In the Beginning... I was running technology for Credit and Rates trading at MerrillLynch in January 2009 when Bank Of America completed its takeover. This had been formalized the in the fall of 2008 a day before Lehman Brothers declared bankruptcy and as Merrill’s stock was going into free-fall. For those unfamiliar with investment banking, “Rates” means government and semi-governmental debt and derivatives. “Credit” means corporate debt and derivatives, including the now-infamous credit default swaps (CDS). The takeover completed at the time the mortgage-driven crash was accelerating to its bottom. Perhaps not so coincidentally, January 2009 was when “Satoshi Nakamoto” posted version 0.1 of his software and the first Bitcoin was issued. Since I was a long-time reader/user of SlashDot and SourceForge, I  probably first read about Bitcoin at this time. Just as likely, I purposely ignored it since there was a lot of mixing of pseudo-political software evangelism that seemed a little too self-important for my tastes. I am certain, however, that the first time I really paid attention to Bitcoin was in 2011 when Gawker wrote about SilkRoad. For those who may not know, SilkRoad was the eCommerce website that specialized mostly in drugs, as in, heroin, opium, pot, hash, meth, guns, etc. Silkroad and its follower sites were the largest, deepest and possibly only users of Bitcoin at the time. The site was seized and shutdown 2 years later and the owner/operator, Ross Ulbricht, was captured, tried and sent up for both operating the site and soliciting murder for hire. At the time, I recall very clearly thinking that “Satoshi” must be horrified and that this was the end of that experiment. I was wrong, it seems. I was wrong because SilkRoad might easily be seen as the very manifestation of what he believed: no regulation, no government intervention, no right or wrong for the uses of money. It’s the Economics, stupid. The brand of economics and politics that “Satoshi” and most of his enthusiastic “followers” was very similar to that of the traders I worked with. This was a mix of libertarianism and explicitly or implicitly anti- “socialist”. Most of the traders I worked with shared similar views. They seemed mostly to come to their views as a mix of anti-regulation and masters-of-the-universe dispositions: they can hardly be lumped with haters of fractional reserve banking since that system provided their very rich livings. Still the convergence of these views and political tendencies aligns “academically” for both groups from an identification with the “Austrian” school of economic thought. For those who are unfamiliar with “Austrian” school, the holy quad of this school is comprised of Carl Menger, Joseph Schumpeter, Ludwig von Mises and Friedrich Hayek. Although they are somewhat heterodox, there are a number of features of their work that is shared and that appeals to crypto/decentralization believers. Primary and foremost of these shared beliefs is the belief in gold as a model store of value. This aligns with the real or assumed characteristics of crypto-currencies: transnationality, policy-immunity, and limited supply. Another reason why I observe that crypto-decentralization believers are most attracted to the Austrians is their clearly stated ideological orientation. This tends steeply towards individualism, laissez-faire governance and free trade. In their view, the less policy governance of an economy the better for freedom. Freedom for the Austrians meant the absence of economic “tyranny” in the form of socialism or communism or anything like it. It is easy to understand their view of “freedom” from context of the times and places they came from. The Austrians began writing and wrote most at a time when communism and socialism arose in their most menacing forms: National Socialism and Bolshevism/Leninism. And these theorists of “freedom” also notably came from places most affected by these twin evils. Somewhat paradoxically, however, none of the “holy quad” had any direct experience of liberal democracy except in their later careers when, apart from Menger, three of them fled to the USA and the UK. To complete the context and contrast the views of crypto-decentralization skeptics such as myself, the “opposing” school of economic theory is dominated by John Maynard Keynes and Paul Samuelson. The shorthand of this school is referred to as Keynesian economics. The other names that are applied to this school of economics are empiricism and econometrics. This strain of economic thinking arose in western capitalist democracies and came to dominate in these places along with the institution of fractional reserve banking, the bogeyman of Satoshi and others on the Austrian side. Apart from the institutions that are associated with Keynesians, the main feature of this school is the modeling, testing, applying, verifying, revising approach to economic governance. This means that government and economic management are empirical and active in trying to understand and solve the problems of everyday human society. These problems are defined very broadly as improving the general well-being. This outlook has an aversion to abstraction and widely generalized outcomes and political objectives, in contrast to the Austrians. Back to Schools. To further understand this, it’s