||||
- [x] [artificial-demand](../concepts/artificial-demand.md)
|
||||
- [x] [bank-run](../concepts/bank-run.md)
|
||||
- [x] [broker](../concepts/broker.md)
|
||||
- [x] [cds](../concepts/cds.md)
|
||||
- [ ] [enclosure](../concepts/enclosure.md)
|
||||
- [x] [ficticious-commodity](../concepts/ficticious-commodity.md)
|
||||
- [x] [market-mania](../concepts/market-mania.md)
|
||||
- [x] [price-risk](../concepts/price-risk.md)
|
||||
- [x] [sanctions-enforcement](../concepts/sanctions-enforcement.md)
|
||||
- [x] [survivorship-bias](../concepts/survivorship-bias.md)
|
||||
- [x] [bucket-shop](../concepts/bucket-shop.md)
|
||||
- [x] [front-running](../concepts/front-running.md)
|
||||
|
||||
Ideologies
|
||||
|
||||
- [x] [accelerationism](../concepts/accelerationism.md)
|
||||
- [x] [capitalism](../concepts/capitalism.md)
|
||||
- [x] [cryptoanarchism](../concepts/cryptoanarchism.md)
|
||||
- [x] [inevitablism](../concepts/inevitablism.md)
|
||||
- [x] [keynsian-economics](../concepts/keynsian-economics.md)
|
||||
- [x] [technolibertarianism](../concepts/technolibertarianism.md)
|
||||
- [x] [technosolutionism](../concepts/technosolutionism.md)
|
||||
|
||||
Fourth Pass
|
||||
|
||||
- [x] [liquidity-pool](../concepts/liquidity-pool.md)
|
||||
- [x] [cds](../concepts/cds.md)
|
||||
- [x] [cross-bridges](../concepts/cross-bridges.md)
|
||||
- [x] [staking](../concepts/staking.md)
|
||||
- [x] [technopopulism](../concepts/technopopulism.md)
|
||||
- [x] [yield-farming](../concepts/yield-farming.md)
|
||||
|
||||
Fifth pass
|
||||
|
||||
- [x] [enclosure](../concepts/enclosure.md)
|
||||
- [x] [amm](../concepts/amm.md)
|
||||
- [x] [dex](../concepts/dex.md)
|
||||
- [x] [narrative-economics](../concepts/narrative-economics.md)
|
||||
|
|
@ -1,20 +1,25 @@
|
|||
# Editing Guide
|
||||
|
||||
This is a guide to help people contribute content or manage contribution of content. Focus is on the "wiki" content stored in markdown -- which is all pages except the front page and a few special generated pages e.g.
|
||||
This is a guide to help people contribute content or manage contribution of content. Focus is on the "wiki" content stored in markdown -- which is all pages except the front page and a few special generated pages e.g. `/all` page.
|
||||
|
||||
## How does the site work?
|
||||
## Introduction
|
||||
|
||||
The [Making Sense of Crypto and Web3](https://web3.lifeitself.us/) website is a wiki site: a collaborative site where users can add or edit content. This guide is for users who wish to add or edit content on the site, such as key concepts or ideologies in the [Guide](https://web3.lifeitself.us/guide) section or sensemaking in the [Claims](https://web3.lifeitself.us/claims) section.
|
||||
The [Making Sense of Crypto and Web3](https://web3.lifeitself.us/) website is a wiki site: a collaborative site where users can add or otherwise edit content. This guide is for users who wish to add or edit content on the site, such as key concepts or ideologies in the [Guide](https://web3.lifeitself.us/guide) section or sensemaking in the [Claims](https://web3.lifeitself.us/claims) section.
|
||||
|
||||
|
||||
### How does the site work?
|
||||
|
||||
All the content for the [Making Sense of Crypto & Web3 website](https://web3.lifeitself.us/) is contained within the life-itself/web3 [Github repo](https://github.com/life-itself/web3).
|
||||
|
||||
You will find the wiki content mostly in the folders ‘claims’ and ‘concepts’.
|
||||
|
||||
### Technical Architecture
|
||||
|
||||
#### Technical Architecture
|
||||
|
||||
The website is written in Markdown. A tool called content layer converts the Markdown files into HTML (the standard computer language for displaying and formatting web pages) so that they are displayed as pages on the site. This is the case for all pages on the website except for the homepage which is written directly in HTML.
|
||||
|
||||
### Markdown
|
||||
|
||||
#### Markdown
|
||||
|
||||
Markdown is a markup language (computer language for displaying and formatting web pages), which is designed to be easy to write and easy to read. It’s widely deployed on the web, for example by DataHub, GitHub, Stackoverflow and many other sites.
|
||||
|
||||
|
|
@ -22,11 +27,13 @@ In Markdown, you control the display of the document. For instance, you can form
|
|||
|
||||
Head over to our [Markdown Guide](https://playbook.datopian.com/markdown/#why-markdown) to learn more about Markdown and how to use it.
|
||||
|
||||
### Front Matter
|
||||
|
||||
#### Front Matter
|
||||
|
||||
In the world of computer programming, front matter is metadata (data about data) at the top of a file. Front matter does two things: a) it displays key info about a page (such as its title and description) in a structured way which helps with a consistent layout throughout the site and b) is used as metadata for SEO (search engine optimization) purposes, helping our content to reach interested readers.
|
||||
|
||||
#### Using front matter
|
||||
|
||||
##### Using front matter
|
||||
|
||||
Front matter should always be at the very top of the Markdown file, marked out by three dashes (---) above and below.
|
||||
|
||||
|
|
@ -36,7 +43,7 @@ You can copy and paste this into the Markdown file you are editing and fill in t
|
|||
|
||||
Remember to include the three dashes above and below and to paste at the very top of the file.
|
||||
|
||||
### Episode notes/deep dive pages
|
||||
#### Episode notes/deep dive pages
|
||||
|
||||
Note that the template for episode notes/deep dive pages which accompany video conversations is [here](https://github.com/life-itself/web3/blob/main/templates/template.md).
|
||||
|
||||
|
|
@ -97,20 +104,21 @@ In this stage, you ‘fork’ the Life Itself Web3 repository, i.e. you make a r
|
|||
In this stage, you ‘clone’ your forked repository, i.e. you copy your forked version of the Life Itself Web3 repo to your computer so that you can make edits on your local machine without affecting the remote git repo. 00:40-01:50 of the [video tutorial](https://drive.google.com/file/d/1mWqXDx6ICJ_1qreoYoB774weWi-AtyDo/view) corresponds to this stage. _If you’ve cloned the forked repo before, skip this stage._
|
||||
* Search your computer for its ‘terminal’ and open it. The terminal is simply a text-based way of interacting with the computer through commands. In the terminal, you can type commands, manipulate files, execute programs, and open documents. (00:03-00:39)
|
||||
* On your forked repo page (make sure you’re not on the main repo page), click the green ‘Code’ button and copy the HTTPS link
|
||||
* Type into Terminal "cd `directory`", where `directory` is replaced by the path to the folder you want to navigate to. E.g. “cd Desktop/Folder/life_itself/tutorial”. On a Mac, you can drag the folder to the terminal after typing “cd”. Otherwise, you can find the folder path [Mac](https://www.howtogeek.com/721126/3-ways-to-see-the-current-folder-path-on-mac/#:~:text=Open%20a%20Finder%20window%2C%20and,path%20to%20the%20current%20folder.); [Windows](https://www.wikihow.com/Find-a-File%27s-Path-on-Windows) and type or paste it in manually.
|
||||
* What you’re doing here is navigating in Terminal to the folder on your computer where you want to save the cloned repository (i.e. changing the working directory). Normally, on your computer you do this by searching for a folder and clicking on the icon to open it. In Terminal, you do this by typing commands. The command for changing directory is: `directory`. (00:40-1:11)
|
||||
* Type into Terminal cd <directory>, where <directory> is replaced by the path to the folder you want to navigate to. E.g. “cd Desktop/Folder/life_itself/tutorial”. On a Mac, you can drag the folder to the terminal after typing “cd”. Otherwise, you can find the folder path [Mac](https://www.howtogeek.com/721126/3-ways-to-see-the-current-folder-path-on-mac/#:~:text=Open%20a%20Finder%20window%2C%20and,path%20to%20the%20current%20folder.); [Windows](https://www.wikihow.com/Find-a-File%27s-Path-on-Windows) and type or paste it in manually.
|
||||
* What you’re doing here is navigating in Terminal to the folder on your computer where you want to save the cloned repository (i.e. changing the working directory). Normally, on your computer you do this by searching for a folder and clicking on the icon to open it. In Terminal, you do this by typing commands. The command for changing directory is: cd <directory>. (00:40-1:11)
|
||||
* Type into Terminal the command “git clone” and then paste the repo URL you copied. E.g. “git clone https://github.com/life-itself/web3.git”. Press enter. (1:13-1:48)
|
||||
* N.B. When you try this, you may be prompted to install command line developer tools to be able to run git commands, e.g. XCode for Mac. If this is the case, follow the instructions for installation.
|
||||
|
||||
|
||||
##### Stage 3: Branch
|
||||
|
||||
In this stage, you create a new ‘branch’, or temporary version, of the repository on which to make edits. These edits will later be merged with the main repository branch.
|
||||
|
||||
* Navigate in Terminal to the Life Itself Web3 repo which has been cloned to your computer. To do this, type "cd web3" or "cd `directory`" (as in Stage 2). Press enter. (1:49-2:02)
|
||||
* Navigate in Terminal to the Life Itself Web3 repo which has been cloned to your computer. To do this, type “cd web3” or “cd <directory>” (as in Stage 2). Press enter. (1:49-2:02)
|
||||
* Update your local clone of the remote repository. _You don’t need to do this if you’ve only just cloned the repo just now._
|
||||
* Type into Terminal “git pull”. Press enter.
|
||||
* Create a branch on which to make edits
|
||||
* Type "git checkout -b `your_branch_name`". E.g. you might name your branch “edits”. So you would type “git checkout -b edits”. This command will create a new branch and switch you to this branch. N.B. the branch name cannot contain spaces.
|
||||
* Type “git checkout -b <your_branch_name>”. E.g. you might name your branch “edits”. So you would type “git checkout -b edits”. This command will create a new branch and switch you to this branch. N.B. the branch name cannot contain spaces.
|
||||
|
||||
##### Stage 4: Edit
|
||||
|
||||
|
|
@ -123,6 +131,7 @@ In this stage, you use either a code editor, such as VS Code (see 4a), or Obsidi
|
|||
* Find the file that corresponds with the page you want to edit.* (3:31-4:03)
|
||||
* Make your edits and save
|
||||
|
||||
|
||||
###### 4b: Obsidian
|
||||
|
||||
* Open Obsidian
|
||||
|
|
@ -139,9 +148,9 @@ In this stage, you prepare the changes you have made (and saved) to a Markdown f
|
|||
|
||||
* Go to your computer’s Terminal (4:59-5:08)
|
||||
* Type “git status”. Press enter. (5:09-5:30)
|
||||
* Type "git add `name of modified file`". E.g. “git add site/content/test.md”. Press enter. (5:31-6:06) If you’ve edited more than one file, you can type “git add.” to add all the modified files with one command.
|
||||
* Type "git commit -m “`description of edit`"". E.g. "git commit -m “fix typo”" or "git commit -m “add extra text to definition”". Press enter. Note that the description of the edit must be in double quotation marks. (6:07-7:01)
|
||||
* Type "git push origin `your_branch_name`", replacing `your_branch_name` with the name of the branch you create.
|
||||
* Type “git add <name of modified file>”. E.g. “git add site/content/test.md”. Press enter. (5:31-6:06) If you’ve edited more than one file, you can type “git add .” to add all the modified files with one command.
|
||||
* Type “git commit -m “<description of edit>””. E.g. “git commit -m “fix typo”” or “git commit -m “add extra text to definition””. Press enter. Note that the description of the edit must be in double quotation marks. (6:07-7:01)
|
||||
* Type “git push origin <your_branch_name>”, replacing <your_branch_name> with the name of the branch you create.
|
||||
* Submit your changes for review: Go to your Github repo and click on the “Compare & pull request” button. Add a description and submit the pull request.
|
||||
* Someone from our team will review and confirm the merge. Once they’ve done that, your edit will appear on the site! Thanks for contributing!
|
||||
|
||||
|
|
|
|||
|
|
@ -1,91 +1,37 @@
|
|||
---
|
||||
title: "Evaluating the thesis that unregulated trading in securities is desirable."
|
||||
title: Are Crypto Tokens Securities?
|
||||
date: 2022-02-17
|
||||
created: 2022-04-13
|
||||
description: "In episode #3 of our ongoing deep dive into web3 and crypto, we explore the nature of financial products known as 'securities', their relation to crypto tokens, and the regulatory framework that exists around these structures."
|
||||
image: /img/are-crypto-tokens -securities-thumbnail.jpg
|
||||
youtube: https://www.youtube.com/embed/z2uAg-AIs-Y
|
||||
podcast: https://anchor.fm/life-itself/episodes/Are-Cryptocurrencies-Securities--The-Nature-of-Securities--Their-Relation-to-Crypto-Tokens-with-Stephen-Diehl-e1fph69
|
||||
category:
|
||||
- claim: y
|
||||
- featured: y
|
||||
- interview: n
|
||||
- deepdive: n
|
||||
claim:
|
||||
- evaluation: NN
|
||||
- confidence: HH
|
||||
featured: true
|
||||
aliases: notes/are-crypto-tokens-securities.md
|
||||
---
|
||||
|
||||
# Summary
|
||||
* Wiki topic: [Securities Framework](../concepts/security.md)
|
||||
|
||||
## November 2022 update
|
||||
***
|
||||
|
||||
We are adding a brief update to this piece to note the spectacular collapse of one of the world's largest crypto exchanges, FTX, in late 2022. This provides compelling further evidence that a tougher regulatory approach is and always was needed for crypto. Find out more via our [deep dive on the FTX collapse](/notes/post-ftx-collapse.md), and its tragic vindication of our analysis.
|
||||
# Episode Notes
|
||||
|
||||
## Summary
|
||||
|
||||
There is currently debate about how crypto investments fall under the existing securities regulatory framework. In this conversation, Stephen Diehl and Rufus Pollock dig into this debate, exploring what securities are and how they relate to crypto tokens.
|
||||
|
||||
Rufus and Stephen then consider the question, should crypto tokens be subject to the same regulation as securities? They 'steel man' the position that crypto investments should not be regulated as securities, outlining 3 key claims:
|
||||
1. Unregulated crypto investment is a liberatory and egalitarian force that democratizes company formation, lowers barriers, and allows all types of common enterprises that were previously prohibited by law.
|
||||
2. The ability to raise capital outside of the rule of law is a human right that is a safeguard against tyranny.
|
||||
3. Equity markets are ripe for disruption - it is time for the start of a new era that will reconfigure the entire global economy.
|
||||
|
||||
Rufus and Stephen end their conversation with an analysis of this position and the associated claims.
|
||||
|
||||
|
||||
## Claim steel-manned
|
||||
|
||||
### Subclaim 1: A better, easier way to raise money for my venture
|
||||
|
||||
It is very easy to create an equity crowdfunding and cap table structure on top of crypto platforms like ethereum. Individuals can do it anonymously and raise billions of dollar equivalents in seed capital for ventures that are very early. The SEC, government or lawyers do not need to get involved at all.
|
||||
|
||||
Previously this kind of access was gated to US persons with connections and access to funds and capital. This is a liberatory and egalitarian force that democratizes company formation that lowers barriers and allows all types of common enterprises that were previously prohibited by law.
|
||||
|
||||
### Subclaim 2: Ability to raise capital outside of the rule of law
|
||||
|
||||
The ability to raise capital outside of the rule of law is not only a good thing, it is an outright human right that is a safeguard against tyranny eg Edward Snowden, SciHub, Wikileaks. See [Bitcoin as an Anti-Authoritarian Force][../notes/bitcoin-as-anti-authoritarian.md] for more details.
|
||||
|
||||
|
||||
## Evaluation
|
||||
|
||||
### Subclaim 1: A better, easier way to raise money for my venture
|
||||
|
||||
The smartphone era gives retail investors access to the public equities market with unparalleled levels of simplicity unseen in markets. There’s also a genuine interest in giving retail investors access to private equity investments. But is access to the public equities market appropriate for retail investors?
|
||||
|
||||
While there is a chance of high return, there is high risk: 95% of new ventures fail. And if we lower the barriers to entry, the [ICO](../concepts/ico.md) bubble is a case study in even higher failure rates.
|
||||
|
||||
In addition, giving seed-stage ventures billions of seed capital detached from revenue, traction, or product market fit is not desirable. It creates an incentive to abscond with seed money rather than actually building anything.
|
||||
|
||||
Furthermore, the whitepapers of these companies are complex, and even people with PhDs in econonomics and software engineering can’t parse what's going on. How is the lay public supposed to analyse what they are being told and make well-informed decisions?
|
||||
|
||||
The likely result is high risk for retail investors and, as a result, wider systemic risk.
|
||||
|
||||
#### Wider risk
|
||||
|
||||
We tried the complete laissez-faire *caveat emptor* securities model in the 1920s. **It ended very badly**. Fly-by-night “There Will Be Blood” actors ran wild selling securities to the public. Most US states created Blue Sky Laws to "to stop the sale of stock in fly-by-night concerns, visionary oil wells, distant gold mines and other fraudulent exploitations."
|
||||
|
||||
History is repeating itself. **Shibu Inu and Dogecoin were the blue sky securities of the 1920s**. People were attracted to get-rich-quick schemes back then just as much as they are today. Human psychology is remarkably invariant across time.
|
||||
|
||||
As part of the New Deal, the United States signed into law the Securities Act of 1933, Glass-Steagall Act of 1933, Securities Exchange Act of 1934. These largely cleaned up the fraud. The US framework is the blueprint for many industrialized nations to do the same. Following this introduction of regulation, the Great Depression ends, bank runs are entirely eliminated and there is a long period of peace in financial markets. US capital markets become extremely large, robust and a new era of unrivalled growth and private innovation proceeds.
|
||||
|
||||
When things go wrong, the impact can be financially devastating and socially corrosive: the state and its institutions and leaders are blamed and trust is corroded in the state as well as markets. If we assume that financial markets have some value then undermining faith in them is problematic.
|
||||
|
||||
|
||||
### Subclaim 2: Ability to raise capital outside of the rule of law
|
||||
|
||||
From the perspective of civil society, the ability to raise capital outside the rule of law **is not desirable**.
|
||||
|
||||
#### Crypto facilitates tax evasion
|
||||
|
||||
Today there already exists an enormous [shadow banking](../concepts/shadow-bank.md) space which facilitates the creation of credit and movement of money through jurisdictions with questionable money controls and loose enforcement of policy. Many wealthy individuals avail themselves of this transnational network of trusts and shell companies to avoid paying taxes in their country of residence, opting to instead hide their money abroad in opaque financial structures set up in island nations like the Bahamas or Cayman Islands.
|
||||
|
||||
The incorporation of crypto into the shadow banking system, which is already happening, is providing even easier access for disreputable individuals to avoid taxes and to expand their holdings abroad. Instead of offshore shell companies, these individuals will use [stablecoins](../concepts/stablecoin.md) and [cryptoassets](../concepts/cryptoasset.md) to hide their money from tax authorities.
|
||||
|
||||
From the public interest perspective none of this setup is desirable, since it allows the already wealthy to avoid paying taxes and supporting [public goods](../concepts/public-goods-problem.md) and the welfare state which supports people with less resources than wealthy individuals. Crypto thus exasperates wealth inequality and allows individuals to circumvent the rule of law and undermine the entire social contract of democracy.
|
||||
|
||||
#### Crypto facilitates dark money flows
|
||||
|
||||
For every one Alexandra Elbakyan or Edward Snowden there are a thousand arms dealers, cartels, human traffickers, money launderers, and warlords who would also use crypto for far less benign purposes.
|
||||
|
||||
See [Bitcoin as an Anti-Authoritarian Force][../notes/bitcoin-as-anti-authoritarian.md] for more details.
|
||||
|
||||
## Conclusion
|
||||
|
||||
### Crypto tokens should be regulated as securities
|
||||
|
||||
According to the SEC, crypto tokens meet the [Howey Test](../concepts/howey-test.md) and thus are securities contracts. This fits with our general intuition about the intent and purpose retail day traders are buying them. They’re investing in common ventures with the expectation of profit from the sale of tokens the same as equity. Some [DAO](../concepts/dao.md) governance tokens quite literally are designed to imitate voting shares as seen in existing equity structures.
|
||||
|
||||
---
|
||||
|
||||
# Analysis notes
|
||||
|
||||
## What are securities?
|
||||
## What Are Securities?
|
||||
|
||||
* A [security](../concepts/security.md) is a collective legal fiction that pools money and mediates [income-cashflows](../concepts/income-cashflows.md) between people according to an agreed-upon framework.
|
||||
* “A joint-stock company is a business entity in which shares of the company's stock can be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their shares (certificates of ownership). Shareholders are able to transfer their shares to others without any effects to the continued existence of the company.”
|
||||
|
|
@ -93,7 +39,7 @@ According to the SEC, crypto tokens meet the [Howey Test](../concepts/howey-test
|
|||
* Gave rise to a modern framework of laws that cover financial products from debt instruments, bonds, equities, and derivatives. The legal foundation on which all of market capitalism is built.
|
||||
* **Because of their centrality to markets, securities have strict registration, ownership and transfer regulation.**
|
||||
|
||||
## The debate surrounding crypto investments
|
||||
## The Debate Surrounding Crypto Investments
|
||||
|
||||
* There is currently debate about how crypto investments fall under the existing securities regulatory framework. This is being debated inside the government regulatory agencies, on the floor of the Senate, and in the courts.
|
||||
* The outcome of the final ruling will potentially impact trillions of notional value in “scofflaw” investments of potentially unregistered securities.
|
||||
|
|
@ -116,8 +62,7 @@ According to the SEC, crypto tokens meet the [Howey Test](../concepts/howey-test
|
|||
* Many policymakers on both sides of the aisle debate whether or not the accreditation laws are too restrictive and shut the public out of high-risk-high-return investments that only wealthy people have access to.
|
||||
* On the right, then individual choice is a paramount, the government shouldn’t dictate risk-taking in markets. Just “evolution” and the natural state of being.
|
||||
* On the left, Pikkety’s analysis that wealth generated from capital grows faster than economic output and that patrimonial capitalism leads to distortions of markets and inequality.
|
||||
|
||||
### Steel-manning the position that crypto investments should not be brought within the securities regulation framework
|
||||
### Steel Manning the Position that Crypto Investments Should Not Be Brought Within The Securities Regulation Framework
|
||||
* It is very easy to create an equity crowdfunding and cap table structure on top of crypto platforms like [ethereum](../concepts/ethereum.md).
|
||||
* Individuals can do it anonymously and raise billions of dollar equivalents in seed capital for ventures that are very early. Don’t need to involve the SEC, government or lawyers at all.
|
||||
* Previously this kind of access was gated to US persons with connections and access to funds, connections and access to capital.
|
||||
|
|
@ -164,100 +109,40 @@ According to the SEC, crypto tokens meet the [Howey Test](../concepts/howey-test
|
|||
* Evolution and capitalism metaphor: extremophiles.
|
||||
* **What is the right interplay between investment risk and the rule of law? Is creative destruction by any extra-legal means a positive force in the world?**
|
||||
|
||||
|
||||
## Related content
|
||||
|
||||
### Deep dives and notes
|
||||
* [Deep Dive: Fintech Incrementalism And Responsible Innovation ](/notes/fintech-incrementalism-and-responsible-innovation)
|
||||
* [Deep Dive: The FTX Collapse](/notes/post-ftx-collapse.md)
|
||||
* [Crypto: can these financial perpetual motion machines work?](/notes/financial-perpetual-motion-machine)
|
||||
* [Notes on Dan Olson's 'Line Goes Up'](/notes/olson-2022-line-go-up)
|
||||
* [Deep Dive: Market Fundamentalism](/notes/market-fundamentalism)
|
||||
* [A Macroeconomics Perspective on Cryptocurrencies ](/notes/a-macroeconomics-perspective-on-cryptocurrencies)
|
||||
* [Shri T Rabi Sankar. Cryptocurrencies – An Assessment ](/notes/cryptocurrencies-an-assessment)
|
||||
* [Crypto: can these financial perpetual motion machines work?](/notes/financial-perpetual-motion-machine)
|
||||
* [Bindseil, Ulrich. et al. ‘The encrypted threat: Bitcoin’s social cost and regulatory responses](/notes/the-encrypted-threat)’
|
||||
|
||||
|
||||
### Concepts
|
||||
***
|
||||
|
||||
## Concepts Covered
|
||||
|
||||
* [security](../concepts/security.md)
|
||||
* [howey-test](../concepts/howey-test.md)
|
||||
* [productive-asset](../concepts/productive-asset.md)
|
||||
* [ico](../concepts/ico.md)
|
||||
|
||||
### FAQs
|
||||
* [Is crypto legal?](/claims/is-legal)
|
||||
* [Is bitcoin compatible with ESG investing?](/claims/is-bitcoin-esg)
|
||||
* [Why do people invest in crypto tokens?](/claims/is-why-invest)
|
||||
* [Are crypto tokens a negative-sum investment?](/claims/is-negative-sum)
|
||||
* [Are crypto assets a bubble?](/claims/is-bubble)
|
||||
* [Do crypto assets have a verifiable valuation model?](/claims/is-valuation-model)
|
||||
* [Are crypto assets a form of gambling?](/claims/is-gambling)
|
||||
* [What is the narrative economics of crypto assets?](/claims/is-narrative-economics)
|
||||
* [What consumer protections exist for crypto assets?](/claims/is-consumer-protections)
|
||||
* [Are crypto assets predatory investments?](/claims/is-predatory)
|
||||
* [Are crypto assets a systemic risk to the economy?](/claims/is-systemic-risk)
|
||||
|
||||
***
|
||||
|
||||
## References
|
||||
de Andrés, P. _et al._ (2022) ‘Challenges of the market for initial coin offerings’, _International Review of Financial Analysis_, 79, p. 101966. Available at: [https://doi.org/10.1016/j.irfa.2021.101966](https://doi.org/10.1016/j.irfa.2021.101966).
|
||||
|
||||
Bank of International Settlements (2018) ‘Cryptocurrencies: looking beyond the hype’, in. Bank for International Settlements Basel. Available at: [https://www.bis.org/publ/arpdf/ar2018e5.htm](https://www.bis.org/publ/arpdf/ar2018e5.htm).
|
||||
|
||||
Bindseil, U., Papsdorf, P. and Schaaf, J. (2022) ‘The encrypted threat: Bitcoin’s social cost and regulatory responses’, (262), p. 20.
|
||||
|
||||
Boreiko, D., Ferrarini, G. and Giudici, P. (2019) ‘Blockchain Startups and Prospectus Regulation’, _European Business Organization Law Review_, 20(4), pp. 665–694. Available at: [https://doi.org/10.1007/s40804-019-00168-6](https://doi.org/10.1007/s40804-019-00168-6).
|
||||
|
||||
Brownsword, R. (2020) _Law 3.0: Rules, Regulation, and Technology_. Routledge.
|
||||
|
||||
Burilov, V. (2019) ‘Regulation of Crypto Tokens and Initial Coin Offerings in the EU: De lege lata and de lege ferenda’, _European Journal of Comparative Law and Governance_, 6(2), pp. 146–186. Available at: [https://doi.org/10.1163/22134514-00602003](https://doi.org/10.1163/22134514-00602003).
|
||||
|
||||
Butler, S. (2021) ‘Cyber 9/11 Will Not Take Place: A User Perspective of Bitcoin and Cryptocurrencies from Underground and Dark Net Forums’, in _Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics)_. Springer, pp. 135–153. Available at: [https://doi.org/10.1007/978-3-030-79318-0_8](https://doi.org/10.1007/978-3-030-79318-0_8).
