What a week of readings, podcasts and learnings. I’m finally starting to understand why so many people call Ethereum the “Internet of blockchains.” 

As a rough example, imagine I was willing to pay a lot of money to “use the Internet” to get this post to you as fast as possible, passing other things “on the Internet” in the process (like other people’s YouTube videos, driving directions, etc). They’d probably still get them, just not as fast.

Ethereum allows you to pay more (in “gas fees”) to get things done -- often either A. ensuring it gets done and/or B. more quickly than whatever other people need to get done. Without going too far into Internet infrastructure, YouTube has a bunch of servers to make sure you always get your videos. Same with Instagram, Amazon, TikTok, Twitter, etc. All of these, together with some cables under oceans, are connected and that makes up “the Internet.”

Ethereum has similar servers (called nodes, miners or validators), but they’re trying to do that for everyone, all at the same time. This means traffic jams and bidding wars when you try to use Ethereum’s version of the Internet for blockchains. For tech nerds -- yes, there’s overlap between the two, and no we’re not getting into that.

To foreshadow what I’ll likely write about over the next few weeks; layer two eases those traffic jams and bidding wars. I finally used Zapper (as a bridge) and Polygon (layer 2 scaling) to transact for pennies as opposed to $20+. There are several alternatives to both out there that I’ll be trying over the coming weeks and months, but this is a much more sustainable future. Ethereum is trying to bake these into itself with some upcoming changes over the next 6 months.

I’m pressing on with the cliffnotes experiment, leaving links + my notes from the more interesting things I’ve encountered over the last week. As always, let me know if there’s something I should add to my list!

Louis

——————————

Not Boring -- Own the Internet (Ethereum)

• Ethereum is like Excel, specifically in both tracking data as well as linking together of functions and their outputs

• ETH is seeing more transaction volume, supply is about to start deflating. For armchair investors, you can almost think about it as the current web3-wide ETF

• Bitcoin also uses Proof of Work, that’s where Ethereum got it from, although Bitcoin mining is able to be run on cheaper hardware and has 20x more miners than Ethereum, and is therefore more decentralized.

• Miners make close to 0 (2 ETH and transaction fees/gas), chip makers and utilities collecting most

• EIP 1559 -- make things deflationary. Gas becomes base fee (which is burned) and then a tip to get better positioning

• Eth2 brings in scalability via PoS and sharding

  • Additionally, third-party Layer 2 solutions, like Polygon and Optimism, are already working to speed up transactions and lower fees by essentially batching transactions off-chain and settling on-chain in one transaction instead of many (there are intricacies, but this is close enough)

  • L2 solutions could increase throughput another 100x, and combining Eth2 and L2 solutions could lead to a 10,000x improvement if the theory plays out in practice. 

• Lindy effect, but more specifically belief in legitimacy are the most important things to crypto. Vitalik and others agree

• Projects that build on top of certain blockchains are actually financially incentivized to support the value of the underlying blockchain in order to secure their project

  

• Flow & Solana are the layer 1’s that are most interesting and relevant, but not necessarily competitive to Ethereum

  • SOL is directly competitive with NYSE. Execution layer for finance

  • 50,000 TPS for $.0001 vs 19 TPS for ETH

• Rollups are layer 2 solutions -- they “roll up” a bunch of transactions, then appear as one transaction on layer 1

$SOL tweet thread from Apr 22

Bankless: Uniswap on Optimism

• Speed takes fractions of a second vs 13 seconds or many minutes, depending on gas fees

• Gas fees for Uniswap transactions are ~$1 vs $19 on mainnet

MIT Blockchain & Money: Lecture 6. Smart Contracts & DApps

• Joe Lubin invested in “Ethereum” for 9.5%, Ethereum foundation had 9.5%, 80% sold via ICO for $18M

• Unclear whether NEO was launched (originally as AntShares in 2014) with backing from Chinese government. Given ongoing existence, speculation is that there’s strong cooperation

• $28B of ICO volume (as of Aug 2018) with EOS at $4B and Telegram at $1B

• 59% “fail” in the first 9 months (disappear, cease to exist, etc). 25% appear to be fraud

