What the bitcoin price drop reveals about ‘crypto’

One of the definitive downsides of cryptocurrencies raised its head this week when the nosediving price of bitcoin – brought on by the Luna/Terra crash and subsequent cascading effects – rendered bitcoin mining less profitable. One bitcoin today costs $19,410, so it’s hard to imagine this state of affairs has come to pass – but this is why understanding the ‘permissionless’ nature of cryptocurrency blockchains is important.

Verifying bitcoin transactions requires computing power. Computing power (think of processing units on your CPU) costs money. So those bitcoin users who provide this power need to be compensated for this expense or the bitcoins ecosystem will make no financial sense. This is why the bitcoin blockchain generates a token when users provide computing power to verify transactions. This process is called mining: the computing power verifies each transaction by solving a complex math problem whose end result adds the transaction to the blockchain, in return for which the blockchain spits out a token (or a fraction of it, averaged over time).

The idea is that these users should be able to use this token to pay for the computing power they’re providing. Obviously this means these tokens should have real value, like dollar value. And this is why bitcoin’s price dropping below a certain figure is bad news for those providing the computing power – i.e. the miners.

Bitcoin mining today is currently the preserve of a few mining conglomerates, instead of being distributed across thousands of individual miners, because these conglomerates sought to cash in on bitcoin’s dollar value. So if they quit the game or reduce their commitment to mining, the rate of production of new bitcoins will slow, but that’s a highly secondary outcome; the primary outcome will be less power being available to verify transactions, which will considerably slow the ability to use bitcoins to do cryptocurrency things.

Bitcoin’s dropping value also illustrates why so many cryptocurrency investment schemes – including those based on bitcoin – are practically Ponzi schemes. In the real world (beyond blockchains), the cost of computing power will but increase over time. This is because of inflation, because of the rising cost of the carbon footprint and because the blockchain produces tokens less often over time. So to keep the profits from mining from declining, the price of bitcoin has to increase, which implies the need for speculative valuation, which then paves the way for pump-and-dump and Ponzi schemes.

permissioned blockchain, as I have written before, does not provide rewards for contributing computing power because it doesn’t need to constantly incentivise its users to continue using the blockchain and verify transactions. Specifically, a permissioned blockchain uses a central authority that verifies all transactions, whereas a permissionless blockchain seeks to delegate this responsibility to the users themselves. Think of millions of people exchanging money with each other through a bank – the bank is the authority and the system is a permissioned blockchain; in the case of cryptocurrencies, which are defined by permissionless blockchains, the people exchanging the money also verify each other’s transactions.

This is what leads to the complexity of cryptocurrencies and, inevitably, together with real-world cynicism, an abundance of opportunities to fail. Or, as Robert Reich put it, “all Ponzi schemes topple eventually”.

Note: The single-quotation marks around ‘crypto’ in the headline is because I think the term ‘crypto’ belongs to ‘cryptography’, not ‘cryptocurrency’.

Analysis Tech

NFTs aren’t thriving – they’re often in the hospital

This is not a real anniversary but it’s worth commemorating, if only to remember the pseudo-events propping up the NFT business-culture. One month and one year ago, a cryptocurrency user named Metakovan purchased an NFT associated with a piece of art from its creator, a fellow named Beeple, in an auction at Christie’s. (Here’s a beginner’s guide to NFTs.) Even at the time this incident took place, its absurdity was clear: as I wrote at the time, Metakovan’s plan – an ostensible effort to democratise and to fight racism in art ownership – was riddled with problems: it was one big red herring of excuses supplied to mask the Ponzi super-scheme that cryptocurrencies and NFTs need to survive. Since then, as NFTs have ‘matured’, especially by revealing what they truly are to the world, we have become better at understanding what that moment in time has meant for the industry. Today, cryptocurrencies and NFTs are investment options whose prices climb up (and down) purely through speculation, so they must remain constantly in demand, thus the Ponzi. Other than that, they serve no purpose whatsoever. While the $69.3 million that Metakovan paid for Beeple’s NFT bleached our vision, we realise today that it had to; there’s nothing underneath. Similarly, there is today a near-constant drone of faux optimism emanating from cryptocurrency evangelists founded on nothing more than greed and stupidity – one that we must constantly look past to remind ourselves that NFTs are ailing, as they should be. Here are some useful articles I would recommend on the topic.