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||||
|
||||
Cornish, C. and Waters, R. (2018) ‘Silicon Valley investors line up to back Telegram ICO’, _Financial Times_ [Preprint]. Available at: [https://www.ft.com/content/790d9506-0175-11e8-9650-9c0ad2d7c5b5](https://www.ft.com/content/790d9506-0175-11e8-9650-9c0ad2d7c5b5).
|
||||
|
||||
Cumming, D.J., Johan, S. and Pant, A. (2019) ‘Regulation of the Crypto-Economy: Managing Risks, Challenges, and Regulatory Uncertainty’, _Journal of Risk and Financial Management_, 12(3), p. 126. Available at: [https://doi.org/10.3390/jrfm12030126](https://doi.org/10.3390/jrfm12030126).
|
||||
|
||||
Debler, J. (2018) ‘Foreign initial coin offering issuers beware: the Securities and Exchange Commission is watching’, _Cornell Int’l LJ_, 51, p. 245.
|
||||
|
||||
Ferrari, V. (2020) ‘The regulation of crypto-assets in the EU – investment and payment tokens under the radar’, _Maastricht Journal of European and Comparative Law_, 27(3), pp. 325–342. Available at: [https://doi.org/10.1177/1023263X20911538](https://doi.org/10.1177/1023263X20911538).
|
||||
|
||||
Finck, M. (2018) _Blockchain Regulation and Governance in Europe_, _Blockchain Regulation and Governance in Europe_. Cambridge University Press. Available at: [https://doi.org/10.1017/9781108609708](https://doi.org/10.1017/9781108609708).
|
||||
|
||||
Goforth, C.R. (2021) ‘Regulation of Crypto: Who Is the Securities and Exchange Commission Protecting?’, _American Business Law Journal_, 58(3), pp. 643–705. Available at: [https://doi.org/10.1111/ablj.12192](https://doi.org/10.1111/ablj.12192).
|
||||
|
||||
Guadamuz, A. and Marsden, C. (2015) ‘Blockchains and Bitcoin: Regulatory responses to cryptocurrencies’, _First Monday_, 20(12). Available at: [https://doi.org/10.5210/fm.v20i12.6198](https://doi.org/10.5210/fm.v20i12.6198).
|
||||
|
||||
Hacker, P. _et al._ (2019) _Regulating Blockchain: : Techno-Social and Legal Challenges_. Available at: [https://doi.org/10.1093/oso/9780198842187.001.0001](https://doi.org/10.1093/oso/9780198842187.001.0001).
|
||||
|
||||
Hofman, D. _et al._ (2021) ‘Blockchain Governance: De Facto (x)or Designed?’, in _Building Decentralized Trust_. (x), pp. 21–33. Available at: [https://doi.org/10.1007/978-3-030-54414-0_2](https://doi.org/10.1007/978-3-030-54414-0_2).
|
||||
|
||||
Kapsis, I. (2021) ‘Should we trade market stability for more financial inclusion? The case of crypto-assets regulation in EU’, _FinTech, Artificial Intelligence and the Law: Regulation and Crime Prevention_, pp. 85–104. Available at: [https://doi.org/10.4324/9781003020998-9](https://doi.org/10.4324/9781003020998-9).
|
||||
|
||||
Kelly, J. (2019) ‘The ICO whose team members are literally cartoon characters’, _Financial Times_. Financial Times. Available at: [https://www.ft.com/content/57805b32-0bbe-34cb-940c-66cdd1aec5e2](https://www.ft.com/content/57805b32-0bbe-34cb-940c-66cdd1aec5e2).
|
||||
|
||||
Kharif, O. (2018) ‘Half of ICOs Die Within Four Months After Token Sales Finalized’, _Bloomberg.com_. Bloomberg. Available at: [https://www.bloomberg.com/news/articles/2018-07-09/half-of-icos-die-within-four-months-after-token-sales-finalized](https://www.bloomberg.com/news/articles/2018-07-09/half-of-icos-die-within-four-months-after-token-sales-finalized).
|
||||
|
||||
Kraus, D., Obrist, T. and Hari, O. (2019) _Blockchains, smart contracts, decentralised autonomous organisations and the law_. Edward Elgar Publishing. Available at: [https://doi.org/10.4337/9781788115131](https://doi.org/10.4337/9781788115131).
|
||||
|
||||
Lee, J. (2022) _Crypto-Finance, Law and Regulation: Governing an Emerging Ecosystem_. Routledge. Available at: [https://www.routledge.com/Crypto-Finance-Law-and-Regulation-Governing-an-Emerging-Ecosystem/Lee/p/book/9780367086619](https://www.routledge.com/Crypto-Finance-Law-and-Regulation-Governing-an-Emerging-Ecosystem/Lee/p/book/9780367086619).
|
||||
|
||||
Liaw, K.T. (2021) ‘Trading and regulation of cryptocurrencies, stablecoins and other cryptoassets’.
|
||||
|
||||
Maia, G. and Vieira dos Santos, J. (2021) ‘MiCA and DeFi (“Proposal for a Regulation on Market in Crypto-Assets” and ’Decentralised Finance’)’, _SSRN Electronic Journal_ [Preprint]. Available at: [https://doi.org/10.2139/ssrn.3875355](https://doi.org/10.2139/ssrn.3875355).
|
||||
|
||||
Rae, S.W. and Mastersmith, L. (2019) ‘Crypto Asset Trading in Canada: Entering a New Era of Regulation’, _Banking & Finance Law Review_, 35(1), pp. 153–185.
|
||||
|
||||
Reiners, L. (2020) ‘Cryptocurrency and the State: An Unholy Alliance’, _S. Cal. Interdisc. LJ_, 30, p. 695.
|
||||
|
||||
‘SEC v. WJ Howey Co.’ (1946) _US_. Supreme Court.
|
||||
|
||||
Walch, A. (2015) ‘The bitcoin blockchain as financial market infrastructure: A consideration of operational risk’, _NYUJ Legis. & Pub. Pol’y_, 18, p. 837.
|
||||
|
||||
Walch, A. (2019a) ‘Deconstructing ‘Decentralization’: Exploring the Core Claim of Crypto Systems’, _C. Brummer (ed.), Crypto Assets: Legal and Monetary Perspectives_, pp. 1–36. Available at: [https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3326244](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3326244).
|
||||
|
||||
Walch, A. (2019b) ‘In code (rs) we trust: Software developers as fiduciaries in public blockchains’.
|
||||
|
||||
Walch, A. (2019c) ‘Software Developers as Fiduciaries in Public Blockchains’, _Regulating Blockchain. Techno-Social and Legal Challenges, ed. by Philipp Hacker, Ioannis Lianos, Georgios Dimitropoulos & Stefan Eich, Oxford University Press, 2019._ [Preprint]. Available at: [https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3203198](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3203198).
|
||||
1. Bindseil, Ulrich, Patrick Papsdorf, and Jürgen Schaaf. 2022. ‘The Encrypted Threat: Bitcoin’s Social Cost and Regulatory Responses’. 7 January 2022. https://www.suerf.org/docx/f_88b3febc5798a734026c82c1012408f5_38771_suerf.pdf.
|
||||
1. Bank of International Settlements. 2018. ‘Cryptocurrencies: Looking beyond the Hype’. In . Bank for International Settlements Basel. https://www.bis.org/publ/arpdf/ar2018e5.htm.
|
||||
1. Boreiko, Dmitri, Guido Ferrarini, and Paolo Giudici. 2019. ‘Blockchain Startups and Prospectus Regulation’. European Business Organization Law Review 20 (4): 665–94. https://doi.org/10.1007/s40804-019-00168-6.
|
||||
1. Brownsword, Roger. 2020. Law 3.0: Rules, Regulation, and Technology. Routledge.
|
||||
1. Burilov, Vlad. 2019. ‘Regulation of Crypto Tokens and Initial Coin Offerings in the EU: De Lege Lata and de Lege Ferenda’. European Journal of Comparative Law and Governance 6 (2): 146–86. https://doi.org/10.1163/22134514-00602003.
|
||||
1. Butler, Simon. 2021. ‘Cyber 9/11 Will Not Take Place: A User Perspective of Bitcoin and Cryptocurrencies from Underground and Dark Net Forums’. In Lecture Notes in Computer Science (Including Subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics), 12812 LNCS:135–53. Springer. https://doi.org/10.1007/978-3-030-79318-0_8.
|
||||
1. Cumming, Douglas J., Sofia Johan, and Anshum Pant. 2019. ‘Regulation of the Crypto-Economy: Managing Risks, Challenges, and Regulatory Uncertainty’. Journal of Risk and Financial Management 12 (3): 126. https://doi.org/10.3390/jrfm12030126.
|
||||
1. Ferrari, Valeria. 2020. ‘The Regulation of Crypto-Assets in the EU – Investment and Payment Tokens under the Radar’. Maastricht Journal of European and Comparative Law 27 (3): 325–42. https://doi.org/10.1177/1023263X20911538.
|
||||
1. Finck, Michèle. 2018. Blockchain Regulation and Governance in Europe. Blockchain Regulation and Governance in Europe. Cambridge University Press. https://doi.org/10.1017/9781108609708.
|
||||
1. Goforth, Carol R. 2021. ‘Regulation of Crypto: Who Is the Securities and Exchange Commission Protecting?’ American Business Law Journal 58 (3): 643–705. https://doi.org/10.1111/ablj.12192.
|
||||
1. Guadamuz, Andres, and Chris Marsden. 2015. ‘Blockchains and Bitcoin: Regulatory Responses to Cryptocurrencies’. First Monday 20 (12). https://doi.org/10.5210/fm.v20i12.6198.
|
||||
1. Hacker, Philipp, Ioannis Lianos, Georgios Dimitropoulos, and Stefan Eich. 2019. Regulating Blockchain: : Techno-Social and Legal Challenges. https://doi.org/10.1093/oso/9780198842187.001.0001.
|
||||
1. Hofman, Darra, Quinn DuPont, Angela Walch, and Ivan Beschastnikh. 2021. ‘Blockchain Governance: De Facto (x) or Designed?’ In Building Decentralized Trust, 21–33. Springer.
|
||||
1. Kapsis, Ilias. 2021. ‘Should We Trade Market Stability for More Financial Inclusion? The Case of Crypto-Assets Regulation in EU’. FinTech, Artificial Intelligence and the Law: Regulation and Crime Prevention, 85–104. https://doi.org/10.4324/9781003020998-9.
|
||||
1. Kraus, Daniel, Thierry Obrist, and Olivier Hari. 2019. Blockchains, Smart Contracts, Decentralised Autonomous Organisations and the Law. Edward Elgar Publishing. https://doi.org/10.4337/9781788115131.
|
||||
1. Lee, Joseph. 2022. Crypto-Finance, Law and Regulation: Governing an Emerging Ecosystem. Routledge. https://www.routledge.com/Crypto-Finance-Law-and-Regulation-Governing-an-Emerging-Ecosystem/Lee/p/book/9780367086619.
|
||||
1. Liaw, K. Thomas. 2021. ‘Trading and Regulation of Cryptocurrencies, Stablecoins and Other Cryptoassets’.
|
||||
1. Maia, Guilherme, and João Vieira dos Santos. 2021. ‘MiCA and DeFi (“Proposal for a Regulation on Market in Crypto-Assets” and ’Decentralised Finance’)’. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3875355.
|
||||
1. Rae, Shaela W, and Lorraine Mastersmith. 2019. ‘Crypto Asset Trading in Canada: Entering a New Era of Regulation’. Banking & Finance Law Review 35 (1): 153–85.
|
||||
1. Reiners, Lee. 2020. ‘Cryptocurrency and the State: An Unholy Alliance’. S. Cal. Interdisc. LJ 30: 695.
|
||||
1. Walch, Angela. 2015a. ‘The Bitcoin Blockchain as Financial Market Infrastructure: A Consideration of Operational Risk’. NYUJ Legis. & Pub. Pol’y 18: 837.
|
||||
1. ———. 2015b. ‘The Bitcoin Blockchain as Financial Market Infrastructure: A Consideration of Operational Risk’. NYUJ Legis. & Pub. Pol’y 18: 837.
|
||||
1. ———. 2019a. ‘Deconstructing ‘Decentralization’: Exploring the Core Claim of Crypto Systems’. C. Brummer (Ed.), Crypto Assets: Legal and Monetary Perspectives, 1–36. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3326244.
|
||||
1. ———. 2019b. ‘In Code (Rs) We Trust: Software Developers as Fiduciaries in Public Blockchains’.
|
||||
1. ———. 2019c. ‘Software Developers as Fiduciaries in Public Blockchains’. Regulating Blockchain. Techno-Social and Legal Challenges, Ed. by Philipp Hacker, Ioannis Lianos, Georgios Dimitropoulos & Stefan Eich, Oxford University Press, 2019. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3203198.
|
||||
|
|
|
|||
|
|
@ -1,15 +0,0 @@
|
|||
---
|
||||
created: 2023-03-28
|
||||
---
|
||||
|
||||
# Binance and CEO Zhao sued by CFTC over "willful evasion" of US laws
|
||||
|
||||
👉 discussion on forum here https://github.com/life-itself/web3/discussions/218 👈
|
||||
|
||||
[[binance|Binance]] and its CEO Changpeng Zhao are sued by CFTC over "willful evasion" of US laws.
|
||||
|
||||
Press release from CFTC: https://www.cftc.gov/PressRoom/PressReleases/8680-23
|
||||
|
||||
Full lawsuit https://storage.courtlistener.com/recap/gov.uscourts.ilnd.431767/gov.uscourts.ilnd.431767.1.0_1.pdf
|
||||
|
||||
![[../assets/gov.uscourts.ilnd.431767.1.0_1.pdf]]
|
||||
|
|
@ -1,5 +0,0 @@
|
|||
---
|
||||
created: 2023-03-28
|
||||
---
|
||||
|
||||
# Binance
|
||||
|
|
@ -1,6 +1,6 @@
|
|||
---
|
||||
title: "Bitcoin as an Anti-Authoritarian Force: Crypto can provide a transnational state-resistant payment system for dissidents"
|
||||
description: "Evaluating the thesis that Bitcoin (and crypto more generally) is an anti-authoritarian force and can help undermine tyranny by providing a state-resistant payment rail."
|
||||
title: Crypto can provide a transnational state-resistant payment system for dissidents
|
||||
description: The claim being made here is that a. a transnational state-resitant payment system is desirable, b. crypto can provide this, and c. the benefits of this would outweigh any negative externalities. We find this claim to fail on points a. and c. and to therefore be false.
|
||||
youtube: https://youtu.be/U_-Bdx1mqS8
|
||||
podcast: https://anchor.fm/life-itself/episodes/Bitcoin-as-an-Anti-Authoritarian-Force-e1i25vg/a-a7gpq18
|
||||
category:
|
||||
|
|
@ -15,71 +15,36 @@ claim:
|
|||
|
||||
# Summary
|
||||
|
||||
## Claim steel-manned
|
||||
## Claim Steel-Manned
|
||||
|
||||
### Subclaim 1: A state-resistant transnational payment rail is desirable
|
||||
### Subclaim 1: Crypto can provide a state-resistant transnational payment rail
|
||||
|
||||
Not everyone lives in a stable liberal democracy. Sometimes it’s necessary to circumvent the state, when laws are unjust or regimes are corrupt.
|
||||
|
||||
A global supranational payment system which is [censorship resistant](../concepts/censorship-resistence.md) against nation state actors would allow parties from any jurisdiction to move value anonymously and with no controls. Via such a payment system, individuals living under oppressive regimes as well as those resisting the regime could receive money and funding from anywhere in the world.
|
||||
|
||||
Nonviolent resistance and civil disobedience have some very notable success stories and are an important part of the arc of “moral universe bending towards justice”:
|
||||
* Abolitionist movement
|
||||
* Civil rights movement
|
||||
* Nelson Mandela
|
||||
* LGBT movement
|
||||
* Gandhi's non-cooperation movement
|
||||
* Anti Vietnam-war protests
|
||||
|
||||
### Subclaim 2: Crypto can provide a state-resistant transnational payment rail
|
||||
|
||||
Blockchain technology can provide us with this censorship-resistant global payment rail.
|
||||
A blockchain-based global supranational payment system which is censorship resistant against nation state actors would effectively allow parties from any jurisdiction to move value anonymously and with no controls.
|
||||
|
||||
There are examples of crypto being used as a form of, or to facilitate, disobedience: Edward Snowden and Sci-Hub.
|
||||
* Snowden speaks on the infosec conference circuit and likely receives all his speaker fees via bitcoin which he converts into Russian rubles.
|
||||
* Sci-Hub pirates every scientific paper from Elvesier, Wiley, and other academic publishers and hosts a PirateBay style mirror site in which researchers can bypass paywalls and download paper. The server is run by one woman in Russia, Alexandra Elbakyan, who takes crypto donations. She is seen as a folk hero giving knowledge to the world and advancing science.
|
||||
|
||||
### Subclaim 2: An unregulated transnational payment rail is desirable
|
||||
|
||||
Not everyone lives in a stable liberal democracy. Sometimes it’s necessary to circumvent the state, when laws are unjust or regimes are corrupt.
|
||||
|
||||
Crypto can provide a privacy-friendly way to store or transfer funds in situations where the state is an adversary – for example, when opposing a repressive regime.
|
||||
|
||||
## Evidence of claim being made
|
||||
|
||||
ALJAZEERA. ‘Crypto Provides Fix for Some in Crisis-Hit Afghanistan’, 21 March 2022. https://www.aljazeera.com/news/2022/3/21/crypto-provides-fix-for-some-in-crisis-hit-afghanistan:
|
||||
|
||||
> Digital currencies and their decentralised architecture, impervious to international sanctions, are allowing a handful of young Afghans to avoid the worst of the crisis.
|
||||
|
||||
Lyn Alden [@LynAldenContact] (2022) _Twitter_. Available at: [https://twitter.com/LynAldenContact/status/1529084598268968962](https://twitter.com/LynAldenContact/status/1529084598268968962) (Accessed: 14 September 2022).
|
||||
|
||||
> People from Nigeria, Ethiopia, Senegal, Togo, Venezuela, and Afghanistan keep telling me here in person how they use bitcoin to deal with authoritarian bank control or persistent inflation that continually wrecks their savings. While westerners on Twitter say it’s useless.
|
||||
|
||||
Lyudmyla Kozlovska quoted in Aderinokun, Ire. _et al_. ‘21 Human Rights Advocates Write to Congress about Bitcoin’s Humanitarian Benefits’, 21 June 2022. [https://www.financialinclusion.tech/](https://www.financialinclusion.tech/)
|
||||
|
||||
> For me, Bitcoin is not just technology. It has literally saved the lives of my friends and many Ukrainians. Without it, we would not have been able to raise money so quickly to pay for protective equipment for soldiers in the early days of the Russian invasion.
|
||||
|
||||
Tapscott, Alex. ‘Commentary: Bitcoin Offers Freedom from Political Repression—and That’s a Key to Its Future’. Fortune, 18 February 2021. [https://fortune.com/2021/02/18/bitcoin-censorship-political-repression-deplatforming-china-belarus-russia-nigeria-crypto/](https://fortune.com/2021/02/18/bitcoin-censorship-political-repression-deplatforming-china-belarus-russia-nigeria-crypto/).
|
||||
|
||||
> Bitcoin is censorship-resistant. In other words, government cannot throttle, control or monitor your behavior as they can in the legacy financial world.
|
||||
> For me, Bitcoin is not just technology. It has literally saved the lives of my friends and many Ukrainians. Without it, we would not have been able to raise money so quickly to pay for protective equipment for soldiers in the early days of the Russian invasion
|
||||
|
||||
## Evaluation
|
||||
|
||||
### Subclaim 1: An unregulated transnational payment rail is desirable
|
||||
### Subclaim 1: Crypto can provide a state-resistant transnational payment rail
|
||||
|
||||
From the perspective of civil society a global supranational payment system which is [censorship resistant](../concepts/censorship-resistence.md) against nation state actors **is not desirable**. The world already struggles with an excess of offshore tax evasion and dark money flows, as evidenced by the recent Panama Paper leaks.
|
||||
|
||||
#### Crypto facilitates tax evasion
|
||||
|
||||
Today there already exists an enormous [shadow banking](../concepts/shadow-bank.md) space which facilitates the creation of credit and movement of money through jurisdictions with questionable money controls and loose enforcement of policy. Many wealthy individuals avail themselves of this transnational network of trusts and shell companies to avoid paying taxes in their country of residence, opting to instead hide their money abroad in opaque financial structures set up in island nations like the Bahamas or Cayman Islands.
|
||||
|
||||
The incorporation of crypto into the shadow banking system, which is already happening, is providing even easier access for disreputable individuals to avoid taxes and to expand their holdings abroad. Instead of offshore shell companies, these individuals will use [stablecoins](../concepts/stablecoin.md) and [cryptoassets](../concepts/cryptoasset.md) to hide their money from tax authorities.
|
||||
|
||||
From the public interest perspective none of this setup is desirable, since it allows the already wealthy to avoid paying taxes and supporting [public goods](../concepts/public-goods-problem.md) and the welfare state which supports people with less resources than wealthy individuals. Crypto thus exacerbates wealth inequality and allows individuals to circumvent the rule of law and undermine the entire social contract of democracy.
|
||||
|
||||
#### Crypto facilitates dark money flows
|
||||
|
||||
For every one Alexandra Elbakyan or Edward Snowden there are a thousand arms dealers, cartels, human traffickers, money launderers, and warlords who would also use crypto for far less benign purposes.
|
||||
|
||||
### Subclaim 2: Crypto can provide a state-resistant transnational payment rail
|
||||
|
||||
Even if a blockchain-based state-resistant transnational payment rail *were* desirable, blockchain is not an effective way of achieving this.
|
||||
|
||||
In his whitepaper _Bitcoin, Currencies, and Fragility_, Nassim Taleb rebukes the "safe haven from tyranny" thesis:
|
||||
Crypto assets are not a safe haven for one’s investments or a shield against government tyranny. In his whitepaper _Bitcoin, Currencies, and Fragility_, Nassim Taleb rebukes the "safe haven from tyranny" thesis:
|
||||
|
||||
> By its very nature, bitcoin is open for all to see. The belief in one’s ability to hide one’s assets from the government with a public blockchain easily triangularizable at endpoints, and not just read by the FBI but also by people in their living rooms, requires a certain lack of financial seasoning and statistical understanding — perhaps even a lack of minimal common sense. For instance a Wolfram Research specialist was able to statistically detect and triangularize "anonymous" ransom payments made by Colonial Pipeline on May 8 in 2021 — and it did not take long for the FBI to restore the funds. We can safely assume that government structures and computational power will remain stronger than those of distributed operators who, while distrusting one another, can fall prey to simple hoaxes
|
||||
>
|
||||
|
|
@ -91,15 +56,25 @@ This is best evidenced by the Canadian convoys in 2022 which attempted to take i
|
|||
|
||||
The complete ban of [crypto assets](../concepts/cryptoasset.md) by the People's Republic of China also does not lend credibility to the thesis that [crypto assets](../concepts/cryptoasset.md) are outside the remit of authoritarian controls and their restriction on capital movement and controls over domestic [money services business](../concepts/money-services-business.md).
|
||||
|
||||
## Conclusion
|
||||
### Subclaim 2: An unregulated transnational payment rail is desirable
|
||||
|
||||
The claim being evaluated here is that a) a transnational state-resitant payment system is desirable, and b) crypto can provide this. We find this claim to fail on both points.
|
||||
From the perspective of civil society a global supranational payment system which is [censorship resistant](../concepts/censorship-resistence.md) against nation state actors **is not desirable**. The world already struggles with an excess of offshore tax evasion and dark money flows, as evidenced by the recent Panama Paper leaks.
|
||||
|
||||
---
|
||||
#### Crypto facilitates tax evasion
|
||||
|
||||
# Full analysis
|
||||
Today there already exists an enormous [shadow banking](../concepts/shadow-bank.md) space which facilitates the creation of credit and movement of money through jurisdictions with questionable money controls and loose enforcement of policy. Many wealthy individuals avail themselves of this transnational network of trusts and shell companies to avoid paying taxes in their country of residence, opting to instead hide their money abroad in opaque financial structures set up in island nations like the Bahamas or Cayman Islands.