• Larry Lessig guest lecturer

• Contract definition: promise or performance given in exchange for promise or performance

  • Performance for performance is interesting for blockchains; I’ll sing if you pay me $5,000

  • Vending machine is a great example; dime = can of coke

  • Lowers transaction cost

  • Express vs implied (it’s safe to consume whatever you get out of the machine)

  • When things are “implied” the legal system will police the contracts and enforce + punish

• The state is always “present”, but they don’t tend to care about most contracts. Intuitive -> they get involved in the edge cases

  • Not worth giving up on the deal if there’s a .002% chance something happens (ex ante). Easier to use courts to do it ex post

  • Spelling all of those out in code/smart contracts could actually raise transaction costs -- the same ones we’re attempting to lower

  • 90-95% of the work lawyers do, doesn’t need to be done by lawyers. It could be cleaned up and factored out

• Copyright law; “if you create, then you get”

  • Exclusive rights, lifetime + 70 years, fair use

  • DRM (digital rights management) has already/will continue to impact multiple of these

  • Example of Apple making it hard to rip videos at the operating system level

• Point of contract law isn’t to eliminate risk -- it’s to allocate risk

• Contract law only works if there’s a system to process the breach (well-functioning legal system)

  • Developing countries can’t take that legal system for granted

  • But if blockchains provide that technical infrastructure, it could be a great substitute. Enabling those citizens to interact (in the absence of failed legal system)

Great 5 minute video descriptions of Public Key Cryptography and Digital Signatures

• Receiver places their public key out on a server. Sender uses that to encrypt, and it can only be decrypted using sender’s private key

• Anybody can send the receiver a message, because their public key is out there. Can’t verify the sender without digital signatures

• Bob writes a message, hashes it and encrypts with his private key. The message is still public, but the digest can only be verified by decrypting it with his public key (to prove he signed it). If digest is the same after running through the hash function, it’s clear Bob sent it

• Digital signatures are generally popular with email

Finematics: Polygon Explained

• Started in 2017 as “Matic” by Indian developers working on L2 scaling solutions; Plasma Chains and PoS Ethereum side chain

• Raised $5.6M in 2019 via Binance, went live in mid-2020

• Took off due to increasing gas fees on Ethereum mainnet

  • Plasma, Optimistic rollups and ZK rollups are most popular L2 scaling solutions

  • Sidechains have own security mechanisms via different consensus mechanisms; distributed validators or security as a service

• Stand-alone chains are fully sovereign, meaning high flexibility and independence (but harder to secure; need more validators). Preferred by enterprise and startups with strong communities 

• Secured chains offer most security, but have less flexibility and sovereignty (preferred by startups and security-focused projects)

• Polygon supports both and things in the middle of the spectrum as well, with several layers of architecture that allow for scaling abstraction up or down

  

  • Plasma can allow for fast and scalable transactions by using side chains, but it takes longer to withdraw funds from layer 2

• Matic POS chain runs parallel to Ethereum mainnet, but relies on their checkpoints and validator staking (EVM-compatible)

• Risk would be if one of the other scaling solutions gets adopted on their own, but Polygon would likely incorporate that into the ecosystem as well

• Ethereum is the hub that connects all the different chains in the Polygon orbit (as opposed to Polkadot, Cosmos, etc)

• Rollups work by bundling transactions on the sidechain and generating a hash (also known as SNARK -- Succinct non-interactive argument of knowledge). The proof is sent to the main chain

  • Current wait times to go from Optimism to Ethereum mainnet can take up to a week

• ZK rollups are faster, but not portable to layer 1. Optimistic rollups are slower, but maintain composibility (EVM) via OVM. Optimism is a great example

Bankless: Analysis of PoolTogether and prospects for growth moving forward

• Feels like the ability to borrow against your deposits (and then redeposit!) isn’t talked about nearly enough. There could be huge leverage plays

  • Current amounts deposited/borrowed against on Rari Capital

MIT Blockchain & Money: Lecture 7. Technical Challenges

• Global payments industry is $1.5T, which is .5-1% of global economy

• Slightly outdated, other sources have better + more current explanations of technical infrastructure

MIT Blockchain & Money: Lecture 8. Public Policy

• Sometimes incumbents want regulations because it builds barriers for potential new competitors

• No government wants to shrink their tax base. Some governments want to attract tax revenue from competing countries (hence more lax structures)

• Public policy objectives include financial stability (including currencies) and investor protections

• Countries ask themselves “are we going to isolate it, regulate it, or integrate it?”

