An Economic Analysis of Ethereum(lynalden.com)
lynalden.com
An Economic Analysis of Ethereum
https://www.lynalden.com/ethereum-analysis/
107 comments
To your point, some farms will swap the coin they are mining in real time on the fly (given some baking period to see a real price difference) based on profitability and are continually selling on exchanges to capture current rate.
That gpu shortage is worrying me because I’m working on a game right now with a certain hardware requirement. By X date I have been anticipating that 50-55% of gamers will have Y gpu or better, based on previous years steam hardware survey data. Gamers are having some trouble getting the new cards though (not from lack of trying). Hopefully it won’t be an issue but it’s hard to say
You could just develop for something that you can actually get today and live with the fact that it's not taking advantage of all the shiny new toys an RTX 3090 offers.
It’s more about the size of the environments and how much grass and leaves I can support. RTX isn’t really a factor in my case
Enjoyed the article. I think one can boil it down pretty simply: decisionmakers at Ethereum don't care about investors. They're going to make decisions that support and enable interesting decentralized applications, and "defi" is incidental to that, but in they end they wouldn't care if Eth gets massively devalued or something as long as the ecosystem is healthy and growing.
Disclaimer: this is just my own perspective and speculation based on a bit of reading and brief convos with Ethereum foundation people.
Disclaimer: this is just my own perspective and speculation based on a bit of reading and brief convos with Ethereum foundation people.
That's not true. If ETH gets devalued through inflation by too much the security of the network would be compromised. They are explicitly moving to a 100% proof of stake model for securing the network (already partially deployed). This directly incentivizes stakeholders to protect the valuation of ETH. Finally, if EIP-1559 is implemented, the network will begin burning transaction fees. That is to say, it's possible in the future more ETH will be burned via transaction fees than produced from staking, in which case ETH issuance will go negative.
I don't think it follows that my summary is wrong. I'm suggesting Ethereum people are happy to incentivize investment and stakeholders to protect ETH's value -- but not because they actually care about investors getting a good return, rather, because they want good security properties for their decentralized applications.
That's not true at all. The decision makers in Ethereum care overwhelmingly about maximizing the value of their massive premine holdings. The latest EIP-1559 proposal (tl;dr ETH gets burned in every transaction) makes their stash an even larger percentage of the overall ETH distribution. Which is even more egregious when you learn that proof-of-stake rewards those with the most money (read: the decision makers).
> The decision makers in Ethereum care overwhelmingly about maximizing the value of their massive premine holdings.
That's not the impression I got of Vitalik Buterin at all, nor others at the Ethereum foundation. Maybe you have a different set of decisionmakers in mind.
That's not the impression I got of Vitalik Buterin at all, nor others at the Ethereum foundation. Maybe you have a different set of decisionmakers in mind.
>>The latest EIP-1559 proposal (tl;dr ETH gets burned in every transaction) makes their stash an even larger percentage of the overall ETH distribution
That assumes they don't spend their ETH on fees, which doesn't make realistic assumptions about the makeup of this group.
>>Which is even more egregious when you learn that proof-of-stake rewards those with the most money (read: the decision makers).
PoS is no worse than PoW in this respect. Both PoW and PoS reward validators in proportion to their capital assets. In the case of PoW, mining ASICs, and in the case of PoS, ETH.
In any case, the fact that larger miners/stakers make more is neither surprising nor a cause for concern. It's the rate of return on capital being higher for larger investors that would be concerning, as that has the effect of concentrating wealth.
There is less of an economies of scale effect in staking than in proof-of-work generation, with smaller validators having a ROI on their capital assets that is closer to that of larger validators in PoS than in PoW.
So PoS should have a weaker tendency toward growing wealth inequality than PoW.
That assumes they don't spend their ETH on fees, which doesn't make realistic assumptions about the makeup of this group.
>>Which is even more egregious when you learn that proof-of-stake rewards those with the most money (read: the decision makers).
PoS is no worse than PoW in this respect. Both PoW and PoS reward validators in proportion to their capital assets. In the case of PoW, mining ASICs, and in the case of PoS, ETH.
In any case, the fact that larger miners/stakers make more is neither surprising nor a cause for concern. It's the rate of return on capital being higher for larger investors that would be concerning, as that has the effect of concentrating wealth.
There is less of an economies of scale effect in staking than in proof-of-work generation, with smaller validators having a ROI on their capital assets that is closer to that of larger validators in PoS than in PoW.
So PoS should have a weaker tendency toward growing wealth inequality than PoW.
Haven't fully read the article, but
>I think one can boil it down pretty simply: decisionmakers at Ethereum don't care about investors
As opposed to bitcoin devs?
>I think one can boil it down pretty simply: decisionmakers at Ethereum don't care about investors
As opposed to bitcoin devs?
I don't know what you mean exactly, but: Bitcoin is really stable, it's not under development in the same way Ethereum is. So "bitcoin devs" don't really exist. Whereas a relatively small group of people could potentially change how Ethereum works, a lot.
The guiding hand of Satoshi continues to rub one out while sitting in some corner.
Come on dude, that really does not add anything to the conversation..
The thread is referencing Ethereum devs, when the bitcoin dev(s?) are where?
Lot's of folks riffing on the original implementation, but ultimately just a fork.
Lot's of folks riffing on the original implementation, but ultimately just a fork.
I feel like I disagree with the bottom-line a bit - a 100/0 split seems to ignore the possibility that a future stable state of the Ethereum network will be capable of supporting stablecoins or other coins with arbitrary monetary policy that are capable of matching or surpassing Bitcoin in all metrics of technical merit. I would not want to be a Bitcoin maximalist in that situation.
Bitcoin's adoption isn't based on technical merit though. It's a Schelling point for digital gold.
It does have the technical merit of not collapsing so far. A lot of the previous attempts at digital currency collapsed because they had more of a dependency on some quasi trusted intermediate party.
Yeah, there's a minimum level of reliability necessary to be digital gold (which Bitcoin has met) but additional technical sophistication beyond that doesn't help.
Stablecoin is an untractable problem by design, isn't it being solvable in the future by crypto a myth?
Is it? I have been using MakerDAO and it has been holding up without any problem. Even the crash last March didn't cause a major lack of liquidity or lost backing value.
