So Crypto Andys like to hand-wave about the risk of a 51% attack but consider this:
> This is in addition to the long-standing concentration of Ethereum mining power, with normally three and sometimes only two mining pools controlling over 50% of the mining power.
There is further hand-waving about how Proof-of-Stake (over Proof-of-Waste) will magically fix these problems. But it's actually this PoW computing power that makes the network more resilient to hostile takeover.
I've heard it described that the attraction of Crypto is the essence of the American Dream: by getting rich by doing nothing while lauding how smart you are over other people. So much of Crytpo can be explained by Bitcoin FOMO. Everyone just jumps on the latest shitcoin or NFT because "I'm not missing out this time".
Ultimately something has to create value or it will come crashing down. The only use case we really have is illegal activity. Some of that is justified on ethics grounds (eg bypassing capital controls in Venezuela). A lot of it is just shady.
There's a ton of talk about the "potential". So far the offshots (eg NFTs, Web3) are just ludicrous boondoggles in finding problems for a solution. I have doubts this will ever create value for the masses.
NFTs, smart contracts in general, gaming, defi/lending/staking, DEX, DAO, Filecoin/IPFS, and a few more in itself are not illegal. You may consider them to be useless, but that's not the same thing as illegal.
Even if you scrap all that, there's the remaining core use case of speculation. Which in itself is also not illegal and an incredibly important use case, if not THE use case.
You may be frown upon speculation, look down on it, judge it anyway you please, but it does not change the fact that 100M+ people with an exponential growth rate are into it. I guess growing your money is popular, who would figure that.
The point I would like to get across is that instead of judging, you should have a deeper look at the WHY. Many people think that these risk takers are plain dumb, selfish, irresponsible. If only regulation would protect them against themselves.
That's not the situation at all. They're fully self-aware. They are young people born into an economy that is plain broken to them. Burdened by student debt, stagnant/unlivable wages, unaffordable housing, zero or negative interest rates, high inflation, no job security, unaffordable healthcare.
They barely get by and have no outlook of ever getting ahead, owning any asset or wealth, and the very simple goal of a basic middle class life has become unattainable.
In a backdrop that cruel, why not throw the little money you have into a shitcoin? It might do a 10x. It might also go to zero. Who cares? You didn't have any meaningful wealth to begin with.
And that is the appeal of crypto. It's not fueled by greed for the sake of greed, it's fueled by desperation. Nothing to lose, everything to win. Crypto is an asymmetrical bet, and the only one available to everyone.
You make a case for crypto speculation as the only way for youngsters to get rich. I'd like to point out that crypto is arguably a negative-sum game, ie only some can get rich, and only at the expense of others. This is in stark contrast to equity markets as a whole.
I didn't say it works for everyone, I explained why people take the risk, what the macro backdrop is for this behavior. It's quite disappointing that nobody engages with that point.
Further, getting rich at somebody's expense is business as usual for any asset, be they stocks, housing, metals, anything. It's a false morality to think that this is a behavior that "good" people widely reject. Absolutely everybody in a position to do so, will. Have you ever met a home owner that gives a social discount to his inflated house when selling? I don't think so.
> Further, getting rich at somebody's expense is business as usual for any asset, be they stocks, housing, metals, anything.
No, see, that's the point I am trying to make and that you are not getting. Housing and the economy as a whole are constructive activities that create value. Crypto is not, as far as I can tell.
No, capitalism is positive sum outside of a few edge cases where negative externalities are generated. Blockchain-based markets, being hyper-capitalistic, will, I suspect, prove to be positive sum as well.
> I guess growing your money is popular, who would figure that.
But… how is /everyone/ getting rich?
Crypto is provably negative sum. Someone has to lose money for you to make money. And miners, exchanges, etc are all middle layers that extract large %s of fees. Where is the extra value generated to be able to make everyone a profit?
A market enables you to trade more easily. And trade enables you to exchange something you value less for something you value more. That's the value gained. If instead of making a series of barter exchanges like a chain of quests in an RPG game, you can simply sell stuff you produce for money, and buy stuff you want for money, you gain time. Of course markets have their pathologies like speculation, and, it seems to me, unfortunately cryptos are mostly speculation.
I don't know what any of that means. How is self-awareness insulting?
Many young crypto proponents call themselves "degens" or "ape investors". Self-deprecating terms that give insight into their psyche: they know exactly what they're doing.
I think there's at least some value that can potentially be created. The fact that you can take out a loan or buy insurance and your counterparty is a smart contract is pretty interesting. It could seriously bring down insurance margins if you no longer have drones of people administering policies. Obviously remains to be seen how practical it is.
