"The Ethics of Cryptocurrency" Why? Radio episode with guest Catherine Flick
11:10PM Oct 8, 2023
Speakers:
Announcer
Jack Russell Weinstein
Catherine Flick
Keywords:
people
money
cryptocurrency
blockchain
bitcoin
system
nf
transactions
ethics
crypto
hype
classic
computer
computing
trade
buy
idea
called
wallet
sorts
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The original episode can be found here: https://wp.me/p8pYQY-kcE
Why philosophical discussions about everyday life is produced by the Institute for philosophy and public life, a division of the University of North Dakota's college of arts and sciences. Visit us online at why radio show.org
Hi, I'm Jack Russell Weinstein. Welcome to why philosophical discussions in everyday life. Today we're exploring the ethics of cryptocurrency with my guest, Catherine fleck. Money was created to solve problems. For most of human history people dealt with stuff they hunted and gathered it they traded it they preserved and stored it, but it was inconvenient so money was invented to make life easier. Suppose you're a rancher and you need a new barn? That takes a lot of time and would you don't have so you find someone with time and offer him five cows to build it for you? The builder in turn find someone wood and gives them three cows. Now everyone has cows and there's also a barn right? Everyone's happy? Not exactly. The woman you got wood from can't keep the cows alive because she doesn't have to care for them. And besides, she wants to eat them and where their skin. But the meats gonna go bad long before she can do this. And the builder isn't quite sure about his cows. Are they healthy, the wrong age? What quality will their meat be? Maybe the math doesn't work out either. Maybe it's not a five cow barn but a six in 1/8 cow barn. What then? And what happens when a cow gets sick during delivery? Whose problem would this be the rancher, the barn builder, the wood maker. All of this is why we need money. Money doesn't spoil it's permanent. It has consistent value. It's clearly marked. Money is divisible. $1 can be quarters, or nickels, pennies, or even half pennies. And finally, money is fungible. If $1 starts to deteriorate, a bank will provide a replacement, everyone gets something they can use and something they can carry to the marketplace. Try going shopping with three quarters of a cow in your pocket. There's another serious problem that money solves people are often dishonest. All of the above can be resolved by using precious metals as a standard or something else. Gold for example. But it's hard to tell if the gold is real pure and what its weight is the same people who will mess with the quality of the gold will also mess with the scales see need someone objective to authorize its value. For hundreds of years this was the king, his mint would divide the metals and stamp them with his insignia verifying its values. These coins as they were now called, were long lasting had shared value, were reliable tradable, and you could carry them they had become money, a symbol of trust. Also, there was one more problem. Storage, people didn't like having all of their money on them because it could be stolen, lost or destroyed by accident. So they needed a place to keep it banks. People would deposit their money and get paper receipts that recorded how much was being held for them. Instead of just trading money. They could also trade these receipts they were called banknotes. We use them all the time now, but we call them cash. And we treat it like it's valuable in itself because the government our King promises that it has value. The government has also ensured our bank deposits in case the banker is a crook or the bank fails. As I started off by saying we have money because it solves problems. I've gone through this history because today we're going to discuss the ethics of cryptocurrency Kryptos, such as Bitcoin, Dogecoin, and NF T's are all an alternative to money. They're digital currencies that people trade online, the authenticity of which is verified by a number of different voluntary non governmental groups. It's designed to be anonymous to avoid regulation, and to be an alternative to what I have been describing fiat money, currency that is declared legal and of a certain value by a governmental authority. Cryptocurrency isn't built on trust, it's built on speculation. Despite its name, it's a commodity more than a currency. The goal is to buy it with the hope that it gets more valuable over time, especially since fiat money becomes less valuable with inflation. This has led a few people to get very rich a lot of people to lose everything and most everyone else to feel like they're being left out, because they don't know how to buy, sell or even access the crypto markets is cryptocurrency the wave of the future? If so, how do we manage it ethically? Is it a risk worth taking? If so, how do we protect those who use it? Is it a scam? If so, who do we blame and how do we hold them accountable? These are the great ethical questions of cryptocurrency and they're what we're going to ask our guests today. The issue it seems to me is that crypto brings to the fore very problems we use money to solve. It takes an item of trust and certified value and lays it in the shadows. It adds levels of risk and uncertainty that most of us need to avoid in order to prosper, but I could be getting it wrong. It's defenders will argue that the very reason time if rate of it or why we should celebrate it. Its virtue is that it's outside the system and untouchable by untrustworthy governments. Our guest will help us examine both sides and propose a framework to make crypto more moral. But I'll admit, I'm entering this discussion, skeptical and suspicious because I think money works and I don't know why we need an alternative. I personally don't like risk, but I know others do. And for them, the gamble is part of the fun. At the moment. Crypto is a big game promising lots of winners. On today's episode, we'll ask whether the rules are fair. And now our guest. Katherine flick is a reader in computing and social responsibility at the Center for computing and social responsibility at De Montfort University, and a visiting fellow at Staffordshire University both in England, Catherine, welcome to why.
Thank you very much for having me.
To our listeners. If you'd like to participate, please share your favorite moments from the show and tag us on Twitter, Instagram and Facebook tick tock is on the way, our handle is always at y radio show rate us on iTunes, Spotify, your preferred podcast platform so that others can find the show and listen to all 15 years worth of episodes for free, as well as our sister show philosophical currents at our website, why radio show.org That's why radio show.org And as always, this show could only happen with your support. We exist solely on listener contributions. So click donate in the upper right hand corner of our website to make your tax deductible donation through the University of North Dakota alumni foundation portal. Alright, so Katherine, with this topic, we really have to start at the beginning. So can you explain to non computer people what cryptocurrency is and how it works?
Right? This is always the challenge, because it's not as simple as money. And you explain that very well. It's not as simple as something that we use and sort of cows football. And so really, what it is, is a very open book, it's an open ledger. So what happens is, if somebody let's say, I would like to give you some cryptocurrency, we essentially go to this book, I write down, I'm going to give Jack 100 Bitcoins, and then the book allows us to understand that that is the transaction that will take place, and then you will receive the currency and then the book will be have the record of that transaction publicly available to everybody. And there's a whole kind of system that goes behind that, that supports that, that makes sure that I can't write it in and then erase it, or I can't write it in and then give you 200 coins, for example. Right? So there's it's basically an open public ledger that shows how, what transactions have been made within this system. And so really, like you said, there are different sorts of crypto currencies. So the different coins and that's often where people get a little bit confused because they sort of think well there's so many different sorts of coins but really all of these are all these are just different books and they're different arrangements that people make to transfer value between them essentially. Now what the coins actually are is they're not actually really things like they're really just a you can cut them into a you know a billion pieces if you want to. They're really just essentially a lion in a book that says I've paid Jack 100 coins or hunt you know point naught naught naught one of a coin or something like that. So, that's I guess that's the simplest explanation.
Yep. So so this open ledger is the blockchain, right? So when people use that term blockchain, what they're referring to is this, this ledger, this spreadsheet, this this accounting system, now you say it's publicly available, so if it's publicly available, why does everyone talk about cryptocurrency as if it's anonymous, as if it's kind of secret? How can it be both public and secret at the same time?
