
Governance, Part 2: Plutocracy Is Still Bad - mooreds
https://vitalik.ca/general/2018/03/28/plutocracy.html
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The astonishing amount of time, money and effort that has been put into
cryptocurrencies is a sociological marvel. Every emotion, every cognitive
bias, every aspect of the human experience is on display. And it's all fully
documented, in real time. Mass delusion in Big Data. A thousand sociology PhDs
could be written about reddit's /r/cryptocurrency alone. A joyous, despairing,
dissonant, gloating, brooding, witty, witless, confusing, euphoric mass.

This article is part of a curious subgenre of cryptocurrency literature, that
of an advocate of one cryptocurrency (Ethereum) holding forth against a
different cryptocurrency (EOS). Do the words have any meaning beyond the
confines of the beautifully elaborate internal world in which they reside?
Perhaps, in a strictly metaphysical sense. I can't appreciate it, or even
comprehend it, but I can sit back an delight that such a thing exists at all.

~~~
seibelj
Ethereum is unquestionably an interesting technology. Whether the price is
justified is a matter for the markets, which currently place several billions
of dollars of value on it. If you are so certain it is mispriced, there are
numerous places for you to profit from such stupidity, if you are confident
enough to put your money up.

Vitalik is the benevolent dictator for life of Ethereum, and EOS is a
radically different model than proof of work blockchains like Ethereum and
Bitcoin. However Vitalik and the ETH community recognizes there is some value
in proof of stake and is working on their own implementation which is
different than EOS’ model.

Cryptocurrencies make us question why money has value, what makes an asset,
and all sorts of interesting philosophical and economic questions. I wouldn’t
write off the entire industry and technology. It has been attacked by
intelligent people for a decade and it keeps moving forwards.

~~~
wdewind
> Cryptocurrencies make us question why money has value, what makes an asset,
> and all sorts of interesting philosophical and economic questions.

Honestly these questions have all been considered before, answered, and
codified into law, and the crypto communities are full of people who have no
idea what is going on around them. The banking systems we have are the result
of us considering these questions, deciding politically we want something very
different, and then building the technical systems that match that design.

The classic example is investor accreditation laws, and why, as far as I can
tell, there isn't a single ICO that doesn't violate them. It's not that no one
considered whether or not you should be able to raise money from many
different people, and it's not been logistically complicated to do that for at
least three decades. The reason is that the political will does not exist.

~~~
teknopurge
> Honestly these questions have all been considered before, answered, and
> codified into law, and the crypto communities are full of people who have no
> idea what is going on around them. The banking systems we have are the
> result of us considering these questions, deciding politically we want
> something very different, and then building the technical systems that match
> that design.

Crypto is saying that because of the evolution of institutions surrounding
banking and politics there are many inefficiencies(and malevolent actors) that
have become ingrained in the poli-fi complex. Many of these projects(the 20%
that are legit) aim to solve various issues that have been identified in the
"free market" \- whether it's reducing settlement time of cross-border
payments or efficiently pricing what a unit of cloud compute and storage can
be, blockchain is a novel excuse to revisit many problems with lazy answers.

~~~
wdewind
The technology is part of the institutions, which are both derivative of the
politics, which is where these systems are really designed. I'm not saying the
banking system is perfect, but the ideas coming out of crypto aren't new from
an economic perspective, and frankly aren't really even interesting.

~~~
seibelj
I think you are being extraordinarily flippant in your descriptions of
cryptocurrency. They are fascinating and have captured the popular
imagination, at least in terms of awareness of bitcoin and how frequently it’s
mentioned.

You have clearly made up your mind and I won’t attempt to change it. But for
anyone reading, an asset, created out of nowhere, that has no control from any
authority and cannot have any control, is worth $100 billion in a decade. This
is an amazing feat, and is indeed very interesting.