>The fact that you can take out a loan or buy insurance and your counterparty is a smart contract is pretty interesting.
No it isn't. I've been hearing this for years and I still haven't seen any reason anyone would actually want this, beyond the novelty factor. It's strictly worse than any other equivalent insurance or loan for a number of reasons, the worst one being that there's no human you can talk to when something goes wrong. If you think it's bad enough now when your bank has terrible customer service or your insurance company is fighting your claims, blockchains are like taking that a step further by making it technically impossible to provide any kind of customer service.
>It could seriously bring down insurance margins if you no longer have drones of people administering policies.
This sentence also makes zero sense. You don't need blockchains to replace insurance actuaries with an algorithm, insurance companies could already do that. Over the long-term they can't rely on this because the whole point of insurance is you constantly readjust your models based on risk which cannot be predicted. Once again I'm reading a cryptocurrency thread where everything is wrong and nothing makes any sense.
> the worst one being that there's no human you can talk to when something goes wrong.
The worst part is that for a DeFi loan, you need something like 200% to 300% collateral (look it up, it varies but is usually around that amount). This makes it less than useless for just about all reasons people now get loans. The whole point of a loan is that you're willing to pay extra over time in order to have access to more funds at the present. With DeFi loans, you pay extra over time and have less access to funds than you would have had without the loan.
It only really makes sense for crypto gamblers, who are hoping that their collateral has insane appreciation that will offset the downsides. If anything, DeFi loans are less like actual loans and more like crypto gambling partnerships where one partner takes a position with lower risks and rewards and the other takes a position of higher risks and rewards.
>The whole point of a loan is that you're willing to pay extra over time in order to have access to more funds at the present
No, that's not the point of these loans at all. They are the equivalent of remortgaging your home to get cash. If need money for renovation and you have a lot of equity in your house you can borrow against it. They are doing the same thing with crypto. They don't want to sell their crypto because they want to speculate on it and they need money so they use it as collateral.
I personably think it's a very stupid idea to invest in something like crypto on credit. Lending your crypto to these morons looks like a pretty good idea if you can trust that the smart contracts doesn't have bugs. You get a stable and guaranteed >5% without all the risks of the stock market.
> They are the equivalent of remortgaging your home to get cash.
It's actually the opposite of remortgaging a home to get cash. Remortgaging a home to get cash is paying a premium to increase the amount of liquid assets available to you; this is the point of most loans. A DeFi loan is paying a premium and _decreasing_ the amount of liquid assets available to you. As you said, it's useful for juicing speculation, worthless for anything else.
> You get a stable and guaranteed >5% without all the risks of the stock market.
I think the long-term risks are actually greater than something like an index fund, since your collateral is all in crypto. The returns are also less than historical index fund returns.
A DeFi loan is paying a premium and _decreasing_ the amount of liquid assets available to you.
No, because from their point of view the crypto they put as collateral is NOT liquid. the entire point is do not sell them but somehow get cash from it.
A number years ago I was unemployed for an extended period of time while working on open source projects, and I ran out of money, so I took out a loan to cover my expenses. I lived off this money for several months until I found a suitable job, and after some time I repaid this loan. This type of personal credit financing would cost a fortune in regular finance (try going to a bank and taking out a loan because you're broke and unemployed), but because I had digital assets to pawn I had access to a line of credit at a reasonable rate.
Without this option, I would have to either finance myself at a criminal rate, or accept a job I wasn't ready for. I feel I'm much better off personally from having this option available.
Outside the personal anecdote, I don't understand how it's difficult to see the utility in having digital goods of value. It allows all sorts of use cases, and using them as collateral for loans is just one. I have a harder time accepting that goods of value simply cannot be digital. If I look at the past 30 years of history, literally everything is turning digital; our consumption of entertainment, our work, our communication, social connections. What is the argument for having all things of value be either be a physical thing, or something controlled by some central authority? It seems like a "because that's how things have always been" sort of position.
> try going to a bank and taking out a loan because you're broke and unemployed), but because I had digital assets to pawn
"Broke" means you have no assets, thus you have nothing to pawn, therefore the loan would be unsecured. You COULD NOT have obtained such a loan via defi, and while you could have obtained one in the traditional finance system (which is strictly an advantage over defi...), it would be have been, yes, very expensive.
But you weren't broke! You had assets! The traditional finance system loves to lend money secured by liquid assets, does so all the time, and at lower interest rates!
> I don't understand how it's difficult to see the utility in having digital goods of value
...digital goods of value. Otherwise known as a number on a ledger somewhere, otherwise known as a bank account? Nothing in your story in any way depended on crypto/defi; every part of it is a normal, traditional part of the financial system. All crypto added here was higher costs and a worse UI.
