We have words for such things. Anything which is NOT what it claims to be, while soliciting money, is by definition a "scam". A specific kind of sophisticated scam works by paying out older investors using money gained from new investors, and that is called a "ponzi scheme". And so the web3 wheel keeps turning.
I thought there was a thread about this a couple of days ago.
A Ponzi Scheme is where the sum of all investor's reported account values exceed the total value of assets held by the institution.
In order to sustain the fraud, new investors are sought out to get capital to pay out old customers.
Bitcoin may be a scam, or may be used by scammers, etc., but it's not a Ponzi. Rather than give it a label, say what you think is happening -- that it's an asset bubble sustained only by the existence of greater fools and thin, unregulated, manipulated markets. That's fine and we can argue points on that. But calling it a Ponzi just makes things confusing.
> A Ponzi Scheme is where the sum of all investor's reported account values exceed the total value of assets held by the institution.
Which is exactly what Tether, other stablecoins, and a lot of shady centralized exchanges did. They report account values in USD, coin market caps in USD, total on-chain trading volumes in USD, where are there is often no USD to be found anywhere, just lots of digital play-money being thrown around. It's a completely false report of account values, so while Bitcoin itself might not fit the strict definition of a Ponzi, many of the enterprises operating in the ecosystem do.
> One extremely common phenomenon when discussing issues surrounding blockchain-based technologies is that proponents will often switch between discussing the theoretical implementations of these ecosystems and discussing the ecosystems we have today as it suits their argument.
This is an endemic problem in crypto spaces. The biggest example I see regularly is deflecting concerns about environmental impact by stating they'll move away from proof of work any day now, so it's no big deal.
Maybe you will, maybe you won't, but until you have, you haven't.
In the case of Ethereum, I see it more as acknowledging it is a problem under Proof of Work and they are moving off it this year _because_ it's a problem. They are making tangible progress with the Kintsugi test net coming out last month.
How else are they supposed to address it other than acknowledging the problem, laying out a roadmap, and taking steps towards the end goal?
Proof of stake has been ~18months away for ethereum since 2015.
Sure, they've built some stuff at this point, but have made no progress on the inner politics of the issue. So it remains in some untouchable future for the time being.
The problem is not that they're not addressing it, or trying to, or at least thinking about how to. The problem is that criticism of crypto's electricity use is immediately dismissed with "but POS will solve that" as if it has already solved it. Which it hasn't.
> In June 2016, attackers exploited a vulnerability to steal 3.6 million ETH (then about $50 million) of the project’s 11.5 million ETH (about $160 million).
People love to tout this example, I did too, until that realized that one a one off event. There are regularly significantly more larger thefts of crypto currencies these days[1] and nobody is even willing to discuss a hard fork. I now chalk this up as growing mistakes which every project makes in early stages. I'm still not into this whole idea of crypto currencies, but don't think we can use this point fairly any more.
Yes. Similarly, you can totally rely on your gold or fiat money being yours. Ok, there was this small incidence in 1933 where the US government took most of your gold, but that was a one off event [1]. And then during the hyperinflation in Germany your money actually became worthless, but that was a growing mistake. Of course, that was multiple generations ago, not a few years.
Conclusion: On the dimension of reliability and censor resistance, crypto might be as good as gold or fiat (while on all other axes it remains much worse).
[1] Executive Order 6102 required all persons to deliver on or before May 1, 1933, all but a small amount of gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve in exchange for $20.67 (equivalent to $413 in 2020)[5] per troy ounce. https://en.wikipedia.org/wiki/Executive_Order_6102
This. Ultimately the defence blockchain has against hard forks is exactly the same as the defence other monetary systems have against things like hyperinflation and mass asset seizure which cryptoenthusiasts worry about: generally the people with the [hash]power have strong incentives not to do so. Except when those incentives change. In both cases, how much confidence you can place in that theoretical incentive structure protecting you varies widely according to who and why (you can be pretty confident that your US dollars won't be hyperinflated, the contents of your Swiss bank account won't be seized to balance another government's books and nobody with significant hashpower cares that you scammed Joe Sixpack out of BTC. You can't be so confident your Venezuelan Bolivars or shitcoins won't become worthless next month or that you'll get to spend gains from a heist against an Ethereum Foundation or US government flagship project.
> On the dimension of reliability and censor resistance, crypto might be as good as gold or fiat (while on all other axes it remains much worse).