|
||||
|
||||
## Claims steel-manned
|
||||
The incorporation of crypto into the shadow banking system, which is already happening, is providing even easier access for disreputable individuals to avoid taxes and to expand their holdings abroad. Instead of offshore shell companies, these individuals will use [stablecoins](../concepts/stablecoin.md) and [cryptoassets](../concepts/cryptoasset.md) to hide their money from tax authorities.
|
||||
|
||||
From the public interest perspective none of this setup is desirable, since it allows the already wealthy to avoid paying taxes and supporting [public goods](../concepts/public-goods-problem.md) and the welfare state which supports people with less resources than wealthy individuals. Crypto thus exasperates wealth inequality and allows individuals to circumvent the rule of law and undermine the entire social contract of democracy.
|
||||
|
||||
#### Crypto facilitates dark money flows
|
||||
|
||||
For every one Alexandra Elbakyan or Edward Snowden there are a thousand arms dealers, cartels, human traffickers, money launderers, and warlords who would also use crypto for far less benign purposes.
|
||||
|
||||
# Full Analysis
|
||||
|
||||
## Steel-Man
|
||||
|
||||
* Not everyone lives in a stable liberal democracy. Sometimes it’s necessary to violate laws, when laws are unjust or regimes are corrupt. In such circumstances, Bitcoin can be used as a safe haven for one’s investments or a shield against government tyranny.
|
||||
* Nonviolent resistance and civil disobedience have some very notable success stories and are an important part of the arc of “moral universe bending towards justice”:
|
||||
|
|
@ -118,8 +93,9 @@ The claim being evaluated here is that a) a transnational state-resitant payment
|
|||
|
||||
[^1]: More examples in e.g. here https://twitter.com/LynAldenContact/status/1529084598268968962 though note connection with crypto-advocate Alex Gladstein.
|
||||
|
||||
## Analysis
|
||||
|
||||
## 2 preliminary principles to be noted:
|
||||
#### 2 preliminary principles to be noted:
|
||||
* Any tool has to be evaluated on its actual and potential benefit and harm.
|
||||
* Asbestos (bury it), DDT (some uses), Internet (good clearly outweighs harms)
|
||||
* You can’t solve people problems with technology solutions, especially problems related to (state) power (at best, they help a bit, at worst they distract us from the real work that needs doing).
|
||||
|
|
@ -128,7 +104,7 @@ The claim being evaluated here is that a) a transnational state-resitant payment
|
|||
* Cryptography does not “solve” oppressive regime problem. At best, crypto helps you during a period of resistance and effort to change the overall regime. The vision of (old-school) crypto-libertarians is mistaken – we still need a “good” state.
|
||||
* See: [The Best Defense Against Rubber-Hose Cryptanalysis](https://onezero.medium.com/rubber-hoses-fd685385dcd4) ; https://xkcd.com/538/
|
||||
|
||||
## Evaluation:
|
||||
#### Evaluation:
|
||||
* **For every one Alexandra Elbakyan or Edward Snowden there are a thousand arms dealers, cartels, and warlords who would also use crypto for far less benign purposes.**
|
||||
* Even if you have an optimistic view of the human condition, we live in a world of scarcity with vast Malthusian struggle that pushes people into mind states of violence and crime out of desperation (North Korea, etc).
|
||||
* **Cross-border Illicit financing enables many undesirable things in this world.**
|
||||
|
|
@ -176,26 +152,6 @@ The claim being evaluated here is that a) a transnational state-resitant payment
|
|||
* *“The cryptocurrency industry leverages a network of shady business connections, bought influencers and pay-for-play media outlets to perpetuate a cult-like “get rich quick” funnel designed to extract new money from the financially desperate and naive.”*
|
||||
* **Bitcoin and crypto generally is not an liberatory force in the world, nor a means to counter authoritarianism in any substantial manner. In fact, it is likely to largely amplify the worst parts of society’s existing corrupt power structures.**
|
||||
|
||||
## Related Content
|
||||
### Concepts
|
||||
|
||||
* [Technolibertarianism](/concepts/technolibertarianism)
|
||||
* [Cryptoanarchism](/concepts/cryptoanarchism)
|
||||
* [Techno Collectivism](/concepts/techno-collectivism)
|
||||
* [Technopopulism](/concepts/technopopulism)
|
||||
* [Decentralization](/concepts/decentralization)
|
||||
* [Illicit Financing](/concepts/illicit-financing)
|
||||
* [Censorship Resistance](/concepts/censorship-resistence)
|
||||
* [Shadow Bank ](/concepts/shadow-bank)
|
||||
* [Pseudonymous](/concepts/pseudonymous)
|
||||
|
||||
### FAQs
|
||||
|
||||
* [Is Bitcoin a currency?](/claims/is-bitcoin-currency)
|
||||
* [Is an unregulated transnational payment system desirable?](/claims/is-transnational-payment)
|
||||
* [Is crypto legal?](/claims/is-legal)
|
||||
* [Is Web3 decentralized?](/claims/is-web3-decentralized)
|
||||
|
||||
|
||||
## References
|
||||
|
||||
|
|
|
|||
|
|
@ -14,10 +14,6 @@ aliases: notes/collective-action-problems-and-climate-change.md
|
|||
|
||||
***
|
||||
|
||||
# Update
|
||||
|
||||
We released a [follow up discussion with KlimaDAO themselves](/notes/in-conversation-with-klimadao-part-one.md) which contains a more detailed analysis of how the project works. While it does not change the basic conclusions of the analaysis below it does refine some of the decription of how the project is meant to work. We'd thus recommend basing your evaluaiton of KlimaDAO on both these episodes together.
|
||||
|
||||
# Episode Notes
|
||||
|
||||
## Summary
|
||||
|
|
|
|||
|
|
@ -8,13 +8,6 @@ aliases: notes/financial-perpetual-motion-machine.md
|
|||
|
||||
*Does crypto technology “magic” allow it to transcend the principles of economics?*
|
||||
|
||||
# Update November 2022
|
||||
|
||||
Since this post was written, FTX, one of the worlds largest crypto exchanges, has controversially and spectacularly [collapsed](/notes/post-ftx-collapse.md). This provides yet more compelling evidence that the crypto boom was the result of a financial bubble, rather than a magical perpetual motion machine.
|
||||
|
||||
# Introduction
|
||||
|
||||
|
||||
The current crypto-economy is booming. A huge amount of money is circulating, and on the surface it appears many are gaining huge returns on their crypto investments. As one now infamous piece of crypto popular culture puts it, the line just keeps going up. Much of the rhetoric in the crypto-sphere gives a sense of a perpetual motion machine, generating self-fuelled growth which will last forever. The key question is, can it?
|
||||
|
||||
This analysis will unpack the idea of crypto as a financial perpetual motion machine. Drawing on the downfall of TerraUSD as a case study it examines the dynamics and sustainability of the current crypto-economy, noting some worrying similarities to financial bubbles including the one which triggered the 2008 financial crisis. Finally, we consider the best case scenario for the sustainability of a crypto-asset – widespread acceptance and diversification before the speculation bubble bursts – before laying out our prognosis as to whether the crypto-economy can continue to operate as a financial perpetual motion machine. We conclude that this is unlikely at best.
|
||||
|
|
|
|||
|
|
@ -12,11 +12,7 @@ aliases: notes/fintech-incrementalism-and-responsible-innovation.md
|
|||
|
||||
# Summary
|
||||
|
||||
## November 2022 update
|
||||
|
||||
We are adding a brief update to this piece to note the spectacular collapse of one of the world's largest crypto exchanges, FTX, in late 2022. This provides compelling further evidence that crypto is not a legitimate fintech evolution nor does it in any way characterise responsible innovation. Find out more via our [deep dive on the FTX collapse](/notes/post-ftx-collapse.md), and its tragic vindication of our analysis.
|
||||
|
||||
## Claim steel-manned
|
||||
## Claim Steel-Manned
|
||||
|
||||
Building more complex financial models and products allows us to create more antifragile structures that remove or disperse [risk](../concepts/risk.md) from the broader [market](../concepts/market.md) that the public benefits from. We can see real world examples of this: mortgage-backed securities have enabled more democratic and more liquid access to mortgage credit; volaitility in the price of products has been reduced by creating future products, eg the volatility of chicken nuggets is solved by creating synthetic futures on corn and soymeal commodities that would hedge the chicken producer’s exposure to underlying price fluctuations.
|
||||
|
||||
|
|
@ -32,6 +28,7 @@ In addition, the future of finance will see private money and [Central Bank Digi
|
|||
|
||||
While it’s common to have a knee-jerk reaction to financial complexity, we need to take things on a case-by-case basis rather than blanket write off financialization. Regulation can catch up with technical innovation.
|
||||
|
||||
## Evidence of the claim being made
|
||||
|
||||
## Evaluation: False
|
||||
|
||||
|
|
@ -41,11 +38,11 @@ Upending the entire space of commercial banks is a massive financial reconfigura
|
|||
|
||||
If crypto payment rails [are lower-cost](../claims/is-better-payments.md) or lower-friction then it’s likely because they’ve removed that which is costly and adds friction: fraud mitigation, transaction reversal, custodial services, customer service, and compliance. Once we add compliance back to crypto payment rails, it’s unclear that there would be any efficiency increase or cost savings.
|
||||
|
||||
In addition, as a [remittance use-case](https://academy.binance.com/en/articles/blockchain-use-cases-remittance) , crypto assets such as bitcoin make no sense at face value. We still have to convert to and from the local currency on both legs of the payment. This has a non-zero cost. Currency A -> Currency B -> Currency C is a very indirect way of doing cross-border payments as compared to a two-hop transaction. Introducing a third hypervoliate intermediary step just adds more risk and makes this more expensive. See our full analysis for more: [Crypto will provide better payment and remittance services](/guide/index.md#claim-crypto-will-provide-better-payment-and-remittance-services)
|
||||
In addition, as a [remittance use-case](https://academy.binance.com/en/articles/blockchain-use-cases-remittance) , crypto assets such as bitcoin make no sense at face value. We still have to convert to and from the local currency on both legs of the payment. This has a non-zero cost. Currency A -> Currency B -> Currency C is a very indirect way of doing cross-border payments as compared to a two-hop transaction. Introducing a third hypervoliate intermediary step just adds more risk and makes this more expensive.
|
||||
|
||||
# Full analysis
|
||||
# Full Analysis
|
||||
|
||||
## Fintech incrementalism
|
||||
## Fintech Incrementalism
|
||||
|
||||
* What is 'fintech'?
|
||||
* fintech = financial technology. New technology that seeks to improve and automate the delivery and use of financial services.
|
||||
|
|
@ -73,7 +70,7 @@ In addition, as a [remittance use-case](https://academy.binance.com/en/articles/
|
|||
* [Algotrading](https://en.wikipedia.org/wiki/Algorithmic_trading) and [Robo Advising](https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp)
|
||||
* [Microfinances](https://en.wikipedia.org/wiki/Microfinance)
|
||||
|
||||
## Steel-manning the fintech incrementalist position
|
||||
## Steel manning the fintech incrementalist position
|
||||
|
||||
* **Claim 1:** Everything is moving towards real-time and international finance. Crypto is the evolution of this trend. We want to move the entire economy into a hyperfinanicalized 24/7 real-time always-trading market with even more complexity and lower friction than what we have presently.
|
||||
* Building a [T+0 settlement](https://www.investopedia.com/ask/answers/what-do-t1-t2-and-t3-mean/) system for equities is a great idea. Real-time settlements would be a boon for the liquidity of US capital markets.
|
||||
|
|
@ -192,17 +189,7 @@ In addition, as a [remittance use-case](https://academy.binance.com/en/articles/
|
|||
|
||||
This is the position that is possibly the most compelling and defensible position, but if and only if the tech can be shown to be demonstrably better than what already exists. There are some large economic, technical and commercial problems (or at least unproven theories) at the heart of this thesis. Much of this remains a theoretical proposition at best, but it is still interesting to consider intellectually.
|
||||
|
||||
## Related content
|
||||
|
||||
## Deep dives and notes
|
||||
* [Crypto will provide better payment and remittance services](https://web3.lifeitself.org/claims/is-better-payments)
|
||||
* [Deep Dive: The FTX Collapse](/notes/post-ftx-collapse.md)
|
||||
* [Deep Dive: A Macroeconomics Perspective on Cryptocurrencies](/notes/a-macroeconomics-perspective-on-cryptocurrencies)
|
||||
* [Deep Dive: Market Fundamentalism](/notes/market-fundamentalism)
|
||||
* [Walch, Angela. Deconstructing 'Decentralization'; Exploring the Core Claim of Crypto Systems](/notes/deconstructing-decentralization)
|
||||
* [Notes on Dan Olson's 'Line Goes Up'](/notes/olson-2022-line-go-up)
|
||||
|
||||
### Concepts
|
||||
## Concepts Covered
|
||||
* [amm](../concepts/amm.md)
|
||||
* [artificial-demand](../concepts/artificial-demand.md)
|
||||
* [artificial-scarcity](../concepts/artificial-scarcity.md)
|
||||
|
|
@ -242,23 +229,6 @@ This is the position that is possibly the most compelling and defensible positio
|
|||
* [web3](../concepts/web3.md)
|
||||
* [zero-sum-game](../concepts/zero-sum-game.md)
|
||||
|
||||
### FAQs
|
||||
* [Is crypto bringing about the “financialization” of everything?](/claims/is-hyperfinancialization)
|
||||
* [Is Web3 a means to rebuild the global financial system?](/claims/is-new-financial-system)
|
||||
* [Is Web3 decentralized?](/claims/is-web3-decentralized)
|
||||
* [Is Web3 green?](/claims/is-web3-green)
|
||||
* [Do crypto assets have a verifiable valuation model?](/claims/is-valuation-model)
|
||||
* [What consumer protections exist for crypto assets?](/claims/is-consumer-protections)
|
||||
* [Are crypto assets predatory investments?](/claims/is-predatory)
|
||||
* [Are crypto assets a systemic risk to the economy?](/claims/is-systemic-risk)
|
||||
* [Is Bitcoin a currency?](/claims/is-bitcoin-currency)
|
||||
* [Is crypto legal?](/claims/is-legal)
|
||||
* [Is bitcoin compatible with ESG investing?](/claims/is-bitcoin-esg)
|
||||
* [Why do people invest in crypto tokens?](/claims/is-why-invest)
|
||||
|
||||
|
||||
|
||||
|
||||
## References
|
||||
1. Amato, Massimo, and Luca Fantacci. 2020. A Fistful of Bitcoins: The Risks and Opportunities of Virtual Currencies. Bocconi University Press. https://www.egeaeditore.it/ita/prodotti/economia/a-fistful-of-bitcoins.aspx.
|
||||
1. Bilotta, Nicola. n.d. CBDCs and Stablecoins: The Scramble for (Controllable) Anonymity. Instituto AffariInternazionali.
|
||||
|
|
|
|||
30
notes/ftx.md
30
notes/ftx.md
|
|
@ -1,30 +0,0 @@
|
|||
---
|
||||
title: FTX and the FTX Collapse
|
||||
created: 2022-11-15
|
||||
---
|
||||
|
||||
FTX was a centralized crypto exchange founded in 2019 by [[Sam Bankman-Fried]] and headquartered in the Bahamas. There was also a US exchange FTX US. FTX was one of largest crypto exchanges and one of the most "blue-chip". It played a leading role in bail-outs of other crypto firms during 2022 e.g. [[notes/voyager-digital|Voyager Digital]]. On 11 Nov 2022, FTX, FTX US and other a hundred associated entities filed for bankruptcy.
|
||||
|
||||
# Notes
|
||||
|
||||
- Good summaries:
|
||||
- https://thezvi.wordpress.com/2022/11/17/sadly-ftx/ - has a good list of links to other articles
|
||||
- https://milkyeggs.com/?p=175 - this is top of that list
|
||||
|
||||
## FTX Investors
|
||||
|
||||
Source from a post on twitter on November 12 2022. Looks like it is an extract from FactSet.
|
||||
|
||||
![[../assets/ftx-investors-20221112.png]]
|
||||
|
||||
### FTX balance sheet at time of bankruptcy
|
||||
|
||||
Source: https://www.ft.com/content/0c2a55b6-d34c-4685-8a8d-3c9628f1f185 with full details in https://www.ft.com/content/f05fe9f8-ca0a-48d5-8ef2-7a4d813af558
|
||||
|
||||
![[../assets/Pasted image 20221115200036.png]]
|
||||
|
||||
> The vast majority of FTX Trading’s recorded assets are either illiquid venture capital investments or crypto tokens that are not widely traded, according to the spreadsheet, which cautions that the figures “are rough values, and could be slightly off; there is also obviously a chance of typos etc. They also change a bit over time as trades happen.”
|
||||
>
|
||||
> The company’s biggest asset as of Thursday was $2.2bn worth of a cryptocurrency called Serum. Serum’s total market value was $88mn on Saturday, according to data provider CryptoCompare, suggesting FTX’s holdings would be worth far less if sold into the market. CryptoCompare’s figures take into account the coin’s liquidity.
|
||||
|
||||
Deeper dive with comic comments in Levine, Matt. ‘FTX’s Balance Sheet Was Bad’. Bloomberg.Com, 14 November 2022. https://www.bloomberg.com/opinion/articles/2022-11-14/ftx-s-balance-sheet-was-bad
|
||||
|
|
@ -12,240 +12,4 @@ aliases: notes/in-conversation-with-klimadao-part-one.md
|
|||
|
||||
***
|
||||
|
||||
# Prelude
|
||||
|
||||
This conversation was sparked by our [intial deep dive on KlimaDAO as a solution to climate change](/notes/collective-action-problems-and-climate-change.md), which has its own podcast episode and related show notes.
|
||||
|
||||
|
||||
# Analysis
|
||||
|
||||
|
||||
## Evaluation
|
||||
|
||||
The aspiration is laudable. But we want to achieve this aspiration of reducing carbon emissions and sequestering carbon in the most effective and efficient way possible. Klima does not achieve this.
|
||||
|
||||
## Cost
|
||||
|
||||
If you are creating a special purpose vehicle for buying carbon offsets, there are really significant exchange fees. You are essentially converting dollars into crypto, and then converting crypto back into dollars to buy carbon offsets, and then hold them on your blockchain based on [Ethereum](../concepts/ethereum.md) which has quite high transaction fees. While it's not completely clear what the transaction costs are, one would have to guess that for every dollar going in, you're not able to buy even close to $1 of carbon offsets certificates. So at the basic level of what it's trying to do, it seems highly inefficient.
|
||||
|
||||
## Indirect and overly complicated
|
||||
|
||||
As an individual you can go to the market and invest in things that KlimaDAO would invest in directly without going through a hypervolatile [speculative](../concepts/speculation.md) asset and DAO indirection layer.
|
||||
|
||||
And why is the [DeFi](../concepts/defi.md) part required? Why do we need all the [staking](../concepts/staking.md) and bonding? It seems to add to the obfuscation of the underlying purpose.
|
||||
|
||||
## Klima cannot function as a currency
|
||||
|
||||
A [reserve currency](../concepts/reserve-currency.md) is something a large group of people on an international scale adopt, because goods and services of their major trading partners are denominated in that currency. The whitepaper keeps referring to Klima token as a reserve currency, but in reality it cannot function as a [currency](../claims/is-bitcoin-currency.md).
|
||||
|
||||
Firstly, the insane price volatility means Klima can't function as a [currency](../concepts/currency.md). The price of Klima peaked at around $3600, well above the intrinsic value of one ton of carbon. It has since collapsed, losing around 99% of its value over 1 year - it's now trading at around $20.
|
||||
|
||||
The notion that it can be a [reserve currency](../concepts/reserve-currency.md), when nobody's denominated any kind of goods or services, seems to be an irreconcilable contradiction inherent in Klima.
|
||||
|
||||
Like many other crypto projects it seems to be a piece of financial engineering that at the bottom sits nothing but some appeal to narrative and the faith that “number go up” by creating artificial scarcity of a digital speculative asset; so it is not a currency.
|
||||
|
||||
## Why not just raise money to buy carbon offsets?
|
||||
|
||||
Something that makes Klima exciting is this price volatility and the potential to raise a lot of money based on this price volatility. But ehy not just raise the money at the beginning and then shut down the thing and just buy carbon offsets and hold on to them?
|
||||
|
||||
## Vulnerability to centralized control
|
||||
|
||||
[Governance tokens](../concepts/governance-token.md) are available to be purchased by any actor. What's to stop say Exxon from buying up all the governance tokens? The answer: nothing. Exxon would therefore be able to take over the management structure of KlimaDAO.
|
||||
|
||||
## How does it plan to scale?
|
||||
|
||||
The total market cap is currently $35,624,946.00 of an illiquid crypto token. This is insignificantly tiny even if we believe this market cap number. There are some €53 trillion AUM in [ESG](../claims/is-bitcoin-esg.md) funds.
|
||||
|
||||
One might argue that Klima is still new and it is at the beginning of it's journey. However, there is no clear narrative of how it's going to grow from being funded by the crypto bubble and being smaller than most philanthropic efforts surrounding climate change, to get to the scale that they aspire to. Rather than investing so much time, energy and money into this route, this money could have been put into simply buying carbon offsets directly.
|
||||
|
||||
## Climate credits are a very questionable mechanism
|
||||
|
||||
Climate credits are effectively a form of indulgence where you pay for the right to pollute the environment by paying off the damage via some future project or activity. You're not seeking to solve the problem, but rather to mitigate it. It doesn't seek to fix the root of the problem: that we're burning fossil fuels. Buying tokens that represent tree planting in the future will not solve climate change.
|
||||
|
||||
People will and can exploit these mechanisms to maximize their capacity to pollute. Secondary markets for carbon credits are driven by bizarre corruption. Tesla has made a lot of money on secondary markets trading carbon credits.
|
||||
|
||||
## Anything we can do, we can afford. Money is not the problem
|
||||
|
||||
Mark Carney proposed to COP26 to allocate $130 trillion to help address solutions to climate change. **The money to fight climate change absolutely exists, but sufficient funds is not the issue.** The problem is doing supranational coordination of solutions and allocating resources to those projects.
|
||||
|
||||
Unfettered capitalism is a process of commoditizing everything, privatizing the commons and destroying that which has no value and converting everything into private profit. [Crypto assets](../concepts/cryptoasset.md) are an extension of that program to an even more extreme level.
|
||||
|
||||
Our system will continue exploiting fossil fuels so long as the private costs to capitalists are much lower than the societal cost. Vague appeals to new mechanism designs and appeals to absolute free [markets](../concepts/market.md) about “aligning incentives” can’t conceive of solutions outside their own capitalist logics.
|
||||
|
||||
## Technosolutionism is a distraction and a drain on resources
|
||||
|
||||
[Technosolutionism](../concepts/technosolutionism.md) via the [financialization of everything](../claims/is-hyperfinancialization.md) is a common theme within web3 rhetoric: let’s turn the abstract idea of fighting climate change into a [fictitious commodity](../concepts/ficticious-commodity.md) to be traded on the market.
|
||||
|
||||
This is a distraction from actual solutions, of which there is no financial silver bullet. It is just adding an additional layer of complexity to fighting climate change. Such a project absorbs time, money, and runs on [proof of work](../concepts/proof-of-work.md) which requires a large amount of energy. All these resources could be better allocated.
|
||||
|
||||
## It doesn't seem to work in practice
|
||||
|
||||
Looks like the algo stable coin part isn't going so well.
|
||||
|
||||
|
||||
|
||||
|
||||
# Conclusion
|
||||
|
||||
KlimaDAO are asking an important question: how can we tackle climate change using human cooperation? But the white papers aren't addressing how this question is to be addressed.
|
||||
|
||||
The aspirations are beautiful. The initial manifesto resonates a lot with what doesn't work about unfettered capitalism, about an unfettered market system, about the lack of provision for [public goods](../concepts/public-goods-problem.md), and yet KlimaDAO seems to go further down that same route.
|
||||
|
||||
As a [currency](../concepts/currency.md) it seems problematic. As an [investment](../claims/is-why-invest.md) it doesn’t seem to work. As a special purpose vehicle for buying carbon credits it seems highly inefficient (e.g. massive trading fees). Carbon credits are themselves problematic and are not going to be the answer to climate change.
|
||||
|
||||
# Apendix: Visual Summary of how KlimaDAO works
|
||||
[](/excalidraw/klimadao-mechanics-and-logic-according-to-klimadao-2022-05-06.excalidraw.svg)
|
||||
|
||||
|
||||
[](/excalidraw/klima-dao-analysis-2022-04-07.excalidraw.svg)
|
||||
|
||||
# References
|
||||
|
||||
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|
||||
|
||||
Allen, H.J. (2022) ‘DeFi: Shadow Banking 2.0?’, _SSRN Electronic Journal_ [Preprint]. Available at: [https://doi.org/10.2139/ssrn.4038788](https://doi.org/10.2139/ssrn.4038788).
|
||||
|
||||
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|
||||
|
||||
Ante, L., Steinmetz, F. and Fiedler, I. (2021) ‘Blockchain and energy: A bibliometric analysis and review’, _Renewable and Sustainable Energy Reviews_, 137(October 2020), p. 110597. Available at: [https://doi.org/10.1016/j.rser.2020.110597](https://doi.org/10.1016/j.rser.2020.110597).
|
||||
|
||||
Aramonte, S., Huang, W. and Schrimpf, A. (2021) ‘DeFi risks and the decentralisation illusion’, p. 16.
|
||||
|
||||
Badea, L. and Mungiu-Pupazan, M.C. (2021) ‘The Economic and Environmental Impact of Bitcoin’, _IEEE Access_, 9, pp. 48091–48104. Available at: [https://doi.org/10.1109/ACCESS.2021.3068636](https://doi.org/10.1109/ACCESS.2021.3068636).
|
||||
|
||||
Barbereau, T., Smethurst, R., Papageorgiou, O., Sedlmeir, J., _et al._ (2022) ‘Decentralised Finance’s Unregulated Governance: Minority Rule in the Digital Wild West’, _Available at SSRN_ [Preprint]. Available at: [https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4001891](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4001891).