Can you explain what you use it for exactly?
Three cases for now, mostly:
- It's an excellent way to make payments and transfer value without giving up on your position on more volatile assets that you'd like to hold. E.g, I am long BAT. I can deposit my BAT stash on a MakerDAO vault to make an overcollaterized loan of DAI. I go on then to use DAI to pay people and services and other investments (see next point). If BAT's value falls between a certain threshold and the loan is no longer collaterized, then the loan is liquidated.
- Provide liquidity in a volatile-stable pair (e.g, ETH/DAI) on a decentralized exchange like Uniswap and reduce what is commonly called impermanent loss or impairment loss.
- Provide liquidity on Curve Finance on the DAI/USDC pool. The fees I get to collect from that so far more than offset the interest rate from the original loan, and if you put on top of that that Curve gives their own tokens as an incentive to liquidity providers, I am getting around 2% ROI per month by holding fairly stable and low-risk crypto assets.
- It's an excellent way to make payments and transfer value without giving up on your position on more volatile assets that you'd like to hold. E.g, I am long BAT. I can deposit my BAT stash on a MakerDAO vault to make an overcollaterized loan of DAI. I go on then to use DAI to pay people and services and other investments (see next point). If BAT's value falls between a certain threshold and the loan is no longer collaterized, then the loan is liquidated.
- Provide liquidity in a volatile-stable pair (e.g, ETH/DAI) on a decentralized exchange like Uniswap and reduce what is commonly called impermanent loss or impairment loss.
- Provide liquidity on Curve Finance on the DAI/USDC pool. The fees I get to collect from that so far more than offset the interest rate from the original loan, and if you put on top of that that Curve gives their own tokens as an incentive to liquidity providers, I am getting around 2% ROI per month by holding fairly stable and low-risk crypto assets.
All this stuff sounds pretty interesting. Any beginner-friendly pointers on any of them? Especially the last one (how to get started, minimum amount of money for it to be worth doing, etc.).
Here are some great resources:
https://decrypt.co/resources/defi-ultimate-beginners-guide-d...
https://www.voice.com/post/@osaemezu/aave-lend-a-beginners-g...
https://blog.coinbase.com/a-beginners-guide-to-decentralized...
As for the actual yield on loans, there is no lower limit beyond the fact that there are fees to lend and return your coins to and from these lending contracts. Those fees are currently quite high, so it is in your best interest to plot those out when calcuating returns.
https://bitinfocharts.com/comparison/ethereum-transactionfee...
https://ethgasstation.info/
https://www.voice.com/post/@osaemezu/aave-lend-a-beginners-g...
https://blog.coinbase.com/a-beginners-guide-to-decentralized...
As for the actual yield on loans, there is no lower limit beyond the fact that there are fees to lend and return your coins to and from these lending contracts. Those fees are currently quite high, so it is in your best interest to plot those out when calcuating returns.
https://bitinfocharts.com/comparison/ethereum-transactionfee...
https://ethgasstation.info/
I hadn’t really sat down and thought how much more complicated ETH 2.0 is than Bitcoin so that was interesting. I don’t think that the Concord metaphor is very meaningful though. Isn’t supersonic flight hard and inconvenient for real world physics and engineering reasons while cryptocurrency relies on CS/ math developments but if those problems are solved there is no reason to think the solution will remain impractical. Crypto won’t burn excess fuel or make sonic booms.
You just gave me a small glimpse of a world where the electricity goes down some evenings because Megacorp X’s DApp is peaking usage.
Ethereum is transitioning fully to Proof of Stake, which will eliminate the need to consume massive amounts of energy to arrive at consensus.
The Concorde never burned as much fuel as a small country. You could argue that crypto will always have to burn a lot of fuel (electricity) because it needs to be bound to a computationally hard problem to be secure. https://www.statista.com/statistics/881472/worldwide-bitcoin...
Thankful for the in-depth analysis. I'm still bullish on ETH because the entire blockchain economy is very speculative. Trying to fault Ethereum because it's not as stable or secure as BTC doesn't seem very fair.
I'm wondering whether Bitcoin has a chance of being anything other than a store of value, or a means to settle accounts (if even that). Given the long list of problems with Lightning (e.g. [1]), and the many years it's been in development for, I'm growing increasingly skeptical. I'm wondering how that fits into people's economic analysis of Bitcoin.
P.S. I'm long Bitcoin, so I hope I'm wrong!
[1] - https://www.coindesk.com/bitcoin-lightning-network-vulnerabi...
P.S. I'm long Bitcoin, so I hope I'm wrong!
[1] - https://www.coindesk.com/bitcoin-lightning-network-vulnerabi...
Even if Bitcoin only gets to be the reserve currency of all digital currencies in the future, the petrodollar that oils the defi machinery, that's enough of a use case to drive valuation.
People like to ask Bitcoin investors if they really think it will be the last and optimal digital currency. And no, that's not likely. But that reasoning must be applied to each and every other coin as well, including Ethereum, and that is doubly likely for them. One could easily imagine a future coin that does what they do, only better.
People like to ask Bitcoin investors if they really think it will be the last and optimal digital currency. And no, that's not likely. But that reasoning must be applied to each and every other coin as well, including Ethereum, and that is doubly likely for them. One could easily imagine a future coin that does what they do, only better.
I’m starting to see Bitcoin and ETH/ other alt coins a kind of mutually dependent relationship. Bitcoin succeeding as a store of value allows that narrative to continue, drawing in institutional investment while other faster projects allow the narrative about changing all monetary transactions to continue. I don’t think maximalists on either side would like the price if the other side failed.
I predict more and more blockchains in the future won't have extraneous speculative tokens (like ETH) since BTC has remained dominant for more than a decade. There are simply less and less reasons to buy or hold ETH when sidechains like Rootstock replicate the technology used on Ethereum...but without needing to use another less dominant less liquid asset.
But BTC is only dominant in market cap, ETH is the most widely used blockchain. Sidechains on BTC have been a topic of discussion for awhile now, and frankly none have gotten a huge amount of traction. At some point the network effects that ETH has are too big to ignore.
But whether the most used blockchain should be the highest in market cap is a totally different discussion. It's possible ETH goes mainstream, but BTC is still valued higher as "digital gold." I have no idea what will be the outcome.
