Max Hasselhoff’s Guide to Making Sense of the Cryptospace We find ourselves currently at a decisive moment in the history of cryptocurrency. We survived cryptowinter, the market is green, optimism is running high, corporations are scouting out territory and lawmakers are saber-rattling. Import is in the air. But it’s not alone. The winds of chicanery are blowing, both corporate and of the street-corner variety. While the concepts of cryptocurrency and blockchain have disseminated to the point that your average layman has an idea, vague as it may be, of what they are, these aren’t the easiest things to understand. Far from the way they are sometimes portrayed, the truth is that the technological and intellectual foundations of cryptocurrency are complex and not easily accessible to everyone. That they are not accessible to everyone is a result of two things. First, as mentioned above, is their complexity. Cryptographic and economic theory are not languages that everyone is fluent in. There is a relatively high knowledge threshold for people trying to break in, and if your interests don’t range beyond making a quick buck trading, chances are you aren’t going to want to put in the time necessary to acquire this knowledge. However, a high knowledge threshold is not the only obstacle barring the path to crypto enlightenment. Because the essence of crypto is fairly esoteric and most people get drawn into its orbit via its profit-making appeal, crypto has become a happy hunting ground for sowers of misinformation and for those who would make a profit off the work of others. In light of the current situation, I thought it would be apropos to write an article explaining what I consider the basic and true value of cryptocurrency to be, so that newcomers and people who cannot dedicate the time necessary for a thorough study of this subject will perhaps be able to see it in a more revealing light. With that being said, I am not all-knowing when it comes to crypto, nor am I a major figure in this space. I have just been lucky enough to wander around this territory, and get acquainted with the features that give it shape, as part of my work. In the hopes that what I’ve been able to scrape together in my travels may be of use to others, especially those trying to make sense of what cryptocurrency really is and how this technology got to where it is now, I’d like to share here some of the basics, the way I see them. To do that, I will try to translate the sophisticated technological forms that this field comprises into something more living. Hopefully, in the process, some things will be illuminated which before were obscure, and a further curiosity will take shape, together with the desire to actualize as much as possible the potential that lies abundant in cryptocurrency. What is cryptocurrency? To understand why cryptocurrency is useful we have to start at the beginning, with an understanding of what it is and what function it performs. At its base, cryptocurrency is a digital asset secured by cryptographic proofs. Any exchange of this digital asset is recorded on a blockchain or a similar distributed ledger system. The cryptographic proofs and the distributed ledger scaling system make it so that the digital assets are only accessible to individuals with the appropriate cryptographic keys, and the verification and recording of transactions takes place as an automatic and secure function of the system, without the need of a centralized approving authority and resistant to manipulation by outside parties. What does that mean? To most people, cryptographic proofs and decentralized ledger systems are difficult to understand on their own. In an effort to avoid getting lost in the dark wood of technical terminology, I’d like to provide a historical frame of reference that may help illuminate what cryptocurrency is. Caesar in the Temple The ancient Romans believed that their distant ancestors lived in a golden age in Italy ruled over by Saturn, and characterized by abounding wealth and prosperity. As a result, Saturn always occupied a seminal place in the Roman Pantheon, a place connected to material well-being, both of the state and of the individual. In the days of the republic his temple was used as the state treasury, where all of the state’s wealth in precious metals, coins and financial records were held. This changed in the Roman civil war when Julius Caesar needed a way of supporting his war effort against Pompey. Caesar marched his troops through the forum and demanded the doors of the temple be thrown open and the riches turned over to him. The screech of the doors when they were pried open, echoing off the Tarpeian Rock, was recorded by the poet Lucan as the dying fall of the Roman Republic, the moment in which Caesar became richer than Rome. Much has obviously changed since then, but this can be a helpful way of visualizing what cryptocurrency is. The value in the temple consisted in precious metals, coins, and transaction ledgers that recorded debts and other vital financial information. In comparison, cryptocurrency has no physical value stores. As a digital asset, it consists of identifying information that cannot be modified. There is a limited amount of bitcoins, and they are unique and easy to verify. Like the gold in the temple, only bitcoins are not confined to space. On an online forum in 2009, Bitcoin creator Satoshi Nakamoto