Tag: ethereum

The Venn of blockchain and AI

I’ve been thinking about the relationship between blockchains and AI lately. Both are emerging foundational technologies and I think it’s no accident they are both coming of age at the same time.

Multiple writers have already expressed this view:

AIs can be used to generate “deep fakes” while cryptographic techniques can be used to reliably authenticate things against such fakery. Flipping it around, crypto is a target-rich environment for scammers and hackers, and machine learning can be used to audit crypto code for vulnerabilities. I am convinced there is something deeper going on here. This reeks of real yin-yangery that extends to the roots of computing somehow

From Venkatesh Rao: https://studio.ribbonfarm.com/p/the-dawn-of-mediocre-computing

I think AI and Web3 are two sides of the same coin. As machines increasingly do the work that humans used to do, we will need tools to manage our identity and our humanity. Web3 is producing those tools and some of us are already using them to write, tweet/cast, make and collect art, and do a host of other things that machines can also do. Web3 will be the human place to do these things when machines start corrupting the traditional places we do/did these things.

From Fred Wilson: https://avc.com/2022/12/sign-everything/

In both writers’ examples, blockchain helps solve some of the problems that AI creates, and vice-versa. I’m reminded of Kevin Kelly who said, Each new technology creates more problems than it solves.

Blockchains and AI have a sort of weird and emergent technological symbiosis and I’m here for it.

So the brain flatulence below is just my way to think aloud, using the writing process to work through the question(s).

*Note: when I say “blockchain”, I include what Fred Wilson calls web3 and Venkatesh calls crypto; there are just a few canonical applications that we’re all familiar with (namely, bitcoin and ethereum); and when I say “AI”, I am thinking about the most popular machine learning models like GPT3 and Stable Diffusion

*Note also: I am just a humble user of these new and powerful AI tools, and can barely understand the abstract of a typical machine learning research paper; so part of the reason why I’m writing this is to find out where I’m wrong a la Cunningham’s law

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A blockchain is a tool for individual sovereignty; while an AI is a tool for individual creativity

A blockchain operates at maximum transparency; while an AI operates largely as a black box

A blockchain clearly shows the chain of ownership and history; while an AI… (does something like the opposite in the way it aggregates and melds and mutates as much data as possible?)

A blockchain is “trustless”, in the sense that what you see on-chain is the agreed upon “truth” of all its users; while an AI is (?), in the sense that what it generates is more or less unique to the specific prompt / question / user (and even this can change as the model is updated, or new data is added]

An AI is much easier to use than a blockchain

An AI can create vast quantities of content, very cheaply; while a (truly “decentralized”) blockchain is limited by scalability and cost

An AI is centralized (to a specific company, or model, or data set) in the sense that decision making rests with a team or company; while a blockchain is decentralized and decision making is distributed

A surprising user experience – as in, an unexpected but delightful output – is typically net positive for a user of AI, while seeing something happen on a blockchain that you don’t expect would generally be pretty bad (yes, of course there are airdrops)

Blockchains are a competitive threat to industries with a high degree of centralization (such as fiat currency issuance, and payment networks); AI is a competitive threat to many individual online workers (such as language translators, and freelance writers, and basic QA/QC employees)

Both blockchains and AI have multiple open source products that can be forked by developers

Both blockchains and AI are platforms upon which many other products and services can be built

Both blockchains and AI are technologies that exploded into the popular consciousness in the last 10 years

Both “blockchain” and “AI” are very broad suitcase words, in part because they are both the product of many technologies combined in innovative ways: for blockchain that is everything from cryptography to smart contract programming to PoW mining to distributed consensus mechanisms; for AI that’s, uh…well everything listed here and more, I suppose

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I’ll end here for now, but let me know what I got wrong, what I’m missing, and what questions or ideas this might inspire

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Addendum #1: I asked ChatGPT

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Addendum #2: This NYT article notes that SBF (“Sam Bankscam Fraud”) donated at least $500M to organizations researching AI alignment and AI safety. Not exactly the kind of symbiosis I want to explore, but worth noting.

