Read on Twitter
OK, blockchain and cryptocurrencies. What are they and why do people care? I've sat through so many pitches by crypto startups, and they're always so EPIC about how world changing this 'miracle' technology is. And then they fail to explain not just the why, but what it even is...
First, terms. Cryptocurrencies is a (not very good) term to describe digital assets (as general an idea as it sounds). Blockchain is the book into which the ownership records of those assets is written and updated. That's what blockchain and cryptocurrency means...
Long story short: blockchain is a way to make digital assets behave like physical assets.
That's all that really matters, imho. The technology of how this happens doesn't matter, nobody should care except for the programmers.
That's all that really matters, imho. The technology of how this happens doesn't matter, nobody should care except for the programmers.
So, why is this 'revolutionary?' Because assets are still physical things. Commodities, cash, whatever it is, they are physical objects which behave according to the laws of physical reality. And we're very familiar with those laws. A thing behaves like a thing.
But as the volume of trading goes up, and we exchange things with extreme speed, the physical exchange of this becomes very costly and complex. In the financial markets, this actually led to an 'apocalypse' of paper, called... the Paperwork Crisis. https://www.businessinsider.com/wall-street-paperwork-crisis-in-1960s-2015-10
We live in the world which solved that problem -- we live in a notional financial system. We trade physical things -- from agricultural products to metals to cash to stock certificates -- using 'notations' that represent these things, and shuttling them around rapidly in books.
But a problem arises -- when you move from the physical world to the notional/informational world, your assets (notations) are no longer subject to the law of physics. They behave weirdly and are prone to committing errors. Like splitting into two. Or disappearing altogether.
If I transfer a share of stock to another account, but fail to debit it from the source account, I've split a stock into two. This creates an inherently unstable notional universe, and it's costly. It requires frequent checks to make sure things are behaving normal.
This works, but two problems. One is, it's incredibly expensive and time-consuming. Not nearly as bad as physical exchange, but given extreme volumes, it's a significant cost for financial intermediaries (banks). Second, it limits growth, it's a bottleneck to activity.
Then there is a more 'political' problem -- which is that we need a trusted authority to manage the books. That's where the US government comes into play. It is the most trusted authority on Earth, and so far for good reason -- stability of rules and technical expertise.
So the 'reality' of the economy is represented in a virtual world of accounts and ledgers, huge massive numbers in them, dictating activity across the entire physical economy. And a huge portion of this is done in the United States, under the watch of the US government.
The blockchain -- it is a method of re-imposing physical limitations on notional (i.e. digital) assets, forcing them to behave like physical assets. So if I have a crypto-token that represents one cow, that token will not split apart into two cows, or disappear into zero cows.
Nor will the cow accidentally teleport from one ranch into another ranch by mistake. Where the cow token is , is where it will be, until the person who owns the cow token decides to send it somewhere else. How is that done? Doesn't matter but generally...
To satisfy our curiosity, it uses a clever system of cryptographic limitations (i.e. the difficulty of computing large numbers) as a stand-in for physical limitations. Instead of the conservation of mass, for example, we use the incomputability (sp?) of large primes instead.
But that's not what's interest politically. Politically what is interesting, is that in achieving this re-imposition of physical constraints, we miraculously remove the need for the ledger master, the trusted intermediary. In the real world, we kind of make the US less necessary.
Why? Because if notional assets can be made to behave like physical assets, I do not need someone who is trusted to keep the notations from fucking up, splitting apart, disappearing, or teleporting. Instead, when I receive my digital asset, it's as safe as in my pocket.
This is actually becoming a major problem politically. One of the central issues is that the transfer of US dollars and US treasury securities -- which are de facto global currency of the world -- is done almost entirely within a bank of computers owned by the Fed Reserve.
This is in some ways a residue of an older world when bank vault gold was used to back currencies. A huge portion of the world's gold was shipped to the Federal Reserve, because it was thought to be the safest haven on Earth, especially throughout the European "world wars."
Now, even though gold does not back any sovereign currency, the US dollar having essentially replaced gold as the zero-level store of economic value in the world, are all stored as notations within the books of the world monopoly supplier of USD -- the Fed.
This has led to major problems, and very recently we saw a huge violation of the 'trust' inherent to the ledger notation system. Because the US Congress decided that it did not like the Maduros government of Venezuela, it unilaterally transferred the notations to Juan Guaido.
This SHOULD have been front page, rather Earth-shattering news. But it wasn't, it happened quietly. And that's another blow to the system: violations of trust are not immediately subject to recourse. The rule of law in America also showed its limitations. https://www.nytimes.com/2019/01/29/us/politics/venezuela-bank-accounts-guaido-pompeo.html
The same thing also happened in the UK, which despite its negligible influence as an economic power, it still wields huge influence as a center of **trust** and is thus the second largest ledger-maintainer in the world economy. NYC, then London. https://www.cnbc.com/2020/06/24/venezuela-legal-case-to-decide-fate-of-over-1-billion-gold-reserves.html
This is why cryptographic assets and the blockchain are so revolutionary. They take away one of the central reasons why the US and the UK retain their authoritative positions in the world economy: the world needs a trusted accountant. With blockchain, no more.
Again, this is because blockchain turns notional assets back into physical assets, but which can be traded at ultra-high volumes with no error, no limitations. When I send you money, I really send it to you. It's not an IOU, it's as good as the thing itself.
This is a brilliant solution to the problem of the US becoming ever-more untrustworthy. For example, here the US threatened to fuck up the ledger system for political reasons, for a beef it had with Iraq's sovereign government. https://www.cnbc.com/2020/01/11/trump-administration-warns-iraq-could-lose-new-york-fed-account-wsj.html
Then, as you would expect, the US also threatened China, saying perhaps we should just 'cancel' some of its Treasury securities held as assets (i.e. cancel the debt), in other words, intentionally screw up our ledger obligations to fuck over China. https://www.reuters.com/article/health-coronavirus-usa-china/u-s-not-considering-canceling-debt-held-by-china-trump-adviser-idUSW1N2BP023
Well, see you can do that to little old Venezuela, but not to China. I mean, we could do that, but it would be such a gross violation of trust we're pretty sure we don't want to do that. At least not yet. But then again... https://www.bbc.com/news/business-53633315
So as you can see, the world economy is under severe threat as the US becomes a kind of failed state with an unstable government, which constantly threatens to fuck up the world ledger just to settle its own personal beefs. So that's why China is betting on crypto.
By building a new notional economic system built on crypto, member states don't need to trust China. It doesn't need to worry that China will go rogue and impound assets, or disappear them altogether. It would be impossible. https://www.theguardian.com/world/2020/apr/28/china-starts-major-trial-of-state-run-digital-currency
Again, it's built up slowly, in several stages, over time, but the new economic order will be notated using cryptographic assets within a distributed blockchain which will mimic the physical limitations that the material world imposes on physical assets.
It's a great way imo to return to a more natural system of material reality, to resist the financialization of the capitalist economy, to be more interested in notations than the things they represent, the things that sustain actual human life. You can't eat dollars.