important to reference the intellectual origins of the two schools. The Austrians come out of a long middle European history of teleological philosophy. Adam Smith’s “Wealth of Nations” and DesCartes rationalism were not their points of intellectual origin. For the Austrians, it was more Hegel, Schopenhauer and Marx. Whereas Smith’s and DesCartes’s starting points are rational and analytic, Hegel, Schopenhauer and Marx project an imagined perfect end state that is then theoretically reverse engineered. In addition, capitalism, ironically, was not the context where the Austrians’ theories developed, it was more the late feudalism of Kaiser Wilhelm’s Germany and the Hapsburg Austro-Hungarian Empire. In contrast to the Austrians, Keynes and Samuelson were from the oldest democratic and most purely capitalist political systems of the time. So how does this apply to crypto-decentralization proponents and the skeptical view? Just as libertarianism originated from political and social anarchists seeking to create a “perfect” or “freer” society for the individual by theory, decentralization proponents use similar terms and objectives. Whereas Keynesian economics and its practice is a matter of deliberate empirical economic decisions, building institutions and testing of a system’s projected benefits, the Austrians posit their theories of economic “freedom” and individual economic choice as necessary pre-requisites to economic outcomes. Even more, there is the widely shared belief that economic freedom equates to political freedom. This latter characteristic is deeply held in the crypto-decentralization community. At the same time, much of what comes out of this world frequently sounds both right wing and anti-authoritarian. The concerning feature of the targeting of  “authoritarian” institutions is, however, that they are almost exclusively western democracies. Although authoritarian governments such as China and Russia operate their economies using fractional reserve banking and other Keynesian mechanisms, none of these are targets for criticism of the decentralizers’ contempt. I will return to the paradox of this odd feature in more detail in a coming essay. The Formula For Success Now the crypto-decentralized world has a broad economic framework aligned with “freedom” via the Austrians, all that’s missing is some lower level mechanics. Enter Vitalik Buterin, the Economist. Buterin’s variation of Fisher’s Quantity Theory of Money stands out as the only attempt to explain crypto’s value from a usage perspective that goes beyond the heretofore facts: illicit activity as the foundation and crypto as an asset for speculation/investment multiplying demand. Buterin’s very self-justifying explanation of how ETH’s value is derived and behaves points at “utility” driven by usage on a platform, such as the Ethereum eco-system. The publication of this permitted a thousand whitepapers to bloom in the space. It seemed to provide a rigorous explanation of value and, in general, “neutralized” further the discussion of the actual underpinning of its value, SilkRoads v2.0 and speculation. Nevertheless, since this explanation has proven seriously inadequate (see ETH price excluding Apr_2017-Dec_2018), Vitalik the Economist has now come up with another variation based on prior economic research, “The Signaling Theory Model”. My basic assessment of this is that it seems like another attempt to continue the project of suggesting that usage on the platform ( ) explains the source of crypto value rather than demand for elicit activity and speculation. https://ethresear.ch/t/a-signaling-theory-model-of-cryptocurrency-issuance-and-value/1081 Back to the Future So, where are we? The future of Crypto and the vast horde of beneficiaries is still growing. Autocratic countries divide between those (mostly failed or failing states) where only the elite benefit from its availability and those, such as China, that can and will control or suppress it as their need requires. And China’s ability to do this by both law and internal control of the Internet is becoming a model for others. In the west, where most of the hordes of proponents still live, there is unending optimism and boosterism coupled with the belief that crypto is useful and protects against the “predations” of fractional reserve banking.  And, politically, decentralization opens up vistas of greater “freedom” at the same time, however, the institutions and models of political and economic governance that back the western liberal democratic order are most under attack by these same people. If anything is shared between the boosters in the west and the rest of the world, it seems to be an interest in undermining the western liberal democratic order. Lenin is quoted as saying that western democracies (aka capitalists) would sell him the rope with which he would hang this order. He was wrong, but is there a new side and a new rope? My next 3 articles will delve into the technical and practical issues of DDLT and token/crypto-economics. I am interested to start a discussion and would love to hear good reasoned criticism. It’s a journey, not a place.

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The Economic Ideology of Crypto and DDLTs (Decentralized Distributed Ledger Technology)

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