What problems do cryptocurrency & blockchain solve? | RP 93

Hey friends!

Welcome to Rox’s Picks — a 10-minute MBA every week.

I believe that an MBA needs to be a broad, continuous education, with a deep understanding of history and appreciation for the liberal arts. Not just spreadsheets, OKRs, and kanban boards.

So each newsletter contains 3 short lessons:

• One from business, media, and technology

• One from history and the arts

• One from an elective — a wildcard category that I think you’d find interesting

Last week’s newsletter had a 49.7% open rate. The top link you clicked on was this Twitter thread of Naval Ravikant’s recommended reading list. Welcome to the 3 people who joined since then!

Enjoy.

Earlier this year, I published an essay entitled “The Paradox of Progress”. In it, I laid out a couple of questions I wanted to answer:

1. Why is cryptocurrency and blockchain such a breakthrough technology (or not)?

2. What problems are crypto and blockchain solving? What’s the scale of these problems?

I’m psyched to spend the next few weeks turning a sober, objective eye to analyze the potentials of this new technology. Now that the tech industry’s attention has shifted from cryptocurrency to AI, it’s finally time to tackle these questions without the noise of speculation, “rug pulling” incidents, and market fearmongering.

One last thing before we dive in. If you’re wondering where last Friday’s newsletter went — apologies. There was no newsletter. I took an extra week to write this week’s lesson because I really wanted to distill these ideas as clearly as I could.

That aside, let’s get into it.

Here’s your 10-minute MBA for the week:

Business, Media & Technology

1 — What problems do cryptocurrency & blockchain solve?

The first cryptocurrency, bitcoin, was invented as a solution to the problem of how to use cryptography to transfer money electronically from one person to the next. Blockchain technology came to light as a broader application of this solution to solve similar problems.

This money transfer problem has been around since the mass market adoption of the Internet in the 80s.

The problem with these earlier efforts was a lack of security as long as third parties were involved in the transaction. Either users would have to give out too much personal data and risk fraud and identity theft, or pay far too much in fees, even for small payments.

This leads us to key question #1:

How do we pay over the Internet while giving out only the exact amount of data needed and with little to no transaction costs?

We know that trusted third parties are the root cause of these leaks and fees. This leads us to key question #2:

How do we get rid of trusted third parties in our digital transactions?

This where bitcoin, the first cryptocurrency comes into the picture.

In their now-infamous whitepaper, Bitcoin inventor Satoshi Nakamoto laid out their solution to the money transfer problem as follows:

Let’s break down what each of those words mean.

• Peer-to-peer — a direct line of communication between individuals or their computers (the opposite of having a central hub that controls communication, like a national bank)

• Network — a connected collection of individuals or nodes

• Protocols — an established set of rules to be followed (the opposite of having an individual or organization making ad-hoc decisions)

What does this mean in practice?

• Instead of a central clearing house that verifies each transaction, every computer plugged into in this peer-to-peer network helps clear the transactions.

• Instead of a centralized body, the network is governed by protocols that ensure the integrity of the data exchanged amongst these computers.

This peer-to-peer network solution implied a more fundamental, underlying idea: that blocks of code linked together in a “chain” of transactions and adhere to a set of protocols, could replace gatekeeping third parties.

This idea became known as blockchain. Here’s how it works:

1. Each network operates with its own protocol of how to ascertain which transactions are legitimate.

2. Each node treats a new transaction as a block of code — a new link in a chain of transactions.

3. The longest chain is treated as the master chain.

The Bitcoin blockchain is one such peer-to-peer network with its own protocols. Ethereum is another.

Each one has its own economy. The former has lowercase B bitcoin and the latter has lower case e ethereum.

Understanding the problems cryptocurrency solves gives me confidence that it is a breakthrough technology... But not for the reasons most people think.

Most people get into cryptocurrency to get rich. But I believe that financial markets and speculation is just one application of cryptocurrency and blockchain technology.

I believe that there's a deeper underlying principle of business that blockchain solves: trust.

In a previous edition of this newsletter, I wrote that one of the two universal principles of money is universal trust. Sapiens author Yuval Noah Harari puts it more eloquently:

What does this mean?

In the real world, meeting and seeing another person allows us to determine whether to trust them or not. In the digital world, it's not as simple, especially with its faceless online business transactions. Nakamoto writes about this issue in the whitepaper:

In line with this idea of establishing trust between faceless entities, Dan Tapscott, a leading thinker on how business affects technology and society, describes the ideal cryptocurrency as "a protocol that enables mere mortals to manufacture trust through clever code."