Obviously I was not "broke" in the sense that I had no possessions of any value. With that definition nobody is ever broke unless they are naked with nothing left to sell other than their labor.
I had plenty of things of value, like a trading card collection, a personal computer, a phone. But no bank would ever accept any of these things as a collateral for a loan.
I could have sold things I owned, but I didn't want to lose any of the things I had collected over the years. Having access to digital things of value made it possible to take out a loan without having to sell anything.
You say crypto added higher costs and worse UI, but do you have any evidence for this? I was able to get a few months income on my bank account in less than an hour of work, at a rate that is more favorable than any mortgage rate currently offered by banks (with mortgage rates almost at an all-time low).
Digital value does not have to be limited to bank accounts, just like physical value does not have to be limited to cash. If I have other physical things of value (like collectible trading cards) I can trade these with other people directly or use them as collateral for cash loans with any third party. Why are digital things of value limited to bank accounts? If other digital things of value exist, and we have standardised interfaces for digital valuables, that enables incredible amounts of flexibility in financial transactions, such as using things I have as collateral for loans, without requirements for appraisal, risk assessment, fraud protections, etc.
If I had traditional financial assets I could have used those and use the traditional financial system to get credit, but I didn't have any of those. I had other things of value, and because they are digital, with standard interfaces, I was able to get credit, which I otherwise wouldn't be able to get.
I'm only offering some kind of anecdotal evidence here that some people do in fact get some utility from these things. To me personally, it was very convenient to have this option at the time. If I get into a similar situation in the future, I would use it again.
I think what you're missing here is that there's nothing about the fact this was crypto that matters. DeFi, at best, is getting you back up to the point the traditional finance system has been at for decades.
If you'd had a couple hundred $k of index funds in a brokerage account, you could have quickly and easily borrowed a significant amount of money secured by the shares at a very low interest rate. And yes, significantly cheaper than a mortgage. I think Interactive Brokers is charging well under 2% for a margin loan these days? (And under 1% if you have enough assets...)
> some people do in fact get some utility from these things
But strictly less utility than if you'd just bought non-crypto assets. Right?
Wait, are you comparing a personal loan backed by an asset versus an unsecured personal loan from a bank? That seems pretty apples and oranges to me. I think the right comparison would be a broker letting you borrow money against stock, something they do all the time.
Cheaply, too - some brokers are offering in the mid 1% for USD. I don’t know what defi collateral requirements and rates are like at the moment, but I suspect much more onerous and higher.
I don't understand what you're trying to say or what any of that has to do with cryptocurrency. "Digital goods" is a very broad category beyond cryptocurrency. Also I agree with the other comment here, that's not an unsecured loan. You used collateral to get it.
> there's no human you can talk to when something goes wrong.
This goes both ways. I may not want a smart contract for my life insurance, but I can perfectly imagine myself taking a lot of very small, very short insurances on mundane things because of the very low fee and hassle of smart contracts versus actually signing contracts and paying for the humans that will support it.
> I still haven't seen any reason anyone would actually want this, beyond the novelty factor. It's strictly worse than any other equivalent insurance or loan for a number of reasons, the worst one being that there's no human you can talk to when something goes wrong.
But people are using it, and (in the protocols I've seen) claims are handled jointly between an advisory board and community assessors, with a framework for appeals and community voting.
>claims are handled jointly between an advisory board and community assessors, with a framework for appeals and community voting.
So you mean like a company with a board of directors, shareholders and voting shares. I'm sorry I just I don't think that's very interesting, because companies already existed without blockchains and DAOs and smart contracts.
So it's still people doing the work, only the contract exists in a different type of database. I'm really missing something if that is supposed to be substantially different than the current relationship I have with my insurance company.
Although with my insurance company I at least know the assessor is qualified enough to look at pictures from a car accident and determine the sequence of events and who was probably at fault.
>One could make the same argument for a dictatorship being superior to the rule of law. After all, you can always talk to a human to resolve your problem.
I'm sorry I don't understand what you're talking about, this makes no sense. The judicial system also requires humans who are tasked with resolving the problems who you can talk to, that's literally the whole point of it.
>Removing human decision making from a process makes it a game where everyone plays by the same rules.
First of all, no it doesn't because that presumes the machine is always going to be working correctly. Computers don't do this. Second of all, somebody always has to build and maintain the computers, so there is no situation where you can remove all human decision making from the process. I hear executives making these kind of comments all the time as an excuse for cost cutting but that's all it is. You can't make a tech company that isn't paying IT staff in some way.
