Could the US Dollar Be Crypto's Killer App?(buildblockchain.tech)
buildblockchain.tech
Could the US Dollar Be Crypto's Killer App?
https://www.buildblockchain.tech/newsletter/issues/no-90-could-the-us-dollar-be-cryptos-killer-app
35 comments
The US government is generally hyper-conservative in the financial space of what the Fed directly controls for myriad reasons. The bank of computers that reconcile transactions between banks still shuts down on the weekends because the law around its operation is based on the old law where human clerks were doing the reconciliation.
The cost if it doesn't work out is damage to the trust in the system and the stability of the dollar in general, which is the thing the Fed pathologically seeks to avoid.
And as the country that can mint the currency the IMF designates other countries' international debts in, the US doesn't generally see itself in need of further strengthening the USD's position in the world.
(Interestingly, when I lay it all out like that and add it up, the US monetary policy looks like a big business's bureaucratic system, the kind that'd be ripe for disruption by a startup. Of course, it's not quite so simple when we're talking nation-states and not Silicon Valley ventures).
The cost if it doesn't work out is damage to the trust in the system and the stability of the dollar in general, which is the thing the Fed pathologically seeks to avoid.
And as the country that can mint the currency the IMF designates other countries' international debts in, the US doesn't generally see itself in need of further strengthening the USD's position in the world.
(Interestingly, when I lay it all out like that and add it up, the US monetary policy looks like a big business's bureaucratic system, the kind that'd be ripe for disruption by a startup. Of course, it's not quite so simple when we're talking nation-states and not Silicon Valley ventures).
> Interestingly, when I lay it all out like that and add it up, the US monetary policy looks like a big business's bureaucratic system, the kind that'd be ripe for disruption by a startup. Of course, it's not quite so simple when we're talking nation-states and not Silicon Valley ventures
That’s because governments have the privilege of establishing itself as a monopoly. They control the rules of the marketplace via regulations.
That’s because governments have the privilege of establishing itself as a monopoly. They control the rules of the marketplace via regulations.
Why? What extra functionality does creating a cryptocurrency enable?
Someone in say Guatemala that has no bank account and never touches a USD might use a ubiquitous "dollarcrypto" on their phone. Lots of people around the world use cryptocurrency to hedge against inflation of their local currency. A US crypto would increase US influence.
It's often forgotten that the only real benefit of blockchains is that they are distributed; one can implement all the same functionality using centralized databases.
What I find really surprising is that the government hasn't created a set of standardized APIs for financial transactions, flowing through traditional web/cloud/mobile tech. From a tax collection/enforcement perspective, it would seem to be in their interest to make "smart money" with convenient P2P digital transactions. Given the transparent corruption between Washington and banking institutions, I wonder if they don't want to risk being disinter-mediated, or if no politicians have even tried to pursue such a thing (the closest being Warren's plans to add banking services to USPS, which I think is a great idea).
What I find really surprising is that the government hasn't created a set of standardized APIs for financial transactions, flowing through traditional web/cloud/mobile tech. From a tax collection/enforcement perspective, it would seem to be in their interest to make "smart money" with convenient P2P digital transactions. Given the transparent corruption between Washington and banking institutions, I wonder if they don't want to risk being disinter-mediated, or if no politicians have even tried to pursue such a thing (the closest being Warren's plans to add banking services to USPS, which I think is a great idea).
I think blockchain fans consistently overstate the utility of distributed processing from the end users perspective. Any blockchain payment system I’ve seen was strictly inferior to existing mechanisms.
I don’t really see why the govt. would need to create such a system; the private banking and consumer finance space has been doing an acceptable job so far.
I don’t really see why the govt. would need to create such a system; the private banking and consumer finance space has been doing an acceptable job so far.
While I favor "distributed all the things" from a political/ideological perspective, it indeed carries massive performance and utility tradeoffs, compared to centralized solutions, and is very difficult to sell to end users without a critical mass of adoption / network effects.
Moreover, as BTC mining consolidation demonstrates, it's certainly possible that distributed systems tend to devolve to quasi-centralized systems with extra steps (Exhibit B: GitHub massively dominating the "distributed" git ecosystem).
