Do You Need a Blockchain? Think Again.

So went the memes a few years ago.

But they said that about computers before.

“I think there is a world market for about five computers.”

IBM’s President Thomas J. Watson, early 1940s

Hell, I said that about smartphones too when I first heard of them.

But there are 2 good use cases for a blockchain and 1 great one I thought of myself, hear me out.

An uncorruptible, un-biasable Being

Governments are made of humans, so they can be put under pressure by, let’s say, rich groups of companies. Just like humans, they usually cave in under pressure.

But Bitcoin doesn’t cave in. It doesn’t say “whoops election day is coming up so let’s approve a bailout/stimulus package (aka print more money)”. It doesn’t even need money – it’s its own money! It only needs people agreeing to participate in it.

Well, okay, both Bitcoin and governments print their own money. The only difference is that Bitcoin’s printing is determined by the program that says there will only ever be 21 million Bitcoin, while governments’ printing is determined by humans.

But wait a minute, you say. Humans wrote the program, so how is it going to be any better?

Well, let’s say you want to change the rules to benefit you. Which is harder – convincing everybody who’s already running the Bitcoin software to run your new economic policy Bitcoin, or convincing a few government officials to push your policy?

I thought so.

Distributing power even more than the current stock market allows

I have news for you. None of these startups with their friendly pastel coloured ad campaigns and sans-serif fonts are on your side.

Think of how Uber is organized. At the top you have C-level executives (who own a large part of company stock), and then somewhere below them the programmers (who mostly don’t own any stock), and finally, at the very bottom, the Uber drivers (who most definitely don’t have any stock).

The Uber drivers have to do what the executives want them to do. They don’t have a choice, and they suffer as a result . After all, they’re not stockholders.

But what if in order to have anything to do with Uber, you had to own stock, even a tiny minuscule bit, and that stock came with voting rights? At the very least, drivers would have a way to push back instead of just leaving.

Bitcoin, Ethereum, any of these cryptocurrency tokens are just like a stock – except you don’t have to ask your bank to handle them for you. You can deal with them yourself by going to a website and buying them. That’s the key: it makes owning the token more direct and thereby distributes ownership/power amongst more people.

Escape a bad economy

I’m the most proud of this one, because I thought of it myself.

Think of a healthy, smart, hardworking person in a poor country (let’s call him George). No matter how healthy, smart, or hardworking he is, he’s still poor compared to the average American/European! Why? because he has to use his country’s own currency (assuming he lives there). Maybe his country has bad politicians – but that’s not his fault and he can’t do anything about it.

Now what if George had his own economy, the GeorgeCoin?

(ok it’s an economy of one person but bear with me)

George’s country makes a bad economic decision, and overnight its currency is worth nothing, so food prices skyrocket. But GeorgeCoin’s value is still intact, because it’s separate.

It’s just like owning your house vs renting it.

This works because even if the country’s economy tanks, people still believe in George. You just need an efficient way of converting between everybody’s own Coins.

Categorized as Explain

Blockchains coordinate Humans into larger Organisms

The first time I had a hint that “as above, so below” was when learning how to trade crypto. Prices go up and down in waves, and there were waves that manifested themselves on the 10 minute chart, and waves that manifested themselves on a 1 day chart, and one could make money trading on both timeframes. That is, within the larger, longer term waves, there were smaller, short term waves. It’s like fractals that you can zoom infinitely into.

Recently I found this essay “Cognition all the way down” (archive), which proposes that even cells, genes, DNA are agents that are autonomous, who find their way through life, who sense opportunities and try to accomplish things.

Thinking of parts of organisms as agents, detecting opportunities and trying to accomplish missions is risky, but the payoff in insight can be large. Suppose you interfere with a cell or cell assembly during development, moving it or cutting it off from its usual neighbours, to see if it can recover and perform its normal role. Does it know where it is? Does it try to find its neighbours, or perform its usual task wherever it has now landed, or does it find some other work to do? The more adaptive the agent is to your interference, the more competence it demonstrates. When it ‘makes a mistake’, what mistake does it make? Can you ‘trick’ it into acting too early or too late? Such experiments at the tissue and organ level are the counterparts of the thousands of experiments in cognitive science that induce bizarre illusions or distortions or local blindness by inducing pathology, which provide clues about how the ‘magic’ is accomplished, but only if you keep track of what the agents know and want.

OK, so cells are actually selfish agents. How do they cooperate to form a cohesive whole, like a human who has no sense of his constituent cells? I’m just going to quote liberally from this article just to hammer home that you should really read it.

When two cells connect their innards, this ensures that nutrients, information signals, poisons, etc are rapidly and equally shared. Crucially, this merging implements a kind of immediate ‘karma’: whatever happens to one side of the compound agent, good or bad, rapidly affects the other side. Under these conditions, one side can’t fool the other or ignore its messages, and it’s absolutely maladaptive for one side to do anything bad to the other because they now share the slings and fortunes of life. Perfect cooperation is ensured by the impossibility of cheating and erasure of boundaries between the agents. The key here is that cooperation doesn’t require any decrease of selfishness. The agents are just as 100 per cent selfish as before; agents always look out for Number One, but the boundaries of Number One, the self that they defend at all costs, have radically expanded – perhaps to an entire tissue or organ scale.