>You ignored his point
No, you're wrong. His point was also wrong. I actually agree you can indeed reduce administrative expenses by using computer modeling, and most insurance companies already do that. My point is this has nothing to do with blockchains. You don't need blockchains to do that, and attempting to do that on blockchains only increases cost. We're getting into an area where everything is wrong again, please stop with this because I would rather not.
>If you keep making up your own bad arguments
Except this is not my argument. The parent comment just made it and I've heard it probably hundreds of other times. It's the same kind of comment as "maybe we can put the deed to my house on the blockchain" which is equally nonsensical and I've probably heard that hundreds of times too.
Your argument seems to be that there are other solutions that aren't blockchain, which I can't deny. That's true of any solution to most problems, and it neither invalidates the original proposed solution nor lessens its usefulness.
Blockchains create a completely transparent, decentralized ledger. If you don't see any novelty or potential value in that, then that's fine. As far as life is concerned, one's opinion on blockchains should probably fall pretty low on the priority list. I suspect we at least agree on that.
>and it neither invalidates the original proposed solution nor lessens its usefulness
Yes, you're right that by itself it doesn't invalidate the proposed solution. Aside from that, blockchains are still useless and that's what invalidates it. They don't do anything meaningful. Any blockchain-based solution is useful in spite of the blockchain, not because of it. I've never seen any use of blockchains to disprove this.
>Blockchains create a completely transparent, decentralized ledger.
No they don't, in theory they could do that if everything was perfect and if we didn't have to deal with the other side effects of open trade and capitalism, but in practice they don't. Every blockchain I've seen is heavily manipulated by private interests and has serious problems with centralized control. And those are just the big L1 chains. It only gets worse when you consider side chains, a lot of those have no attempt at providing transparency or decentralization at all and it's evident they're privately controlled by one company or group.
>If you don't see any novelty or potential value in that, then that's fine.
I agree there's novelty in it, but that's about it. There's no practical value whatsoever, current or potential. They're useless. I've been pretty consistent about this for the last year. Personally I humored crypto enthusiasts for the last 10 years before this and I listened to as many of their pitches as I could, I tried to look high and low for the good in it, but it's just not there. Enough is enough. It's all bad and nothing meaningful has been accomplished. There's no practical uses of this technology. However it is a very big lightning rod for scammers and fraud.
I am pretty anti-crypto generally but I feel compelled to reply to your maximalist position that there is "no practical value whatsoever, current or potential" to blockchains. The one use case I have seen for blockchain that is real is that cryptocurrency is great for moving money around the world when governments or banks maybe don't want you to do so. At the very least the experience of sending crypto is about as annoying or a little bit less annoying than sending a wire, and you can avoid all those pesky AML/KYC requirements that banks and payment processors impose.
I am not suggesting that this isn't ethically fraught -- of course it is. But one can imagine uses. I personally have known a couple people who fled Syria during the civil war, and bitcoin was a useful way to pull money out of the country, and much less dangerous than carrying a suitcase of cash.
But isn't this awfully close to saying: Blockchains/Cryptocurrencies are useful exactly for money laundering and sanction busting? And ... saying that publicly _and_ supporting the implementation tends to go very badly. (As it should imo, but that's a different story).
IF that is the summary conclusion to crypto (which I'm currently holding), then this is pretty close to "no practical value whatsoever", isn't it?
>The one use case I have seen for blockchain that is real is that cryptocurrency is great for moving money around the world when governments or banks maybe don't want you to do so.
No it isn't. You don't need blockchains to create illegal banks and exchanges or to launder money. All of that was around for a long time before blockchains. You could even create those things "as a service" without blockchains, it would be just as shady and illegal. I'm serious here, there is absolutely no practical value to blockchains whatsoever.
There are a lot of these theoretical cases but none seem likely to come to fruition anytime soon and pretty much all of them ignore this basic problem: the transactional nature of blockchains falls apart as soon as you interact with the real world.
Let me explain: you can have a smart contract where you get 5-20% of the value whenevder it's sold and that'll work and be guaranteed (assuming the network isn't compromised eg 51% attack). That is wholly continaed with the blockchain.
But what if someone wants to sell that for cash? Now you've introduced the exact same trust issues that exist in every transaction in the traditional finance system: trust in the institutions involved and the potential needs for courts to enforce contracts.
So what exactly have you gained? Nothing. Literally nothing.
Why can't you sell it for some crypto asset and exchange that for cash (obviously this second exchange requires a trusted third party)? Maybe I don't understand your example.
That seems like an issue with cash (no way to enforce you giving me the thing I paid for, and no way for you to enforce me giving you the cash for the item you gave me).
