This is an article primarily for friends and family; a warning from someone you know.
TLDR; in the unlikely event block-chain solves a real problem, no crypto token holders will profit from it. Purchasing tokens is gambling.
On a basic technical level Bitcoin is awful and has been superseded by Monero1. The only practical use of Bitcoin was criminal activity. This is past tense because the authorities are now aware of how easily traceable it is. I have not owned any significant amount of Bitcoin for a long time. The electricity and silicon costs alone are reason enough for me to dump it. It’s depressing even having to talk about it.
So this article is not about Bitcoin. I have opinions about Bitcoin, but I’m an expert on moving bytes around, checking bits are in the corrected order, that sort of thing. I don’t know about whatever it is that keeps bitcoin going. For that you should consult Nassim Taleb’s Bitcoin “Black paper”.
This isn’t about other pure crypto “currencies”, like Monero or Reserve, either. Perhaps these can function as a medium of exchange or a store of value.2. It is doubtful, but that is not something I can talk about authoritatively. So this is about block-chains and their associated tokens e.g. Ethereum, Solana etc.
The narrative is that these are going to revolutionise the world. Much like the internet has done and even the movement of compute resources to the Cloud. This is going to start in places like Africa for things like tracking the distribution of people and goods.
Of course, people living in Europe have difficulty verifying anything that happens in Africa. This is due to basic physical and cultural barriers. It is difficult to know that something is really happening in a remote part of the world. Even a place such as New York which has an excellent internet connection and is easily accessible.
There is an obvious disconnect between sensory data being recorded digitally and what is actually taking place. Not to mention how one chooses to interpret complex data. I have not the faintest idea how block-chain can help with these issues. It doesn’t sit at the interface between the physical and the virtual.
It’s not clear if block-chain can help with recording data, it’s a distributed data storage and transformation technology. There is a whole load of hardware and software in between the physical world and the block-chain.
Recording data requires a physical interaction with the world followed by a series of transmissions. Eventually the data is stored somewhere, which could be a block-chain, a combination of block-chain and other technologies or just a regular old database with some cryptography thrown in.
Transmission may require a number of hops, with transformations applied to the data along the way. This could be because the source data is too large and needs reducing. Perhaps some kind of electronic tampering can be detected using cryptography. Perhaps multiple parties need to vote on something to agree it happened. This is not only plausible, it already exists and it doesn’t require a block-chain.
Block-chains, by their very nature, require a large network to operate. Otherwise they are not distributed. Public block-chains require the public internet. By the time data reaches the public internet, there has been plenty of opportunity to tamper with it. If the local networks are not to be trusted for some reason. Then the data must already be protected cryptographically.
Still it’s possible there is a place in the world for slower semi-validated distributed databases with a fee structure built in. Which is essentially the nature of block-chains. I haven’t ruled it out as a possibility. Nor do I need to, I can sit back and wait for the technology to mature, not giving it too much time or attention.
What I can rule out, is that owning crypto tokens is an investment. At best it is speculative gambling. Something I am not above. However I much prefer to speculate on things which have some kind of connection to reality. This is just a pure game of betting on which crypto coin has the best narrative to sell or will be pumped by a big player next.
What I don’t see is a reason why the end users of a block-chain would pay sky high network fees instead of starting a new network. Public block-chains are necessarily limited in the volume of transactions they can perform. Validation and synchronisation are necessarily expensive operations in terms of computer resources. Therefor a high fee has to be paid for each transaction to pay back those who bought into the network as well as those who provided the computational resources.
Spinning up some “validator”, compute and storage nodes is relatively trivial. Just select some cloud vendors and fire up some preconfigured virtual machine images.
All of the software is Open Source and made so that independent parties can run it. Third party services, such as oracles, that use the block-chain are made to be interoperable. There is no lock-in to a particular block-chain or even to block-chain at all.
If you don’t trust cloud vendors, you can buy some preconfigured boxes and stick them wherever. If you can’t afford that then you also can’t afford to pay token owners enough to justify massive valuations. If you are not technical enough, you are not technical enough to protect your private keys. You will have to trust a third party somewhere down the line.
To cut a long story short, I can’t see a logical reason why a group of end users, people who are getting shit done, are going to pay for some tokens. If they need that technology, they will find the cheapest way of obtaining it. Paying back token holders is a useless expense and is easily avoidable.
There are no technical “network effects”, that would ensure one block chain network becomes dominant. It’s relatively easy for users to access multiple block-chains at once. It’s easy to transfer tokens between chains and even convert “smart contracts”, from one chain to another.
Possibly one chain could become dominant if network fees stayed the same as the number of users increased. In such a case though there has to be losers and it’s going to be passive token holders.
Some of these arguments could be falsified by an instance of a block chain application with stable profitability. However I can not find a single non-circular block-chain project with significant end users paying for the service.
Neither can I see a reason why I would personally use block-chain or web3 except as a free promotion. Even then I wouldn’t trust it with sensitive data. I’d ensure I can run my infra on regular cloud or bare metal as well.
This pains me, because I absolutely love the idea of “comoditizing” cloud services and giving AWS a kick in the teeth. I really wanted web3 to be viable, but looking at it pragmatically, it appears to be unnecessary complication.
Ironically block-chains are transparent, which I really like. You can peer in at everything happening through a block-chain explorer. Look at the programs being executed and what they do. Usually this is just maintaining the network itself or some Dex/NFT/game nonsense. All stuff that circles back around to block-chain.
At this point the only way to invest in block-chain is to learn the tech and try to use it. I started on that path and found a small amount of tech mixed with huge amounts of bullshit. There is always some bullshit with new tech, but the ratio here is not good.
The environment appears very conducive to making money as a freelance software developer. The problem is the level of horse shit crosses over from exaggeration and enthusiasm into outright fraud. Operating in such an environment while maintaining some sense of ethics, is more than my little heart could bear.
Frankly we would not be talking about block-chain if it weren’t for the speculative mania around Cryptos. Friends and family don’t ask me about conflict-free-replicated-data-types or cryptographically verifiable computations in general.
NFTs are the purest form of bollocks imaginable. There is nothing technically preventing anyone from copying them. Their value is a pure social construct. Frankly not too dissimilar to physical paintings and other types of art. There is nothing concrete for me to say about them.
However they probably show what block-chain really is, a social construct. The manifestation of belief in technology. NFTs are obviously bollocks and proud of it. This is fine by me. Where other types of block-chain token fall foul is they claim to be something other than art.
The closer I look at such claims, the more they appear to be chimerical. Fantasy beasts made up of parts that don’t make sense. I can’t rule out in absolute terms that some of this technology will come to fruition. Occasionally “putting wings on a horse and seeing if it flies”, works.
The probability though is small and the probability that token holders will reap the profits is zero. I have made quite a profit on Crypto myself, but my interest is rapidly waning as I continue to fail to find anything concrete at its base.
So I’m selling up and sharing my findings as fair warning. Be careful giving any of those fuckers your money.