
The Token Effect - rrecuero
https://blog.ycombinator.com/the-token-effect
======
the_stc
Can you explain exactly what you mean by TCP/IP is underfunded, with examples?

And how are tokens on the Ethereum network capturing value in other networks?
How is Filecoin better off with its own money versus people bidding for
storage in Bitcoin, Monero, or Ethereum directly? And why should the value of
Filecoin tokens spike up? How is having a speculative token beneficial for
accurately pricing storage?

The liquidity aspects are just companies jumping around regulations. Nothing
stops startups from listing all their shares on a website and letting anyone
buy/sell/trade them. Well except for the legality aspect!

I say this as someone about to do a cryptocurrency fundraiser in the adult
services space. Though we aren't issuing tokens, but shares - we take payment
in cash or other cryptocoins. The main benefit is easily being able to
crowdfund and return dividends while avoiding legal hurdles.

~~~
rrecuero
There are many points there:

1 - Regulation. You can do ICOs and Token Sales legally. If your tokens are
not securities, you can do ICOs open to everyone. If your tokens are
considered securities, you can do so on Coinlist.

2 - Tokens natively track the value of the network. For these networks, its
value is not tracked by company shares. Ethereum is a good example of this.
Ethereum Foundation is a non-profit and all the value accrues to the token.
You can also do a hybrid system or none. Depends on your specific use case.

3 - Funding. Internet Bug Bounty is a good example of this
[https://internetbugbounty.org/](https://internetbugbounty.org/). If TCP/IP
would have been able to capture a billionth of a cent for every request things
it wouldn;t be needed. Maybe, our infrastructure would be really different
today.

~~~
joosters
_If TCP /IP would have been able to capture a billionth of a cent for every
request_

Cryptocurrencies haven't been able to do micropayments, this kind of system
just isn't possible. Proponents will go on about payment channels such as
lightning, but these have been 'just around the corner' for several years now
and their effectiveness/practicality is highly debatable.

~~~
Taek
The Sia network has been happily doing micropayments (covering 4mb of storage
at a time) for over a year. At times, the total number of micropayments on the
network has been estimated to eclipse 100 transactions per second (all off-
chain via payment channels).

This technology is deployed if you know where to look for it.

~~~
Geee
I didn't know about this important feature in Sia. I'd appreciate if you
expanded on this somewhere; in your blog or documentation.

------
jashmenn
It's really exciting to see the different components for decentralized apps
come together. Bitcoin promised programmable money, and it sort of is, but
Ethereum is so much more accessible (for better or for worse).

With Ethereum we have decentralized compute. With IPFS we get decentralized
storage. Cryptographic keys give us self-sovereign identity. Build tools like
Truffle make it easy to get started (think create-react-app for Ethereum). And
libraries like Zepplin are helping standardize secure patterns.

And, to top it off, using web3.js we can write UIs _in the browser_ using
JavaScript and the libraries we're already familiar with (Angular, React,
Vue).

By the way, [shameless plug], if you're a web developer and you're looking to
get started programming cryptocurrency and distributed apps, I have some
introductory tutorials here => [https://newline.co/](https://newline.co/)

~~~
thinbeige
Could we agree that everyone who writes anything about crypto puts at the end
of his/her post a disclaimer telling us if he/she is invested in tokens
discussed in that post and if yes what is the share in their portfolio.

You know, if I was invested in eg IPFS I would post night and day in all
forums subtle not too obvious hints how great IPFS is (pump) and then I would
dump them.

Or to be clear, any discussion about crypto might be motivated by financial
incentives which makes a meaningful technical discussion quite hard.

Let's start with @jashmenn, are you invested in Ethereum and IPFS?

Edit: downvoters please explain why

~~~
dmix
> You know, if I was invested in eg IPFS I would post night and day in all
> forums subtle not too obvious hints how great IPFS is (pump) and then I
> would dump them.

Credibility is much more apparent than you may think on sites like HN/Reddit.
Shameless self-promotion without any substance won't get you far.

Fortunately software doesn't live or die on name recognition via random posts
on social media but on whether people actually find it useful.

If this was someone's plan to make money on their investments they are wasting
their time. Unless, maybe, they are a minor celebrity with a lot of reach.