• Central Bank of China has a lab working on blockchain projects, and that’s just what’s public (mining pools and other companies that participate)

• Worldwide debt markets are $250T (1,000x size of crypto in 2018), equity is $90T, gold was $7T

  • Countries will want to regulate and provide consumer protection as ICOs continue to explode

• US government decided bitcoin was property (as opposed to currency) -- so you need to record cost basis each time you transact

• No regulations on exchanges for things like front-running

  • Layer investor protection (when one party knows more about the investment) atop consumer protection. Gensler’s list of investor protections

    • Investors get full and fair disclosure

    • Fraud and deceptive sales practices are prohibited

    • Secondary markets promoted with price transparency & anti-manipulation

    • Advisors have fiduciary responsibility or some sort of disclosures

• “Investment contracts” and the Howey Test (1946)

  • Is it an investment in money (BTC or ETH count)

  • Is it an investment in common enterprise (developers working on a project)

  • Reasonable expectation of profits or growth?

  • Reliant on the efforts of others?

  • Previous SEC chair thinks most ICOs are securities (from Gensler’s 2018 Congressional testimony)

    • April 26, 2018, Chair Clayton divided crypto-assets into two areas, those which represent “a pure medium of exchange” and “tokens, which are used to finance projects.” He said that a “pure medium of exchange … as a replacement for currency” such as Bitcoin would not be regulated as a security. 

• Public policy is formulated by messaging > politics (coalition building) > analysis = policy

  • MAGA, Change We Believe In, The Compassionate Conservative, It’s The Economy Stupid = last 4 presidential slogans. Messaging

Zapper + Polygon experimentation

• Stupidity alert: I spent over $100 before realizing I was being charged for failed transactions on Ethereum mainnet

• Connected with Zapper and loved several things

  • Visualizations and ability to see across platforms, wallets, yield sources, etc. Like all the instruments in a cockpit

  • Bridges > moved money over to Polygon (fka Matic). Paid the Ethereum gas fees once to “get onto” layer 2 for certain tokens and will pay again to eventually bring funds off. Fascinating what’s going on under the hood with locking things in smart contracts, etc

  • Exchanged USDC into USDT using Zapper (via Polygon [via “Dodo V2 > Ape Swap”])

    

  • Deposited USDT into PoolTogether’s USDT Polygon prize pool

• Gas fees of $.003 beat $33 gas fees by 10,000x

Not Boring: BlockFi

• BlockFi has 700 employees in Jersey City and is regulated, so not DeFi or TradFi. CeFi for “Centralized Finance”, similar to Coinbase

• Stablecoin simple definition: “tokenized dollars” (in theory 1 USDC, USDT, etc. = $1)

• BlockFi makes money by lending to hedge funds to conduct futures trades, while banks aren’t willing to (yet)

• If HFs are making 40%, they can pay BlockFi 15%, who can pay stablecoin depositors 8.6% (which has come down to 4-7.5% recently)

• In short; juicy fees and arb opportunities mean others will come for it and eat away at the margins. In the meantime, they’re trying to diversify services like SoFi’s playbook (student loans -> credit cards, insurance, crypto investing, auto loans, etc.)

Bankless: Decentralized Oracle Networks (DONs)

• Having blockchains disconnected from the real world and data sources (oracles) would make some smart contracts pointless

• Having a single oracle or single data source is no good = single point of failure and/or corrupt data

• Chainlink handles many of the different moving pieces, as well as off chain computation like randomness functions

  

• Several use cases

  • DeFi & price feeds -- Price Feeds to calculate the maximum loan size during the creation of a position as well as determine when positions become under-collateralized and must be liquidated, keeping the market as a whole solvent.

