A common answer to my never-ending enthusiasm with the Crypto world and its implications, is always something along the lines of – “what will you do with all those coins when electricity shuts down? Or when a global disaster strikes?”
“At least I can buy and hold on to a house, and know it wont disappear next day or de-valuate so sharply”.
And while I often find myself in these conversations, It never ceases to amaze that the current monetary system in place is under the exact dangers, external influences and manipulations just as much as the crypto world if not more. Which then leads automatically to discussions about value of money, and particularly the value of the dollar which many seems to think is backed by gold, like in the ancient times, yet the truth is rather different.
While I am not economist by education, I am very interested in the mechanisms of the economical world as they are often glued together by one thing and one thing only – its legitimacy.
Our common agreement , that the dollar is valued at an X-price and it is a widely accepted agreement – just as the bonds and stocks issued by the Amsterdam Stock Exchange in 1602 as a means to allow merchants to loan their bonds to the wide public as a means to allow a grand purchase of stock and equipment before heading out to the open seas to seize more riches for themselves and their clients.
That piece of paper, was nothing but a piece of paper, but it was backed by the mega-corporation which was the Dutch East India Company and the legitimacy that the people of the time backed, that indeed, ‘The Dutch East India Company is true to its word and gains”.
I’d like to address Vitaliks’ latest post on Legitimacy, where he goes into more depth about the particular kinds of Legitimacy and how they essentially secure various crypto ecosystems by forking if need be, so essentially, they are our most valuable force, not only in the emerging world of crypto-economics but in the world as a whole. Let me elaborate...
Vitalik goes to briefly explain Game-Theory concept – ‘Coordination Games” – where the participants are rewarded if they both agree and suffer no rewards, or stagnation, if they cannot agree on the same course of action.
One of the clear examples he proposes is one of driving a car, where everyone must agree which side they take in order to benefit from clear, non congested traffic.
One, more on-point example of this is if a system is compromised in a 51% attack, the rest of the participants can fork the network back to its original state, before any loss occurred, and essentially continue business as usual. Thus, the attacker himself is left alone and isolated in an ecosystem with no participants.
Is the ETH that he stole, still worth the same ? Or is the forking of the new system will drive a new coin with the same value? – Well, according to believers of Legitimacy, it is the case, since the value of the coin itself is a consensus – we could all just as much agree that the new-fork is worth 1,000 dollars per coin, but will it truly be the case? And what of the stolen coins?
As the markets are prone to human emotion more than anything, its important to remember that anything can happen in the fluid world of trade, but if we are discussing this topic in the context of a Coordination game, then it is re-assuring to know that such things are possible.
And in fact, not only in a system that is being attacked by a malicious node, but rather in any system where the participants disagree with the current course of actions or decisions made by the development team , they are able to fork and rebuild.
So thus, the true value of such ecosystems (like Ethereum or BTC) is the force of its community and legitimacy.
But, I believe that such attacks are still possible and the Legitimacy issue will not deter any attackers or malicious players of yet, but rather force them to be more stealthy in their operations as to not compromise the network.
It is, however, re-assuring to know that Crypto is here to stay.
