Is "crypto" dead?
Greetings! Today’s issue of Glitch (#9) is a new format, authored by Mike Orcutt. We haven’t abandoned our old format, we just like to try new things. Reminder: if you like what we have done so far and would like to see us do more of it, more often, consider becoming a paid subscriber. And/or forward it to a colleague or friend! That's just as good as paying us.
Some people still believe in crypto
That’s the snarky title of a recent episode of Wired’s “Have a Nice Future” podcast, which co-host Lauren Goode kicked off with a question she says is “on a lot of people’s minds”: Is crypto dead?
She’s probably correct that it’s on a lot of people’s minds, thanks to Sam Bankman-Fried’s trial. Still, when someone asks me this, I can’t help but insist that a linguistic discussion is in order before the conversation can proceed. Because, really, what do you mean when you use that word?
“Crypto,” for the sake of the podcast episode, is the thing that Bankman-Fried was the “posterboy” for.
“I think the meltdown of FTX was a real wakeup call for crypto believers,” Goode said to her co-host, Gideon Lichfield. The poster boy fell from grace, shattering what many enthusiasts imagined as an unstoppable future. “And I feel like pretty much every crypto story I’ve read since then has been about other crypto companies or exchanges struggling because of the ripple effects of that collapse,” she said.
Again, she’s not exactly wrong. But what she might be missing is that “crypto” wears many different faces; Bankman-Fried’s was just one. This is part of what makes “crypto” such a challenging thing to write about, talk and argue about, and in some cases even think about. There are multiple species of “crypto believer,” and for each sect the word refers to something distinct. For many of them, the implosion of FTX and SBF was anything but a wakeup call.
In fact, that’s the sort of believer the podcast had on as its guest: CoinDesk’s Michael Casey, former Wall Street Journal writer and co-author of the (2016!) book The Age of Cryptocurrency. If you like dramatic irony, consider that CoinDesk, where Casey is the chief content officer, played a pivotal role in FTX’s downfall. Ian Allison’s report that a big chunk of Alameda Research’s assets were tokens that FTX created is widely seen as the first domino.
Belief in crypto doesn’t equate to rooting for the industry, said Casey. “I think that it’s pretty hard to be in crypto journalism if you don’t have some belief in the power of the technology,” Casey said when Lichfield asked if it was fair to say that CoinDesk is a “cheerleader” for the industry. “That’s obviously quite different from cheerleading any particular company or even cheerleading the industry as it currently is.”
“Belief in the power of the technology.” Yes, lots of smart people still have that. But what is this power, exactly (no jargon or clichés, please!) and why should anyone who is not already a “crypto person” care? That’s a more productive question to ask.
Why the world needs a “provable” Nintendo emulator
Okay, maybe *need* is a bit strong. But some of the ideas under the playful surface of a “provable” Nintendo Entertainment System (NES) emulator built by Tonk, a project focused on on-chain games, have the potential to be bigger than games.
You’ve likely seen an NES emulator before. What’s new with Tonk’s version, which it calls Dappicom? As you play, “bits of the NES machine state”—think of these bits as comprising a record of each of the game’s moments— “are streamed to a server,” the project website explains. The server takes that information and uses a novel smart contract programming language, called Noir, to “convert play into mathematical proofs”— zero-knowledge proofs, to be exact. (Remember, these things let you prove secrets without revealing them.) In Dappicom, they prove that the game was played correctly. The server sends them to a blockchain where they are verified by a smart contract. Cool! But... why?
Do you even speedrun, bro? Speedrunning is when a video game player’s goal is to beat a game as fast as possible. It’s a popular pastime—a subculture, even—and it’s competitive AF. Imagine you’re a champion speedrunner and you figured out a new way to beat Super Mario Bros faster than anyone ever has before. Using Dappicom, you could prove you did it without cheating—and without revealing your exact methods.
This is literally a toy we’re talking about. But the larger point, according to Tonk’s Harry Kingdon (crypto folks may know him as Baz), is to show how Noir, which was developed by the startup Aztec, can be used to open “cryptographic channels” between the internet, which contains information that people want to keep private, and the blockchain, where everything is public. “If you want to liberate the open web beyond just finance you need to build a blockchain that can safely handle private information,” Kingdon says, and advanced cryptography makes this possible.
Pfizer’s (yep, Pfizer’s) DAO just launched a startup
Guess who else seems to think crypto is still alive and kicking? One of the largest pharmaceutical companies in the world. In January, Pfizer’s venture arm bought tokens in a sale to investors that netted VitaDAO, a “community-owned collective dedicated to funding and advancing exceptional longevity science research,” $4.1 million. Last August, Michael Baran and Linda Lohr of Pfizer Ventures even participated in a VitaDAO governance discussion. “We are highly intrigued by the scientific reach of VitaDAO and the democratized governance enabled by the DAO approach,” they wrote, explaining that Pfizer is on the lookout for novel ways to fund early-stage drug development, which they called “historically under-funded” by the traditional sources.
Now VitaDAO is launching its own biotech company, called Matrix Biosciences. This comes after the community voted to approve a collaboration on the project with Vera Gorbunova, a biologist at the University of Rochester who studies aging and is known for identifying the genetic traits in naked mole rats that make them unusually resistant to cancer. According to the announcement, Matrix will pursue “preclinical studies aimed at testing novel compounds that may have promise in the treatment of cancer and aging.” VitaDAO will provide $300,000 in initial funding, and that will be followed next year with more funding via an extremely crypto thing called “IP-NFT fractionalization.”
An “intellectual property-NFT,” developed by another startup called Molecule, is a smart contract that “wraps intellectual property rights such as patents, datasets, or contractual agreements” into an NFT. We look forward to seeing how breaking this token into pieces will result in more money for early-stage drug development—and what regulators will think of that.