“It isn’t just charities that are finding cryptocurrencies less popular than the media would have you believe. Game publishers were salivating at the prospect of selling NFTs purporting to represent in-game items. Their customer’s reactions led to headlines such as ‘Roller derby community resoundingly rejects NFT project’, ‘MeUndies cancels its NFT underwear plans and sells its Bored Ape after community backlash’, ‘S.T.A.L.K.E.R. 2 developer quickly cancels NFT plans after fan outcry’, ‘Sega cites fan backlash in surprisingly cautious take on gaming NFTs’, ‘Ubisoft’s first NFT experiment was a dumpster fire’, and so on.”

“For cryptocurrency investors and tech workers, they represent financial opportunities and the ground on which to create an art world all of their own. They are deeply naive about art and often disarmingly sincere in their excitement about it. … Is there any potential in this new art market, which seems poised to edge out the old as it is integrated into art fairs, galleries, and auction houses? Is capital, even in its present decrepit form, more progressive than art theory? … Blockchain may be decentralized, but Sotheby’s and Christie’s, where NFT stars like Beeple have been taking their work direct to market, certainly are not. Art-for-NFT may eschew elite curation from MFAs and PhDs but relies instead on other hierarchies that have more to do with celebrity and straightforward access to money than visual quality, let alone conceptual positioning. It has already proven itself not to be the very thing its digital art proponents hoped it would be: an equitable market (as if such a thing exists) cleared of undesirable barriers. To the contrary, the majority of transactions are concentrated in the top 10% of market actors and the average artist has nearly no shot at making a buck…”

“Kelani Nichole, who first priced and sold artworks in bitcoin in 2013 as the owner of the new-media-centric Transfer Gallery, … reached an unequivocal conclusion about Christie’s proclamation that it had made NFT history. … First, multiple users [of cryptocurrencies expressed] confusion over why, as one member put it, they saw “none of the usual stuff you’d expect to see” for an NFT sale through Etherscan, an established portal for viewing verified data on the Ethereum blockchain. … the second point of disagreement is even more existential. On one hand, Christie’s role in facilitating the sale of Beeple’s work was seen as a powerful validation of NFTs by (very) late adopters in the traditional art world. On the other hand, true believers in blockchain’s revolutionary potential aim to eliminate gatekeepers of all types. They saw Christie’s very presence in the sale as a betrayal of crypto’s core values…”

“Forms of self-dealing among an elite are also baked into the market and the history of how it got so big in the first place. Take Vignesh Sundaresan, a collector known as “MetaKovan” who purchased the $69 million Beeple NFT that touched off one of the earliest hype cycles around the digital assets. MetaKovan is the financier of Metapurse, a Singapore-based investment firm that earlier this year listed its mission as to “democratize access and ownership to artwork.” Metapurse has bought 20 Beeple NFTs, four virtual museums, a soundtrack, and consolidated it all into an “NFT bundle” that offers fractionalized ownership through 10 million B20 tokens. Beeple, as it turns out, happens to be a business partner of MetaKovan and owns 2 percent of all B20 tokens, while MetaKovan owns another 59 percent.”

“… Lemercier’s sale of six crypto artworks of Platonic solids late last year consumed more electricity within ten seconds than the entirety of his studio in the last two years. Worse still, with every resale, their footprint will grow: one estimate indicates the mere act of selling an edition of one hundred NFTs consumes more energy than an individual living in the European Union for a year—and there are already more than six hundred thousand NFTs in existence. Though the hype of NFTs will likely burn off, the noxious fumes produced by these ostensibly ethereal works will linger in the atmosphere for decades, if not centuries, to come.”

“Time’s cover story by Andrew R. Chow, The Man Behind Ethereum Is Worried About Crypto’s Future, is supplemented by his I Spent 80 Minutes Inside Vitalik Buterin’s Brain. Here’s What I Learned. What I learned from these two pieces of hagiography was that Buterin is having a lot of difficulty dealing with the failure of Ethereum to live up to the goals he had for it. … The entire story is shot through with the normal cryptocurrency gaslighting, claiming that the benefits Ethereum will bring to the world are because it is decentralized, even though it isn’t. At the fundamental level it isn’t — last November two mining pools controlled the majority of Ethereum mining. At the API level it isn’t, as Moxie Marlinspike describes in ‘My first impressions of web3’. But the detachment from reality goes much further. … The quote “Crypto itself has a lot of dystopian potential if implemented wrong” reveals two of Buterin’s delusions. First, the idea that the dystopian effects of cryptocurrencies are a future potential, not a current reality. And second, that the dystopian effects are merely a symptom of improper implementation, rather than fundamental attributes. Chow reports Buterin’s ideas for cryptocurrencies implemented right: … These utopian dreams fuel the gaslighting that covers up the real-life casino and “wretched hive of scum and villany” that cryptocurrencies have become. The idea that, at some time in the future, the Ethereum ecosystem is “at risk of being overtaken by greed” is laughable to everyone outside the cult.”