Yes using cash gets rid of the guarantee that the transfer of goods is fully atomic that crypto generally offers. Buying tomatoes at the store has the exact same problem.
In DeFi to take out a loan of $100 you need to have collateral worth $200 or more. If the value of the collateral ever goes below $200 then it is immediately autosold. Moreover the collateral has to be on the blockchain as well, so concrete assets like houses cannot be used for this purpose.
The main issue with insurance is actually assessment. All smart contracts do is replace execution, which was never a hassle to begin with.
For sure, DeFi loans aren't practical at the moment (for anything but speculation), and may never be practical for something like a mortgage or even a credit card. I still find it pretty mind blowing that an algorithm can loan me money.
For insurance I don't agree. Something basic like weather insurance (widely used in agriculture) is already possible. The hardest part is getting the weather information onchain in a way that's trusted by the buyers and sellers of the insurance. Weather oracles do exist though.
> I still find it pretty mind blowing that an algorithm can loan me money.
I still find it pretty mind blowing that you can make a Turing complete language with nothing but S and K combinators. Good luck finding a real world application for that, though.
Sometimes the crypto space (the part that isn't just FOMO coin buyers at least) strikes me as folks who have been looking at something technically interesting for the first time in their lives, under the initial lure of money, and haven't figured out yet that "technically interesting" does not necessarily translate into real world applicability.
> I still find it pretty mind blowing that an algorithm can loan me money.
Algorithmic lending has been a thing for decades though. What do you think a credit score is for if not a tool to let computers decide whether to give you credit or not?
An algorithm might help decide who to lend to, but the algorithm isn't actually lending the money. You aren't paying the algorithm back. Pretty big difference there.
Credit is loaning you money and providing an interest rate. Usually something insane like 15%.
DeFi is unlocking the value of an asset, making it liquid and allowing me to participate in other investment opportunities without an APR.
One example is on Kaurura. I have KSM, Stake that KSM for a 19% APR Rate. Throw that LKSM into a vault and mint AUSD as long as i have 160% collatoral ratio. I can then use that aUSD i printed, buy other assets and participate in liquidity pools, which are giving anywhere from 50% to 300% APR.
It's a new era of finance. Play around in the space before you say it's worthless.
I have no experience with crypto, but this I don't understand.
> DeFi is unlocking the value of an asset, making it liquid...
Like a mortgage or a bond issuance (bonds are secured against assets of the corporation)?
> Credit is loaning you money and providing an interest rate. Usually something insane like 15%.
Average rate for a 30-year fixed mortgage in the US is about 4%[1]. Average Aaa corporate bond yield is 3.43%[2]. I guess that you are talking about interest rate on credit cards? I think that credit card debt is pretty small compared to the size of the mortgage or bond markets.
> One example is on Kaurura...
I'm not sure I follow you here, but it sounds like you get a loan at 19% APR against some collateral. Then you use the loan as capital for some other investment at a higher rate of return.
My question: how is this any different, for example, from a company issuing bonds at 4% coupon rate and using the proceeds to fund operations when the company's profit margin is, say, 50%?
Let's say it's a matter of scale; I, as a person, can't issue bonds to trade on a public market. But I can get a mortgage and invest in other stuff hopefully at a return higher than the rate on the loan.
As I said, I don't understand how this is a "new era of finance".
The KSM is staked to ensure concencus of the network. proof of stake is like proof of work, but instead you are betting that this node is behaving and the node themselves are running cryptographic hash schemes like bitcoin. So like bitcoin, you are paid for validating the concensus of the network so you are paid that APR. Taken another step further, if you create a smart contract and lock the KSM in it, and that smartcontract stakes the coin for you, it can mint LKSM that proves your ownership in the pool. Slowly but surely the price of LKSM and KSM will diverge in LKSM's favor since the KSM in the smart contract is generating returns for being staked. So you can always redeem it with a slowly appreciating exchange rate. So all that to have a liquid form of staked KSM. You can now use the LKSM to mint AUSD and you can trust you can pay that back because you have colateral lockeed in a vault. Now when i participate n pools, I earn fees for providing liquidity of two assets. Now when people are trading, they can dip into the pool, swap their assets and no one has to be on the 'Other-side' of the trade. They get minimal slippage, and i get paid a trade fee that's much lower than what you can get in traditional finance (Usually fractions of a penny).
>how is this any different, for example, from a company issuing bonds at 4% coupon rate and using the proceeds to fund operations when the company's profit margin is, say, 50%?