Well, see, the trick is it's not actually really secret, because obviously it is public. So what you do is instead of me, saying, Katherine flake has given Jack Weinstein 100 Bitcoin it will say, bla, bla, bla, bla, bla, numbers, numbers, numbers, letters, letters, letters, big long string of numbers and letters has given big other long string of numbers and letters 100 coins and if the idea behind crypto to begin with was that every time you make a transaction, you would create a new long set of string of letters and numbers. That would be the kind of the holder for the currency for that transaction. And they called wallets because they sort of are, you know, similar to the wallet you would carry around with you in your pocket, right. But the problem is with that is that people got lazy and people got I guess they they couldn't be bothered really to deal with lots and lots and lots of little transactions, each having their own wallets so they condensed them all into one wallet and people will tend to start using the same wallet for different transactions. And that allows people who are good at investigating the blockchain to kind of trace back different transactions. And if there's anything that then is some, they can basically bring in other information from parts of the internet. For example, if I on a website that I buy a, I don't know a piece of artwork from and it has my it'll have my wallet identifier, this that big, long string of numbers. And if I say on Twitter or something like that, hey, I just bought this artwork with my name attached to that message, then you can actually then use that to trace back Ah, so Catherine owns this big long string of numbers wallet, we can then trace back all of the transactions that I've ever made with that wallet or any of the money that's ever come to me through that wallet. And so it's really a pseudonymous approach rather than a completely anonymous approach, because it's able to be, you know, given the right data in the right places, you're able to kind of investigate and work out who it who it is really,
why, why is privacy? So important? What what is it that the crypto community has in mind that they're so focused on? Most of them anyway, keeping this as anonymous as possible?
Well, they want the digital version of cash. So cash itself is anonymous, right? If I give you $100, there's no record of the fact that I've given you the $100 necessarily, if I couldn't give it to you in person in like coins or cash, there's no record on that cash or on those coins that I have give that that was me that gave those to you. So you could go and give that to your hairdresser or some something and somebody like that, and they would not know that that particular coin or that or that particular money had come from me. So this is the this is what they're trying to do with with with cryptocurrencies is to anonymize it in the same sort of way that cash is anonymous, and they want a digital cash, because there's nothing equivalent to digital cash right now. I mean, we have digital, we're able to transfer money around, but it's always got some sort of identifier. And so this is what they wanted, wanted to pull out from, they wanted to get out of that system that you were talking about. They wanted to get out of the fiat currency system that is very identifying. And they wanted to get into a way that we can do things as easily offline with cash online.
I mean, this is a version of the same question, but but why is that privacy? so valuable? What what? I mean, is is? Is it A, is it a fetishization of privacy? What's going on there?
Right. So I mean, I guess it also helps to talk a little bit about the politics in which this has been developed. So really, this came out of a kind of a libertarian side of technology, that just kind of likes to be independent of large institutions. And so really, the idea was to, if they could set up something that's decentralized, because it's also like, there's no central authority for these cryptocurrencies. It's all done by peer to peer ledger writing. So you know, everybody gets a copy of this ledger. And so that's the updates kind of filter all around a whole network of people. So there's no one person that's, that's in charge of it. So that so this, this was, yeah, basically, it came out of out of this idea that these, they wanted to be outside of the system, because they wanted to be able to be able to transfer value around without having to deal with potentially with taxes, potentially with, you know, fees for money transfers, because back when it started, which was rent was early, late 2000, notes 2009 2010, I think it was somewhere around there. It was basically about, it was around the time when it was still quite expensive to send money digitally outside of your country, basically. So if you didn't have a direct bank transfer, you'd have to use something like PayPal or others other money transfer things which had fees and things so people wanted to be able to avoid that they wanted to be able to avoid, like currency exchange fees, and things to transfer money overseas as well. So there are lots of there were lots of sort of reasons why they wanted to get outside of the system. I think the political one was the big driver, one driver, but then people who found the utility and be able to transfer money around without having fees or having to pay taxes. They found that quite useful as well. And then of course, the main driver for cryptocurrencies in the beginning really was to like the main circulator of money was things like drug purchases, and you don't really want to have your name attached to transfers of money. To people who are selling drugs, because then that can potentially implicate you as well. So the privacy there was really important. And so, yeah, basically, that's that's the reason that they wanted privacy and where they slipped up over the years is where were some of these big drug busts of these big online drug markets were picked up was picked up through people doing that kind of forensic deciphering of who was attached to particular wallets that I was telling you about before. So it's quite an interesting way that this the privacy and anonymity got destroyed fairly, fairly rapidly throughout throughout the process.
Do you think that this early association with illegal activities has created an unfair reputation for Bitcoin?
I don't think there's really anything fair or unfair about it, to be honest with you, I think it's it's a it's is what it is, right? I mean, that was what it was useful for. So people used it for that, because there wasn't any alternative. So one of the things that I mean, cash is the main driver of the main payment form for buying drugs on the street, right? If you go down to your local truck dealer, you're not going to whip out your credit card and give them a whole bunch of information about you. And then and you and them you, right, I mean, it's you give them cash, right. So they wanted to, it was a perfect way for, to kind of also drive the utility of this light. So it was I think They latched on to this and said, Hey, look, this is actually a really good way to pay for drugs online. because there hasn't been a safe, quote, unquote, way to do that, in the past in terms of privacy. So it was actually the main driver, I suspect, if there hadn't been the drug market online, then it probably wouldn't have taken off much at all, except amongst a bunch of hardcore enthusiast. So I don't I think it's probably fair, because of the way the way that it you know, it was used for this. But I mean, fair or unfair is I think not not really the question here. It's about is it isn't a reasonable Wait, reputation for it to have had? And I think, yeah, definitely very reasonable, because that's what it was being useful.
In, in one of the surveys that you did for your research, there was someone who you, I felt that was representative who felt that Bitcoin was or cryptocurrency was, was really useful, because our major governments are going to collapse in 20 years. How much of this is skepticism about large scale government? How much of this is doomsday saying how much of this is the extreme libertarian view that the entire system is so rigged, that it's going to fall apart?
Well, I think you've got to also then put put place all of this in a historical context, right? So we came through the global financial crisis in which, you know, a lot of people lost a lot of money. And the people who ended up hurting the most were the people sort of at the, you know, the bottom end of things, right, and the people who didn't have so much money. And I think that it's that this, so they already had examples of, of the fact that the, you know, the major institutional systems that were in place, were able to kind of crash and potentially burn, and it might not have been quite so bad this time. But you know, next time, it's going to be even worse. And I mean, so you can kind of understand that there was a lot of skepticism about the, you know, the reliability of the institutional frameworks. I mean, there's obviously there's, there's always been kind of, kind of libertarian talking points about, you know, the sort of corruption in these in these systems and things like that, as well. And so there's, there's that side of things that they wanted to get, you know, they wanted to try to come up with this perfect system that didn't require people to be making decisions. It was just the software that that that was the law is one of the ways they used to put this one of the ways they used to talk about it. So yeah, I think that that they are trying, they were trying to sort of solve a problem. But I'm not sure it's one that really existed outside of kind of hypothetical. And so yeah, I mean, yeah, I think I think yeah, that's that's where where it really is.
How How, how political how vociferous, how deeply felt are the political debates. When you get when you go to a conference or when you're on line and when you give interviews and the kind of reaction How is it as is is aggressive as say the American debate on guns where people are just over the top all the time.
I mean, it is quite aggressive. I don't think it's quite as aggressive as the gun debate, mostly
because people don't have guns.