> the private banking and consumer finance space has been doing an acceptable job so far
...really? Can I join you in your alternate universe? :) The fact that none of the consumer payment systems (PayPal/Venmo/etc) interoperate with one another is nothing short of embarrassing in 2020. Or the fact that ACH doesn't operate on weekends or holidays, as though all transactions were still processed by humans working M-F 9-5. And that's saying nothing of the missed opportunity for smart money / smart contracts to be baked into USD itself.
We don't need blockchains to upgrade money; just government mandates/incentives for standardized APIs to be implemented by banks and user-facing applications.
Moreover, as BTC mining consolidation demonstrates, it's certainly possible that distributed systems tend to devolve to quasi-centralized systems with extra steps (Exhibit B: GitHub massively dominating the "distributed" git ecosystem).
> the private banking and consumer finance space has been doing an acceptable job so far
...really? Can I join you in your alternate universe? :) The fact that none of the consumer payment systems (PayPal/Venmo/etc) interoperate with one another is nothing short of embarrassing in 2020. Or the fact that ACH doesn't operate on weekends or holidays, as though all transactions were still processed by humans working M-F 9-5. And that's saying nothing of the missed opportunity for smart money / smart contracts to be baked into USD itself.
We don't need blockchains to upgrade money; just government mandates/incentives for standardized APIs to be implemented by banks and user-facing applications.
I’ve never really struggled to send money where necessary. The distributed nature of solution creation has created a quasi monopoly around Venmo (see what I did there?).
The unavailability of ACH on the weekends is less of a protocol problem and more of a habitual problem; bank transfers used to require people doing work by hand, and that habit remained.
I think smart contracts have proven themselves to be significantly less useful than originally anticipated.
The unavailability of ACH on the weekends is less of a protocol problem and more of a habitual problem; bank transfers used to require people doing work by hand, and that habit remained.
I think smart contracts have proven themselves to be significantly less useful than originally anticipated.
No, it couldn't. Unless the rest of the western world is ready to roll the dice on whether China and Russia want to expand their empires - they aren't moving away from the dollar.
I have no doubt after the Trump administration they are all taking a long, hard look at building up their military power to be self-sufficient, but those timelines are measured in decades, not months. Anyone who thinks that moving away from the dollar is a simple matter of currency is naive, delusional, or both.
I have no doubt after the Trump administration they are all taking a long, hard look at building up their military power to be self-sufficient, but those timelines are measured in decades, not months. Anyone who thinks that moving away from the dollar is a simple matter of currency is naive, delusional, or both.
The key point in the article is that crypto (not BTC, but stablecoins pegged against dollar, euro, and/or yen values) offers a way for people who normally have few ways to access dollars to get their hands on them. It's not about the dollar-using world moving to crypto---it's about the citizens in world that doesn't use a currency strong enough to print their way out of a market implosion moving to the dollar via crypto.
But they aren't getting their hands on dollars, they're getting their hands on crypto claiming to be tied to the dollar. Tether did the same - until they didn't. You can't be tied to the dollar without backing your coin with dollars. You can't possibly back your coin with sufficient dollars without US government approval. You aren't getting approval without following the same regulations as any other bank, which is what made getting dollars difficult in the first place.
Which means the only alternative is attempting to supersede the dollar by pegging to it but not actually being backed by it. Which, again, will never happen.
Which means the only alternative is attempting to supersede the dollar by pegging to it but not actually being backed by it. Which, again, will never happen.
Exactly. Not sure how one could write this article without mentioning the risks of so-called stable coins. Quite simply, the huge existential risk is that the currency peg isn't maintained, for all sorts of reasons relating to trust, actual $ supply, regulation, centralization, politics, etc.
Simply proclaiming the stability of something doesn't guarantee it, or absolve one of tackling all the same problems of currencies in general. Else, a nation would simply call their own currencies "stable" and back them with $ reserves, which they already try to do.
Also, it is extremely stupid to say that a real-asset backed "crypto" somehow eliminates censorship. The "backing" is the only real item of value in this equation, and getting ones hands on that asset is of course vulnerable to censorship.