Disclaimers on whether you own some tokens in a company is of marginal
interest to me (authoring news stories is another matter), I'll judge the
value of it by the proposition being made. Otherwise I'm pretty sure anyone
who's been on the internet for a long enough time knows better than to take
any recommendation at face value from comment threads. And being an investor
is a sign of confidence, it doesn't automatically mean you are deluded by the
idea or are only motivated in pumping it up for a cheap profit.

Either way if someone's plan is to engage in pump and dump schemes they'll
always be at a high risk of being in a race to the bottom trying to exit
before everyone else with the same half-baked idea of getting rich quick. It's
not as clever as you make it out to be. There is always a far higher
probability that they were the actual 'bigger fool' in any scheme than they
people they hoped to recruit.

~~~
SkyMarshal
_> Credibility is much more apparent than you may think on sites like
HN/Reddit. Shameless self-promotion without any substance won't get you far._

Then why is the comment at the top of this thread, which says nothing of
substance (for the HN crowd at least), the top voted comment so far?

------
nhaehnle
> These communities are built on strong network effects – where, according to
> Metcalfe’s law, the value of the network is exponentially increased by the
> number of users who participate.

It's not exponential! Heck, the footnote is citing an article which correctly
says the effect is quadratic in the first sentence.

I know this may be a lost cause in the general media, but to see this misuse
of terms in this context is really frustrating.

~~~
jvandonsel
Yeah, a lot of otherwise intelligent people are tripped up by the term
"exponential, as in "Hey, the 2 is an exponent, so it must be exponential,
right?"

~~~
nhaehnle
That's actually a cool explanation for why some people might think this is
correct. Let's teach them that 1 is an exponent, too ;)

------
lifeisstillgood
I want to believe.

It looks so attractive. And is right up my "theory of the firm" alleyway.

But there are two issues kind of intertwined. The current crop of businesses -
both coin based and normal, are about allocation of scarce resource (bedrooms,
taxis, hard drive space)

Now that is really all about ownership of scarce resource.

The fact that Airbnb users make money by selling rooms they don't actually
have ownership of (i.e. They don't have full rights to sell, either cos it's
their rented apartment or cos local law says hotel rooms need fire
extinguishers) is kind of glossed over in this egalitarian rush. If the "real"
owners got their full allocation this would be a boring story of more
efficient returns to capital.

Almost all of the internet is like this - YouTube does not pay IP owners,
Google does not pay me for my blog writing.

Perhaps coins will more accurately reward the owners of these resources - paid
to blog, paid to drive taxis, paid to own IP rights - but this is just
solidifying the status quo.

This leads to my second point - that those with nothing cannot grow in a world
where rewards are efficiently returned to owners. Filecoin rewards those who
are already rich enough to own a hard drive and electricity. And if the
economics work those who own a data centre.

Without some egalitarian system built in, yes even government redistribution,
then I can't see how tokens and coins can do anything but make Pikkety more
right - more returns to the owners of capital.

If coins are just another currency, then they are just another way to measure
capital - and I can't see how that is going to make the world into my utopia

But I do want to believe.

My fear I suppose is that for all their libertarian roots, coins are traceable
and vastly favour the top billion humans right now - and we are solidifying
the status quo - it's not as bad a world as it has been, but I don't want to
be stuck with it.

~~~
xamuel
>vastly favour the top billion humans right now

I see it more as favouring the most intelligent. The real $$$ isn't in day-
trading, it's in figuring out which cryptos have future merit. That means
reading white-papers and distinguishing good ideas from hype.

It's a return to what investment is supposed to be: figuring out which ideas
are worth capital.

~~~
lifeisstillgood
VCs are, or at least hire, some of the most intelligent people, and the best
in the world have a hit rate barely in double percentage digits.

Saying that the poorest billion in the world just need to be more intelligent
and suddenly will be crypto-rich is ... well actually quite offensive.

The real and genuine divides between the richest and poorest in the world will
not be bridged by coins, no matter their other benefits.

------
mankash666
Can you please comment on the criticisms levied against the filecoin ICO [1].

[1]: [https://medium.com/token-economy/the-analysis-filecoin-
doesn...](https://medium.com/token-economy/the-analysis-filecoin-doesnt-want-
you-to-read-e60d5243f17c)

~~~
beambot
TL;DR summary of that article: The price is too high for several reasons (pre-
ICO investors, Filecoin creators' allocations, etc).