But whether the most used blockchain should be the highest in market cap is a totally different discussion. It's possible ETH goes mainstream, but BTC is still valued higher as "digital gold." I have no idea what will be the outcome.
The network effects are on Ethereum, with virtually the entire DeFi space on it.
Moreover, Bitcoin doesn't have the necessary opcodes for secure/trustless bridges to sidechains.
Rootstock, for its part, is controlled by trusted third parties, so doesn't come close to providing the trustless-ness and permissionless-ness guarantees of Ethereum.
Unsurprisingly, Rootstock has insignificant adoption, with Ethereum having on the order of one thousand times more capital/users utilizing it.
Moreover, Bitcoin doesn't have the necessary opcodes for secure/trustless bridges to sidechains.
Rootstock, for its part, is controlled by trusted third parties, so doesn't come close to providing the trustless-ness and permissionless-ness guarantees of Ethereum.
Unsurprisingly, Rootstock has insignificant adoption, with Ethereum having on the order of one thousand times more capital/users utilizing it.
I completely agree with this
Sure it is, on Ethereum: https://defipulse.com/btc
More tokenized Bitcoin is transacted on the Ethereum network every day than on the Lightning network, by orders of magnitude.
More tokenized Bitcoin is transacted on the Ethereum network every day than on the Lightning network, by orders of magnitude.
Most of the "tokenized Bitcoin" you're referring to is just an ERC20 promise of redemption from Bitgo's coffers. It's not at all comparable to Bitcoin's Lightning Network.
All I know is there's 148K Bitcoin locked in tokens, which is nearly 1% of all Bitcoin and that people are finding more utility in tokenizing it and providing it for liquidity and yield on various DeFi platforms than on Lightning network. Maybe that will change in the future, but right now, that's the case.
I think alternatives like Litecoin and Bitcoin Cash are more likely to be adopted as a transactional tool in that case.
Bitcoin - speculation on digital store of value and solutions to hedge against fiat currency risks. The valuation model is to try to determine what X% of the global demand for store of value assets might shift towards Bitcoin in the long run. Probably nowhere close to the level of a fiat currency market or the gold market, but perhaps much higher % than it is today.
Litecoin, Bitcoin Cash - attempting to make crypto transactions common. Higher capacity, faster transaction processing. The valuation model is X% of casual transactions. X is probably never going to be an appreciable percentage compared to big transaction platforms like Visa or Mastercard, but it may grow steadily and find niche areas where the ability to quickly transact in a cryptocurrency is highly valued. This is likely to remain correlated to cryptocurrencies that act as a store of value because one main area for demand of casual cryptocurrency transactions will be hedging risk of fiat currencies. Eg if I live in a region with government currency instability, I’ll want to decouple my cash asset values from that government risk, and look to a platform where I can still buy toilet paper or bread without hyperinflation.
Ethereum, Polkadot, Cosmos - network effects and ecosystems of smart contracts. The valuation model is like an app store mixed with a cloud vendor. Much harder to state a clear valuation model, likely very volatile due to perceptions of “killer apps” and how much staying power they would really have, as well as the interplay with regulators.
Bitcoin - speculation on digital store of value and solutions to hedge against fiat currency risks. The valuation model is to try to determine what X% of the global demand for store of value assets might shift towards Bitcoin in the long run. Probably nowhere close to the level of a fiat currency market or the gold market, but perhaps much higher % than it is today.
Litecoin, Bitcoin Cash - attempting to make crypto transactions common. Higher capacity, faster transaction processing. The valuation model is X% of casual transactions. X is probably never going to be an appreciable percentage compared to big transaction platforms like Visa or Mastercard, but it may grow steadily and find niche areas where the ability to quickly transact in a cryptocurrency is highly valued. This is likely to remain correlated to cryptocurrencies that act as a store of value because one main area for demand of casual cryptocurrency transactions will be hedging risk of fiat currencies. Eg if I live in a region with government currency instability, I’ll want to decouple my cash asset values from that government risk, and look to a platform where I can still buy toilet paper or bread without hyperinflation.
Ethereum, Polkadot, Cosmos - network effects and ecosystems of smart contracts. The valuation model is like an app store mixed with a cloud vendor. Much harder to state a clear valuation model, likely very volatile due to perceptions of “killer apps” and how much staying power they would really have, as well as the interplay with regulators.
Some good points, but for as many good points, there is a similar amount of misinformation, whether purposefully or due to lack of understanding.
- The claim that BTC chose a non-scalable solution for ease of running a node isn't true. The claim at the time was that Segwit and LN were sufficient to solve all the scaling issues, the hardforks were going to solve anyways with their block size increase. It also falsely states that the hard forks take up more hard disk space, when in fact BTC still takes more...
- The hashrate comparison, the way it is charted is completely nonsensical, between BTC & ETH... it is quite literally comparing apples to oranges, their POW algorithms are completely different from one another and cannot be compared in hash/s terms. They are each respectively at the top of their hash domains. I'm doubtful this is due to ignorance, but moreso malice. Would love to see BTC miners do a 50% attack on ETH, which the author is essentially trying to instill into the minds of readers.
- The claim that BTC chose a non-scalable solution for ease of running a node isn't true. The claim at the time was that Segwit and LN were sufficient to solve all the scaling issues, the hardforks were going to solve anyways with their block size increase. It also falsely states that the hard forks take up more hard disk space, when in fact BTC still takes more...
- The hashrate comparison, the way it is charted is completely nonsensical, between BTC & ETH... it is quite literally comparing apples to oranges, their POW algorithms are completely different from one another and cannot be compared in hash/s terms. They are each respectively at the top of their hash domains. I'm doubtful this is due to ignorance, but moreso malice. Would love to see BTC miners do a 50% attack on ETH, which the author is essentially trying to instill into the minds of readers.
It felt a bit like doublespeak when the author claimed ETH was more vulnerable to a 51% attack because it (intentionally) aims to make ASIC mining difficult — the whole point of making ASIC mining difficult is that Bitcoin is centralized and vulnerable to 51% attacks because there are very few miners (because capital expenditure to become a miner is high). If the few miners collaborate to cheat you, they can get away with it.
