In 2009, Satoshi Nakamoto designed Bitcoin to align the incentives of computers. In 2018, we are building multi-billion dollar blockchain projects, incentivizing humans using the same principles. We are assuming the efficient market hypothesis and the wisdom of the crowds. But what happens when the crowds are not that wise?

Written by Elad Verbin and Al Esmail.

Bitcoin-style cryptoeconomic incentive design is a new economic design paradigm, that has already achieved incredible results, creating the first widespread digital currency. In recent years, this paradigm has become a “silver bullet”, used in far-reaching ways, promising to build amazing futuristic technology by employing incentives in planning and prediction (e.g. Gnosis, Augur); in social media (Steemit); in reputation, governance and self-organization (Colony, Boardroom, Democracy.Earth); in data collaboration and insights (Ocean, Numerai), and so on. However, in taking methods developed for simple systems and extending them into complex systems, we have taken a principle…

In a recent blogpost, Nick Grossman argues that Bitcoin acts as a battery — moving electricity across time and space, from where it can be cheaply produced to where it can provide the most utility. In this blogpost, I argue that Grossman’s economic analysis fails to consider the particularities of Bitcoin’s mining mechanism. Bitcoin is not a battery; it is a bottomless sink for marginal-cost electricity. It doesn’t store energy to be deployed later; instead, it sucks marginal cheap energy and produces no marginal asset in return. The reason is simple: if Bitcoin was a battery, then the more electricity you’d put into it, the more “charge” you’d get. But that’s not the case: in Bitcoin, more electricity does not buy “more Bitcoin”, it rather buys “more security”, a common good for the entire Bitcoin system. And security is not an asset, and cannot be later traded. As a result, Bitcoin likely does not have the social utility that Grossman ascribes to it, of promoting the production of cheap power.

A few days ago, Nick Grossman published the blogpost Bitcoin as Battery. I love this blogpost. It’s clear, it’s appealing, and it has an optimistic conclusion about the great social benefits of Bitcoin.¹ Sadly, I’m pretty sure it’s also wrong. In this blogpost I will explain why. To be clear: this is not an attack on Bitcoin, on its power consumption, or its social utility;² this blogpost is purely a critique of Grossman’s argument and an invitation for a more careful economic analysis of Bitcoin’s power usage and its implications.

Grossman writes:

Crypto mining converts electricity into value, in the…

I was helping a colleague get up to speed about Information Theory. I realized this might be of general interest, so I’m posting it here. This primer is aimed at people with general STEM background, wanting to spend 5–15 hours to get familiar with Information Theory.

To get a primer, pick up the standard reference, Cover and Thomas’s Elements of Information Theory. (If you want to get a quick impression of the book, you can find a PDF using a quick google search .)

Start by reading Chapters 1 and 2. Then definitely skip chapters 3 and 4 — they’re…

Or: Bring Back The Mainframe!

We’re delighted to announce our investment in Mutable, a software infrastructure for aggregating CPU capacity, offering low-latency cloud services anywhere, on-demand.

It’s the year 2020, and our civilization fundamentally depends on CPU power. Mutable aims to radically change the way we allocate this computing power. Mutable’s low-latency cloud will allow any gamer to play on a 5000$ gaming rig using just a dongle and an internet connection. It will enable dramatic cost-reduction in IoT devices, allowing them to saturate our factories and cities, optimizing the way we manufacture, the way we live. …

If you are organizing a conference or meetup, we’d like to humbly propose the following: a panel for your event is probably not the way to go. Instead, split the same time among the participants and ask them to prepare presentations. (Or feature some in 1-on-1 fireside chats.) Here’s why.

A group of three or more investors is known as “a panel”. (photo credit: Digitas Photos)

(This post is jointly written by Sarah Cordivano and Elad Verbin.)

Spontaneous = Underprepared

Recall the last time you’ve seen a really excellent talk. For us, it’s Carla Harris’s talk How to find the person who can help you get ahead at work. We love this talk for several reasons, including how incredibly well-prepared it is. Every point made is executed perfectly. When speakers prepare for talks, they may spend 40 hours or more at home for every hour on stage, in assembling, preparing and practicing the talk to get it just right. …

In this post I introduce a new concept, “Token Risk”, which is a kind of risk present in early-stage investments into crypto projects. I then analyze the implications of Token Risk for early-stage crypto investors.

Token Risk is the risk that the company will succeed but the token will fail.

Specifically: Token Risk is the risk that the company and team will create new value and succeed in their goals, and yet the token investor will lose money on the investment because the success of the project will not cause the token value to increase.

To dive deeper, we need…

Elad Verbin

Berlin. Computer Scientist & Algorithms developer. Invests in pre-seed algo-tech: ML, blockchain, zero knowledge, ... Partner @ Lunar Ventures

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