|
||||
|
||||
Barbereau, T., Smethurst, R., Papageorgiou, O., Rieger, A., _et al._ (2022) ‘DeFi, Not So Decentralized: The Measured Distribution of Voting Rights’, in _Proceedings of the 55th Hawaii International Conference on System Sciences_. Available at: [https://scholarspace.manoa.hawaii.edu/handle/10125/80074](https://scholarspace.manoa.hawaii.edu/handle/10125/80074).
|
||||
|
||||
Benetton, M., Compiani, G. and Morse, A. (2021) ‘When Cryptomining Comes to Town: High Electricity-Use Spillovers to the Local Economy’, _SSRN Electronic Journal_ [Preprint]. Available at: [https://doi.org/10.2139/ssrn.3779720](https://doi.org/10.2139/ssrn.3779720).
|
||||
|
||||
Bogensperger, A. _et al._ (2021) ‘Welche Zukunft hat die Blockchain-Technologie in der Energiewirtschaft?’ Available at: [https://www.econstor.eu/handle/10419/237670](https://www.econstor.eu/handle/10419/237670).
|
||||
|
||||
Brilliantova, V. and Thurner, T.W. (2019) ‘Blockchain and the future of energy’, _Technology in Society_, 57, pp. 38–45. Available at: [https://doi.org/10.1016/j.techsoc.2018.11.001](https://doi.org/10.1016/j.techsoc.2018.11.001).
|
||||
|
||||
Buth, M.C. (Annemarie), Wieczorek, A.J. (Anna) and Verbong, G.P.J. (Geert) (2019) ‘The promise of peer-to-peer trading? The potential impact of blockchain on the actor configuration in the Dutch electricity system’, _Energy Research & Social Science_, 53, pp. 194–205. Available at: [https://doi.org/10.1016/j.erss.2019.02.021](https://doi.org/10.1016/j.erss.2019.02.021).
|
||||
|
||||
Campbell-Verduyn, M. (2021) ‘Conjuring a Cooler World? Blockchains, Imaginaries and the Legitimacy of Climate Governance’, _Global Cooperation Research Papers_, 28. Available at: [https://doi.org/doi:10.14282/2198-0411-GCRP-28](https://doi.org/doi:10.14282/2198-0411-GCRP-28).
|
||||
|
||||
Diehl, S. (2021) ‘The Crypto Chernobyl’, 10 February. Available at: [https://www.stephendiehl.com/blog/chernobyl.html](https://www.stephendiehl.com/blog/chernobyl.html) (Accessed: 25 February 2022).
|
||||
|
||||
Dindar, B. and Gül, Ö. (2021) ‘The detection of illicit cryptocurrency mining farms with innovative approaches for the prevention of electricity theft’, _Energy & Environment_, (April), p. 0958305X211045066. Available at: [https://doi.org/10.1177/0958305x211045066](https://doi.org/10.1177/0958305x211045066).
|
||||
|
||||
Dorfleitner, G., Muck, F. and Scheckenbach, I. (2021) ‘Blockchain applications for climate protection: A global empirical investigation’, _Renewable and Sustainable Energy Reviews_, 149(June), p. 111378. Available at: [https://doi.org/10.1016/j.rser.2021.111378](https://doi.org/10.1016/j.rser.2021.111378).
|
||||
|
||||
Gallersdörfer, U. _et al._ (2020) ‘Energy Consumption of Cryptocurrencies Beyond Bitcoin’, _Joule_, 4(2018), pp. 2018–2021. Available at: [https://doi.org/10.1016/j.joule.2020.07.013](https://doi.org/10.1016/j.joule.2020.07.013).
|
||||
|
||||
Gallersdörfer, U., Klaaßen, L. and Stoll, C. (2021) ‘Accounting for carbon emissions caused by cryptocurrency and token systems’. Available at: [https://arxiv.org/abs/2111.06477](https://arxiv.org/abs/2111.06477).
|
||||
|
||||
Goodkind, A.L., Jones, B.A. and Berrens, R.P. (2020) ‘Cryptodamages: Monetary value estimates of the air pollution and human health impacts of cryptocurrency mining’, _Energy Research and Social Science_, 59(March 2019), p. 101281. Available at: [https://doi.org/10.1016/j.erss.2019.101281](https://doi.org/10.1016/j.erss.2019.101281).
|
||||
|
||||
Greenberg, P. and Bugden, D. (2019) ‘Energy consumption boomtowns in the United States: Community responses to a cryptocurrency boom’, _Energy Research and Social Science_, 50(December 2018), pp. 162–167. Available at: [https://doi.org/10.1016/j.erss.2018.12.005](https://doi.org/10.1016/j.erss.2018.12.005).
|
||||
|
||||
Howson, P. _et al._ (2019) ‘Cryptocarbon: The promises and pitfalls of forest protection on a blockchain’, _Geoforum_, 100(February 2019), pp. 1–9. Available at: [https://doi.org/10.1016/j.geoforum.2019.02.011](https://doi.org/10.1016/j.geoforum.2019.02.011).
|
||||
|
||||
Howson, P. (2019) ‘Tackling climate change with blockchain’, _Nature Climate Change_, 9(9), pp. 644–645. Available at: [https://doi.org/10.1038/s41558-019-0567-9](https://doi.org/10.1038/s41558-019-0567-9).
|
||||
|
||||
Howson, P. (2020a) ‘Building trust and equity in marine conservation and fisheries supply chain management with blockchain’, _Marine Policy_, 115, p. 103873. Available at: [https://doi.org/10.1016/J.MARPOL.2020.103873](https://doi.org/10.1016/J.MARPOL.2020.103873).
|
||||
|
||||
Howson, P. (2020b) ‘Climate Crises and Crypto-Colonialism: Conjuring Value on the Blockchain Frontiers of the Global South’, _Frontiers in Blockchain_, 3(May). Available at: [https://doi.org/10.3389/fbloc.2020.00022](https://doi.org/10.3389/fbloc.2020.00022).
|
||||
|
||||
Howson, P. (2021) ‘Distributed degrowth technology: Challenges for blockchain beyond the green economy’, _Ecological Economics_, 184(June 2020), p. 107020. Available at: [https://doi.org/10.1016/j.ecolecon.2021.107020](https://doi.org/10.1016/j.ecolecon.2021.107020).
|
||||
|
||||
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|
||||
|
||||
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|
||||
|
||||
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|
||||
|
||||
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|
||||
|
||||
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|
||||
|
||||
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|
||||
|
||||
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|
||||
|
||||
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|
||||
|
||||
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|
||||
|
||||
Mollah, M.B. _et al._ (2021) ‘Blockchain for Future Smart Grid: A Comprehensive Survey’, _IEEE Internet of Things Journal_, 8(1), pp. 18–43. Available at: [https://doi.org/10.1109/JIOT.2020.2993601](https://doi.org/10.1109/JIOT.2020.2993601).
|
||||
|
||||
Mora, C. _et al._ (2018) ‘Bitcoin emissions alone could push global warming above 2 C’, _Nature Climate Change_, 8(11), pp. 931–933.
|
||||
|
||||
Morrison, R., Mazey, N.C.H.L. and Wingreen, S.C. (2020) ‘The DAO Controversy: The Case for a New Species of Corporate Governance?’, _Frontiers in Blockchain_, 3(May). Available at: [https://doi.org/10.3389/fbloc.2020.00025](https://doi.org/10.3389/fbloc.2020.00025).
|
||||
|
||||
Murray, A., Rhymer, J. and Sirmon, D.G. (2021) ‘Humans and technology: Forms of conjoined agency in organizations’, _Academy of Management Review_, 46(3), pp. 552–571. Available at: [https://doi.org/10.5465/amr.2019.0186](https://doi.org/10.5465/amr.2019.0186).
|
||||
|
||||
Náñez Alonso, S.L. _et al._ (2021) ‘Cryptocurrency mining from an economic and environmental perspective. Analysis of the most and least sustainable countries’, _Energies_, 14(14). Available at: [https://doi.org/10.3390/en14144254](https://doi.org/10.3390/en14144254).
|
||||
|
||||
Okorie, D.I. (2021) ‘A network analysis of electricity demand and the cryptocurrency markets’, _International Journal of Finance and Economics_, 26(2), pp. 3093–3108. Available at: [https://doi.org/10.1002/ijfe.1952](https://doi.org/10.1002/ijfe.1952).
|
||||
|
||||
Peplow, M. (2019) ‘Bitcoin poses major electronic-waste problem’, _Chemical & Engineering News_. American Chemical Society. Available at: [http://cen.acs.org/environment/sustainability/Bitcoin-poses-major-electronic-waste/97/i11](http://cen.acs.org/environment/sustainability/Bitcoin-poses-major-electronic-waste/97/i11).
|
||||
|
||||
Petri, I. _et al._ (2020) ‘Blockchain for energy sharing and trading in distributed prosumer communities’, _Computers in Industry_, 123, p. 103282. Available at: [https://doi.org/10.1016/j.compind.2020.103282](https://doi.org/10.1016/j.compind.2020.103282).
|
||||
|
||||
Pettifor, A. (2021) _Reclaiming Central Banks_, _Project Syndicate_. Available at: [https://www.project-syndicate.org/onpoint/central-banks-favoring-private-capital-over-democratic-climate-goals-by-ann-pettifor-1-2021-09](https://www.project-syndicate.org/onpoint/central-banks-favoring-private-capital-over-democratic-climate-goals-by-ann-pettifor-1-2021-09) (Accessed: 13 April 2022).
|
||||
|
||||
Platt, M. _et al._ (2021) ‘Energy Footprint of Blockchain Consensus Mechanisms Beyond Proof-of-Work’. Available at: [https://arxiv.org/abs/2109.03667](https://arxiv.org/abs/2109.03667).
|
||||
|
||||
Qin, S. _et al._ (2020) ‘Bitcoin’s future carbon footprint’. Available at: [http://arxiv.org/abs/2011.02612](http://arxiv.org/abs/2011.02612).
|
||||
|
||||
Robinson, K.S. (2020) _The Ministry for the Future_. Hachette UK.
|
||||
|
||||
Scharnowski, S. and Shi, Y. (2021) ‘Bitcoin Blackout: Proof-of-Work and the Centralization of Mining’, _SSRN Electronic Journal_. Available at: [https://doi.org/10.2139/ssrn.3936787](https://doi.org/10.2139/ssrn.3936787).
|
||||
|
||||
Schinckus, C. (2020) ‘The good, the bad and the ugly: An overview of the sustainability of blockchain technology’, _Energy Research and Social Science_, 69(May), p. 101614. Available at: [https://doi.org/10.1016/j.erss.2020.101614](https://doi.org/10.1016/j.erss.2020.101614).
|
||||
|
||||
Schneiders, A. and Shipworth, D. (2021) ‘Community Energy Groups: Can They Shield Consumers from the Risks of Using Blockchain for Peer-to-Peer Energy Trading?’, _Energies_, 14(12). Available at: [https://doi.org/10.3390/en14123569](https://doi.org/10.3390/en14123569).
|
||||
|
||||
Schulz, K. and Feist, M. (2020) ‘Leveraging Blockchain Technology for Innovative Climate Finance under the Green Climate Fund’, _SSRN Electronic Journal_, 7, p. 100084. Available at: [https://doi.org/10.2139/ssrn.3663176](https://doi.org/10.2139/ssrn.3663176).
|
||||
|
||||
Sedlmeir, J., Buhl, H.U., _et al._ (2020) ‘Ein Blick auf aktuelle Entwicklungen bei Blockchains und deren Auswirkungen auf den Energieverbrauch’, _Informatik-Spektrum_, 43(6), pp. 391–404. Available at: [https://doi.org/10.1007/s00287-020-01321-z](https://doi.org/10.1007/s00287-020-01321-z).
|
||||
|
||||
Sedlmeir, J., Ulrich, H., _et al._ (2020) ‘The Energy Consumption of Blockchain Technology : Beyond Myth’, _Business & Information Systems Engineering_, 62(6), pp. 599–608. Available at: [https://doi.org/10.1007/s12599-020-00656-x](https://doi.org/10.1007/s12599-020-00656-x).
|
||||
|
||||
Stoll, C., Klaaßen, L. and Gallersdörfer, U. (2019) ‘The Carbon Footprint of Bitcoin’, _Joule_, 3(7), pp. 1647–1661. Available at: [https://doi.org/10.1016/j.joule.2019.05.012](https://doi.org/10.1016/j.joule.2019.05.012).
|
||||
|
||||
Teng, F. _et al._ (2021) ‘A comprehensive review of energy blockchain: Application scenarios and development trends’, _International Journal of Energy Research_, 45(12), pp. 17515–17531. Available at: [https://doi.org/10.1002/er.7109](https://doi.org/10.1002/er.7109).
|
||||
|
||||
Teufel, B., Sentic, A. and Barmet, M. (2019) ‘Blockchain energy: Blockchain in future energy systems’, _Journal of Electronic Science and Technology_, 17(4), p. 100011. Available at: [https://doi.org/10.1016/j.jnlest.2020.100011](https://doi.org/10.1016/j.jnlest.2020.100011).
|
||||
|
||||
Truby, J. (2018) ‘Decarbonizing Bitcoin: Law and policy choices for reducing the energy consumption of Blockchain technologies and digital currencies’, _Energy Research and Social Science_, 44(June), pp. 399–410. Available at: [https://doi.org/10.1016/j.erss.2018.06.009](https://doi.org/10.1016/j.erss.2018.06.009).
|
||||
|
||||
Valdivia, A.D. and Balcell, M.P. (2022) ‘Connecting the grids: A review of blockchain governance in distributed energy transitions’, _Energy Research and Social Science_, 84, p. 102383. Available at: [https://doi.org/10.1016/j.erss.2021.102383](https://doi.org/10.1016/j.erss.2021.102383).
|
||||
|
||||
de Vries, A. (2018) ‘Bitcoin’s Growing Energy Problem’, _Joule_, 2(5), pp. 801–805. Available at: [https://doi.org/10.1016/j.joule.2018.04.016](https://doi.org/10.1016/j.joule.2018.04.016).
|
||||
|
||||
de Vries, A. (2019) ‘Renewable energy will not solve bitcoin’s sustainability problem’, _Joule_, 3(4), pp. 893–898.
|
||||
|
||||
de Vries, A. (2020) ‘Bitcoin’s energy consumption is underestimated: A market dynamics approach’, _Energy Research & Social Science_, 70, p. 101721.
|
||||
|
||||
de Vries, A. and Stoll, C. (2021) ‘Bitcoin’s growing e-waste problem’, _Resources, Conservation and Recycling_, 175(September), p. 105901. Available at: [https://doi.org/10.1016/j.resconrec.2021.105901](https://doi.org/10.1016/j.resconrec.2021.105901).
|
||||
|
||||
Vries, A.D. (2020) ‘Bitcoin’s energy consumption is underestimated : A market dynamics approach’, _Energy Research & Social Science_, 70(July), p. 101721. Available at: [https://doi.org/10.1016/j.erss.2020.101721](https://doi.org/10.1016/j.erss.2020.101721).
|
||||
|
||||
Walch, A. (2015) ‘The bitcoin blockchain as financial market infrastructure: A consideration of operational risk’, _NYUJ Legis. & Pub. Pol’y_, 18, p. 837.
|
||||
|
||||
Walch, A. (2017) ‘Blockchain’s treacherous vocabulary: One more challenge for regulators’, _Journal of Internet Law_, 21(2).
|
||||
|
||||
Walch, A. (2019a) ‘Deconstructing ‘Decentralization’: Exploring the Core Claim of Crypto Systems’, _C. Brummer (ed.), Crypto Assets: Legal and Monetary Perspectives_, pp. 1–36. Available at: [https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3326244](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3326244).
|
||||
|
||||
Walch, A. (2019b) ‘In code (rs) we trust: Software developers as fiduciaries in public blockchains’.
|
||||
|
||||
Walch, A. (2019c) ‘Software Developers as Fiduciaries in Public Blockchains’, _Regulating Blockchain. Techno-Social and Legal Challenges, ed. by Philipp Hacker, Ioannis Lianos, Georgios Dimitropoulos & Stefan Eich, Oxford University Press, 2019._ [Preprint]. Available at: [https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3203198](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3203198).
|
||||
|
||||
Wanat, E. (2021) ‘Are Crypto-Assets Green Enough? – An analysis of draft EU Regulation on markets in crypto assets from the perspective of the European Green Deal’, _Osteuropa Recht_, 67(2), pp. 237–250. Available at: [https://doi.org/10.5771/0030-6444-2021-2-237](https://doi.org/10.5771/0030-6444-2021-2-237).
|
||||
|
||||
Yan, L., Mirza, N. and Umar, M. (2021) ‘The cryptocurrency uncertainties and investment transitions: Evidence from high and low carbon energy funds in China’, _Technological Forecasting and Social Change_, p. 121326. Available at: [https://doi.org/10.1016/j.techfore.2021.121326](https://doi.org/10.1016/j.techfore.2021.121326).
|
||||
|
||||
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|
||||
|
||||
Yildizbasi, A. (2021) ‘Blockchain and renewable energy: Integration challenges in circular economy era’, _Renewable Energy_, 176, pp. 183–197. Available at: [https://doi.org/10.1016/j.renene.2021.05.053](https://doi.org/10.1016/j.renene.2021.05.053).
|
||||
|
||||
Zannini, A. (2020) _Blockchain technology as the digital enabler to scale up renewable energy communities and cooperatives in Spain_. PhD Thesis.
|
||||
|
||||
Zhu, S. _et al._ (2020) ‘The development of energy blockchain and its implications for China’s energy sector’, _Resources Policy_, 66, p. 101595. Available at: [https://doi.org/10.1016/j.resourpol.2020.101595](https://doi.org/10.1016/j.resourpol.2020.101595).
|
||||
|
||||
|
||||
|
||||
|
|
|
|||
File diff suppressed because one or more lines are too long
|
|
@ -3,7 +3,7 @@ launched: nov 2021
|
|||
medium:
|
||||
---
|
||||
|
||||
# KlimaDAO Summary
|
||||
# Klima
|
||||
|
||||
|
||||
|
||||
|
|
@ -13,6 +13,78 @@ medium:
|
|||
>
|
||||
> Through the KLIMA token, we will maximize value creation for our community and create a virtuous cycle of growth. Eventually, the KLIMA token (each backed by real, verified carbon assets) will function as a truly sustainable asset and medium-of-exchange, with real planetary value.
|
||||
|
||||
## Analysis
|
||||
# Commentary
|
||||
|
||||
See our initial [evaluation of KliaDAO as a means of solving climate change](/notes/collective-action-problems-and-climate-change.md) and our follow on [deep dive conversation with KlimaDAO](https://web3.lifeitself.org/notes/in-conversation-with-klimadao-part-one) themselves for our full analysis of the project.
|
||||
Looks like the algo stable coin part isn't going so well. Similar to [[dao/olympusdao.finance]]
|
||||
|
||||
|
||||
|
||||
|
||||
# Analysis v2 - April 2022
|
||||
|
||||
**UPDATE: 2022-05-06. Extensive conversation with KlimaDAO team yielded this summary**
|
||||
|
||||
[](/excalidraw/klimadao-mechanics-and-logic-according-to-klimadao-2022-05-06.excalidraw.svg)
|
||||
|
||||
Entire Deep Dive episode on KlimaDAO released: [collective-action-problems-and-climate-change](../notes/collective-action-problems-and-climate-change.md). Here's the drawing we did.
|
||||
|
||||
|
||||
[](/excalidraw/klima-dao-analysis-2022-04-07.excalidraw.svg)
|
||||
|
||||
### More notes
|
||||
|
||||
Understanding how it works ...
|
||||
|
||||
https://docs.klimadao.finance/klima-dao-ecosystem
|
||||
|
||||
* BCT = "Base Carbon Tonne"
|
||||
> The BCT (Base Carbon Tonne) — KlimaDAO's reserve asset — is a carbon offset index token representing a basket of different tokenised carbon tonnes starting with `TCO2`. [https://docs.klimadao.finance/klima-dao-ecosystem]
|
||||
|
||||
### What is the price of the BCT
|
||||
|
||||
Since the BCT is what they hold in the treasury and provides the core "intrinsic value" it is important to understand what it's price is.
|
||||
|
||||
* Klima DAO’s current capture cost is ~8 usd/tn (the price of BCT tokens) [https://hristovbz.medium.com/klima-dao-for-apes-degens-ogs-195af0b4cd0b - Nov 30 2021]
|
||||
* This seems low see e.g. this post from KlimaDAO itself https://klimadao.medium.com/carbon-markets-retail-offset-pricing-4eab0f6196c0 which includes this graphic
|
||||
|
||||
|
||||
|
||||
# Analysis v1 (first pass Dec 2021)
|
||||
https://docs.klimadao.finance
|
||||
|
||||
* It takes significant work to work how this actually works ... (is it like [[../notes/diatom.fund]] which has a relatively clear diagram ...)
|
||||
* (I think) Klima tokens are minted when they buy carbon offsets and store them in the treasury
|
||||
|
||||
## The Problem (with some very dubious analysis)
|
||||
|
||||
> We generally consider that the market itself is rational, and assume that it values things in a perfect way. We ignore the paradoxes in front of us everyday. Water, a necessity for life is essentially free across (much of) the world; diamonds have no real utility for us, yet in the free market they are priced exorbitantly, excluding all but the world’s richest.
|
||||
|
||||
Who is we here? This is the diamond-water paradox which is precisely about how price != value ... (rather price arises from intersection of demand and supply ...)
|
||||
|
||||
> In the past, the market price of a good was determined by the socially necessary labour inputs required to create it. In recent times we have moved to a system where subjectivity and speculation are key driving forces behind prices.
|
||||
|
||||
This the (very erroneous) marx-originated labor theory of value. Price was never (purely) determined by the labor inputs to create something.
|
||||
|
||||
> Value has become totally detached from the ‘market’.
|
||||
|
||||
Well it was always only partly related ... And there are other reasons that is now so (information economy etc).
|
||||
|
||||
## What KlimaDAO does
|
||||
|
||||
> Klima DAO gives Web3 builders and users the opportunity to participate in the carbon market through the KLIMA token. KLIMA tokens are:
|
||||
>
|
||||
> - fungible: per the ERC20 token standard
|
||||
> - backed: by at least 1 tonne of tokenized verified carbon offsets locked in the Klima DAO treasury
|
||||
> - useful: holders of KLIMA will have the ability to vote on Klima DAO policy
|
||||
>
|
||||
> Therefore, the DAO serves the role of "de-central" bank, governing the monetary policy of this new carbon-backed currency, just as a central bank governs the monetary policy of a fiat currency. Over time, we will build an economy around KLIMA by driving adoption and unlocking growth of the _crypto-carbon_ economy.
|
||||
>
|
||||
> By developing Klima DAO on transparent and open-source infrastructure, participation from Web3 developers, carbon projects, and climate experts will be welcomed, to both build this new economy and be rewarded for their contributions.
|
||||
|
||||
Any clearer?
|
||||
|
||||
## https://docs.klimadao.finance/klima-dao-ecosystem
|
||||
|
||||
# Inbox
|
||||
|
||||
* Dashboard for KlimaDAO https://dune.com/Cujowolf/Klima-DAO
|
||||
|
|
|
|||
|
|
@ -16,11 +16,7 @@ aliases: notes/market-fundamentalism.md
|
|||
|
||||
***
|
||||
|
||||
# Episode notes
|
||||
|
||||
## November 2022 update
|
||||
|
||||
We are adding a brief update to this piece to note the spectacular collapse of one of the world's largest crypto exchanges, FTX, in late 2022. This provides compelling further evidence for the dangers of unregulated markets. Find out more via our [deep dive on the FTX collapse](/notes/post-ftx-collapse.md), and its tragic vindication of our analysis.
|
||||
# Episode Notes
|
||||
|
||||
## Summary
|
||||
|
||||
|
|
@ -35,6 +31,8 @@ Rufus and Stephen 'steel man' the market fundamentalism position, exploring four
|
|||
|
||||
Rufus and Stephen end their conversation with an analysis of the market fundamentalist position and the associated claims.
|
||||
|
||||
|
||||
|
||||
## What type of asset is a crypto token? How do we value it? Is there a comparable asset?
|
||||
|
||||
* Zero-coupon perpetual [bond](../concepts/bond.md)?
|
||||
|
|
@ -61,7 +59,7 @@ Rufus and Stephen end their conversation with an analysis of the market fundamen
|
|||
* Sharks *love* the minnows
|
||||
|
||||
|
||||
## Why is the crypto-can-make-me-money position so interesting to examine?
|
||||
## Why is the Crypto-Can-Make-Me-Money Position So Interesting to Examine?
|
||||
|
||||
* Likely represents a majority of interest and activity in crypto (and even [DAOs](../concepts/dao.md)) from the day trader in the pub up to the Wall Street trader
|
||||
* Generally not brought up explicitly as much in the crypto / [web3](../concepts/web3.md) discussion (for obvious reasons: it is not a substantive or attractive position to espouse publicly)
|
||||
|
|
@ -73,7 +71,7 @@ Rufus and Stephen end their conversation with an analysis of the market fundamen
|
|||
* Legitimizing segment especially for regulators ("hey even Goldman Sachs or JP Morgan are involved, this must be a legitimate area / industry")
|
||||
|
||||
|
||||
## Steel-manning the market fundamentalist position
|
||||
## Steel-Manning the Market Fundamentalism Position
|
||||
|
||||
* Unregulated markets allow companies to do what they're supposed to do: maximize returns to shareholders.
|
||||
* [Friedman Doctrine](https://en.wikipedia.org/wiki/Friedman_doctrine) applied to unregulated markets. Optimize for shareholder value.
|
||||
|
|
@ -96,9 +94,7 @@ Rufus and Stephen end their conversation with an analysis of the market fundamen
|
|||
* If the market allows [market manipulation](../concepts/market-manipulation.md) ([pump and dumps](../concepts/pump-and-dump.md), insider trading, [wash trading](../concepts/wash-trading.md)) this is public knowledge and it is reflected in the price formation of the assets.