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Addendum #3:

Blockchains can only give precise answers, while AI can give approximate answers or even fabricate answers

Blockchains are censorship resistant, while AI is centralized (most are created by small doxxed teams) and have implemented restrictions on usage (most have rules against, for example, CSAM or nudity)

Podcast notes – Vitalik Buterin talking post-merge on Epicenter: “Core devs want role to be as technical as possible”

Podcast notes – Vitalik Buterin (After the ETH Merge) – Epicenter

Host: Friederike
Guest: Vitalik

50% of blocks are OFAC compliant – “it’s a concern…but important not to overstate it”
Means non compliant transactions have to wait 2 blocks instead of one (on average)
Near-term solution – MEV boost will have transaction inclusion lists added – similar to what MEV-Geth (?) did before
Social slashing is a meme that’s gone too far – shouldn’t hard fork to delete censoring validators
“Optimistic that things will improve quite a bit”

Should validators have agency?
General idea is to make validators as dumb as possible – just run code – maximally dumb pipe-y – more predictable and easier to run a validator
Argument for making validators smarter / opinionated – could serve as second line of defense

Doesn’t trust threshold encryption – requires 50% honesty assumption
Suspicious of honesty majority assumptions – should have paths to recovery if dishonest majorities occur

MEV smoothing – Justin Drake’s fave idea – treat non optimal bid acceptance as invalid / non availability condition

How much of a problem is MEV?
Many kinds of MEV – some is a problem, some isn’t
One class of problem – outright exploitation (eg, Uniswap ETH-USDC, sandwich attack)
Some MEV is unavoidable / benign – eg, arbitrage if prices change during block confirmation, keeps prices synchronized
Don’t want proposers to need to update software to keep pace with MEV algorithms
Can’t count on dapps to mitigate MEV – “always gonna be dumb devs somewhere”
There are MEV minimizing architectures – eg, off chain order matching before sending to Uniswap / onchain DEX

Some (eg, Paradigm) argue MEV inevitable – and thus building solutions to capture MEV in somewhat decentralized way is necessary (eg, Flashbots)
Flashbots has prevented centralization of layer under them (the stakers) – but has turned into centralization vector itself

The Surge – danksharding requires trusted setup, should we worry about it?
Low probability (1 of 1000s?), but important to move away from trusted setup over time
Other approaches have too many tradeoffs
KZG now, roadmap for removing it as better snark tech catches up

Phase 1 – Proto danksharding – could be early to mid next year
Phase 2 – go to 16mb, split up data load – will be gradual nodes transition

Core development bandwidth limited, prefer solutions that are more distributed / third party
Examples: Account abstraction strategy – 4337; Rollups
Danksharding – benefit is split off development effort, core devs have simpler problem / less work, rest of work is on community, can get something out much faster

Concept of in-protocol fees going to specific dev teams – has been discussed before and rejected – trying to minimize governance
Core devs want role to be as technical as possible, avoid social value judgments
If can go back 8 years, pre-mine 3M ETH for long-term fund for soul-bound governance, maybe — but need to live with ecosystem as it is today

Centralized chokepoints in L2? Sequencers are centralized
Decentralizing sequencer is very important – multiple approaches and tools, balance complicated constraints (security, legal)
-In-protocol auction to buy up sequencer rights for future slots
-In-protocol proposer mechanism

$3B in hacks in 2022 alone – how do we protect normies?
Defi hacks have been in applications he doesn’t use and would never endorse using
Some in community have more aggressive ideas of what they wanna do onchain and will overshoot
“Best we can do is slowly expand frontier of what can be done safely over time”
Uniswap safe for long time, MakerDao, better DAO governance contracts – this safe space will grow
“Do better job of communicating difference between safe zone and crazy zone”

What must we get right in 2023?
“I’d still say scalability…there’s a limited time window”
If we don’t solve by next bull market, overwhelming chance that forms of scaling that sacrifice trustlessness will dominate, will be hard to come back from it

Podcast notes – Sam Bankman Fried (FTX and Alameda founder) on Invest like the Best

SBF – founder of Alameda Research, FTX, before that at Jane Street, one of world’s youngest billys