Simply proclaiming the stability of something doesn't guarantee it, or absolve one of tackling all the same problems of currencies in general. Else, a nation would simply call their own currencies "stable" and back them with $ reserves, which they already try to do.
Also, it is extremely stupid to say that a real-asset backed "crypto" somehow eliminates censorship. The "backing" is the only real item of value in this equation, and getting ones hands on that asset is of course vulnerable to censorship.
> You can't be tied to the dollar without backing your coin with dollars.
Not exactly. There are projects like Maker and sUSD which create synthetic dollar equivalents via collateralization with native crypto assets. (Caveat here, Maker did recently add USDC, an IOU backed stablecoin, as collateral as an emergency measure. Unclear if that change will be permanent or not).
Not exactly. There are projects like Maker and sUSD which create synthetic dollar equivalents via collateralization with native crypto assets. (Caveat here, Maker did recently add USDC, an IOU backed stablecoin, as collateral as an emergency measure. Unclear if that change will be permanent or not).
I agree. It might work, but I think that in the short run, it won't be trusted if there isn't a mechanism to funge those stablecoins into actual, mattress-stuffable USD.
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At guess, "No"
https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headline...
after reading the article ... still "No".
https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headline...
after reading the article ... still "No".
Never heard of betteridge before, and was thinking the answer to headlines is normally yes...
The Wikipedia article you link to states a study of ~3000 articles where the most common answer is infact yes.
The Wikipedia article you link to states a study of ~3000 articles where the most common answer is infact yes.
Arent stable coins just an appeal to central banks expansionary policy? Bitcoin was created as an alternative set of values and seems like cryptos killer app to me
The article is talking about cryptocurrencies in terms of adoption, not philosophy. By the metric of the article, if everyone adopts crypto because it makes it easier for them to trade in values pegged to fiat-backed dollars, that's still a win.
Compare and contrast open source's relative success vs. whether the Four Fundamental Freedoms / GPL model itself actually succeeded.
I haven't seen a metric by which BTC is considered a "killer app" (in any space other than "How can I buy things / conduct transactions my local government forbids or tightly regulates," and even that use case is falling by the wayside as the tools for LEO to datamine the blockchain for webs of criminal transaction activity have caught up...), and it's been around long enough that I think we can generally flag the BTC experiment specifically as "tried, found wanting." In this current global pandemic crisis, you'd think trust in central governments would be at an all-time low and people would be shifting their resources into BTC, and that doesn't appear to be happening at any grand scale.
Compare and contrast open source's relative success vs. whether the Four Fundamental Freedoms / GPL model itself actually succeeded.
I haven't seen a metric by which BTC is considered a "killer app" (in any space other than "How can I buy things / conduct transactions my local government forbids or tightly regulates," and even that use case is falling by the wayside as the tools for LEO to datamine the blockchain for webs of criminal transaction activity have caught up...), and it's been around long enough that I think we can generally flag the BTC experiment specifically as "tried, found wanting." In this current global pandemic crisis, you'd think trust in central governments would be at an all-time low and people would be shifting their resources into BTC, and that doesn't appear to be happening at any grand scale.
Bitcoin was created to solve micro transactions. https://bitcoin.org/bitcoin.pdf
The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible payments for non- reversible services.
It’s the community that pivoted to something else.
PS: Two different non reversible transactions sets up the two generals problem which bitcoin does not solve. https://en.wikipedia.org/wiki/Two_Generals%27_Problem
The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible payments for non- reversible services.
It’s the community that pivoted to something else.
PS: Two different non reversible transactions sets up the two generals problem which bitcoin does not solve. https://en.wikipedia.org/wiki/Two_Generals%27_Problem
The average bitcoin transaction cost was over $1.50 last month, and it can only handle a maximum of about 7 transactions a second. Why would bitcoin be good for small transaction?
https://ycharts.com/indicators/bitcoin_average_transaction_f...
https://ycharts.com/indicators/bitcoin_average_transaction_f...
