
Cryptonetworks and why tokens are fundamental - squirrel
https://www.nickgrossman.is/2018/cryptonetworks-and-why-tokens-are-fundamental/
======
rajeck
I'm always happy to be convinced that someone has seen something I've missed
in all of this hype about crypto, but when you say things like...

'imagine if you could fork Amazon and launch a direct competitor'

..you've lost me. Amazon is not a code base. It has over 500,000 employees who
work hard to serve its customers. How do you fork that?

I would offer another, better example but I can't think of one. Web 2.0
companies are so far ahead that web 3.0 is going to have to come up with
something completely different to be commercially interesting.

~~~
roymurdock
The author is arguing that decentralizing the control of compute power and
compute-as-a-service is valuable and should be invested in.

It is valuable if we ever reach a point where say, AWS has a monopoly on all
compute power, and starts making bad/unfair/predatory decisions that hurt
customers.

Otherwise running decentralized payment networks to exchange compute power is
much less efficient and much more costly than relying on purchasing services
directly from a few competing (read: non-colluding) service providers using
USD, GBP, EUR, credit cards, etc.

There's really no need to decentralize compute-as-a-service. This person is
getting paid to talk their book because their employer has placed a lot of
bets in the cryptocurrency/blockchain world and is trying to brainstorm ways
to turn them into actual viable products and exit these investments.

Blockchains / decentralized ledgers are almost always solutions looking for a
problem. They solve the very niche issue of exchange between untrusted
parties, with caveats, and with extra performance/cost added to a centralized
solution.

There's currently no reason to implement a decentralized ledger solution for
exchanging compute-as-a-service.

~~~
tlrobinson
And you don't even mention the biggest issue: why would I ever trust my data
to some random compute provider in a "decentralized compute-as-a-service"
system.

At least with applications like storage you can encrypt your data. AFAIK
homomorphic encryption isn't general or efficient enough to be very useful
yet.

------
equalarrow
This is the big picture and it most aligns with how I feel about this emerging
space.

There's a problem with developers and cs people and that is that they are
looking at one small spec - the blockchain data structure. From there, the
work their way up through sensationalist headlines and shout "blockchain is
crap, it should go away, we don't need more 'money', this whole space with its
ico's is a scam!", etc, etc.

But it's not a scam. It should not go away. And, it is the future.

No one I think is debating that the 'blockchain' (I'm referring to the bitcoin
data structure here) is slow. Anyone that holds on to that nugget is entirely
missing the point and needs to grab their 56k modem and 386 and go hunker down
in the closet, because that's their mindset.

Bitcoin (and other tokens) are not valuable because of their slow data
structure. They are valuable because, like the article says, they are
permissionless and globally distributed (immutability is also key and not
mentioned).

If you think that is not important, you are fooling yourself. It's a
revolution just as big as webapps were over non-connected desktop apps. Just
as mobile was over desktop web apps.

Take my super high level case of 'blockchain' medical company (I use this when
I talk to people about why this next wave is important).

Currently today companies own your medical data. If you move from one medical
provider to another, in order to get your history over to the new provider,
the new guy has to either call or request a fax of that data and then double
enter it into their system. _Maybe_ this exchange is automated but I doubt it.

What happens when you leave that company? New company has to go through the
same laborious process. And so on and so forth.

This is today's problem: silo'd data 'owned' by various companies out there.
The end user/customer has little power because they own nothing. They are at
the mercy of that data because companies do not want to share (they want to
corner markets and destroy competition) and companies do care enough about
securing 'your' data, so thieves then break in and steal it. It's funner for
them to build teams, have company parties, tout their prowess and expertise in
the press. Securing data and making it interoperable - not very fun or
profitable.

What (smart) people are working towards is turning this equation on its head
and encrypting and distributing globally all the data. So, instead of using 10
medical companies throughout your life, the potential is to use a distributed
system that stores your data in some kind of 'blockchain' (zoom out an think
an immutable record of your entire health history) that only you have the full
pub/private key(s) to. (Yes, wallets and keys are a potential problem here and
we'll have to work more towards making recovery easier. This is a big, deep
topic in and of itself.)

This is not far fetched. We already use ssh keys on remote servers where root
has the ultimate permissions and then we can add/remove users at will with
their own keys and permissions. So, we understand conceptually how to use
pub/priv keys with regard to access. It's not a stretch to start figuring out
how to apply this to global data and companies and teams have already been
doing this.