  • Synthetics -- enables users to generate synthetic assets that are overcollateralized by on-chain crypto (SNX) and mirror the price of real world assets such as cryptocurrencies (e.g. BTC, ETH, LINK), fiat currencies (e.g. USD, EUR, JPY), commodities (e.g. gold, silver, oil), indices (e.g. FTSE, N225, sDEFI), and equities (e.g. TSLA, GOOG, AMZN). Backed by a global debt pool, users can “exchange” their synthetic assets at zero slippage for any other synthetic by simply switching the data feed that determines the value of their tokens. 

  • Dynamic NFTs -- introduce “verifiable randomness” to create new functionality, attributes, etc in games or artwork

  • On-chain audit trails and proof of reserve -- check off-chain data to see if loans are undercollateralized

    • Already being used with TUSD, PAX USD stablecoins, as well as cross-chain with WBTC from Bitcoin. Verified by auditing firms

    • Tokenized real estate will also provide proof of ownership, rental income, etc

  • Off-chain computation & keepers -- perform actions passively (i.e. liquidating undercollateralized contracts, rebasing positions, yield harvesting) vs waiting for humans to proactively take action; which is the current default state

Bankless: Chainlink 2.0 with Chainlink God

• Once coins are more liquid and trade more, looking at a specific price at an exchange (especially if time-weighted) it becomes less accurate and secure

• Decentralization is required so there aren’t single sources of truth(/single points of failure)

  • Getting quotes from NASDAQ or NYSE doesn’t move toward trustless, it’s trusting a specific traditional party

• Nodes are being paid in $LINK tokens, aligned incentives for honesty

• In the future exchanges are going to publish price feeds through Chainlink, selling data to smart contracts

• Coinbase delivers this today through a signed API, not as an oracle

• Existing users; Aave, Synthetix, DyDx, NFT platforms -> paying some portion in LINK

  • 30 users of ETH/USD price feed, pooling their costs together and splitting them as a group -- each user only paying a small part = Chainlink is most cost-effective option

  • Each price feed is a contract that needs to be pre-funded by LINK, in order to pay the nodes for updates to feed

• Protocols need to acquire LINK to pay for things like running VRF

• What stops people just viewing data that’s published on-chain? Lots of free-riding potential, but incentives for huge contract values mean users pay for guarantees that feed will exceed

  • ZKP is the long-term approach to solve the problem, you don’t reveal the actual price or data point -- computation is done with whatever the answer

• Chainlink Labs helps get projects up and running with the protocol + coordinate with nodes

• Costs to nodes

  • running servers (not a ton because it’s not Proof of Work), API subscription (yearly or call), gas costs for Ethereum to get data on-chain

  • Ethereum can run a node on a consumer laptop. Chainlink has several chains and could hold a ledger for a week. Depends on what sort of DON you want to set up

  • Multiple tiers of nodes, first tier stakes $LINK while second tier (backstop nodes) has ability to resolve disputes and slash first tier’s stake. Financial incentive alignment as second tier is heavily exposed to $LINK

    • Can also use ZKPs to prove that original dispute was one way or the other

  • Nodes that lock up more $LINK are most trustworthy, similar to PoS with ETH 2.0. It’s the right to generate revenue in the network

• DONs can do off-chain computation and then interact with other DONs, avoiding costly need for on-chain computation. Usually on-chain activity should focus on settlement

• LINK community is incredibly passionate. Personified as “green frogs” all over Twitter

Santiago Santos: But Why

• Don’t save “why” for last at the end of who, what, when, where, why. Start with it

• Ensures you’re asking the right questions, have the right motivations and aren’t bringing too much baggage

• Great link to Richard Feynman on asking why and how there are so many assumptions embedded in questions. You need a lot of tooling to really get to an answer (and you might never get there)

• Never lose the motivation to continue exploring. There’s a time and a place, but many of the best discoveries were happy accidents at the end of rabbit holes

Random stuff

• Interesting crypto market size tracking: Overall market cap of USDC

• The new BED index seems to be worth watching; ⅓ BTC, ⅓ ETH, ⅓ DeFi index. Roughly what I recommend to people, and you can even LP your ownership of it. Hmm

Note: experimenting with my #process. In addition to longer posts, why not share my raw notes from readings, courses, etc? Can publish these 3-5x/wk alongside 1 bigger post (for now ;) ).

