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Hello fellow Cryptonians,
For a while there, Gordon thought he was going to be moving to a different platform, grow his newsletter etc., and that may well be the case. But truth be told, when ideas pop into his head, he really wants to put it out there and for it to be meaningful to someone else. Truth be told, I don't really earn much of anything writing here, and what I do earn, I get in a token that is essentially useless to me. What's more, I'd have to be quite ambitious for it to be enough to leave my private wallet bc of gas fees. Which brings us to the topic for today! ETH 2.0 and the dreaded change from PoW to PoS, but even more, the concerns that Ether isn't really decentralized at all.
This is one of those topics that I return to and believe it is fundamental to cryptocurrency at large. One of the highest held ethics in crypto is the idea of decentralization. It strikes at the heart of what we care about. The world we are living in gives even more reason to embrace this ideal as we see the level of corruption in governments, control over accurate medical data, using the premise of fear to control populations, to limit what people are freely allowed to discuss online, and it seems to escalate with each passing day. It isn't cool, and it should disturb you like hell that so many people are willing to go along with, even elect these morons that somehow believe they are above the law. We seem to be inches away from the "sneeze and we'll break down your door and take you to the concentration camps" mandate. Think I'm nuts? Ask an Australian. If you don't comply, you can't use your banking services. Think I'm loony? Well, yeah I am, but I'm also telling the truth; just ask someone in Nigeria.
But, back in 2008, the concern was largely over the real estate bubble that began in crooked over-lending practices around the world, encouraged largely under Greenspan during the Clinton administration and eventually landing at Freddie Mac, Fanny Mae and other U.S. mortgage companies, encouraging low-doc and no-doc loans with massive balloon payments. These were becoming an unwarranted risk and getting illegally bundled in with safe investments, kicking the ball further into the future. When the bubble burst, the banks were too big to fail and got a total of 4 massive bailouts. In today's perspective, the numbers pale in comparison, but they should be equally shocking. It appeared that the timing of the release of the Satoshi white paper was in direct response to not requiring the trust of these third party banking sources for the sound doctrine of self-custody money. Craig Wright has a different twist to that story, but I really don't think it was his work. Bitcoin was born and proved that an autonomous network of computers could regulate and facilitate the passing of electronic money directly from one person to another. The protocol required trust; no person or entity required trust, and that was the plan.
So, the fact that we entered into a time of an experiment, that other than a few early glitches, has not failed for 12 years, we now know that it is economic fact, not theory, that a brilliant economic concept could be carried out on a network without requiring a trusted intermediary. After a while, others who were huge Bitcoin fans realized there might be other holes to fill.
Vitalik Buterin invented Ethereum, with its coin (er... token), Ether. The idea of a world supercomputer with an immutable LEDGER more designed for automated trustless computational processes, but also money, could radically change other 'things' that required a 3rd party trust system. Smart contracts particularly, could make it possible to program in conditional transactions, releasing funds over a schedule, proving fair or random routines, and easily replicating working code to launch tokens with much greater ease than before, defining fungible and non-fungible tokens and the sort. We are still very early in seeing how people are going to apply their values onto the ETH-based markets.
Ethereum was born, ran into some fundamental issues Bitcoin had already resolved, and it split into ETH and ETH Classic which continues to this day. Now, consider right here, that the creator/developer(s) of Ethereum had the option to roll back the chain, change code, and others even had the option to fork off and keep the original concept with slight alterations to prevent errors with different, simpler solutions. All of these kinds of decisions are, without any question or dispute, centralized. Even if, let's say, that everyone running the network needed to vote on how to approach such things, there is a measure of centralization. Let me explain.
I may be taking a few steps away from Ethereum for this, but trust me it makes sense. Lets say that one of the catch phrases of a token project is that it is democratized, and that holders of the coin get a vote on important decisions for that project's future. Swell. Two really important things:
1) If everyone, or the designed majority, agree to a change, someone has to code it. That in itself, proves that it is not designed as truly autonomous processes.
2) Who decides what updates, changes, forks, features can be voted upon?
This second item especially is an important one to understand. I can pull from things I've learned the past decade in local politics. In the U.S., local processes are supposed to be presented to the public and we get to weigh in on those things. If we the people do not want something, it is strongly urged not to proceed because the person making the local decisions likely will not be re-elected to position if they force it upon these people. In some cases, this has been abused by passing certain things into policy, instead of law, that can be carried about by people who are appointed, as opposed to those who are elected. That way, the friend can be bought, and the person elected can remain clean, while their buddies get the rules changed. Messy but very clever. We have found that there are clever ways to get around the rules. Some of these methods are by forced consensus, where people are by law required to be allowed to join public meetings and be heard, but methods are used only to offer consensus items that are all undesirable. Would you like item A, B or C? Well, actually we are here for you to hear that we don't want any of these. Sorry, you have to choose A, B, or C. Often, item B is the 'thing' they already plan to do, and when compared to A and C, it's the only logical choice. The lesser of multiple evils in consensus building meetings is very, very common where I live. It's gross.
You can have your favorite ice cream for dessert, but only if you mix it with chicken liver.
Get it?
