Resources for understanding cryptocurrency and blockchain technology

https://a16z.com/2020/04/30/explaining-crypto-from-a16z/

by todsacerdoti • 6 years ago

145 106 6 years ago

LilBytes• 6 years ago

Note to would be readers, this is an article on cryptocurrency and not cryptography. I was hoping it was about the latter before opening the article.

amalcon• 6 years ago

I get that we've lost that particular terminology battle, but I'm still a little sad about a decades-old term being stolen to refer to a fad.

vntok3• 6 years ago

Cryptocurrency is a decades-old term as well (Bitcoin dates from 2009).

sneak2• 6 years ago

I don't think it's lost. Only the fad-chasers and finance bros (and apparently a16z, which may actually qualify under that term in this instance) are calling it that.

It's actually a good signal about the organization.

joeblau• 6 years ago

I was explaining my background so someone a few days ago in an introduction and I said “I used to do crypto working on PKI infrastructure.” They responded that they had never heard of that token. Unfortunately, I think cryptocurrency is what is top of mind when the majority of people hear the word “crypto” so I’ve been relegated to saying “cryptography” when describing my background.

qilo• 6 years ago

It’s about cryptocurrencies, not cryptography. Saved you a click.

ForHackernews• 6 years ago

All you really need to understand is proof-of-work blockchain (aka all blockchains in real use) is a very slow database where recording a transaction wastes as much energy as several western households use daily. And that energy wastage continuously increases. It's anti-efficient by design.

evgen• 6 years ago

The second thing you need to understand is that A16Z has placed some big bets on cryptocurrency being more than a fad and will do whatever it takes to convince you that this slow-motion pump and dump scheme is important or relevant to your life/future.

sparkie5• 6 years ago

It is indeed anti-efficient by design, because it is intended that the cost to attack needs to exceed the cost to run, otherwise, it would not be secure.

It happens that some people care about sound money enough that they need the security offered by this game theoretic model and they're willing to pay the electricity costs to get it, and your opinions on the matter mean nothing to them.

Although I'm not sure what non-bitcoiners mining "crypto" are wasting their money on, because they're not getting sound money, but useless fiat tokens.

Hermel• 6 years ago

A16Z has a few interesting crypto investments, the imho most promising one being DFinity, which tries to build an “Internet computer”.

TheColorYellow3• 6 years ago

Has the network launched? Is the community active?

Haven't heard much of anything tangible since they raised funding.

Unfortunately Ethereum is still the leading layer 0 product for a world super computer.

rwosync3• 6 years ago

It's pure vapourware, word is that they burnt through their runway hiring a team of overpriced Haskell consultants who just built a new programming language and didn't deliver a product.

magna7• 6 years ago

Why unfortunately? Ethereum is great

febeling4• 6 years ago

"Blockchains are computers that can make commitments. Traditional computers are ultimately controlled by people, either directly or indirectly; blockchains invert this power relationship, putting the code in charge."

Great way to explain the concept. You could nit-pick all morning if it was strictly "true" in every which way, but this kind of selective simplification is what drives understanding. I'm sure many things which are well understood today, if you look at the way they are understood now, the mental models involved: many wouldn't have been generally be accepted in an initial pre-understanding phase by people with insight.

Can you easily accept this explanation of blockchain?

bildung3• 6 years ago

That is just meaningless marketingspeak, and obviously wrong. Blockchains are just data, so at most "spreadsheets that can make commitments". And the latter part is also wrong, as computers are controlled by silicon logic in exactly the same way as blockchains are controlled by their code: They aren't. Someone owns the computers, and someone owns the blockchains/ their data. And if a dispute happens, that will get resolved by courts. I'm well aware of the promise of this being different with blockchains, but so far that never happened.

TheColorYellow3• 6 years ago

Technically the blockchain that would be referred to in the GP is more than just a data type. It would also include the algorithm for deciding the next block of valid transactions.

I think the reference is supposed to imply that the consensus mechanism built into the system is responsible for dictating the validity of a transaction as opposed to a human.