Of course, the 'old' medical companies would have to use this system as well
and they probably will go kicking and screaming since the data to _them_ is
not as valuable because they are not in control anymore. But to _you_ it is.
It really is _your_ data and you can take it wherever you want over your
lifetime.

This is a total paradigm shift of how tech companies will need to operate in
the future.

Tokens, blockchains, dlt's, yah, they're all buzzwords. But so are saas,
elastic ip's, spa's, and load balancers. There was a time when you didn't need
any of those things and now, they're part of everyday life even if you don't
know it.

So, hate if you will, but I already know people working on things like this.
Tokenization, dlt/blockchain/dag, gloabal pki access, true micro txn's - these
are all things already in play and we'll see more and more of them in the
coming years.

~~~
rdiddly
This is a political problem, not technical. If my doctor were willing to store
my info however I want them to, the problem is solved. And if they were
willing to store it on a block chain, then presumably they'd also be willing
to just put it on a thumb drive for me? Or a _piece of paper_? A centralized
solution, centered on me.

~~~
langitbiru
I think one of the values that blockchain can bring on the table in this
context is convenience.

Passing data to a thumb drive or a piece of paper is a decentralized strategy
but inconvenient one.

I imagine in the future, the doctor in Brazil writes your medical data into
his/her local computer. You ask the data and show the QR code or public
address in your mobile phone. The doctor sends your data to this QR code or
public address. You store this data into the blockchain.

Next year, you go to Singapore and do some medical operation. You pass the
data from the blockchain via your mobile phone to the doctor in Singapore.

I guess that is the selling point.

Can this be done with centralized approach? Of course. We can build a Paypal
company but for medical records. The problem with that is some countries are
reluctant to share the medical data with American company. They, I assume,
will trust the algorithm which does not have the bias compared to an American
company.

Paypal right now is not supported in Iran. I imagine this is one of the
reasons doctors around the world would trust the blockchain compared to an
American startup company.

[Edited] If we want to build a platform where Chinese and Americans can
collaborate on sensitive data, blockchain could be the answer. You don't
expect Chinese to trust an American startup company or vice versa. [/Edited]

This is my hypothesis.

~~~
icebraining
Why is the doctor sending your data to some public address shown on your
phone, and not to your phone directly?

~~~
slfnflctd
My phone has zero reception at my doctor's office. It also runs out of space
regularly, since manufacturers decided to screw consumers over by taking out
SD card slots. There could be plenty of other reasons.

~~~
icebraining
Why do you need reception to transmit something from a computer to a phone in
the same room?

As for out of space, that's a valid concern. But the blockchain itself can
store almost nothing - a few bytes per transaction at most. So you'll have to
store the data somewhere else anyway, and only point to it using the blockain.
And therefore, the question returns: why not store that pointer in the phone
itself?

------
JumpCrisscross
Context: Union Square Ventures was part of a recent group of VCs that “wanted
formal assurance from regulators that their products would be exempt from SEC
oversight, arguing the tokens aren’t investments but products that can be
exclusively used to access services or networks provided by startup companies”
[1].

This was broadly seen as a self-serving pitch, as Matt Levine comically noted:

“I am sympathetic to the idea that some innovation should be allowed in
initial coin offerings, and that the fact that ICO tokens definitely seem like
‘securities’ under existing precedent doesn't necessarily mean that the best
policy approach is to subject them to all of our existing securities laws. The
optimistic view of ICOs is that they enable a genuinely new way to fund and
create ownerless networks, and in this age of overly powerful owned networks,
that is something worth exploring and encouraging. But you do have to start
from a place of honesty: ‘These are probably securities, so what do we do
about it’ rather than ‘hahaha what there is no speculation in the ICO market,
what are you even talking about?’ [2]”

[1] [https://www.wsj.com/articles/cryptocurrency-firms-
investors-...](https://www.wsj.com/articles/cryptocurrency-firms-investors-
seek-exemption-from-sec-oversight-1524130200)

[2] [https://www.bloomberg.com/view/articles/2018-04-20/being-
sho...](https://www.bloomberg.com/view/articles/2018-04-20/being-short-and-
right-can-be-bad)

~~~
berberous
Just because it’s a self-serving pitch, doesn’t mean it’s wrong. I love Matt
Levine, but this take of his is a little too glib/snarky and short on
analysis.

