books are civilization’s best way of transmitting ideas across the centuries. there is a parallel tradition, alongside books, of circulating papers with succinct descriptions of ideas, which I would also like to aggregate over time as I do with books. papers are meant to be less wordy, a more analytical exercise than books, and tend to be less lindy. in that spirit I present here a list of papers I’ve read, thought about, and discussed, indexed by the order I read them in.
2022
-
“Discreet Log Contracts” by Thaddeus Dryja
abstract
Smart contracts [1] are an often touted feature of cryptographic currency systems such as Bitcoin, but they have yet to see widespread financial use. Two of the biggest hurdles to their implementation and adoption have been scalability of the smart contracts, and the difficulty in getting data external to the curency system into the smart contract. Privacy of the contract has been another issue to date. Discreet Log Contracts are a system which addresses the scalability and privacy concerns and seeks to minimize the trust required in the oracle which provides external data. The contracts are discreet in that external observers cannot detect the presence of the contract in the transaction log. They also hinge on knowledge of a discrete logarithm, which is a plus.
-
abstract
This paper considers an economic approach to autistic individuals, as a window for understanding autism, as a new and growing branch of neuroeconomics (how does behavior vary with neurology?), and as a foil for better understanding non-autistics and their cognitive biases. The relevant economic predictions for autistics involve greater specialization in production and consumption, lower price elasticities of supply and demand, a higher return from choosing features of their environment, less effective use of social focal points, and higher relative returns as economic growth and specialization proceed. There is also evidence that autistics are less subject to framing effects and more rational on the receiving end of ultimatum games. Considering autistics modifies some of the standard results from economic theories of the family and the economics of discrimination. Although there are likely more than seventy million autistic individuals worldwide, the topic has been understudied by economists. An economic approach also helps us see shortcomings in the “pure disorder” models of autism.
-
“Decentralized Public Key Infrastructure: A White Paper from Rebooting the Web of Trust”
abstract
Today’s Internet places control of online identities into the hands of third-parties. Email addresses, usernames, and website domains are borrowed or “rented” through DNS, X.509, and social networks. This results in severe usability and security challenges Internet-wide. This paper describes a possible alternate approach called decentralized public key infrastructure (DPKI), which returns control of online identities to the entities they belong to. By doing so, DPKI addresses many usability and security challenges that plague traditional public key infrastructure (PKI). DPKI has advantages at each stage of the PKI life cycle. It makes permissionless bootstrapping of online identities possible and provides for the simple creation of stronger SSL certificates. In usage, it can help “Johnny” to finally encrypt thanks to its relegation of public key management to secure decentralized datastores. Finally, it includes mechanisms to recover lost or compromised identifiers.
2021
-
“Bitcoin: A Peer-to-Peer Electronic Cash System” by Satoshi Nakamoto
abstract
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they’ll generate the longest chain and outpace attackers. The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.
-
“Bitcoin, Currencies, and Fragility” by Nassim Nicholas Taleb
abstract
This discussion applies quantitative finance methods and economic arguments to cryptocurrencies in general and bitcoin in particular —as there are about 10, 000 cryptocurrencies, we focus (unless otherwise specified) on the most discussed crypto of those that claim to hew to the original protocol [1] and the one with, by far, the largest market capitalization.
In its current version, in spite of the hype, bitcoin failed to satisfy the notion of “currency without government” (it proved to not even be a currency at all), can be neither a short nor long term store of value (its expected value is no higher than 0), cannot operate as a reliable inflation hedge, and, worst of all, does not constitute, not even remotely, a safe haven for one’s investments, a shield against government tyranny, or a tail protection vehicle for catastrophic episodes.
Furthermore, bitcoin promoters appear to conflate the success of a payment mechanism (as a decentralized mode of exchange), which so far has failed, with the speculative variations in the price of a zero-sum maximally fragile asset with massive negative externalities.
Going through monetary history, we show how a true numeraire must be one of minimum variance with respect to an arbitrary basket of goods and services, how gold and silver lost their inflation hedge status during the Hunt brothers squeeze in the late 1970s and what would be required from a true inflation hedged store of value.
-
“Economics in Nouns and Verbs” by W. Brian Arthur
abstract
Standard economic theory uses mathematics as its main means of understanding, and this brings clarity of reasoning and logical power. But there is a drawback: algebraic mathematics restricts economic modeling to what can be expressed only in quantitative nouns, and this forces theory to leave out matters to do with process, formation, adjustment, creation and nonequilibrium. For these we need a different means of understanding, one that allows verbs as well as nouns. Algorithmic expression is such a means. It allows verbs (processes) as well as nouns (objects and quantities). It allows fuller description in economics, and can include heterogeneity of agents, actions as well as objects, and realistic models of behavior in ill-defined situations. The world that algorithms reveal is action-based as well as object-based, organic, possibly ever-changing, and not fully knowable. But it is strangely and wonderfully alive.