Well, there's a lot more people around the world who use cryptocurrencies and they're in much more regulated gun regimes, right? So it's maybe not quite so bad. But, I mean, there's certainly a lot of so there's actually a few different camps now. And what's really interesting is how that's changed over the years. So back, when I first started doing my research, which was back in 2011, I had a whole bunch of very, you know, hardcore libertarians getting very upset about the fact that I was suggesting that perhaps, you know, Bitcoin could be regulated, for example, or that. And so they got very upset with me and sent me a lot of very nasty letters. And at which point, I decided I didn't have the mental energy to deal with that sort of thing and stop my research. But more recently, these days, you get what are called, like, there are different sorts of caps now, right? So there are what are called like the, we tend to call them in the skeptical world. The Bitcoin truth is the ones that say that Bitcoin is the only cryptocurrency and it's the pure, the pure cryptocurrency that should be the one only one that's allowed to exist, and everything else should be regulated. And then you get the ones who are kind of like, well, you know, it's a free, it's a free world and a free market. And, you know, we should let the market decide and all that side of things, and they can get quite upset. But I think the the more overarching debate tends to be with the people who have bought into crypto currencies or crypto assets like NF Ts, and who are very upset about the fact that they've potentially lost a lot of money. And so they tend to kind of lash out at anyone who's likely to criticize the whole crypto economy system, saying that, you know, that we're the ones who are bringing it down. And that, you know, it's it's our fault that we want to we're causing it to be regulated when it's not necessarily us. It's doing that it's government's realizing that actually, these are securities or whatever. And, yeah, it's it's a different sort of world. Now, it's not just just the libertarian arguments that you get, it's a lot of the a lot of people who've thrown a lot of money on into the into a space where they, they had hoped to be one of the winners, and they're actually the ones who have been left with the bag. And we often talk about the greater fool theory in cryptocurrencies and crypto assets, where really, the only way for people to make money is to be able to is is if they find a greater fool to sell their assets to so if they find a greater fool to to buy their bitcoins from or their NF T's or whatever it is, that's the only way they can make money. So if they're left at the bottom, trying to sell, trying to sell when there's no market, then they've lost the money that they have invested, basically. So it's they they're the ones who tend to be quite aggressive now.
That's the perfect moment to take a break because this greater fool theory leads us to the question of ethics and whether or not there can be an ethical framework, this idea that what you're looking for is someone to take advantage of, in some sense or another leads us to the great ethical questions. So let's take a break now. And then we come back we'll jump into that ethical framework. We'll talk about the ACM Code of Ethics and Professional Conduct and see where we go from there. You're listening to Katherine flick and Jack Russell Weinstein on why philosophical discussions about everyday life, we'll be back right after this.
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you're back with why philosophical discussions about everyday life on your host of chakra so Weinstein, we're talking with Katherine flick about cryptocurrency and the ethics behind it. We've just spent some time trying to figure out what it is and how to make sense of it all. And we ended up with this discussion of the greater fool theory, this idea that what you're looking for is someone who was more of a fool than you to take your assets. You know, by the time you all listen to this episode, I will have had my 54th birthday and anyone who is my age will have grown up with movies that had Very, very specific depictions of computer. I don't like the term geeks, but I'll use computer geeks, computer nerds, computer enthusiasts, movies in particular, like war games, in which anyone who was seriously involved in computing likes to live on the edge like live outside, and that hacking was a sport and that in the movie WarGames, Matthew Broderick ends up hacking into the global defense network. And, by the way, if you haven't watched it, or if you've watched it in the 1980s, it still holds up. It's still a great film. I just saw it again recently. But there's this reputation of computer folks being unethical. Hacking for sport, liking to push the boundaries. Katherine, I want to ask you, is this in any way, a fair depiction of the computing community? And what kind of ethical frameworks are there? In general, for computer science? Before you started working on the ACM, the Association for Computing Machinery ethical code of conduct?
Right, so the first question, are hackers, still hackers, right? And I think so the word has been a little bit reclaimed. I mean, the hacking, it was always a word in computing, computing, to talk about kind of using tools in ways that are unexpected, or creating things in in, that are kind of playful, or, you know, have some utility, but maybe some slightly odd utility, like, you know, counting the number of birds sit on a tree or something like that. But so these days, there are still hackers, and they're still in terms of the like, classic kind of, you know, bad guys hacking into your computer kind of hackers. But they tend to be kind of, they're a different, they're a different sort of thing these days. But they're also hackers and makers, which they sort of tend to, to call themselves and I'm part of a hack space. And which is a space for people that like to create things and do interesting stuff. And I also run a big hacker camp every, every couple of years help to help to run that.
Okay, that's too vigorous. Let me let me What is i Hackspace, a hack camp for people who like to do interesting things. That's, that is I'm gonna push you out. What kind of interesting things are you talking about? Because that sounds a little. I need more information.
Right? Okay. So I mean, hackerspaces, and hack camps tend to be for people who have, I mean, it's often people who program people who are artists, people who like to create, like, you know, who like to run an errand, we do knitting, we do all sorts of strange bits and bits and bobs, but it's about creating things and about hopefully creating things in a way that's kind of socially beneficial, right? I mean, not not, there's not necessarily a drive to do that. Like there's a requirement to do that. But that tends to be people people are interested in things for art and education and kind of pushing pushing the boundaries of existing tools and things so you know, it's a classic kind of, you can use a hammer you know, you can use a screwdriver in multiple ways, right? The classic ways to screw in a screw with it, but actually, if you really want to, you can use a screwdriver as a hammer, you can use it as a, I don't know, a thing to prise open a tin of paint, you can use it for, you know, all sorts of different different things, right? And that that would be kind of Klosters as hacking with that screwdriver is being used outside of its intended intended use. So there's, I mean, there are people who do that, right. And that's tends to be hobby hobbyists there. But there are lots of, you know, there's a lot of more recent things like like people working with Raspberry Pi's. So Raspberry Pi was came out of a hack, a hacking kind of mentality where things are open things are fats, a little computer, little tiny computer. Yeah, sorry. The Raspberry Pi is like a little tiny computer. And people can use it to run like entertainment systems or run programs that listen for bird calls and you can and tells you what birds making that call. So you can plug all sorts of little things into it like speakers and headphones and stuff. We're kind of getting a bit off topic here. But anyway, but the point is, is that hackers are, you know, there are different flavors of hackers and they're not all bad, right? And one of the things I like about the hacking, hacking space and the hacker and maker spaces that people do try to be quite thoughtful and and respectful of of of society right. They don't try to make things that just that the harm people or that that classic kind of move Hackers might might do, right? And I guess it was ties back into kind of things like codes of ethics, hackerspaces and hacking kind of conferences and hack hacking camps, and things tend to have quite stringent codes of conduct and codes of ethics because of the fact that mostly like, in tradition, traditionally, they've catered to some of the more marginalized people in the computing world, just to start with and computing, computer geeks and computer nerds have traditionally been kind of a marginalized group, right? You know, there's in the classic kind of geeks versus the jocks kind of way, right. So there's always been this feeling that that computer people are outside of the mainstream. And I think in some ways, they like to keep it that way, in some ways, they sort of, you know, but they want it, they also want to bring, bring, and open that up to anyone who's who's also interested in participating, right. So you have to have the ability to be be risk, you know, you have to have the ability to come to an agreement about what the norms of behavior are going to be within those sorts of situations, right. And then, I guess this thing comes back to the ethics side of things, what was there before the association Computing Machinery, redid their code of ethics. So there was actually a previous code of ethics, and it's actually been various ideas of codes of ethics within professional computing, for all club for quite a few years, actually, at least, you know, for 3040 years, or something like that. It was mostly about profession is more about professional ethics. So a lot of it came from other perfect, like, the sorts of ethics that would see in other professions, so things like, you know, be honest, be, you know, keep confidentiality, those sorts of those sorts of classic ethical requirements that you would have of a profession. But then, certainly in the 1990s, which was when the first Well, one of the the main ACM Code of Ethics was developed that that started to bring in very specific computing requirements. So things back then it was things like, make sure you keep your server rooms locked, and things like that. So it's all about things like physical security, it was about things like don't misrepresent what a server like what what a system might be able to do, it was about making sure that the code that you're writing was, was, like, was was robust and things like that. So yeah, so that that was what was there before, it was very much very, very geared around professionalism. And one of the nice things about the rewrite of it was that it opened it up not just about professionals working in professional spaces, although it's still very much geared to that, but it was opened up to any aspiring computing professionals. So anyone really who wants to work in this field can actually look at this code of ethics and help and use that to help them make decisions about potentially complicated ethical quandary that might come up during their what they what they do with a computer.
