Moxie Marlinspike: “My first impressions of web3”

Instead of storing the data on-chain, NFTs instead contain a URL that points to the data. What surprised me about the standards was that there’s no hash commitment for the data located at the URL. Looking at many of the NFTs on popular marketplaces being sold for tens, hundreds, or millions of dollars, that URL often just points to some VPS running Apache somewhere. Anyone with access to that machine, anyone who buys that domain name in the future, or anyone who compromises that machine can change the image, title, description, etc for the NFT to whatever they’d like at any time (regardless of whether or not they “own” the token). There’s nothing in the NFT spec that tells you what the image “should” be, or even allows you to confirm whether something is the “correct” image.

So as an experiment, I made an NFT that changes based on who is looking at it, since the web server that serves the image can choose to serve different images based on the IP or User Agent of the requester. For example, it looked one way on OpenSea, another way on Rarible, but when you buy it and view it from your crypto wallet, it will always display as a large 💩 emoji. What you bid on isn’t what you get. There’s nothing unusual about this NFT, it’s how the NFT specifications are built. Many of the highest priced NFTs could turn into 💩 emoji at any time; I just made it explicit.

After a few days, without warning or explanation, the NFT I made was removed from OpenSea (an NFT marketplace):

Moxie Marlinspike

I saw this pointed out elsewhere as well – that a NFT is merely a link to a file, and while the link may be ‘crypto-secured’, the file itself may change at any point in the future and you’d be left holding something else than you originally ‘bought’ – but I think it serves to underline that the whole premise of NFTs is a massive scam. In the flurry of reporting about this latest craze, it’s easy to lose perspective – keep in mind that more people own items in Second Life than own NFTs. The article also explores the poor privacy of the protocols and the increasing centralization around a couple of companies that others use to interact with the blockchain – and recent news about a database outage at OpenSea confirm this covert centralization. This whole system feels like a ticking bomb of speculation and absurdity waiting to burst.

Motherboard: “SpiceDAO Roasted for Spending $3.8 Million on Jodorowsky’s ‘Dune’ Book”

For months now, members of the SpiceDAO—a decentralized autonomous organization dedicated to buying and developing projects based on Jodorowsky’s vision—have been ecstatic about the possibility of buying the pitchbook and finally bringing Jodorowsky’s unfulfilled vision to the public. Jodorowsky, who directed surrealist films such as El Topo and The Holy Mountain, was at one time slated to direct the film adaptation of Dune, but the wildly over-budget project died and the creative work allegedly went on to inspire sci-fi film for decades to come. Jodorowsky’s struggles making Dune were rehashed in the 2013 documentary Jodorowsky’s Dune.

Over the weekend, SpiceDAO reminded the internet that it won the auction in November and had plans to make the book public (to the extent permitted by law) as well as create an original animated limited series inspired by the book to sell to a streaming service and derivative projects from the community. It was quickly and widely ridiculed.

One such derivative project proposed on January 14th featured burning the book to enhance the value of NFTs made from images of its pages. In the group’s forum and DAO, this particular proposal has become a lightning rod for a host of arguments over whether this (and the rest of the project) are legal considering SpiceDAO doesn’t actually own the rights to the contents of the book, just the physical copy.

Edward Ongweso Jr

The initiatives arising from Bitcoin mania are becoming increasingly bizarre and dumb. It’s almost fascinating to watch this level of idiocy unfold – if not for its gigantic carbon footprint. ‘Jodorowsky’s Bible’ is in fact available online for a couple of years, so I’m not sure burning their copy would increase the value of digital scans – it will likely increase the value of the remaining physical copies though.

The Guardian: “The disastrous voyage of Satoshi, the world’s first cryptocurrency cruise ship”

The difficulty in starting a new form of government, said Friedman, was simply a lack of space. All the land on Earth was taken. What they needed was a new frontier, and that frontier was the ocean. Let a thousand nations bloom on the high seas, he proclaimed, with Maoish zeal. He wanted seasteading experiments to start as soon as possible. Within three to six years, he imagined ships being repurposed as floating medical clinics. Within 10 years, he predicted, small communities would be permanently based on platforms out at sea. In a few decades, he hoped there would be floating cities with millions of people pioneering different ways of living together.