The 7 transaction per second limit of BTC is completely artificial. It stems in the max size of blocks being capped to 1 MB. This was introduced by Satoshi Nakamoto way back in 2010 as an easy way to keep spam from flooding the blockchain. Keep in mind that back then Bitcoin was basically worthless, so one could spam the network with millions of transactions at very low costs, rendering it unusable to everybody.
Satoshi introduced the 1 MB block size limit as a temporary measure meant to be easily lifted as transaction volume and Bitcoin price increased in the future [1]. However this didn't happen, Satoshi Nakamoto disappeared shortly after and his appointed successor, Gavin Andresen, was ousted from the project and his commit rights revoked in 2016.
A lot of people tried to raise the blocksize, and all of them failed because the developers who took over Bitcoin Core have always refused. Given that consensus failed to raised the block size the Bitcoin ABC implementation split from BTC to create Bitcoin Cash (BCH) on August 1st, 2017. Bitcoin Cash initially supported blocks of up to 8 MB, which was later raised to 32 MB. Mainnet stress tests have proven that the network works fine with blocks of up to 20 MB, making clear that the 1 MB limit of BTC is as artificial as it sounds like. Because of the higher block size accommodating to more transactions the fees in BCH are consistently under 1 cent ($0.01), and the roadmap [2] includes features to keep fees low even as BCH price increases (fractional satoshis).
I highly recommend this article [3] as the most comprehensive summary of the Bitcoin scaling debate.
So the final question would be: is 32 MB blocks the best we can do? And the answer is a clear NO. There is much room for improvement and the limits are definitely much much higher. I recommend this talk by Amaury Séchet [4] and this article on Terabyte blocks by Johannes Vermorel [5] to learn more.
[1] https://bitcointalk.org/index.php?topic=1347.msg15366#msg153...
[2] https://www.bitcoincash.org/roadmap.html
[3] https://medium.com/hackernoon/the-great-bitcoin-scaling-deba...
[4] https://www.youtube.com/watch?v=Z0rplj8wSR4
[5] http://blog.vermorel.com/journal/2017/12/17/terabyte-blocks-...
Satoshi introduced the 1 MB block size limit as a temporary measure meant to be easily lifted as transaction volume and Bitcoin price increased in the future [1]. However this didn't happen, Satoshi Nakamoto disappeared shortly after and his appointed successor, Gavin Andresen, was ousted from the project and his commit rights revoked in 2016.
A lot of people tried to raise the blocksize, and all of them failed because the developers who took over Bitcoin Core have always refused. Given that consensus failed to raised the block size the Bitcoin ABC implementation split from BTC to create Bitcoin Cash (BCH) on August 1st, 2017. Bitcoin Cash initially supported blocks of up to 8 MB, which was later raised to 32 MB. Mainnet stress tests have proven that the network works fine with blocks of up to 20 MB, making clear that the 1 MB limit of BTC is as artificial as it sounds like. Because of the higher block size accommodating to more transactions the fees in BCH are consistently under 1 cent ($0.01), and the roadmap [2] includes features to keep fees low even as BCH price increases (fractional satoshis).
I highly recommend this article [3] as the most comprehensive summary of the Bitcoin scaling debate.
So the final question would be: is 32 MB blocks the best we can do? And the answer is a clear NO. There is much room for improvement and the limits are definitely much much higher. I recommend this talk by Amaury Séchet [4] and this article on Terabyte blocks by Johannes Vermorel [5] to learn more.
[1] https://bitcointalk.org/index.php?topic=1347.msg15366#msg153...
[2] https://www.bitcoincash.org/roadmap.html
[3] https://medium.com/hackernoon/the-great-bitcoin-scaling-deba...
[4] https://www.youtube.com/watch?v=Z0rplj8wSR4
[5] http://blog.vermorel.com/journal/2017/12/17/terabyte-blocks-...
One of the main goals of bitcoin was to be decentralized by allowing most computers to download and verify the entire history of bitcoin transactions within reasonable space and time. With a 32MB limit, that would amount to many TB of data rather than the current 250GB, and many weeks of verification instead of a few days.