It's nothing like that. Because A.) It's not getting people to loan me money. Company issuing bonds at 4% has to pay that 4% to get access to their assets because it's 'Risky'. In the blockchain there is no risk because they have constant oracle access to the price of the underlying asset so i can do it for free, with no counter party. Simple a piece of code collectively floating on thousands of nodes running around the world.
I think you don't understand interest rates. One man's interest is another man's cost of capital. If someone is paying you 4% for a riskless loan, it means they are overpaying for capital.
"One example is on Kaurura. I have KSM, Stake that KSM for a 19% APR Rate. Throw that LKSM into a vault and mint AUSD as long as i have 160% collatoral ratio. I can then use that aUSD i printed, buy other assets and participate in liquidity pools, which are giving anywhere from 50% to 300% APR."
It's a fascinating throwback to the dotcom boom where everything was "It's $X, but on the internet!"
Now it's "$X but with crypto!". Only with crypto there's a constantly evolving set of jargon that obfuscates the fact that yeah, traditional finance does it already To be fair, the dotcom era had it's fair share of obfuscating jargon too. Maybe crypto just seems worse because the dotcom boom was so far back in my memory.
I think there might be some actual valuable use cases for crypto.
I just wish all the people reinventing the wheel and thinking it's new would get out of the way. Then at least we can find out if crypto actually has something interesting it can do.
Four risks with margin loans. The first two also apply with crypto:
1.) Amplified losses if the securities in your account decline in value
2.) Margin calls or liquidation of securities
3.) Losses greater than the original investment are possible
- Not possible due to constant access via oracles to the underlying asset. The Protocol may experience more loss in very rare instances, but as an individual i never will.
4.) Interest rates may rise, increasing the cost of your loan.
And due to 3.) is why you have an 'interest rate'. I have no rate of interest on my margin loan. The protocol generates money from trade fees, more liquidity is and leverage increases TVL.
People get touchy about the word "trust" in blockchain threads. Would it help if I said that the hardest part is creating a way to get the weather data on chain that the buyer and seller can agree on ahead of time?
Anyway, I'm obviously not claiming this can work without input from humans off chain. My point is that the infrastructure needed to get clean and honest weather data on to the chain (which requires human inputs) is much smaller than the entire infrastructure needed to administer weather insurance (which other than the previous part, can be done autonomously).
> Would it help if I said that the hardest part is creating a way to get the weather data on chain that the buyer and seller can agree on ahead of time?
> My point is that the infrastructure needed to get clean and honest weather data on to the chain (which requires human inputs) is much smaller than the entire infrastructure needed to administer weather insurance
Is "much smaller" infrastructure on a different dimension than the "hardest part" of the problem? If so, what dimensions are those?
If not, how can the trust/agreement part be both "much smaller" and also the "hardest", especially given that it requires human inputs, especially human driven systems for routinely validating the process (AKA audits), and adjudicating inevitable claims of breaches of the agreement (AKA the courts).
It's the hardest part compared to the rest of the blockchain solution. The "easy" onchain-only part replaces a vast amount of infrastructure that would exist in an insurance company.
>Would it help if I said that the hardest part is creating a way to get the weather data on chain that the buyer and seller can agree on ahead of time?
No, because it's still impossible to do that at scale without solving the oracle problem. Putting some arbitrary data on a chain doesn't mean the data is reliable.
I don't know if there's any way out of the oracle problem honestly. There's nothing wrong with shopping around between different human-administered oracles though, or having some code which polls multiple oracles and takes action based on some statistic applied to the oracles (mean, etc.) But yeah I'm not convinced the oracle problem can be solved.
With multiple oracles and a statistic, you're trusting their results to be distributed along some distribution. But I'm being pedantic. Ultimately, yes, you are still trusting the oracles even if you aren't trusting them each in totality. Like I said I don't think there's a way out. Even if you hook up a weather sensor machine and push updates to the chain, even outside of malicious tampering, sensors themselves can be inaccurate or fail. Perhaps there's a case to be made for an autonomous weather sensor machine that is physically tamper-proof, but ultimately there's a certain amount of trust when dealing with off-chain data. I don't think that's able to be overcome.
You don't need to solve the oracle problem. Just agree on an oracle. Weather.com writing weather on chain could be your agreed upon solution, for example.
I still find it pretty mind blowing that an algorithm can loan me money.
Go to Amazon, put some items in your cart, and click the (almost always present) banner about opening an Amazon credit card. Enter your relevant information, wait about 3 seconds, and BOOM! An algorithm just loaned you money.
>It could seriously bring down insurance margins if you no longer have drones of people administering policies.
Instead you might a bunch of people with zero actuarial experience gambling on policies. I agree, the concept is interesting, no regulation makes everything a crapshoot.