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The final entry on the FAQ page, regarding the possibility of having pets on board, gave a bracing insight into the tension between the idea of freedom and the reality of hundreds of people closely cohabiting on a cruise ship. The answer linked to a separate document, containing a 14-point list of conditions including one that declared no animal should exceed 20lbs in weight, and any barking or loud noises could not last for longer than 10 minutes. If a pet repeatedly disturbed the peace – more than three times a month or five times in a year – it would no longer be allowed to live on board. Any pet related conflict, instructed point 13, shall be resolved in accordance with Section V (F) of the Satoshi Purchase Agreement or Section IV (F) of the Satoshi Master Lease, where applicable. Dogs would only be permitted in balcony cabins, and it was advised that owners buy a specific brand of “porch potty”, a basket of fake grass where your pet could relieve itself. (Pet waste thrown overboard would result in a $200 fine.)

Sophie Elmhirst

This bizarre and unlikely story initially remined me of Jules Verne’s novel L’Île à hélice – mostly the general outline, as I read the book decades ago in my youth and I wouldn’t consider it one of Verne’s best works. But I doubt some of the characters mentioned throughout the piece ever encountered his books. One of them recounts how he used to work 17 hours a day – that doesn’t leave much room for reading, or anything else for that matter. If they had a more diverse education, maybe these people would reflect a bit on planning and consequences before launching such projects doomed to failure. The idea that a pocket of people could exist completely isolated from modern society and without a set of rules regulating the community is utter fantasy. By the end, I was happy to read that the cruise ship they bought survived this whole adventure and is awaiting better days for tourism, whenever the pandemic finally subsides.

Stephen Diehl: “The Intellectual Incoherence of Cryptoassets”

Crypto tokens are not all that dissimilar from equity investments in companies, except the underlying company has no business. This is strictly inferior than assets like stocks which either pay dividends from their revenue, buy back their own stock, or have mergers and acquisition events which introduce new cash in the system to reward investors for holding their stock. There are no fundamentals to any crypto token and it’s discounted future cashflows are all strictly zero and thus its present value must be strictly zero. It does not sell or do anything to bring in external revenue, it exists purely to grow the pool of greater fools to buy the token so that early token holders can be paid out by later token holders. There are no underlying cashflows in the enterprise by which to value the token. It’s effectively as if a penny stock company existed solely to pump, sell, and dump its own penny stock.

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Setting all these models aside, there are two far more coherent perspectives on the crypto assets that have far more explanatory power for the behavior we see. Crypto assets are the synthesis of a speculative mania and a financial scam built around an opaque technology, phoney populism, with a tolerance for intellectual incoherence at its core. And it is a novel type of a scam, one that we don’t have a precise term of art for. They share the obscured and circular payouts of Ponzi schemes, the cult-like recruiting of multilevel marketing schemes, the ephemeral nature of high-yield investment fraud, and payout mechanics of pyramid schemes but strictly speaking they aren’t exactly like any of the classical scams. They’re something entirely new that we don’t have a word for yet.

Stephen Diehl

Bitcoin: neither currency, nor commodity, vaguely similar to securities for an inexistent company with no business – and thus zero value – or an absurd work of art masquerading as something else… The second paragraph though captures the essence of Bitcoin perfectly.

CNBC: “‘Black Swan’ author Nassim Taleb says bitcoin is worth zero”

The author of “The Black Swan” said in a recent paper that the largest cryptocurrency by market cap has failed to satisfy the notions of it as a currency without government, as a hedge against inflation and as a safe haven investment.

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Taleb noted that in March 2020 bitcoin dropped further than the stock market and recovered with it upon the massive injection of liquidity. That’s sufficient evidence that it cannot remotely be used as a tail hedge against systemic risk, he said.

He said bitcoin tends to respond to liquidity and that it’s unclear what would happen if the internet experienced even a regional outage, particularly if it took place during a financial collapse.

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People also conflate the success of bitcoin as a digital currency with the success of bitcoin as a speculative investment. To be a currency would require it to have some stability and usability, Taleb said.

