We should probably buy ADA?

post by mako yass (MakoYass) · 2021-05-24T23:58:05.395Z · LW · GW · 41 comments

Contents

  Legitimacy
  Things I am not confident of
None
42 comments

Edit 2022: It seems like better systems have come along, and a crypto winter has set in, and Taleb argues that BTC will eventually go to zero and I'm inclined to agree, platforms will keep improving, it may be a long time before any of them are good enough to stick as a standard, applications will migrate, most platform tokens will eventually be worthless, if there's ever a unit of exchange in crypto we do not yet know how it will hold its value.
So I'd no longer advocate buying much of anything until we're really pretty sure that no further improvements to the technology can be made, and then still be extremely wary of volatility, don't expect platform tokens to hold value far beyond the actual usefulness of the platform.

Epistemic Status: Buying, but, the following does not constitute investment advice. There are some big open questions and some intuitions I can't start to explain (see the bottom).

Purpose: I am writing this post because I want the sorts of people who take the alignment problem seriously to have more money, but you will still need to do some research of your own. What I have here is more of a series of argument outlines than a complete analysis. My purpose here isn't to accelerate adoption of Cardano, really. I don't think Cardano needs my help.

ADA is the currency of Cardano. Cardano is (soon will be) a smart contract platform comparable to Ethereum.

I think the main load-bearing part of the argument here is that it looks like Cardano will end up have a year or two with the lead to itself, and whoever takes that lead, now, I don't think they would lose it again for a very very long time, because after Proof of Stake, Scaling, and Updatability, there don't seem to be any major holes left to fill, that's it, the biggest limitations of smart contracts will have been solved, developers will largely not be tempted away.

But I'm not completely sure. We need more clarity on this.

Legitimacy

Present here in abundance are the qualities upon which credit grounds its meaning, responsibility, reliability. For the following reasons, many people will rightly want to believe in Cardano:

• The project is focusing suitably hard on solving the real human problems that blockchains can actually help with: building the missing infrastructures for banking/identity/loans/credit in the developing world
  • They've already secured a deal with the Ethiopian government to integrate the Cardano-based identity system, Atala Prism, into government services, starting with storing education records. This is a pretty huge deal, like literally it is a deal that is abnormally large, in Hoskinson's knowledge, larger than any other deal that has been made in the industry.
    • One of the reasons this excites me is that real identity has been a huge missing piece in crypto for a while.
    • I investigated Atala Prism a little bit, I was ultimately satisfied with its technical qualities.
      • It seems to provide a general zero knowledge proof facilities, you'll be able to do things like proving that you're over 18 without revealing any other information about yourself, without revealing your specific age, and without even giving the requester the ability to prove to others what you have proven to them.
      • I was initially worried that it seemed to lack any social recovery process. Social recovery is when you appoint trusted contacts, granting them the ability to move your identity over to another address if they have a quorum, so that no matter what happens to your access keys, passwords, wallet seeds, etc, your community will be able to recover your account.
        Right now, without this, it seems that if one of these students lose their recovery phrase, or if it's stolen, the solution is not clean, they'd just have to convince all of their accreditors to move their accreditation to a new identity (though that might not be a big deal in the early days when the Ethiopian government and a few universities are the only accreditors?). I looked further into it, though, and I was reassured to find that social recovery seems to be well allowed for by the W3 DID specification, and that the project has plans to implement methods like social recovery later on.
        
        • (An aside: the DID standard recommends regularly undergoing recovery, to ensure that if your keys have been silently stolen, they wont be left out for too long. It occurred to me that socially recovering your DID would be a perfect activity for birthdays x]. Your trusted friends and family are already present. It's a nice way of reaffirming your trust. There's no possibility of a MITM attack when you're all in the room together. You want to do it once per year, but you want it to be on different days for different people, because doing it globally all at once would overwhelm everyone and mistakes would be made, and also, doing it more than once a year would be excessive. Every property of birthdays lines up with it. Delightful.)
  • (I considered writing up a more rigorous post about Cardano's relationship to banking the unbanked, for the the effective altruism forum, but I'm not really sure I can justify it in the EA framework: It is very tractable, probably fairly impactful, yes, but perhaps it is not neglected, as I don't think there is much that any of us can do to accelerate what is happening here. IOG has plenty of funding, and there are plenty of people living in those developing nations who can write the code and help themselves.)
• Cardano was never marred with involvement in the depravity of proof of work.
  