Would a cryptocurrency ethical framework, be a computer ethical framework? Or would it be an economic ethical framework? What what sphere of ethics? Do you look at when you start to think about what it means to have an ethical cryptocurrency?
Well, I mean, I think I want to push a little bit back on that, because I'm not sure it's possible to have an ethical cryptocurrency and ultimately, my resort. Right? So in this case, this is actually how you described it in the very beginning, right, is that you said it was about it was built on speculation. And cryptocurrencies, the only way that they are able to be have any value is through trading. And there has to be an incentive for that trade for those traits to meet to take place. There is also this thing called mining, which is how the that big open book with the ledgers how that verifies the transactions that are made and all this and that, actually, there's a lot of drive with that as well, but that there's no point in doing any mining, unless there's actually people who are willing to trap to transact with with this currency, right. So the only real incentives to actually make transactions with this is that is that other people are using it says there's a couple of them, right? One is that other people are using it will and will accept it. So if I want to buy a pizza from you, and you say, Oh, I only accept Bitcoin, I'll be like, Ah, right. Now I have to go and find some bitcoin. And so that will be a couple of transactions that are made, right. There's another reason that people do it. And if they think that they're going to make money off the transaction, so there might be some system that they go through that much like kind of currency. You can make money off trend, trading in currencies with things like exchange rates and stuff like that. In the Fiat world, and I'm not an economist, so please may not be getting is entirely right. But there are there are ways of making money through through transactions. So you know, you try to buy at the peak and you buy at the low and sell at the peak, that sort of stuff, right? You know, all these sorts of classic trading kind of things. But this is all based on speculation, right? So the idea is that, if you buy now you want to make sure that you buy at the low, and then you sell it the high. So there's a lot of impetus behind you know, how do we how do we get the currency to be high? Right? How do we how do we push it up? How do we boost the value, so that when I sell my cryptocurrency on it's gonna be worth more than what I bought it for. And so the ways that this because there's no real, to be honest with you, apart from the drug market, which is also mostly fallen apart these days, because it is now you know, people can actually find out who buys stuff on the drug markets, if they're very, very few real life scenarios where you actually would be paying with Bitcoin, or whatever. So these kind of classic transactions where I might pay you some bitcoin for something that, you know, you give to me, they don't really exist, really. So it's mostly just people transacting amongst themselves trying to get better deals out of each other. Or, you know, maybe they might buy an NF T or something like that, which is, I'm sure we'll probably talk about that in a bit as well. But yeah. So the speculation then drives that and the only way that the speculation then works is if you are somehow pumping, pumping up the currency in the way people do that is that they go on, and they hype it up in in, they they pay celebrities a lot of money to hype things up, they go and buy ads at the Superbowl, they try to, you know, say Oh, like like, they tried to sell people the concept of being outside of this, and, but they also try to sell to people, the classic kind of, you can make a lot of money trading in this right, which really, when you think about it is an unsustainable thing. Like there's no way it can always ever continue to go to go up without going down at various points, because somebody has to, you know, eventually, like caching their vast holdings, right, and then that drives the value back down again, because they want to sell at that the peak or what they consider to be the peak. So the fact that you have the speculation means you've always got someone who loses out right, and I just and the way that it's set up, and the way that it's hyped, and the way that the fact that it's it there is not really a market outside of trading with within the system is I don't, I'm not, I mean, that there's, there's there's a lot of schools of thought, Well, there's two schools of thought. One is that that's fine. And you know, that's just how people you know, the wild west of the Bitcoin economy or the cryptocurrency economy, that's just how it should work. And the other side is that actually, this is problematic because you're selling an idea to vulnerable people who perhaps have lost a lot of money in traditional investments or in you know, the global financial crisis or whatever, you know, the they need extra money because the cost of living has gone up. And they they see this investment opportunity that you've sold them that says, Oh, you'll get 20% back on your investment, because Bitcoin is the future. This is the problem that I have with it. And I don't think that this this the way that it's set up, because there's no external value, really for it, it's really just a playground in amongst itself is really is not set up in a way that it can be considered ethical, because of the fact that the harms done to the people who are most likely to be vulnerable people outweighed by any good, which I mean, I don't think there's really a lot of good apart from people having fun gambling, essentially.
So So part of the issue here is that when people speculate on commodities, like pork bellies or something like that, there is an objective thing. There's there's pork futures, there's pigs, there's there's bacon, there's a market, that we have some sort of sense of what that value is, and that people will buy and sell it because bacon is either more or less than in demand. But the cryptocurrency is so completely divorced of that, that it's entirely about reputation and speculation, which is, which is largely about manipulation and taking advantage of the vulnerable. That's what your argument basically.
Yeah. And then at least if the Pope, if the pork market goes bottoms up, you've still got some pork you can eat, potentially, right. Whereas, you know, at the end of the, at the end of the day, if the if the cryptocurrency market goes, you know, bottom up, there's nothing you've got absolutely nothing. You don't even have a physical anything that you can potentially trade with your neighbors in a post apocalyptic you know, scenario or something like that. Right. So it's, it's, it's so divorced from any sort of Reality, it really is only, it's only built up within itself for itself. And it's it's a completely. I mean, they, it's commonly compared to the whole chiller market thing that happened back in women's at the 1600s or something can be the future the tulip futures but at least the tulip people, the people that bought tulips from the flower markets in Holland still had the tulips they could potentially grow. Right. So yeah, it was, it's not a great system, I think in terms of ethics.
Now, there are for sure people who are listening to the show who are yelling at their podcast right now, who are who are who are taking offense and saying you're misrepresenting? Or that there is an ethical thing, what what's the argument against your position? What are those people screaming at you right now?
Well, mostly, they're probably screaming that I don't understand the system, because that's usually what I get. But I have a pretty good understanding of the system. And I think that the thing that they tend to get upset about is the fact that it's, it's in early days, this is one of the arguments here is that you hear quite frequently Oh, but we're just in early days, you know, there's lots of future stuff coming in the future that this is going to be useful for. And, you know, look at look at all these others, like there's a lot of other systems that blockchains can can can support and all of these cryptocurrencies help to kind of make those systems work and and they're going to be the future the cryptocurrency is just going to be the, the mechanism by which we go on to build more complex things like the metaverse, which, you know, is like web three, and all of these kind of other you know, these dowels, which are like, kind of, like distributed. I have a, quote democratic unquote, communities that make decisions based on how much cryptocurrency you have and stuff like this. So there's a whole bunch of systems and they're going to say, yeah, the cryptocurrency is like, you know, bits, yes, it's speculative for the moment. Yes, it's, you know, it does tend to leave people who are buying in now worse off than people who had bought in like, you know, two months, five years, 10 years ago. But look, it's still going, it's still going to go up, it's always going to go up. It's, it's, you know, people if you even if you buy in now, you're still going to get a return on your investment, but you might have to wait a certain period of time. You know, you just gotta hold on to that investment. You know, they talk about things like diamond hands having having diamond hands, you never going to not going to lose you're going to drop your your cryptocurrency, you're going to sell it, you got to hold on to it. So yeah, I think that's probably the main the main argument, a lot of it has to do with futures that don't haven't come to pass yet, basically.
