Saturday, May 01, 2021
Q: Solve any 2 out of the following 5 questions:
A: Solved all the 5 questions in the allotted time of 2 questions, please check any 2 of them.
This is the confidence I need in life.
Let’s recap:
If memory serves me right, I rolled out a blog on the concept of a decentralized city - How Bitcoin, Ethereum and other technologies could result in not only a new, rather radical transformation in the governance. If you were too occupied too read my mail on crypto states, please read it here before you resume reading this blog.
We discussed how digital pseudonymous identities will be the way forward, how smart contracts will serve the purpose of immutable laws and how a decentralized nation is likely to function. We left the discussion on how the aspiration to start a new decentralized city are far more tougher than envisioning it. This blog focuses on the problems that are likely to occur in the implementation.
Smart contracts are the programmable contracts that reside on the blockchain and cannot be tampered with. The advantage of smart contracts are obvious: I have no need to trust the third party, the smart contract will execute the transaction fairly according to the conditions pre-mentioned in the smart contract. For example, there can be a smart contract for betting (One of the most widely application of Ethereum Blockchain), I can bet money on the next Chief Minister of West Bengal and expect the smart contract to transfer the money to the people who won the bet. There is no way to cancel or change the bet once it goes onto the blockchain. The problem, of course, is how to feed the correct information of the election result to the smart contract. Just as a smart contract needs to be extremely reliable to be useful, so the external data fed into the smart contract needs to be extremely reliable. The source of information from the external world are known as oracles. Several attempts have been made to implement a decentralized oracle - asking multiple nodes to fulfill the same request for data—that is, who won the election—and then reducing their reports to a median value before returning that answer to the smart contract. What makes no sense is to have a centralized oracle feed data into a decentralized network - defeating the whole central purpose of the decentralized system.
Another problem is of TAXATION. Since the transactions are peer to peer and the assets are protected by a private key, the countries are finding it difficult to track or control the economic activities and transactions happening on the blockchain. If the state and the banking system cannot see the transactions in the new crypto economy, the ability to tax disappears. Tax rates for the rest of the economy will have to go up to compensate for the revenue loss, but the tax hike will likely drive more people to the crypto economy. And so on. Some in the crypto space believe that the slow erosion of the state’s tax powers will eventually determine its final collapse, at least as we know it today. However the optimistic view held by some individuals is that the legacy institutions and the structures in the political world aren’t going anywhere and it is important for blockchain projects to be able to interfere with them. Public authorities and crypto systems might reach a grand bargain or agreement, whereby the state would be able to tax crypto-assets in exchange for security guarantees for crypto. One could even develop a form of smart contract—or chain of smart contracts—by which this agreement might be automated.
We started with a recap, so let’s end with another one:
We have seen how decentralized and open protocols are framing innovative ways to change the way governance works. The functioning of pseudonymous digital identities can already be witnessed by the way reddit works. Balaji Srinivasan talks about pseudonymous economy - with remote work and crypto and AI avatars(soon), no coworker needs to know anything about you - your accent, location, nationality etc. - beyond the fact that you can do your work.
I personally find this idea behind pseudonymous identity and decentralized nations quite fascinating.
Until next time :)
Cheers!
Some things that you may find interesting-
Article I am reading: Why Innovators Hate M.B.A.’s by Nathan Furr.
Thought I am pondering upon: Many founders aren’t hiring from Harvard. They’re hiring from Twitter. (I urge you to check the replies to this tweet.)
Song I am listening to: Seeing Blind by Niall Horan
Quote I am enjoying: “Anytime someone is worried about what other people think of them, try to remind them of the wonderfully liberating fact that basically no one is thinking about them.”
Here are the last three posts if you were too occupied to read them:
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