Feedback welcome!

Research Cliffnotes 6-4-2021

Not Boring: Dao of Daos

• 2 pages worth of links to his sources 

• Backstory on Uniswap and Sushiswap fork

• In web3, it’s expected that things can and will be copy and pasted if others think they can improve the design

• Sushi took .3% fee on Uniswap that went to LPs and broke it to .25% for LPs and .05% that went to token holders of SUSHI

• When that happened, Uniswap became a DAO because the community gained governance rights with ownership of UNI (Sep 16, 2020)

• Crypto companies don’t need to be (and probably shouldn’t start as) a DAO from day 1. They can evolve

  • Jesse Walden & A16z call “Progressive Decentralization”

  • There’s no pretense of decentralization because nobody gives a shit until you figure out what your product is and whether it has fit

  • Look at how much time VCs spend with their winners vs their losers

• Early crypto startups raise money via SAFT (Simple Agreement for Future Tokens) done by Protocol Labs

• After a team has successfully completed the first two steps, they’re ready to distribute tokens to the broader community. This is an alternative to a traditional IPO, SPAC, or acquisition, called “Exit to Community,” and is the point at which a project or company becomes a DAO.

  • Trigger a smart contract that mints and distributes tokens, and the community governs from there

• Community ownership is the most natural. In reverse -- what would happen (with typical companies) if we had started with broad community ownership and tried to introduce the current model of outside investor control? 

• Vitalik’s concept of “companies without managers” is the essence of DAO

• DeepDAO ecosystem overview shows total AUM of all DAOs

  • Not as high as you’d expect

• Jack Dorsey talked about BlueSky and sounded like he wanted more of a decentralized social media network. 

  • Editor’s note: Ties into “on the record” proposal to combat deepfakes (post on applying blockchain to social media for public figures to come later)

Binace: Uniswap & How it Works

• Built on Ethereum

• Automated liquidity pool. No order book or trademaker

• Created by Hayden Adams in 2018, inspired by Vitalik’s initial writings

• Liquidity pools can work with any pair of ERC20 tokens, but usually ERC20 & stablecoin (USDT, DAI, etc)

  • Want 1 ETH(x) for 300 USDT(y)? Exchange them; k = x*y where k has to stay constant

• Theoretically there’s a ton of liquidity that’s unused as it waits for 5-100x’ing of coin values

  • Uniswap v3 allows people to set custom liquidity ranges. Hurts the average Joe retailer who is lazy, while helping professional market makers

  • Yearn Finance might offer a product to help the average Joe

• In v2, Uniswap LP positions could be deposited in Aave or MakerDao as collateral. Not anymore because each range is unique and represented by an NFT

• “Impermanent loss” (updated to “divergence loss”) where it looks like you’ve made money when coin appreciates, but opportunity cost of hodling while chasing yield means arb traders took the profits. Way more depth and charts by Pintail in 2019

Binance: What are stablecoins

• fiat-backed, crypto-backed, algo

• Use-cases stablecoins

Binance Research: Evolution of stablecoins

• Paper written in 2019, obvious caveat much has changed since

• Watch out with “stablecoin” promises, as Tether (USDT) claimed to be 100%, then 74% backed by dollars. In reality, 2.4%

• Coins can sit atop multiple blockchains

• More trading pairs leads to increasingly sophisticated FX markets on blockchain

Binance: Intro to ERC 20

• Authored by Vitalik Buterin and Fabian Vogelsteller in 2015

• Tokens are automatically interoperable with services and software supporting the ERC-20 standard (wallets, exchanges, etc)

• Easy to set them up (much of the code is copy + paste-able)

• New coins are “minted” as opposed to mined like ETH

• Gas fees are still paid to include transactions within blocks, even though 0 ETH is transferred (example tx)

