
Vitalik Buterin on Cryptoeconomics and Markets in Everything - jger15
https://medium.com/conversations-with-tyler/vitalik-buterin-tyler-cowen-cryptocurrency-blockchain-tech-3a2b20c12c97
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lavrov
Maybe I'm just being cynical (or jealous!), but when I read "Vitalik Buterin,
who has managed to synthesize insights across those fields into successful,
real-world applications like Ethereum", I think it's worth asking what
qualifies as successful, because to me, the inflated market cap of a
speculative asset isn't an objective measure.

I think that Ethereum's market cap has perhaps created an unearned reputation
for solving an essential problem (running _any_ verified, distributed
computation) and being the best solution to large-scale verifiable
computation, when I would argue that verifying a computation in a distributed
system by having each node (or some large subset of nodes, if sharded) perform
every step of every computation is _not_ an optimal solution.

~~~
fullshark
Money. A few engineers are impressed by the technology but most people are
excited by the money and prospect of a lot more money in the future. That's
what drives crypto fanatics instead of trying to generate value and that's why
I think it will ultimately fail.

~~~
thinkmassive
What's going to fail? Crypto fanatics? Cryptographically-secured trustless
distributed systems? All of cryptography?

~~~
fullshark
The Ethereum ecosystem and its derivative coins will not gain adoption among
anyone except a passionate sub cult which will eventually go to zero.

~~~
blocked_again
Similar statements were made about the computer and Internet as well.

~~~
simias
I hear this argument a lot, I'm not old enough to remember these times but I
wonder how much is true. According to Wikipedia ARPANET was established in
1969, then:

> In 1971, Ray Tomlinson, of BBN sent the first network e-mail (RFC 524, RFC
> 561).[59] By 1973, e-mail constituted 75 percent of ARPANET traffic.

> By 1973, the File Transfer Protocol (FTP) specification had been defined
> (RFC 354) and implemented, enabling file transfers over the ARPANET.

This is what ARPANET looked like in 1974, or 5 years after its establishment:
[https://upload.wikimedia.org/wikipedia/commons/0/00/Arpanet_...](https://upload.wikimedia.org/wikipedia/commons/0/00/Arpanet_1974.svg)

Meanwhile Bitcoin is almost 10 years old and all we have is speculation,
scams, a near-useless currency and many promises. What we don't have is a
useful application that showcases what only cryptocurrencies can do.

~~~
GenericsMotors
And for a comparison in the same tech era: Facebook had more than a billion
users after 10 years.

The "its still early days!" argument holds no water.

~~~
whb07
Terrible comparison bro. One company is built on tech that’s been around for
decades.

~~~
GenericsMotors
Merkel trees have been around since the 70s.

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tboyd47
> Don’t people trust ether and Ethereum in part because they trust you? In a
> sense, there’s this Russian tradition of holy men who come along —
> Dostoyevsky’s Alyosha, Prince Myshkin — like a non-evil Rasputin...

> ...I try to make myself maximally accessible in a bunch of ways, try to
> bring different people in different communities together, perform a kind of
> social coordination function, which is probably, from an economist’s point
> of view, similar to some aspects of management, but without the aspects of
> management that evoke images of centralized control in all those different
> things...

Question dodge level 9000.

~~~
willio58
Is that a question dodge? I mean he's in the unique position that people do
trust Ethereum in part because of him, but he really wants people to trust in
the protocol and its evolution over just himself.

Personally, if Vitalik wasn't involved in Ethereum I probably wouldn't have
been as interested in the project initially. But, for Ethereum to really take
off in the public realm, the cryptocurrency and its creator need to be
decoupled more. And I think this response from Vitalik gets this point across.

~~~
oh_sigh
What was Vitalik known for before Ethereum? He is still quite young, how much
did he do before Ethereum?

~~~
ruiquelhas
I tried to promote some quantum computer scam as well, IIRC.

~~~
ruiquelhas
*He

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raintrees
Conversations With Tyler is a podcast I greatly look forward to - I have
learned quite a bit from people I might not have paid much attention to going
about my typical hi-tech lifestyle, and for that I feel enriched and am
thankful.

------
thisisit
_o how would you describe how you teach yourself economics?

VITALIK BUTERIN: I guess it involves a combination of things. Some of it is
reading what various economists on the internet say. Some of it is reading
papers. Sometimes, if I want to dig into some topic more deeply, I end up
reading books, like I read one on urban transportation economics a while
back._

One of the things people need to realize is that you can't _learn_ economies
or behavioral science by reading. Sure you _know_ concepts but unless you have
implemented and gone through a full economical cycle, what you have in hand in
terms of _knowledge_ is just hypothesis - not actual facts. Every downturn has
upended what people previously known about depression. And same goes for
upturns. Sure, there are analysis after the fact but nothing in-between the
cycles.