The US crypto lobby is outraged (again) 😱
“As it stands, if this updated definition is adopted by the IRS, it would result in a decimation of the digital assets industry in the US.”
A decimation! Those are some strong words from Kristin Smith, CEO of the Blockchain Association, in a Twitter thread this week calling on crypto advocates to push back against a recently proposed rule by the US Treasury. In fact, the conflict began two years ago, when Congress passed the Infrastructure Investment and Jobs Act. The legislation, which was ostensibly focused on bridges and roads and stuff like that, also happened to contain a new definition of what it means to be a financial “broker.” Brokers are required to collect information about their users and deliver regular reports to the IRS. The crypto industry hated the language, arguing that it was broad enough to capture independent software developers.
Recently the IRS released its interpretation of the legislation, in the form of a new rule proposal. It stipulates that people “in a position to know” what their users are doing on their platform would fall within the definition of a broker. “The IRS’s interpretation would capture all sorts of persons that should not be considered brokers,” Smith tweeted.
“Crypto’s natural enemies know this would be a critical blow to the industry and are pushing it forward as fast as they can,” she went on, linking to a recent letter to the Treasury from Massachusetts Senator Elizabeth Warren and Maine Senator Angus King. “As of 2022, experts estimated that the IRS was missing out on approximately $50 billion a year in tax revenue from the sprawling crypto industry,” the lawmakers wrote, arguing that the new rule would help close that gap. Either way, the final rule wouldn’t take effect until 2026.
PS: If you would like to use generative AI to write a letter to the Treasury opposing the rule, the Lexpunk Army has you covered.
ODDS/ENDS
“Tokenization is potentially a big deal,” according to an article this month published by McKinsey. Wait, what year is this? To be fair, McKinsey acknowledges that the idea is far from new and that it “hasn’t yet caught on in a meaningful way.” Nonetheless, it says, “We are seeing small movement: US-based fintech infrastructure firm Broadridge now facilitates more than $1 trillion monthly on its distributed ledger platform.”
During a recent securities conference in DC, SEC Commissioner Hester “Crypto Mom” Peirce said some things about chinchillas as part of her argument that the agency is being “imprecise” in its legal analysis of crypto-tokens:
“We’ve been analyzing these token offerings using the Howey Test, which can be used for lots of different things. You can use it for chinchillas. You can use it for whiskey casks. You can use it for crypto. But applying the Howey Test to a chinchilla doesn’t turn the chinchilla into a security, ever. It may be that the chinchilla was being offered as part of a securities offering. But the chinchilla doesn’t carry around a little backpack with the investment contract in it no matter where it goes. And so I think the same logic applies to tokens. We have to have a way of thinking about the token separately from the investment contract.”
(H/T Blockchain Tipsheet)
Thorswap, which lets users trade tokens between different blockchains, is back online after going dark for “maintenance” following the recent news that an address connected to a hacker who drained $600 million from an FTX wallet amid the exchange’s implosion late last year was moving funds around using Thorswap. The new Thorswap blocks users from North Korea and other sanctioned countries.
Your favorite Uniswap pool may soon include a KYC check. That’s Decrypt’s headline on the news that some Uniswap community members have proposed new code for the platform’s next upgrade that would enable whitelisting and know-your-customer (KYC) checks. Apparently, some people think it is “inevitable” that Uniswap will implement this code.
A fake headline mistakenly circulated by crypto media outlet Cointelegraph claimed that the SEC had approved a Bitcoin ETF, briefly (and expensively) wreaking havoc on the crypto market. Oof.
New research shows that large language models behind chatbots like ChatGPT can infer detailed personal information about their users, even from mundane conversations.
Elon Musk said his company Neuralink is aiming to improve “human to AI (and human to human) bandwidth by several orders of magnitude.” Neuroscientists told MIT Tech Review that this is mostly nonsense.
The CEO of Unity, the developer of the Unity video game engine, has abruptly stepped down amid backlash from the indie gaming community, which claims the company violated the community’s trust by introducing a new pricing model and retroactively changing its terms of service in a way that made it harder for developers to monetize their games.
WARNING: TECHNICAL
Name: ZK Hunt
Brain(s) behind it: Flynn Calcutt— a “game-mechanical engineer” and “virtual reality inevitabilitist,” according to his Twitter bio.
What it is: Calcutt describes ZK (zero knowledge) Hunt as a real-time strategy game that “explores different ZK mechanics and information asymmetry.” He created it using MUD, which has become a popular software framework for building games on Ethereum. He used a tool called circom to build the ZK “circuits” required to generate and verify the proofs.
The game’s world is made up of grass tiles and jungle tiles. If a player moves through the grass, the other players can see them. If they enter the jungle, they become invisible. Since the number of moves per turn is limited, it’s possible to guess a hidden player’s location—for the purpose of aiming a spear at them, of course.
It’s a simple game that extends a powerful concept: ZK proofs can enable “hidden information” mechanics that are popular in video games like Age of Empires and Civilization. The cult classic blockchain game Dark Forest was the first to do it, but Calcutt approached the problem differently, in part because he was after a different game mechanic.
One of the big changes is to the mechanism by which players discover other players. In Dark Forest, players can find others through a “guess and check” process that involves calculating cryptographic hashes. If you locate another player, that information remains hidden from the rest of the players. Calcutt coded ZK Hunt so players can’t locate others that way: if they are hidden in the jungle, they can’t be found unless another player hits them with a spear. Unlike in Dark Forest, discovering a hidden player’s location reveals that information to everyone else in the game.
Achieving this apparently requires one to know what a “poseidon hash” and a “private nonce” are, among other advanced cryptographic and blockchainy things. If you are into that kind of detail, check out his new explainer.