Tanaya Macheel

You don’t say? 😏

Bloomberg: “Sam Altman’s Worldcoin will give Free Crypto for Eyeball Scans”

With Worldcoin, the startup promises a new global digital currency that will launch by giving a share to every single person on earth, according to an online job description. The company aims to help economies transition to cryptocurrencies through a novel approach: a dedicated hardware device ensuring both humanness and uniqueness of everybody signing up, while maintaining their privacy and the overall transparency of a permissionless blockchain.

The device is a silver-colored spherical gizmo the size of a basketball that can be carried around and used to scan people’s irises in order to ascertain their unique identities, Blania said. Worldcoin has already started testing the orb on a small scale in various cities, he said. The Worldcoin currency itself is not yet ready for distribution, so the company is currently offering volunteers other types of digital coins, mostly Bitcoin, in exchange for scanning their eyes and giving feedback on the process.

The company has fewer than 20 prototypes in circulation around the world, Blania said. A prototype orb costs about $5,000 to make, but the price will decline steeply as the company refines the process, he said. Worldcoin will eventually be headquartered in San Francisco, though its employees are currently scattered because of the coronavirus pandemic.

Ellen Huet & Gillian Tan

To be filed under ‘ridiculous ideas from Silicon Valley billionaires’. I had to double-check if I read the size comparison correctly, because carrying around a basketball-sized sphere sounds absurd – and I still think (hope, even!) this is a typing mistake.

Jalopnik: “Tesla loses a Lot of Money selling Cars, but makes it all back on Credits and Bitcoin”

That second point is particularly interesting, as Tesla purchased $1.5 billion worth of BTC, announced that the company would begin accepting BTC as payment for its cars, which drove up the value of BTC, then sold enough BTC to make a hundred million in profit. Strange how that works, eh? Surely nothing untoward going on there. Not at all. DOGE TO THE MOON! #hodlgang

Without the $619 million in credits and BTC sales, Tesla would have actually managed to lose $181 million in Q1. In that time, the company shifted 184,800 3/Y units, and while it didn’t build a single X or S in Q1, it sold 2020 units from previously-built inventory. That means the company lost around $970 per car sold in Q1.

Bradley Brownell

Confirmation on the previous assumptions about Tesla’s reasons for investing in Bitcoin: short-term gains through speculation to offset losses from what should be its main business, electric car manufacturing. A loss of $970 per car sold does not seem very impactful though; compared to Model Y’s price of around $50.000, it represents only a 2% loss, so it should not be hard to overcome with increased efficiency.

Reuters: “Police seize $60 million of bitcoin! Now, where’s the password?”

German prosecutors have confiscated more than 50 million euros ($60 million) worth of bitcoin from a fraudster. There’s only one problem: they can’t unlock the money because he won’t give them the password.

The man was sentenced to jail and has since served his term, maintaining his silence throughout while police made repeated failed efforts to crack the code to access more than 1,700 bitcoin, said a prosecutor in the Bavarian town of Kempten.

John O’Donnell

A hacker illegally mines Bitcoin by installing malware on more than 300.000 computers, gets caught and convicted, but the resulting coins are inaccessible because the authorities confiscated the wallet and the fraudster won’t disclose his password (if he even remembers it)… Apparently it’s a perfect standoff: if he tries to replicate the wallet, the authorities can watch it for withdrawals, so the thief can’t realistically recover his stashed treasure. Previously, German prosecutors have sold a small portion of this stolen wealth for around 500.000 Euro, money that went to the local budget, but the rest remains impossible to liquidate.

Bloomberg: “The Tesla-Bitcoin Singularity is Here at Last”

The move raises the usual questions about Tesla’s governance. Apart from the speculative nature of it, the fact that CEO Elon Musk has been tweeting heavily about cryptocurrencies of late should ring alarm bells in whatever passes for Tesla’s boardroom. Not necessarily because anything untoward has happened, but it’s fair to say Musk has some history to live down when it comes to the tweeting. Giving authorities any reason to scrutinize Tesla is inadvisable. One has to wonder what a regulator might make of this tweet from just a month before the “updated” investment policy was approved, for example:

Bitcoin is almost as bs as fiat money

— Elon Musk (@elonmusk) December 20, 2020

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One way in which the foray into crypto certainly helped on Monday was taking the spotlight off some less exciting news. Tesla was recently summoned by Chinese regulators to answer complaints about quality and safety issues with its cars. China is crucial for Tesla because, as the 10-K also revealed, revenue in this growth company’s home market in the fourth quarter was still lower than two years previously.