Taek3• 6 years ago

Someone owns the computers, and someone owns the blockchains/ their data.

That's the beautiful part. That someone is the end user, who is running a full node. The reason that blockchains require every node to have all the data is so that every end user is in full control of the commitments made by the blockchain.

Efficient? No. But does it invert the typical power relationship? Yes! Blockchains put the user in control.

(fine print: this is not necessarily true for many Proof of Stake chains, also not true many lite client models (including most Bitcoin lite clients), also not true if you have on-chain governance, also not true if the blockchain makes other compromising design decisions such as auto-updating, most cryptocurrencies fall short in at least half a dozen ways)

febeling4• 6 years ago

Who do you think the people trust when they buy bitcoin? Is it the trust in your basement miner and your smartphone wallet, or is it perhaps the control through bitcoin core code? This trust amounts to 160bn USD per today.

boomlinde• 6 years ago

You could nit-pick all morning if it was strictly "true" in every which way, but this kind of selective simplification is what drives understanding.

That it fundamentally isn't true is the basis of the 51% attack which is hardly a "nit".

Overall I find this explanation too vague and abstract to be useful. A blockchain is a computer? Sure, you could perhaps squint and say that it is so in an abstract sense, but it doesn't really tell me anything about it. More concretely, you could say that it's a distributed append-only data structure where conflicts in additions are resolved using a consensus algorithm. You could then go on to explain how this data structure can be used to implement something like a public ledger or a contract protocol.

I realize that the full article somewhat touches on these subjects between talk about "commitment computers" and "idea mazes". By going for a more concrete explanation, the weaknesses of the network would be evident and such simple falsehoods as the idea that a blockchain "removes the need to trust anything other than code" would not be propagated.

munchbunny2• 6 years ago

I work with cryptography daily and I had to stare at that statement for several minutes to figure out what they were getting at.

There's a kernel of truth in there, but in the end I think this statement is an example of being "not even wrong".

It's not clear what they're trying to say. When you talk about people actually using blockchains, the last mile happens through "traditional computers", so blockchains vs. traditional computers isn't a meaningful contrast. Now if you said blockchains vs. traditional uses of cryptography, then you'd have a point. If they're trying to selectively simplify, then simplifying "traditional uses of cryptography" to "traditional computers" isn't a useful simplification.

Blockchain is a way for software to decentralize decisionmaking. People are still controlling the computers.

If you take away the "decentralize" part, there's plenty of non-blockchain software that does decisionmaking. If you take away the "decisionmaking" part, there's plenty of non-blockchain software that does decentralized stuff. If you take away the software part, email threads, internet forums, and even conference calls accomplish decentralized decisionmaking all the time.

The following sentence is why I think the point is fundamentally wrong:

For the first time, a computer system can be truly autonomous: self-governed, by its own code, instead of by people.

That's just not true. People control the computers that participate in a blockchain. Those computers express the will of their operators, which in this case is participation in a decentralized decision engine. There's nothing keeping those operators from making their computers do anything else, they just won't be able to hijack the blockchain. But that's also not new, your computer acts as your agent all the time in systems where you can't hijack the rules of the system (aka most websites).

febeling4• 6 years ago

Beats me how I write a comment about how a text helps understanding at the expense precision, and everyone attacks me how it wasn't even precise.

l7l• 6 years ago

oh, its just cryptocurrencies not cryptography..

lucb1e• 6 years ago

I suppose this is why HN displays the domain, so you can see it's from Andreessen Horowitz and skip it.

Traster• 6 years ago

I thought that A16Z would care about its reputation enough to make sure it's fairly trustworthy when trying to "educate" people, but can someone explain this claim to me:

Blockchain Can Wrest the Internet From Corporations’ Grasp

In a way that doesn't involve A16Z cynically mis-representing blockchain as some people's champion. I don't see at all, how you could claim there's something fundamental to the technology that will lead to more consumer power. Does Facebook's Libra look like a great shift towards an open internet? Does Bitcoin decentralize control? Or does it hand that control to the tiny handful of Bitcoin miners and exchanges that handle practically all of the work?