In other words, the higher level target of an online payments protocol is to allow us to replicate the ways we build trust in the real world. This way, we can transact in the digital world, even if we don't have the nuanced data we usually get from a physical IRL transaction.

OK, so the technology solves a real problem. We love to see it.

But what is it worth?

What’s the scale and value of these problems? In other words, how much money is involved in this technology?

The scale and the value of the problems blockchain solves is equivalent to the value of all global trade and commercial industries today. And then some.

As of April 2023, the IMF posits the global GDP at 100.22 trillion USD. It also predicts global GDP will hit 135 trillion USD by 2028.

While I'm doubtful that most of the known world will be on the Worldwide Ledger by 2028 — blockchain and cryptocurrency do have a number of issues to solve before they're ready for primetime — blockchain technology promises to give us new business models and the ability to capture value where we couldn’t before.

Once most of the world adopts it, I'm confident we'll overshoot the predictions we made today.

Finally, one more meta lesson.

As I study this technology, I’m struck by how hard and how long it takes to recreate IRL experiences in the digital world.

With cryptocurrency, for example, it took us a few thousand years and massive developments in the fields of mathematics, computation, and cryptography to solve the problem of trust and trade — problems that our ancestors had intuitively solved in the physical markets of Sumeria and ancient Egypt. (And this doesn’t even include the pre-money barter system that goes even further back.)

This makes me wonder what other physical interactions we’ll eventually bring into the digital world, how quickly we’ll get there… And what our world will be like when we do.

History & the Arts

2 – The frustrating genius of Leonardo da Vinci

Leonardo da Vinci is the premiere model for an Italian Renaissance man. But he is also the most frustrating.

Why? One of his paintings offers the answer.

And no, it’s not the Mona Lisa.

While experts and casual fans agree that Mona Lisa is the best representation of Leonardo’s brilliance and skill, I think that his Adoration of the Magi better represents the pitfalls of this obsessive genius.

In Adoration of the Magi, Leonardo paints the Virgin Mary at the centre, with the infant Jesus on her lap. From there, the viewer’s eye is drawn clockwise into a swirl of characters, meant to convey human responses to a divine moment.

A magi offers a gift to the infant. Another bows in reverence. Yet another kneels to await their turn to approach the couple.

Surrounding them are various characters in differing states of amazement, curiosity, apathy, even doubt — all suspended in a snapshot of motion.

Historian Kenneth Clark describes Adoration of the Magi as the “most revolutionary and anti-classical picture of the fifteenth century.” This is because Leonardo had a very particular artistic vision for it:

• Each figure had to have a specific expression in response to the Incarnation. At the same time, each character had to react to the others around it so that the painting would feel coherent.

• Leonardo wanted the light to shine down directly from heaven. He wanted to depict how light would reflect, rebound, and affect the shadows of of each of the characters, like in the real world.

But as you can see from the image, this painting is half-finished. Seven months after accepting the commission, Leonardo had abandoned it.

Why? Leonardo realized the impossibility of executing his vision perfectly.

To execute his concept, Leonardo had to render over thirty characters, each reacting emotionally to the others. On top of this, he also needed to depict how the light hit each character and bounced off every one.

Unlike other artists, Leonardo’s perfectionism did not allow him to ignore these optical details.

Herein lies the problem with Leonardo’s genius. 

His unparalleled powers of observation allowed him to visualize and plan dazzling works of art that bristle with human emotion, dramatic intrigue, and realistic motion. But they also hobbled his ability to finish them.

He would rather not complete a painting, than fail to meet his own expectations. Biographer Walter Isaacson writes:

It’s heartbreaking.

Still, even Leonardo’s incomplete work heavily impacted other artists. For example, Adoration features Mary, Christ, and the magi in a classical composition — a pyramidal format of positioning characters. This composition is frequently found in other Renaissance paintings and is a sure sign that the artist was influenced by Leonardo.

Think about it: If even Leonardo’s unfinished work held such influence… Imagine the impact he could have had if he was as diligent at finishing his paintings as he was in conceptualizing them.

Elective

3 – How Marcel Proust found his voice

Marcel Proust wrote the longest and one of the best novels ever written. If he became a writer just by copying other writers' work by hand, what's stopping us?

Marcel Proust's In Search of Lost Time is officially the longest novel in the world.

With over 1.2 million words and 7 volumes — double that of Tolstoy’s War and Peace — it's also considered one of the greatest novels of all time.