Sounds just like relationships, doesn’t it? Would you want to connect your innards with somebody who hasn’t got their life together?

The other amazing thing that happens when cells connect their internal signalling networks is that the physiological setpoints that serve as primitive goals in cellular homeostatic loops, and the measurement processes that detect deviations from the correct range, are both scaled up. In large cell collectives, these are scaled massively in both space (to a tissue- or organ-scale) and time (larger memory and anticipation capabilities, because the combined network of many cells has hugely more computational capacity than the sum of individual cells’ abilities).

To paraphrase: a cell’s lifespan and goals are short, perhaps on the order of seconds or hours (don’t ask me I’m not a biologist). As more of them collect together, their biological feedback mechanisms interact such that their lifespan and goals are larger, whether it be in terms of time or space.

Doesn’t this remind you of large sea creatures, or tall trees hundreds of years old?

The cooperation problem and the problem of the origin of unified minds embodied in a swarm (of cells, of ants, etc) are highly related. The key dynamic that evolution discovered is a special kind of communication allowing privileged access of agents to the same information pool, which in turn made it possible to scale selves. This kickstarted the continuum of increasing agency. This even has medical implications: preventing this physiological communication within the body – by shutting down gap junctions or simply inserting pieces of plastic between tissues – initiates cancer, a localised reversion to an ancient, unicellular state in which the boundary of the self is just the surface of a single cell and the rest of the body is just ‘environment’ from its perspective, to be exploited selfishly. And we now know that artificially forcing cells back into bioelectrical connection with their neighbours can normalise such cancer cells, pushing them back into the collective goal of tissue upkeep and maintenance.

Let’s return to talking about blockchain now, remembering that Ralph Merkle first compared Bitcoin to a lifeform.

Recently, humans discovered that they can unite areas larger than towns with the notion of a nation-state. A nation state is a bigger organism than humans, can accomplish more and reach for bigger goals, yet some things are still the same. It’s got an organ that poses a direction called the government (the brain). A nation, just like a human, needs to maintain its boundaries with force and keep order internally (the immune system). And last but not least, a system of transferring value within itself, keeping its various parts fed and nourished (the blood). It’s called a currency.

If we think about it like this, it is only natural that countries stamp out alternative currencies like Bitcoin as soon as they exist, like the Wörgl Experiment in Austria. From their point of view, it is a cancer – a totally different organism. Case in point: the new STABLE ACT from the US is all about banning stablecoins. A coin that has exactly the same value as the USD, but isn’t under the US Treasury’s control? Obviously going to undermine them at some point, which is why this isn’t surprising at all.

Categorized as Explain

What is Commons Stack and the Token Engineering Commons?

One of the first organizations I heard about in the token engineering space was the Commons Stack. It wasn’t really a company per se, it was more of an organization, one that, like most blockchain layer 1 projects, was spread throughout the globe with no center.

Remember the 2016 DAO that forked Ethereum? Some of the Commons Stack members were involved there too.

Anyway, the Commons Stack is a community designing a type of decentralized autonomous organization called a Commons. A Commons organization uses new token engineering concepts to make donating to public goods more than just a donation.

Wait but why

Let’s take a short break from all this new age blockchain stuff to come back to the real world. Society, or should I say, the current economy, doesn’t really reward certain things for the value they provide.

The environment, for example, is constantly being abused. Most plastic isn’t really recycled, but is marketed as being recyclable so consumers will continue buying it. Think your electronic devices are being recycled? Think again, it gets shipped by the container into other countries’ landfills. Nobody’s got time to separate the components into their reusable raw materials, and even if they did, how could they compete with the rate finished products are being produced? Oceans are being polluted, forests cut down, you name it. And it’s just cheaper to keep doing so – the economic incentive is to continue abusing the environment.

Open source software is another thing that is constantly undervalued and abused, unless a successful capitalist company chooses to sponsor its development (because it relies heavily on it). Amazon is well known for hosting open source software, profiting heavily from it, and not giving back to the software project. And while I was working at a fintech startup, the Theo de Raadt (of OpenSSH, OpenBSD) came calling. Apparently he was looking to save fees on donations.

Imagine, the author of the world’s most secure OS and software that everybody uses to control servers, in a financial state where he has to worry about transaction fees.

I could go on, but this dynamic arises because of 2 things:

  1. making money generally involves controlling a scarce resource, making sure nobody else has access to it, and thereby charging money for it – hence patents, research silos, walled gardens, closed behaviour and abuse of free resources. After all, if there’s something free that you can do anything with, you’d just take it, right?
  2. There are many types of intangible values – reputation, power, trust, stability, the happiness of a community, the health of an environment/ecosystem, animal welfare. And you can’t put a number on any of these. We can only describe one type of value – monetary, and this disfigures our humanity and makes us do terrible things.

