“ There is nothing about Bitcoin that makes it a good store of value.”

Written by 00AaronFernando | Published 2018/06/11
Tech Story Tags: bitcoin | cryptocurrency | blockchain | btc | emin-gün-sirer

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Emin Gün Sirer of Cornell created a virtual currency that predated Bitcoin. In an interview, he talks about the problems & potential of blockchain, energy consumption, and new consensus protocols.

Emin Gün Sirer is a computer science professor at Cornell University and co-director of The Initiative for Cryptocurrencies and Contracts (IC3). Sirer created a P2P proof-of-work digital currency (Karma) that preceded Bitcoin by six years, has played a significant role in the development of core consensus protocols, and has previously alerted the cryptocurrency community of previously-undetected security flaws in various protocols.

I spoke with Sirer in his office about increasing blockchain adoption in the general public and how groups within the crypto-space have changed their ideas around the immutability of code as these systems continue to evolve to solve real social needs and issues.

Sirer talked about his concerns about the low level of decentralization in Bitcoin and Ethereum, the enormously wasteful energy consumption of proof-of-work systems, and about a pseudonymous-published whitepaper about a new class of consensus mechanisms that could make blockchains much more efficient. He also spoke about hurdles to widespread public of blockchain tech and how he hopes blockchain projects will directly address the opaque business practices and existing entities that led to the 2008 financial crisis.

This interview has been edited for length and content. The full interview, about twice as this piece is available here, exclusively for Medium members.

Aaron Fernando: To start, I want to get into your background — the stuff that got you interested in this field in the first place.

Emin Gün Sirer: My foray into cryptocurrencies started with peer-to-peer systems. Around the time when Napster came out, there was a big problem in how to construct healthy peer-to-peer systems. It appeared that most people would just join the swarm of people sharing things. But they would take, and they would not give.

That’s very common in human societies, that’s what people do. And so there were lots of different solutions to this problem, it’s called leeching… among the wider population it’s known as The Tragedy of the Commons: when you take things from society without contributing back in return.

So, BitTorrent was a response to this. In BitTorrent, there’s a barter economy. You give me a block and I’ll give you a block.

My solution was, Look BitTorrent may or may not work. It’s much better if we give people a currency. So, why don’t I invent a currency that can be created out of the thin air — it’s worthless — but you can use it for swapping blocks. So to get a block, you have to pay me in this currency and then to get the currency you have to provide blocks to other people. That’s what begat a system called Karma. It has proof-of work. It came six years before Satoshi did.

When Bitcoin came along, my initial reaction was let’s take a look at this, let’s see what’s going on, let’s understand at its security properties. So we did this work with Ittay Eyal, [titled] Selfish Mining and I found that a lot of the things that people say about Bitcoin were not true.

It wasn’t secure under the conditions that they thought it was secure. And we characterized when it’s secure what had to be done to keep it secure and we also gave them patches against people who might do selfish mining. And then I worked on security and scalability and so forth. The rest is a ton of work that happened afterwards.

What specifically got you involved and interested in the currency usage of blockchain?

Computers came onto the scene maybe thirty, forty years ago in mass. They’ve been around for longer than that, but [that’s when] they were accessible to a wider audience. And they made inroads into various different industries and sectors. They made inroads into science. But business did not really adopt them and Wall Street really did not adopt them. If you look at the history of banking, ok fine, they have databases. But they didn’t really know how to make connected machines work. So what is being referred to as [the] blockchain revolution — it’s really that process of figuring out how to make computers work in a setting where people distrust each other.

Also, we all lived through the 2008 crisis… That made everybody into, necessarily, and expert in the economy. Bitcoin was a reaction to the craziness of those times, [with] the way it dealt with money supply, and so forth.

I’d like to go on a slight bit of a tangent, and this is important. There are multiple different ways of doing things in computer science. And these ways… the only way to describe it is ‘aesthetics’ is the right word. You can build really complex, clunky monolithic, closed software — and we have systems like this. The most well-known one (people who are over the age of 60 will know this) is an operating system called Multics. It’s clunky, it’s big, and it did everything… and then, there is this other aesthetic, exemplified by a system called Unix. That’s where everything is a small tool, they mesh together, you could see the output of every tool and you could check things and so forth.