There is a coherent, rationale analysis that certain tokens, once live, are
“utility tokens” that should not be considered securities. For example, USV
has invested in Filecoin, a distributed data storage network. Given the
network is not live, this was sold via a SAFT (simple agreement for a future
token) to accredited investors only, with the tokens to be delivered once the
network is launched. At that point, since the tokens are used to pay for
storage, is the token a security or a utility token? Reasonable arguments can
be made for the latter, and regulatory clarity to that affect would be
extremely helpful to this developing space. It’s great that these VCs are
working with regulators to explain and advocate for positions that are helpful
to the crypto community. They are NOT, I’d sure, arguing that any company
should be able to ICO freely.

~~~
JumpCrisscross
> _Given the network is not live, this was sold via a SAFT (simple agreement
> for a future token) to accredited investors only, with the tokens to be
> delivered once the network is launched. At that point, since the tokens are
> used to pay for storage, is the token a security or a utility token?_

Filecoin ran an exceptionally-compliant process. That said, it's not obvious
that even their token will not be a security.

SAFTs are self-admitted securities. (One can think of them as deliverable
forwards.) There aren't many securities in the wild that convert into non-
securities for the simple reason that they were bought for investment
purposes, and so anything they become traces to that desire.

So even in the case of the exception, we need to wait for the SAFT to convert
and see if that token does what every other token so far has done: die or
"moon" as a speculative investment vehicle.

> _They are NOT, I’d [_ sic _] sure, arguing that any company should be able
> to ICO freely_

"The group wanted formal assurance from regulators that their products would
be exempt from SEC oversight" sounds like that [1]. They asked for too much,
too soon; this presentation is part of the backtracking.

I don't mean to say it isn't worth flipping through. Just that this context is
material to any analysis of it.

[1] [https://www.wsj.com/articles/cryptocurrency-firms-
investors-...](https://www.wsj.com/articles/cryptocurrency-firms-investors-
seek-exemption-from-sec-oversight-1524130200)

~~~
berberous
>> "They asked for too much, too soon; this presentation is part of the
backtracking."

The WSJ article is very thin on details, and I suspect is missing important
nuances. I do not know what happened at the SEC meeting, but my guess is that
they pitched something very close to this linked presentation (which you'll
note is dated March 13, likely before the SEC meeting). In particular, take a
look at slide 11, which tries to bifurcate the world into (i) pre-launch
securities and (ii) post-launch live networks, with the latter perhaps being a
currency, commodity, security or some other beast, depending on its properties
(e.g. a post-launch token with profit sharing features would likely still be a
security).

These VCs and their lawyers are not morons -- the case for most ICOs being
blatant securities offerings is impossible to argue against, but the more
narrow view that Nick has outlined has real merit to it and I'm sure is close
to what they pitched.

Also, I don't disagree that a ham-fisted SEC regulator could easily argue that
Filecoin post-launch is a security -- that's precisely the problem. Crypto
today can often be treated as a currency, a commodity and a security all at
the same time, and often in incompatible ways. The industry _should_ be
meeting regulators, and coming to a sane coherent policy on how to treat these
things in different contexts (perhaps via well-delineated safe harbors), so
that people can continue to innovate without worrying they are breaking the
law.

~~~
JumpCrisscross
> _The industry _should_ be meeting regulators_

The industry should be trying to create a single example of a non-fraudulent
non-investment utility token.

The optics of millionaire VCs flying across the country on their millionaire
LPs' dimes to safeguard hypotheticals against regulatory scrutiny while
millions of regular Joe's are getting scammed are palpable. Before you can
argue "X should be exempt from regulation because it exhibits Y properties,"
you have to have an X with Y.

------
faizshah
The current business model of ICOs is functionally as a pyramid scheme due to
the deflationary nature of most cryptocurrencies. The idea is you buy, then
you hold & evangelize, then you sell at 10x/100x. Look at the dropping
transaction volume across the board even during the mainstream attention on
cryptocurrency.

If these cryptocurrencies or tokens were inflationary and meant to promote
commerce/trading rather than holding and speculation then I don't think anyone
would have a problem (like more easily traded microsoft points or MMO gold).

This also doesn't change the fact that most online currencies are functioning
as unregulated securities and are facilitating illegal transactions and money
laundering.

If more thought was put into creating decentralized, inflationary currencies
that followed current financial regulations I would not have a problem with
cryptocurrencies. But the predatory nature of the community that has developed
around cryptocurrency and the focus on get rich quick schemes rather than
online commerce is what worries me about cryptocurrency.

Sorry for the rant.