What’s your Truth North?
Day to day – efficient markets, does the risk engine work, does product design make sense (eg, equity markets currently are not 24/7, but it shouldn’t be that way, it’s more a historical artifact)
More generally – philanthropy (effective altruism / utilitarianism), how can I maximize my positive impact on the world

Lots of organizations having lasting impact on long-run future of world, the trillions of people to come after us
What’s become clear is society has no fucking clue what to do about pandemics – not restricted to just one country – even the countries thought to do well initially, economies stalled out, and not clear path forward
What would it have taken for us to be in a much better place?
1. Took a year after covid hit to begin distributing vaccine – could have had it in 2 months
2. Early detection systems, better vaccine production systems, reduced regulatory time for testing / approval

How much is society putting in to prepare better for next pandemic?
“I don’t know…zero?”
Doing things to solve this can save tens of trillions of dollars, and have enormous impact

What’s perfect state of markets?
Start with latency – how low does it need to be to capture most of economic value – as close as possible to release rate of new economic information
Milliseconds is probably enough
NYSE is milliseconds, but then it’s closed overnight, and on weekends and holidays – “which is sort of insane”
Always open is pretty important

Another easy win: Order books should be free and publicly available
That’s whole purpose of exchanges – so why hide it, except for people paying $50M/year – trading firms are paying it
Crypto exchanges – fees come from transactions
Equity exchanges – service is mostly a commodity, so only proprietary stuff is their data
Amount of intermediation is insane – mobile app, clearance custody, prime brokers, equity exchanges – all these intermediaries take fees, slow things down, add tape
Innovation slows down too – if exchange wants to move 24/7, needs everyone else to change too, “weakest link component”

Reasonable trading fee is 1 or a few bps (basis points) – larger fees mean less efficient pricing, less liquidity, less overall economic activity – total net fees not just matching engine fees

Crypto represents a migration to better end state – always on, more transparent, globally accessible

State of fairness in crypto markets today
-most important thing is transparency about transparency (everyone agrees what market structure looks like)
-having a level playing field to start with (it’s still a total mess, but less so than 3 years ago)
-eg in 2017 lots of Japanese got excited about bitcoin, but bitcoin price in Japan was a lot higher than rest of world (10% arbitrage opportunity) – exact opposite of inefficient market
-today these arbs still exist – eg, Coinbase trading higher than Gemini for weeks at a time due to flows – driven by lack of liquidity, idiosyncrasies with some assets (eg, Tether), lack of integration with fiat / banking

How to solve a lot of this?
“Stablecoins” – useful to move within the crypto system
eg, USDC – can move 24/7, fast and on blockchain, remove reliance on wire transfers

How much fiat inflow has actually gone into space?
Higher bound – Crypto market cap = $2.5 trillion (this was an old podcast)
Lower bound – $100B of stablecoins outstanding
Probably $400-500B in actual fiat has invested (20-25% of total market cap)

What will change the ratio – most financial institutions are PLANNING to buy bitcoin at some point – they now have mandates to get involved, but they all say “they’re not ready yet”
Should materialize in next few years
Probably the ratio will get closer to one (of actual fiat inflow to total market cap)

Huge demand for good infrastructure in crypto – exchanges still crashing during busy times

When SBF first entering crypto, hardest part of the crypto trade was the wire transfer
Lots of inefficiencies in traditional financial infra – wire to Nigeria is 10%, credit card fees are 3%
Crypto rails can help fix this – eg, all social data posted immediately on-chain, means a tweet can immediately be liked on Facebook, or a TikTok video can be instantly published to Instagram

If you’re in crypto and you’re not thinking extremely hard about regulation and compliance – you’re making a huge mistake

Must remain dynamic / flexible in long-term planning, to adapt to constantly changing environment

Crypto trades almost as much as US equity ($200B in global daily volume) – but US itself is far behind
Crypto is totally new asset class, born 5 years ago, and now is almost as large as the largest asset classes