What this "educational" blog seems to be doing is telling you what the most ambitious claims of crypto are, rather than telling you where crypto actually is today.

rwosync3• 6 years ago

In a way that doesn't involve A16Z cynically mis-representing blockchain as some people's champion.

That's precisely the game for these funds to keep that illusion up. They buy up a bunch of tokens in a presale discount, pump the price, and then dump it to a bunch of foreign retail investors based on inside information before the inevitable failure of the "product". A16z's crypto fund has made a killing doing just this and it's entirely legal. The SEC is only going to go after the founders and a16z will have long exited their position by the time of the lawsuit.

brenden2• 6 years ago

This is how all of SV works, and has always been. Pump up company valuations with hype, then eventually they dump it all on institutional and retail investors. In some cases the companies actually work out so they might hang on to their stock, but in most cases they get out before the companies' eventual demise.

Taek3• 6 years ago

I don't see at all, how you could claim there's something fundamental to the technology that will lead to more consumer power... Does Bitcoin decentralize control? Or does it hand that control to the tiny handful of Bitcoin miners and exchanges that handle practically all of the work?

This is probably one of the biggest misunderstandings in cryptocurrency. Bitcoin does decentralize control, and the miners and exchanges do not have power over Bitcoin. If you control your own keys and run your own full node, then you as the full node operator get to decide what rules you operate by, and therefore what network you participate in.

Efforts by miners to change Bitcoin's protocol rules can be outright ignored (and have been successfully in the past - see the BTC/BCH split), and exchanges can only exert power over entities that are directly dependent on the exchanges.

Blockchains are special because they give each individual user direct control over the exact ruleset of the protocols that they use. To the best of my knowledge, no other type of network is able to give this power to users.

verdverm5• 6 years ago

What about the big 5 miners acting like a cartel? That sounds a whole lot more centralized than the existing financial system. Oh, and the wealth Gap is bigger too.

Bitcoin is not really decentralized.

Makes sense a16z is shilling cryptos. They made bets that aren't planning out like the hype predicted. VCs are a lagging indicator for tech.

Cryptocurrency is so last decade

hudon• 6 years ago

You’re forgetting the most crucial and definitely centralized aspect of Bitcoin: the developers. Their influence over the protocol’s modifications outweighs a large sum of random individuals’.

ashtonkem12• 6 years ago

The idea that one of the VCs who spent decades investing in such corporations would magically help us save the internet from the very companies they invested in is genuinely laughable.

cryptica4• 6 years ago

The future use case will be to use a cryptocurrency as an alternative to company shares.

In 50 years, nobody will be using NASDAQ or NYSE to by shares of companies. Company shares themselves will not exist, there will only be cryptocurrencies and decentralized exchanges. Investors will be paid as capital appreciation through token buybacks.

There are several major financial benefits for this:

- Capital appreciation resulting from token buybacks is not taxed.

- The price of a token accounts not just for the value of the output of its community but also the value of its input since community members must liquidate the token in order to purchase goods or other tokens. Communities which produce more economic value than they consume will have more valuable tokens. It incentivizes not just high production, but also low consumption (which our current system fails to do).

Communities which consume less will hold on to more of their tokens. The market cap of such communities will be more fragile/volatile but overall will grow much faster than that of those communities which which produce the same amount but consume more. This will create incentives for decentralization of wealth because there will be a growth penalty for holding a particularly liquid high-volume token.

I've written a simulation which demonstrates these effect.

ashtonkem12• 6 years ago

Why?

qqssccfftt• 6 years ago

In 50 years the world will be a Mad Max dystopia.

paulgb• 6 years ago

Capital appreciation resulting from token buybacks is not taxed.

Why would we expect the tax code to treat this any differently from share buybacks in the long run?

I'm having trouble understanding why the rest of the argument would apply to crypto shares but not NYSE shares. I don't agree with the statement that our current system incentivizes low consumption; the less you consume the more capital you have to invest or consume in the future.

ordinaryradical• 6 years ago

I think part of it is that they were enthusiastic for blockchain as a backdoor into the liminal space between crowdfunding and VCs. They even reconfigured themselves legally in anticipation of this shift.