So the system, the system is in its infancy, there's a lot of problems to be resolved. And if we just have faith, and if we buy into the system, eventually, it's going to be it's going to let us flourish in this virtual world and other such things, which sounds a lot like the hype that you were talking about in the Superbowl. Right. It sounds like a city built in speech. To Exactly yeah, to quote, right, you in the midst of that you expressed skepticism that this was democratic. Why isn't this a democratic system?
I think the the most the most accurate description I've heard it was that it's a it's a kleptocratic society. It's about who, who could steal the most cryptocurrency and really, when we see there's a really good website that you can go to that shows all of the the hacks the failures, the row pools of, of companies that have kind of tried to set up in this in this space, called Web three is going great. And what it shows is that there are a lot of people who could because there's a lot of money tied up in this stuff, right? There's a lot of real people have used real money to buy bitcoin, right? Or other coins. And a lot of it is other coins. I mean, coins are often called so people have used real money to buy that. So there is actually some real there is still some real money value somewhere, right somewhere. It's a bit lost at the moment because it gets it gets a bit lost in the system. But I mean, by loss of the system, I mean, the person that you originally bought the coins from has that money, right? But yeah, but the because there's a lot of theoretical money running around in this So theoretically, you could sell your coins in the future for a lot of money. So there is theoretical money in this, people have targets over their head if they have a lot of it, right. So that makes them vulnerable to people who like to steal, you know, do classic kind of scams or classic phishing kind of scams or, you know, click on this link in your email, and we'll give you a free phone or whatever, those sorts of like scams and things like that, right. And this, there's a lot of a lot of stuff that goes on in this space. And because it's in a space, that's not heavily regulated, there's no real recourse for any of this stuff. So people whose money is gone, it's gone, you can't really call the police because they don't really know what to do with it. And, you know, there's no kind of like the bank, the the kind of the banks of crypto are not insured, like your, you know, government backed banks would be. So any deposits you make into those are not, you can't get them back. And so when actually entire, like companies that run big, they call kind of they call currency exchanges, right, because they tend to exchange between different different types of coins and for real money as well. When they go under, they tend to take everybody with them. And people tend to leave their money in these exchanges, because it makes it easy to transact with it. So it's it, there's a lot of, so it's not really, I mean, it's a bit of a kleptocracy at the moment, because whoever steals the most tends to win. Now the Democratic side of it, that I was kind of talking about what these were called Dows, which are, oh, gosh, I have to look up what they stand for again. But they're all decentralized autonomous organizations, here we go. So a Dow is a decentralized autonomous organization, which is basically like, it's a community, it's a group that comes together and decides that they're going to organize it for some sort of purpose, right? So it might be so a really famous one is that a Dow got together a whole bunch of people who were very enthusiastic about the film, June, which was a fairly recent one, you know, and the whole books, the books behind June, and there was a book up for sale, that was the original like screen. It was a book about with all the original staging of a film for June, and these people came together, and they were like, We want to buy this, and then we can make the film, right. And because it's going to be really expensive, let's all get together, and we'll form a Dow. And what this dow will do is show everybody, you know where the money's coming in, and when we're going to spend it and like it has this kind of whole like system that that shows kind of, theoretically, it's transparent. But what it also has is voting rights, so you can vote on what to do with money in the system that's in the system, you have to buy in to get the to get a membership of the system, and then you can vote. But what ends up happening, what ends up happening in these systems is that the people with the most votes tend to win. And the People app tends to be the people who bought the most tickets for the votes, right? So the people who bought the most memberships, and you can buy multiple memberships. So yeah, I mean, the the dune Dow thing was spectacular failure, because they they didn't realize that if they bought the book, they didn't actually buy the rights to make a film. But there have been other days where the person who originally set started the Tao off has been voted out of the deal by the membership. And because they didn't like what they were doing. And I mean, there were a whole bunch of things like that. But what's ended up happening with Dows is that people who want to influence the system tend to just buy up most of the shares, essentially, so it becomes a bit like, yeah, it doesn't, it doesn't it's not as democratic as they would like it to be, it tends to be more. What's the word when you have a person with the most money is the is the person who makes the decisions, really, in all of our situations? oligarchy, thank you so much.
Sure, I do. You know, again, right. I could imagine someone saying, well, but you're describing just messy democracy, and you're describing the way that stock markets work and that and that you're holding Bitcoin, or you're holding cryptocurrency to a different standard, because everything that you're describing happens in the non virtual world, too. So is Is that a fair criticism? Or is there something worse going on?
I mean, it is a fair criticism to a certain degree, right? I mean, yes, that happens in real life. It doesn't mean it's a good thing, right. That happens with real life either. But I mean, yeah, I think that that, I mean, the thing is, they also they it Part of the reason of coming up with this system because, you know, if you want messy democracy, do it in Messy democracy ways, right? Like, do it the old, like, you don't need an online system to do that right? Or this particular you don't need this very specific cryptocurrency underwritten type system to do that. Yeah, I mean, there's lots of ways of doing community organization and voting. And I mean, we do that with with shares and shareholders right classically, so you don't need a cryptocurrency backed vert way of doing this. The thing that they want to say, though, is that they want this to be better than the knee existing systems, right. So the idea is that it should be a lofty, there should be a lofty goal for it to be more democratic, quote, unquote, than this, the current systems that we have, that really it's, and the fact that there's no kind of central authority is key to that in their minds, right. And, I mean, the, in sort of modern, I guess, democracies, we see central authorities as playing a role of, you know, regulator of, you know, responsibility taker. And, you know, other other roles that kind of come come with having that sort of power, right. In these systems. They want there to be no central organization and no central authority. So, so really, it comes down to the, the way that it's been programmed for certain systems, so they talk about coders law quite a lot with so, you know, if the if the program if the, the computer if the, if the computer says no, it says no sort of thing, right, and use a classic kind of mean, I guess, in that way, but, but they also want it to, they want to take away what they see to be a stumbling block or a roadblock in in kind of the economies of the future, which are these central regulatory spaces. So the institutions, so they want their spaces to be more about, like, whoever I guess, I mean, it's a pretty classic libertarian thing to write if you if you're doing well for yourself, and you've, you know, you you've earned a lot of money, because you're, you make good decisions about about your investments, or you're a hard worker, and you get paid well, and all that, then you should be rewarded for that, right, by having more saved perhaps, than someone who's not made quite so clever decisions as you have etcetera, right. And so that's kind of there's that, that that kind of thread has come through in the development of these systems, where it's like, supposed to be kind of like a meritocracy in some ways, right? The people who, who, you know, merit the the most votes or the the most power should have it. But I think that really, they're trying to kind of do two things at once. They want to have this decentralized site space, but they're re centralizing it in a social way. So the space itself in a programmatic way, is decentralized. So the software itself doesn't care. You know, who's like, who has the if somebody has the most, or if everyone has equal shares, right. But the social structures that are part of these systems, which there are massive social structures, I mean, they usually there are discourse, there are Twitter accounts, there are, you know, ads in the Superbowl. There are hugely social structures that accompany the programmatic side of this, that are definitely not neutral that are definitely have an agenda and they they talk to each other, and they collude with each other, and, and all these sorts of things go on. Right. So it's, it's not as pure as they would like it to be, I think, to think it is. And I think that they're struggling with the fact that the software itself might be you know, as I say, neutral and a non ethical term, because that's a whole other story, right? May be neutral to the power that it has. But the social structures, just they just can't help but come back again. And this this, you know, we are social creatures, right? We're humans are not, we're not going to be code as law because we were going to find the code unfair at some point, or we're going to be upset with the decision that the code makes. And so we want to go talk to somebody about it or organize with other people about it. So I think it's a they're running into a real problem where they want the technology to be the driver, but actually, it's going to come back and come back again, that it's the social side that is going to be the main driver of of how this develops in the future.