~~~
wdewind
I don't think I am. I've spent a ton of time in the community, I've owned a
bunch of different currencies, and I've spent a lot of time thinking about the
implications of the technology. The ideas are fun, but they aren't new, and we
can reason about why they still wont work.

One reason cryptocurrency "wont work" (admittedly vague term, but I'm happy to
shoot down any definition of "work" you have because I think they are truly
useless outside of a tiny portion of people with very specific needs) is
simple specialization of labor: people do not want to be engaged in the
process of running a currency or a government, which is why, among many other
reasons, banks and representative governments exist. And you see this pattern
already repeated with crypto where any meaningfully large currency has
extremely concentrated ownership. This is just swapping one set of large,
monolithic bankers for another one.

Another reason cryptocurrency "wont work" is that everything it depends on is
completely derivative of political and technical systems that are designed to
prevent decentralized control. The internet exists on networks owned by
companies like Verizon, on computers owned by Amazon, and is regulated by the
US government. If cryptocurrency was going to be truly revolutionary in anyway
the US federal government (and others) already have multiple built in kill
switches for it. Sure you can cold store your hashes (even though we all know
most people just have Coinbase wallets), but the utility of the network is
trivial to compromise or destroy for a state level actor. And as an aside:
most crypto is actually regressive from a privacy/personal liberty standpoint
when compared with cash, or even the current banking system in many ways.

One more reason crypto "wont work" is that I just haven't heard a single use
case for it. The classic "remittances" use case _makes no sense_ because you
still have to change the crypto for real currency, which is where the cost is,
(yes, only until the currency is meaningfully bootstrapped, let me know when
that happens). You don't pay Western Union 15% to flip bits in their servers,
you pay them 15% because they put a guy with a gun next to the actual money in
the relatively less safe country you are sending money to.

I will remind you that Lehman Brothers was worth about $70B at its peak, in a
_highly_ regulated market. $100B is big but far stranger things have happened
than an unregulated public market being wrong about things this size. The
incentives to pump something like this up are massive, and the market is
irrational in the short and medium term. There are a LOT of really rich people
out there who feel like if they hadn't missed "the internet" they could be
even richer, and we managed to convince them crypto might be the next
internet. To your point: that in and of itself, from a sociological
perspective, is _fascinating_.

I do have strong opinions, but they are held loosely and they are ones I hope
to be wrong about, so I'm open to discussion.

~~~
dlubarov
> people do not want to be engaged in the process of running a bank or a
> government

But casual users can choose to store their crypto assets with a
bank/custodian/exchange. Granted, it defeats some of the benefits, but not
all. E.g. most crypto has low inflation compared to USD. Even though CPI
inflation is ~2%, the money supply inflates around ~10% per year, whereas most
crypto will inflate <1% long term.

> the utility of the network is trivial to compromise or destroy for a state
> level actor

For smaller PoW currencies, absolutely -- a state level actor could acquire
majority hash power, then build their own fork which contained no
transactions. For Bitcoin, it'd take time and lots of money, but it's
possible.

But PoS currencies are more resilient. With something like Cardano, I don't
see what governments could do, apart from banning its use within their own
jurisdiction. Even if they purchased a 51% stake, once they start the
malicious fork, the community would know which accounts were participating and
could organize a hard fork to ban them.

> most crypto is actually regressive from a privacy/personal liberty
> standpoint when compared with cash, or even the current banking system in
> many ways

That's a fair criticism of Bitcoin etc., but future iterations of
cryptocurrencies will surely include ZeroCash-style privacy at least as an
optional feature, if not for every transaction.

> The classic "remittances" use case makes no sense because you still have to
> change the crypto for real currency, which is where the cost is, (yes, only
> until the currency is meaningfully bootstrapped, let me know when that
> happens).

Here's how bootstrapping could happen:

\- {Apple,Google,Samsung}Pay add support for various cryptocurrencies.
Initially, most stores may not support crypto payments, either because the POS
(often Verifone) doesn't support it, or because the merchant doesn't want to
deal with it.

\- POS vendors start supporting crypto, starting with more agile companies
like Square. For them, there's no downside apart from development costs.
Online processors like Stripe and PayPal add support as well.

\- As processor support improves, gradually more and more merchants accept
crypto payments, either for PR reasons, or for the low fees, quick settlement,
lack of chargebacks, etc. Some offer discounts for crypto payments.

\- Payroll providers and and tax services eventually add support crypto
payments. Again, no downside besides development costs. So people who want to
can do everything in their favorite cryptocurrency, even though it's converted
to and from fiat in the background.

\- After several generations, taxes are the one thing people still
(indirectly) use fiat for. The government still makes money from inflation
tax, but eventually they realize that it's essentially a wealth tax, with tons
of fees going to exchanges. They replace it with an explicit wealth tax, or
(optimistically) something that makes more economic sense, like land value
tax.

I'm not saying it's a sure thing at all, but it seems somewhat plausible, no?