That being said, it's not even true anymore that ETH is GPU-only; despite attempting ASIC-resistance, there are now ASIC miners for ETH too, although unlike with Bitcoin, Ethereum is still able to be mined with GPUs.
The complaints that ETH has little real-world utility and is mostly speculation-driven felt similarly nonsensical compared to Bitcoin. What real-world utility does Bitcoin have? The whole thing is HODL-driven speculation on an inherently-useless deflationary asset.
(Unlike the author, who claims to have no stake in the debate a breath before admitting he's long BTC and doesn't own ETH — by definition, a stake — I truly have no stake in this debate, and currently own neither BTC nor ETH.)
That being said, it's not even true anymore that ETH is GPU-only; despite attempting ASIC-resistance, there are now ASIC miners for ETH too, although unlike with Bitcoin, Ethereum is still able to be mined with GPUs.
The complaints that ETH has little real-world utility and is mostly speculation-driven felt similarly nonsensical compared to Bitcoin. What real-world utility does Bitcoin have? The whole thing is HODL-driven speculation on an inherently-useless deflationary asset.
(Unlike the author, who claims to have no stake in the debate a breath before admitting he's long BTC and doesn't own ETH — by definition, a stake — I truly have no stake in this debate, and currently own neither BTC nor ETH.)
> That being said, it's not even true anymore that ETH is GPU-only; despite attempting ASIC-resistance, there are now ASIC miners for ETH too, although unlike with Bitcoin, Ethereum is still able to be mined with GPUs.
Last time I looked those "ASIC" miners for ETH were basically a few GPUs stacked together in one case. More of a special PC setup than truly ASICs and that's why there is still GPU mining. Those ASIC miners were not that much faster and cost effective than a regular GPU setup.
Has that changed?
Last time I looked those "ASIC" miners for ETH were basically a few GPUs stacked together in one case. More of a special PC setup than truly ASICs and that's why there is still GPU mining. Those ASIC miners were not that much faster and cost effective than a regular GPU setup.
Has that changed?
I really feel the article's quality would greatly improve, focusing on just Ethereum 2.0, where fair points regarding its issues are brought up.
Showing the node count for BTC and making it seem huge, while trying to sell the fact of how terrible it is to run a ETH node instead, and not mentioning the fact that there are actually more active ETH nodes online than BTC, is highly disengenious, and unfortunately just makes this seem like a bagholder trying to discredit competition.
Showing the node count for BTC and making it seem huge, while trying to sell the fact of how terrible it is to run a ETH node instead, and not mentioning the fact that there are actually more active ETH nodes online than BTC, is highly disengenious, and unfortunately just makes this seem like a bagholder trying to discredit competition.
>The claim that BTC chose a non-scalable solution for ease of running a node isn't true.
Except that it is true. There were few reasons for not increasing the block size limit, one of those was the cost of running a node. If the costs became too much for normal people to afford, it would centralize the system in a small number of big miners.
Except that it is true. There were few reasons for not increasing the block size limit, one of those was the cost of running a node. If the costs became too much for normal people to afford, it would centralize the system in a small number of big miners.
I never understood this argument. The cost of mining already centralizes nodes to the point where block size is not a factor. People that are able to run cost effective mining setups are also able to support blockchains of any size. Given the current state of mining, how would switching to 10mb blocks increase centralization?
Miner centralization is not without risks, but is fundamentally very different from centralizing economic activity, with different security outcomes.
A dominating miner runs the risk of a 51% attack, which can cause denial of service or censorship, but game theory dictates that the missed opportunity cost is huge. A dominating economic actor makes the whole blockchain an obsolete backend to something like Paypal.
A dominating miner runs the risk of a 51% attack, which can cause denial of service or censorship, but game theory dictates that the missed opportunity cost is huge. A dominating economic actor makes the whole blockchain an obsolete backend to something like Paypal.
Block propagation speed.
How does that make any sense?
Block sizes are under 1MB.
Anyone can rent a VPS for under $10 USD per month that would transfer that in 1/100th of a second.
The block time is 10 minutes.
Why do people repeat stuff like this? Is it because you have seen other people say it and never stopped to look at the math?
Block sizes are under 1MB.
Anyone can rent a VPS for under $10 USD per month that would transfer that in 1/100th of a second.
The block time is 10 minutes.
Why do people repeat stuff like this? Is it because you have seen other people say it and never stopped to look at the math?
The only huge pushers of that were the like of core dev LukeJr... who wants to decrease the block size down to 100k or by 10x.
The article states that claim, as though it was the sole one, when it was just one small reason pushed by Raspberry Pi hobbyists... while the average person doesn't even know wtf a Pi or ARM SBC is.
The article states that claim, as though it was the sole one, when it was just one small reason pushed by Raspberry Pi hobbyists... while the average person doesn't even know wtf a Pi or ARM SBC is.
Why not increase the block size limit then?
This is also what happened. Larger blocks was implemented with segwit. This played out during an infected debate that provided the perfect cover to launch an altcoin without it, that changed the name and some constants in the code. The free PR gave them more economic activity from the start compared to similar coins, and was likely quite lucrative.
Increase the block size limit was really just a 1 line change, a single variable within bitcoin core controlled it. Instead of changing this variable from a 1 to a 2 they chose the convoluted mess that was segwit. What was so wrong with increasing the block size limit the normal way?
This was thoroughly debated over many months at the bitcoin-dev mailing list so it would be presumptuous of me to summarize that now. The list is open and anyone can read the actual back and forths that took place.
There were several perspectives on this, including that no one found a way to deploy that protocol change to a live network in an acceptable way. It is much easier to build consensus around "soft" forks.
There were several perspectives on this, including that no one found a way to deploy that protocol change to a live network in an acceptable way. It is much easier to build consensus around "soft" forks.
non-mining nodes have zero bearing on chain consensus
That's not really true. If the vast majority of user- and exchange-operated nodes decided a miner's well-formed block is invalid, then other miners would be dissuaded from building on it, and would instead orphan it.
if a non mining node decides a block is invalid it will fork onto its own chain. If no mining nodes start mining on this forked chain then the original node is left on a chain where no transactions can be processed.
Non-mining nodes have no power or influence over the networks state. It is the mining nodes who decide which chain lives and which chain dies.