So is it fair to say that the rhetoric claims that the ethics lie In the computing aspect, but in fact, the ethics lie in the human aspect and stats and that it's a misdirect because people keep thinking of it as a computing problem when it's really a people problem.
Yeah, pretty much. I think, you know, I mean, all compete all technology problems, really, when it comes down to it are people problems? Right, right. Because technology and society is so well intertwined. You can't really separate them out from each other. I mean, we don't create things. There's, there's no, I mean, there's the classic Langdon winner, right? There's no artifacts have politics, there's no, there are no neutral technologies, there's always when you develop technologies, you're always putting your values into those technologies. Right. And I mean, there were very specific values that that that the crypto engineers have put into the systems that that they've developed, but it's, yeah, very much a social enterprise, right? It's, there's no, you can't divorce yourself from that. And I think that that's where the rubber is hitting the road for these crypto, crypto asset spaces, is that they can't ignore the social side of it. And in fact, the social side of it is so important for firstly, the the, even the like, all the hype cycle behind it, it's, it's crucial for the, for them to make money off it. But then they try to kind of hide behind the technology and say, Oh, but the technology's neutral, the technology doesn't, you know, blah, blah, blah, they try to hide behind that when when the, the chickens come home to roost, with regard to you know, trying to actually regulate this stuff, or trying to find out who's responsible for stealing a lot of money, or for who might be responsible for, you know, mis selling securities or something like that. Right. So yeah, I think I think it's, there's, there's a big conflict within that space for developers of crypto technologies in that they need to really understand the social side of what they're developing, and how to make sure that that's a better beneficial thing. And I just don't think that that's really possible.
Eventually, I'm going to ask you whether regulation is possible at all. But before that, I do want to go down the NFT road a little bit because you alluded to it. Our NFT is non fungible tokens, are they attempts to ground this problem of external value? Is it can you explain what an NF T is? And why it's different? If it is, from say, a Bitcoin or Dogecoin? Or something like that? What? What is the philosophical purpose of NF Ts and what do they accomplish? And what's the problem?
Right, so, yes, you're right. So in NF T's are an attempt to kind of bridge this gap, right? So on the blockchain, you can have trans you record transactions, and the transactions can be of coins like Bitcoins, or currencies or like Bitcoins, or they could be of really I mean and certain blockchains so not all blockchains support this So Bitcoin, the Bitcoin Blockchain doesn't actually support this well, quote, unquote, the classic Bitcoin blockchain doesn't support this, but blockchains like Ethereum, and that's the main one that's been used for NF Ts. Ethereum allows you to to essentially track other sorts of transactions. So an NF T basically is a little piece of it's a little contract, essentially. And it basically has some programmatic code in there. That explains what it is that this transaction is off, essentially. So it might be of a piece of artwork, right, let's say these are the classic. There's the classic NF T's that people have heard about, you know, the apes and the crypto punks, and things like that, right there digitally created artworks, there are a whole bunch of really ugly monkeys essentially. And people seem to like to, to collect them, for some reason, and I'll get into that reason. But basically, the classic one is that it points to an image of what that artwork is, on in within this programmatic code. There might be some other information about what happens if you resell the NFT on so there might be some royalties that go back to the original artists. That's one of the things they wanted to put into these NF T's. But originally, I mean, the original people that came up with it, it was just supposed to be a proof of concept that showed that you could transact other things on a crypto on sorry, on a blockchain. And so therefore, that opened up the space that, well, we're not just going to be trading currencies, we can be trading anything, right. So the idea is that you can really use these Ledger's to track any sort of transaction. So there are lots of people who think that the future is having a I like legal contracts. So for example, if I, if I sell you my house, we could actually potentially do that on a blockchain. So using all of the mechanisms of the blockchain, it could register that I've sold my house to you, and that you are now the legal owner of my house. And there are things like that. So sales of actual physical objects. Also things like provenance of art is another use case that people have talked about things like tickets to, you know, concerts or sports events, things like collectibles in video games, people are using, you know, these sorts of things they want to, and they are in fact, using the NFT system to kind of transact right to to, to buy and sell. Now, the problem with these is that, well, there's a few different problems. The main problem is
let me interrupt for just a second because that was super complicated. And so let me just make sure that I understand it. So the goal was to take this virtual system and say, you don't just have to record the ledger in the blockchain. These virtual interactions. Yeah, the exchanges, you can exchange anything, you can exchange a house, you could exchange a ticket, you can change anything. So let's take these things, this, this, this virtual artwork, and use them as placeholders in order to show that anything can be traded. And so we're going to we're going to use these placeholders in order to symbolize exchange in the non virtual as well as the virtual world. But then the placeholders themselves became objects of trade and value. And so these, this digital art, which was supposed to symbolize all you can do, are themselves becoming objects of speculation. Is that a fair interpretation?
Yeah, that's exactly right. Yeah. Okay. So now go. Yeah. So the issue with this is that alright, so firstly, the blockchain itself, the ledger is immutable. So that means that you can't change it, once you've written something in it, you can just update. So you basically, it's bit like in a in an accounting ledger, where, you know, if if you make a mistake, you can't like it, you have to basically just add more lines to the bottom, you can't just go in like, you know, erase bits of it, because that's, there's various accounting fraud, I think, is is involved in. So Cyclopedic. Yes, right. Yeah. So it is so so the the ledger at the blockchain itself, you can really only add new lines to it. You can't delete any previous lines. Now, the problem with that is that it runs into a whole bunch of privacy law, particularly in the EU in the UK, where we have quite stringent privacy laws. So if I sell you my house, there's a whole bunch of stuff that's usually within a sale sales agreement that has a lot of identifying information. And that's problematic to basically put on a publicly facing immutable ledger that you can't change if, like, you know, there's a whole bunch of law in the EU in the UK that says, if, you know, I should be able to update things like my name and my address and my phone number if I want to, or I should be able to delete that information from anyone that has it that isn't me. And so you can't do that within a blockchain. So that kind of next is a whole load of the these ideas that people have the there should be these the ability to transact certain sorts of like legal, like legal contracts, like houses or cars or whatever, right. So yeah, so and also means everything people talking about things like using using the lasers, like being able to have your own medical history with you as an NF T and things like that. So I mean, these can get quite problematic when you know, when when you actually start to drill down into what what some companies actually want to do with with this technology. But the classic kind of ones are the let's say, the art works, right. And the problem with those is that a bunch of people who are very good at marketing, got a lot of got no so this collectability thing and they push this collectability thing and they said all these are the new baseball cards, or the new, I don't know, collectible, whatever the collectible card game hype is at the moment, right? Amongst the kids and the adults. This is the new thing, right? And this is the and they gave them a whole bunch to like celebrities. So there's some classic celebrities like Paris Hilton, Jimmy Fallon who had some of these apes and they like they either gave them to them or they sold them to them for a really small amount of money. And then they know part of the requirement of that was that they hyped them up on it. It was a whole lot of hype. And once again, just like the cryptocurrencies the height was an order To boost the value of these collectibles theory, the art is art, right? And then the people who already owned it then would have like sell it off at a higher price than they paid for it. And there, so that's 111 problem with it, right? There's this boosting, right? And the hype boosting and then, you know, the kind of the poor suckers at the end who by now, now, they you've probably seen the newspaper article recently where it talks about how 95% of NF T's have no value now, right? And that's really, uh, you know, that's, I mean, there are some problems with that study. But I think the overall story isn't a isn't a bad one in that, you know, these things just had no value. I mean, the only value they had was in the aesthetics of the art. And, to be honest, a lot of those were scraping the bottom bottom of the barrel, right. So yeah, so I think that's, you know, then there are these NF T's that are associated with things like video games and video games, one's really complicated and really problematic, because people would actually get pay people in developing countries to essentially farm these NF T's like you would in a video game, there's a lot of repetitive actions that you can do in order to get like rewards. And in these particular video games, or awards, were these NF T's which you could then sell on the open market. And so what these enterprising individuals were doing was, we're paying poor people in the Philippines, particularly, to spend all day sitting on the video game, doing these repetitive tasks, and then taking a cut of the sales that would be made of the rewards for those tasks on the open market. So there was a lot of exploitation going on there. And at the time, when this was a big thing, which is about a prob about a year ago, now I was I was, like, really found that problematic, and not just a kind of exploitation