The kicker? Proust didn't find his writing voice until he was 39 years old.

A timeline of the miseducation of Marcel Proust

Born on 1871 in France, Marcel Proust lived most of his life as an indolent gentleman-of-means, having inherited a fortune from the passing of his parents.

At 17 years old, he began working at a magazine to appease his father. He went on to obtain sick leave for the next 8 years. (DAMN, talk about unlimited time off!)

In 1896, the magazine considered the 25-year-old Proust resigned since he never actually did any work.

By 1905, 34-year-old Proust spent his days drifting from one aristocratic salon to another. He was known more as a professional dilettante than a writer, despite having previously published a book of poems and novellas.

But eight years later in 1913, 42-year-old Proust had published the first volume of his masterpiece In Search of Lost Time. He went on to publish four more books in the series, plus drafts for the last two in the nine years that followed, until he died of pneumonia at 51 years old.

What changed?

Proust’s pastiche

In 1908, with his beloved mother gone and his health declining, Proust resolved to take his writing seriously.

After spending the previous 42 years struggling with self-discipline, he began a practice to find his style and unblock himself: pastiche.

Pastiche is a French word that describes a filling made up of diverse ingredients.This is used as a metaphor in art to describe works that incorporates different artists, styles, and genres to create an original piece.

One example of a musical pastiche is Queen's “Bohemian Rhapsody”: a sonic smash up of opera, ballad, progressive rock, hard rock & classical music, stuffed into 6 visceral minutes.

Another is Kanye West’s “Through The Wire”, the track from his debut album The College Dropout that launched his career. The hook from the song is a remix from a sample of Chaka Khan’s “Through the Fire”. The song’s melody and title are all hat tips to the original.

In literature, pastiche is used to describe a practice of respectfully or light-heartedly imitating another writer’s style to come up with one's own.

In his collection of pastiches, Proust took a news article and rewrote it in the styles of writers he admired.

One writer he copied was Gustave Flaubert. Flaubert was known to have forged an exacting, precise, and realist style of prose when he published Madame Bovary. Proust learned the rules of Flaubert’s crisp, efficient prose… and summarily flouted them to develop his own spiralling, inconclusive style.

Proust’s pastiches were later collected into a posthumous volume, aptly entitled Pastiches et Mélanges or Pastiches and Mixtures.

By 1910, Proust had gained enough confidence to began working on In Search of Lost Time. Three years later, he published the first of its seven volumes.

Permissionless pastiche

I love unearthing origin stories like Proust’s pastiches.

I’ve always wondered how the great writers of history learned the craft.

I used to think I needed to undergo formal schooling to become a real writer. I’ve seriously considered getting an MFA… Until I realized that many great writers published novels, short stories, and essays without a modern writing education, composed of required reading curriculums, writing professors, and mandatory essays.

Now I know how.

With the practice of pastiche — and its modern equivalent, copywork — a fledgling writer can deliberately set out to learn from the greats.

Their turns of phrase. Their rhythms. Their styles.

So that learning their voice helps the writer unlock their own.

Stories like Proust’s pastiches (and peripatetic life) remind us that it’s never too late… And that everything we need is already at our fingertips.

😉 You're welcome

A selection of interesting links & fun recommendations.

• 🧠 Ray Bradbury’s reading program. In this 2001 keynote address, Bradbury recommends reading 1 short story, 1 essay, and 1 poem for 1000 nights. This is designed to “stuff your head with ideas”, stimulate your creativity, and let art seep into your work and your life. If you’d like to try out the program for yourself but don’t know where to start, here’s a sample curriculum with free recommendations.

• 🎬 Ed Sheeran: The Sum of It All. From Disney+ : “Global superstar Ed Sheeran opens the doors to his life in this searingly honest documentary series.” I enjoyed watching this and learning about Ed’s unlikely rise to stardom, his genuine enjoyment in performing and songwriting, and — in contrast to the drama of other celebrities — his refreshingly normal life.

• 👀 Shopify CEO Tobi Lütke on video games. In this press release to explain why Shopify was laying people off, Lütke uses words like “main quests” and “side quests” — all video game vernacular. Even his use of the word “crafter” versus “individual contributor” evokes images of dried glue on fingers, acrylic on canvas, and horsehair brushes soaking in mason jars.

  Read this as just another tech layoff press release… Or as an example of popular culture’s ability to shape the world of business.

That’s all for this week

Stay strong, stay kind, stay human.

Have a great weekend!

Till next week,

— roxine