I completely agree. My only point was its bizarre that people choose the DAO incident to bash crypto people. They have plenty of evidence that the community learned from the incident.
> I now chalk this up as growing mistakes which every project makes in early stages.
Except it's not new at all; regular banks and the fiat money they have been handling have been dealing with these things for literally centuries.
But the cryptobros decided they could do better, converting their PHP Magic the Gathering trading platform to a Bitcoin trading platform and thinking yeah, that's good enough for handling billions. To name but one example.
That is quite a uncharitable read. I understand they made mistakes, but so does every technology in the beginning. They also had the unenviable task of coming up with how to behave in a community. They are trying to do something new, and had some failures which are obvious in hindsight. But that should not be used to bash in their heads on each instance. Especially because they have shown consistently now that they understand the mistake and have not repeated it.
I don't trust ETH for this reason, and it seems eth people have not taken measures to prevent this from happening again -- probably they will not hesitate to do it again. Thankfully there is more to crypto than eth
All chains can do this though. We have to remember crypto is inter-subjective. A chain only has value when other people agree it has value. Eth Classic still exists, it even has some value for whatever reason. Block chains are about crowd consensus, and any block chain community can decide to hard fork. I don't think its possible to prevent that on a block chain.
Maybe it's a good time to remind that Bitcoin is not Ethereum. Bitcoin has always focused on maximizing decentralization. This debate goes back to blocksize war in 2015-2017, when small blocks and decentralization won over big blocks and increased throughput. The idea is simple; the network is more decentralized, when more people can reasonably run a full node on their own home computer. It is possible to run a full Bitcoin node on a typical laptop or desktop PC, or a dedicated Raspberry Pi with external 1 TB hard drive. It doesn't mean that everyone has to run their own node; it's enough that it is possible.
For Ethereum and most other altcoins, it's not possible to run a full node on a home computer. That's why most of the nodes are run by companies such as Infura.
This is also the root of the argument why many bitcoiners think that most altcoins such as Ethereum are scams. Like the article suggests, they're promoted and sold as decentralized but in reality are quite far from it.
Bitcoin mining centralised by 2014, when GHash hit 51% and promptly spit into smaller pools so as not to frighten the suckers. In 2015, the guys controlling 80% of mining pools stood on the same stage together.
It's important to distinguish "decentralised" as in "can't sue me bro" from "decentralised" as in actual operational terms. Bitcoin contains tremendous operational centralisation at all levels.
> For Ethereum and most other altcoins, it's not possible to run a full node on a home computer. That's why most of the nodes are run by companies such as Infura.
That is a really interesting question. Would that NFT be illegal to own or posess? It isnt the actual material. It could be a hash and ownership information, but the illegal material need not be in the NFT. Hashes for such material are not illegal. In fact there are databases full of such hashes in use by file hosting services to detect and remove such things. Owning an associated NFT would be like owning an NFT for "cocaine" but never being anywhere near real cocaine. It may be worthless, but i dont see how it would be actually illegal.
Anyone that would want to own such a thing probably cares about what it points at so they're more than likely going to possess the illegal content as well. For example if you own an art NFT that is on IPFS you probably want to pin it yourself to make sure the link doesn't rot whilst you own it. Then some images are actually on-chain so the NFT and a copy of the picture exist together.
That said there is an explicit link between the NFT and the child sexual abuse material so I'd presume there is a legal case that keeping one is keeping the other. Like if you made sure your hard-drive was totally clean but kept bookmarks to abuse material.
In the example of cocaine there is no explicit link but if they could connect the NFT to a criminal enterprise then I guess there's likely some laws around profiting/handling gains from criminal activity.
I think the general principle behind the criminalisation of such images is that the sharing creates market demand for the abuse; the hash of the image isn't what gets file hosts off the hook because their moderators won't be punished for manually checking and deleting images either. On that basis, I can see someone apparently knowingly purchasing tokens symbolically representing actual acts of child sex abuse for a lot of money being in plenty of trouble even if the images never touch any of their computers.
Perhaps their best defence would be that NFTs are complete nonsense which have no tangible connection with the mutable, third-party-controlled URL endpoint they are supposedly a token representation of...
Footnote #1 suggests the author is concerned with solutions to the availability of CSAM. In this light the ownership of the NFT is actually irrelevant. Anyone can read the data in the NFT. That data will either point to CSAM or it won't. The problem, if there is one, would be with anyone with a copy of the blockchain's ledger – it would have nothing to do with the ability of anyone to update the ledger.