That seems like an insanely good opportunity for people with actual actuarial expertise to profit off any retail investors/gamblers in the market btw. That seems like a market that would professionalize extremely fast.
Nexus Mutual offers insurance against smart contract hacks, coin depegs, custodial provider withdrawal issues, etc, and they've been operating fine for several years. The one advantage I really appreciate is the transparency it enables over the decision making process.
There's no reason this couldn't be expanded for other use cases, including home, car, etc. It really isn't limited to just smart contract data as you suggested.
Don't you still need the claims adjudicator to assign a dollar value to the damage to your insured asset? It's not like a smart contract can figure out how much to reimburse you after your house gets flooded w/o input from a trusted, human authority. I'm not really sure what value the smart contract is adding here.
Well, it’s quite telling that the majority of big crypto hacks are uninsured. And they like to play tricks just like normal insurance companies (1). And the CEO got hacked like any random person would’ve (2).
>That seems like an insanely good opportunity for people with actual ~actuarial~ expertise to profit off any retail investors/gamblers in the market btw.
You can take out a loan in crypto that's fully secured against some other crypto. It's turtles all the way down, and has zero relevance to what most people think about when they talk about taking out a loan.
How does that work? If you take a loan from a "decentralised lender" you can essentially walk away with the money and never pay the loan back. So, "decentralised lending" can't work, as far as I can tell.
Nearly all defi loans are overcollateralized. I deposit $100 of eth, borrow $50 of eth, convert to usdc and send to my bank. Six months later if the price of eth has gone up i need to buy more the $50 worth to repay my debt, if the price of eth goes down i can pay back less than $50 of eth.
If it goes up by a lot then i can borrow more against my initial deposit, if it goes down by a lot and i dont close my position then the deposit is liquidated to pay off the debt and i have a smaller position.
It actually works pretty well, add on to this things like Alchemix which builds loans via yearn vaults and you can borrow money against future interest and have self-repaying loans.
If you have initial assets its an easy way to borrow against those assets. e.g. My bank wouldn't give me a loan against my eth as they don\t value the asset, instead I just open a maker vault and borrow against it in dai ($ stablecoin), and then sell that for € and deposit to my bank. problem solved.
I think the reason crypto investors are excited about this is that it allows them to maintain a position in a crypto coin while still extracting some liquidity - possibly to invest in other coins.
So, say you own 5 BTC and don't want to sell it because it's going "to the moon". You stake it as 200% collateral on a DeFi loan and get 2.5 BTC of liquidity you can use to buy some ETH.
What's interesting about this is that it allows the demand for coins (and therefore their value) to increase without introducing new (fiat) money into the system. I haven't done the research, but I'd be curious to know what portion of crypto trading is funded by these kinds of DeFi loans as opposed to "new" money.
'... it allows them to maintain a position in a crypto coin ...'
In some 'we own you and command you to pay tribute to mighty rulers from what you produce' regimes, the loan avoids a sale and the resulting tax event. In my experience, the loan can be converted to fiat money.
This process doesn't create new "money" as far as I can tell. Centralised exchanges can indeed inflate the supply of any crypto-currency by lowering the reserve ratio. But I think the way they pump the coins is mostly by issuing unbacked "stablecoins" and using those to buy crypto-currencies.
Why would any rational actor provide a loan denominated upon an insanely volatile "currency" like bitcoin or ethereum? The lender could loan 100 ethereum bux only to lose big time because the price of ethereum went up 10x in a week making the amount repaid worthless. Or it could go down, in which case the borrower would wind up defaulting because who would want to pay back 10x more than they were lent?
Have you looked into any of the lending platforms? These are pretty well controlled for. Crypto loans are typically collateralized, so that below a certain loan-to-value ratio, the collateral belongs to the loan provider and the borrower can keep what was borrowed. The exact rules vary place to place. It's a calculated risk that is competitive with other investments.
People borrow to avoid triggering capital gains, or to gain leverage or to short.
How do you solve the oracle problem? How do you enforce that a loan be paid back? How do you check that an insurance case has actually occurred? You need institutions to determine and oversee this, and institutions you can trust. If you need to trust them anyway, you can dispense with the hugely inefficient "Proof of Waste" blockchain stuff, and have any required computations run on a few old PCs.
An insurance requires an independent assessment that a certain event has taken place (e.g. a car accident) and of the circumstances surrounding the event. A loan requires the ability from the lender to initiate legal action against the borrower in the event of default. Smart contract can't help with that or make any of that more efficient.
To play the Devil's advocate, if the independent assessment can be provided by a neutral third-party API, then you could have a smart contract pay out depending on the response from the API.