I think if cryptos had worked out as they hoped, they would have been the next wave of Ventures, but without any pesky accredited investors limits, which is probably great if you're a16z—lots more opportunity to pump valuations and exit early if the things are looking bad from your board seat.

So I’ve always viewed their enthusiasm for crypto as both more genuine and more cynical than they get credit for: genuine in that they really did expect this to become the new mechanism for venture investing, cynical in that it represented the perfect opportunity to introduce more bag holders to the game.

say_it_as_it_is• 6 years ago

I've noticed the positioning and messaging around blockchains evolve over the years. It seems to have moved away from crypto-anarchist ideals towards more traditional power structures. You can't disrupt those who you need to grow.

ema• 6 years ago

I think there is a similar pattern during the early stages of many technologies. At first they are made by tinkerers for themselves and so are tool for individual empowerment. People then think of that as a core aspect of the technology, but when the technology gets scaled up it turns out to be incidental.

ashtonkem12• 6 years ago

I’ve found attempts to retrofit past technological growth curves onto current technologies to be more an exercise in bias confirmation than anything else. Such analysis usually hinge upon successful stories, often the internet, and ignore all the failures and false starts.

rchaud• 6 years ago

That is happening because the forces pushing for its adoption have prioritized making money over what the original motivation behind it might have been. It's Linux vs Windows.

rwosync3• 6 years ago

We've gone from 'time to build' back to 'time to build speculative financial products with no utility' pretty fast.

ashtonkem12• 6 years ago

To be fair, that was their jam before the pandemic. A16z is all in on crypto, much to the detriment of their long term reputation, IMO.

xzvf• 6 years ago

Really hits the crux of this futile effort. Trust cannot be formally defined. Trust is an ever-changing subjective belief done in an unknown world.

The stereotype of a libertarian crypto advocate who is really into bayesian inference is not a coincidence. They are micro-fascists: given time and information supposedly everyone would converge on the same indisputable truth (which I happen to currently hold) and act in the same optimal rational way.

The irony is that you don't even need to bring the human condition into the argument. The mathematics they so revere practically scream that there are fundamentally inherent limits. Solomonoff induction is incomputable. There is no free lunch. Why continue this march of madness?

nlitened• 6 years ago

I think you accuse people of fascism a little too easily.

new26283• 6 years ago

He said micro though.

louwrentius3• 6 years ago

Thank you. This is exactly what none of the cryptocurrency people seem to understand:

Trust cannot be formally defined. Trust is an ever-changing subjective belief done in an unknown world.

We know how to deal with trust for eons. They solve the wrong problem, if there is any.

new26283• 6 years ago

Here's one useful resource to understand crypto: "This Time Is Different: Eight Centuries of Financial Folly", paperback, 2011, authors: Reinhart & Rogoff.

specialist• 6 years ago

Thank you for the recommendation.

Do the authors address cryptocurrencies specifically?

I skimmed some reviews. I gleaned that this is a pro-austerity book, that the author's conclusions were largely debunked by independent analysis of their data.

Given this is true, does this book's treatment of cryptocurrency remain useful?

new26283• 6 years ago

The book does not address cryptocurrencies specifically just financial mass delusions throughout the ages of which cryptocurrencies are a special case.

seibelj6• 6 years ago

Token sales are a way to raise money for certain businesses, with different pros and cons than traditionally raising money. If you mandate use of your token for certain actions, then take a percentage of profits to buy-and-burn the token, then it’s similar to a traditional stock.

The way to properly do this is to 100% avoid the United States, or any western nation, and go offshore to a country that allows this (Antigua, Seychelles).

If you think what I’ve written is a horrible scam - that’s fine! No one is making you buy such an asset. Ignore such assets. But there is a global pool of crypto investors who will, and don’t care about what country such a business is incorporated in or being unable to bring any court action. It’s “buyer-beware” and the industry operates on trust to an absurd level.