‘Mantra sciences’ is just poor fantasy

I don’t know how the author of a piece in the Times of India managed to keep a straight face when introducing a school based on Vedic rituals that would “show the way” to curing diseases like cancer. Even the more honest scientific studies that are regularly accompanied by press releases proclaiming “the paper is a step in the right direction of curing cancer” tend to be unreliable thanks to institutional and systemic pressures to produce sensational research. But hey, something written many thousands of years ago might just have all the answers – at least according to Jaya Dava, the chairperson of the Rajasthan Sanskrit Academy. Excerpt:

Proposed in 2005, the Rajasthan government’s research institute to study the science of ancient Hindu texts, the first-of-its-kind in the country, is all set become operational soon. On Monday, the Research Institute of Mantra Sciences (RIMS) or the Rajasthan Mantra Pratishtan, under the Jagadguru Ramanandacharya Rajasthan Sanskrit University (JRRSU), called for applications from eligible candidates for various posts, including that of teachers. The then education minister, Ghanshyam Tiwari, had first proposed the institute in 2005. While presenting the concept, inspired by ‘Manusmriti’, the ancient Hindu book of law, Tiwari had quoted a verse from the text, ‘Sarvam vedaat prasiddhyati’ (Every solution lies in Vedas), in the state assembly.

So the RIMS is being set up to further the ideals enshrined in the Manusmriti, the document that supposedly also talks about the caste system and how anyone trapped in it has doomed all their descendants to never being able to escape from its dystopian rules. Second: apart from having been mooted by a state’s education minister, the Jagadguru Ramanandacharya Rajasthan Sanskrit University is a state institution utilising public taxes for its operation. Don’t the people get a say in what kind of magic-practising institutions their government is allowed to set up? Hogwarts was at least entertaining and nicely written.

I’m just anguished about the Hindutva brigade’s poor imagination when it comes to epic fantasy. For example, according to Dava, “reciting verses such as ‘Achutaya Namaha’, ‘Anantaya Namaha’ and ‘Govindaya Namaha’ have helped in treating cancer patients.” Helped in what way? If we had a quantifiable measure that other people could try to replicate, we’d be working towards having an internally consistent system of magic – but no.

Also, in a world without cancer, is anybody even thinking about the numerous emergent possibilities? For starters, by 2020, we’re going to have $150 billion left unspent because cancer drugs are going to be useless. And India’s B-grade film industries are going to have to come up with new ways to make forlorn ex-lovers spurt blood and die. And David Bowie and Alan Rickman would still be alive. And chanting hippies would be the new millionaire oncologists. The possibilities are endless. More, according to Rajendra Prasad Mishra, who headed RIMS for a decade from 2006,

“The answer as to how a simple line drawn by Lord Ram prevented the mighty king Ravana from crossing over lies in Vedic science. This ancient wisdom, if discovered, can safeguard India from our enemies by drawing lines across the borders. The chanting of mantras, with the right diction, pronunciation and by harnessing cosmic energy, can help in condensing vapours and bringing rain. This can solve the major problem of water scarcity.”

But conveniently, this wisdom is considered “lost” and has to be “found” at a great cost to a lot of people while the people doing the finding look like they’re doing something when they’re really, really not. Maybe its writers wrote it when they were 20, looked back at it when they were 40, figured it was a lot of tosh and chucked it into the Saraswati. I’ve no issues with magic myself, in fact I love fantasy fiction and constantly dream of disappearing into one, but I sure as hell don’t want to exist in a realm with infinite predictability shoved down everyone’s throats.

Notice also how people are completely okay with trusting someone else who says it’s a good idea to invest a lot of money in a scheme to make sense of which very few people are supposed to possess the intellectual resources, a risk they’re willing to take anyway because it might just them more powerful – while they actively stay away from cryptocurrencies like bitcoins because they suspect it might be a Ponzi scheme? Indeed, the powers that be must be vastly more resourceful in matters of the intellect than I to be able to resolve this cosmic cognitive dissonance.

Featured image credit: stuarthampton/pixabay.