  • Proof of stake has its own legitimacy issues as an amplifier of Rich Get Richer dynamics*, but Hoskinson has expressed a desire to "move away from plutocracy, more towards a merit based system". Nothing concrete, and he states that anything concrete is all a long way out, but regardless, this is not something a person would say if they wanted to court plutocracy.
    
    • (*: I'm very open to the possibility that the rich will always get richer and no system of governance can ever do better than obscuring this eternal reality of power (and obscuring it would plausibly only make things worse), but hopefully we don't need to go and artificially exacerbate it! If we cannot have leaders who were appointed on merit alone, we can at least not actively decrease the role of merit.)
  • I am aware of arguments that the carbon cost of proof of work is not so bad, but they're transparently specious, none of them stand up to simple rebuttals like 1) "but we already know proof of stake works, this isn't necessary" and 2) "but "73% renewable" implies a still egregious amount of carbon emissions". Arguments that increasing demand for energy will accelerate the transition to green energy and that this will be good, are pretty weak. That's just not going to be a very strong effect relative to pressure from governments and the existing economic incentives.
• Charles Hoskinson himself seems to have a lot of integrity. When The DAO hack happened (he was a cofounder of Ethereum) he not only objected to rolling it back, he created Ethereum Classic, a fork where the project respected the rule of code and did not bail itself out. The Cardano project seems to consistently choose paths of openness and accountability and its community seems far more lucid (lower hype. As Hoskinson puts it, "less 'when moon'") than others, so I'd hazard that accountability is entirely present.

ADA's market cap right now is 53B. ETH's is 445B. I expect Cardano to grow close to Ethereum, and personally I expect it to keep going:

• It seems more competently managed than Ethereum, to me. I love Vitalik, he's our boy, but building these systems takes a lot. I don't think anyone can really compete on execution with Cardano's team. Not sure how to substantiate this, this is just a general impression I get from their technical decisions and their output (and what kinds of things they're putting out: Extensive formal verification, credible roadmaps, projects that will interface with existing civic infrastructure).
• Eth is getting prohibitively expensive to run anything on (like 50 dollars per transaction or whatever), a lot of people will be looking for an escape. Cardano is more efficient, less congested (for now), and has a scaling solution in the pipe (Hydra). Hydra was validated by some pretty convincing tests in the paper. Eth also has scaling solutions in the pipe, but Hoskinson considers them too experimental, and not very likely to work in time, and I'm inclined to believe him, as he is intimately involved in the technical research process, and he does not seem vain about imitating what works.
• Cardano will develop backwards compatibility with Eth contract code.
• Cardano will provide first-party support for three languages that are more appropriate for finance programming than Eth's Solidity: Marlowe, Glow and Haskell.
• Contract programmers are generally not going to be loyal to a particular stack yet. Statistics seem to verify this. Charles claims that functional programming community hasn't gotten into contract programming at all yet (guess where they'll go when they start).
• Some dumb market forces: People want to bet on the next big thing, not the already big thing. I think this tends to lead legitimate contenders to equalize.

As for Bitcoin, I think a lot of BTC's ongoing demand right now is coming from corporations looking for a high liquidity asset that'll hedge against the inflation of the dollar? It probably wont take very long for these organizations to start noticing that there are other more environmentally responsible coins run by more responsible-looking organizations). Cardano may win that crowd on brand aesthetic.