So, I look at similar things that are very easy to understand in tokens. If the catch phrase is democratization and voting rights, then it is likely to get more people to trust the project, and even more, to get them to share their enthusiasm with others. But, the person who runs the organization ultimately can decide everything they wish to do at any given time, or lets say ahead of time, and presenting items for voting may often be trivial, for the sake of making people feel involved in the decision making process. Unless a token is an actual scam, I honestly don't think most token projects are setting out for nefarious plans, and often the catch words are used just to try to garner attention for a relatively benign project that wants to make a little cash. No problemo.
With Ethereum, I believe this is an even bigger deal. There is a lot of finger pointing when it comes to Ether and Vitalik. I am not here in his defense or as a villager with me torch and me pitch fork. Here's where I think we are.
I think Vitalik is a brilliant young mind. But, I also think he is very, very young. Every breathing moment of his young adult life has been spent immersed in Bitcoin, and then founding Ethereum, travelling the world doing conferences and interviews, writing papers, conferring with programmers to fix potential issues and to plot the cautious future course of massive changes still to come. I do not think he is a control freak, nor do I think he is crazy, irrational, greedy or necessarily wrong in his intentions. But, the truth of the matter is that ETH has brought so much to the crypto world, but it is dangerously mis-designed to handle the method of assessing fees aka gas fees, and the transition from PoW to PoS may be similar to fixing a flat tire by blowing up the vehicle. It will put an end to the issue of a tire being flat, but could render the point moot. (Or, as Joey might say, moo, because who cares what a cow thinks about it).
Because PoW uses energy, and people strike a lot of fear about evil humans and methane and carbon credits and the like, Vitalik may be buying into PoS a little too severely as a solution to a problem most people have been perfectly willing to accept. It seems to me in the Bitcoin camp, many are proving that resolving electricity could be better served by allowing something with physical hardware requirements to seek out the best, cleanest, most beneficial energy solutions instead of removing the need for electricity. In Ethereum's case, a network in PoS is still required, but difficulty and certain limitations are shifted from power hungry processors to a staking mechanism. You must stake a minimal number of Ether to be a player in PoS ETH 2.0. This in itself, creates a much steeper potential for centralized authority or ownership across the Ethereum network. How this will play out is anyone's guess.
Just for a hypothetical, if the network needed to agree to make a major shift in staking, or changing fees, or a certain warranted or unwarranted security update, it seems to me the people with the most money have the most potential to form an alliance to make a decision or to block a decision from being made. While PoW would require more machines with more power to overwhelm the network into having the biggest voice, you aren't necessarily reducing the risk of collusion with PoS, just rerouting whether it is done with investment value versus cost in electricity and equipment. In fact, all that extra gpu cost can go towards buying more ETH.
Much more than that, consider the fact that the path for ETH 2.0 is set and decided from the center at the top. But, that begs a question of the true nature of centralization to begin with, doesn't it?
Really and truly, in the ideal world of "code is law", it still means that someone created the code. What I believe this really comes down to, is that in order to fully embrace whether you agree in the ideals of a given project, you need to know more than just their white paper. You need to interact with their community to get a real feeling for what the project claims to be about. Inasmuch as I do not believe it is the SEC's role, nor is it a benefit to us, to seek regulatory boundaries for such things, we should be a fully self-governing community unless a crime is overtly carried out. To that degree, there is risk. There is always a chance that someone makes a token and lies about it. Whether it is function, returns, or structure, it is always possible that a new project involving new people will be untrustworthy, but that is the risk. Having said that, no one is making hard set guarantees that it is impossible for something to go wrong. That is always a possibility.
The real question is knowing the intentions behind a project, and how well the team seems to be carrying those out. The more present and competent the team, the more likely they are actually trying to solve some cool problem and have a reasonable plan to solve it.
In the case of Ethereum, I personally think it is more important for them to focus on gas fees than energy consumption. But, I'm not Vitalik, and I'm not smart enough to accomplish what he has. For all of the valid concerns surrounding Ethereum, I don't believe that dishonesty or a lack of focus regarding centralization is a real concern. I do believe it's possible that ETH could eventually be replaced with the next bigger better Ethereum, and that may not end up being ETH 2.0. This comes into the realm of human instincts and market share.
People tend to stick with what has developed in market share over time, and ETH has been around longer than almost every other coin after Bitcoin. People are deadly concerned about usability due to fees, and security due to centralization, but it holds at the exact massive value based around what Bitcoin is doing that week. No matter how scary the news, other than an all-out breach or hack, ETH remains roughly exactly where it always is in the market.
The truth is that we tend to accept things for some pretty strange reasons. That's ALL of us. So many times better solutions to numerous problems are very simple, incredibly obvious, but those who strike out to remedy with the very best plans cannot gather momentum. We fall prey to much more base level social reasoning than any of us want to take credit for.