The Idea Behind a Commons

Funding: Augmented Bonding Curve

Much like Bitcoin, having your own token can serve as funding and denote membership. If you do work for the Bitcoin network, you get rewarded in BTC; if you do work for a Commons, you get paid in its token, let’s call it CTOKEN.

Since this is too important to trust humans with, we let a program handle the problem of token supply, just like Bitcoin. It sits on a blockchain and thus is tamper-resistant. We call it a bonding curve.

What a Bonding Curve Does

  1. When you put in USD, the bonding curve creates new CTOKEN, thus increasing the total supply.
  2. When you want to take out USD, the bonding curve destroys (“burns”) that CTOKEN, thus decreasing the total supply.

So it converts from one form of value (USD) to another (CTOKEN), except that it also decides the price of CTOKEN based on a curve. Besides determining the supply and converting a form of value, it also solves the problem of matchmaking when someone wants to buy and there’s no one willing to sell/vice versa.

USD coming into the Bonding Curve is split into 2 pools:

  • Funding pool: pays the people running the Commons
  • Collateral/reserve pool: if someone wants to sell his tokens, pay him USD from this pool

As you can see, the reserve/collateral pool backs the value of the token. If you sell your CTOKEN to the bonding curve, it will destroy (“burn”) the CTOKEN and you’ll get USD back. Specifically, you’ll get more USD back than the next person who sells after you, because it is a Bonding Curve after all, and the collateral pool is simply a fraction of all the money that ever got invested in the Commons.

x-axis: DAI/USD deposited; y-axis: total token supply.
Mess with this too much and it becomes a Ponzi scheme!

The combination of the bonding curve and these two pools is called an Augmented Bonding Curve.

Decision making

Those who have tokens can vote. Those who have more tokens have more voting power. But what if your vote on a particular proposal’s power also increased over time, discouraging people from switching at the very last minute? This is called Conviction Voting.

In the Commons, people vote (using CTOKEN) on which projects should receive how much funding (also denoted in CTOKEN). And yes, you can vote on yourself, to say that you should receive funding!

Test Driving the Concept: The TE Commons

1 DAI is equal to 1 USD – this peg is kept by the MakerDAO

Of course, there is a need to test if such an organization would work, and how people might game the system! That’s the Token Engineering Commons, a Commons that funds projects in the Token Engineering space.

Here’s how it should play out

  1. Donors put money into the TE Commons, and get TEC from the bonding curve.
  2. Donors vote upon projects using TEC, and projects receive that TEC as funding. To actually pay themselves, they sell the TEC for USD, but not all of it! Why? So that they can vote for themselves in the future, to steer funds their way!
  3. End result: the price of the token gets pushed up (remember the bonding curve), and for project owners, it is a fine balance between retaining enough voting power and getting enough funds.

But this is just the worst case scenario.

What if an economy formed around the TEC token, giving it extra value beyond voting rights?

Let’s go back in time. In the beginning there was Bitcoin. Developers poured their time into it, but there was nobody paying them. Instead, if you ran the Bitcoin node (participated), you had a chance of being paid in BTC. That was all you got! Within that niche group of people, Bitcoin had some value – worth a pizza, maybe. Outside of that circle, Bitcoin was worthless. Today projects still pay with their own coin. If you work for Decred, for example, you will only get paid in DCR, funded from the 10% mining split.

As outside people slowly started to perceive Bitcoin as having value, projects like Ethereum launched ICOs. Now, the Ethereum Foundation has 2 kinds of reserves: BTC and ETH, and it can sell both for fiat to pay its developers. ETH used to be worthless, just 5 USD. Today the Ethereum Foundation can send ETH around to fund projects because it’s worth 400 USD.

Today, people in economically unstable countries already perceive Bitcoin as digital gold – they transact in it every day. Wall Street in particular is starting to see Bitcoin as a great store of value that retains its purchasing power even as more USD is printed.

One day, perhaps Ethereum will be perceived as digital oil – something you need to buy to power your interactions with web3 apps. Sure, Web 2.0 was free – but not really, you were paying for it with your privacy, and those companies won’t have an incentive to care about you when they get big enough. Just look at Google, Apple, Amazon, Facebook.

Much of this, of course, has to do with perception, selling yourself, being able to convince people to join your project. Decred or Litecoin or any other coin with a fixed supply and healthy consensus mechanism could also be a store of value, and you can hold DeFi, ICOs or STOs or whatever they’re called today on Tezos, EOS, aeternity, NEO, NEM etc as well. But people flock to Bitcoin because it was the first, has the largest community, investment and hashpower behind it. Same for Ethereum.

What could people perceive a Commons Token as? I have no idea – but as you can see, the future is going to be a strange one.