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Tuesday, October 4, 2022

The Value in Bitcoin, Ethereum and Open Blockchains

I do not know what I’m going to talk about today. What is there left to talk about? Everyday high prices. Wall Street puts hundreds of millions of dollars in bitcoin. Big companies are building things on Ethereum. We have DApps and LApps. The lightning network comes together nicely. 

I think we were done right? We’re done, we won! It makes no sense to even to discuss one of these things because we won! Right?!? We did it around Wall Street of us to let. I’m pretty sure that was the reason. I’m not quite sure, but I think that once we get the bankers’ approval and as soon as the giant corporations start using this technology, it means we win. 

Right? Or was there another reason why we did it? Is it possible that we should not celebrate and we should try to remember why we did it exactly? Why blockchains? Why decentralization? Why open systems? Why open networks? For whom is it? Why are we building this technology? Why are we excited about this technology? Was it to get to the moon? Or was it because a rocket was built to reach the moon and it’s actually more about the rocket, not the destination.

Want if we are smart about this, we are not going to the moon. Maybe we’re going to march. Maybe we will enter the stars. Who knows? But really, it’s all about rocket engineering, and why? Because we care about achieving certain goals. 

Decentralization is not the goal. Blockchain is not the goal. The approval of Wall Street is not the goal, or at least not my goal.

So, what is the purpose? And I’ve been thinking about this a lot lately and trying to figure out how to explain what is still important to this space and what we are trying to achieve. And what is the purpose? And ultimately, the purpose is for my justice. 

So, how do you achieve justice? And it does not work about the outcome, but also not about coming to a just society. It’s about how we live in a just society come out. Because there are some societies where justice happens more often than not. 

What do those societies have? What is the magic ingredient? And how can you do that justice? get worldwide? So for me, it’s about fairness.

And decentralization, blockchains, consensus algorithms, these are all mechanisms to bring about justice in a new way. So in order to truly understand what we are trying to do here, I bring back a story from my childhood. 

A story about justice and what the best method is to bring about justice. When I was young, then I was 10 years old, I had two older cousins – 11 and 12 years old, both boys.

And back then it was everything they would eat, day-in and day-out from fries. Or chips as they are called in England. Or papas fritas as you call them in Spanish-speaking countries. That’s all they would eat. There was so every day a fight because my poor aunt would make a papas friitas from a bowl, but the problem was that my cousins had an enormous appetite. 

And so they fight every day over this bowl, about who would get more chips than the others, about the injustice of the portions. And every day my cousins would try to cheat on each other, and that would inevitably lead to violence. You see the matter of justice is that violence is the result if you do not have a violent mechanism to do justice does not bring about.

With a 12-year-old, that violence was almost, but fortunately not, not deadly. But it certainly involved a lot of shouting and my poor aunt always offered simply to make more chips. I’m not going to pay attention to the inflation characteristics to simply offer more slide stimulus every time there is a dispute over the fair allocation of chips. Or the political system to be used to award the chips. 

There are different ways to bring about justice in this scenario, and my poor aunt tried every one. She tried the role of a dictator: my aunt makes the chips, so my aunt decides who has the chips and how many chips They have. And of course, it almost caused a revolution. My older cousin, who is quite big and was intimidating, wanted to overthrow my aunt’s dictatorship and allocate the chips more fairly. 

In all these scenarios, who decides how justice is applied, how its enforcement seems, how the political decisions and the awarding of chips are made, reflects society as a whole. And in that whole conversation, someone suggested a simpler solution and that simple solution is called split and select. This is a game.

The game works like this: my two cousins [each] play a role, one of them is a splitter, the other one is a voter. One of them can divide the slice into two portions and choose the other one what portion they are going to eat. 

Now you probably played this game as a kid, you probably heard of this mechanism to resolve disputes. What this dispute resolution mechanism does is that it make sure no one can cheat, and the reason no one can cheat is that it’s a system of creating incentives and discourses for fair behavior. It only takes one or two rounds of this game before the two cousins quickly realize that the splitter has no choice but to act fairly. If it makes the portions uneven, it loses.

If they equalize the portions, win both. And there is no scenario where both lose. All you need to do to bring about justice is to ensure that neither of the two cousins can deviate from the agreement. 