Non-mining nodes have no power or influence over the networks state. It is the mining nodes who decide which chain lives and which chain dies.
Non-mining nodes are still responsible for storing and relaying blocks. If no one stores and relays your block, was it ever mined?
Remove the non-mining nodes from the network and the node count goes down, but the network security stays the same. Non mining nodes do nothing for the security of the bitcoin network.
Having more non mining nodes to store and relay blocks is beneficial to decentralization, but they have no influence over which chain becomes the longest chain.
Having more non mining nodes to store and relay blocks is beneficial to decentralization, but they have no influence over which chain becomes the longest chain.
I'm sorry, but this is simply not true. Bitcoin's security is ultimately underpinned by each node being able to independently validate the chainstate. If nodes couldn't be guaranteed to receive all blocks on the best fork -- a task fulfilled not by miners, but by the continued availability of non-mining nodes that store and relay blocks -- then not only would miners be unable to build a high-quality chain (since they would have a hard time receiving each other's blocks), but also it would be much easier to eclipse nodes and/or feed them a valid but lower-quality chain that they would be unable to determine is the globally-best chain.
Also, block validity includes more than just proof-of-work. Each node ultimately decides which block it accepts or rejects. The protocol defines the minimum criteria for a block to be valid, but each node may independently apply additional criteria that must be met. If all nodes decide to reject a protocol-valid block that a miner produces, then the block will be orphaned -- it won't matter how many descendant blocks get built on it, because the rest of the network will ignore them all. In fact, this is the mechanism by which a user-activated soft fork works [1].
[1] https://en.bitcoin.it/wiki/Softfork
Also, block validity includes more than just proof-of-work. Each node ultimately decides which block it accepts or rejects. The protocol defines the minimum criteria for a block to be valid, but each node may independently apply additional criteria that must be met. If all nodes decide to reject a protocol-valid block that a miner produces, then the block will be orphaned -- it won't matter how many descendant blocks get built on it, because the rest of the network will ignore them all. In fact, this is the mechanism by which a user-activated soft fork works [1].
[1] https://en.bitcoin.it/wiki/Softfork
When bitcoin launched there were no non-mining nodes, every node was a mining node. "Node" in the whitepaper refers to what we know today as mining nodes. You are suggesting that the task of relaying blocks falls solely on non-mining nodes, when this isnt true. Mining nodes carry out the same roles as non mining nodes when it comes to relaying/propagation. Every node within the network, whether it be mining or non-mining, pass blocks they receive to their peers.
The task of relaying blocks falls to every node; you are correct there (and I never claimed otherwise). But, if a miner produces a block that the vast majority of nodes reject, then the network effectively splits into two parts -- one part where the block was never "seen" and the other part where it was. If the part that never "sees" the block represents more economic activity -- e.g. the majority of exchanges' nodes, the majority of wallets' nodes, etc. -- then it doesn't matter how much mining PoW gets sunk into that block and its descendants because they will never be processed. Downstream, that means that the miner's coins never materialize on these nodes, which makes mining non-relayed blocks unprofitable. Miners need other nodes to recognize their blocks in order for those other nodes' operators to recognize the existence of their coins.
For example, consider what would happen if a miner produced a block that tried to spend a Segwit output without consideration of the witness. Under the Bitcoin protocol, this is technically allowed -- a Segwit output looks like an anyone-can-spend output. But due to the extra Segwit rules, only pre-Segwit nodes would accept and relay this block. Considering that nearly all exchanges, wallets, custodians, etc. apply the Segwit rules, this would mean that this block would be treated as invalid and its coinbase rendered effectively unspendable. Even if 100% of the Bitcoin miners tried to build on top of this Bitcoin-valid but Segwit-invalid block, all their blocks would be similarly rejected. Only pre-Segwit Bitcoin nodes would accept these blocks, but hardly anyone runs them [1] (note that Segwit support first appeared in version 0.16; there are indeed still some people running pre-Segwit nodes).
[1] https://luke.dashjr.org/programs/bitcoin/files/charts/softwa...
For example, consider what would happen if a miner produced a block that tried to spend a Segwit output without consideration of the witness. Under the Bitcoin protocol, this is technically allowed -- a Segwit output looks like an anyone-can-spend output. But due to the extra Segwit rules, only pre-Segwit nodes would accept and relay this block. Considering that nearly all exchanges, wallets, custodians, etc. apply the Segwit rules, this would mean that this block would be treated as invalid and its coinbase rendered effectively unspendable. Even if 100% of the Bitcoin miners tried to build on top of this Bitcoin-valid but Segwit-invalid block, all their blocks would be similarly rejected. Only pre-Segwit Bitcoin nodes would accept these blocks, but hardly anyone runs them [1] (note that Segwit support first appeared in version 0.16; there are indeed still some people running pre-Segwit nodes).
[1] https://luke.dashjr.org/programs/bitcoin/files/charts/softwa...
For some reason you seem to think that miners can't send out their own blocks. Of course they can do anything a simple relay node can do.
Also you are linking to a person who thinks the sun revolves around the earth and that there is nothing wrong with slavery because the bible says so.
Also you are linking to a person who thinks the sun revolves around the earth and that there is nothing wrong with slavery because the bible says so.
> For some reason you seem to think that miners can't send out their own blocks. Of course they can do anything a simple relay node can do.
I never said that they can't. I said that other nodes can choose to ignore them.
> Also you are linking to a person who thinks the sun revolves around the earth and that there is nothing wrong with slavery because the bible says so.
No disagreement there. The only reason I linked to his site is because it's the only Bitcoin network status page I'm aware of that has a fine-grained breakdown of Bitcoin user-agent strings. Do you have a better link?
I never said that they can't. I said that other nodes can choose to ignore them.
> Also you are linking to a person who thinks the sun revolves around the earth and that there is nothing wrong with slavery because the bible says so.
No disagreement there. The only reason I linked to his site is because it's the only Bitcoin network status page I'm aware of that has a fine-grained breakdown of Bitcoin user-agent strings. Do you have a better link?
Nodes aren't "responsible" for anything, they can only help if they want. Miners broadcast their blocks to other miners to signal they found a valid block.
Miners can broadcast to anyone they want and nodes can't find or manipulate blocks, so they take the role of passive helpers.