So part of what’s going on is that second aesthetic being brought to bear to Wall Street. These guys were building really complex, really opaque structures. Nobody could tell what the hell was going on behind the scenes, except on the occasions they fail. If you look back, on average every eight years these guys fail.

In its current state, what do you think needs to happen — and maybe isn’t happening — to provide the groundwork for adoption by non-technical people?

That’s a great question. Almost everybody else you’ll talk to will tell you, “Oh it has to be more useable. We have to have wallets that make it easier.” That’s all true. But let me tell you about two things that they will not tell you that I think are essential.

Number one: the architecture of these systems is incredibly complicated. Therefore, I don’t believe it’s a matter of just [putting] a thin veneer in front of the user. I don’t think the usability problem stems from the lack of bad wallet software — which we have. We have bad wallets. But I don’t think we can possibly have good wallets over the systems that exist today. They’re too complicated.

You definitely need to understand the concept of mempool if you’re going to be dealing with bitcoin. You can’t just pay with bitcoin. It might look like you did, but at the end of the day, somebody will check to see if your transaction was committed into the blockchain or whether it got stuck in the mempool — that’s a phrase, and every bitcoin user knows what that phrase means because they have to. It’s part of the architecture. There’s no using bitcoin without knowing it.

So that’s problem number one: the architecture has to get simplified. Problem number two is the social frameworks — the social architecture around these systems has to change. That current social architecture right now, is based on hodling. It’s based on holding your coin and riding its inevitable rise to the moon and finding other people to buy into your coin and getting rich by selling to them and so forth. That’s a terrible way to be and the sooner we get out of that mode the better.

Is there any trend you find worrisome in any of the ecosystems today?

Today what I’ve been thinking about — and quite a bit for the last few weeks — is the energy consumption in proof-of-work systems.

I think one of the reasons the [some have] shied away from coins like bitcoin and other proof-of-work based coins is that they are not sustainable. They end up consuming a lot of energy. How much energy? Well, Bitcoin’s consumption alone is the same as all of Denmark’s. If you want to visualize exactly what that is, it’s about two giant nuclear reactor’s worth.

And it’s not the case that the energy used for Bitcoin comes from sustainable sources, exclusively, anyway. So some people have said that this is a way for China to export coal over the internet. They burn the coal in China, they pollute the air there, they mine/ manufacture these bitcoins that they sell to westerners who then use it for hodling or whatever else.

This is not a good way to run any system and these miners are not really providing a high degree of decentralization. We did a recent study that was published in the last nine months or so that examined decentralization in Bitcoin and Ethereum. It found that Bitcoin has, essentially — roughly speaking — about nineteen mining entities. Pools and solo miners combined. So, nineteen of them is almost nothing. It’s not very hard to take those nineteen people and — the task that any one of these folks is carrying out is nothing that different from what you would be carrying out without any of the hardware.

We can build systems for nineteen people to cooperate and they will sequence transactions and validate them just as well as they do with mining hardware. So all that hardware is some kind of a race among the miners themselves, but the sum total decentralization they bring to bear is only nineteen. And three of them make up the majority of the hash power.

So you’re really buying into what in Bitcoin parlance is called three out of nineteen multisig. If those three people accept your transaction, then you’re in. And if they don’t, then you’re kinda out. (Sorry, I’m mistaken, I should’ve said four out of nineteen multisig for Bitcoin. It’s three out of eleven for Ethereum.) So the numbers are pitifully small, and we don’t get much decentralization, and the impact on the environment is huge so we very much need technologies that can make this entire process green.

So there are a lot of consensus mechanisms out there that are in the works…

No, there are not. There are many different whitepapers floating around but all of it comes down to two different approaches, plus a new one that was unveiled last week [May 16, 2018].

There are only two classes of consensus protocols out there. One of them is called classical consensus, and it was developed by people like Leslie Lamportand Barbara Liskov, both of whom have Turing Awards. In classical consensus, the core protocols work by defining who’s in the system — who’s a validator, who’s making decisions — and then agreeing when they’ve made a decision. They have a bunch of protocols deciding for exactly when a decision is committed.

