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In the last few weeks I have embarked on a journey that many investors have traveled in front of me. I put a figurative wet towel on my head and immerse myself in the world of cryptocurrencies.
It was very difficult. This is because, like other areas of accelerated innovation, crypto is a cult place where insiders have extensive knowledge of defining them as tribes. Today, society is divided between a small number of players with PhD-level understanding and a kindergarten audience, with little in between.
Another problem is that this world requires an extraordinary blend of intellectual skills. A friend, Wall Street veteran and math professor, Alexander Lipton outlines the issue in a book he recently co-authored on this topic. Blockchain and distributed ledger..
Cryptocurrency, The book note is at the intersection of the following three fields: “(A) Cryptography (to ensure transactional integrity). (B) Game theory (to establish consensus on ledger status). (C) Economics (to design appropriate economic initiatives).” ..
Most people may understand two of the three, but “it’s hard to master them all.”In other words, computer science knowledge is required to determine if a particular cryptocurrency is a Ponzi scheme. When finance When Psychology or anthropology.
To understand why this is important, consider the issue of “Decentralized Autonomous Organizations”. DAO,Function of Ethereum Ecosystem. These are associates, but they are run by automated computing programs (usually funded in cryptocurrencies) rather than humans to organize participants and carry out collaborative projects.
With an institution such as a regulator or a well-known bank that oversees the DAO, investors can determine whether the DAO is credible based on their level of trust in that institution. But there isn’t. Instead, trust depends on the computer code. The computer code is designed to create an incentive for all DAO participants to act responsibly (for example, it provides a transparent way to track behavior and penalizes anyone who cheats. I will receive it). ..
However, without understanding the computer code, you cannot be sure that trust is justified. Also, without knowledge of economics and game theory, you will not be able to understand the value of DAO’s activities. This allows, for example, to see if the community is jointly interested in protecting its value.
(This is not a theoretical issue. As two recent books, Infinite machine When From ether,I will explain. There was a major hack on the DAO project in 2016, The entire Ethereum system collapses Until the community gathers to save it. )
So why do so few people understand all three crypto fields? Basically, our education system has not yet trained students this way, but institutions such as banks tend to place people with these skills in different departments. The IT team is not the same as the Economics Research Group.
In the regulatory world, IT and financial oversight agencies have also traditionally been separated. And even if you think of financial regulation “just”, there is another challenge in terms of definition. In countries such as the United States, securities commodities are regulated by the Securities and Exchange Commission. Therefore, if Bitcoin is secure, it falls under the SEC.
But if it’s also a money or payment system, it should be under the wings of the Federal Reserve or the Office of the Comptroller, as many crypto-evangelists claim. If it is better to see it as a commodity such as gold, it is the responsibility of the Commodity Futures Trading Commission.
Cryptographic evangelists say they all have three tokens. But in a world where everyone can take responsibility, especially given that the scope of regulators is nationwide, but the market is inherently cross-border, everyone feels the power to actually act. It is a place that cannot be done.
Therefore, we need three pools of knowledge to understand cryptocurrencies not only at the micro level but also at the macro level: predicting the future of cryptocurrencies without or without judging the health of fiat and global financial systems. Can’t be knowledge of computing trends. (Judgments about the value of cryptography are also predictions about whether cryptographic passwords can be hacked by breakthrough technologies such as quantum computing.)
Political and social analysis is also needed to predict the future of crypto: Will the government try to control this? Can they do it? Do they work together?
Of course, such epistemological issues are not unique to cryptocurrencies. But what makes it very difficult for our institutions to catch up is speed, scale and ambition. With our brain.
So don’t be shy if you feel like I’m stuck in a crypto kindergarten. There are good reasons for this, just as regulators and organizations need to reorganize themselves for the 21st century, as do schools and universities. In the face of crypto, we need to develop curiosity and humility-not the quality normally displayed by educated elites.
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