Hacks and Leaks will Keep Pouring In

When is people going to understand that ANY centralized database is hackable and leakable. No matter how many security or layers of protection you built upon it; it’s always vulnerable.

The only way to really secure personal data is decentralized databases, and full identity sovereignty. Are govs, corps and leftist citizens going to allow this to happen? NO because we are just consumers and/or potential criminals for them.

Snowden revealed confidential data from his time in the FBI and CIA. He revealed how govs spy in us and keep track of our data. Not just browsing data, but also internet-connected devices being constantly assessed and monitored: cameras installed in phones, laptops, or any other internet-connected device. AI is making all of this easier for them.

Therefore, leaks and hacks will continue, and they will get more dangerous because there’s more and more stuff being recorded from us.

The Need for Random Numbers in Cryptography

Secure systems need random numbers (RN).

RN generated arithmetically are pseudo-random, and not safe, e.g. middle squared of V. Neumann which is unsecure because its predictable (every number depends on the previous seed).

In Cryptography, pseudo-random number generators are designed to be unpredictable no matter the sample, which is critical. Seeds based on timing can be guessed and cracked. SSL web navigation, WiFi, etc. establishes a master secrete key to exchange information.

Truly random numbers can only come from mathematical processes such as radioactive decay, flow, atmospheric noise, cosmic rays, and other chaotic sources.

Key design goals for a Blockchain, and games theory

Let’s review the main functional design objectives that a Blockchain should have.

P2P DATA DISTRIBUTION

We want to prevent some central server to host the whole chain, distributing data and copies of it among participants. In here all nodes have a complete copy of the whole chain. Notice you can  still have distributed data with centralized access.

Distribution brings transparency: everybody can see and check the whole chain. But on the other side is the privacy thing, which is partially solved through “pseudonymity”. Each user connects with a pseudo and you don’t know which human is assigned to each user. And also the amount of information to keep which only keeps growing.

DECENTRALIZATION

Some networks are distributed by centralized: Napster kept the list of the files in the central server and the logic to maintain the network, making it easier to delete.

If you manage to distribute your data and to decentralize the modification of it simultaneously it becomes much harder to corrupt. If each and every node stores the data and decides what modifications apply then the network becomes incorruptible.

The problem now becomes the consensus algorithm. To prevent several nodes from modifying data at the same time, you have 1 random node to change and the rest take ‘their truth’ from that point (a point that changes every time). This algorithm resides in each node.

IMMUTABILITY

This means preventing the rewriting of the chain. You can just add transactions, and then you can track back to the beginning. There is no way to alter any of the parts of the chain without the Blockchain losing consistency.

TRUSTLESS

This way you can connect any node to the net, and then it starts to request changes without the need to trust it or its user. And this is where the key part comes.

Maintaining consistency in a decentralized, distributed and immutable database where all the nodes trust each other is relatively easy. But maintaining the same guarantees in a system where nodes cannot be controlled, where their number is not known in advance and where their interest can potentially diverge is the real feat.

This where crypto economics and game theory comes to the rescue.

Notes on CBDCs

Talking of Bretton Woods, this IMF article alludes to a huge change coming but lacks real clarity outside of allowing much more fiscal stimulus via monetary mechanisms.

https://www.imf.org/en/News/Articles/2020/10/15/sp101520-a-new-bretton-woods-moment

And tomorrow, the IMF holds a conference on digital currencies and cross-border payment systems..

https://meetings.imf.org/en/2020/Annual/Schedule/2020/10/19/imf-cross-border-payments-a-vision-for-the-future

But it’s not just the IMF. This was first floated by Mark Carney at the Bank of England over a year ago and set the course for a new system…

https://www.bankofengland.co.uk/-/media/boe/files/speech/2019/the-growing-challenges-for-monetary-policy-speech-by-mark-carney.pdf

His big idea is a move away from the dollar, using CB digital currencies so its affects on world trade, flows and debts was not so pronounced.

https://www.bankofengland.co.uk/-/media/boe/files/speech/2019/the-growing-challenges-for-monetary-policy-speech-by-mark-carney.pdf

The ECB weighed in many times in the last year but the latest is clear – CBDC’s are coming..and soon.

https://ec.europa.eu/finance/docs/law/200924-crypto-assets-proposal_en.pdf

Next up was the regulatory changes in the US, allowing for bank custody of digital assets, especially bitcoin. i.e the acceptance that digital assets are not going away and in fact are the future.