~~~
wdewind
> But casual users can choose to store their crypto assets with a
> bank/custodian/exchange.

It's not clear to me that this is meaningfully different than our current
financial system.

> Granted, it defeats some of the benefits, but not all. E.g. most crypto has
> low inflation compared to USD. Even though CPI inflation is ~2%, the money
> supply inflates around ~10% per year, whereas most crypto will inflate <1%
> long term.

It's _really_ not clear to me that this is a benefit, and even if it is was,
there is nothing stopping the Bitcoin network, for instance, from deciding it
wants to inflate after it has mined all the coins. The fact that the vast
majority of mining is controlled by a handful of Chinese companies and that
this is seen as preferable to The Fed for deciding whether or not to inflate
seems crazy to me. But it's possible, even probable, that the people who make
_real_ money selling bitcoins will vote to make more bitcoins after they run
out of bitcoins to sell, ie: squeeze blood from the stone.

> With something like Cardano, I don't see what governments could do, apart
> from banning its use within their own jurisdiction.

You're talking about a government that reads literally every single piece of
internet traffic and likely has backdoors into many encryption products.

> That's a fair criticism of Bitcoin etc., but future iterations of
> cryptocurrencies will surely include ZeroCash-style privacy at least as an
> optional feature, if not for every transaction.

No, because anyone who wants to make a serious business out of these will be
required to become a Money Services Business, and have a Know Your Customer
(KYC) process. As I mentioned in my previous posts: we've thought about this
problem before, we don't want money floating around that isn't easily
traceable, and so we already have laws governing this stuff. It's not a matter
of "design the right mathematical system to create anonymity." The Dudes With
the Guns do not want that so it will not happen. These systems cannot
meaningfully exist outside of the current political system without a real,
guns and explosions, revolution.

> I'm not saying it's a sure thing at all, but it seems somewhat plausible,
> no?

There is literally no upside for the vast majority of the actors in your
proposal. If a currency is truly deflationary consumers wont want to spend it,
if it's not it's not meaningfully different. Consumers also want a layer of
protection, which credit cards offer them. Big vendors (Microsoft,
Valve/Steam, Overstock etc.) who accepted crypto have already decided to stop,
and transaction volume is plummeting so I think your proposed series of events
is extremely unlikely.

The market is surely irrational, and there are a ton of things that exist that
shouldn't, so who knows. But this stuff is not a good idea, there isn't any
"mystery" left to it. We understand what's being proposed, it's basically all
been proposed before, and it's an idea filled with huge problems that have
only begun to surface because it is a nascent system.

~~~
jstanley
A lot of your answers come down to " _we 've_ already decided how _our_ world
will be and _your_ ideas aren't welcome". The cryptocurrency community is
saying exactly the same thing: _we 've_ decided how _our_ world will be and
_your_ ideas aren't welcome.

~~~
wdewind
No, you're misunderstanding. My argument is based on Conway's Law: The
technology will reflect the politics. If you want to change this building
technology that enables it is not a prerequisite. Go change the legislation,
then the systems that follow that legislation would naturally emerge.