|
||||
* Institutional investors should be able to leverage their AUM to take high-risk positions just like they are in other private markets. If retail wants to participate with the “sharks” then it’s on them to understand the risks not on the people they’re trading against. The fiduciary mandate of hedge funds is to take positions on behalf of their LPs in beta uncorrelated positions.
|
||||
|
||||
## Evaluation
|
||||
|
||||
###
|
||||
## Analyzing the Market Fundamentalism Position
|
||||
|
||||
* Everything that has been illegal for 80 years is suddenly allowed. Exchanges are basically like bucket shops from the 1920s. Everything is allowed:
|
||||
* [Wash trading](../concepts/wash-trading.md)
|
||||
|
|
@ -114,8 +110,8 @@ Rufus and Stephen end their conversation with an analysis of the market fundamen
|
|||
* Clearing house and in-house prop trading are in the same room
|
||||
* Exchanges have their own proprietary trading arm
|
||||
* Trading against their own clients
|
||||
* Markets work best when we have abundant public information and minimize fraud and collusion in [price formation](../concepts/price-formation.md). There is a reason we separated different parts of brokers, market makers, clearing houses and traders.
|
||||
![[../excalidraw/market-fundamentalism-separation-of-market-makers-broker-etc-2022-03-04.excalidraw.svg]]
|
||||
* Markets work best when we have abundant public information and minimize fraud and collusion in [price formation](../concepts/price-formation.md)
|
||||
* https://excalidraw.com/#room=6319a3e121dbdb6edf28,0u9Ht45kupjqkHD8kCuUAQ
|
||||
* We have no idea how much [leverage](../concepts/leverage.md) is baked into the entire market, induced by products like unbaked [stablecoins](../concepts/stablecoin.md) which can seemingly produce limitless amounts of unsecured debt products on demand.
|
||||
* [Tether minted most USDT to just 2 firms — Alameda and Cumberland](https://protos.com/tether-minted-usdt-stablecoin-crypto-two-alameda-cumberland/)
|
||||
* What does that lead to?
|
||||
|
|
@ -135,19 +131,7 @@ Rufus and Stephen end their conversation with an analysis of the market fundamen
|
|||
* This is great if you're inside the cartel. Not so great if you aren’t.
|
||||
* Wealth transfer from public to insiders is all but guaranteed by the information [asymmetry](../concepts/asymmetric-information.md).
|
||||
|
||||
## Related Content
|
||||
|
||||
## Deep dives and notes
|
||||
* [A Macroeconomics Perspective on Cryptocurrencies ](/notes/a-macroeconomics-perspective-on-cryptocurrencies)
|
||||
* [Deep Dive: The FTX Collapse](/notes/post-ftx-collapse.md)
|
||||
* [Shri T Rabi Sankar. Cryptocurrencies – An Assessment ](/notes/cryptocurrencies-an-assessment)
|
||||
* [Examples Of Retail Investors Speculating ](/notes/examples-of-ordinary-people-speculating)
|
||||
* [Crypto: can these financial perpetual motion machines work?](/notes/financial-perpetual-motion-machine)
|
||||
* [Notes on Dan Olson's 'Line Goes Up'](/notes/olson-2022-line-go-up)
|
||||
* [Bindseil, Ulrich. et al. ‘The encrypted threat: Bitcoin’s social cost and regulatory responses](/notes/the-encrypted-threat)’
|
||||
|
||||
|
||||
## Concepts covered
|
||||
## Concepts Covered
|
||||
* [artificial-scarcity](../concepts/artificial-scarcity.md)
|
||||
* [assets](../concepts/assets.md)
|
||||
* [asymmetric-information](../concepts/asymmetric-information.md)
|
||||
|
|
@ -182,22 +166,6 @@ Rufus and Stephen end their conversation with an analysis of the market fundamen
|
|||
* [wash-trading](../concepts/wash-trading.md)
|
||||
* [zero-sum-game](../concepts/zero-sum-game.md)
|
||||
|
||||
### FAQs
|
||||
|
||||
* [Is Bitcoin a currency?](/claims/is-bitcoin-currency)
|
||||
* [Is crypto legal?](/claims/is-legal)
|
||||
* [Is bitcoin compatible with ESG investing?](/claims/is-bitcoin-esg)
|
||||
* [Why do people invest in crypto tokens?](/claims/is-why-invest)
|
||||
* [Are crypto tokens a negative-sum investment?](/claims/is-negative-sum)
|
||||
* [Are crypto assets a bubble?](/claims/is-bubble)
|
||||
* [Do crypto assets have a verifiable valuation model?](/claims/is-valuation-model)
|
||||
* [Are crypto assets a form of gambling?](/claims/is-gambling)
|
||||
* [What is the narrative economics of crypto assets?](/claims/is-narrative-economics)
|
||||
* [What consumer protections exist for crypto assets?](/claims/is-consumer-protections)
|
||||
* [Are crypto assets predatory investments?](/claims/is-predatory)
|
||||
* [Are crypto assets a systemic risk to the economy?](/claims/is-systemic-risk)
|
||||
|
||||
|
||||
## References
|
||||
1. Janeway, William H. Doing capitalism in the innovation economy: Markets, speculation and the state. Cambridge University Press, 2012.
|
||||
1. Fama, Eugene F. "Efficient capital markets: A review of theory and empirical work." The journal of Finance 25, no. 2 (1970): 383-417.
|
||||
|
|
|
|||
|
|
@ -10,200 +10,146 @@ featured: true
|
|||
aliases: [Neo-metallism, neo-metallism]
|
||||
---
|
||||
|
||||
# Summary
|
||||
|
||||
*Bitcoin is a digital gold, a [gold standard](../concepts/gold-standard.md) was a good idea, and thus that a "bitcoin-standard" – i.e. a new gold-standard built on bitcoin – is a good idea.*
|
||||
## Claim Steel-manned
|
||||
|
||||
The neo-metallist claim is that bitcoin can operate as a new asset class which exhibits similar financial properties to [gold](../concepts/gold.md). The strong version of this claim asserts that a [gold standard](../concepts/gold-standard.md) was a good idea and hence that that a new gold standard should be built on top of bitcoin. This claim has 2 components:
|
||||
*Bitcoin is a digital gold, a [gold standard](../concepts/gold-standard.md) was a good idea, and thus that a "Bitcoin-standard" – i.e. a new gold-standard built on bitcoin – is a good idea.*
|
||||
|
||||
**The gold standard is a good idea**:
|
||||
* First, because it reduces the scope for governmental or central bank intervention in the money supply. Intervention is bad because it leads to inflation which is harmful to the free market and commerce. In addition,
|
||||
* Second, more philosophically, government / central bank intervention in the money supply is inherently undemocratic; the will of the few imposed on the many.
|
||||
The neo-metallist claim is that bitcoin can operate as a new asset class which exhibits similar financial properties to [gold](../concepts/gold.md). The strong version of this claim asserts that a [gold standard](../concepts/gold-standard.md) was a good idea and hence that that a new gold standard should be built on top of bitcoin.
|
||||
|
||||
**Bitcoin is a better alternative to gold**
|
||||
|
||||
* It shares the features of gold which make it a good choice for a currency (or something to peg a currency to)
|
||||
* In addition, bitcoin has specific features which may make it better than gold e.g.
|
||||
**Bitcoin is a better gold**: it shares the features of gold which make it a good choice for a currency (or something to peg a currency to). In addition, Bitcoin has specific features which may make it better than gold e.g.:
|
||||
* Bitcoin is digital and so is not subject to the same costs around storage and transportation as gold;
|
||||
* Bitcoin is under less state control. Gold supply is mostly controlled by sovereign nations like the U.S., China, Germany, and other European countries.
|
||||
|
||||
**The gold standard is a good idea**: for two reasons. First, because it reduces the scope for governmental or central bank intervention in the money supply. Intervention is bad because it leads to inflation which is harmful to the free market and commerce. In addition, Second, more philosophically, government / central bank intervention in the money supply is inherently undemocratic; the will of the few imposed on the many.
|
||||
|
||||
**The bitcoin-standard is a good idea**: combining points one and two we arrive at the neo-metallist thesis that a new digital gold-standard based on bitcoin will be good for the economy.
|
||||
|
||||
|
||||
|
||||
## Evaluation: False (high confidence)
|
||||
|
||||
There was a reason the world abandoned the gold standard. The core argument of the Austrian eocnomics underpinning this claim is that all deflation is bad, and there is lots of evidence disproving this. The gold standard is inherently deflationary and risks deflationary spirals, and its rigidity left central banks with far less room to respond to economic crises. It created a brittle and shock prone economic system which in practice has been shown to be less effective than the current system of floating currencies. Claims that intervention in the money supply are undemocratic are equally unfounded. There has been no evidence of an erosion of democracy stemming from such intervention, there exist far greater curtailments of "negative liberty" which libertarians should take issue with if they are particularly concerned by such things, and there are numerous ways of making central banks and related instutitons more democratic without reverting to a currency peg.
|
||||
|
||||
Even if a return to the gold standard were a good idea is not capable of replacing gold because it does not share many of the core features of gold which made it suitable as a currency peg in the first place: it can;t function as a currency, no longer holds a unique place in society due to the existence of Altcoins and has no comparable synthetic floor on its price. All of this is aside from the fact that it is in fact very costly and inefficient to mine and exchange.
|
||||
|
||||
## Examples of claim being made
|
||||
|
||||
### [Wences Casares](/notes/wences-casares) in [The Case for a Small Allocation to Bitcoin](https://www.kanaandkatana.com/valuation-depot-contents/2019/4/11/the-case-for-a-small-allocation-to-bitcoin)
|
||||
### [[notes/wences-casares|Wences Casares]] in [The Case for a Small Allocation to Bitcoin](https://www.kanaandkatana.com/valuation-depot-contents/2019/4/11/the-case-for-a-small-allocation-to-bitcoin)
|
||||
|
||||
> "If Bitcoin succeeds it will most likely not replace any national currency. It may be a supranational currency that exists on top of all national currencies. If Bitcoin succeeds it may be a global non-political standard of value and settlement." e.g. like the kilo is a global standard measure of weight
|
||||
>
|
||||
#
|
||||
# Full analysis
|
||||
|
||||
## Subclaims
|
||||
|
||||
|
||||
### P1: The gold standard is a good idea
|
||||
|
||||
Pegging currency to gold (or something similar) is beneficial as it restricts government/central bank intervention in the money supply. This is desirable for 2 reasons:
|
||||
* **P1a: Government/central bank intervention in the money supply is bad for the economy as it will inevitably lead to inflation**
|
||||
* **P1b: Intervention in the money supply is inherently undemocratic, and jeaopordizes liberty**
|
||||
|
||||
|
||||
### P2: Bitcoin is a better alternative to gold
|
||||
|
||||
Bitcoin is a better alternative to gold as something to peg currency to.
|
||||
* **P2a: Bitcoin is like gold:** Bitcoin shares the features of gold which make it a good choice for a currency (or something to peg currency to).
|
||||
* **P2b: Bitcoin functions better than gold:** Bitcoin has specific features which make it a better choice than gold for this purpose.
|
||||
|
||||
|
||||
## What is Neo-Metallism?
|
||||
|
||||
The term Neo-Metallism stems from Metallism, a school of thinking which relates to the connection between money and some form of commodity. As Joseph Schumpter described:
|
||||
|
||||
_“By Theoretical Metallism we denote the theory that it is logically essential for money to consist of, or to be ‘covered’ by, some commodity so that the logical source of the exchange value or purchasing power of money is the exchange value or purchasing power of that commodity, considered independently of its monetary role. . . ._
|
||||
|
||||
_By Practical Metallism we shall denote sponsorship of a principle of monetary policy, namely, the principle that the monetary unit ‘should’ be kept firmly linked to, and freely interchangeable with, a given quantity of some commodity.”_[^1]
|
||||
|
||||
This school contrasts with Chartalism, as originally outlined in Knapp’s _State Theory of Money _(1924)[^2] that at the theoretical level the value of a currency is instead derived from the State making it legal tender and demanding taxes be paid in this currency. In practical terms it is associated with a commitment to the use of _fiat money_, which simply refers to currency which has no intrinsic value and is also not “backed” by some valuable commodity. It has been the global standard of the monetary system since the gold standard was finally abandoned in the 1930s[^3].
|
||||
|
||||
Neo-Metallism, then, is as the name suggests a new form of Metallism. In particular, it should be understood as arguing that cryptocurrencies, and in particular bitcoin, can and in fact should be the “new gold”, in that it should be used to fix the monetary supply to the value of this new asset. Just as under the gold standard the value of a given unit of currency (e.g. a pound or dollar) was based on a fixed quantity of gold, so the Neo-Metallists argue that in the modern era the value of a unit of currency should be based on a fixed amount of bitcoin. The most influential outlining of this position is found in the book “The Bitcoin Standard”[^4].
|
||||
|
||||
|
||||
|
||||
## Claims steel-manned
|
||||
|
||||
|
||||
### P1: The gold standard is a good idea
|
||||
|
||||
This is an argument most commonly associated with the Austrian school of economics, a heterodox school of economics associated with beliefs that universally applicable economic principles can be derived from abstract logical reasoning (rather than needing data or mathematical models) and that the correct unit of analysis are individuals and their choices (methodological individualism).
|
||||
|
||||
The case for the gold standard can be made via two routes, which we have divided into 1a (economic impacts) and 1b (freedom and democracy). They are each individually sufficient as a foundation for P1, but they are often made jointly.
|
||||
|
||||
|
||||
#### P1a: Government/central bank intervention in the money supply is bad for the economy
|
||||
|
||||
The argument here for the gold standard is that government/CB intervention in the monetary supply amounts to economic mismanagement. In particular, these interventions will inevitably lead to inflation, and increase the volatility of business cycles (the “natural” upswings and downswings in broad measures of economic activity like output, employment, income, and sales).
|
||||
|
||||
The claim that intervention in the money supply will lead to inflation is accepted beyond the Austrian school[^5]. In the words of Milton Friedman, a monetarist who did believe in (albeit strictly limited) intervention by central banks in the money supply:
|
||||
|
||||
_“Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”_[^6]
|
||||
|
||||
While most schools of thought see mild inflation as neutral or even positive, the Austriana claim that any degree of inflation is a bad thing. This is because it will act as a distortion of market forces; prices will be driven up at different times, distorting relative prices, wages, and rates of return in what’s known as the Cantillon Effect[^7]. As the price mechanism is the vital mechanism by which consumers and producers coordinate their future activities the artificial distortion can lead to booms in production and consumption which are out of line with future reality, leading in turn to dramatic busts. Thus according to the Austrian school and the P1a, inflationary central bank intervention in the money supply must be avoided, as they result in dramatic cycles of boom and bust and even recession.
|
||||
|
||||
|
||||
#### P1b: Intervention in the money supply is inherently undemocratic, and jeaopordizes liberty
|
||||
|
||||
Even if one rejects the above argument and does not believe that central bank intervention is economically damaging, one may still endorse the gold standard. The argument can instead run that such intervention is inherently undemocratic, in that it allows a select few individuals to exert undue power over the lives of the rest of a nation (and beyond). This is the argument laid out in Hayek’s famous _Road to Serfdom_ (1944)[^8]. Allowing such interventions empowers the state over the individual, and sets us down the path to oppression. This is a fundamentally philosophical position as it rests on a certain understanding of what it means to be free: a notion of negative liberty or freedom from coercion[^9].
|
||||
|
||||
|
||||
### P2: Bitcoin is a better alternative to gold
|
||||
|
||||
If we accept that the gold standard is a good idea for either or both of these reasons, then the next step is to consider bitcoin as an alternative asset to peg currency two. Again, there are two underlying claims here. First we must argue that bitcoin can function as well as gold, before going further and arguing that in fact it functions better.
|
||||
|
||||
|
||||
#### P2a: Bitcoin is like gold
|
||||
|
||||
The most important manner in which bitcoin must be claimed to be akin to gold is that it also serves the three functions of a currency[^10].
|
||||
|
||||
|
||||
|
||||
1. It can be a _unit of account_ in that it’s a standard and divisible unit of measurement of market value (i.e. it can be used to signal what something is worth).
|
||||
2. It can be a _medium of exchange_ in that we can use it as an intermediary instrument to transact for goods and services.
|
||||
3. And it can act as a _store of value_ in that it (at least ideally) retains its purchasing power over time, such that we can retrieve the value of our investment at a later date without making a significant loss[^11].
|
||||
Similarly, bitcoin is said to share three other important characteristics with gold.:
|
||||
|
||||
|
||||
|
||||
1. _Scarcity_: Bitcoin is artificially scarce, just as gold is naturally scarce. There is a hard limit of 21 million coins baked into bitcoin’s design. This makes it inherently _deflationary_, just like gold.
|
||||
2. _Universality_: Bitcoin shares gold’s “universality” due to its prominence in the crypto sphere. Just as gold is the standout element suited to peg currency to, so bitcoin is the only standout cryptocurrency due to it being the original and most prominent.
|
||||
3. _Fair initial distribution:_ The lack of overarching controller or owner means there was a “fair” distribution mechanism for bitcoin. It rewarded early finders and investors in the same way as natural distribution of gold rewarded those who initially unearthed it.
|
||||
|
||||
|
||||
#### P2b: Bitcoin functions better than gold
|
||||
|
||||
Bitcoin is digital and so is not subject to the same costs around storage and transport as gold. Bitcoin is also arguably more decentralized. Gold supply is mostly controlled by sovereign nations like the U.S., China, Germany, and other European countries.
|
||||
|
||||
|
||||
## Evaluation: False (high confidence)
|
||||
|
||||
*Summary: both key sub-claims are weak and since both are required the overall claim for a bitcoin-standard is very weak. Bitcoin does not resemble gold as a store of value. The gold-standard was deflationary and dysfunctional especially in times of economic stress and a Bitcoin-based gold standard would be worse.*
|
||||
|
||||
### P1: The gold standard is a good idea (false)
|
||||
**Bitcoin is a better gold**: False
|
||||
|
||||
P1 as mentioned stems from the Austrian school of economics. From the bat it should be noted that this is an incredibly fringe economic position and not one argued for by most economists.
|
||||
Bitcoin has no consistent track record of being a reliable store of value, it's price movements are extremely volatile and thus is not a reliable place to store value on long time scales. Bitcoin's price behavior is uncorrelated with gold and is largely correlated with the broader stock market making it an unreliable safe haven in times of market volatility since it is directly exposed to the price action of the Nasdaq.
|
||||
|
||||
It is also worth distinguishing the _Strict_ from the _Moderate_ versions of the gold standard proposition. While the Moderate version would continue to allow credit issuance outside of the pure gold backed system, the Strict system would not, as this effectively amounts to an increase in the money supply (with new credit acting as an injection of money).
|
||||
Bitcoin has limited track record of being a store of value and lacks the millenlia of history that [gold](../concepts/gold.md) as a [commodity](../concepts/commodity.md) has achieved. Unlike gold it also lacks a [use-value](../concepts/use-value.md) for the physical asset which consistently generates demand. Bitcoin also has a upkeep cost in the form of [mining](../concepts/mining.md) which forces the asset to behave like a [negative-sum](../concepts/zero-sum-game.md) [speculative](../concepts/speculation.md) asset instead of a store of value.
|
||||
|
||||
Two things are notable upon this distinction. First, when historically we operated with a gold standard there were almost always also alongside the issuance of credit. Thus, historical cases cannot be used to argue for the Strict position, or as contravening evidence against many of the problems associated with it. Second, and therefore unsurprisingly, the Strict position is even more fringe than the Moderate one. Nonetheless, many of the problems of metallism persist across both the Strict and Moderate versions, with the latter simply taking some of the sting out of their tail.
|
||||
**The gold standard is a good idea**: False (high confidence)
|
||||
|
||||
Let us now address each of the sub-premises in turn.
|
||||
The [gold-standard](../concepts/gold-standard.md) and the notion of [sound-money](../concepts/sound-money.md) are undesirable foundations for a [currency](../concepts/currency.md) and were subject to extreme shocks and deflationary spirals. As such they were abandoned in the mid 20th century in favour of the [central-banks](../concepts/central-banks.md) and fiat monetary system.
|
||||
|
||||
# Full Analysis
|
||||
|
||||
## What is Neo-Metallism?
|
||||
|
||||
The term neo-metallism stems from metallism, a school of thinking which relates to the connection between money and some form of commodity.
|
||||
|
||||
Neo-metallism argues that cryptocurrencies, and in particular Bitcoin, can and should be the new gold - it should be used to fix the monetary supply to the value of this new asset. Just as under the gold standard the value of a given unit of currency (e.g. a pound or dollar) was based on a fixed quantity of gold, neo-metallists argue the value of a unit of currency should be based on a fixed amount of Bitcoin.
|
||||
|
||||
## Gold as Currency
|
||||
|
||||
* Gold has a historical precedent as money across cultures going back millennia.
|
||||
* Multiple cultures have independently used it as currency.
|
||||
* Its metallurgical properties make it uniquely suited amongst the elements on the periodic table.
|
||||
* Its relative abundance (although not excessive abundance) and distribution across the Earth’s crust make it rare enough to hoard and access even for Bronze Age cultures.
|
||||
* It is stable at room temperature, doesn’t oxidize, is easily detectable because of its glimmer and unique aesthetics, is malleable without advanced smelting technology and is uniquely distinguishable from other metals.
|
||||
* It is probably the ONLY element on the periodic table that has all of these unique characteristics that could even be used for monetary purposes.
|
||||
* There is only a finite amount of it produced in supernova events and nuclear reactions: it is thus impossible to counterfeit or “debase” the supply.
|
||||
* Advanced economies began stockpiling gold in government reserves and issuing notes against that float in redemption in gold by a government treasury.
|
||||
* Gold theoretically acts as a universal numéraire across economic systems allowing interchange and commerce. It is a fixed “measuring stick” for economic value that cannot be changed.
|
||||
* It satisfies the definition of money: it can theoretically function as a unit of account, a medium of exchange, and a store of value. The only issue is that it incurs storage costs and is not easily transported because of its density and physicality.
|
||||
|
||||
### Why the Gold Standard: Fiat Money, Sound Money and the Gold Standard
|
||||
|
||||
* The [Austrian](../concepts/austrian-economics.md) school of economics regards gold as a (possibly only) example of "sound money" because it is immune to government intervention in the supply, effectively by the laws of physics. It cannot be “debased” or changed. (Aside: Of course, governments have found ways to "debase" gold-based currencies -- usually by altering the coinage in various ways).
|
||||
* [Fiat money](../concepts/fiat-money.md) allows for both variable supply and demand with the goal of maintaining price stability and targeting a desired inflation amount which encourages productive enterprise. Historically, going all the way back to the invention of banking in Florence, there have been examples of mismanaged fiat currencies which have not managed either their supply or demand properly and spun into either deflationary or inflationary spirals and the public lost trust in the notes and their value become illusory.
|
||||
* The Austrians assert that government intervention in "business cycles" is unnatural because free market forces will naturally correct supply and demand imbalances and that recessions and [manias](../concepts/market-mania.md) are both desirable and natural events.
|
||||
* The hard monetarist perspective views any intervention in the supply dynamics of currencies as inevitably leading to inflation which is harmful to the free market and commerce.
|
||||
* Milton Friedman famously said, "Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output."
|
||||
* Centralized intervention in the markets turns economic influence into political power and financial rewards based on non-public information. This in turn is worse than centrally planned economies as it doesn’t allow for accurate price formation of assets and ultimately leads society into a loss of freedom, tyranny and a state of serfdom.
|
||||
* Money should be put in the hands of the free market, not the state.
|
||||
* Private money is not only desirable, it is inevitable because hard “[commodity](../concepts/commodity.md)-based'' money will inevitably replace soft money. Gresham’s law
|
||||
* Cantillon Effect - [Inflation](../concepts/inflationary.md) is not simply an average rise in prices. Prices do not rise proportionally or simultaneously. This results in arbitrary and unfair benefits to people who have not created any economic value and detriment to others who have not destroyed anything of economic value by destroying savings. Inflationary fiat money is thus a tax on people who sell their labor for wages and don’t hold assets and disincentivizes economic activity, encourages financial speculation, and results in market consolidation.
|
||||
|
||||
## Steel-Manning the Neo-Metallist Position
|
||||
|
||||
The Gold Standard is Good
|
||||
* The Managerial Argument
|
||||
* Government/CB intervention in the monetary supply amounts to economic mismanagement. These interventions will inevitably lead to inflation and increase the volatility of business cycles (the “natural” upswings and downswings in broad measures of economic activity like output, employment, income, and sales).
|
||||
* Inflation is a bad thing: prices will be driven up at different times, distorting relative prices, wages, and rates of return. Artificial distortion can lead to booms in production and consumption which are out of line with future reality, leading in turn to dramatic busts.
|
||||
* The Philosophical Argument
|
||||
* Intervention is inherently undemocratic, in that it allows a select few individuals to exert undue power over the lives of the rest of a nation (and beyond).
|
||||
* This is the argument laid out in Hayek’s famous *Road to Serfdom* (1944).
|
||||
|
||||
Bitcoin is Better
|
||||
* Bitcoin is Like Gold
|
||||
* Bitcoin serves the three functions of a currency:
|
||||
1. It can be a unit of account in that it’s a standard and divisible unit of measurement of market value (i.e. it can be used to signal what something is worth).
|
||||
2. It can be a medium of exchange in that we can use it as an intermediary instrument to transact for goods and services.
|
||||
3. It can act as a [store of value](../concepts/store-of-value.md) in that it (at least ideally) retains its purchasing power over time, such that we can retrieve the value of our investment at a later date without making a significant loss.
|
||||
* Bitcoin shares three other important characteristics with gold:
|
||||
1. Scarcity: Bitcoin is artificially scarce, just as gold is naturally scarce. There is a hard limit of 21 million coins baked into Bitcoin’s design. This makes it inherently deflationary, just like gold.
|
||||
2. Universality: Bitcoin shares gold’s “universality” due to its prominence in the crypto sphere. Just as gold is the standout element suited to peg currency to, so Bitcoin is the only standout cryptocurrency due to it being the original and most prominent.