• Code needs to include a few functions

  • six mandatory functions: totalSupply, balanceOf, transfer, transferFrom, approve, and allowance

  • optional functions: name, symbol, and decimal, etc

• ERC-721 -- NFTs

• ERC-1155 -- could be improvement to both 20 & 721 as it allows fungible and NFT in same contracts

• ERC-223 & 621 -- improve usability to implement safeguards against accidental token transfers

Binance: Yearn Finance Overview

• “The fairest launch since bitcoin” because anybody could have access, which drove developer enthusiasm

• Forums and proposals in the governance section

• Vote on most things, including hiring a team of marketers

• Wild price swings at the start, as well as whatever Andre Cronje decides to do. Creates some centralization/key man risk

(…remember, feedback on this format is appreciated. Even a quick thumbs up emoji reply. But don’t lie. It wastes both of our time.)

Coinbase recently projected that a Bitcoin price of $200,000 would mean half the world’s billionaires made their fortune via crypto.

Forbes listed 12 billionaires in their 2021 list. But according to lists of the top bitcoin wallets, there are: 

• 32 wallets holding >$1 billion worth of BTC (based on $42,000 price in May 2021)

• 7,500 have >$10 million

• 86,000 with >$1 million

Some of these wallets belong to exchanges that house funds for numerous clients, but there are also massive holders that have their holdings spread across numerous wallets (return of the Winklevii, Gemini strikes back).

Think about what ideas, projects, causes, etc. would get funded by this new wave of wealth. Space, human longevity, nuclear fusion, ... what else?

Whitepaper Summary #1 — Bitcoin

Where else was this journey really going to start, KodakCoin? Coinye? Cumrocket?

The Bitcoin Whitepaper is 9 pages long. ~3 of which are references, math proofs or probability tables. But you’re busy and I <3 job security.

1.7 million results for [bitcoin whitepaper explained] means there aren’t a ton of hidden gems. Worry not, we’ll make up for it with humor, metaphors and nerdy stats.

Abstract

The very first sentence reads;

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.

“Pay each other without middlemen” because there are so many middlemen in a transaction between me <> you or you <> business. The second point is that the “double-spending” problem hasn’t been solved (with cryptocurrencies) before.

Satoshi’s answer combines “digital signatures” and “hashed-based” proof of work, hinting at the most important part — every transaction is out in public.

What Problem Does it Solve?

In short; what if we can’t trust the banks and financial plumbers anymore?

1. If you send me one of your Bitcoin, you no longer have that specific coin. Subtle but critical concept that seems the same as you Venmoing me a $1 bill. 

2. In general, neither you nor I care which of the green pieces of paper with a $1 in the corner get handed over. We can’t see the list of all the serial numbered bills in our bank accounts, for a bunch of reasons. (aside: Where’s George is so nerdily cool for tracking where bills have been)

3. Historically, that’s been ok because we Americans have a bunch(?) of trust in Chase, Visa, Venmo, Bank of America and all the groups in between that keep track of how many dollar bills we each have.

4. To do this without one of those “trusted” third parties, Satoshi proposes publicly announcing all of the transactions. The participants and nodes/miners collectively agree that the payee was the first (and only) one to receive the coin.

Voila, now you can do all the same transactions you would’ve done but you’re not going to get frozen out of your money by a bank, government or anybody else.

Bring $75 million across international borders by jotting down a few random letters and numbers on a piece of paper. Or memorize them. Way easier than carrying suitcases of cash or 100 gold bars1.

Finite Supply of Coins

There will only ever be 21 million coins. The last of which should be mined on May 7, 2140. Don’t lose sleep for your great great grandchildren though. If they become miners, they’ll collect fees instead of block rewards.

“But haven’t 18 million coins already been mined since 2009?" How will we only get 3 million more over the next 120 years?”

Investopedia has a better graphics team than me.

Also, each Bitcoin can be subdivided into 100,000,000 “Satoshis” aka “Sats”, similar to 100 pennies = 1 US Dollar. Interestingly, Satoshi’s source code references these Sats as the base unit, instead of entire coins (line 14 below). He presumed people way off in the future wouldn’t be tossing around entire coins all that often.