My take: $200M worth of investors in the ICO disagree with that assessment.

------
AndrewKemendo
_For example, in Filecoin you earn tokens by lending your unused hard drive
space. In summary, tokens coordinate efforts in the network and motivate
responsible participation._

Why not just earn dollars? Theory of pricing arbitrage already takes into
account coordination irrespective of the currency. What is the distinct
advantage of earning Filecoin tokens over dollars?

Ok so lets just say I bought Filecoin (I didn't). How do I liquidate my
position? Do I just need to find a buyer like every other security or can
Filecoin buy it back?

In other words, is it currency or a bond?

 _These ICOs provide a sizable improvement in terms of liquidity. Unlike
traditional companies, you can represent the value of your assets in terms of
tokens that are liquid and tradeable from day one._

Apparently not, I looked through this filecoin sale file [1] and it has a
vesting period for investors! Now don't that beat all? So it's an asset of
some kind, it doesn't make clear in what class of asset it is. That looks
suuuuper fishy to me but maybe I'm missing something.

When I got into Bitcoin when it first came out I thought it was a great
concept, but had no future as a legitimate international currency because of
politics. This crypto currency wave takes that into overdrive and I'm not
exactly sure where the value is behind it.

Or maybe I'm just totally missing the value here, I would love to see it
explained better than this article does.

[1][https://coinlist.co/static/media/Filecoin-Sale-
Economics.0ae...](https://coinlist.co/static/media/Filecoin-Sale-
Economics.0ae9a53f.pdf)

~~~
ojr
I can see the value, it is a peer to peer dropbox that pays you in a token
that can be used for speculation and immediate liquidity, think about this to
sell a US stock to usd takes 7 business days, to sell a crpytocurrency to usd
takes up to 3 business days on coinbase, sometimes same day or you can trade
the token and hold in a bitcoin or ether within minutes

~~~
AndrewKemendo
_it is a peer to peer dropbox that pays you in a token that can be used for
speculation and immediate liquidity_

Ok, but dollars can also be used for speculation and immediate liquidity. Why
is a corporate run token system better than the cash coming from the US
Banking system? I mean practically, not philosophically.

 _sell a US stock to usd takes 7 business days_

T+3 is usually just 3. So I don't know what second tier brokerage you're using
but I can ACH stock liquidation cash from a vanguard account in 3 days.

~~~
erikpukinskis
The point of cryptocurrencies is they are robust in the face of malicious
action by any individual party. If the United States sank into the Atlantic
Ocean, Filecoin would still work exactly as designed everywhere else. If it
were built around a USD bank account, a simple change in the terms of service
for the bank could shut the service down completely.

Who is the account holder? The Filecoin inventors? What happens if someone
blackmails them for the account password? What happens if they die?

To build Filecoin on USD you'd have to put all your trust in the Filecoin
corporation.

The point of cryptocurrencies is you don't have to put your trust in any
single entity.

------
fenollp
> Ethereum took the Bitcoin concept one step further.

Smart contracts, escrow and dispute mediation ARE already possible with
Bitcoin with CHECKMULTISIGVERIFY.

And there haven't been has many issues in Bitcoin core than in Ethereum.

~~~
ojr
so what can Bitcoin do that Ethereum can't? I feel it must be able to do
something better to justify a higher market cap than ethereum, when Ethereum
adds more features faster and the marketcap reacts, past flaws would not
matter too much

~~~
AgentME
>when Ethereum adds more features faster

Bitcoin's conservative rate of change _is_ one of its big features, plus the
network effects of its existing userbase. Bitcoin users are less likely to
lose money because of an issue in Bitcoin or because of reliance on a fragile
contract encouraged by the Bitcoin software. The Bitcoin network is less
likely to have its transaction history rolled back, or have significant
changes made to its money supply which could strongly affect the value of
present bitcoins.

~~~
elmar
also Ethereum doesn't have an hardcoded cap limit.

~~~
ojr
bitcoin digital scarcity is overrated, ethereum has the record for most
transactions in a day and surpassed bitcoin in volume, better signs of
potential than an arbitrary cap limit

~~~
PKop
Not for store of value / protection against currency debasement.

~~~
elmar
exactly.

by the way Ethereum scalability problems are much greater than Bitcoin.