Miners can broadcast to anyone they want and nodes can't find or manipulate blocks, so they take the role of passive helpers.
Yes id agree with you there, many dont though.
I havent heard of any claims that segwit and LN would be sufficient. It is very clear mathematics that they cant scale far. However they provide safe way to scale for short-term. Long-term solutions have to be found. If they are not found there is thousands of shitcoins claiming to solve the scalability issues better.
I agree that mathematically, they are not the scaling solutions they were touted to be, as they both have a direct dependence on the base layer size, among many other issues respectively.
You did mention yourself, under however, that it can help scale in the short-term. Many of the 'tech gurus' were essentially saying that Segwit was the short-term fix, and LN wich would take 18 months(seemingly a perpetual timeframe), would be the medium-term fix. The BTC maxi thought leader morons, like Tone Vays, who are technically ignorant, were selling noobs that both were a complete fix. I didn't choose the thought leaders for BTC.
You did mention yourself, under however, that it can help scale in the short-term. Many of the 'tech gurus' were essentially saying that Segwit was the short-term fix, and LN wich would take 18 months(seemingly a perpetual timeframe), would be the medium-term fix. The BTC maxi thought leader morons, like Tone Vays, who are technically ignorant, were selling noobs that both were a complete fix. I didn't choose the thought leaders for BTC.
>They are each respectively at the top of their hash domains
This doesn't matter much for ETH because its mining algorithm dissuades ASIC production. So there are some (large) number of GPUs out in the world not mining ETH that can in theory be used to attack Ethereum. The same can't really be said for Bitcoin because ASICs serve no other purpose besides mining.
This doesn't matter much for ETH because its mining algorithm dissuades ASIC production. So there are some (large) number of GPUs out in the world not mining ETH that can in theory be used to attack Ethereum. The same can't really be said for Bitcoin because ASICs serve no other purpose besides mining.
I wonder if this is not part of a ramp up of subtle marketing toward ETH. The google trends is already growing up https://trends.google.com/trends/explore?date=all&geo=US&q=e...
Anecdotally, Google Trends correlates with the market price of cryptocurrencies. Ether has gone up in value substantially this year.
I assume Google Trends fluctuations lag behind market price changes, so it probably isn't very useful. Would be curious to see the times that the two metrics are out of out sync, and speculations as to why.
I had a similar feeling. The net effect of reading that article was to make me want to invest in ETH.
And if the usual saying is true, be prepared to sell soon.
Is it at the moment possible (or even advisable) to use stablecoins like DAI to buy things directly on the Dark Web? Because if not, then that forces you to use exchanges to convert the stablecoins to fiat, which themselves are still subject to KYC regulations. So in that case you haven't really got around KYC.
The Dark Web is transitioning into exclusively Monero.
Which is funny given this talk that was linked a few months ago in hn comments: https://www.youtube.com/watch?v=9s3EbSKDA3o
I'm not going to watch a half hour long talk without a summary but zcash has never had more than 1000 transactions in a day, Monero regularly has 30k+ day. Those dismal numbers from zcash make it very easy to trace transactions.
This is a fake quote from a parody website:
>>I happily played World of Warcraft during 2007-2010, but one day Blizzard removed the damage component from my beloved warlock’s Siphon Life spell. I cried myself to sleep, and on that day I realized what horrors centralized services can bring.
>>I happily played World of Warcraft during 2007-2010, but one day Blizzard removed the damage component from my beloved warlock’s Siphon Life spell. I cried myself to sleep, and on that day I realized what horrors centralized services can bring.
TL;DR from the Author Lyn Alden
> TLDR; Ethereum could indeed do very well over the next year in terms of price, but as long as it's transforming its base layer, it remains a speculation in alpha development, rather than a finished/stable product.
https://twitter.com/lynaldencontact/status/13508211296367370...
> TLDR; Ethereum could indeed do very well over the next year in terms of price, but as long as it's transforming its base layer, it remains a speculation in alpha development, rather than a finished/stable product.
https://twitter.com/lynaldencontact/status/13508211296367370...
Thank you
There is still a big question of whether a panic that breaks Tether's peg might cause enough chaos to discredit the entire market for a while. It's odd that Alden doesn't address that.
Some other cryptocurrencies could go up when that happens, but it seems like it would be bad for demand in the slightly longer run.
Some other cryptocurrencies could go up when that happens, but it seems like it would be bad for demand in the slightly longer run.
I keep reading people post this on HN but I promise you it won’t matter. The shock of Tether not being fully backed already happened back in 2018 and the $1 peg briefly broke before recovering. What’s the next shock? It’s still not backed? The market already knows this and doesn’t care. Retail currently can’t cash out USDT and still won’t later.
IMO the only way USDT dies is if the US government makes using it illegal. Nothing else will make a dent in it.
IMO the only way USDT dies is if the US government makes using it illegal. Nothing else will make a dent in it.
Maybe short-sellers could do it if there were a big enough market for lending Tether to short-sellers?
I was hoping for a real economic analysis. You know one written by someone who studied monetary theories and policies.
I've read a few of her articles recently and been very impressed. I understand a default stance of skepticism but the writing speaks for itself. I would be curious for your criticisms on this "petrodollar" article, for instance: https://www.lynalden.com/fraying-petrodollar-system/
She definitely studies monetary theory and policy. Read a few more articles that are unrelated to crypto.
"as an oil-like enabler of dapps, rather than as a gold-like scarce collateral" is an economic statement (!)
I think the same analysis applies to Bitcoin in fact.
Funny that this upvoted article says much of what I said yesterday in a comment that was originally heavily downvoted, then went back:
The Ethereum solution to serve this demand, however, ironically has semi-centralized clusters. While it’s more decentralized than purely-centralized systems, it’s not really the level of decentralization that some were hoping for, and Buterin has admitted as such. These clusters of centralization serve as potential attack surfaces for governments to crack down on these methods of going around regulated and fully centralized and KYC-regulated firms.
One could almost say it’s a veneer of decentralization over a system that is actually quite centralized. There’s a step here towards decentralization, but it’s not actual decentralization in its current form.