mechanism, but there was a lot of colonialization kind of overtones there. In terms of the, you know, the people doing the exploiting and, and people being explosive. And these sorts of ecosystems have kind of built up and a lot of them have lost a lot of their value now. So they're not worth doing anymore, thankfully. But that doesn't mean that, you know, the next one isn't around the corner, right, the next kind of hype cycle for another similar exploitative thing. So these are all based on these NF T's. And this idea that you can sell these kinds of things on a on a mark in a market, and they have some potentially tangible, like thing. But another issue with the NF T's is that a lot of them hyped up, like they made a lot of promises about what the future is going to bring in terms of what you can do with the NF T's. So some of them are supposed to be like tickets or memberships. And so just like you might buy a VIP ticket to the baseball, which gets you a nice box, and I don't know, I don't I've never had a VIP ticket to the baseball. So I don't know when it gets to you, but it might get you some nice food and a drink or whatever. The idea is, you could buy this NFT and it would get you access to a club or a concert or something and you get a VIP treatment there. And I mean, some of these have happened. But usually what happens when you get there is the VIP side, or, you know, the the the people who bought these NF T's, you know, it's not quite what they thought they paid for. Or, you know, in the worst case scenario, these people just disappear overnight, and they just take all the money and there's no way to get the money back. Like Like I was saying there's no recourse once you've given your cryptocurrency for an NFT. That's it. So there's a lot of problems with NF Ts, basically.
So we have at this point we've had Kleptocracy, oligarchy, exploitation, hype and fraud. Yep. And before I ask you the regulation question, you hear these stories of both theft, and you hear these stories of, well, a person had $100 million in their wallet, but they lost their password, and now they're out, they're out $100 million? If there's nothing you can do. Is there is there truth to these stories? And is there any mechanism to protect someone from just having their cryptocurrency or NF TS or what have you just disappeared.
So the only way you can protect yourself from having your whatever crypto assets or whatever. The only way you can have can protect yourself from those disappearing is to essentially go back to the old the original way that Bitcoin was originally supposed to be kind of handle which was almost like, physically in person. So you would actually take your wallet, your wallet number, and you'd write it down on a piece of paper, and you would physically give it to somebody and they would do the transaction and then you would like it would be that they would transact directly to your wallet. So these days, most of the transactions go through these exchanges and they They're all and all of the wallets are stored kind of online. If it's kind of complicated, technically, but that's kind of what it is. But if you have a wallet, that that the number is only written down on a piece of paper that you've got stashed in the, you know, a safe in your house, then it's and the key and the keys to open that are only stored with, you know, in that safe, then that's the only real way you can can protect yourself. The problem is, is that in order for the these crypto exchanges, to be able to use your wallets, they have to have the keys. And that's that, as soon as you give your keys over to somebody, essentially, that's when all this problem all these problems can happen. But it makes sense for people to do that. Because otherwise, it's a really, really hard user interface onboarding experience, because people don't want to have to deal with long strings of numbers. They tend to want programs to do it for them. And so there's this real, once again, it's the social side that they hadn't really kind of planned for coming back to bite them. Because people don't want to deal with the actual hard parts of privacy and secrecy and cryptography. They want to just kind of have it work. And there's a trade off whenever you create, whenever you create something that's supposed to be secure or private, there's always a trade off with usability. And this is the problem that they've run into, right. So some people are now looking to see if these things can be regulated by some sort of government or whatever. I mean, it's basically impossible. The only real regulation that we're seeing is kind of more regulation in terms of the, you know, the sticking method for companies that are doing problematic things. So fraud and, you know, particularly securities fraud. They're the only real regulatory sides we're seeing. So the FTC is getting a lot, yet FTC and the SEC, yeah, they're doing a lot of work in terms of regulating the companies that are operating in the space. But in terms of the actual, like, your own personal wealth, I suppose your own personal assets, there's not really a lot that can can be done.
And, again, one little bonus question, because this is this is the the key to all of this stuff these days. There's also the environmental impact that that cryptocurrency has a tremendous footprint. Why is that?
Right? So classically, the original Bitcoin and the original Aetherium blockchains, were what are called proof of work. So blockchains. Now, the way that blockchains work is that there needs to be an incentive for people, like the legend needs to be verified, right. So if I just write down that I'm gonna give you some money. And, you know, you read that, and I don't give you the money. That basically, what happens is, programmatically speaking, the the transaction isn't verified, so that it doesn't actually get updated onto the ledger properly. It's complicated. But basically, that what what the Verification Mechanism is, is it ensures these transactions go through. And the way to do this is what is by what's called mining, in proof of work blockchains. And the mining is essentially every transaction that is placed on the bid on the ledger goes through several different like people check it, they double check it, and what these what what I say people computers double check it. And what these computers do is they solve really, really complicated mathematical puzzles in order like if they in order to win the the chance to kind of check verifications is kind of complicated, but this is a problem with this is a very, very technical subject, right? It gets very complicated very quickly. So they have to solve these very, very complicated mathematical puzzles are part of this verification procedure. And what that does is it uses a lot of energy. And this is why you see people talking about like, buying lots of computers with lots of graphics processors in them, because graphics processors are really good at doing these particular types of mathematical puzzles. And but they use a lot of energy to do that. So a lot of electricity, they give off a lot of heat, they give off a lot of you know, there's a lot of burnout of these devices. So they have to be replaced really, really frequently. And there's a huge cost in terms of energy. Now it's the kind of the pro mining people will say I suppose we just use renewable energy. We just use things like gas flares from like flares from from gas deposits and things like that. You know, we don't we don't just take straight off the grid. But they do and in fact, what they do is they shop around for the cheapest possible energy prices, which sometimes literally means they have shipping containers with all of these setups for these computers. They these rigs in these shipping containers, they ship them around the US particularly looking for the cheapest energy. And it's gotten so bad that in Texas, for example, they've actually the Texas government pays cryptocurrency miners to turn off their rigs to turn off their computing systems in order for there to be enough electricity for households in Texas. So that's a pretty, you know, I mean, I mean, I would call that in another way, you know, that seems almost like blackmail sometimes, right. And so it's a really problematic space. So what this is just for Bitcoin now, these days, so when I say the, the original version of Aetherium, was also like this. But last year, they finally the theorem had been building towards what they call a theory in two, which is a proof of stake. Blockchain. And they actually shifted over for it was a it was one of those things that was coming in the future was coming in the future forever. And then it finally actually showed up, which everyone was quite surprised by. But what they did is they shifted over from this proof of work to a proof of stake blockchain. And what a proof of stake blockchain does is instead of having to solve lots of mathematical problems, part of the verification process is that you, if you want to be part of this verify verification process, you have a lot of tokens that are called stake staking tokens, and what you can do is you put them up and you say, Look, I'm going to do my part of the verification, I'm going to stake 30, Aetherium, or whatever, I can't remember the exact number, I'm gonna stake or 30 of these tokens. And that will be my insurance that I'll do it properly, right. And then the idea is that if you don't do it, probably the system will take those tokens from you. But that basically keeps everybody in line, so everybody will does it properly. So the thing about proof of steak is that the more steaks you can buy, the more likely you are to get the rewards for having state so you get you get a certain amount of cryptocurrency for a successful track verification, this is the same in the proof of work, which is the incentive behind it right. So you'll get your state back and you'll get I don't know a certain amount, I can't remember how much it is exactly, but it's worthwhile. But this takes a lot less energy, because really, all you're doing is basically waving a you know, like an auction flag around saying I'll do it. And but the problem with it is that it's it's open to a bit more. So the problem with these these systems is that you have to be careful of collusion, because if you have more than 51% of the people involved in the transaction processes, colluding together and say, Aha, let's just, let's just let's not do it properly, let's let's, you know, fiddle with it and send the money somewhere else instead, as long as you've got 51% of people have the transaction processes, like the verification processes, saying that that was a correct thing to do, then it will go, it'll be messed with, essentially, it's easy to mess with a proof of stake than it is to mess with the proof of work, because proof of work requires you to have a lot of money to buy a lot of physical systems, whereas proof of steak just requires you to have a lot of the the tokens, and that's a lot easier to do. So that's environmentally a lot better. But it's problematic in terms of potential fraud, essentially.