Realistically, this requires more Data-as-a-Service startups, so there's a bit of chicken-or-the-egg difficulty here.
Not only that, but it also removes a lot of opportunity for prejudicial discrimination that exists in the traditional loan application process. It ain't perfect (algorithmic bias/discrimination ain't exactly a rare thing), but it's at least more predictable and transparent.
>>> The fact that you can take out a loan or buy insurance and your counterparty is a smart contract is pretty interesting.
it would be like if google is your insurance provider. If something goes wrong (it eventually will) there would be no recourse, no one to talk to ... all hail our algorithmic overlords.
But is it true? Any nation of 330M will have some loud arrogant people, but is “getting rich by doing nothing” uniquely American in aspiration or reality?
I’d argue no - our aspiration is that we’re farmer cowboys, our rich all the more so. Our reality is more complicated, but (for its many flaws) different than alleged here.
I don't think any one thing sums up America. But having lived on 4 continents, I'd say the "get rich by doing nothing" thing is unusually common and unusually accepted in America. Historian Walter McDougall wrote a whole book on the American duality of "hustle", meaning both an energy for making things happen and scamming somebody. And he wrote that well before the recent rise of "hustle culture".
You could also look at American pyramid scheme pioneers like Amway and Herbalife, both of which I consider scams. Or our huge manipulation culture of the sort potrayed in Glengarry Glen Ross or Mad Men. Or the way that scammer/marketing energy merged with Protestantism to create both the tent revival and now the megachurch.
> by getting rich by doing nothing while lauding how smart you are over other people
This is exactly how I envision the dream of old world wealth you see on Downton Abbey or similar.
Get born into a minor lordship somewhere in England and spend your days educating yourself (maybe leisurely publishing a book or two) and raking in tax revenue from the commoners.
"This is exactly how I envision the dream of old world wealth you see on Downton Abbey or similar."
Then you misunderstand ...
That world you're envisioning is what happens after the "getting rich".
In the case of feudalism - and its remnants - the "getting rich" involved murderous expropriation of the lands and property of anyone that got in the way by sociopaths who hoarded and coveted everything that entered their awareness.
Your comment is two points with no direct connection, and both are underdeveloped.
Bitcoin as a settlement layer is useful. The idea that it needs to do anything more than securely manage a trillion dollar market cap digitally with no hacks, and no avenues for a profitable hack in the medium term is just common ignorance of what’s valuable.
Andy is a fairly new and derogatory/tongue in cheek term (from twitch, long story) that basically means people that get attention from jumping on someone else's creative bandwagon.
Basically someone else does the creation, and you become an Andy by trying to get involved without really adding much value.
>that basically means people that get attention from jumping on someone else's creative bandwagon.
That isn't what the term Andy means in the Twitch world. It's just a way to refer to the style of content that someone makes on Twitch. For example, a "React Andy" is someone who makes reactionary content, a "1k Andy" is someone that is stuck at 1k average viewership, a "Crypto Andy" is someone who is obsessed with crypto.
It comes from Twitch [1]. While it often refers to streamers, it has transcended that. An andy is someone who is identified by whatever adjective is applied. So a Crypto Andy is someone who is all and only about crypto, basically.
Put another way: Andys are indistinguishable from each other apart from one defining characteristic. And those Andys with that characteristic are likewise indistinguishable and interchangeable.
> The only use case we really have is illegal activity.
But isn't that enough? If we refuse to get rich from investing in ransom futures we have no-one to blame than ourselves.
At least that's how I read those typical victory lap posts by crypto winners. Or by proclaimed crypto winners desperately trying to extend the pyramid. Yes, I'll happily skip out on ransom future wealth.
> This is in addition to the long-standing concentration of Ethereum mining power, with normally three and sometimes only two mining pools controlling over 50% of the mining power.
There is further hand-waving about how Proof-of-Stake (over Proof-of-Waste) will magically fix these problems. But it's actually this PoW computing power that makes the network more resilient to hostile takeover.
I've heard it described that the attraction of Crypto is the essence of the American Dream: by getting rich by doing nothing while lauding how smart you are over other people. So much of Crytpo can be explained by Bitcoin FOMO. Everyone just jumps on the latest shitcoin or NFT because "I'm not missing out this time".
Ultimately something has to create value or it will come crashing down. The only use case we really have is illegal activity. Some of that is justified on ethics grounds (eg bypassing capital controls in Venezuela). A lot of it is just shady.
There's a ton of talk about the "potential". So far the offshots (eg NFTs, Web3) are just ludicrous boondoggles in finding problems for a solution. I have doubts this will ever create value for the masses.