Liam Denning

Elon Musk in a nutshell: funding a $100 million innovation contest to identify ways to remove and store carbon dioxide, while investing $1.5 billion in Bitcoin, a pseudo-currency with a massive appetite for electricity. Hypocrisy? Greed? Market manipulation? I’d say all of the above!

The New York Times: “Lost Passwords Lock Millionaires out of their Bitcoin Fortunes”

Of the existing 18.5 million Bitcoin, around 20 percent — currently worth around $140 billion — appear to be in lost or otherwise stranded wallets, according to the cryptocurrency data firm Chainalysis. Wallet Recovery Services, a business that helps find lost digital keys, said it had gotten 70 requests a day from people who wanted help recovering their riches, three times the number of a month ago.

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Through the years I would say I have spent hundreds of hours trying to get back into these wallets, said Brad Yasar, an entrepreneur in Los Angeles who has a few desktop computers that contain thousands of Bitcoin he created, or mined, during the early days of the technology. While those Bitcoin are now worth hundreds of millions of dollars, he lost his passwords many years ago and has put the hard drives containing them in vacuum-sealed bags, out of sight.

I don’t want to be reminded every day that what I have now is a fraction of what I could have that I lost, he said.

Nathaniel Popper

The future of money, indeed… If you lose the password and with it access to your Bitcoin wallet, does the money still exist? If all your assets are invested in Bitcoin, but you cannot spend your fortune, are you actually wealthy?

The New York Times: “Facebook and Telegram are hoping to Succeed where Bitcoin Failed”

The internet outfits, including Facebook, Telegram and Signal, are planning to roll out new cryptocurrencies over the next year that are meant to allow users to send money to contacts on their messaging systems, like a Venmo or PayPal that can move across international borders.

The most anticipated but secretive project is underway at Facebook. The company is working on a coin that users of WhatsApp, which Facebook owns, could send to friends and family instantly, said five people briefed on the effort who spoke on the condition of anonymity because of confidentiality agreements.

Nathaniel Popper & Mike Isaac

The messaging overhaul at Facebook continues, this time with more rumors of a coin for making personal payments. My first reaction was that this is bound to facilitate all sorts of illegal activity on a magnitude rarely seen before, from money laundering, to payments for drug and sex trafficking, even tax evasion. Leaving aside Bitcoin’s numerous problems, I find it very hard to believe that any respectable country would allow a private company to operate an independent, parallel financial system through encrypted messaging, which would make transactions virtually untraceable.

Motherboard: “One Bitcoin Transaction now uses as much Energy as Your House in a Week”

An index from cryptocurrency analyst Alex de Vries, aka Digiconomist, estimates that with prices the way they are now, it would be profitable for Bitcoin miners to burn through over 24 terawatt-hours of electricity annually as they compete to solve increasingly difficult cryptographic puzzles to “mine” more Bitcoins. That’s about as much as Nigeria, a country of 186 million people, uses in a year.

This averages out to a shocking 215 kilowatt-hours (KWh) of juice used by miners for each Bitcoin transaction (there are currently about 300,000 transactions per day). Since the average American household consumes 901 KWh per month, each Bitcoin transfer represents enough energy to run a comfortable house, and everything in it, for nearly a week. On a larger scale, De Vries’ index shows that bitcoin miners worldwide could be using enough electricity to at any given time to power about 2.26 million American homes.

Christopher Malmo

If you needed yet another reason to stay away from Bitcoin, here it is: its enormous energy consumption is hurting the environment. By comparison, the entire VISA network uses 55 times less energy that all Bitcoin operations, while executing 1000 times more transactions in the same timeframe. In the long run, Bitcoin is clearly unsustainable without a major redesign of the underlying technology to make it far more energy efficient.

