🟪 New Year’s Resolution: Remember the Cypherpunks

New Year’s Resolution: Remember the Cypherpunks

Happy New Year, everyone! It’s 2024 if you can believe it!

This year is poised to be a pivotal one for the crypto industry.

Approval of a spot bitcoin ETF in the USA looks like a done deal. Wall St is already rolling out prospective TV spots to make Bitcoin cool again.

It’s about 16,225 blocks until the Bitcoin halving (ETA: April 17).

And Ethereum is finally ready to scale; in addition to the impending (and intimidatingly named) Proto-Danksharding upgrade in March, we learned recently — straight from Anatoly Yakovenko’s mouth (if tongue in cheek) — that even red-hot Solana is Ethereum.

Last week, as the old year drew to a close, Vitalik Buterin, Ethereum’s co-founder and social conscience, took to his immutable blog to remind us all of crypto’s cypherpunk roots.

After a heady fourth quarter which saw TOTAL3 — a measure of the crypto market cap excluding BTC and ETH — rally by more than 50%, it’s worth taking stock on why we’re here, beyond merely the prospect of financial gain.

Come for the money, stay for the ideals

“Degen gamblers can be okay in moderate doses, and I have talked to plenty of people at events who were motivated to join crypto for the money but stayed for the ideals,” Vitalik writes.

But most everyone agrees there must be more to it all than a global casino, lest crypto be forever maligned, or worse, ignored by the masses.

Buterin wants crypto participants to “build holistically toward a more free and open society and economy, where the different parts — technological, social and economic — fit into each other.”

Yet, crypto’s cypherpunk ideals have “faded somewhat into the background,” amid “a large ideological rift where significant parts of the non-blockchain decentralization community see the crypto world as a distraction, and not as a kindred spirit and a powerful ally,” he adds.

Cypherpunks advocate for the widespread use of strong cryptography and privacy-enhancing technologies as means to effect social and political change.

Originally emerging in the late 1980s, before Vitalik was born, the cypherpunk movement is characterized by its emphasis on privacy and individual freedom.

Aside from the obvious reliance on cryptography, cryptocurrencies offer a form of financial empowerment and autonomy, aligning with the cypherpunk vision of individuals free to make transactions that are private, secure, and independent of traditional financial institutions.

Smart contract blockchains like Ethereum offer dApps that further the cypherpunk vision by enabling more complex, decentralized interactions beyond mere currency exchange. The communities that have formed around these interactions share the cypherpunk ideology, including a healthy skepticism of authority and the belief in the transformative power of technology.

Show me the incentives and I’ll show you the outcome

In Vitalik’s view, it’s the incentives that the Ethereum community provides which are key to its success at getting people to actually get new tools born of cryptography into common use.

“PGP wanted to put cryptographic keys into everyone's hands so we can actually do signed and encrypted email for decades,” he writes. “It largely failed, but then we got cryptocurrency and suddenly millions of people have keys publicly associated to them, and we can start using those keys for other purposes — including going full circle back to encrypted email and messaging.”

The late Charlie Munger, a crypto-skeptic and financial authority, was known for the sentiment “show me the incentives, and I’ll show you the outcome,” but crypto incentives are a double-edged sword, leading to outcomes not always aligned with Ethereum’s decentralized ethos.

Vitalik alludes to the market for liquid staking tokens which have been dominated by Lido, as an example, though he doesn’t mention it by name.

Financial incentives can’t necessarily fix all tendencies to centralize, and “over-financialization cannot be what ‘crypto is about,’” he says, noting that Ethereum governance is explicitly consensus-driven, and non-financialized — a source of strength.

Here for the tech

There’s a lot of talk lately of Ethereum layer-2s creating a fragmented user experience and relying on too many centralized components, as if scaling has gone off the roadmap. But in fact it’s following a plan clearly laid out over three years go.

The current shortcomings are widely acknowledged, and technical advances are happening at such a pace it’s barely possible to keep up with them.

Among the “positive news” heading into 2024, Vitalik cites:

• Rollups exist and their developers are working towards decentralization;

• privacy solutions such as Railway, Railgun and Nocturne are learning from Tornado Cash’s mistakes;

• Account abstraction is making DeFi safer;

• Light clients, which help with decentralization, are making a comeback; and

• Zero knowledge proofs “are on the cusp of being usable for consumer applications.”

Perhaps Ethereum appears to go in disparate directions because of what Vitalik calls its “pluralist ethos…[with] no single dominant narrative.”

In response to a recent X thread by Paul Dylan-Ennis — who also worked on Vitalik’s essay — my colleague David Canellis posited that the “world computer is still the only narrative that makes any sense and we actually need it.”

Ethereum developers set out to build a “permissionless, decentralized, censorship resistant, open source ecosystem.” The cypherpunk movement was a significant philosophical and technological precursor, and one worth remembering in a hype-ridden age of cute memeable dogcoins — wif or wifout a hat.

2024 is the year of the dragon in China — so here’s to being powerful, bold and lucky (and perhaps even BONKy)!

— Macauley Peterson

We're Watching

This week, Mike & Mark discuss the biggest events of 2023 & what to expect in 2024 for stocks, crypto & markets broadly. Thanks for tuning in throughout 2023, & we'll se you in the new year! 

 Watch or listen to On the Margin on Youtube, Spotify or Apple.

Daily Insights