identified what he considered the biggest issue with traditional currency, “The root problem with conventional currency,” he wrote, “is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.” Bitcoin first appeared in January of 2009, as the Great Recession was in full effect, wreaking havoc on national economies and personal finances. The following text was written into the Bitcoin genesis block, “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” Besides time-stamping the dawn of Bitcoin, the text, which was taken from a headline featured on the front page of that day’s edition of the Times, provides a clue as to what Satoshi was trying to accomplish by creating Bitcoin. That the banks, who were, by anyone’s estimation, in no small part to blame for the economic fallout occuring at the time, would require a second bailout after their first one failed, is surely a problematic sign. There was little accountability taken by the banking system; they were playing with house money the whole time, while the average people were left out to dry. In the forum post we quoted, Satoshi identified the linchpin of traditional finance as trust. This trust takes various forms, but it can generally be boiled down to a belief that financial institutions can be relied on to act responsibly in their office. By the time Bitcoin was launched in 2009, that trust had been fundamentally shaken. It turns out that once Caesar—whether wearing a toga or wearing a suit—has access to the temple, he then proceeds to dispense with the assets inside as he sees fit. The modern banking system runs on trust in centralized authority, a trust in Caesar, a trust that he won’t use your money for unseemly ends, a trust that he’ll be willing to give you what is yours when you come asking, etc. The start of 2009 turned out to be a pivotal moment, not only due to the economic situation, but because circumstances had coincided in such a way that the center could no longer hold. Aided by the radical and democratic changes the ascent of the internet was making to the way we interact and view each other, the birth of cryptocurrency was predicated by the mortal blow trust in institutional responsibility was dealt at the hands of the recession. Bitcoin was an attempt to harness the capabilities of the digital space to remove Caesar once and for all from the temple. This was realized by dematerializing the temple: with cryptocurrency it was discovered that the temple of Saturn could be within you, or at least the keys to the temple could be. And this could be true for everyone involved; everyone could have their own keys and exclusive control over the movement of their assets. Digital Rome Now, keeping Bitcoin as our model cryptocurrency, there is another aspect that should be addressed in terms of its defining properties. As examined above, Bitcoin was intended as a means of establishing a type of financial sovereignty for the individual. However, the only way that this can be achieved here is via a collective. Bitcoin is in essence a peer-to-peer network that is linked together through user machines and protected by cryptography. The backbone of the p2p network is its miners. Bitcoin mining accomplishes three things: the issuance of more bitcoins, the confirmation of transactions and the bolstering of network security. Because Bitcoin lacks a central authority, the only way more coins can become available is via a hash reward for processed transactions. Miners record transactions occurring on the Bitcoin network in their blocks. By doing this, transactions are verified via consensus without the need of a centralized authority. The more people doing the verification, the more secure the system becomes, as it technically would require over 51% of the network hash power to reverse a transaction, and the more spread out the network gets, the less hash power is concentrated in individual places. To help visual this, the network can be seen as a digital, pre-planned city; a digital Rome waiting to be built. The miners are the builders who turn ideas and transactions into digital infrastructure and embattlements, and who get financially rewarded for their work. Citizenship in the digital Rome is open to everyone. Stepping beyond Bitcoin now, there are many other cities in this space. However, Bitcoin was the first city of its kind, and therefore it is the eternal city; the city by which others are measured. Just as cities and states claiming to be the “new Rome” has been a motif of world history, the short history of cryptocurrency has seen its fair share of new currencies aspiring to the throne. Some currencies have legitimate claims, as they offer improvements on what was laid out originally or represent something new that can be of use in this space, most, however, do not. It is the task of everyone in this space to separate the crypto wheat from the crypto chaff. How can you Distinguish a Good Project from a Bad One? As noted at the start of this piece, there has been an influx of new people and new projects into the crypto space. Such robust grow and cash flow can be disorienting, even to people who have been here for a long time. In the interest of simplification, I think that there are two effective measures that can be used to evaluate a project on its own merits. The first is the value of a project as it currently exists, the second is the value of a project’s potential, or