Now that agreement, the series of steps that create a result of equity, arranged by incentives and discouragement, reward and punishment, in computer science, we would call a protocol. And a protocol is merely a series of agreed steps. Usually for communication, but in some cases for arranging ‘ an outcome.

And in this model comes a unique new way to bring about justice. Here, justice is not guaranteed by a third party – my aunt does not have to intervene. If the protocol applies, fairness is the natural outcome; and this is the natural outcome in almost one hundred percent of the cases, as long as you can keep both parties committed to the equity protocol. 

This amazing mechanism eliminates the need for intermediaries. This ensures that my aunt does not corrupt, forced, intimidated to give more chips to one of her sons over the other. My aunt can not play favorites and always prefers the hungry cousin. Instead, the system simply solved by incentives. 

Now that’s genius! Can we do it on a larger scale? We went from systems where a dictator exists to systems where you have institutions to the fair enforce outcomes, to systems that are self-enforcing – where fair outcomes are the result of the system of incentives and discourses provided by a protocol, this “Fairness Protocol”.

And at the end of the day, that’s what we do. We do it in a fine way. We use cryptographic protocols. We use special primitive security such as encryption, decryption, digital signatures, cryptographic hashes, no proof of knowledge. We use all these tools to build games. 

And if we in these games create a series of steps and conditions where the participants quickly realize that the only way to win is for everyone to win, and every attempt to cheat leads to the loss of the deceiver, you no longer have to enforce justice. All you have to do is apply is that the protocol is actually followed. And it is a very simple and effective mechanism of justice.

It is a law-based system of justice in the market. It is a system of rules without rulers and this is what we do at the end of the day. It’s not about the monetary policy of 21 million coins or smart execution of contracts in an environment of DApps, the compatibility of DApps, cross-blockchain enhancements.

It’s not about this. All these things are just simple games we play around fairness protocols to create. Monetary policy itself does not work unless you have a fairness protocol. What is the equity protocol? This is the proof-of-work algorithm in bitcoin that says that miners have to commit a proof of work and if they try to cheat, they lose money. 

Nobody does have to enforce it. No one needs to go to the miner and take their money away. The protocol enforces this, as long as they remain within the protocol. So all you have to do is ensure that the participants stay within the rules and that the rules ensure fairness. Justice is not more the thing you apply. 

Fairness is the natural outcome of the protocol and all you have to do apply is the protocol itself. And of course, many people will tell you that some protocols better than other protocols. That ‘this’ protocol is the only way you can do that. That this purpose of equity is the only goal to pursue: monetary policy, DApps, whatever it may be.

But let’s do not lose sight of the [big] picture. What we have here is a pattern. What we have here is a system that allows us to achieve fair outcomes through participants who do not trust each other, without using force, and without the need for an intermediary to enforce things. All the other things come from this pattern. 

All the other benefits are secondary effects of this fundamental concept: that a system of incentives within a rigid protocol of rules achieve the results we want, without intervention, without enforcement, without third parties need to enter. We removed the aunt. We have the need for a dictator, ‘ a parent, a judge removes and thus all the problems that arise from these systems with centralization arises, removed. 

Centralization in the form of authoritarian centralization or even centralization in the form of institutions that are fallible and easily corrupt. And we succeed in creating these incredible justice protocols and even creating an environment in which people invent new justice protocols to do new things every day.

Split and select for slides was just the first step. And now we do it with proof of work for the monetary policy. We do this for payment channels in the lightning network, where two parties can work together without giving each one the opportunity to steal from the other. 

We do it with atomic exchanges that ensure that two people can exchange currencies over two blocks without any party can cool. We do this with strike algorithms and proof of the game protocols. We do it in the smart execution of contracts and DAOs.

We do it in all these different forms. But at the base, it is still the same basic idea: a fairness protocol. A simple game of encouragement and discouragement not to be applied. By thereby removing the role of the benevolent parent, we achieve more justice. We achieve fairer justice. 

We achieve justice larger scale with less chance of corruption and fraud. And since we succeed in this, the problem that many people see the consequences of success and miss the pattern. They do not see the equity protocol. What they see is the market capitalization, and what they are talking about exciting is that these idiots somehow figured out a way to make money, and we want it. 

And so they come here – the Wall Street billionaires who now suddenly believe that this is worth something. But they do not believe, because they see the protocol of fairness. They believe perhaps because they see the monetary policy it creates. But they do not understand how that monetary policy is created and secured.