|
||||
3. Fair initial distribution: The lack of overarching controller or owner means there was a “fair” distribution mechanism for Bitcoin. It rewarded early finders and investors in the same way as natural distribution of gold rewarded those who initially unearthed it.
|
||||
* Bitcoin Functions Better Than Gold
|
||||
* Bitcoin is digital and so is not subject to the same costs around storage and transportation as gold.
|
||||
* Bitcoin is arguably more decentralized. Gold supply is mostly controlled by sovereign nations like the U.S., China, Germany, and other European countries.
|
||||
|
||||
|
||||
#### P1a: Government/central bank intervention in the money supply is bad for the economy (false)
|
||||
## Evaluating the Neo-Metallist Position
|
||||
|
||||
As discussed above, the managerial argument is that government/central bank intervention in the money supply will inevitably lead to inflation, and this is harmful to business and commerce and makes their effects on business cycles worse in the long run.
|
||||
'The Gold Standard is Good'
|
||||
|
||||
There is a strong case, however, that moderate inflation is actually positive: it encourages spending which stimulates the economy (this is the crux of Keynesianism).
|
||||
* This position stems from the [Austrian](../concepts/austrian-economics.md) school of economics. It is a fringe economic position and not one supported by most economists.
|
||||
* The Managerial Argument
|
||||
* Moderate inflation is actually positive: it encourages spending which stimulates the economy (this is the crux of [Keynesianism](../concepts/keynsian-economics.md)).
|
||||
* Moderate inflation is far preferable to the alternative of the gold standard, as the gold standard is inherently deflationary.
|
||||
* The Quantity Theory of Money states: MV = PY where M = money supply, V = velocity of money in circulation, P = price level and Y = real GDP (i.e. goods and services transacted in the economy). If M remains fixed, as it must under the gold standard, then increases in real GDP will inevitably lead to a fall in the price level.
|
||||
* This is problematic because it leads to hoarding. Under deflation prices fall, so it is always rational for me to hoard rather than spend my currency as much as possible, as it will be worth more tomorrow than it is today. This in turn takes yet more money out of the supply, risking deflationary spirals which threaten economic [productivity](../concepts/productive-asset.md) - if no-one wants to buy anything then we can’t fund economically and socially productive activities.
|
||||
* While excessive inflation is bad and governments/central banks have made errors in the past, this has been rare. Historically most have quite easily kept inflation under control.
|
||||
* The flexibility offered by the ability for governments/central banks to intervene is highly useful, and worth the risk of error. Most obviously, they can stabilise in the face of shocks, for example, a pandemic. This was the reason we switched to fiat currency in the first place.
|
||||
* Paper money was issued as an emergency measure in Spain, during the conquest of Granada (1482-1492).
|
||||
* The gold standard can also lead to the reverberation of shocks through the global economy. This is because economic shocks in one economy will lead to investors buying up gold as a safe asset. Given that currencies are pegged to gold, this increase in demand in one nation can have significant impacts on the value of currencies the world over.
|
||||
* The Philosophical Argument
|
||||
* Hayek's claim hasn't been borne out historically. Since leaving metallism most metrics of prosperity have increased, and there have been fewer crises than under the old system. There hasn’t been any evidence of any shift away from democracy or increases of the translation of political power to economic benefit (where such things do happen today, it’s not happening through monetary policy).
|
||||
* There are ways to democratize the fiat system without returning to gold e.g. we can increase the democratic accountability of those in control of monetary policy.
|
||||
* Central banks can be made more accountable to government, and independent bodies such as the Monetary Policy Committee can have either more democratic election mechanisms or a greater diversity of representation.
|
||||
|
||||
Moderate inflation is far preferable to the alternative of the gold standard, as the gold standard is inherently _deflationary_.
|
||||
'The Bitcoin Standard is Better'
|
||||
* 'Bitcoin is Like Gold'
|
||||
* Bitcoin cannot function as a medium of exchange. The transaction throughput is so small that it doesn't work as a global system of currency - it can't process transactions fast enough. This is inherent to the proof-of-work process Bitcoin uses to verify its transactions. This incapacity is therefore baked in.
|
||||
* Bitcoin does not appear to hold potential as a store of value given its extremely high price variance.
|
||||
* Gold, on the other hand, has historical precedent as a store of value in economic insecurity; its price has proven to be better insulated from broader economic dynamics than many other asset types.
|
||||
* If Bitcoin were to behave as a [store of value](../concepts/store-of-value.md) it would have to abandon hypervolatility, and there is no easily identifiable economic mechanism for this to happen.
|
||||
* 'Bitcoin Functions Better Than Gold'
|
||||
* Bitcoin being digital does not mean it is without its costs.
|
||||
* The extraction, transport and storage costs associated with gold are outweighed by massive Bitcoin mining costs. The [“proof-of-work” mechanism](../concepts/consensus-algorithm.md) used to validate transactions and undertake mining for Bitcoin requires a huge amount of electricity (costly and environmentally damaging). This verification process creates significant friction around transactions - the system is very slow, particularly when lots of people are using it.
|
||||
* Bitcoin, unlike traditional commodities, has a negative price elasticity of demand - demand goes up with price, not down. For this reason, Bitcoin looks like a [speculative](../concepts/speculation.md) [bubble](../concepts/bubble.md), which at some point will inevitably crash.
|
||||
* States can synthetically stimulate demand for a single, fiat currency by demanding tax in this currency, ensuring the whole system works and that the value of such currency can never drop to zero. In other words, there is a clear mechanism to guard against value bottoming out. The same cannot be said for cryptocurrencies such as Bitcoin.
|
||||
* Bitcoin no longer shares gold’s uniqueness.
|
||||
* Lots of new “alt coins” - new alternatives to Bitcoin - are being minted, meaning the cryptocurrency market is now crowded with competitors.
|
||||
* High numbers of different coins also creates inflationary effects - the very thing stores of value are intended to guard against.
|
||||
* Single currency systems were adopted as these are significantly more efficient. A single price in a single currency allows far easier exchange of goods. Having multiple issuers of currency adds friction to trade, as one must convert the value of a given object between currencies before exchange can take place.
|
||||
* The history of large issuances of private money isn't good. These systems are subject to fraud and a general breakdown of trust. If any bank can issue its own [private bank notes](../concepts/private-money.md), how does one know which bank is reliable and which isn’t?
|
||||
|
||||
The Quantity Theory of Money states: MV = PY where M = money supply, V = velocity of money in circulation, P = price level and Y = real GDP (i.e. goods and services transacted in the economy).[^12] If M remains fixed, as it must under the gold standard, then increases in real GDP will inevitably lead to a fall in the price level. Note this theory was endorsed by Milton Friedman, so we’re not even using particularly oppositional economics.[^13]
|
||||
## A Final Note on Trust
|
||||
|
||||
This is problematic because it leads to _hoarding_. Under deflation prices fall, so it is always rational for me to hoard rather than spend my currency as much as possible, as it will be worth more tomorrow than it is today. This in turn takes yet more money out of the supply, risking deflationary spirals which threaten economic productivity - if no-one wants to buy anything then we can’t fund economically and socially productive activities. Consider monopoly, when assets are fixed then the only end point is accumulation.[^14]
|
||||
|
||||
In addition, while excessive inflation is bad and governments/central banks have made errors in the past, this has been rare. Historically most have quite easily kept inflation under control.
|
||||
|
||||
Further, the flexibility offered by the ability for governments/central banks to intervene is in fact highly useful, and more than worth the risk of error. Most obviously, they can stabilise in the face of shocks, for example, a pandemic. Indeed, this was the reason we switched to fiat currency in the first place.[^15]
|
||||
|
||||
Relatedly the gold standard can also lead to the reverberation of shocks through the global economy. This is because economic shocks in one economy will lead to investors buying up gold as a safe asset. Given currencies are pegged to gold, this increase in demand in one nation can have significant impacts on the value of currencies the world over.
|
||||
* In the world of Bitcoin, and [blockchain](../concepts/blockchain.md) more generally, replacing interpersonal trust with cryptographic verification mechanisms is seen as positive; we no longer need trust: in states, governmental institutions or one another.
|
||||
* The problem with trust is that when you get rid of it, it's very hard to get it back. If crypto were to fail we would risk a large-scale general reduction in trust. Even if it were to succeed, it would likely lead to a significantly diminished role for trust at a broader level.
|
||||
* At the root of [trustless](../concepts/decentralization.md) blockchain technologies are assumptions about human nature, which have significant implications for how we approach vital questions of social cooperation.
|
||||
* There is evidence that high trust of strangers correlates with positive economic and social outcomes.
|
||||
* Aside from its impacts on Bitcoin’s potential as a gold substitute, the issue of trust has serious ramifications for how we govern our societies.
|
||||
|
||||
|
||||
#### P1b: Intervention in the money supply is inherently undemocratic, and jeaopordizes liberty fFalse)
|
||||
|
||||
Hayek's claim hasn't been borne out historically. Since leaving metallism most metrics of prosperity have increased, and there have been fewer crises than under the old system. There hasn’t been any evidence of any shift away from democracy or increases of the translation of political power to economic benefit. In fact, this was arguably greater under historical gold backed systems[^16]. Where such things do happen today, it’s not happening through monetary policy.
|
||||
|
||||
There are many other areas of state influence which should be far more concerning to libertarians than monetary policy, with legislation affecting so-called “negative liberty” being a prime example (whatever one’s stance on its legitimacy). Of course the hard libertarian retort is that _all_ channels of state control should be dispensed with, but this simply shows that currency shouldn’t be top priority in these efforts. In short, even if one has such inclinations, central bank control is not a hill reasonable libertarians should die on in the modern era.
|
||||
|
||||
Finally, there are ways to democratize the fiat system without returning to gold. We can increase the democratic accountability of those in control of monetary policy, for example. Central banks can be made more accountable to government, and independent bodies such as the Monetary Policy Committee can have either more democratic election mechanisms or a greater diversity of representation[^17]. Of course, again, this will still not satisfy hard libertarians as there is still someone exerting influence unilaterally to some degree, but it at least demonstrates the option of reasonable compromise for those with an ideological concern about democracy.
|
||||
|
||||
|
||||
### P2: Bitcoin is a better alternative to gold (false)
|
||||
|
||||
|
||||
|
||||
#### P2a: Bitcoin is like gold (false)
|
||||
|
||||
Bitcoin does satisfy unit of account as it is divisible. It cannot, however, function as a medium of exchange. The transaction throughput is so small that it doesn't work as a global system of currency - it can't process transactions fast enough. As mentioned above, this is inherent to the proof-of-work process Bitcon uses to verify its transactions. In other words, this incapacity is baked in.
|
||||
|
||||
Bitcoin also does not appear to hold potential as a store of value given its extremely high price variance. Gold, on the other hand, has historical precedent as a store of value in economic insecurity; its price has proven to be better insulated from broader economic dynamics than many other asset types. Gold also has a synthetic floor on its price due to its use value in semiconductor fabrication and jewelry[^22]. If bitcoin were to behave as a store of value it would have to abandon hypervolatility, and there is no easily identifiable economic mechanism for this to happen.
|
||||
|
||||
Bitcoin, unlike traditional commodities, has a negative price elasticity of demand - demand goes up with price, not down. For this reason, bitcoin looks like a speculative bubble, which at some point will inevitably crash.[^23] Admittedly this argument is not easily falsifiable. One could argue that bitcoin has simply not been around long enough to infer its potential as a store of value; even if it did drop to zero, it could hypothetically rebound. Nonetheless, on present evidence it is not delivering, and there aren’t any plausible reasons to suggest this evidence will not be indicative of future behaviour.
|
||||
|
||||
As mentioned in our initial definition of chartallism, states converged on this approach for a reason. States can synthetically stimulate demand for a single, fiat currency by demanding tax in this currency, ensuring the whole system works and that the value of such currency can never drop to zero. In other words, there is a clear mechanism to guard against value bottoming out. The same cannot be said for cryptocurrencies such as Bitcon.
|
||||
|
||||
Relatedly, Bitcoin also no longer shares gold’s uniqueness. Lots of new “alt coins” - new alternatives to bitcoin - are being minted, meaning the cryptocurrency market is now crowded with competitors. Even Bitcoin itself has now forked into a number of distinct versions[^24] all jostling for attention and investment, something which cannot happen with physical commodities such as gold. Given its potential as a store of value is tied to at least somewhat to uniqueness, this does not bode well for Bitcon’s claim to equivalency with gold. High numbers of different coins also creates inflationary effects - the very thing stores of value are intended to guard against!
|
||||
|
||||
The history of large issuances of private money isn't good. Single currency systems were adopted as these are significantly more efficient. A single price in a single currency allows far easier exchange of goods wherever one is located, for example. Having multiple issuers of currency adds friction to trade, as one must convert the value of a given object between currencies before exchange can take place. These systems are also subject to fraud and a general breakdown of trust. If any bank can issue its own banknotes, how does one know which bank is reliable and which isn’t?
|
||||
|
||||
#### P2b: Bitcoin functions better than gold (false)
|
||||
|
||||
Bitcoin being digital does not mean it is without its costs. The extraction, transport and storage costs associated with gold are outweighed by massive bitcoin mining costs. The “proof-of-work” mechanism[^18] used to validate transactions and undertake mining for bitcoin requires a huge amount of electricity. It is therefore is highly costly[^19], not to mention environmentally damaging[^20]. This verification process creates significant friction around transactions - the system is very slow, particularly when lots of people are using it. This further undermines a key respect in which bitcoin might otherwise be considered superior to gold.[^21]
|
||||
|
||||
|
||||
### A final note on trust
|
||||
|
||||
In the world of bitcoin, and blockchain more generally, lots is made of so called “trustless systems”[^25]. Replacing interpersonal trust with cryptographic verification mechanisms is lauded as a positive; we no longer need trust: in states, governmental institutions or even one another. The problem with trust is that when you get rid of it, it's very hard to get it back. This is a major trade-off and thus risk: if crypto were to fail we would risk a large-scale general reduction in trust. Even if it were to succeed, it would likely lead to a significantly diminished role for trust at a broader level.
|
||||
|
||||
There is evidence that high trust of strangers correlates with positive economic and social outcomes.[^26] At the root of trustless blockchain technologies are assumptions about human nature, which have significant implications for how we approach vital questions of social cooperation. Do we cooperate through some kind of formal system that we can enforce through software and rules? Or do we do so by learning to trust each other, in ways that come from our culture, perhaps supported by institutions and laws, but ultimately coming from ourselves. There is a tension between these two approaches: as I create more formal rules based in the assumption that I trust people less, this then undermines good faith and can actually create the very opposite outcomes we aim towards[^27]. Aside from its impacts on bitcoin’s potential as a gold substitute, the issue of trust has serious ramifications for how we govern our societies. This is a fact we’d do well not to ignore.
|
||||
|
||||
## Related content
|
||||
|
||||
### Concepts
|
||||
## Concepts
|
||||
|
||||
* [gold-standard](../concepts/gold-standard.md)
|
||||
* [austrian-economics](../concepts/austrian-economics.md)
|
||||
|
|
@ -223,105 +169,8 @@ There is evidence that high trust of strangers correlates with positive economic
|
|||
* [value](../concepts/value.md)
|
||||
* [zero-sum-game](../concepts/zero-sum-game.md)
|
||||
|
||||
### FAQs
|
||||
|
||||
* [Is bitcoin a currency?](/claims/is-bitcoin-currency)
|
||||
* [Are crypto assets a risk to the dollar?](/claims/is-threat-dollar)
|
||||
* [Does Bitcoin threaten the US dollar as reserve currency?](/claims/is-threat-dollar)
|
||||
* [Are crypto tokens a hedge against the “debasement” of the dollar?](/claims/is-hedge-debasement)
|
||||
* [Are crypto assets a hedge against inflation?](/claims/is-hedge-inflation)
|
||||
* [Is private money desirable?](/claims/is-private-money)
|
||||
* [Is Web3 decentralized?](/claims/is-web3-decentralized)
|
||||
|
||||
|
||||
## References
|
||||
|
||||
[^1]:
|
||||
Schumpeter, Joseph A. ‘History of Economic Analysis’, 1954, p.288
|
||||
|
||||
[^2]:
|
||||
Knapp, George F. ‘The State Theory of Money’, 1924.
|
||||
|
||||
[^3]:
|
||||
Krishna, Mrinalini. ‘When FDR Abandoned the Gold Standard’. Investopedia, 20 April 2017. [https://www.investopedia.com/news/when-fdr-abandoned-gold-standard/](https://www.investopedia.com/news/when-fdr-abandoned-gold-standard/)
|
||||
|
||||
[^4]:
|
||||
Ammous, Saifedean. ‘The Bitcoin Standard’. Wiley. 2018
|
||||
|
||||
[^5]:
|
||||
Boettke, Peter. ‘Austrian School of Economics’. Econlib. Accessed 7 March 2022. [https://www.econlib.org/library/Enc/AustrianSchoolofEconomics.html](https://www.econlib.org/library/Enc/AustrianSchoolofEconomics.html).
|
||||
|
||||
[^6]:
|
||||
Friedman, Milton. ‘Counter-Revolution in Monetary Theory’. Wincott Memorial Lecture, Institute of Economic Affairs, Occasional paper 33. p. 24.
|
||||
|
||||
[^7]:
|
||||
Chowdhury, Ananya. ‘The Cantillion Effect’. Adam Smith Institute. Accessed 7 March 2022.[ https://www.adamsmith.org/blog/the-cantillion-effect](https://www.adamsmith.org/blog/the-cantillion-effect).
|
||||
|
||||
[^8]:
|
||||
Hayek, F.A. ‘The Road to Serfdom’. Routledge. 1944
|
||||
|
||||
[^9]:
|
||||
Carter, Ian. ‘Positive and Negative Liberty’, 27 February 2003. [https://plato.stanford.edu/entries/liberty-positive-negative/](https://plato.stanford.edu/entries/liberty-positive-negative/).
|
||||
|
||||
[^10]:
|
||||
Jevons, William S. ‘Money and the Mechanism of Exchange’, 1875.
|
||||
|
||||
[^11]:
|
||||
|
||||
Note it is this function that has seen cryptocurrency lauded as a solution to hyperinflation in developing countries, as people can store their earnings in unaffected cryptocurrency even while domestic currencies lose their value due to hyperinflation.
|
||||
|
||||
[^12]:
|
||||
Barone, Adam. ‘What Is the Quantity Theory of Money?’ Investopedia, 27 August 2021. [https://www.investopedia.com/insights/what-is-the-quantity-theory-of-money/](https://www.investopedia.com/insights/what-is-the-quantity-theory-of-money/).
|
||||
|
||||
[^13]:
|
||||
Milton Friedman and Anna Jacobson Schwartz. ‘A Monetary History of the United States, 1867-1960.’ Princeton University Press, 2008.
|
||||
|
||||
[^14]:
|
||||
Bernanke, Ben, and Harold James. ‘The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison’. In Financial Markets and Financial Crises, 33–68. University of Chicago Press, 1991. [https://www.nber.org/books-and-chapters/financial-markets-and-financial-crises/gold-standard-deflation-and-financial-crisis-great-depression-international-comparison](https://www.nber.org/books-and-chapters/financial-markets-and-financial-crises/gold-standard-deflation-and-financial-crisis-great-depression-international-comparison).
|
||||
|
||||
[^15]:
|
||||
In Spain, during the conquest of Granada (1482-1492), paper money was issued as an emergency measure. Foster, Ralph T. Fiat Paper Money – The History and Evolution of Our Currency. Berkeley, California: Foster Publishing. 2010.
|
||||
|
||||
[^16]:
|
||||
Charles Postel: Why conservatives spin fairytales about the gold standard. 2013
|
||||
https://www.reuters.com/article/us-gold-standard-idUSBRE98G07E20130917
|
||||
|
||||
[^17]:
|
||||
British Politics and Policy at LSE. ‘Five Minutes with Ha-Joon Chang: “Members of the General Public Have a Duty to Educate Themselves in Economics”’, 7 July 2014.[ https://blogs.lse.ac.uk/politicsandpolicy/five-minutes-with-ha-joon-chang/](https://blogs.lse.ac.uk/politicsandpolicy/five-minutes-with-ha-joon-chang/).
|
||||
|
||||
[^18]:
|
||||
https://www.investopedia.com/terms/p/proof-work.asp
|
||||
|
||||
[^19]:
|
||||
https://minerdaily.com/2021/how-much-does-it-cost-to-mine-a-bitcoin-update-may-2021/
|
||||
|
||||
[^20]:
|
||||
What's the Environmental Impact of Cryptocurrency? Nathen Reiff, 2021 https://www.investopedia.com/tech/whats-environmental-impact-cryptocurrency/
|
||||
|
||||
[^21]:
|
||||
Krugman, Paul. ‘Opinion | Transaction Costs and Tethers: Why I’m a Crypto Skeptic (Published 2018)’, 31 July 2018. https://www.nytimes.com/2018/07/31/opinion/transaction-costs-and-tethers-why-im-a-crypto-skeptic.html.
|
||||
|
||||
[^22]:
|
||||
A Skeptic's View of Crypto (from the Point of View of Monetary Economics), Paul Krugman, 2018. https://www.youtube.com/watch?v=Y_IYGeZLLhI
|
||||
|
||||
[^23]:
|
||||
Taleb, N. N. Bitcoin, Currencies, and Fragility. 2021. https://www.fooledbyrandomness.com/BTC-QF.pdf
|
||||
|
||||
[^24]:
|
||||
What Are Bitcoin Forks? Brian Edmonson. 2022. https://www.thebalance.com/what-is-a-bitcoin-fork-4684459#:~:text=Bitcoin%20forks%20are%20splits%20that,operates%20without%20a%20central%20authority.
|
||||
|
||||
[^25]:
|
||||
https://academy.binance.com/en/glossary/trustless
|
||||
|
||||
[^26]:
|
||||
Henrich, Joseph; Henrich, Natalie. Why Humans Cooperate: A Cultural and Evolutionary Explanation. Oxford. 2007
|
||||
|
||||
[^27]:
|
||||
Samual Bowers, The Moral Economy: Why Good Incentives Are No Substitute for Good Citizens. 2016.
|
||||
|
||||
|
||||
## Further Reading
|
||||
|
||||
1. Bemanke, Ben, and Harold James. 1991. ‘The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison’. In Financial Markets and Financial Crises, 33–68. University of Chicago Press. https://www.nber.org/books-and-chapters/financial-markets-and-financial-crises/gold-standard-deflation-and-financial-crisis-great-depression-international-comparison.
|
||||
1. Bernanke, B. S. (2004). Essays on the Great Depression. Princeton University Press.
|
||||
1. Eich, Stefan. 2018. ‘The Currency of Politics’. The Political Theory of Money from Aristotle to Keynes.
|
||||
|
|
@ -340,5 +189,3 @@ There is evidence that high trust of strangers correlates with positive economic
|
|||
14. Caferra, Rocco, Gabriele Tedeschi, and Andrea Morone. 2021. ‘Bitcoin: Bubble That Bursts or Gold That Glitters?’ Economics Letters 205: 109942. https://doi.org/10.1016/j.econlet.2021.109942.
|
||||
15. Wolf, Martin. 2019. ‘The Libertarian Fantasies of Cryptocurrencies’. Financial Times, February. https://www.ft.com/content/eeeacd7c-2e0e-11e9-ba00-0251022932c8.
|
||||
16. Fantacci, Luca. 2019. ‘Cryptocurrencies and the Denationalization of Money’. International Journal of Political Economy 48 (2): 105–26. https://doi.org/10.1080/08911916.2019.1624319.
|
||||
17. [Shri T Rabi Sankar. Cryptocurrencies – An Assessment ](/notes/cryptocurrencies-an-assessment)
|
||||
|
||||
|
|
|
|||
|
|
@ -1,94 +0,0 @@
|
|||
---
|
||||
title: Post FTX collapse reflections on Crypto
|
||||
created: 2022-11-15
|
||||
date: 2022-11-15
|
||||
description: 'In this episode of our Making Sense of Crypto & Web3 series, we explore the recent dramatic events that have shaken the crypto industry - namely the collapse of Terra Luna, Celsius and Voyager, Three Arrows Capital and FTX. What happened, what went wrong, and what we can learn?'
|
||||
image: /img/ftx_image.jpeg
|
||||
youtube: https://youtu.be/ApxGyyCbYpM
|
||||
podcast: https://spotifyanchor-web.app.link/e/mNcbxAaLYub
|
||||
featured: true
|
||||
aliases: notes/post-ftx-collapse.md
|
||||
---
|
||||
|
||||
***
|
||||
|
||||
# Summary
|
||||
|
||||
On November 11th 2022, crypto giant [[notes/ftx|FTX]] collapsed into bankruptcy. In this episode, Stephen Diehl and Rufus Pollock dig into what happened and why. They look back on the past 6 months in the crypto industry, examining other prominent crashes and their contagion effects.
|
||||
|
||||
Stephen and Rufus look at what remains of the crypto industry. What learnings can we take from the past 6 months? What’s next to fall?
|
||||
|
||||
|
||||
# Full notes
|
||||
|
||||
## Preface
|
||||
|
||||
* We are continuing our in depth exploration of crypto and web3.
|
||||
* Web3 has become a massive phenomenon with very bold claims made about its potential impact; claims that go far beyond classic technology boosterism (better, faster) to claims for radical transformation (and improvement) of our economic and social systems.
|
||||
* At the same time, there is an exceptional lack of agreement about these claims, even on basic points and definitions. Overall this is an exceptionally controversial and polarizing topic with strong pro & anti camps. For example within tech it is one of the most controversial topics we have ever seen. Significantly, disagreement cuts across classic ideological lines.
|
||||
* This series is about helping make sense of what is going on and to evaluate key claims.
|
||||
|
||||
## May - November 2022 in the crypto industry
|
||||
|
||||
* The last six months in the crypto industry has validated why common sense regulation exists. What we’ve been seeing in the crypto markers is effectively a reversion to exactly the same catastrophes that occurred in the 19th century.
|
||||
* See our early podcasts discussing [unfettered capitalism and unregulated markets.](https://web3.lifeitself.org/notes/market-fundamentalism) Particularly the points about market structure and conflicts of interest.