Downloading years old data is pointless. Add a hash of all the existing public keys with balances (aka the ledger) every week and you can get away with just downloading 2 weeks of data + that leaguer. For people that want to data mine it, a measly 8TB dataset is tiny co pared to plenty of public datasets are hundreds of times that size. https://nasa.github.io/data-nasa-gov-frontpage/
Decentralization doesn't mean that everybody has to run their own node, but rather that anybody can do it without asking for permission from a central authority. It was always the plan that as the network grew the cost of running a node would increase, and they would be run in server farms. In the words of Satoshi Nakamoto [1]:
> The current system where every user is a network node is not the intended configuration for large scale. That would be like every Usenet user runs their own NNTP server. The design supports letting users just be users. The more burden it is to run a node, the fewer nodes there will be. Those few nodes will be big server farms. The rest will be client nodes that only do transactions and don't generate.
Keeping the block size down just to allow underpowered nodes in the network has the negative effect of hampering scalability, increasing transaction fees and keeping BTC from following its intended design as P2P electronic cash.
Note that the size of the blockchain is not an issue for users, who can rely on SPV protocol to verify transactions without having to download the full blockchain nor having to blindly trust a third-party. SPV is secure as long as the blockchain is secure (i.e. there are no 51% attacks).
Also I want to mention that in Bitcoin full nodes described the miners, i.e. nodes that generate blocks. Validating blocks without mining serves no purpose in the Bitcoin whitepaper.
[1] https://satoshi.nakamotoinstitute.org/posts/bitcointalk/287/
> The current system where every user is a network node is not the intended configuration for large scale. That would be like every Usenet user runs their own NNTP server. The design supports letting users just be users. The more burden it is to run a node, the fewer nodes there will be. Those few nodes will be big server farms. The rest will be client nodes that only do transactions and don't generate.
Keeping the block size down just to allow underpowered nodes in the network has the negative effect of hampering scalability, increasing transaction fees and keeping BTC from following its intended design as P2P electronic cash.
Note that the size of the blockchain is not an issue for users, who can rely on SPV protocol to verify transactions without having to download the full blockchain nor having to blindly trust a third-party. SPV is secure as long as the blockchain is secure (i.e. there are no 51% attacks).
Also I want to mention that in Bitcoin full nodes described the miners, i.e. nodes that generate blocks. Validating blocks without mining serves no purpose in the Bitcoin whitepaper.
[1] https://satoshi.nakamotoinstitute.org/posts/bitcointalk/287/
The theory was bitcoin would have low overhead as the only limit was machine time which should be cheap. However, an artificial transaction limit was created which creates artificial scarcity and thus high transaction fees.
In theory a miner wants to have the highest number of profitable transactions possible, but we ended up with collusion to drive up prices and thus miner proffits.
In theory a miner wants to have the highest number of profitable transactions possible, but we ended up with collusion to drive up prices and thus miner proffits.
I don’t think the 7 transactions per second is artificial. In fact, I think it’s the technical maximum.
https://en.m.wikipedia.org/wiki/Bitcoin_scalability_problem
https://en.m.wikipedia.org/wiki/Bitcoin_scalability_problem
1 MB was an arbitrary value chosen by Satoshi Nakamoto to fight off spam in 2010, in no way it's a technical limit on the Bitcoin network, it's completely artificial.
Increasing the number of people using the dollar is at least a clear goal considering how often we inject it into countries and governments around the world. In 2020 you don’t conquer with guns, you conquer by economic dependence.
To be fair, it always was a combination of both. Economic depndence is much safer so.
The killer app was supposed to be DAOs, ICOs, and decentralized finance/web 3.0. Instead we got another asset bubble. This is why we can’t have nice things.
Back in the day of dial-up modems, people dreams of watching TV over the internet. Didn't work well with dial-up. As infrastructure spread, it happened (NetFlix).
Crypto going mainstream will happen. It will happen when debit cards to crypto accounts will pay merchants, and the merchants receive USD. AND when the rates are tiny.
Crypto going mainstream will happen. It will happen when debit cards to crypto accounts will pay merchants, and the merchants receive USD. AND when the rates are tiny.
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For examples of this see LIBOR/"Eurodollar"