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    508. Does the Crypto Crash Mean the Blockchain Is Over?

    en-usJune 23, 2022

    Podcast Summary

    • Launching a Model Rocket in Bryant Park: Tom Sachs on Art and Risk-takingTom Sachs' dedication to his craft and willingness to take risks serves as an inspiration for artists and creators. Pursuing passions, experimenting with new projects, and taking on challenges can lead to successful outcomes.

      Sculptor Tom Sachs discusses the unregulated and questionable practices in the art market, and takes us on a journey to launch his hand-painted model rocket in Bryant Park. Sachs' rocket launching project takes him all over the world, aiming to stay away from people as much as possible. Despite nerves regarding trees and people, the rocket launches successfully, demonstrating the importance of taking risks and pursuing passions. Sachs' dedication to his craft and willingness to experiment with new projects serves as an inspiration to other artists and creators.

    • The Potential of Blockchain Beyond CryptocurrencyBlockchain technology can revolutionize industries beyond cryptocurrency and should be considered for its long-term potential in transforming the way we do things. Look beyond the current Crypto Winter and see the future possibilities.

      Blockchain technology has opened up new possibilities such as the creation of trans-dimensional rocket factories that produce physical rockets representing NFTs. The technology also has the potential to fundamentally change the way we do almost everything and should be viewed through a long-term lens. While some people only associate blockchain with cryptocurrency, it has much broader potential. With a history of technological boom and busts, it's important to look beyond the current Crypto Winter and see the potential for blockchain in the future.

    • Crypto Believers: How Inflation-Prone Countries Have Changed the Investment Game.People in high-inflation countries have seen crypto as a way to protect their finances. This has led to significant investment in crypto by venture capitalists, and the invention of Bitcoin has sparked a new era in monetary policy discussions. Despite ups and downs, the potential for a stable and decentralized currency continues to attract believers.

      Investors who experienced hyperinflation in countries like Zimbabwe and Argentina have become believers in cryptocurrency as a way to protect against unstable currencies, leading to a significant investment in crypto startups by venture capital firms such as Andreessen Horowitz. The invention of Bitcoin and the blockchain in 2008 by Satoshi Nakamoto in response to financial instability sparked a new era in monetary policy discussions. Despite falling crypto prices and uncertainty in the market, the potential for a stable and decentralized currency continues to attract believers in the crypto community.

    • Arianna Simpson on the Fascinating Design of Blockchain Protocols and the Potential of Cryptocurrencies.Blockchain technology, driven by incentives, allows for new behaviors and offers great utility. Despite confusion and intimidation, cryptocurrencies have vast potential for transforming various sectors.

      Arianna Simpson entered the crypto industry in 2013 with the belief that blockchain technology had the potential to transform various sectors. Blockchains are incentive-driven systems that require a token to manage and coordinate different stakeholders. Cryptocurrencies are not state-run fiat issuance of money but tokens that are required to incentivize user behavior. These new units enable new kinds of behavior that were not possible before. Simpson believes that protocols designed to allocate scarce digital resources are fascinating and represent the best outcomes of blockchain behavior. Blockchain technology is expanding, and it holds great utility. However, confusion and intimidation continue to drive people away from crypto, despite its vast potential.

    • Why Tokens Are Essential in Blockchain TechnologyTokens incentivize participation in the blockchain system, which is crucial for its effectiveness. Blockchain is immutable and distributed, making it more secure and transparent than traditional ledgers. There are countless potential applications for blockchain technology.

      Blockchain technology is made effective through the use of tokens, which incentivize people to share their resources and participate in the system. Without the token incentive, a blockchain is just a database. A blockchain database is special because it is immutable, meaning that once information is added, it cannot be edited or deleted. Additionally, it is a distributed ledger, meaning that the ledger is stored on thousands of computers around the world and cannot be controlled by any one party. This makes it more secure and transparent than traditional ledgers, which are often controlled by a central party. The potential applications for blockchain technology are vast and include things like sharing resources, improving workflow, and ensuring the integrity of transactions.