Right. So and again, super, super, super, super technical. But but the the gist was No, no, no, that's fine. I mean, it's it's right. It's, it's, we have to dive into it. But again, I'll offer a summary. And then I'll ask one final question. Sure. If I understand what you're what you're saying is, is the environmental cost was was based on the fact that the computers were doing this, these mathematical puzzles that verify transactions, in order to stop that environmental impact. We've moved from the computer to the social aspect again, but since it's social, it's it's it's now subject to who has the most money, and who has the most friends. And so the quote unquote, objective nature of the mathematical verifications has now opened it up to the subjective nature, which then allows for fraud and collusion and other such things. And so now you're building on hype and fraud, and money in order to verify hype and fraud and money. And so you're using the same system to verify the system. Is that Is that a fair summary?
Yes. And I think it's, it's important to point out that Bitcoin, though, still uses the original proof of work. So it still uses the very environmentally unfriendly approach, and they want to keep it that way. There's, there's there's very little chance that that will change just because of the nature of firstly, the community. And secondly, the it's a lot more complicated to move to shift that One from a proof of work to a proof of stake or any other system.
Okay, so so we've got Kleptocracy, we've got oligarchy, we've got exploitation. We've got embezzlement, fraud loss, environmental degradation, and collusion is the message that we should stay away from cryptocurrency is the message that this is, pardon the pun a minefield, that that we should just walk away from? Is it just hey, if you don't mind risking some money, it's a fun game. Is it never the wave of the future? Or do you have some sense that any of this stuff can be resolved?
So I yeah, I mean, I don't think it's going to be resolved. I think it's going to be around though. And so I think that it's worthwhile understanding what it is. And knowing that there, I mean, you know, there's no such thing as a free lunch, right, you'll never a lot of the hype that's about this is about how much money you can make from it. And so that makes it very tempting for people to buy in. And the problem is with that is that it really is a gambling, it's a gamble. And so you have to be willing to lose the money that you put into it. And this is, I mean, this is also a side of the, from the environmental side. So let's, let's, let's let's, you know, put that aside, if you're going to invest in cryptocurrencies, firstly, don't choose Bitcoin, because it's environmentally problematic. But pick something else. But then you have to understand that it's fairly likely you will lose all of your money, or at least a large amount of your money, because you will need to understand that you're part of a bigger system that has a lot more money than you that is trying to essentially get you to be the last person holding the bag. So I think that that's probably the answer that that question, I would be very skeptical of anything that uses blockchain, even like there are some companies out there that are saying, Oh, we can use blockchain to to, you know, to improve the carbon credit process, you know, lots of ethical, quote unquote reasons to use, you know, outcomes potentially for the use of blockchain. But even those are always underpinned by the speculative cryptocurrency so all blockchain all blockchain tools, web three stuff, you know, video games, carbon credit systems, all of these tools and really cool environments that people are hyping up and saying, Look, this is the future of blockchain. All of them require the speculative cryptocurrency underneath. And because all of them require a speculative cryptocurrency underneath, they're going to be held to all of this hype cycle, this fraud, the collusion, the Kleptocracy, the oligarchies that are involved in the space for these cryptocurrencies.
Well, this has been a long haul, but super interesting and a lot of technical stuff, but I have learned a lot and it helped me understand both the computing aspect but also really focusing on the ethical issues underneath. So thank you so much, Catherine, for joining us on why
it's been an absolute pleasure. I've really enjoyed talking with you today.
You have been listening to Katherine flick and Jack Russell Weinstein on why philosophical discussion but everyday life I'll be back with few more thoughts right after this.
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You're back with why philosophical discussions about everyday life I'm your host Jack Russell one student we were talking with Katherine flick about cryptocurrency now it's it's it's hard to get a handle on the latest hype. And cryptocurrency is everywhere. Bitcoin NFT their articles on it. There's television shows on it, their commercials on it. And I think a lot of us experience FOMO Fear Of Missing Out and a lot of us think well all these other people are getting rich. Why can I get rich too? Well, when everyone claims that they're getting rich and want you involved, Don't believe the hype. The people who are really getting rich don't want you involved. They want fewer people around because they want to keep the money off for themselves. Does that mean you should walk away from cryptocurrency? Well, not necessarily. I think it's you have to treat it like gambling which is what Catherine had. suggest it. If you are willing to lose, play the game, but the house always wins. And in the end, you might be the person who wins the Hunger Games, you might be the person gets the million dollar payoff on the slot machine, you might get steak eyes, or whatever wins and craps, I don't know what it is. But in the end, the odds of you being that person are very, very slim. As a philosopher, what is profoundly interesting to me, is how the problems of cryptocurrency are just the problems of society. That the theft, the confusion, the hype, the default to the rich, the powerful getting to have their way with things. All of that is just the prompts of society. The question becomes, can regulation fix it? The question becomes, can governmental authorities laws, social norms? Can we have an impact in a way that pulls things into a more moderate way of doing things? And can we have a system of justice that incorporates cryptocurrency? Catherine flick says no. And I'm inclined to believe her. But as with all philosophical decisions, it's up to you. As with all philosophical decisions, you have to look at both sides or multiple sides of the issue and come to your own conclusions and act based on your best judgment. All I can do is give you the information as best as I see it. And I hope that we did that today. With all that said, if you've been listening to this episode on Sunday evening on Prairie Public, please know that a much longer version with about 45 minutes of discussion is available online and as a podcast visit why radio show.org Why radio show.org To listen or subscribe for free. For everyone else rate us on iTunes and Spotify to help spread the word about the show. Follow us on all the usual social networks our handle is always at why radio show and please help us continue broadcasting by making your tax deductible donation at y Radio show.org. Click donate in the upper right hand corner to go to the UND alumni donation portal. We exist solely on the money you provide. Thank you yet again to my guests Katherine flick the folks at Prairie Public especially skip wood our long suffering engineer I'm Jack Russell Weinstein signing off for why radio thanks for listening. As always, it's an honor to be with you.
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