Crypto is an alien planet to Wall Street

Crypto is an alien planet to Wall Street

I was thinking about the relationship between traditional financial system and the parallel crypto world, about hard forks and the fight between big blockers, bigger blockers and core.

I find all this completely funny, but in a totally different way than most people. If you look at traditional finance (gonna call them Wall Street), they are sometimes jerks in private (famous recording from a private bank meeting), but they would not normally tell anyone to eat shit at a conference or start a twitter flame-war (except for Nassim Nicholas Taleb, but he is almost always right).

For traditional finance people, this clash with “geek hate culture” is like landing on an alien planet, they have no idea what’s going on, they don’t understand it is business as usual for most geeks. Maybe you remember Theo de Raadt insulting users and developers of NetBSD, for which he had to leave NetBSD and started OpenBSD.

But it is not only the hate part, this is where the clash is most visible. You cannot do a pull request on FED. You don’t let market decide which currency wins or even what kind of securities people prefer. There is no US dollar hard fork for people who want to have strong deflationary currency.

This shows that the parallel financial system is going to be way different, because of a completely different culture. Maybe the relationship is like when the Go players were playing against AlphaGo (the Google AI algorithm that won against the best player of Go). It used moves that were completely alien, no human was playing like that, because the game strategy was part of the culture. And that’s one of the reasons AlphaGo won and that’s why Go players are now learning from AlphaGo and are becoming more “alien” themselves.

I think this is a pretty good analogy, the rules of the game are the same (markets, supply and demand, money, lowering transaction costs, unit of account, …), but this world looks completely weird to traditional finance people.

The “Wall street people” have some idea what is going on, but still it’s a different world and there are some things they don’t understand at all.

Why would people buy weird coins generated by some geeks for €5000?

And I think it’s mostly working because people are fed up (pun intended) with privacy invasions, loss of banking secrecy and taxation. And of course many people are drunk on bull markets and hope they will make a fortune.

But the classical wall street people don’t understand this at all yet.

Wall Street has been in bed with the state for too long. I am not only talking about bailouts and moral hazard, that’s just the end result. Tell any bank a funny story about suitcases with cash and they get an immediate allergic reaction. They have become cops, tax enforcers and so much embedded in the system that they cannot imagine these new approaches. They are both alien and frightening, because the first question that comes to their mind with any new venture is “will we get away with it”? If the answer is no, the second question is “who will lobby so we could do it?”.

And in current crypto world, these questions have a completely different meaning. The largest cryptocurrency is Bitcoin, the author is pseudonymous and he gets away with it by definition, because no one knows.

What is interesting is the fact that people use this system anyway. Imagine there would be a bank run by people you cannot jail and you don’t know who they are. They might be Chinese, Russians, Americans, part of Columbian drug cartel, you don’t know. Would you find it a good idea to buy their tokens and transact? In a Wall Street world, the answer is no. In crypto, the answer is yes, conditional on the fact that source code is available and the governance model is sane. You build trust by making a product that works, not by your Princeton graduation certificate and license from the state.

And this is why I am into cryptos these days. I do not think that the prices will go up indefinitely, I don’t count on one Bitcoin being worth one million dollars. I value the culture. Even if they sometimes tell me to eat shit, I value that contributions are open and we are all building this nice beautiful thing and it does not matter that I studied computer science and the next guy didn’t even go to school. People choose (and make mistakes) based on the results. And I want to be part of this culture, it is open-source culture on steroids.

But there’s one more important point. And it comes back to hard forks. Most people don’t care about geeky stuff. They don’t care if it is nicer to put signatures in the blocks or separate them. They don’t care about our merkle trees and scalability.

Money and finance is a social system. People care about things such as: “Can I pay with this? Is it cheap? Is it fast? Is it secure?”. We geeks tend to focus on geeky stuff, but that’s not the role of finance. When I use euros, I don’t care how they look, I have zero interest in knowing what kind of operating system do SEPA/TARGET2 systems run on.

On the other hand, things like speed are important. I recently tried to buy conference tickets using traditional banking system and was amused and slightly annoyed at the “block confirmation times” of traditional banking - it takes days to confirm a payment. The sending stops during weekends and “bank holidays”. It maybe made sense when actual people were involved, but just realizing that it is more difficult to not process payments on the weekends these days is a funny thought.

I remembered it yesterday, when my payment confirmation with 20 sat/B fee took an hour to confirm. Late at night. I was slightly pissed and thought “I should have used PayPal”. The thing is that PayPal has much higher fees, at least for the payment I wanted to do. Then I realized how used I am to instant payments with relatively low fees. Do I care if the blocks are 1MB or 8MB? Not a bit.

Am I saying that I am big(ger) blocker? Not at all. I am saying I don’t care. As long as it works, I let the market decide. And I will go with the fork that has the largest number of users - the largest network. And contrary to traditional banking system, I have a very easy choice. No politician or central banker decided for me.

And this is the part of the crypto-culture that I like most. I even used Theo’s OpenBSD, even though he was a jerk insulting users. Because it works.

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Written by Juraj Bednár //