Great Wall of Numbers: “Eight Things Cryptocurrency Enthusiasts probably won’t tell You”

Simultaneously, despite the hundreds of millions of dollars raised by VCs and over a couple billion dollars raised through ICOs in the past year or so, not one entity has been created by the community with the power or moral authority to rid the space of bad apples and criminals. Where is the regulatory equivalent of FINRA for cryptocurrencies?²

Part of this is because some elements in the community tacitly enable bad actors. This is done, in some cases, by providing the getaway cars (coin mixers) but also, in other cases, with a wink and a nod as much of the original Bitcoin infrastructure was set-up and co-opted by Bitcoiners themselves, some of whom were bad actors from day one³.

Tim Swanson

Not a week goes by without a new story about some Bitcoin-related scam, theft or hack – not to mention, if you end up on the losing side of these fraudulent transactions, there’s no guarantee you’ll ever recover your investment. Everything I’ve read in the article above goes to confirm my initial reaction that Bitcoin is better suited as a tool for black market economy, not for open and legal exchange.

AVC: “Store of Value vs Payment System”

I share these three transactions with all of you to make a point.

And that point is that you can’t keep spending something that goes up as much as Bitcoin has.

So I don’t spend Bitcoin anymore.

I hold it.

It’s a store of value now.

That much is clear.

Fred Wilson

If it doesn’t circulate anymore, then Bitcoin is failing as a payment system.

Not that it ever worked like a proper currency anyway.

Reuters: “Cyber threat grows for bitcoin exchanges”

I am skeptical there’s going to be any technological silver bullet that’s going to solve security breach problems. No technology, crypto-currency, or financial mechanism can be made safe from hacks, said Tyler Moore, assistant professor of cyber security at the University of Tulsa’s Tandy School of Computer Science who will soon publish the new research on the vulnerability of bitcoin exchanges.

His study, funded by the U.S. Department of Homeland Security and shared with Reuters, shows that since bitcoin’s creation in 2009 to March 2015, 33 percent of all bitcoin exchanges operational during that period were hacked. The figure represents one of the first estimates of the extent of security breaches in the bitcoin world.

In contrast, data from the Privacy Rights Clearinghouse, a non-profit organization, showed that of the 6,000 operational U.S. banks, only 67 banks experienced a publicly-disclosed data breach between 2009 and 2015. That’s roughly 1 percent of U.S. banks.

Gertrude Chavez-Dreyfuss

For a technology that’s supposed to reinvent financial transactions and replace old-fashioned banks, Bitcoin has a lot of growing up to do.

Medium: “The resolution of the Bitcoin experiment”

Why has Bitcoin failed? It has failed because the community has failed. What was meant to be a new, decentralised form of money that lacked “systemically important institutions” and “too big to fail” has become something even worse: a system completely controlled by just a handful of people. Worse still, the network is on the brink of technical collapse. The mechanisms that should have prevented this outcome have broken down, and as a result there’s no longer much reason to think Bitcoin can actually be better than the existing financial system.

Mike Hearn

A protocol pretending to be a currency while not actually meeting the economical requirements, an experiment shunning proper decision structures in favor of anarchy and short-term interests – is there any wonder it stands at the brink of collapse?

The New York Times: “Decoding the Enigma of Satoshi Nakamoto and the Birth of Bitcoin”

Many concepts central to Bitcoin were developed in an online community known as the Cypherpunks, a loosely organized group of digital privacy activists. As part of their mission, they set out to create digital money that would be as anonymous as physical cash. Mr. Szabo was a member, and in 1993, he wrote a message to fellow Cypherpunks describing the diverse motivations of attendees at a group meeting that had just taken place. Some people, he wrote, are libertarians who want government out of our lives, others are liberals fighting the N.S.A., others find it great fun to ding people in power with cool hacks.

Nathaniel Popper

I admit I haven’t paid much attention to Bitcoin, I don’t understand how it works and why it should exist and this article hasn’t helped clarify these questions. The paragraph above caught my attention though: so the main ‘advantage’ is as anonymous as physical cash. The thing is, physical cash comes with a lot of downsides as well. It can be stolen much easier, because there is no verification that a certain person owns a certain amount of cash. It’s also an easy way to avoid taxes, since no central authority can control how much cash you receive or pay. This makes cash the preferred currency for the underground economy: prostitution, drug dealers, trading in illegal weapons and the list goes on. Bitcoin may sound good in an utopian anarchy, but in our real world I think it will do more harm than good.