To go back to the accredited investor example: we don't need cryptocurrency to
enable companies to raise money from a wide variety of sources. It's not even
close to the best solution if that's your goal.

What's frustrating to me is watching people built technology without knowing
anything about economics and thinking that they've built new economic ideas,
when in fact they are extremely late to the conversation and don't have a real
sense of what the state of the art is, nor the important moving parts are.

~~~
jstanley
The technology does reflect the politics [of this group of people], but the
government does not.

You're just not acknowledging the existence of people with political views
different to your own.

~~~
wdewind
> The technology does reflect the politics [of this group of people], but the
> government does not.

Right, that's what I'm saying. The technology will yield to the government,
not vice versa, so if you want this technology to take off you will need to
change the political foundations upon which it lays. This isn't an argument
about what should be, this is a description of what is.

> You're just not acknowledging the existence of people with political views
> different to your own.

Sorry, I don't mean to be disrespectful, but the differences coming out of the
cryptocurrency community are extremely sophomoric and reflect people who have
thought deeply about technology and almost not at all about the political or
economic systems in which this technology exists. It's not a matter of having
a different opinion, it's a matter of not being able to contribute to the
conversation because the crypto community doesn't even know what it doesn't
know.

~~~
jstanley
> not being able to contribute to the conversation

You still think you are the one who gets to decide what the conversation is.

My point is that lots of different groups of people are having lots of
different conversations. Just because the group of people you hang out with
don't like cryptocurrency doesn't mean other groups of people can't or won't
use cryptocurrency.

And there is _nothing_ you can do to stop them. The genie is out of the
bottle.

> if you want this technology to take off

It has already taken off. Millions of people around the world already use it.
It is working just fine.

~~~
wdewind
Dude, I'm not here to shut down the revolution, I'm trying to explain what a
real revolution entails. It's absolutely not running software on a bunch of
hardware and networks you don't own. The people having the "real conversation"
at the "real table of power" don't give a single shit about crypto and they
never will because it is in no way a real threat to the existing economic
power structure.

The "group of people I hang out with" you're referring to is actually the
Federal Government of the United States, and it's not one that I'm
particularly fond of, but they are who is in charge. As I mentioned in another
post, the US government could easily shut down the effective use of every
crypto currency inside of the United States. They have the legal and physical
ability to do that _today._

There is very little evidence that the crypto community understands the
systems they are so eager to destroy and rebuild (often with worse solutions,
that have already been tried and failed, to the same problems). This doesn't
mean the current banking system does not have faults, but those who don't
learn from history are doomed to repeat it.

------
sidstling
Don’t modern mining pools work exactly like coin voting? The entry level is
buying hardware instead of digital tokens, but it’s not like proof of work is
a democratic process anymore either where every small timer has as much to say
anymore.

It’s also a little weird to read about economics from cryptcurrencies that you
still can’t use to buy beer.

~~~
bitxbitxbitcoin
It's better to think of the node runners as the "coin voters" for anything
democratic. Look at the Bitcoin vs Bitcoin Cash split for instance.

Participants of modern mining pools for all coins are arguably just in it for
the money (and likely have subsidized or below average electricity rates).

Proof of work isn't a democratic process at all. The "math problem" that the
miners are solving is providing a hash of the next published block of
transactions (plus some other things). The protocol doesn't check every
miner's solution and democratically choose the correct set of transactions to
publish based on consensus. Instead, it's a lottery - it's just that it isn't
economically cost effective to "buy lottery tickets" that attempt to publish
an essentially alternate "history" to the blockchain.

There are multiple ways to buy beer using cryptocurrency - physical debit
cards that draw from a deposited cryptocurrency balance at time of purchase
using the current exchange rate, for instance. Kind of like how it works when
you use your EU debit card to pay for a beer in the US using euros.