There is something to be said for a model where you don’t have to grovel to moneyed VCs to raise funding. It’s alternative and it’s an experiment.

ashtonkem12• 6 years ago

The problem is that most tokens have absolutely paper thin explanations about what the tokens are supposed to be used for, aside from speculating. Most of them have more than a whiff of fraud about them, such as Kodak’s plan to somehow put copyright on the blockchain.

Dodging SEC regulations is one thing, but it’s not an argument for large scale growth and adoption. Heck, you don’t even need a cryptocurrency to do that, just list your stock in they Seychelles instead of America.

seibelj6• 6 years ago

But the goal is to raise funds. Doing a traditional securities offering in the Seychelles doesn't raise funds for your blockchain project. A token offering raises funds, from a global pool of investors, without any legal resource for the investors.

Like I said, this is an absurd amount of trust, and reputation is everything. It's simply a different model.

TheColorYellow3• 6 years ago

SEC commissioner has alluded to the idea of a three year safe harbor for crypto tokens followed by a whole lot of regulation enforcement that would greatly open the door for these types of activities.

kaffeemitsahne• 6 years ago

Funny to browse through their crypto portfolio for a while: https://a16z.com/portfolio/#crypto

For example, they are apperently invested in cryptokitties (the Dapper logo).

yalogin• 6 years ago

I understand they invested in a bunch of blockchain companies. I started listening to their podcast and within the episodes it was lead that they started the pod to only prop up their investments and quickly deleted it. This post confirms that I am not wrong. “Blockchain will wrest control from corporations “? Says a VC firm. Stopped reading there. I clicked on it then boing it’s about crypto, they should say blockchain in the title.

louwrentius3• 6 years ago

Software is simply the encoding of human thought, and as such has an almost unbounded design space.

It's always this kind of vague, fluffy language that tells you all you need to know about all cryptocurrencies.

All these companies are trying to fluff up demand for something that is only valuable if (new) people invest.

Please Hacker News: please show me the concrete value of cryptocurrencies, I don't see them.

I only get hypothetical answers, often including paranoid delusions about governments and strange conceptions of freedom.

Cryptocurrencies seem to be an answer to a problem nobody has.

https://louwrentius.com/cryptocurrencies-are-detrimental-to-...

michaelt• 6 years ago

Mail order drugs will eliminate almost all the violence from the trade in illegal drugs, while promoting computer literacy among vulnerable teens

And bitcoin will allow micropayments of a fraction of a cent, which will save journalism and music, eliminating ads, tracking and stifling bundle deals. Just as soon as someone sorts out this $0.30/transaction fee.

andrewflnr• 6 years ago

Not a cryptocurrency person, but I think they have value as a viable backup plan to traditional payment systems, and therefore as a check on their laziness or abuse. Competition is almost always a win for everyone.

Also I like the idea of namecoin, but haven't dug into it.

seibelj6• 6 years ago

You can’t print 4.5 trillion of Bitcoin like the Fed can for USD in a single month? But some would argue that’s fiat’s advantage...

Engineer2Throw• 6 years ago

Non centralized currency

Timestamps

Voting

louwrentius3• 6 years ago

what problem does this solve?

cordite2• 6 years ago

I am disappointed that crypto currencies conflate their name with cryptography.

Although this is the title of the article, it is misleading.

cordite2• 6 years ago

Thank you to the mod that updated the title.

hootbootscoot• 6 years ago

Where are the resources for understanding why useless "proof-of-work" wankery burns electricity and CPU cycles that could be spent folding viral RNA in simulation or doing pattern-recognition DSP on radio-telescope data or something useful?

What an utterly disconnected-from-the-real-world approach to bringing literal VALUE in the world...

(speaking of current implementations of cryptocurrencies and their fan bases aka vested interests. Not directed at this article even remotely. I didn't even read the article. If you flag me for anything, flag me for this. TLDR; lol)

sparkie5• 6 years ago

Where are the resources for understanding why useless "proof-of-work" wankery burns electricity and CPU cycles that could be spent folding viral RNA in simulation or doing pattern-recognition DSP on radio-telescope data or something useful?

mises.org is a great place to begin to understand.