I could create a mile-long list of good examples, but I think it's important enough to at least mention a few feet worth. First, Google. It is still the best search engine. The AI and self-learning systems built into Google from their future tech Kurzweil, with an infinity of ideals I am adamantly against, make for a far superior searching algo than any competitor. But, I often use other search engines because of trust issues, privacy, safety issues. Bias is built in just as strongly as quality. I admire Kurzweil for the things he understands and has accomplished so well, but I stand firmly against some of the things he is certain will come to man 2.0. Ironically, our paths crossed in the music industry nearly a decade ago. That, is for another time. Note to self: I should really be more rich or famous by now- lol.
Another example, I am on Twitter, Facebook, Reddit, and numerous other social sites and I hardly use most of them. I spend too much time on Twitter because all of the interesting and important personalities and figures in crypto are there. I have a little folder of trinkets of famous people I often differ with but admire, who have bothered to respond to me. That ain't gonna happen on other platforms. But censorship of the worst kind is there, and I'd love to tell Jack Dorsey where he could consider placing a few uncomfortable objects, but at the same time, even Jack is looking to improve freedoms in commerce and... gulp... privacy, of all things. He wants to help see crypto thrive despite political unrest. It is bizarre, except that along with idealism often comes confusion.
Engines are rigged. Platforms are rigged. Censorship and centralization are rampant all over the place. As algorithms get increasingly smarter, it will become much more dangerous to interact with the world around us without finding ourselves prone to extremely deceptive, clever, and effective manipulation. It stinks. And, one of the most important solutions will be a decentralized web that moves faster than the current version. But, it will be the laws and lawmakers that ruin that as well. It is inevitable. Freedom of speech comes at the cost of disturbing people saying things that we strongly disagree with.
So, bringing this back around to Ethereum and centralization, we are in a field where it matters in a particularly important way. For instance, if I finally say enough of the wrong thing and get banned from Twitter, I will hate it bc it is hard building organic growth and having an outlet in scary times. But, I'd get over it and it would not directly destroy my livelihood. For others that might be a worse impact. If I got banned from Google or something, I'd learn to find clever routines that give me better search results in inferior engines. But, if I am betting on certain freedoms in digitized wealth building, Ethereum might matter a great deal to me. The fact that there are some basic things that they seem to be getting fundamentally wrong is disturbing to me, but if they really screw it up, I could lose a fortune. Well, not me personally... not right now. But, there are contracts locked in for yields, staking, de-fi, platforms encouraging locking up coins on exchanges, and there are smart contracts for handling on/off-loading to great platforms like Loopring, for instance. If something went terribly wrong, there would be little I could do, but it is the kind of thing that could devastate hundreds of billions of dollars worth of funds that represent wealth, hope, future, stability for tens of thousands of people. It would be devastating.
So, decentralization is an incredibly important topic inside the Ethereum world. What happens at base level can very well affect how other ERC-20s plot their roadmaps, and may virtue signal what kind of centralized controls are accepted from smaller developers.
I do firmly believe that on many important levels, actual decentralization is a myth that cannot, will not healthily exist in crypto. A certain degree of the most important kinds of decentralization can be written into the code, with a promise not to alter it, but it is a set of social constructs that the community agrees to, that keeps the mystique of decentralization alive, when in reality only certain areas apply.
The most important thing at the root of decentralization is that the ideals of a platform are sound, and that no matter what political will or strength, once they are set in foundation, they cannot be altered no matter who's gun or agency is held to the coder's head. There must not be anything, whether it is unpopularity in totalitarian regimes, or climate chaos fear, that can shirk the responsibility of "code is law". This also means that if there are things a project got wrong, that it later must make right, it better be for really good reasons, and that is where I believe Ethereum has gotten stuck.
It occurs to me that the need to change from PoW to PoS is a pretty big thing. Again, I am not Vitalik, so I really in earnest cannot imagine what it would be like to be in my 20's deciding whether to burn $1B worth of a crap coin to avoid the appearance of confusion at market. I can't imagine hoping that the theory of 2.0 was sound enough not to wreck the mess that is currently working despite itself. Having said that, the truth is that if it were me, I would take a larger risk in one area to avoid another; I would have left ETH alone and created a separate coin with the ideal of 2.0. It could have been competition, or it could have balanced out into two camps that oppose one another who knows. If everyone's instincts were like mine and so many on Twitter, we'd all remain on Ether and gripe about Ether, while Vitalik 2 was alive and kicking, doing exactly what we had asked of it. That's just the weird nature of the market. I have a strong feeling that doing exactly that would have cut a good 20-30% out of the price of Ether, and then it would have risen back to exactly where it is, while 5-10 other lesser coins eventually lost their place to Vitalik 2. Weird, bizarre, but true.
Here's Gordon's end results.
Decentralization does not exist. True democratized tokens don't exist, and if they did they would be a disaster with terrible rules employed.
The kinds of centralization we wish to avoid require a healthy balance of first principles and smart economics built in. These things are possible, and though they do require centralization, they can be set free to run as code with the discipline and promise to the community not to touch the things that make it decentralized. As long as we can trust the benevolence of a sound design, we should be able to reasonably trust the coders and updates more than any third party we are trying to avoid: trustlessness by means of being able to read the code and believe it.
I hope that makes sense, and more importantly makes you think about important things.
For now, that is my 'thang' about Ethereum, and until next time, an 'all typed out' Crypto Gordon Freeman, the free man... out.