Reasonable to find strategic parts of ecosystem to put bulk of regulations – eg, any centralized exchanges, or fiat-to-crypto conversion points
“Take steps in right direction” to protect consumers, detect financial crimes – will address most of large points of concerns, and help crypto ecosystem to thrive

There will be stable coins in world – if US bans them, then it will go to EUR or CNY

Why are derivatives so important for markets?
-in every asset class, there’s more derivatives trading volume – if you don’t need physical delivery, derivatives are more economically efficient
-average trade doesn’t require to get the actual thing (eg, a stock, or gold, or oil)
-so it requires less assets on balance sheets, more efficient markets, lowers capital requirements and transaction costs

What competitive differentiation among exchanges
-cross-margining (eg, FTX allows collateral to applies across multiple assets / trades)

Thoughts on paid acquisition
-most FTX users came from Twitter, from user memes and endorsements
-don’t buy FB / Google ads
-for hardcore traders, product is what drives it
-for new / casual traders, name recognition matters “and we’re way behind on that” (compared to Binance or Coinbase)
-want not just recognition of FTX the name, but create a powerful association
-only a few endorsements matter – should be extremely choosy

Thoughts on user generated asset era
-are books UGC? Sort of, but historically the gatekeepers are bookstores and publishing houses – it’s author UGC, but with bottlenecks and gate keeping
-before, 7 asset managers drove equity markets, now it’s social media and asking friends – Tesla is great example, people taking choices into their own hands
-NFTs are UGC, direct to consumer
-tokens / token economies are flourishing around the world, but not in the US due to regulations
-ultimately it’s good, more efficient markets, more dis-intermediation, and more curation will emerge naturally

Right now, there should be many Layer 1 blockchains, competition among them, to see what emerges
What’s end game that matters the most? 1 billion users using a chain, trillions of dollars using a chain
To get there, need millions of TPS (transactions per second)
You want to maximize composability, even across shards
If you don’t get there, you won’t be primary player to facilitate all the activity that’s required

5-10 TPS is not enough to be general purpose medium, but it DOES allow you to move bitcoin around – “has potentially a large role in the world” – it’s a different thing from ETH or Solana

Most economically efficient thing is single centralized server
Decentralized blockchains have maybe 10K servers? Will always be less efficient
Blockchains will be connection layers – across more efficient / centralized services

What he thinks he’s good at:
–number of concepts he can hold in his head, and reason about
–make sure not to lose the important threads
-maybe relatively better RAM (flexibility)
-not so good at long-term storage of info and facts

His wealth / fame has changed how people interact with him, but not huge change in his day-to-day life

All the expected value is in the upside tails not in the median outcomes, and you should take that seriously – often the right path is the one that might fail
As world speeds up and becomes wackier, this becomes more and more important
Acknowledge things that sound crazy and unlikely may not play out that way

When he started FTX, he was most optimistic on his team about success – thought it was 20%, team even more pessimistic
But even he was way under-estimating the upside
Straightforward EV analysis was the correct one

Most kindest thing anyone’s done for him: lot of people in effective altruism community have been dedicated and selfless, making personal sacrifices to seek the altruistic upside

Podcast notes – Preethi Kasireddy on key web3 architecture – Tom Shaughnessy of Delphi Podcast

Guest: Preethi Kasireddy (Dappcamp founder)
Host: Tom Shaughnessy

Architecture of web3 application
https://www.preethikasireddy.com/post/the-architecture-of-a-web-3-0-application

Formerly Coinbase engineer, and a16z partner (enterprise and consumer, less crypto at the time)

Then she built Truestory for 2.5 years, building blockchain social network, skin in game for online comments, too early for it

Then started Dappcamp – trains web2 engineers on web3 tech
Idea spawned from devcamp lecture
3 week intense bootcamp

Smart contracts are backend code – removes idea of centralized webserver – all logic + state on Ethereum
ETH is your new backend

Securely communicate with ETH blockchain via nodes (json-rpc)
Alchemy, Infura are node providers – provide API endpoints – faster to start, more secure, easier to scale
Centralization risk, but benefits > costs

ETH is deterministic state machine
Users must initiate transactions using private keys
web2 version = user + password login, which provides the service with your key(s)