Bitcoin is bringing real value into the world by allowing people to save money for a rainy day without making risky investments, and without subjecting the wealth they've earned to the possibility of theft or seizure by the state or anyone else.

As for "crypto," the kind being mentioned in the article here, your guess is as good as mine. These are just scams intended to rake in money from naive investors and speculators, based upon a complete misunderstanding of why Bitcoin was designed the way it is.

As for folding RNA and other useful stuff - that's all nice, but somebody has to pay the costs. That somebody, hopefully, is paying it voluntarily. I might even be happy to volunteer some of my money to causes like that. The "steal hard earned money from people to pay for pet projects" ideology is a non-starter for me though.

sparkie5• 6 years ago

@z3rgl1ng - replying here as yours is marked [dead]

Bitcoin
saving without making risky investments
I’m sorry, what?

Glad you asked, you heard correctly, but I'm not sure you understand the nature of money.

Storing wealth with bitcoin is not really much different to storing wealth with dollars. In both cases, the future purchasing power of your wealth can change depending on the markets - it is in general, out of the control of any particular entities - but is in the control of every individual making transactions based on their own subjective value of the commodities they're exchanging (of which the money is one).

In the case of Bitcoin, the value of other commodities relative to bitcoin is subject only to these markets of individuals making those choices. There is nobody who can reduce or increase the value of a bitcoin arbitrarily. This means "saving in bitcoin" is betting that the market will be favourable to bitcoin in the long term such that you can maximize the return from the hard-earned wealth you laboured for.

In the case of dollars however, the dollar is still subject to the same market conditions as bitcoin - but it has an additional variable which can alter its value - the federal reserve, which can simply elect (by the non-elected) to devalue the dollar by arbitrarily increasing its supply. Since increasing the money supply has become the de facto behaviour of this entity, saving in dollars is an almost definite loss-making strategy. The money you obtained through hard labour will simply not be worth the work you performed when you come to spend it.

Any investment contains risk. Storing dollars in your bank account can be seen as "investing in the dollar." A very poor strategy if you ask me. Although you're pretty much guaranteed lose purchasing power on it, it is fairly low risk that you're going to lose a significant portion of it quickly, but the history of dozens of other currencies which have hyperinflated tells a story that this could change at a moment's notice.

An "investment in bitcoin" is an investment in a future of sound money, and not to be confused with "investing in the exchange rate of the dollar to bitcoin," which is a gamble and of course, high risk, if you have have a high time preference.

The future of sound money merely needs people who lower their time preference to believe that their wealth can be stored in the long term in bitcoin without being devalued, and the predetermined nature of bitcoin's disinflationary currency release can give them some confidence in that. Hyperinflation of bitcoin cannot occur, and since the supply will diminish, the value per bitcoin is likely to appreciate unless demand also diminishes at the same rate. However, since bitcoin targets self-interest, demand is likely to increase - as more people decide to store their wealth, the value per bitcoin increases, creating a feedback cycle which further incentivizes people to save in bitcoin. This cycle is self-perpetuating and will gradually swallow up larger and larger amounts of savings globally - and as it grows, the volatility of the exchange rate to dollars will likely decrease too, although there's the possibility that it could trigger further inflation of the dollar, which would see even more volatility, but would only serve to increase confidence in bitcoin as the fix for the problem of inflation.

At this point, I can't see how bitcoin could fail. The Federal Reserve has just committed to infinite devaluing of the dollar, and Bitcoin is about to enter its 3rd phase of "quantitative hardening." Will be fun to watch.

yc-kraln• 6 years ago

I understand it just fine. Show me a business model that isn't built on speculation or fraud, and then I'll pay attention.

jariel• 6 years ago

This feels like 2015.

It's been 10 years of hype now where are those useful blockchain technologies, used by regular people, regular business, regular commerce, regular banks?

We can all see the 'theoretical potential' but I think what a16z needs to do now is start to understand and communicate 'why it's not working' and start talking about more material opportunities.

Resources for understanding cryptocurrency and blockchain technology

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