|
||||
* [Our letter to Congress](https://concerned.tech/) seems remarkably prescient.
|
||||
|
||||
### Terra-Luna collapse and its contagion effects
|
||||
|
||||
* Unsustainability of financial perpetual motion machines.
|
||||
* Terra was predicated on economic absurdities and a cult of personality around its leader.
|
||||
* The founder is being hunted by INTERPOL.
|
||||
|
||||
### Celsius and Voyager
|
||||
|
||||
* Platforms promised retail investors unbelievably high yields and were acting as quasi-bank like institutions and trading deposits against highly volatile assets that collapsed.
|
||||
* Companies filed for bankruptcy. CEOs resigned.
|
||||
|
||||
### Three Arrows Capital
|
||||
|
||||
* Hedge funds leveraged to the hilt, and built on unsustainable strategies predicated purely on “number go up” forever.
|
||||
* When numbers went down it was all a house of cards.
|
||||
* Founders fled Singapore because of an extradition treaty with the United States, headed to Dubai to escape prosecution.
|
||||
|
||||
### FTX
|
||||
|
||||
* An “exchange” with an in-house prop trading firm, it is a blatant conflict of interest.
|
||||
* See [https://web3.lifeitself.org/notes/market-fundamentalism#analyzing-the-market-fundamentalism-position](https://web3.lifeitself.org/notes/market-fundamentalism#analyzing-the-market-fundamentalism-position)
|
||||
* There was no segregation of customer funds. The founders were effectively embezzling customer money to their own personal hedge fund. This is extremely illegal in regulated markets.
|
||||
* The company had an absurd amount of red flags 🚩
|
||||
* The founders are being probed by the SEC and DOJ. They will probably face extradition back to the United States to stand trial.
|
||||
* The company was literally run by 20 somethings custodying some alleged $719 billion in transactions, while skimming off through rigged market making and insider trading.
|
||||
* So many red flags, and yet the financial press and largest VC funds in the world treated this as just another financial institution.
|
||||
|
||||
## What now?
|
||||
|
||||
### What’s next to fall?
|
||||
|
||||
* Crypto.com
|
||||
* BlockFi
|
||||
* Binance
|
||||
* Coinbase
|
||||
|
||||
### What can we learn from this?
|
||||
|
||||
* Are we doomed to repeat the same mistakes over and over?
|
||||
* What is it about crypto that causes otherwise rational people to abandon common sense and rational thought?
|
||||
|
||||
|
||||
# References
|
||||
|
||||
1. Cox, Theo, and Eilidh Ross. ‘Crypto: Can These Financial Perpetual Motion Machines Work?’ Accessed 15 November 2022. https://web3.lifeitself.us/notes/financial-perpetual-motion-machine.
|
||||
2. ‘Crypto Policy Symposium’. Accessed 15 November 2022. https://crypto-policy.tech.
|
||||
3. Financial Times. ‘FTX Balance Sheet, Revealed’, 12 November 2022.
|
||||
4. Jung-a, Song. ‘South Korean Prosecutors Ask Interpol to Issue Red Notice for Do Kwon’. Financial Times, 19 September 2022.
|
||||
5. ‘Letter in Support of Responsible Fintech Policy’. Accessed 15 November 2022. https://concerned.tech.
|
||||
6. Levine, Matt. ‘FTX’s Balance Sheet Was Bad’. Bloomberg.Com, 14 November 2022. https://www.bloomberg.com/opinion/articles/2022-11-14/ftx-s-balance-sheet-was-bad.
|
||||
7. ‘Market Fundamentalism’. Accessed 15 November 2022. https://web3.lifeitself.us/notes/market-fundamentalism.
|
||||
8. Ostroff, Dave Michaels, Elaine Yu and Caitlin. ‘WSJ News Exclusive | Alameda, FTX Executives Are Said to Have Known FTX Was Using Customer Funds’. Wall Street Journal, 12 November 2022, sec. Markets. https://www.wsj.com/articles/alameda-ftx-executives-are-said-to-have-known-ftx-was-using-customer-funds-11668264238.
|
||||
9. SBF [@SBF_FTX]. ‘1) Hi All: Today, I Filed FTX, FTX US, and Alameda for Voluntary Chapter 11 Proceedings in the US.’ Tweet. Twitter, 11 November 2022. https://twitter.com/SBF_FTX/status/1591089317300293636.
|
||||
|
||||
|
||||
# Transcript
|
||||
|
||||
_Coming soon_
|
||||
|
|
@ -14,7 +14,7 @@ aliases: notes/post-state-technocracy.md
|
|||
|
||||
***
|
||||
|
||||
# Episode notes
|
||||
# Episode Notes
|
||||
|
||||
## Summary
|
||||
|
||||
|
|
@ -25,7 +25,7 @@ In this episode, Rufus and Stephen engage with the vision laid out by technologi
|
|||
This thesis has been put forward in various forms. So far, the most fully articulated form that we have found is from Balaji Srinivasan. See the show notes below for links to source material.
|
||||
|
||||
|
||||
## Preliminary note
|
||||
## A note before we get stuck in
|
||||
|
||||
* It’s hard to disentangle venture capitalist narratives from:
|
||||
1. Talking their books
|
||||
|
|
@ -54,7 +54,7 @@ This thesis has been put forward in various forms. So far, the most fully articu
|
|||
* Jürgen Habermas argues the modern state plays a large role in structuring the economy, by regulating economic activity and being a large-scale economic consumer/producer, and through its redistributive welfare state activities.
|
||||
* Conflict theories of state formation and the claims of a legitimacy based on conquest and a subsequent monopoly on violence. This is a popular view in libertarian circles. The state is in perpetual frozen conflict with the individual and taxation is a protection racket not unlike the mob.
|
||||
|
||||
## Claims steel-manned
|
||||
## Steel-manning the position
|
||||
|
||||
* **Claim 1:** We’ve hit a wall on physical progress, so the “digital realm” is the only frontier accessible - [Peter Thiel](https://en.wikipedia.org/wiki/Peter_Thiel) thesis on human progress.
|
||||
* The state is holding back progress in physical sciences.
|
||||
|
|
@ -86,7 +86,7 @@ This thesis has been put forward in various forms. So far, the most fully articu
|
|||
* The train of progress only goes one direction, get on or get off. There’s no place for Luddites in the future.
|
||||
* Matt Damon Superbowl ad is the soft form of this worldview.
|
||||
|
||||
## Evaluating the claims
|
||||
## Evaluating the position
|
||||
|
||||
* Overview:
|
||||
* This perspective on web3 is an embodiment of what the political theorist Macpherson calls "possessive individualism", a philosophy in which an individual is conceived as the sole proprietor of his or her skills and owes nothing to society for them. These skills (and those of others) are a commodity to be bought and sold on the open market and in such a society is demonstrated a selfish and unending thirst for consumption which is considered the crucial core of human nature.
|
||||
|
|
@ -148,17 +148,10 @@ This thesis has been put forward in various forms. So far, the most fully articu
|
|||
* Anna Neima’s book *The Utopians* is full of similarly minded people and communities. They usually dissolve or collapse.
|
||||
|
||||
***
|
||||
|
||||
## Related content
|
||||
|
||||
### Deep dives and notes
|
||||
* [Cory Doctorow on Blockchain, Crypto & Web3](/notes/cory-doctorow-on-blockchain)
|
||||
|
||||
### Concepts
|
||||
## Concepts Covered
|
||||
|
||||
* [post-state-technocracy](post-state-technocracy.md)
|
||||
* [Techno Collectivism](/concepts/techno-collectivism)
|
||||
* [Technolibertarianism](/concepts/technolibertarianism)
|
||||
* [cryptoanarchism](../concepts/cryptoanarchism.md)
|
||||
* [technosolutionism](../concepts/technosolutionism.md)
|
||||
* [public-goods-problem](../concepts/public-goods-problem.md)
|
||||
|
|
@ -167,15 +160,6 @@ This thesis has been put forward in various forms. So far, the most fully articu
|
|||
* [free-rider-problem](../concepts/free-rider-problem.md)
|
||||
* [private-money](../concepts/private-money.md)
|
||||
* [anarchocapitalism](../concepts/anarchocapitalism.md)
|
||||
* [Sanctions Enforcement ](/concepts/sanctions-enforcement)
|
||||
|
||||
|
||||
### FAQs
|
||||
* [Do crypto assets pose a risk to the state?](/claims/is-risk-to-state)
|
||||
* [Does Bitcoin threaten the US dollar as reserve currency?](/claims/is-threat-dollar)
|
||||
* [What is the narrative economics of crypto assets?](/claims/is-narrative-economics)
|
||||
* [Is Web3 decentralized?](/claims/is-web3-decentralized)
|
||||
|
||||
|
||||
***
|
||||
|
||||
|
|
|
|||
|
|
@ -1,25 +0,0 @@
|
|||
---
|
||||
title: Rufus twitter threads about crypto and web3
|
||||
---
|
||||
|
||||
https://twitter.com/rufuspollock/status/1504100213337866247 - launch of making sense of web3
|
||||
|
||||
https://twitter.com/rufuspollock/status/1519582808318042114 - analogy with marxism
|
||||
|
||||
https://twitter.com/rufuspollock/status/1517577381170536454 - beanstalk fiasco
|
||||
|
||||
https://twitter.com/rufuspollock/status/1504126017992105990
|
||||
|
||||
SBF thread - see [[sam-bankman-fried-on-yield-farming-with-matt-levine-april-2022]]
|
||||
|
||||
https://twitter.com/rufuspollock/status/1518677424464175105
|
||||
|
||||
https://twitter.com/rufuspollock/status/1538919068006227970 - dharma crypto
|
||||
|
||||
https://twitter.com/rufuspollock/status/1549121347887964167 - discussion around mech design
|
||||
|
||||
https://twitter.com/rufuspollock/status/1539924104471527429 - responding to a refi advocate that refi is best chance for regenerating the earth
|
||||
|
||||
https://twitter.com/rufuspollock/status/1469680359768006664 - main thread summarizing concerns
|
||||
|
||||
https://twitter.com/rufuspollock/status/1469329613843312642 - twitter thread with kevin owocki
|
||||
|
|
@ -1,171 +0,0 @@
|
|||
---
|
||||
title: Notes on Sam Bankman-Fried interview with Matt Levine on Bloomberg (25 April 2022)
|
||||
created: 2022-04-25
|
||||
image:
|
||||
---
|
||||
|
||||
One of the most extraordinary conversation about [[../concepts/defi|DeFi]] and [[../concepts/cryptoasset|Crypto]] we've seen. [[sam-bankman-fried-on-yield-farming-with-matt-levine-april-2022|Sam Bankman-Fried (SBF)]] of [[FTX]] is in [conversation with Matt Levine of Bloomberg](https://www.bloomberg.com/news/articles/2022-04-25/sam-bankman-fried-described-yield-farming-and-left-matt-levine-stunned). He appears to straight-up describe yield-farming as a [[../concepts/ponzi-scheme|Ponzi scheme]].
|
||||
|
||||
Here's Matt Levine concluding after SBF's description:
|
||||
|
||||
> I think of myself as a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good.
|
||||
|
||||
He adds:
|
||||
|
||||
> Can you comment on the sustainability of that? Because, on the one hand you're: 'well, a trillion dollars of institutional money is going to come into Bitcoin'. And on the other you're: 'basically there are a lot of Ponzis that have done really well.'
|
||||
|
||||
To which SBF essentially agrees: i.e. no intrinsic economic value or cash-flow to these "boxes" i.e. DeFi protocols and they are essentially greater-fool endeavours (aka meme stocks).
|
||||
|
||||
> You can sort of get a market cap either because of cash flow ... Or you could see something get market cap in the way that Doge coin or SHIB coin have where people are just like ‘ha ha’ and then they buy it.
|
||||
|
||||
See also the twitter thread version:
|
||||
|
||||
https://twitter.com/rufuspollock/status/1518677424464175105
|
||||
|
||||
## Yield farming in 6 steps
|
||||
|
||||
Here's the ever-sharp Matt Levine starting it off (fairly generously):
|
||||
|
||||
> Can you give me an intuitive understanding of farming? Like to me, farming is you sell some structured puts and collect premium, but perhaps there's a more sophisticated understanding than that.
|
||||
|
||||
Then SBF describes the following steps:
|
||||
|
||||
### 1. Start with a "blue sky" enterprise
|
||||
|
||||
> You start with a company that builds a 'box' ... dress it up as life-changing, world-altering protocol that's replaces all the big banks in 38 days or whatever **but in practice this box ... [may do] literally nothing**. [emphasis added]
|
||||
|
||||
### 2. People deposit "money" into it (bitcoin / ether etc)
|
||||
|
||||
> and you take a token (e.g. ethereum) and you can put it in the box [the DeFi pool/company] and take it out of the box. [you get an IOU for putting it in and then you can redeem IOU back out for the token]
|
||||
|
||||
With remarkable frankness SBF states:
|
||||
|
||||
> So far what we've described is the world's *dumbest* ETF or ADR or something like that. It doesn't do anything but let you put things in it if you so choose.
|
||||
|
||||
cf [[in-conversation-with-klimadao-part-one|KlimaDAO conversation]].
|
||||
|
||||
So how on earth does this go anywhere? Well we add another twist (or obfuscation?)
|
||||
|
||||
### 3. Protocol issues governance tokens
|
||||
|
||||
SBF states:
|
||||
|
||||
> And then this protocol issues a token ... ‘X token.’ And X token promises that ... holders of the X tokens ... can vote on what to do with any proceeds or other cool things that happen from this box.
|
||||
|
||||
But why would this governance token be worth *anything* given the "box/protocol" is blue sky enterprise producing absolutely nothing and acting at best as an inefficient ETF?
|
||||
|
||||
The DeFi entity is a "blue sky" enterprise which SBF acknowledges:
|
||||
|
||||
> of course, so far, we haven't exactly given a compelling reason for why there ever would be any proceeds from this box, but I don't know, you know, *maybe* there will be, so that's sort of where you start.
|
||||
|
||||
### 4. Yield, the essential enticement to attract dumb money
|
||||
|
||||
So how do we keep it going? Now we come to step (4) yield. This has two parts:
|
||||
|
||||
1. **X tokens have +ve price**: Because in delusional bubble governance X tokens have +ve price even though they should be 0 (see previous point)
|
||||
* Why do X tokens have any value? SBF states: "Well, X token has some market cap, right? It's probably not zero. [maybe should be zero but] In the world that we're in, everyone's like, ‘Ooh, box token. Maybe it's cool. ... appears on Twitter & it has $20m market cap."
|
||||
* And we can juice our tokens total "market" value by using notional metrics and low floats. Again SBF straight up acknowledges this: ".. of course, one thing that you could do is make the float very low ... $20 million is mark to market fully diluted valuation ..."
|
||||
* And acknowledges there is no reason X token (aka protocol equity) should have *any* value: "... but I acknowledge that it's *not totally clear that this thing* [the protocol's token] should have market cap". ("not totally clear" is fancy way of saying no reason at all!)
|
||||
2. **Can use X tokens as yield to depositors to incentivize deposits (like interest at a bank)** Thus, we can use our X tokens to pay out to people who deposited in step (2) above.
|
||||
> [SBF words] So anyone who goes takes some money puts in the box, each day they're gonna airdrop, 1% of the X token pro rata amongst everyone who's put money in the box.
|
||||
|
||||
This system creates *yield* for depositors. It's yield in the made-up X tokens rather than yield in cash (or bitcoin or ether or whatever they put in). But as long as X tokens appear to have some actual value it can work (for a while).
|
||||
|
||||
### 5. Speculative ponzi bubble in action
|
||||
|
||||
And finally in step (6) that starts a ponzi-like cycle in both deposits and the price of the governance/yield token X.
|
||||
|
||||
There are three parts to make the cycle
|
||||
|
||||
#### 1. Ponzi take-off as first people are attracted by yield
|
||||
|
||||
In SBF's words:
|
||||
|
||||
> So, X tokens [are] being given out each day, all these sophisticated [?] firms are like, huh, that's interesting. Like if the total amount of money in the box is $100m then it's yielding $16m in X tokens ... that's 16%"
|
||||
|
||||
Note the sleight of hand about "sophisticated firms" -- these are not sophisticated firms but often unsophisticated, vulnerable retail investors.
|
||||
|
||||
#### Ponzi take-off part 2 as we have growth on social media
|
||||
|
||||
SBF:
|
||||
|
||||
> maybe that happens until $200m in the box. So, sophisticated traders &/or people on crypto Twitter etc, go & put $200m in the box collectively and they start getting these X tokens for it."
|
||||
|
||||
#### Ponzi take-off part 3: it's valuable because everyone thinks it's valuable
|
||||
|
||||
> ... now all of a sudden everyone's, wow, people just put $200m in the box. This is a pretty cool box, right? This is a valuable box [because] all the money people have decided should be in the box."
|
||||
|
||||
And SBF adds a classic [[market-fundamentalism|cynical trader point]]:
|
||||
|
||||
> And who are we to say they're wrong about that?" [about that obvious bubble almost certainly fueled in large part by unsophisticated investors]
|
||||
|
||||
#### Ponzi bubble part 4: line goes up
|
||||
|
||||
> And so what happens now? All of a sudden people recalibrate: $20m, that's in market cap for this box? It's been like 48 hours & already it's $200m, including from sophisticated players. Come on, that's too low.
|
||||
|
||||
### Ponzi bubble part 5: full mania
|
||||
|
||||
> X token price goes way up. Now it's $130m token b/c of bullishness. Now ... there's 60% yield in X tokens. ... So [people] pour another $300m in & you get a **psych and then it goes to infinity**. Then everyone makes money."
|
||||
|
||||
"Then everyone makes money" ... Really? Given his general sophistication difficult to imagine SBF is being that naive. What happens when people try to cash out their X tokens yielding 60% a year ...
|
||||
|
||||
## Full Transcript
|
||||
|
||||
> **Matt Levine: (21:17)**
|
||||
> Can you give me an intuitive understanding of farming? I mean, like to me, farming is like you sell some structured puts and collect premium, but perhaps there's a more sophisticated understanding than that.
|
||||
>
|
||||
> **Sam Bankman-Fried: (21:28)**
|
||||
> Let me give you sort of like a really toy model of it, which I actually think has a surprising amount of legitimacy for what farming could mean. You know, where do you start? You start with a company that builds a box and in practice this box, they probably dress it up to look like a life-changing, you know, world-altering protocol that's gonna replace all the big banks in 38 days or whatever. Maybe for now actually ignore what it does or pretend it does literally nothing. It's just a box. So what this protocol is, it's called ‘Protocol X,’ it's a box, and you take a token. You can take ethereum, you can put it in the box and you take it out of the box. Alright so, you put it into the box and you get like, you know, an IOU for having put it in the box and then you can redeem that IOU back out for the token.
|
||||
>
|
||||
> So far what we've described is the world's dumbest ETF or ADR or something like that. It doesn't do anything but let you put things in it if you so choose. And then this protocol issues a token, we'll call it whatever, ‘X token.’ And X token promises that anything cool that happens because of this box is going to ultimately be usable by, you know, governance vote of holders of the X tokens. They can vote on what to do with any proceeds or other cool things that happen from this box. And of course, so far, we haven't exactly given a compelling reason for why there ever would be any proceeds from this box, but I don't know, you know, maybe there will be, so that's sort of where you start.
|
||||
>
|
||||
> And then you say, alright, well, you’ve got this box and you’ve got X token and the box protocol declares, or maybe votes by on-chain governance, or, you know, something like that, that what they're gonna do is they are going to take half of all the X tokens that were re-minted. Maybe two thirds will, two thirds will offer X tokens, and they're going to give them away for free to whoever uses the box. So anyone who goes, takes some money, puts in the box, each day they're gonna airdrop, you know, 1% of the X token pro rata amongst everyone who's put money in the box. That's for now, what X token does, it gets given away to the box people. And now what happens? Well, X token has some market cap, right? It's probably not zero. Let say it's, you know, a $20 million market …
|
||||
>
|
||||
> **Matt: (23:56)**
|
||||
> Wait, wait, wait, from like first principles, it should be zero, but okay.
|
||||
>
|
||||
> **SBF: (23:59)**
|
||||
> Uh, sure. Okay. Completely reasonable comments.
|
||||
>
|
||||
> **Matt: (24:04)**
|
||||
> I mean, that's not quite true, but, like, when you describe it in this totally cynical way, it sounds like it should be zero, but go on.
|
||||
>
|
||||
> **SBF: (24:10)**
|
||||
> Describe it this way, you might think, for instance, that in like five minutes with an internet connection, you could create such a box and such a token, and that it should reflect like, you know, it should be worth like $180 or something market cap for like that, you know, that effort that you put into it. In the world that we're in, if you do this, everyone's gonna be like, ‘Ooh, box token. Maybe it's cool. If you buy in box token,’ you know, that's gonna appear on Twitter and it’ll have a $20 million market cap. And of course, one thing that you could do is you could like make the float very low and whatever, you know, maybe there haven't been $20 million dollars that have flowed into it yet. Maybe that's sort of like, is it, you know, mark to market fully diluted valuation or something, but I acknowledge that it's not totally clear that this thing should have market cap, but empirically I claim it would have market cap.
|
||||
>
|
||||
> **Matt: (24:57)**
|
||||
> I agree.
|
||||
>
|
||||
> **Joe: (24:59)**
|
||||
> It shouldn't have any market cap in theory, but it practice, they always do. Okay.
|
||||
>
|
||||
> **SBF: (25:03)**
|
||||
> That's right. So, and obviously already we're sort of hiding some of the magic impact, right? Like some of the magic is in like, how do you get that market cap to start with, but, you know, whatever we're gonna move on from that for a second. So, you know, X tokens [are] being given out each day, all these like sophisticated firms are like, huh, that's interesting. Like if the total amount of money in the box is a hundred million dollars, then it's going to yield $16 million this year in X tokens being given out for it. That's a 16% return. That's pretty good. We'll put a little bit more in, right? And maybe that happens until there are $200 million dollars in the box. So, you know, sophisticated traders and/or people on Crypto Twitter, or other sort of similar parties, go and put $200 million in the box collectively and they start getting these X tokens for it.
|
||||
>
|
||||
> And now all of a sudden everyone's like, wow, people just decide to put $200 million in the box. This is a pretty cool box, right? Like this is a valuable box as demonstrated by all the money that people have apparently decided should be in the box. And who are we to say that they're wrong about that? Like, you know, this is, I mean boxes can be great. Look, I love boxes as much as the next guy. And so what happens now? All of a sudden people are kind of recalibrating like, well, $20 million, that's it? Like that market cap for this box? And it's been like 48 hours and it already is $200 million, including from like sophisticated players in it. They're like, come on, that's too low. And they look at these ratios, TVL, total value locked in the box, you know, as a ratio to market cap of the box’s token.
|
||||
>
|
||||
> **SBF: (26:43)**
|
||||
> And they’re like ‘10X’ that's insane. 1X is the norm.’ And so then, you know, X token price goes way up. And now it's $130 million market cap token because of, you know, the bullishness of people's usage of the box. And now all of a sudden of course, the smart money's like, oh, wow, this thing's now yielding like 60% a year in X tokens. Of course I'll take my 60% yield, right? So they go and pour another $300 million in the box and you get a psych and then it goes to infinity. And then everyone makes money.
|
||||
>
|
||||
> **Matt: (27:13)**
|
||||
> I think of myself as like a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good.
|
||||
>
|
||||
> **Joe Weisenthal: (27:27)**
|
||||
> At no point did any of this require any sort of like economic case, it’s just like other people put money in the box. And so I'm going to too, and then it's more valuable. So they're gonna put more money in, and at no point in the cycle, did it seem to like, describe any sort of like economic purpose?
|
||||
>
|
||||
> **SBF: (27:42)**
|
||||
> So on the one hand, I think that’s a pretty reasonable response, but let me play around with this a little bit. Because that's one framing of this. And I think there's like a sort of depressing amount of validity…
|
||||
>
|
||||
> **Matt: (27:53)**
|
||||
> Can you comment on like the sustainability of that? Because, you know, on the one hand you're like, well, a trillion dollars of institutional money is going to come into Bitcoin. And on the other hand you're like basically there are a lot of Ponzis that have done really well.
|
||||
>
|
||||
> **SBF: (28:06)**
|
||||
> Right. So let me, okay, cool. I'll stay on the cynical route, think about like cynically, what could happen here? Well, okay. So you've got this boxes and it’s kind of dumb, but like what's the end game, right? This box is worth zero obviously. And like that, you know, you can't like keep this smart cap or something. But on the other hand, if everyone kind of now thinks that this box token is worth about a billion dollar market cap, that's what people are pricing it at and sort of has that market cap. Everyone's gonna mark to market. In fact, you can even finance this, right? You put X token in a borrow lending protocol and borrow dollars with it. If you think it's worth like less than two thirds of that, you could even just like put some in there, take the dollars out. Never, you know, give the dollars back. You just get liquidated eventually. And it is sort of like real monetizable stuff in some senses. And you know, at some point if the world never decides that we are wrong about this in like a coordinated way, right? Like you're kind of the guy calling and saying, no, this thing's actually worthless, but in what sense are you right?
|
||||
>
|
||||
> **Tracy Alloway: (29:15)**
|
||||
> Can I just ask on this point, I mean, so are you saying that the value has to derive from everyone agreeing that it's worth something? And I know like on the one hand, that seems like a simple point about crypto, but on the other hand, throughout crypto's history, there have been these different arguments about how it actually gets value, you know, use cases for the underlying technology — for blockchain. Everyone's gonna start migrating stuff on blockchain, and then you're gonna have a real economic use attached to these assets. And that's where the value's gonna come from. But are you saying that it depends more on everyone just agreeing that these are worth something?