I went further. Let me reproduce it here: No, blockchains are not the future, they are really the reason why one transaction can happen at a time in the whole world. Even Ethereum 2.0 will have shards which will do away with this anomaly. The only reason flash loans even work with no collateral is because you can be sure nothing else is running on the “world computer” while your transaction runs, so you can roll it back with no risk except gas fees. Vitalik himself acknowledges this, the guy is quite honest and straightforward about its limitations:
Vitalik Buterin: Using Ethereum is expensive, and its blockchain is ‘almost full’ He also said blockchain's 'problem' is that every computer verifies every transaction
Actually blockchains are a first-generation technology that do global consensus for every block, which literally means all transactions in the world must go through one computer in the world (the miner) although it’s a different one each time. And the situation is actually worse, since you don’t know who would mine the next block in advance, every transaction must be sent to every potential miner! Imagine if BitTorrent had every computer store and seed every movie instead of using DHT.
The ability to send or loan arbitrarily large amounts for a fixed fee is a symptom of centralization. In a fully distributed network, transaction fees would have to be proportional to transaction size!
Almost every other protocol on the Internet does not have such bottlenecks in its design. No one asks how many emails or websites can be served per second. Blockchain is trying to secure every transaction using the entire network! That is why so much electricity is wasted just to do 7 transactions per second. The next generation of crypto will actually be able to power payments using embarrasingly parallel architecture. Until then, we have blockchain. Ethereum is nicknamed the “world computer” for a reason. Gas fees are super high for small transactions like paying for coffee or voting in a secure election. Just one app KryptoKitties can clog up the entire network.
As one example, we built Intercoin apps on top of Ethereum (https://intercoin.org/applications) but we are not going to wait around for Ethereum 2.0 - which is blockchain also. Kik Messenger and others have long gotten off. Ripple, MaidSAFE and Solana use different technologies.
Funny that this upvoted article says much of what I said yesterday in a comment that was originally heavily downvoted, then went back:
The Ethereum solution to serve this demand, however, ironically has semi-centralized clusters. While it’s more decentralized than purely-centralized systems, it’s not really the level of decentralization that some were hoping for, and Buterin has admitted as such. These clusters of centralization serve as potential attack surfaces for governments to crack down on these methods of going around regulated and fully centralized and KYC-regulated firms.
One could almost say it’s a veneer of decentralization over a system that is actually quite centralized. There’s a step here towards decentralization, but it’s not actual decentralization in its current form.
I went further. Let me reproduce it here: No, blockchains are not the future, they are really the reason why one transaction can happen at a time in the whole world. Even Ethereum 2.0 will have shards which will do away with this anomaly. The only reason flash loans even work with no collateral is because you can be sure nothing else is running on the “world computer” while your transaction runs, so you can roll it back with no risk except gas fees. Vitalik himself acknowledges this, the guy is quite honest and straightforward about its limitations:
Vitalik Buterin: Using Ethereum is expensive, and its blockchain is ‘almost full’ He also said blockchain's 'problem' is that every computer verifies every transaction
Actually blockchains are a first-generation technology that do global consensus for every block, which literally means all transactions in the world must go through one computer in the world (the miner) although it’s a different one each time. And the situation is actually worse, since you don’t know who would mine the next block in advance, every transaction must be sent to every potential miner! Imagine if BitTorrent had every computer store and seed every movie instead of using DHT.
The ability to send or loan arbitrarily large amounts for a fixed fee is a symptom of centralization. In a fully distributed network, transaction fees would have to be proportional to transaction size!
Almost every other protocol on the Internet does not have such bottlenecks in its design. No one asks how many emails or websites can be served per second. Blockchain is trying to secure every transaction using the entire network! That is why so much electricity is wasted just to do 7 transactions per second. The next generation of crypto will actually be able to power payments using embarrasingly parallel architecture. Until then, we have blockchain. Ethereum is nicknamed the “world computer” for a reason. Gas fees are super high for small transactions like paying for coffee or voting in a secure election. Just one app KryptoKitties can clog up the entire network.
As one example, we built Intercoin apps on top of Ethereum (https://intercoin.org/applications) but we are not going to wait around for Ethereum 2.0 - which is blockchain also. Kik Messenger and others have long gotten off. Ripple, MaidSAFE and Solana use different technologies.
You were downvoted because you are tooting your coin, your argument is weak, and your examples meaningless.
Your argument boils down to: not enough TPS, because bad technology. It's good enough for now and can always be changed later. Changing the distribution of the mempool to miners is trivial. But the game theory consequences (MEV for flash lending) are not. So no one wants to change what is not yet broken until the implications become clear.
> The ability to send or loan arbitrarily large amounts for a fixed fee is a symptom of centralization. In a fully distributed network, transaction fees would have to be proportional to transaction size
With UTXO, there is no correlation between amount and transaction size (cf "dust")
Your argument boils down to: not enough TPS, because bad technology. It's good enough for now and can always be changed later. Changing the distribution of the mempool to miners is trivial. But the game theory consequences (MEV for flash lending) are not. So no one wants to change what is not yet broken until the implications become clear.
> The ability to send or loan arbitrarily large amounts for a fixed fee is a symptom of centralization. In a fully distributed network, transaction fees would have to be proportional to transaction size
With UTXO, there is no correlation between amount and transaction size (cf "dust")
And as a separate thread:
UTXO is just “unspent transaction outputs”. The reason Bitcoin and Ethereum can send transactions of any size for the same fee is because ALL transactions are secured by the entire network, regardless of their size. So they just charge the cost of what a consensus process would take (proof of work, nakamoto consensus in this case) for the entire network to agree on the linear order of that transaction in the sequence. It’s a brute force inefficient approach. Like transporting $1 in the same armored vehicle with a convoy as $1,000,000
UTXO is just “unspent transaction outputs”. The reason Bitcoin and Ethereum can send transactions of any size for the same fee is because ALL transactions are secured by the entire network, regardless of their size. So they just charge the cost of what a consensus process would take (proof of work, nakamoto consensus in this case) for the entire network to agree on the linear order of that transaction in the sequence. It’s a brute force inefficient approach. Like transporting $1 in the same armored vehicle with a convoy as $1,000,000
You might be able to code something, but clearly have no idea what are talking about and what are desirable properties (which you call inefficient, which I call aligning incentives)
Can you explain what you actually mean by aligning incentives? How would you know whether someone knows what they’re talking about?