They’re very fast, but as ­­­­I said they require that we know who’s participating. So they’re not usable for open currencies like Bitcoin, but they are used for permissioned blockchains. All of these company-oriented sector-based efforts — for example, when people talk about putting a supply chain on a blockchain — they are typically talking about using a permissioned blockchain, using one of these protocols. So that’s one approach. There are many different names that it goes under — HyperLedger, Tendermint, DPoS, Delegated Proof of Stake, Proof of Stake — all of these different approaches fall under that category.

And on the other side, you have Nakamoto consensus, invented by Satoshi himself. Those are the only two, or those were the only two until last week [May 16, 2018] when a new paper was released and it came out with a third way of doing things. The paper is called “From Snowflake to Avalanche” and it describes three protocols: Snowflake, Snowball, Avalanche and they have a very curious property. They combine the best of Nakamoto consensus with the best of classical.

In Nakamoto Consensus, of course, it’s all open. Anybody can join. You don’t need to get permission because I don’t need to know who’s participating in the system. Nobody needs to know. You just kind of solve a crypto puzzle and you end up owning some coins. So that’s lovely about Nakamoto Consensus, except it’s not green, it’s not sustainable.

There are also inherent performance limitations. These blocks need to come only so often — say, every ten minutes — which means that your transaction is not in the ledger for ten minutes. And there’s a particular throughput, for Bitcoin it’s only three transactions per second. So this new protocol family — from Snowflake to Avalanche — upends all of this. It says, “Look, we can combine the best of the two. We can give you quick finality, high performance, without having to know who all is in the system, but we approximately agree that’s great. We don’t need to precisely agree.

We can make it work without any of this non-sustainable proof-of-work mining. We don’t have to burn energy if there’s no decision to be made. It’s a quiescent protocol. So this, I think, is groundbreaking and it’s completely going to change the scene in two years to come.

But you could have a situation in which this situation in which the demand continues to rise and the valuation continues to rise, and then it won’t be the transactional velocity that keeps [the value of Bitcoin up].

Let me very clearly try to delineate why the store of value narrative is incredibly dangerous when applied to cryptocurrencies.

When it comes to these online currencies, they’re really all a bunch of funny numbers. There is nothing inherently valuable about them. Nobody will want any of these funny numbers and all of the these funny numbers are fungible — they are about the same. So if you have Bitcoin vs. Bitcoin Cash vs. whatever else, those things are not all that different from each other in the function they serve. So there is nothing about Bitcoin that makes it a good store of value. That line of narrative is incredibly dangerous. It has been used to sell Bitcoin to the masses who don’t understand where that value is going to come from.

That value can only come from other people buying into the system. And so what you’re really doing is you’re betting on somebody else coming in. You’re betting on riding the adoption curve upwards. At some point, there will be no more people to jump into this system and it’s very, very similar to an inadvertent pyramid scheme — without a single beneficiary. So essentially what’s going on is in a distributed, decentralized fashion, these people are trying to jump into the coin early to benefit from people who jump in late.

That’s no good way to make money. It’s not societally good, it doesn’t produce actually value in a tangible form, it doesn’t make anybody’s life better. These coins are useful when you can send them across the internet, when they serve as a payment mechanism. The coin that you hold and don’t spend — can’t spend (or can’t spend without paying exorbitant fees) is a worthless coin.

What do you see as the non-financial use-cases that are most primed to take hold, and what ones are you most interested in and excited about?

I mostly work at the infrastructure layer, so I’m application agnostic. When I do research, most of my research is something that is applicable to all blockchains across the board.

Having said that, I am most excited about blockchain applications in insurance, because insurance companies are opaque, monolithic beings and they tend to go under. You can’t really see what’s going on inside them. The regulation around them is cantankerous to say the least. So that is ready to be disrupted. Those monoliths will find themselves facing an existential crisis unless they adapt.

I’m also very excited about this new idea that we are calling autonomous blockchains, where two people can engage in secure communications and secure data sharing without recourse to a public blockchain — without having to make any of the information public and without a private blockchain, either, without having to designate third-parties to hold their data. So you and I, or me and anybody else who is part of the system can start running nodes that we ourselves cannot tamper with. That provides the necessary basis for trust. That provides auditability and transparency that we seek in blockchains.


Published by HackerNoon on 2018/06/11