    • How Blockchain is Revolutionizing Supply Chain ManagementBlockchain technology can provide a secure and transparent system for transactions, reducing disputes and saving time and money. Public permissionless blockchains can eliminate the need for a trusted third party and have the potential to transform multiple industries beyond finance and supply chain management.

      Blockchain technology can revolutionize supply chain management by providing a secure and transparent system of record for transactions. Walmart Canada's blockchain-enabled app reduced their freight invoice disputes from 70% to under 2%, saving them and their carriers time and money. However, it's important to note that private blockchains, like Walmart's, are different from public, permissionless blockchains, like Bitcoin. The latter allows for a trustless system of record, without the need for a trusted third party. Ultimately, blockchain technology has the potential to transform industries beyond finance and supply chain management.

    • Mining for Trust: How Blockchain Technology WorksBlockchain technology uses a competition called mining to maintain a trustworthy ledger. Miners compete by solving complex puzzles and are rewarded with new Bitcoins, making it a secure alternative to traditional financial systems. The process is resource-intensive but efforts are being made to make it more eco-friendly.

      Blockchain technology enables distributed and permissionless maintenance of ledger through an elaborate competition called mining. Miners compete to add new blocks to the blockchain by solving an intricate computational puzzle, with the reward being new Bitcoins. The incentive to participate in mining comes from the promise of being paid with significant prize money for winning the tournament. It is computationally difficult to manipulate the blockchain structure, making it a trustworthy mechanism for generating trust. The mining process consumes massive amounts of computing power and electricity, but the crypto universe is working towards making it more eco-friendly. Blockchain technology provides an alternative to traditional financial systems for generating trust.

    • The Pros and Cons of Bitcoin: Perspectives from Experts in EconomicsBitcoin's value is derived from its use in circumventing regulations and its speculative nature. Experts warn of a potential speculative bubble and a naturally occurring Ponzi process, while others suggest the need for a digital dollar.

      Bitcoin's value is grounded in its use case for black-market transactions and circumventing regulations, but a lot of its volume is speculative and there is a risk of a massive speculative bubble. Nobel laureate economist Bob Shiller warns of a naturally occurring Ponzi process where the bottom rung of the pyramid is at risk. Crypto enthusiasts believe in a bright future, but economist Eric Budish raises doubts. Former CFTC chairman Chris Giancarlo suggests the US needs a digital dollar and explains why cryptocurrencies have taken so long to behave like currency.

    • The Importance of US Leadership in CBDC Technology DevelopmentCBDCs are crucial for a new architecture of finance that allows the movement of value globally, instantly, without relying on intermediaries. The US must not surrender its leadership in developing this technology.

      Chris Giancarlo, the executive chairman of the Digital Dollar Project, emphasizes the importance of the United States not surrendering leadership in developing CBDC technology. He believes that CBDCs are a fundamental part of a new architecture for finance, money, and banking, referred to as the 'internet of value.' This architecture will allow the movement of anything of value globally, instantly, and without relying on intermediaries like banks and exchanges. CBDC technology is being explored by over 80% of the world's major economies. Giancarlo's call for Congress to take a 'do-no-harm' approach to blockchain technology in 2015 was due to a lack of recognition of its fundamental importance.

    • The Advantages of Tokenized Money System in CryptocurrencyCryptocurrency's tokenized money system can be beneficial for those without access to bank identity verification or for cross-border transactions due to its cost-effectiveness and lack of location restrictions compared to traditional bank money systems.

      Cryptocurrency or digital currency can be superior in certain use cases due to its tokenized money system, which does not require establishing identity, is not costly, and is not location-specific unlike bank money system. The bank money system, used by 90% of the world's money, requires identity verification for transactions and is slow, exclusive, and costly. Even though digital payment modes like Zelle, Venmo or credit card differ in their methods, they are still based on bank money. Thus, cryptocurrency or digital currency's tokenized money system can improve financial transactions for those who do not have access to bank identity verification or for cross-border transactions.