Additionally, I remember Buterin quoting Debt: The First 5,000 Years as gospel
truth of economies. While the book is good and provides one perspective of
looking at things it is not the whole and sole of the theory. So, I really
doubt Buterin's knowledge on economics.

Before someone asks, I don't doubt his understanding on cryptocurrencies.

And frankly, this whole learning by reading is good for foundations. But I see
many people in crypto field jumping to release a, let's say voting blockchain,
because they read some papers/books on voting. And then they release an ICO to
test their theoretical knowledge. This doesn't help anyone.

To paraphrase Matt Levine on Bloomberg, cryptocurrencies seems to be learning
about every mistake made earlier. Just on a bigger and faster.

~~~
Shorel
Given the actual results and insights provided by economists, I doubt __anyone
__' s knowledge on economics.

Question one: is there any successful economy that doesn't require endless
population growth?

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lavrov
When discussing how crypto-assets should be valued:

> In that case, you can take the simple model and say a cryptocurrency’s
> valuation is the net present value of the transaction fees that it’s
> getting. This, by itself, surprisingly does give fairly decent valuations.

> For example, Ethereum’s transaction fees tend to be about $500,000 a day
> recently, which is about $180 million a year. If you tried to value the
> ether market cap as some kind of corporation, then the “P/E ratio” is only
> somewhere in the low 200s, which is high for a company, but not off-the-
> charts absurdly high.

Isn't this completely circular? He's saying that the value of the transaction
fees per year measured in dollars equates to some reasonable fraction of the
market cap measured in dollars... but wouldn't this be true if the market cap
were much higher or much lower? It's just a comparison of the total supply to
the amount being circulated, rather than a substantive claim about how each
token (or the market cap) should be valued in dollars.

~~~
DennisP
No, because transaction fees are an ongoing negotiation between miners and the
people issuing transactions. That market can adjust to change in the ether
price, and keep the real-world transaction cost the same. Or the fees can
wildly fluctuate due to variations in traffic, even when the ether price is
stable.

~~~
lavrov
That position isn't supported by volatile transaction fee data - excepting
spikes for spam or high traffic, the transaction fee denominated in dollars
generally tracks the price of ETH. Probably because the overwhelming majority
of ETH activity is speculative (60% of ETH held on exchanges), and traders
view transaction fees as simply a percentage of gains/losses and are more
amenable to paying higher fees.

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bhaak
> What are things that you can do with blockchains that you can do only with
> _more_ difficulty without them?

It's nice to see one of the most important figures in cryptocurrencies state
plainly that cryptocurrencies aren't solving problems that have been
impossible to solve before.

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snarfybarfy
I'm not an economist myself but Vitaliks reasoning in regards to valueing
cryptos seems unsound:

 _For example, Ethereum’s transaction fees tend to be about $500,000 a day
recently, which is about $180 million a year. If you tried to value the ether
market cap as some kind of corporation, then the “P /E ratio” is only
somewhere in the low 200s, which is high for a company, but not off-the-charts
absurdly high._

Those transaction fees are revenues and NOT earnings. I have no idea how
profitable ETH mining is but earnings are going to be significantly less after
including operating costs (hardware and energy mostly). Also being somewhat
new and still unproven, I would add a hefty risk premium to the discount
factor. All in all I would say that a P/E of 50 would be optimistic and
dependant on getting a lot more transaction throughput. Based on that you
could argue that ETH is currently overvalued by a factor of maybe 10-30.

 _There’s also this model of store of value, where people hold it because they
expect more people to hold it in the future, and because people keep getting
richer and the population keeps growing. As long as prices grow slow enough,
it can be stable in the long term._

Duh?! That suspiciouly sounds like the definition of a pyramid scheme?

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TekMol
Popups, dickbars ... it's amazing that Medium can retain users. I am so driven
away by this user-hostile behaviour. I would never ever put anything on
Medium.

~~~
weavie
[https://alisdair.mcdiarmid.org/kill-sticky-
headers/](https://alisdair.mcdiarmid.org/kill-sticky-headers/)

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drcode
This is an interview between one of the most important economists and most
important computer scientists alive today.

Even if you disagree with my assessment (and I'm sure many on HN will be more
than happy to do so) I think you will find at least some interesting tidbits
in this podcast that will make it worth your time to listen.

~~~
justicezyx
One of the most important computer scientist is a wrong statement.

He is not a computer scientist. And he is different than one. He should be
called crypyoecononomy architect.

Computer scientist requires a lot of more work in research and development,
and at the same time he has done a lot more work that is outside of the
computer scientist scope.

~~~
darawk
It seems to me that he's advancing the research frontier in an area of
computer science. Whether or not he has a PhD seems pretty irrelevant to that.