~~~
21
> focus on get rich quick schemes

Sorry, but the whole finance (and VC) world is about getting rich quickly.
Cryptos, while being more scammy due to newness and lack of regulations, are
not fundamentally special in this regard.

~~~
JumpCrisscross
> _Cryptos, while being more scammy due to newness and lack of regulations,
> are not fundamentally special in this regard_

I disagree. Cryptocurrencies are unusually scammy. (Past tech cycles, both
those which realized their fruits and which failed, had lots of vaporware. And
there were some scams. But the latter are more prevalent in this domain.)

My hypothesis for this is in the original sin of Bitcoin: choosing currency as
its use case. This primed the space to think of tokens as securities on which
the average Joe could get rich quickly, the underlying business be damned. (It
also seeded the culture with black market operators.)

> _the whole finance (and VC) world is about getting rich quickly_

Which makes the author of this article's efforts to exempt their investments
from financial regulation [1] questionable.

[1] [https://www.wsj.com/articles/cryptocurrency-firms-
investors-...](https://www.wsj.com/articles/cryptocurrency-firms-investors-
seek-exemption-from-sec-oversight-1524130200)

~~~
tylersmith
> My hypothesis for this is in the original sin of Bitcoin: choosing currency
> as its use case.

Maybe I'm misunderstanding you but Bitcoin's entire purpose was to be p2p
cash. What other use case would you have suggested if you were advising
Satoshi in 2008?

~~~
JumpCrisscross
> _Bitcoin 's entire purpose was to be p2p cash_

Put another way, the blockchain's original sin was Bitcoin. It started the
conversation in a scummy way.

~~~
beaner
There's nothing inherently scummy about money itself. It's just a tool for
human organization.

~~~
Retra
There's nothing inherently scummy about a market, either. But black markets
can get pretty scummy. What's the difference? The Clientele?

------
JamesLeonis
If a protocol or technology is susceptible to government control or
governance, it is by definition centralized. First it was Super Peers, then
Trackers, and now it's these _teams_. It's all on the "The Role of Government"
[1] page of his slide deck. Let me tackle each one-by-one.

* Light-Touch Stewardship

* Buyer/Investor Protection

Both of these imply a beneficiary/counterparty to go after. No counterparty
means any protections or enforcement is impossible below a network-wide ban.

* US-Centrality

Also implies a beneficiary, if only to gain tax revenue or the splashy effects
of innovation.

In both cases centralization is a key component. To put another way,
BitTorrent does not have a _Role of Government_ section in it's spec.

1:
[https://www.dropbox.com/s/7koiztv8mae98qg/What%20Are%20Crypt...](https://www.dropbox.com/s/7koiztv8mae98qg/What%20Are%20Cryptonetworks%20and%20Why%20are%20Tokens%20Fundamental_.pdf?dl=0)

------
BerislavLopac
I'm honestly curious about what is VC reasoning behind investing to
decentralised networks? In my view, a company behind such a product would be
inherently un-exitable.

~~~
21
Remember when people were saying that it's crazy to invest in Facebook because
there is no way Facebook will ever be profitable?

[https://news.ycombinator.com/item?id=1719975](https://news.ycombinator.com/item?id=1719975)

[https://news.ycombinator.com/item?id=5145817](https://news.ycombinator.com/item?id=5145817)

~~~
root_axis
This is a fallacious argument. It doesn't matter if some people predicted a
company would fail even though it went on to succeed beyond what most people
predicted, this is a rare outlier and usually the naysayers are correct, even
if only because there are naysayers for literally everything.

------
montrose
I upvoted this despite the rewritten title, which I hope the mods will fix.

------
tramGG
I read this about an "ocean of tokens", and their role and evolution of
building new tech and it seems relevant

[https://blog.synapse.ai/an-ocean-of-tokens-
abf976418feb](https://blog.synapse.ai/an-ocean-of-tokens-abf976418feb)