Unless you’re buying $500 million worth of pizza for 10,000 BTC.

51% Attack & Incentive Alignment

If 51% of “nodes” (he didn’t realize/reference “miners” becoming a thing) conspire against the rest, there could be trouble. But — there’s an insurance policy!

If a greedy attacker is able to assemble more CPU power than all the honest nodes, he would have to choose between using it to defraud people by stealing back his payments, or using it to generate new coins. He ought to find it more profitable to play by the rules, such rules that favour him with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth.

Blocks Rely on Previous Blocks

A common misconception is that miners are mining into the blockchain to break out a block and collect the rewards. But more accurately they are mining a block with hopes of adding it onto the blockchain (digression; “assembling” is a more accurate visual, even though it’s an antonym for “mining”).

In other words, 1. construct a block 2. polish it 3. hang it on the one and only hook from the previous block. All before any other miner can hang their finished block on that same hook.

If anything is changed in any block, the hash (i.e. digital fingerprint) changes and all subsequent blocks in the chain are broken. Proof of work means each link between blocks is hard to generate, so you need to “prove you’ve done the work” to create it.

The only way to mine the block is by finding the right “nonce” + timestamp + transaction combo -- which takes about 10 minutes, regardless of how much computing power is on the network.2

Based on cryptographic proofs (i.e. more complicated math than most people ever want to learn), it’s incredibly hard to go back and change previous transactions. So you’d have to get the longest chain + go back and rewrite history.

Privacy in Public

Understanding how the network operates is fairly straightforward. Every node has a copy of all the transactions since the Genesis block in 2008.

1. New, unverified transactions are continuously broadcast to all nodes (stored in the memory pool or “Mempool” if you want to speak crypto).

2. Miners check which chain is the longest (i.e. has the most blocks).

3. They take the last block’s hash, compile transactions from the Mempool into a new block and start guessing numbers (remember; nonce <> timestamp <> transactions = find a hash below a certain limit)3

4. If you find your proof-of-work, tell all the other nodes and they’ll quickly verify it. Miners don’t want to waste time when there’s no incentivize left on the block they’re on.

5. Nodes check to make sure there’s no funny business (invalid transactions) in the block.

6. See step 1.

Math

The end of the paper highlights a couple fancy looking calculations that essentially boil down to how likely it is for Charlie Brown is to get Lucy’d out of their coins.

It gets exponentially harder after even a few blocks have been mined. Unless you control a ton of the computing power and get lucky to re-mine the blocks before the honest nodes/miners. In which case (as mentioned before), you probably could have just earned rewards and fees without undermining the network that you’ve invested so heavily in.

Makes You Think

That last paragraph leaves open an interesting area. If there are actors that A. have a ton of compute B. don’t care for/disdain the legitimacy of Bitcoin and/or C. want to undo some recent previous transactions, how safe is the network?

There are some countries + companies that come to mind, but this author isn’t nearly qualified enough to dive into that geopolitical mess.

If your gut leaned left, you’re probably an explorer! Or you might have gamophobia (fear of marriage/commitment). Or a fear of 1950s TV show housewives (LucilleBallphobia?).

When it came to understanding the Bitcoin whitepaper in 2010 -- and most of my college education -- I went right, probably due to mild ergophobia (fear of hard work). More realistically it was laziness.

I like the uncharted parts of the map, so this is me on a monthly basis. The first blockchain fork (puns will get much better, I promise) was March 2010 in the basement of a Harvard science building.

A friend handed me the Bitcoin whitepaper as an option we should consider for our Applied Math 50 final project. I understood almost none of it after reading it twice, was way more interested in sports, and was a much bigger fan of the alternative option of calculating how often underdogs won in the NCAA Men’s March Madness tournament. After all, the expansion from 65 to 68 teams was slated for 2011.

Our final presentation was 5 minutes/12 slides1 that will make you laugh + cry. 

Easy Fork

We got an A on the project and the class -- I only got 4 in 32 attempts, so hold your applause -- in ~80 hours of work on the project. We celebrated and never thought about it again. Honestly, it took me 10 minutes to work through Gmail cobwebs just to track down that presentation.