~~~
ojr
Ethereum has a faster confirmation time, if it shows to become a better
developer platform, a lot of money will be thrown at the scalability problems,
for example a solution from Microsoft [https://azure.microsoft.com/en-
us/blog/announcing-microsoft-...](https://azure.microsoft.com/en-
us/blog/announcing-microsoft-s-coco-framework-for-enterprise-blockchain-
networks/)

~~~
AgentME
A faster block time isn't without its own issues. I've been running the
Ethereum client for most hours of the day and I can't remember the last time
I've actually had its blockchain caught up and in sync.

------
Lon7
The fact the Securities and Exchange Commission is seriously looking at ICO
tokens is, to me at least, additional proof that this technology is here to
stay.

That said, the SEC has also said that in many cases these ICO tokens can be
classified as securities, and therefor going forward, could be subject to all
the same laws and regulations [0]. This turns ICO's from something a startup
can offer fairly easily, to something that requires a team of expensive
lawyers to do properly.

Maybe Lawyers should take note that this could be a promising opportunity for
future business?

[0] [https://www.sec.gov/news/press-
release/2017-131](https://www.sec.gov/news/press-release/2017-131)

------
pdog
The ICO phenomenon is, in some sense, diametrically opposed to venture
capital.

Both are fundraising mechanisms: one sells liquid tokens on the open market,
the other sells illiquid shares to VCs.

Does YC plan to address competition from tokens, and if so, how?

~~~
rrecuero
1 - In the short term, I don't think ICOs are a solution for every kind of
company. Just for protocols and networks.

2 - Great investors provide more than just access to capital.

My point of view is similar to Fred Wilson's. More here
[http://avc.com/2017/06/icos-and-vcs/](http://avc.com/2017/06/icos-and-vcs/)

~~~
dsacco
_> Great investors provide more than just access to capital._

Like what?

~~~
SkyMarshal
High-level problem solving the startup isn't capable of on its own.

------
hopfog
I've been toying with the idea of using tokens as an in-game currency in my
MMORPG. The problem is that the normal currency is inflationary due to
monsters dropping it as loot. I do have sinks to control inflation but I'm
thinking that the tokens should be tied to a fix value.

What is fixed and scarce however is land (you can claim plots and build
houses, shops etc). Would having a server with land tied to a token make sense
or is it a bad idea?

~~~
rrecuero
Take a look at [https://decentraland.org/](https://decentraland.org/) ;)

~~~
hopfog
Thank you! The site is down but I read a blog post and it sounds a lot like
what I have in mind.

------
stri8ed
"It is a decentralized network of millions of computers"

Really now?

~~~
rrecuero
Figure of speech. The number of nodes right now is closer to 25K

[https://www.ethernodes.org/network/1](https://www.ethernodes.org/network/1)

~~~
paulddraper
Ah. Well then, I am a millionare (in a manner of speaking).

------
rrecuero
I'm happy to answer any follow-up questions here.

~~~
zitterbewegung
Are there any concrete uses of a blockchain that have clear advantages than to
using a standard database other than cryptocurrencies?

~~~
rrecuero
I think one of the clearer use cases is digital identity. uPort, Blockstack
and Civic are some of the companies that are trying to address this need.

~~~
TheDong
Keybase is also addressing that need, but with a traditional database.

gpg already solves that as well, again without blockchains.

Blockchains do no more for identity gpg. Whether they're more or less usable
is debatable.

~~~
discombobulate
Is Keybase resilient against the country's government in which it resides? How
does it achieve this with a traditional database?

~~~
TheDong
It is resilient to tampering as far as you trust gpg.

It achieves this because cryptographic signatures exist fine without
blockchains

~~~
discombobulate
You don't see any other issues? Ppl being centralised, servers (ETH has ~24k
nodes), nothing like that?

~~~
TheDong
The gpg web of trust might be a better example, but it's a moot point either
way.

The claim I'm refuting is that digital identity was impossible before the
blockchain (Edit: or more difficult, either way, point stands). Digital
identity is a cryptographic thing and a distributed thing. That doesn't mean
it needs a blockchain.

People have been proving digital ownership and identities for longer than the
blockchain, and the blockchain brings nothing new or interesting to the table
in terms of identity.