I think you are wrong on all counts.
My “argument” is just stating facts.
How is it good enough for now, when none of the tokens are actually usable for their intended purpose onchain - and no one uses decentralized crypto systems for everyday payments? Our society relies on centralized server farms run by huge states and corporations and we see the result. Suddenly people care about Big Tech because of Parler and WhatsApp but these are just two blips in a long line of consequences of living in a Feudal society.
WeChat for example is used every day in China and has replaced cash for millions of businesses, and now you have a centralized social credit system, controlled by the Party, and anyone can be blocked at any time, as can those who associate with them. And the digital dollar is coming soon to your neighborhood, which means one account at the central bank, and yes most people will sign up. Meanwhile you’re sitting around saying 10 transactions a second is good enough... this is how the centralized state and corporation wins. When cypherpunks do nothing.
Enjoy living in a world where Facebook and Amazon and your Federal government OWN your identity, data, transactions and let you live as a digital serf under strict supervision.
But yeah, it’s all about “shilling my coin” LOL
My “argument” is just stating facts.
How is it good enough for now, when none of the tokens are actually usable for their intended purpose onchain - and no one uses decentralized crypto systems for everyday payments? Our society relies on centralized server farms run by huge states and corporations and we see the result. Suddenly people care about Big Tech because of Parler and WhatsApp but these are just two blips in a long line of consequences of living in a Feudal society.
WeChat for example is used every day in China and has replaced cash for millions of businesses, and now you have a centralized social credit system, controlled by the Party, and anyone can be blocked at any time, as can those who associate with them. And the digital dollar is coming soon to your neighborhood, which means one account at the central bank, and yes most people will sign up. Meanwhile you’re sitting around saying 10 transactions a second is good enough... this is how the centralized state and corporation wins. When cypherpunks do nothing.
Enjoy living in a world where Facebook and Amazon and your Federal government OWN your identity, data, transactions and let you live as a digital serf under strict supervision.
But yeah, it’s all about “shilling my coin” LOL
> no one uses decentralized crypto systems for everyday payments
An example of something that isn't true, in case you needed one.
An example of something that isn't true, in case you needed one.
Can you elaborate? You do realis what everyday payments are, right? Food, clothing, transportation, and so on? Think WeChat in China. Where is this town where people are using Bitcoin on the daily for these things?
ETH past 3k in 2021
The majority of the serious innovation and development in the crypto space currently happens on Ethereum, which keeps the money people interested and sniffing around. The existence of Ethereum IMO helps the price of bitcoin increase, especially as ever more bitcoin is "wrapped" and ported to the ETH network.[0]
I think this article is really solid, as are all of her articles. Part of what I love about Ethereum and altcoins is exactly because of the speculative, fast-money, insanely risky and exotic assets and protocols it creates. Where she sees that as a negative, I see it as a positive. ETH and its tokens have helped my crypto friends amass more wealth than we would have made working at FAANG companies, and without slogging through all of the bullshit and pain of working at huge corporations. Plus we get to work on super interesting tech rather than middleware that powers the middleware that powers the data mining pipeline that extracts money out privacy violations.
If you want the "safe" crypto play, I tell people to do 60/40 BTC/ETH on Coinbase so they can hold it safely and never look at it again. If you want to make the 10x fast money gains speculating like a crypto degen trader, then the only game in town is ETH and the alts running on its ecosystem.
[0] https://wbtc.network/
I think this article is really solid, as are all of her articles. Part of what I love about Ethereum and altcoins is exactly because of the speculative, fast-money, insanely risky and exotic assets and protocols it creates. Where she sees that as a negative, I see it as a positive. ETH and its tokens have helped my crypto friends amass more wealth than we would have made working at FAANG companies, and without slogging through all of the bullshit and pain of working at huge corporations. Plus we get to work on super interesting tech rather than middleware that powers the middleware that powers the data mining pipeline that extracts money out privacy violations.
If you want the "safe" crypto play, I tell people to do 60/40 BTC/ETH on Coinbase so they can hold it safely and never look at it again. If you want to make the 10x fast money gains speculating like a crypto degen trader, then the only game in town is ETH and the alts running on its ecosystem.
[0] https://wbtc.network/
"Wrapped Bitcoin" is not "porting" BTC to Ethereum. It's merely a token that represents some sort of claim on actual BTC held with a single custodian (Bitgo).
It's effectively porting BTC to Ethereum, given the value of the BTC can be utilized on Ethereum by the tokenized claim on BTC.
And there are wrapped BTC tokens on Ethereum that utilize cryptoeconomic incentives instead of the reputation of a custodian to guarantee redeemability for BTC: renBTC and tBTC.
WBTC was just the first to launch so has the largest market cap. It's also possible that WBTC's reliance on a trusted third party is perceived as less risky than reliance on novel cryptoeconomic incentive schemes.
And there are wrapped BTC tokens on Ethereum that utilize cryptoeconomic incentives instead of the reputation of a custodian to guarantee redeemability for BTC: renBTC and tBTC.
WBTC was just the first to launch so has the largest market cap. It's also possible that WBTC's reliance on a trusted third party is perceived as less risky than reliance on novel cryptoeconomic incentive schemes.
I have only some minor quibbles.
GPUs are very much not abundant. Gamers were complaining a lot during the last bull run that those crypto nuts were buying up all available high-end GPUs.
Also comparing the hashrates of Bitcoin and Ethereum doesn't make sense. Those are different algorithms that run on completely different hardware. Bitcoin ASICs can only be used for Bitcoin (or Bitcoin forks that haven't changed the POW algorithm) where GPUs as more general programmable devices can be repurposed for mining other cryptocoins which might be more profitably to mine at any given time. Together with the fact (as stated in the article) that Ethereum has reduced the block rewards over time, it's not surprising that the hashrate isn't bigger than during the previous bull run.
This leads to the criticised monetary policy of Ethereum. This wasn't explicitly mentioned in the article but Ethereum's monetary policy can best be summarized as "don't overpay the miners for securing the network".
Many see it as a necessary evil that Ethereum is still running on POW and they are eagerly awaiting the jump to POS. It is seen as a design flaw of Bitcoin that it has a rigid coin issuance that isn't dynamically adjusting to the actual demand.