Yes. This is true. It also confirms that owning an NFT of a thing is not the same thing as owning the actual thing.
You are not guilty of owning CSA material until it's found on your computer.
You do not own that cat picture unless you have some documentation that transfers copyright from the author to you (like a receipt, a contract, or similar). An entry on a blockchain is not that.
Can I own something without possessing it? Clearly one can own a copyright over something without possessing a copy. So while it is illegal to possess CSA, is it illegal to own rights over it?
This issue came up a few years ago with those stolen iphone images of celebs, some of which were underage. If the photos are illegal, then DMCA takedowns might not work if one cannot own the copyright to an illegal image.
> The data itself is quite decentralized, at least on the popular blockchains, but that’s about where the decentralization ends.
Yes. Web2 is where users generate content and generate profit for companies.
Web3 is where companies went further and offload storage/compute costs to users, while maintaining control over services/apis. It's like Youtube where videos are hosted by users but Google gets the money.
The points on immutability are incorrect. When Ethereum was rolled back to reverse the 2016 DAO hack the data was not lost, it continues on the Eth Classic chain - it is still immutable.
That chain is no where near as valuable today - that's true of most forks, one wins and the other loses. For most Ethereum users, and for the Polkadot users for which a similar fork happened recently, the early reversion to remedy loss caused by an exploit is considered a feature, not a bug and it was the community that decided which fork would win.
There has been much more money lost to similar exploits in various contracts since the infamous DAO hack, and the chain was not rolled back - if it ever was it would likely be a losing fork unless the community of users agreed on its value.
For Ethereum specifically this is more problematic as its full nodes are expensive to run and don't have much say compared to miners or centralized node providers like Infura, but this type of fork in principle isn't an example of immutability, and chains which do subsidize node costs to avoid the centralization seen in Eth's user facing nodes remain in control of the users.
In total, picking out the worst parts of the Ethereum network and generalizing it to 'blockchain' is lazy, and doesn't even fulfill the modest goal of the essay to "[discuss] how these technologies work in practice today," as it ignores the nascent systems whose developers were the first on scene to many of these problems and decided that they were solvable rather than bloggers with slightly deeper than surface level understanding seeing the same problems years later and deciding they were unsolvable.
I don't think it's fair to say their point is incorrect. If you're talking in absolute technical terms about what "a blockchain" is in the abstract then, sure, a blockchain is immutable... but cryptocurrencies don't use "a blockchain" they have "the blockchain" and "the blockchain" is just whichever blockchain the network has decided is the blockchain. For all intents and purposes, "the Ethereum blockchain" is mutable because it can be swapped out if everyone agrees.
All us crypto-skeptics know about this is that it's technically possible to effectively erase and redistribute transactions by doing a hard-fork and that "the community" have shown they're quite willing to do so. Saying that they technically can't be erased but that they'd always exist in a potentially-worthless fork isn't exactly reassuring. In fact it's a little bit disingenuous because I think it's pretty clear what people's issue is with "immutability" (namely "they say it's immutable, but it looks like they can and will mutate it") and this is quite an artful dodge around around that. And people like us see that the world of cryptocurrencies is rife with scammy activity and bad actors, so we go "ah ok, it's just another one of those" and move on.
If worth matters to you you should be reassured that in the Ethereum style fork of 2016 no matter which side you agreed with you owned your coins in both chains (unless you were a hack victim or hacker). No one was punished for "choosing wrong."
The concern about forks happening willy-nilly at the expense of users is sometimes legitimate in smaller chains or maybe even chains like Ethereum which do not incentivize decentralized node services and as a result has majorly centralized nodes, but for Bitcoin and more nascent protocols which understand this problem the concern over arbitrary forks is thankfully frivolous.
Considering this only happens to "big" projects and not a simple user making a mistake it's pointless to see it as immutable. It's immutable in practice only for you, but not in practice (like the article claims) for bigger projects who happened to make a mistake. It's all 'in practice' as yes, the original data is not lost but for all practical purposes it is.
Calling it out to all blockchains is valid in my opinion, as it counts for all blockchains despite happening more often around some than others.
Fine, let's talk about practicality. The practicality of a blockchain protocol which is never allowed to 'update' via a fork is fairly kludgy. So if we allow forks, how can we be sure that in practice, for users, their account balances are immutable?
