[Cryptography] Incentive Politics

[Phillip Hallam-Baker]

On Tue, Oct 3, 2023 at 8:19 PM Ray Dillinger <bear at sonic.net> wrote:

>
> On 10/2/23 13:46, Phillip Hallam-Baker wrote:
>
>
>
> What we were promised was decentralized finance. What was delivered
> instead was a classic Ponzi fraud wrapped up in psychobabble.
> Pseudo-currencies are to the world of cryptography what astrology is to
> astronomy and esoteric alchemy to chemistry.
>
>
> There is a rule in physics that if you claim to have invented a perpetual
> motion machine, you are mistaken, something, somewhere is adding energy
> into your system. The same holds for proposals for better assassination
> markets: if a system allows such, the system is going to be regulated out
> of existence.
>
> I'm going to agree, but it's more nuanced than just being a Ponzi scam.
> It was a mistake.  We made buggy software, and Ponzi scams are a symptom of
> the software bug.
>
The software was full of bugs, but that wasn't what kicked in the exponent.

One part of the story is that the rise of $BTC was driven by the collapse
of the Gold Age Ponzi scheme. Specifically, some of the crooks behind Gold
Age used $BTC as their exit path. Ths crooks that did not get caught went
on to run many of the best known pseudo-currency exchanges.

Hal's original obsession was stopping inflation by fixing the amount of
currency issued. But that makes no sense when there is no bound on the
number of schemes being offered.

And once people started to notice 'number go up', the Ponzi dynamic took
hold of people rushing in hoping to sell their currency on to a greater fool

What we learned was that finance cannot be deregulated, because it is
> finance.  Money is power.  Power is regulation.  Nobody who has money,
> wants to risk money or spend money if they do not have regulation to ensure
> that their risks are honestly represented or in case they do not get what
> they spent their money for.  Therefore, people who have money, or anything
> that can effectively be used as money, demand regulation.  Having money
> means that they also have power, so they actually get regulation.
>
Empirically, the risk of having your money confiscated by government is
many, many times lower than the risk of having it stolen from you if you
put it in a pseudo-currency. The code has bugs, some of the hardware has
deliberate backdoors, not your keys, not your crypto and its not your keys
unless you personally audited the running code.


> Cryptocurrency in its current "block chain" formulation aimed to replace
> this regulation with simply making sure that the transactions are a
> consistent record complying with impartial computer code.  It was a
> worthwhile experiment; regulation that is more impartial is after all a
> resolution devoutly to be wished.  The problem is that real transactions
> require both the movement of money, which the computer code is aware of,
> and the production of value, which is not part of the universe that code
> can respond to.  And because a block chain can track only one side of the
> transaction, the stage was set for big systematic failures on the other
> side.
>
A while back, I met Chaum at a conference and we discussed the failure of
anonymous cash. The key flaw in my view being that there was no 'slop' in
the system. Slop being what allows gears to actually move. If you have to
commit your entire scheme to cryptography in advance, there is no way to
adapt to changing circumstances.

It was a worthwhile experiment.  It was something of a success because we
> did successfully fix the trusted-role bug that had been the downfall of
> previous cryptocurrency protocols.  So the state of the art was advanced,
> and we discovered a new bug whose existence we hadn't run into before.  But
> it's still a serious bug, and systems that still have this bug, ultimately
> won't work.  Solving both bugs simultaneously - how to have trust in a
> world-aware regulatory system that somehow doesn't require a central
> trusted role - will be, at best, tricky.
>
I don't think the trusted role bug was solved, it was merely deferred. The
end game of the cryptocurrency world will be mining consortiums trying to
stave off bankruptcy by unwinding the chain.

We failed to recognize what the requirements for supporting genuine wealth
> actually were, and made a mistake.  The ponzi scams are the user-facing
> problem that manifested, ultimately, as a critical bug report.  Thing is I
> don't think the CVE system acknowledges bugs that are this subtle.
>
> If you want real cryptocurrency that tracks real wealth, we've got to fix
> that bug. Money cannot exist independent of the regulation of the society
> whose wealth it represents. People who don't want regulation don't want to
> see it fixed. But script kiddies don't want to see a patch on a bug that
> allows them to get root on other people's servers, either.
>
What a lot of people found compelling was the notion they were making money
out of nothing by just running their machine. But the very fact that
'wealth' was being created out of thin air should have been the warning
sign.
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