|
||||
>
|
||||
> **SBF: (29:53)**
|
||||
> So really what I'd say is that it could come in theory from either. You can sort of get a market cap either because of cash flow and then Warren Buffett's like f*ck this. Like, I'm going to buy this if it's at too cheap of a price, because I'll just buy it and own it and get cashflow from it. And that's great. Or you could see something get market cap in the way that, I don't know, Doge coin or SHIB coin have, where people are just kinda like ‘ha ha’ and then they buy it. And if you're like, that's dumb, it has no cashflow flow. I'm gonna short sell it. You lose all your money. And, you know, those like, at least like over the last few years, those have both been ways that assets have gotten market cap. And I sort of like think that this starts to hint at like, at least some interesting angles on this, because it's not just cryptocurrencies that have had this dynamic, right? How about like, you know, AMC or Hertz or GameStop or meme stocks in general have like a very similar pattern to this and the sort of concept of maybe people will pay something for it even though it doesn't seem traditionally valuable, is not a crypto specific concept. Although it certainly has become like…
|
||||
|
||||
One takeaway from this whole conversation is that DeFi might be more similar to Bitcoin than a lot of people thought, deriving its value from collective agreement that the ‘thing’ (in this case the box, or yield-farming protocol) is worth something rather than deriving value from a fundamental usefulness.
|
||||
File diff suppressed because one or more lines are too long
|
|
@ -1,38 +0,0 @@
|
|||
---
|
||||
title: My best guess on where I’m wrong about crypto
|
||||
created: 2023-03-13
|
||||
---
|
||||
|
||||
### _By Theo Cox_
|
||||
|
||||
To put it bluntly, what if pointing out that crypto doesn’t really work is missing the point? Sounds a bit odd I know, but that’s my best guess for where I might be wrong in this debate. I’ll explain below.
|
||||
|
||||
Over the past year or so I’ve spent a fair amount of time going pretty deep into the world of crypto. That work culminated in Life Itself Labs’ new [guide](https://web3.lifeitself.org/guide), analysing the major claims in the space, and an upcoming paper exploring the implications of crypto and web3 for local governments for the US Government Finance Officers Association.
|
||||
|
||||
Now I’d say I have a fairly solid background in economics and the social sciences. And as you’ll notice reading any of the analysis I’ve done on the space I can’t help but conclude time and again that the dizzying grandeur of the claims just doesn’t seem to match up to the reality of what the tech involved is capable of.
|
||||
|
||||
However the whole point of my work has been to contribute to a reasonable discourse about these technologies in the context of where those of us who care about social change put our effort. That means doing my best to engage openly with oppositional views and question my own, however apparent they seem to me. I’m always trying to ask myself “where could I be wrong?” Borrowing the spirit of [red teaming](https://www.techtarget.com/whatis/definition/red-teaming), I think putting your views to the test in this way is vital when engaging with complex and polarising topics. So with all that said, this is my best guess of where I might be wrong.
|
||||
|
||||
This thought was sparked by a truly excellent lecture on [money from the perspective of critical political economy](https://www.youtube.com/watch?v=kzpRY3Q4WKk&ab_channel=SOASXNSSR) by Prof. Paulo dos Santos, featuring two excellent presentations by PhD candidates Hanin Khawaja and Josephine Baker which both referenced crypto. As an aside, it’s part of a [brilliant free series](https://www.youtube.com/@SOASxNSSR) put on by SOAS University in London and The New School in New York. For anyone interested in heterodox economics and political economy I really recommend it. Anyway, the lecture centred an exegetical reading of Marx’s monetary theory, honing on money as a social convention. Without getting into the weeds on that particular debate, the social construction of the monetary object and the laws supposedly governing it seems fairly undeniable to me. Otherwise, how would we have central banks continuing to respond to inflation with [levers clearly incapable of truly addressing the real problem](https://www.newstatesman.com/quickfire/2022/11/bank-of-england-control-inflation), for no other reason that they supposedly abide by the “laws” of money and monetary policy. The debate over monetary policy itself is broader evidence. There are hugely differing interpretations of how money works and how we should construct policies around it, and there have been massive differences geographically and historically in how monetary systems have operated. All this makes a very good inductive case that money is not a “thing” out there in the world. It’s a system we determine and project narratives onto, just like we do pretty much every other social system on the planet. As an aside, Paulo gives another great example of behaviour towards money market mutual funds ([remember those?](https://www.thebalancemoney.com/reserve-primary-fund-3305671#:~:text=On%20Tuesday%2C%20September%2016%2C%202008,Monday's%20bankruptcy%20of%20Lehman%20Brothers.)) as a great illustration of these elements of social construction. For the sake of brevity I’ll just recommend a watch.
|
||||
|
||||
So, money is a social construct. And the rules for governing it, monetary policy, _can_ be changed to better meet our needs as human beings. Right now, this is not the prevailing narrative. Money and monetary policy are talked about as if they’re just as much a part of nature as carbon or the laws of thermodynamics. Given the harm the current monetary system does, both [domestically](https://www.jrf.org.uk/press/additional-400000-people-pulled-poverty-mortgage-rates-55) and [internationally](https://publichealthreviews.biomedcentral.com/articles/10.1186/s40985-017-0059-2), that seems like a pretty big deal. It also seems like a major narrative battleground for those who care about creating a more just and equitable economy. And yet, to my knowledge it’s not one that’s brought into the public debate nearly as much as it could be. And I get it, monetary policy doesn’t exactly scream sexy. It’s dry, superficially technical and not something that’s going to win you rapturous throngs of new supporters by speaking about. But I have a niggling feeling there’s more to it than that. It was very interesting, for example, that a [recent review into the UK BBC’s economics coverage](https://www.bbc.co.uk/aboutthebbc/documents/thematic-review-taxation-public-spending-govt-borrowing-debt.pdf) found that reporters lacking a solid grounding in economics unwittingly perpetuated contested narratives about how the economy works as if they were facts. Just as interesting was the fact that this report focused almost exclusively on fiscal policy, and had nothing much to say, for example, about the well versed and equally contested narrative that interest rate rises are the only way of tackling inflation. I’m not so sure that’s just because fiscal policy is the sexier sibling…
|
||||
|
||||
Whatever the reason for this narrative neglect, it doesn’t need to be this way. And given the stakes of getting people to realise that the possibility to change our monetary system is far greater than they thought, it might be worth at least trying to have the conversation in an accessible way.
|
||||
|
||||
Now you’ve probably got a hunch of where I’m going with this regarding crypto. I’ll hold my hands up to having a view of the world that can sometimes resemble that of Dr. Spock a little too closely to my liking. That means a natural tendency towards rational analysis as my default way of thinking, lots of focus on logic and technical details and far less of a tendency to think in terms of things like narrative significance, or the interaction between thought and feeling. There’s a whole lot more to decisions about how we structure society than abstract logic and rationality. Otherwise we’d have unified politics and sorted climate change ages ago. Sometimes, especially when I go into analytical problem solving mode, I need to remind myself of that.
|
||||
|
||||
Suffice to say I’ve been engaging with crypto very much in analytical problem solving mode for the past year or so. I’ve been particularly focused on gaining a technical, social scientific understanding of how major crypto projects work and stress testing them. This has led to me spending lots of time talking about what I view as fundamental flaws in the economics of how the crypto space works, particularly with respect to its claimed capacity to catalyse broader economic transformation. You can read some of my thoughts about that [here ](https://web3.lifeitself.org/claims/can-solve-public-goods-problem)and [here](https://web3.lifeitself.org/claims/can-financialize), but to surmise none of it quite adds up from where I’m sitting. While I’m always open to having my mind changed there also, that’s a position that I still very much stand by,
|
||||
|
||||
So even if I still think all this stuff doesn’t work, my best guess at where I’ve gone wrong comes from the idea that us progressive crypto sceptics might have somewhat missed the point in trying to argue as such all the time. Now I do think an honest conversation is necessary, given the massive opportunity costs from the huge amounts of money, energy and intellect that’s currently expended on crypto and web3 more broadly. However my experience of the space is that all those messy human factors of narrative, belief and emotion, combined with the sheer inability to truly know how claims about the future are going to stack up in 10 years time, means that the debate is pretty intractable. As long as the space continues to exist the boosters are going to continue to boost and the sceptics are going to continue to doubt.
|
||||
|
||||
Besides, while the opportunity costs _are _significant I’d argue that diverting resources away from crypto is fairly small fry compared with the potential impact of winning a narrative battle over the socially constructed nature of mainstream money and monetary policy. So those of us who’ve been spending breath trying to make the case that the economics of crypto don’t work might do well to abandon that battle in pursuit of victory in a far greater war.
|
||||
|
||||
What would that look like? Well, it would start by answering every version of the question “is crypto really money?” with “it doesn’t matter”. Because for what crypto _shows _about the narrative of the money as a commodity, whether it’s technically able to function properly as such when push comes to shove is by the by. The way crypto has been adopted, used, and talked about is a prime example that narratives and belief are far more important when considering “money-ness” than technical functionality (again, I refer back to the MMMF example of the lecture). Furthermore, a huge array of tokens that have fundamentally been treated and used as if they were money by significant corners of the internet have been encoded with completely different rules for their functioning. Some are inherently deflationary–most famously Bitcoin’s hard cap of 21 million BTC in circulation–whereas others have supplies that can grow infinitely. Some peg their exchange value to the USD, others have a completely floating exchange value. Different projects implement a host of ways to regulate the number of cryptocurrencies or tokens in circulation. The list goes on. People have just come up with all of this, and now the crypto ecosystem is fundamentally shifting how swathes of the population engage with the concept of “money”.
|
||||
|
||||
Just take a step back and think for a minute. Whoever Satoshi Nakamoto is, it’s quite possible that this whole cambrian explosion was kicked off by some random person tapping away in their basement. Fast forward to today you’ve got central banks the world over developing digital currencies of their own (CBDCs), and exploring the potential of using them to settle international payments in a way that could potentially[ disrupt the hegemony of the US Dollar](https://blogs.law.ox.ac.uk/blog-post/2022/12/central-bank-digital-currencies-and-global-financial-system-dollar-dethroned). That’s wild! And it’s not because blockchain represents some massive [leap in technological innovation](https://www.youtube.com/watch?v=tspGVbmMmVA).
|
||||
|
||||
The implication of all this is that, as fun a learning experience as it’s been, I might have focused on the wrong conversation over the past year. Crypto fans often point to the space as carrying the potential to ground a new and better economic system. And maybe it might, just not in the way that’s often floated. While capitalism still dominates the political economies of most nation states, and the international economic system at large, I’m not confident that any crypto based secondary economy will really be able to take root and avoid being subsumed such that it does anything really transformative unto itself (countries where the [economy is already failing aside](https://web3.lifeitself.org/claims/is-better-payments), at least). However if we narratively capitalise well enough, it might just get us a foot in the door of questioning some of the most fundamental rules of the neoliberal capitalist game itself. If we care about enacting change, then maybe we stop trying to point out our critiques of crypto, and instead start shouting from the rooftops that it’s as clear a demonstration as we’ve had in the modern era that this money stuff isn’t what it initially seems. Getting that across is the first step to proposing that, given our monetary systems are working pretty terribly at the moment, it might be worth having a bit of a chat about changing them. This shift in focus opens up the far bigger prize of gaining narrative ground on an issue that’s going to be fundamental to any radical economic transformation. But it also means we can stop fighting with the crypto folks (many of whom are lovely people who share the same values and aspirations as the rest of us progressives) and get on the same team for a change, perhaps even pooling energetic resources to engage the people we really need to be focus on: the upholders of the current economic order and the population at large who vote for them.
|
||||
|
||||
We can point out until we’re blue in the face that append-only digital ledgers have been around [since the 1980s](https://www.google.com/search?q=append+only+ledgers+1980s&oq=append+only+ledgers+1980s&aqs=chrome..69i57j33i160.2571j0j7&sourceid=chrome&ie=UTF-8), that’s not going to change the material reality of any impacts had by CBDCs in the current era. There’s a reason _now _is the moment that such impacts have become so much as possible and, I’ll say it again for the people at the back, it ain’t because of the technology. If I were to implore my fellow sceptics from this position of self-doubt, I’d probably say something like the following: let’s accept the reality of where we are and use our opportunity to try and shift the important stuff (i.e. the underlying narratives of neoliberal capitalism), rather than getting hung up on trying to find some objective fact of the matter about the technology and its potential.
|
||||
|
||||
Such a change in tactics will require a new approach, shifting away from rational analysis and perhaps into the realms of story, experience and art. It’ll require imagination, and to be honest for people who aren’t as nerdy as me it already sounds like it’ll make for a lot more fun. Whatever the future of crypto turns out to be, that seems to me like a proposition a lot more of us can get behind.
|
||||
|
|
@ -2,81 +2,72 @@ import siteConfig from 'config/siteConfig'
|
|||
|
||||
export function Hero() {
|
||||
return (
|
||||
<>
|
||||
<div className="pt-10 sm:pt-16 lg:pt-8 lg:pb-14 lg:overflow-hidden">
|
||||
<div className="mx-auto max-w-7xl lg:px-8">
|
||||
<div className="lg:grid lg:grid-cols-2 lg:gap-8">
|
||||
<div className="mx-auto max-w-md px-4 sm:max-w-2xl sm:px-6 sm:text-center lg:px-0 lg:text-left lg:flex lg:items-center">
|
||||
<div className="lg:py-24">
|
||||
<h1 className="mt-4 text-4xl tracking-tight font-extrabold text-white sm:mt-5 sm:text-6xl lg:mt-6 xl:text-6xl">
|
||||
<span className="block">Making Sense of</span>
|
||||
<span className="block text-yellow-500">Crypto & Web3</span>
|
||||
</h1>
|
||||
<p className="mt-3 sm:mt-5 sm:text-xl lg:text-lg xl:text-xl">
|
||||
Crypto & Web3 are a huge phenomenon but can be hard to make sense of. We help with introductions to key concepts and in-depth evaluations of the claims for its social and economic impact.
|
||||
</p>
|
||||
<div className="mt-10">
|
||||
<a
|
||||
href="/guide"
|
||||
className="block w-fit md:mx-auto lg:mx-0 py-2.5 px-6 rounded-md shadow bg-yellow-500 text-md font-bold text-slate-900 hover:bg-yellow-400 focus:outline-none focus:ring-2 focus:ring-offset-2 focus:ring-indigo-300 focus:ring-offset-gray-900"
|
||||
>
|
||||
Read our guide
|
||||
</a>
|
||||
</div>
|
||||
<p className="mt-8 text-sm text-white uppercase tracking-wide font-semibold sm:mt-10">A project of
|
||||
<a href={siteConfig.authorUrl} target="_blank">
|
||||
<img src={siteConfig.authorLogo} alt={siteConfig.author} className="mx-1 h-6 inline" />
|
||||
Life Itself Labs
|
||||
</a>
|
||||
{' '} & collaborators
|
||||
</p>
|
||||
<div className="pt-10 sm:pt-16 lg:pt-8 lg:pb-14 lg:overflow-hidden">
|
||||
<div className="mx-auto max-w-7xl lg:px-8">
|
||||
<div className="lg:grid lg:grid-cols-2 lg:gap-8">
|
||||
<div className="mx-auto max-w-md px-4 sm:max-w-2xl sm:px-6 sm:text-center lg:px-0 lg:text-left lg:flex lg:items-center">
|
||||
<div className="lg:py-24">
|
||||
<h1 className="mt-4 text-4xl tracking-tight font-extrabold text-white sm:mt-5 sm:text-6xl lg:mt-6 xl:text-6xl">
|
||||
<span className="block">Making Sense of</span>
|
||||
<span className="block text-yellow-500">Crypto & Web3</span>
|
||||
</h1>
|
||||
<p className="mt-3 sm:mt-5 sm:text-xl lg:text-lg xl:text-xl">
|
||||
Crypto & Web3 are a huge phenomenon but can be hard to make sense of. We help with introductions to key concepts and in-depth evaluations of the claims for its social and economic impact.
|
||||
</p>
|
||||
<div className="mt-10 sm:mt-12">
|
||||
<form className="sm:max-w-xl sm:mx-auto lg:mx-0" method="POST" name="get-updates" data-netlify="true" action="/subscribed">
|
||||
<div className="sm:flex">
|
||||
<div className="min-w-0 flex-1">
|
||||
<label htmlFor="email" className="sr-only">
|
||||
Email address
|
||||
</label>
|
||||
<input
|
||||
name="email"
|
||||
type="email"
|
||||
required="required"
|
||||
placeholder="Enter your email"
|
||||
className="block w-full px-4 py-3 rounded-md border-0 text-base dark:text-white dark:placeholder-gray-200 text-gray-900 placeholder-gray-500 focus:outline-none focus:ring-2 focus:ring-offset-2 focus:ring-indigo-300 focus:ring-offset-gray-900"
|
||||
/>
|
||||
<input type="hidden" name="form-name" value="get-updates" />
|
||||
</div>
|
||||
<div className="mt-3 sm:mt-0 sm:ml-3">
|
||||
<button
|
||||
type="submit"
|
||||
className="block w-full py-3 px-4 rounded-md shadow bg-yellow-500 text-sm text-slate-50 font-medium hover:bg-yellow-400 focus:outline-none focus:ring-2 focus:ring-offset-2 focus:ring-indigo-300 focus:ring-offset-gray-900"
|
||||
>
|
||||
Get Updates
|
||||
</button>
|
||||
</div>
|
||||
</div>
|
||||
</form>
|
||||
</div>
|
||||
<p className="mt-3 text-sm text-gray-300 sm:mt-4">
|
||||
Get short updates as we release new material or review important developments.
|
||||
</p>
|
||||
<p className="mt-8 text-sm text-white uppercase tracking-wide font-semibold sm:mt-10">A project of
|
||||
<a
|
||||
href={siteConfig.authorUrl}
|
||||
target="_blank"
|
||||
rel="noopener noreferrer"
|
||||
>
|
||||
<img src={siteConfig.authorLogo} alt={siteConfig.author} className="mx-1 h-6 inline" />
|
||||
Life Itself Labs
|
||||
</a>
|
||||
{' '} & collaborators
|
||||
</p>
|
||||
</div>
|
||||
<div className="mt-12 lg:m-0 lg:relative">
|
||||
<div className="mx-auto max-w-md px-4 sm:max-w-2xl sm:px-6 lg:max-w-none lg:px-0">
|
||||
<img
|
||||
className="w-full lg:absolute lg:inset-y-0 lg:left-0 lg:h-full lg:w-auto lg:max-w-3xl"
|
||||
src="/img/undraw_digital_currency_qpak.svg"
|
||||
alt=""
|
||||
/>
|
||||
</div>
|
||||
</div>
|
||||
<div className="mt-12 lg:m-0 lg:relative">
|
||||
<div className="mx-auto max-w-md px-4 sm:max-w-2xl sm:px-6 lg:max-w-none lg:px-0">
|
||||
<img
|
||||
className="w-full lg:absolute lg:inset-y-0 lg:left-0 lg:h-full lg:w-auto lg:max-w-3xl"
|
||||
src="/img/undraw_digital_currency_qpak.svg"
|
||||
alt=""
|
||||
/>
|
||||
</div>
|
||||
</div>
|
||||
</div>
|
||||
</div>
|
||||
{/* Form section */}
|
||||
<div className="relative bg-slate-800/60 pt-16 pb-20 px-4 sm:px-6 lg:pt-24 lg:pb-28 lg:px-8">
|
||||
<div className="mx-auto max-w-7xl lg:px-8">
|
||||
<p className="mb-3 text-center text-xl mb-8">
|
||||
Get short updates as we release new material or review important developments.
|
||||
</p>
|
||||
<form className="sm:max-w-xl sm:mx-auto" method="POST" name="get-updates" data-netlify="true" action="/subscribed">
|
||||
<div className="sm:flex sm:items-center">
|
||||
<div className="min-w-0 flex-1">
|
||||
<label htmlFor="email" className="sr-only">
|
||||
Email address
|
||||
</label>
|
||||
<input
|
||||
name="email"
|
||||
type="email"
|
||||
required="required"
|
||||
placeholder="Enter your email"
|
||||
className="block w-full px-4 py-3 rounded-md border-0 shadow text-md dark:text-white dark:placeholder-gray-200 text-gray-900 placeholder-gray-500 focus:outline-none focus:ring-2 focus:ring-offset-2 focus:ring-indigo-300 focus:ring-offset-gray-900"
|
||||
/>
|
||||
<input type="hidden" name="form-name" value="get-updates" />
|
||||
</div>
|
||||
<div className="mt-3 sm:mt-0 sm:ml-3">
|
||||
<button
|
||||
type="submit"
|
||||
className="block w-full py-2.5 px-6 sm:mb-0.5 rounded-md shadow bg-yellow-500 text-md font-bold text-slate-900 font-bold hover:bg-yellow-400 focus:outline-none focus:ring-2 focus:ring-offset-2 focus:ring-indigo-300 focus:ring-offset-gray-900"
|
||||
>
|
||||
Get Updates
|
||||
</button>
|
||||
</div>
|
||||
</div>
|
||||
</form>
|
||||
</div>
|
||||
</div>
|
||||
</>
|
||||
</div>
|
||||
)
|
||||
}
|
||||
|
|
|
|||
|
|
@ -57,7 +57,7 @@ export default function MdxPage({ body, meta }) {
|
|||
]}
|
||||
/>
|
||||
<div className="max-w-7xl mx-auto px-2 sm:px-6 md:px-8">
|
||||
<article className="prose dark:prose-invert prose-a:break-words mx-auto lg:mx-0 xl:ml-24 p-6">
|
||||
<article className="prose dark:prose-invert prose-a:break-words mx-auto lg:mr-[20rem] p-6">
|
||||
<header>
|
||||
<div className="mb-6">
|
||||
{title && <h1 className="mb-0">{title}</h1>}
|
||||
|
|
|
|||
|
|
@ -1,8 +1,9 @@
|
|||
const navLinks = [
|
||||
{ href: '/about', name: 'About' },
|
||||
{ href: '/guide', name: 'Guide' },
|
||||
{ href: '/claims', name: 'Claims' },
|
||||
{ href: '/library', name: 'Library' },
|
||||
{ href: '/all', name: 'Index' },
|
||||
{ href: '/all', name: 'Notes' },
|
||||
{ href: '/contribute', name: 'Contribute' },
|
||||
]
|
||||
|
||||
|
|
|
|||
|
|
@ -1 +0,0 @@
|
|||
../../assets/
|
||||
|
|
@ -6,6 +6,8 @@ This is an open collaborative project. We already have a variety of partners and
|
|||
|
||||
* Contribute to the [library][], for example by adding articles, papers and research on web3 and background topics.
|
||||
* Write up key concepts and ideas. You can check out our [existing guide][guide] to see which ones could be extended or improved.
|
||||
* See our [concepts-todo](../../meta/concepts-todo.md) task list for open topics.
|
||||
* See our [claims-todo](../../meta/claims-todo.md) task list for open topics.
|
||||
* Read our [editor guide](../../meta/editing.md) on how to contribute or edit content on the website.
|
||||
* Proof edit articles and transcribe dialogs. Please [get in touch][contact] to find out more.
|
||||
|
||||
|
|
|
|||
|
|
@ -33,7 +33,7 @@
|
|||
"rehype-toc": "^3.0.2",
|
||||
"remark-gfm": "^3.0.0",
|
||||
"remark-parse": "^10.0.1",
|
||||
"remark-wiki-link-plus": "^1.1.1",
|
||||
"remark-wiki-link-plus": "^1.0.0",
|
||||
"tailwindcss": "^3.0.0",
|
||||
"unist-util-find": "^1.0.2"
|
||||
}
|
||||
|
|
@ -5310,9 +5310,9 @@
|
|||
}
|
||||
},
|
||||
"node_modules/remark-wiki-link-plus": {
|
||||
"version": "1.1.1",
|
||||
"resolved": "https://registry.npmjs.org/remark-wiki-link-plus/-/remark-wiki-link-plus-1.1.1.tgz",
|
||||
"integrity": "sha512-zSnIF3MrGQN+Bckl0+83pScJkhQe02OCAmbkgKqbhLkjnJSOJZk/UuyCRA6FNLkcAK9fhERUvwtsQKxEI/M76w==",
|
||||
"version": "1.0.0",
|
||||
"resolved": "https://registry.npmjs.org/remark-wiki-link-plus/-/remark-wiki-link-plus-1.0.0.tgz",
|
||||
"integrity": "sha512-LyIbc4LZaR0gEzET1DdQrv5NolSqChDXYqTvGdWx25yEN2evYnFKv8uG84rHIKq1YY63kg/t83+yacGH8Ep3Ag==",
|
||||
"dev": true,
|
||||
"dependencies": {
|
||||
"@babel/runtime": "^7.4.4",
|
||||
|
|
@ -9805,9 +9805,9 @@
|
|||
}
|
||||
},
|
||||
"remark-wiki-link-plus": {
|
||||
"version": "1.1.1",
|
||||
"resolved": "https://registry.npmjs.org/remark-wiki-link-plus/-/remark-wiki-link-plus-1.1.1.tgz",
|
||||
"integrity": "sha512-zSnIF3MrGQN+Bckl0+83pScJkhQe02OCAmbkgKqbhLkjnJSOJZk/UuyCRA6FNLkcAK9fhERUvwtsQKxEI/M76w==",
|
||||
"version": "1.0.0",
|
||||
"resolved": "https://registry.npmjs.org/remark-wiki-link-plus/-/remark-wiki-link-plus-1.0.0.tgz",
|
||||
"integrity": "sha512-LyIbc4LZaR0gEzET1DdQrv5NolSqChDXYqTvGdWx25yEN2evYnFKv8uG84rHIKq1YY63kg/t83+yacGH8Ep3Ag==",
|
||||
"dev": true,
|
||||
"requires": {
|
||||
"@babel/runtime": "^7.4.4",
|
||||
|
|
|
|||
|
|
@ -36,7 +36,7 @@
|
|||
"rehype-toc": "^3.0.2",
|
||||
"remark-gfm": "^3.0.0",
|
||||
"remark-parse": "^10.0.1",
|
||||
"remark-wiki-link-plus": "^1.1.1",
|
||||
"remark-wiki-link-plus": "^1.0.0",
|
||||
"tailwindcss": "^3.0.0",
|
||||
"unist-util-find": "^1.0.2"
|
||||
}
|
||||
|
|
|
|||
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