    • The Inclusivity and Cost-Saving Potential of CryptocurrencyCryptocurrency can provide a more accessible and affordable method for global transactions, benefiting both individuals and merchants. Even with slow adoption, its potential to transform finance is significant and should not be overlooked.

      Cryptocurrency can help increase inclusivity and lower transaction costs on a global scale. The current cost of moving money around the world is estimated to be 1-2% of global GDP, but through instantaneous cryptocurrency transactions, this cost can be significantly reduced. Additionally, merchants can benefit from cost savings of up to 3% in the US by accepting cryptocurrencies as payment. This can be a game-changer for small merchants where 3% could be the difference between profit and failure. Despite the slow adoption of cryptocurrencies as a payment method, their potential to revolutionize global financial systems cannot be ignored.

    • The Evolution and Challenges of Digital MoneyDigital money, including Bitcoin, has revolutionized transactions and information exchange. However, economic shortcomings and trust models present obstacles. Central bank digital currencies may help, but the finite supply of Bitcoin means transaction fees will become necessary.

      Digital money has transformed the way information is moved and transactions take place. Bitcoin, while being a good store of value, is not an ideal means of payment due to its memory-less trust model, making it economically expensive. The true costs of Bitcoin's trust model have not been acknowledged. Central bank digital currencies may solve some of the issues with current digital money. However, Bitcoin's limit on the number of coins that can be mined means transaction fees will eventually need to be used to pay miners directly. Digital money has come a long way since the days of FedEx deliveries, but challenges remain as it continues to evolve.

    • Bitcoin's potential as a currency and technologyWhile Bitcoin faces challenges as a currency, its potential as a technology is significant, with the emergence of crypto components in startups. Bitcoin is not just associated with illegal activities, but considered a legitimate technology company with top founders.

      Bitcoin may face challenges as a currency, with limited transactions per second and potential security risks, such as double-spend attacks. The computing power needed to prevent such attacks could cost as much as 4 percent of global GDP. However, proponents of Bitcoin suggest that it has evolved into a new way to build applications, with the potential for a crypto component to become ubiquitous in startups. While some still associate Bitcoin with fraudulent or illegal activities, it is considered a technology company, with founders coming from top universities and companies.

    • Why Arweave's Permanent File Storage is a Positive Use Case for Blockchain TechnologyArweave offers a real-world application for blockchain technology by creating permanent file storage that reduces reliance on a single infrastructure and solves the problem of broken links and missing information. As technology improves, so will its speed and efficiency.

      Investors like Arianna Simpson and Andreessen Horowitz have a vested interest in seeing a bright crypto future as it could lead to significant financial gains for them. However, Simpson believes that skeptics are overlooking the positive aspects of the industry. One such positive aspect is Arweave, a project focused on creating permanent file storage, which is a real-world use case and not just hype. Blockchain technology solves the problem of broken links and missing information by creating redundancy and decentralizing file storage, reducing reliance on a single infrastructure. While there are tradeoffs in terms of speed and latency, the technology is expected to improve over time.

    • The Uncertainties and Risks of Cryptocurrencies and Blockchain TechnologyCryptocurrencies may never become mainstream and their prices can be unpredictable. Blockchain technology is still developing and revolutionary uses are yet to come. The N.F.T. trend may not be a sure investment and more investigation is needed.

      Cryptocurrencies may never become traditional currencies and blockchain technology is still in its early days, with breakthrough uses being relatively unexciting. Cryptocurrency prices are subject to volatility and class-action lawsuits may soon follow. The N.F.T. boom may also be overhyped and the future of its worth is uncertain. The three-part series on blockchain technology and cryptocurrencies will continue next week, digging into whether N.F.T.s are a big scam.

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    -----

    The corresponding blog post with links and images:

    https://www.michaelcaloz.com/2021/05/04/cryptocurrency-part-3-how-the-blockchain-keeps-running-where-new-bitcoins-come-from-i-e-how-mining-works-and-concerns-about-bitcoins-environmental-impact/