IPFS, Swarm = decentralized storage = separate network for data storage
Store media on IPFS, IPFS provides hash to that file(s), you save that hash on blockchain
Most IPFS users don’t also use Filecoin, and instead pin to their own server / node, but Filecoin incentivizes true decentralized storage
“IPFS can be competitive with AWS in future…but will take a lot of time”

Querying ETH database is surprisingly hard
Etherscan is amazing – scans ETH for every block, every transaction
The Graph is a service that does all this for you
diff apps also build their own (eg, Uniswap API endpoints for Uniswap-related data)
Read-only, not for posting to blockchain

web3 isn’t more complex than web2
just a different paradigm (eg, gas fees, private keys)
technically, apps can pay for users’ gas, to remove / abstract away

ETH methods for scaling
1. Payment channels (Lightning, Raiden)
2. Sidechain (Polygon) – most popular now
3. Rollups (key difference: execution is done offchain, and post data to ETH) – will take off in a few years, lots of work to make cross-rollup communication possible

Composability – all ETH L1 smart contracts can talk to each other

Most excited about innovation in Starkware, Optimism, ZK-land (instead of dapps)

“Ethereum fan girl”
ETH has lost market share in recent years
Avalanche accepts EVM and builds off it – EVM has a lot of staying power

Podcast notes: Crypto whale Tetranode on Bankless

Ethereum whale Tetranode on “how to become a whale”

What is a Tetranode?
Quake game reference

Played Starcraft a lot growing up

Calls himself a “retired software engineer” but still works 100 hours/week
It’s a compulsion, doesn’t feel like work

First 4 years of crypto he just hodled – built discipline

Initially crypto community on reddit, moved to Twitter

Eventually bought a house with crypto gains but still drives a Toyota

Several levels of wealth
1. When poor, just want more money
2. Make millions – self-retirement, freedom
3. Then you wanna make others rich

Early investor in FunFair but held through crash, learned the importance of execution

For investments, he wants to know he can be the biggest customer – so he can help / influence

Measures his wealth in ETH
“hardest money on Earth”

Why bullish ETH in early days?
Angry that bitcoin didn’t scale (during block wars)
Started buying ETH at Kraken listing in 2015

Why not alt L1s?
None of them really solve the scalability trilemma – just make different tradeoffs
At his scale, security issues become greater

Experimented with Fantom and BSC – but bridge UX wasn’t good, and bridges are dangerous for larger transfer sizes

Why does decentralization matter?
The consequences are fat-tailed – eg, censorship resistance
Centralization adds risk – eg, Binance regulatory risk, and CZ keyman risk

Don’t do buybacks – causes a project’s treasury to bleed and doesn’t help project in long-run

What he values: Large addressable market; How the product helps his own needs

Farmers he respects
-@Pleyuh
-@DegenSpartan

How does Tetranode move markets?
Either through online influence or direct market actions
He’s not a true market maker like 3AC

Info asymmetry exists even in Ethereum – its value should surpass Bitcoin based on activity and fees alone

Better to make own judgments early than wait to be validated later (when your alpha is gone)
Trust your tuition to make the call

How are whale games played?
With smaller investments he can control the market and will do things like liquidating short sellers
In a few whale rooms where they can collab to make those decisions

Nowadays he makes money by #1 Farming and #2 Being advisor for new projects
How he helps: Tokenomics advice; Market making; Marketing

His favorite projects (Infinity Gauntlet)
-Dopex (highest conviction) – his most used L2 app
-Redacted + Olympus (partners)
-Fei + Rari
-Rocket Pool (only decentralized staking pool)
-Curve (tokenomics is among best)

Governance doesn’t really work in 2022 – voting isn’t binding, controlled by a few large hodlers – it’s more “decentralization theater”
Profit sharing is more effective (eg, Curve)

1/3 of his portfolio is on L2
Lending market is a weakness currently, need more uptime assurances
Ideal L2 has fast withdrawal time
ZKSync is holy grail but no generalized EVM compatibility yet

In long run, ZKP is end game (because open source)