the way in which it could exist in the future. Let’s return to Bitcoin. We have seen what Bitcoin is. There is value in Bitcoin as a means of attaining a measure of financial sovereignty, as a means of paying for goods or services and as a reliable architecture upon which others can build. This is how Bitcoin exists now. But we live and work in a time and a sphere that is subject to rapid and transformative change. Accordingly, we must preoccupy ourselves with the way things will be. What Potential Does Cryptocurrency Have? Much of the excitement generated regarding crypto projects in the media stems from a collective anticipation of the other shoe finally dropping. What I mean by this is that people get most excited for projects that have the potential to cross into the mainstream in some way, perhaps as a means of paying for coffee, as a tie-in to a social media platform, a bridge connecting Wall Street with blockchain, etc. The enthusiasm behind projects like these is understandably mercantile. Cryptocurrency is, by its nature mercantile, but this does not encompass all of its aspects, as we have looked at above. By overvaluing its purely mercantile aspect, people often evaluate cryptocurrency in a way that neglects much of its intrinsic value in favor of profit margins. To get a proper sense of the worth of cryptocurrency, we have to see it in a sense that extends beyond its most material functionality, that is, we have to establish what its true virtue or value consists of. The True value of Cryptocurrency Rather than going about this backwards, i.e.; how can cryptocurrency be incorporated into the economic and social structures in place now, we need to orient ourselves in accordance with the original vision of cryptocurrency as it was laid out by Satoshi. We have established what cryptocurrency is and why it was created, but now we have to examine where it is going. Cryptocurrency, together with its underlying blockchain ledger system, constitutes one of the three technological sectors of development that are most radically changing the world. The other two are artificial intelligence and the internet of things. In an academic published earlier this year, Dr. Tim Weingartner, a professor at Lucerne University, looked at these three industries and the structures being built by them and concluded that these three elements were at the core of what he termed “the digital twin.” paper The digital twin is a digital mirror of reality that is expanding rapidly. As we move forward in time and our devices and networks become more advanced and complex, more and more of our activity is moving from the physical world into the digital. AI, IoT and blockchain are so significant because they are structuring this new reality. The IoT takes the physical objects of this world and produces corresponding digital entities. AI in turn produces artificial beings that can interact with the digital entities in a way comparable to the way we interact with physical objects in the physical world. The blockchain is the ledger book of interactions that occur in this space, its collective and incorruptible memory, which, if the digital twin is going to operate in a structured manner, is a necessity. Digital Ark We are not at the point yet where the digital twin has taken precedence over the physical, but to a certain extent this is inevitable. We are living through a changing of the guards, a shift into a new age. Throughout history, moments like this have been times of upheaval wherein societal and financial structures have been rearranged. What makes cryptocurrency so remarkable is the ability it has to serve as a ladder from the physical to the digital. Using blockchain and tokenization, value that exists in this world can be securely transposed onto that of the digital. To help visualize this, think of the biblical flood story. Noah’s ark was the link from the old world to the new. In the ark were gathered the animals, plants and treasures of the world. Through the cataclysm of the waters, a regeneration occurred, and via the ark, what was of value was preserved from one epoch to the next. As a decentralized means of validating value, the potential virtue of cryptocurrency lies in its ability to operate as both an incorruptible ledger system for the emerging digital reality and as a digital ark, preserving and transposing value from the physical to the digital. Decentralized The problem is that this only works in a decentralized paradigm. If power is centralized in cryptocurrency, it can offer little in the way of advantages over traditional banking. This should be stressed in the crypto community as we take in more newcomers, and more and more corporations start circling above. We’ve found our best shot at ridding ourselves of centralized financial power. It is my view that, as an industry, we should reorient ourselves in accordance with the original value Bitcoin—and, by extension, cryptocurrency as a whole—was intended to possess, a value that transcends price charts. In this way, distinctions can be made between projects that aim to further build up the infrastructure and defences of our digital Rome and projects that seek entry only to reestablish a new Caesar in the digital temple. The development and support of the former will be key to our collective ability to make good on the original promise that set things in motion just over a decade ago.