On that note, and this is kind of a big deal, that just happened with Tesla. They just announced that they recognize that Bitcoin's got a carbon problem and declared that they wont accept payment in it and are investigating less wasteful coins (this seemed to cause every crypto to crash except cardano and probably some other green coins). I'm fairly confident that ADA will be the one they decide to go with, if they do switch (although they're saying they wont sell their BTC. I should also add that Elon has not taken up Charles's offer to visit his ranch and meet his mini donkeys, in fact he has not engaged with Charles at all, not even when Charles made a (admittedly kind of condescending) for Elon about how to improve Doge if Elon was serious about doing that (we suspect he is not)), as it currently has the largest issuance and trading volume of any green coin. I suspect they'll hold onto some of their BTC as an incentive for BTC to reform, instead of just spiraling further into its insanity with weird arguments about how Bitcoin is essentially a subsidy for intermittent power sources, which tend to be green, and is therefore actually good (I can't dismiss these arguments, though. I'll think about them a bit more), but I wouldn't bet very much on on that suspicion, as that is quite a lot of money for a high growth company to leave sitting around.

The reason this is a big deal is that Tesla/Musk is a kingmaker in tech, obviously. They are exactly the people who could bring about a flippening, and they know it, and they kind of have the motive (environmental mission). If you are invested in bitcoin, it seems like they might be offering you a peaceful way out. Implement the transition away from proof of work or risk losing even more faith.

Cardano is an updatable protocol. When a clear opportunities to improve are identified, votes will be cast and if it passes the patch will deploy automatically. This is not the case with Bitcoin. It is practically a core value of the bitcoin community that it should always be prohibitively difficult to add improvements to Bitcoin, which leaves me doubtful that they'll be able to rise even to this very clear and present challenge, nor the technical challenges of the future surrounding speed, cost and miner compensation as the block reward dries up. The conservatism of the operating community, in my view, gives Bitcoin a limited lifespan, while Cardano has a real shot at becoming a very long-maintained standard operating system for decentralized finance and transparent computing.

Things I am not confident of

• I don't really know how long Cardano will take to roll out. Smart contract capabilities aren't live yet. I believe them when they say "soon" (The Ethiopia deal had to be predicated on it), but I'm not good at estimating deadlines, I'm patient to a fault so I'm probably especially bad at estimating deadlines for other peoples' projects. Eth2 would steal most of Cardano's thunder, for some reason I feel like it's less immanent, but I can't really convey my reasoning on that.
  • I had a glance a the Ethereum subreddit, interestingly, they seem to think Proof of Stake (and thus, cheapness), is 2 years out. And that's the ethereum community talking. So that's something. I think this means Cardano is going to have a year or so, alone, in the lead??
• The comparison between Ethereum and Cardano... It's possible that I might just be falling for exaggerated signalling. Maybe all the formal work and the eloquent speech and the civic philosophy that we see coming out of Cardano is just pageantry, maybe Ethereum could totally do that stuff if they wanted to, but they don't, because they have nothing to prove to me. Or maybe the signals are sincere, I have no idea.
  I don't have much of a reason to think Ethereum couldn't just copy most of whatever Cardano succeeds at doing and retain the lead due to network effects. Though, there seem to be some core things they actually can't change, and IOG argues quite well that network entrenchment effects everyone imagines to be here don't exist, people who actually write smart contracts (as opposed to currency boosters), empirically, seem to be quite willing to try other platforms, and Cardano will develop compatability with ethereum contract code, which could just clear the way entirely.
• Further comparisons need to be made with the projects Algorand, Harmony ("Harmony One"?), and Polkadot.
• I think they might be being a bit idealistic in making so many of their systems democratically mediated, The Community might turn out to vote plutocrat every time and that's not really going to be good for the long-term. For instance, Cardano sets transaction fees with a governance process. Can you really imagine The Community voting to decrease transaction fees until they're negligible (which I'd argue, public good theory mandates), lowering their staking rewards? I'd bet that most people make their stake pool delegation decisions on the basis of return alone, they're probably very aware of how much they're getting. That said, the Liquid Democracy systems in Cardano (treasury funding, is what I've investigated) don't seem transparently naive, and might be cool, and will contribute to Cardano's glowing aura of Legitimacy.

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