Well its easy, a sufficiently decentralized protocol, like Bitcoin for example, can have a large group of miners and nodes agree to scam one or more users out of their account balances by simply forking the chain. Anyone not in on the scam, even if it was as small as to take $10 from a single user, has no reason to even consider that fork - the fork which scams any user to any degree is worthless, as well as being provably invalid. It only takes one node with the honest history to maintain what users care about.
Saying this is practically mutable is like saying today's newspaper is mutable because we can all agree to print an altered version of it, while ignoring the fact that it is trivial to find and prove ownership of the original (being generous with my analogy, carbon dating, time-stamping the paper, w.e.).
With smaller chains that have much smaller amounts of total mining power its feasible for people to just jump in and run a 51% attack. So even in that sense they're not necessarily immutable.
The blockchain that we now know as Etherium does not contain the blocks that were erased. The fact that those blocks still exist on a completely different blockchain is irrelevant. They have been deleted from the Etherium chain.
If you are calling that "The Ethereum Chain" then it seems your preferred fork won. Those who believe rolling back exploited funds was wrong see what you call "The Ethereum Chain" as the fork and Eth Classic as "The."
Either way, members of each fork kept their account balances, so anyone who really believed in Eth Classic but held their forked tokens is no worse off. If you want to talk about Eth politics and immutability (which is a good conversation) then it shouldn't be applied to all blockchain; not all chains are subject to such political influence if you claim that was a factor.
Readit News
A Ponzi Scheme is where the sum of all investor's reported account values exceed the total value of assets held by the institution.
In order to sustain the fraud, new investors are sought out to get capital to pay out old customers.
Bitcoin may be a scam, or may be used by scammers, etc., but it's not a Ponzi. Rather than give it a label, say what you think is happening -- that it's an asset bubble sustained only by the existence of greater fools and thin, unregulated, manipulated markets. That's fine and we can argue points on that. But calling it a Ponzi just makes things confusing.
Which is exactly what Tether, other stablecoins, and a lot of shady centralized exchanges did. They report account values in USD, coin market caps in USD, total on-chain trading volumes in USD, where are there is often no USD to be found anywhere, just lots of digital play-money being thrown around. It's a completely false report of account values, so while Bitcoin itself might not fit the strict definition of a Ponzi, many of the enterprises operating in the ecosystem do.
[1] Anyone Seen Tether’s Billions? https://www.bloomberg.com/news/features/2021-10-07/crypto-my...
Also how fractional reserve banking works
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This is an endemic problem in crypto spaces. The biggest example I see regularly is deflecting concerns about environmental impact by stating they'll move away from proof of work any day now, so it's no big deal.
Maybe you will, maybe you won't, but until you have, you haven't.
How else are they supposed to address it other than acknowledging the problem, laying out a roadmap, and taking steps towards the end goal?
Sure, they've built some stuff at this point, but have made no progress on the inner politics of the issue. So it remains in some untouchable future for the time being.
People love to tout this example, I did too, until that realized that one a one off event. There are regularly significantly more larger thefts of crypto currencies these days[1] and nobody is even willing to discuss a hard fork. I now chalk this up as growing mistakes which every project makes in early stages. I'm still not into this whole idea of crypto currencies, but don't think we can use this point fairly any more.
[1] https://rekt.news/leaderboard/
Conclusion: On the dimension of reliability and censor resistance, crypto might be as good as gold or fiat (while on all other axes it remains much worse).
[1] Executive Order 6102 required all persons to deliver on or before May 1, 1933, all but a small amount of gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve in exchange for $20.67 (equivalent to $413 in 2020)[5] per troy ounce. https://en.wikipedia.org/wiki/Executive_Order_6102
I completely agree. My only point was its bizarre that people choose the DAO incident to bash crypto people. They have plenty of evidence that the community learned from the incident.
Dead Comment
Except it's not new at all; regular banks and the fiat money they have been handling have been dealing with these things for literally centuries.
But the cryptobros decided they could do better, converting their PHP Magic the Gathering trading platform to a Bitcoin trading platform and thinking yeah, that's good enough for handling billions. To name but one example.
Dead Comment
Dead Comment
For Ethereum and most other altcoins, it's not possible to run a full node on a home computer. That's why most of the nodes are run by companies such as Infura.
This is also the root of the argument why many bitcoiners think that most altcoins such as Ethereum are scams. Like the article suggests, they're promoted and sold as decentralized but in reality are quite far from it.
It's important to distinguish "decentralised" as in "can't sue me bro" from "decentralised" as in actual operational terms. Bitcoin contains tremendous operational centralisation at all levels.
