The great cryptocurrency heist

["Dave Farber" <farber () gmail com>]

Begin forwarded message:

> From: Dewayne Hendricks <dewayne () warpspeed com>
> Date: February 15, 2017 at 2:00:33 PM EST
> To: Multiple recipients of Dewayne-Net <dewayne-net () warpspeed com>
> Subject: [Dewayne-Net] The great cryptocurrency heist
> Reply-To: dewayne-net () warpspeed com
>
> The great cryptocurrency heist
> Blockchain enthusiasts crave a world without bankers, lawyers or fat-cat executives. There's just one problem: trust
> By E J Spode
> Feb 14 2017
> <https://aeon.co/essays/trust-the-inside-story-of-the-rise-and-fall-of-ethereum>
>
> On 20 July 2016, something happened that was arguably the most philosophically interesting event to take place in 
> your lifetime or mine. On that day, after much deliberation and hand-wringing, in the aftermath of a 
> multimillion-dollar swindle from his automated, algorithm-driven, supposedly foolproof corporation, Vitalik Buterin, 
> then 22 years old, announced the ‘hard fork’ of the cryptocurrency Ethereum. By making that announcement, Buterin 
> shattered certain tightly held assumptions about the future of trust and the nature of many vital institutions that 
> make modern life possible. He also really pissed off a lot of people.
>
> How? Well, to understand all that, first we need to talk about trust and its place in the fabric of our lives. Trust 
> seems to be in short supply these days, although we have no choice but to rely on it. We trust schools and 
> babysitters to look after our children. We trust banks to hold our money and to transfer it safely for us. We trust 
> insurance companies to pay us should we meet with some disaster. When we make a large purchase – such as a house – we 
> trust our solicitors or an escrow company to hold the funds until the transaction is complete. We trust regulators 
> and governments to make sure these institutions are doing what they are supposed to be doing.
>
> Sometimes, however, our system of trust fails us. There are runs on banks. People lose faith in currencies issued by 
> nation-states. People stop trusting their political institutions because of the chicanery, short-sightedness and 
> general incompetence of the self-interested clowns running the show. The response to this widespread erosion of trust 
> has been varied, ranging from Donald Trump’s (hypocritical) pledge to ‘drain the swamp’, to the promise of so-called 
> ‘blockchain technology’ and its associated cryptocurrencies.
>
> The blockchain is the key to understanding Buterin’s project. A good way to wrap our minds around the concept is to 
> think of its most famous application: Bitcoin. And the best way to think about Bitcoin is not in terms of coins at 
> all but rather as a giant ledger.
>
> Imagine a world in which we didn’t exchange currency, but kept track of who had what on a huge public spreadsheet, 
> distributed across the internet. Every 10 minutes, all the transactions that took place in that slice of time are 
> fused together into a single block. Each block includes a chain linking it to previous blocks, hence the term 
> ‘blockchain’. The end result is a universal record book that reliably logs everything that’s ever happened via a 
> (theoretically) tamper-proof algorithm. We don’t need to trust human bankers to tell us who owns what, because we can 
> all see what’s written in the mathematically verified blockchain.
>
> But Bitcoin is just one version of the blockchain. The fundamental technology has the potential to replace a much 
> wider range of human institutions in which we use trust to reach a consensus about a state of affairs. It could 
> provide a definitive record for property transfers, from diamonds to Porsches to original Picassos. It could be used 
> to record contracts, to certify the authenticity of valuable goods, or to securely store your health records (and 
> keep track of anyone who’s ever accessed them).
>
> But there’s a catch: what about the faithful ‘execution’ of a contract? Doesn’t that require trust as well? What good 
> is an agreement, after all, if the text is there but people don’t respect it, and don’t follow through on their 
> obligations? Which brings us back to the crucial matter of how Buterin managed to piss off so many people.
>
> In the beginning, Buterin was a hero to the crusaders against trust. In late 2013, at the age of 19, he wrote a 
> document, known as the ‘Ethereum White Paper’. In it, he observed that you could hypothetically use the blockchain to 
> store and execute computer programs – hypothetically, any computer program. This gave rise to Ethereum: a 
> blockchain-based platform that supported self-executing contracts. The commands to execute the contract were built 
> into the contract itself, and the contract was sealed into the (supposedly) immutable and universally visible 
> blockchain. No trust necessary. Or so the story went.
>
> This had extraordinary implications – one of which was that entire corporations could be encoded in the blockchain in 
> the form of ‘decentralised autonomous organisations’ (DAOs). None of the usual trusted business partners would be 
> required: employees, managers, human resources officers, CFOs and CEOs would be rendered otiose. No longer would 
> shareholders need to pay massive bonuses to hedge-fund executives ‘trusted’ to make decisions about our money. In 
> theory, at least, those executives could be replaced by a bundle of transparent, pre-set instructions stored in the 
> blockchain.
>
> About 11,000 people ponied up a total of $150 million to take part. What had they purchased, exactly?
>
> [snip]
>
> Dewayne-Net RSS Feed: <http://dewaynenet.wordpress.com/feed/>



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