And recently the Cleveland ref added their thoughts.

https://www.clevelandfed.org/~/media/content/newsroom%20and%20events/speeches/sp%2020200923%20pdf.pdf?la=en

On Monday, Jay Powell gives his input on central bank digital currencies at the IMF talk listed above.

Central Bank digital currencies are coming and they will change everything…

They are coming under stealth of X-border payments but it means so much more…

They allow the CB’s to circumvent the banking and fiscal system and give or take money (tax or transfer payments) directly.

That completely changes monetary vs fiscal policy for ever. CB’s will now be able to manage fiscal policy, outside of governments balance sheets.

They can give, for example, restaurant owners a direct payments for stimulus whilst at the same time, charging negative interest rates on larger savers.

They can create direct tax payments too, in the rails of the payments system. No more IRS?

Multi-interest rates set centrally will be the norm. No one needs to allow the banks to set interest rates based on capital availability or risks. CB’s can now create a defined cost of capital to whomever they please (if they get the powers by the Governments, which will come).

Don’t forget, it absolves any spending responsibility in a crisis from governments and after 2008 and 2020, they are desperate for it..

It also will push behavioural economics to the forefront based on big data and real time activity data. CB’s can now create incentives directly as rewards, or punishments. They can affect human behaviour in a way that is much less blunt than traditional monetary and fiscal policy

There are enormous downsides and there are enormous upsides too too all of this. Many will say it’s taking even more freedoms away and in someways it is. It also gives those disadvantaged by lack of available capital a better chance – a key problem.

Right now it has to be via debt at punitive rates but this changes all of that. Poor can get direct transfer payments with the debt in the CB balance sheet. Its the key step towards UBI, which too is good and bad….

And the reality is we don’t really have any freedoms from governments or central banks if we operate in the main system (i.e. ex-gold and bitcoin) and the big tech firms already have perfected behavioural economics as a way of changing human behaviour.

BUT, the key part here outside of a totally revolutionary way to collect taxes, give incentives and overhaul the entire system is an implicit agreement at IMF level that central banks can run unlimited balances sheets if they combine forces…

The move eventually (in late say 3 to 5 years) away from the dollar towards a basket of currencies (the LIBRA idea, which was the lightbulb moment), then they can all agree to increase balance sheets together to avoid single countries getting penalised via FX.

Again, there will be huge benefits to the new system but it can only mean a further debasement of the ENTIRE fiat currency system. Can it create structural inflation? I don’t know (Im sure the debate will be HUGE) but I doubt it due to secular pressures but…

Fiat globally will be worth less versus hard assets.

And that means that gold and in particular #Bitcoin will become THE way to circumvent the system of ever lower value.

It also create incentives systems for other nations to opt into a hard currency system to attract capital.

This paves the way for global regulatory arbitrage. Yes, there is a chance that CB’s will try to suppress #bitcoin in the further future but much like suppressing gold, it is highly unlikely to work due to the incentive value of owning it.

In the end, we have lived with gold as an opt-out for millennia and we will live with Bitcoin too. Im not concerned and its a story for another day.

Right now, the positive impact on Bitcoin and gold is extraordinary. Regulation globally is opening up to acceptance.

This is bad news for the banks who are about to be attacked by CB’s, FinTech and Crypto. The are losing their role in the financial system over time. Short the banks, long bitcoin (as @APompliano ) likes to say. And he is dead right.

5GL

Fifth generation languages (5GL) are purely declarative: they express what needs to be done, the machine establishes how, and does it. To use them you must be clear about WHAT needs to be done, NOT HOW it should be done.

The problem is that with the Internet we have moved back to third generation langs, hence the importance of programmers again.

Smart contracts in the future should not need to be programmed, but ‘implemented’. That’s why there are startups that are building compilers that translate legal English into structures and application skeletons to build on.