They like the result, they do not understand the recipe not. And what do we do in return? Do we question the principles? Do we strengthen the line? Are we trying to understand the equity protocol and extend its use to more systems? Unfortunately not. 

What we see a lot of people doing is cheering. Cheers to the billionaires for finally determined what we all knew so far. Welcome them and listen to every word they say, as if they are wise, for they finally realize the value of this system. Do not make a mistake. 

They have no idea what the value of this system is. They do not understand the justice protocol behind it not. All they understand is that we somehow managed to make money. And they want to like it.

And here’s the problem: they will violate the principles of the equity protocol that they do not understand, abandon to achieve their real goal, which simply accumulates more money. So if you think we won by the bankers, the big corporations, to get approval by liking PayPal from us, you are missing a very important point. 

The same organizations that currently approve the system and not understanding the justice protocol behind it, will try to throw away the justice protocol. They will go back to the mechanisms they know and understand. They see a plate of chips produced and distributed fairly by two cousins and they say, “It’s amazing what you reached there. Now I have an idea of how we can take it to the next level, really scale it. Make it really it is possible for the mainstream to use. 

I know how we can put it on NASDAQ so that investors around the world can access this incredible invention. I know how we can make it! Listen to this idea … How about the aunt splitting the bowl? Yes! Right. Do you get it? No, the aunt can split the bowl.

This way we do not have the complexity of splitters and dealing with voters, and incentives and rewards and penalties we do not really do [need]. I have not do not really understand this justice protocol, it seems quite complicated. 

Now, where do I come from, like we do this is that the aunt split the pickup! You can not really explain the fairness protocol. Or object to this description. “And in the experience of those who ate chips very effectively, without much competition, which already has a plate full of chips, which does was not robbed by their cousin and subsequently beaten; it seems very logical. 

After all, what problem are we really solving? It is about the efficient production and distribution of chips. And we can do it much better if we invite the aunt into the picture again. This is the thing that ‘ An Argentine understands and a Greek-like me understands. The problem is that the aunt in this scenario our government is.

And every time we trust our government to split the pickup chips, we realize that they are actually drunk. And so what they do is: they eat all the chips and then they save both children. And they do that every day. And the children are hungry. And the parent is drunk, belligerent and full of chips. And if you try to explain it to people who have never had this problem, they see no reason for the equity protocol.

They see no reason to remove the intermediary because the intermediary has always worked for them. The same billionaires and giants that you are currently cheering for finally realizing that bitcoin is here to stay. That cryptocurrencies and DApp ‘s and DAOs and blockchains are here to stay. 

And that their innovation and value deliver all over the world. They look at these things and say, “This is fantastic. This monetary policy of 21 million coins is wonderful. But if we really do it on NASDAQ, we need to give the miners a license.

This way can make sure that none of the miners exploits illegal transactions. We also need to give a license to node operators to ensure that none of the miners processes illegal transactions. So we can really make this system great as long as all the miners, all the nodes and all the participants are identified and licensed and they work according to our own rules.

All you really need is a parent to split the slide slides. Stop applauding. Start remembering why we do it. Which is really unique to these systems we built. These are not the chips. It’s not this meal. It is a system to deliver fair results. Without intermediaries. 

And the same people who applaud you, want to present themselves again as intermediaries We talk about rules without rulers. And everyone we hear, who has a traditional view of this system, thinks, ‘If there are no rulers is not, it could mean I can be a ruler over this new system.

And maybe the best way to buy as many tickets as possible for me. possibly on this ride and maybe it will make me the ruler. ‘ We have not yet landed on the moon. We’re still building the rocket. Maybe we should remember why we built this system. T

he reason we built this system is that billions of people around the world have failed the previous systems to bring about justice. This is because we need a fairness protocol which has no intermediaries. That’s why we do it. Thank you. Hi! Thank you for watching the video. 

I’m Andreas M. Antonopoulos. I am the author of Mastering Bitcoin, Mastering Ethereum and The Internet of Money Series. If you share my mission to educate about bitcoin and open blockchains to as many people as possible to support, want to support, under open, free, creative commons licenses, consider subscribing to my channel and supporting me on patreon.com/ aantonop Thank you!

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