~~~
discombobulate
I just reread the root comment:

> Are there any concrete uses of a blockchain that have clear advantages than
> to using a standard database other than cryptocurrencies?

Seems you're refuting something no one said, as far as I can tell.

Edit:

> Digital identity is a cryptographic thing and a distributed thing

How is it distributed? I assumed it was some company's servers -- maybe in
multiple data centres around the world. But nothing like 24k nodes (& possibly
more in the future).

\---

Edit (reply to your edit):

I think the claim is that the identity system will be more resilient, not that
it will be easier to implement. Censorship resistance.

I'd imagine it'll be harder to implement & cost more. A trade-off.

Which is along the lines of what I originally asked,

> Is Keybase resilient against the country's government in which it resides?

You said that gpg was. But didn't mention the computers. I asked about the
servers & the ppl. (We didn't talk about the team).

The need wasn't specified. I'm presuming it's censorship resistance.
Governments can't meddle with identities. Wipe someone off the face of the
earth.

------
csomar
> It is a decentralized network of millions of computers that execute code at
> the same time.

There are currently less than 30k ethereum nodes. And it is not clear if they
are all "full nodes" (ie: verify the transactions). Millions is two orders of
magnitude exaggeration.

~~~
Taek
There are an estimated 3,000,000 gpus performing Etherum mining today. Most of
those aren't verifying any smart contracts, but they are running code for
Etherum nonetheless

~~~
csomar
The number of mining equipment doesn't translate to a number of nodes. It
could be a single person and as we seen in bitcoin mining turned out to be
"very" (like in a few hands) centralized.

------
Siecje
The article says that email doesn't receive much funding but many companies
have invested a lot in email.

------
rubatuga
Can someone convince me that this article isn’t hype? What’s so good about
ethereum that it can be compared to the internet? Is the shift from
centralized to decentralized going to bring me tangible benefits?

------
jgord
yes .. but! we also simply need a better form of currency.

While bitcoin has its implementation issues and politics, it solves that
problem in a way that wasn't solved before.

A better token for Cash is incredibly valuable in and of itself.. dare I say
it revolutionary.

[ I say "largely solves", because a) small blocksize and data management
issues are preventing it from scaling now and in the medium term and b) a
linear blockchain might not scale beyond every user on the planet buying
coffee... or it might, we haven't really begun to optimize it, imo ]

~~~
jcfrei
I still don't get why people consider bitcoin a suitable form of currency. It
has a fixed supply, so its value is going to vary wildly - depending on
demand. That's the opposite of what you want from a currency (where your main
goal is price stability).

~~~
jgord
Some people see that as a feature - a deflationary rare resource, which a
government can't simply print more of.

If I just want to send funds from A to B, the current value of bitcoin in fiat
[ USD / GBP / JPY ] is less important than being able to exchange it for the
local fiat at each end.

If I hold those funds for a while at B - your absolutely right, extreme
volatility is a concern. I would argue that as more people use bitcoin the
volatility will go down [ large trades will be able to move the market far
less, as the market will be so much larger ]

~~~
jcfrei
> If I just want to send funds from A to B, the current value of bitcoin in
> fiat [ USD / GBP / JPY ] is less important than being able to exchange it
> for the local fiat at each end.

Do you mean using bitcoin as an intermediary to send value across the globe;
Ie. by exchanging your local currency to bitcoin and then sending it to the
receiver (who might exchange it again)? I think for such a use case the
traditional banking systems are superior.

> Some people see that as a feature - a deflationary rare resource, which a
> government can't simply print more of.

The problem with deflationary resources is that most people will never want to
spend them - making them unusable as a medium of exchange. If you look at
bitcoin forums, they are full of posts cautioning other users to hodl (hold on
to their coins and not sell them). But if bitcoin is not used as a medium of
exchange then what is it used for? Other blockchains (like ethereum described
in the blog) imho offer much more interesting features.

------
carapace
(Thin sans-serif grey body font means you hate your reader's eyes.)

------
thinbeige
Bit late to the game but better now than never.

------
MBCook
Thanks to the orange-on-tan color and the extremely thing font the footnote
marks are nearly invisible