Hard Fork2

When we decided on the project in March 2010, Bitcoin was under a penny per coin. Just 9 days after our final presentation was when Laszlo spent 10,000 BTC for 2 pizzas -- so transactions were rolling at $0.0041/BTC in May. Mt. Gox was still 4 months away. Coinbase wasn’t founded for another 2 years!

I still refuse to look at my May 2010 credit card statements. We spent way more than Laslzo’s $41 on the beer we used for beer pong shenanigans.

I can’t remember the classmate that shared the Bitcoin whitepaper with me. If you find a Harvard grad Class of 2010-13 that bought a private island, you might have found them. 

I do, however, remember the conversations with the professor & TAs saying “people have been talking about cryptocurrencies like bit gold for years, it’s very unlikely to work.” Given I:

1. knew very little math (thanks Applied Math 50)

2. knew less computer science

3. thought the US Dollar was the safest thing on Earth, and

4. preferred to spend my free time chasing my professional golf career

I stuck to the easy fork.

Had I gone the other way, spending that 80 hours trying to make sense of the Bitcoin whitepaper, my guess is that I would’ve earned a B+ and written a short, lazy summary of “proof of work.” (lol, ok that’s enough for today) 

So many tiny things could have changed it all. If that classmate was more persuasive. If my project partner wasn't an (All-American) athlete. If the professor encouraged us to explore further. $41 of beer money invested. A couple hours figuring out how to mine on my laptop. I might have been a crypto kingpin today. 

If Laszlo had ordered his pizzas 2 months earlier and we’d read about it, we might have invested $41 = 10,000 BTC = $500M as of May 2021. I could’ve renamed the building where I first heard about Bitcoin! 

I did end up buying 4 BTC ~4 years later at about $520/coin. In addition to being lazy, I’m also a wimp. I felt like a genius selling two of them at $2,700 and $4,200. 

“Take your profits!” 

“It’s the tulip bubble all over again!” 

...I rebought at 15x my cost. In hindsight, I would’ve absolutely crumbled and sold most of my (editor’s reminder: nonexistent) 10,000 BTC during the bull runs.

Today

Given my net worth stands a couple significant digits short of 9, I have harder (albeit, still very privileged) decisions now. My college degree opened the door to Google. I learned a lot about technology, growth, and choosing the difficulty level of your adventure. People joke that certain parts of Google are a great place to retire. Sort of like Bighead on the roof at Hooli.

But I was restless and wanted to see what else was out(/in?) there, so I pitched Area 120 and got funding to start a company within Google. That failed pretty quickly for fun reasons like cookie-licking (what an under-used phrase).

I started a company outside of Google and grew it to over $1M in revenue in 6 months. I lost interest after getting yelled at for the 14th time by clients. So I tried to start my own product companies. Those failed, too!

tl;dr

“Cool story bro, what’s the point? Why should I still be reading?”

I decided to stop working and take a year off. At first it was a couple month paternity leave to help take care of my newborn. In that time, I stood at the fork and admitted to myself I don’t have the right skillset to build the world I want (for my son & I) to live in. 

I’m probably not going to learn the sea level pressure inside of rocket engines, or figure out the best use for CRISPR, or sort out quantum computing (aside: I tried to help the team at Google Research. Help, I did not.) but I am going to learn how blockchains work.

And I’m going to document what I learn, how I learned it, and -- maybe most importantly -- ideas on how blockchains can be applied. Sort of the opposite of my Applied Math 50 experience. 

Maybe the fork on the left isn’t as dark or scary as it seems. Given my math & writing prowess, it’s probably way darker.

The aim is a mix of Stratechery for Blockchain and Wait But Why. If Ben Thompson or Tim Urban ever read that sentence, I’ll probably faint. Then retire. 

I doubt many people will read this -- and that’s perfectly ok. It’s my commitment mechanism to stay on the path. Who knows, maybe a few others will take it as a nudge toward making a similar decision when they’re standing at their fork.

p.s. if your path may lead to $500 million, please encourage me to invest