I just spent three weeks in bed with the flu from hell, which means I not only missed Bitcoin’s untimely death, but also its subsequent resurrection. Did everyone remember to buy the dip?
Gold is actually useful for some things, like filling teeth and making pretty jewelry; that's not most of its value, but it does provide a tether to reality, along with a 5000-year history 9/
— Paul Krugman (@paulkrugman) January 21, 2018
Had I been alert and conscious, I might have worried for a bit. Paul Krugman doesn’t know anything about anything, but I’ll grant him this one: There’s nothing to backstop a cryptocurrency’s value! If people come to believe that Bitcoin is worthless, it’s worthless. There’s no tether to reality 😮. If only Bitcoin could be used to make pretty jewelry!
One of the greatest tragedies of modern money is the decoupling between a store and display of wealth. Or, more accurately, the societal decoupling between wealth and status. For most of human history, the functions of display and storage were condensed. Even before people wore clothing, they wore piercings and tattoos. A full-body ink job isn’t transferable, but it’s a sort of proof of work.
As societies increased in wealth, both people and objects became specialized in their functions. Stores of value were selected for their resistance to corrosion and theft. Displays of status optimize for just the opposite. The more unwieldy and vulnerable the display, the greater the power it conveys.
There’s no reliable way to physically project a bank account balance, so we use costly signals as a proxy. Designer shoes indicate disposable income. A diamond ring reveals your spouse’s bimonthly salary. An American Express Centurion card communicates the ability to spend half a million dollars a year.
Abundance signaling is wasteful, and often relies on a trusted third party to maintain the integrity of the signal. Bitcoin is regarded as a decentralized store of value, but still underappreciated as a way to disintermediate our displays of wealth.
Cryptokitties, ugh. Why would anyone waste a perfectly good blockchain on a centrally controlled collectible? The only way to generate a cat image is to rely on the Cryptokitties website. And the only way to prove ownership of that image is to reveal your account address. There’s a better way to flaunt crypto wealth.
"Would you like to buy a provably scarce digital kitty?" pic.twitter.com/V6ukOCYguI
— Jameson Lopp (@lopp) December 4, 2017
Secure multi-party computations were first introduced in 1982 as a solution to the Millionaires’ Problem: Multiple millionaires want to know their relative wealth standing, but no one wants to reveal their actual net worth.
One solution is to distribute shares of a secret to each participant. Each person combines the secret with the value of their net worth, broadcasts the result, and a blinded function processes the values to arrive at the final rankings. This function evaluation forms the basis for a zero-knowledge proof.
This can be done with any cryptocurrency. Instead of self-reporting a net worth, each participant signs a message to prove ownership of an account. The message is combined with a secret share, resulting in an output that indicates the user’s balance relative to everyone else. Turn the output into crypto-bling by mapping it to a unique identicon. Bitcoin can now be used as a visual display of wealth.
The identicons can even be made unforgeable. If each viewer distributes a different secret, then the set of identicons will look different to every observer while still communicating the same information about relative status. A display of wealth, then, is in the eye of the beholder.
But an identicon isn’t pretty…
Paul Krugman is wrong about the pretty jewelry, cuz that’s not what gold is about. Objectively speaking, silver is the most light-reflective element that exists. If you wanted to bedeck yourself in bling bling, you’d get the most bang for your buck with silver. But pound for pound, gold is more valuable because it’s harder to obtain.
Gold isn’t valuable because it’s used for jewelry, jewelry is valuable because it’s made of gold. –Nick Szabo
A display of wealth isn’t about being pretty, it’s about having stuff that others don’t. Roman emperors knew that wealth displays were a wasteful arms race, so they created sumptuary laws to prohibit conspicuous consumption.
Bitcoin bling removes the costly signaling by re-condensing the functions of a store and display of value, and does so without the need for a trusted third party. Someday, crypto-bling will be the prettiest bling around.