I have never tried to run a full node, but from what I read, the specs for a full node are nowhere near the realm of impossible: https://www.reddit.com/r/ethereum/comments/jv8ovb/what_are_t...
1TB SSD, 16GB RAM, an i5 is pretty run-of-the-mill.
You can run an Ethereum node on a Raspberry Pi with a 1TB USB hard drive, what are you talking about?
That is a really interesting question. Would that NFT be illegal to own or posess? It isnt the actual material. It could be a hash and ownership information, but the illegal material need not be in the NFT. Hashes for such material are not illegal. In fact there are databases full of such hashes in use by file hosting services to detect and remove such things. Owning an associated NFT would be like owning an NFT for "cocaine" but never being anywhere near real cocaine. It may be worthless, but i dont see how it would be actually illegal.
That said there is an explicit link between the NFT and the child sexual abuse material so I'd presume there is a legal case that keeping one is keeping the other. Like if you made sure your hard-drive was totally clean but kept bookmarks to abuse material.
In the example of cocaine there is no explicit link but if they could connect the NFT to a criminal enterprise then I guess there's likely some laws around profiting/handling gains from criminal activity.
Perhaps their best defence would be that NFTs are complete nonsense which have no tangible connection with the mutable, third-party-controlled URL endpoint they are supposedly a token representation of...
You are not guilty of owning CSA material until it's found on your computer.
You do not own that cat picture unless you have some documentation that transfers copyright from the author to you (like a receipt, a contract, or similar). An entry on a blockchain is not that.
This issue came up a few years ago with those stolen iphone images of celebs, some of which were underage. If the photos are illegal, then DMCA takedowns might not work if one cannot own the copyright to an illegal image.
Yes. Web2 is where users generate content and generate profit for companies.
Web3 is where companies went further and offload storage/compute costs to users, while maintaining control over services/apis. It's like Youtube where videos are hosted by users but Google gets the money.
That chain is no where near as valuable today - that's true of most forks, one wins and the other loses. For most Ethereum users, and for the Polkadot users for which a similar fork happened recently, the early reversion to remedy loss caused by an exploit is considered a feature, not a bug and it was the community that decided which fork would win.
There has been much more money lost to similar exploits in various contracts since the infamous DAO hack, and the chain was not rolled back - if it ever was it would likely be a losing fork unless the community of users agreed on its value.
For Ethereum specifically this is more problematic as its full nodes are expensive to run and don't have much say compared to miners or centralized node providers like Infura, but this type of fork in principle isn't an example of immutability, and chains which do subsidize node costs to avoid the centralization seen in Eth's user facing nodes remain in control of the users.
In total, picking out the worst parts of the Ethereum network and generalizing it to 'blockchain' is lazy, and doesn't even fulfill the modest goal of the essay to "[discuss] how these technologies work in practice today," as it ignores the nascent systems whose developers were the first on scene to many of these problems and decided that they were solvable rather than bloggers with slightly deeper than surface level understanding seeing the same problems years later and deciding they were unsolvable.
The concern about forks happening willy-nilly at the expense of users is sometimes legitimate in smaller chains or maybe even chains like Ethereum which do not incentivize decentralized node services and as a result has majorly centralized nodes, but for Bitcoin and more nascent protocols which understand this problem the concern over arbitrary forks is thankfully frivolous.
Calling it out to all blockchains is valid in my opinion, as it counts for all blockchains despite happening more often around some than others.
Well its easy, a sufficiently decentralized protocol, like Bitcoin for example, can have a large group of miners and nodes agree to scam one or more users out of their account balances by simply forking the chain. Anyone not in on the scam, even if it was as small as to take $10 from a single user, has no reason to even consider that fork - the fork which scams any user to any degree is worthless, as well as being provably invalid. It only takes one node with the honest history to maintain what users care about.
Saying this is practically mutable is like saying today's newspaper is mutable because we can all agree to print an altered version of it, while ignoring the fact that it is trivial to find and prove ownership of the original (being generous with my analogy, carbon dating, time-stamping the paper, w.e.).
Either way, members of each fork kept their account balances, so anyone who really believed in Eth Classic but held their forked tokens is no worse off. If you want to talk about Eth politics and immutability (which is a good conversation) then it shouldn't be applied to all blockchain; not all chains are subject to such political influence if you claim that was a factor.
I like how nuanced the moxie.org article was, compared to this one.