Distilled: Nick Szabo on crypto
Disclaimer: These are a set of notes I took from listening and reading Nick Szabo. They don't fully represent his thoughts as some of these might be rephrased to something I understand more clearly.
Benefits: You don't need a centralized third party to verify transactions. This is the dawn of trustworthy computing. It's important to gain independence from these institutions and creates new capabilities. Blockchain is a series of blocks where each block is a series of computations done by computers all over the world in a way that is very hard to undo.
If you take an analogy of a fly that is trapped in amber, each block is an extra layer of amber. And the depth represents how long the fly has been trapped there.
A smart contract is like a vending machine. It verifies the quarter and it has logic in to respond as giving you the soda you selected. Verify performance and automate performance. Most of the stuff you can code is payments and financial conditions.
What is a protocol? It's basically the agreed medium in which we agree to communicate. BTC and ETH are the new protocols. So basically, a protocol is a standard by which computers exchange information. eg. when speaking the English language is a protocol where we agree that every 5s so you get a chance to speak and so on. On the internet, there are all these sorts of protocols like TCPIP, HTTP, SMTP (simple mail transfer protocol), and these protocols power the internet. The assumption that was made in the early days of the internet is that it would be free to send and receive a packet. But this assumption is breaking down with DDoS, SPAM.
Cryptocurrencies are now creating what we call fat protocols, which are protocols that exchange scarce value and keep data in the protocol. Because a lot of the value is being captured by the protocol (tokens in the protocol), the applications that are built on top of them don't capture as much value. That's why many people are trying to create more and more different types of cryptocurrency and then reserve to try and capture that value.
What a lot of people get wrong is that the block size of Bitcoin is a technical security parameter. Its job is to prevent people from overwhelming the network with a bunch of transactions that the full-nodes cannot handle because the transaction history keeps building and building at Infinitum. The dilemma is to either limit it to large value transactions or allow all kinds of transactions.
Just like the internet took out Hollywood with Netflix and Spotify and newspapers with Twitter and Facebook and it's taking out all kinds of industries. Crypto is going to fundamentally change and possibly take out the finance industry as we know it. And a financial industry is going to settle wherever the home of innovation for smart contracts and cryptocurrency.
Bitcoin is like a restricted computer, but Etherum is a much more general-purpose computer that stores long-term state better. Great potential for smart contracts compared to BTC. The drawback is that it increases the attack surface. Much riskier but much greater potential. The entrepreneurial opportunity is to marry traditional finance with the new blockchain technologies. So pick the best of traditional finance, take the best of the blockchains (Ethereum if you're doing sophisticated smart contracts and willing to take some risks or Bitcoin if your minting is cross-border payments). Take these and marry them together, figure out ways to securely reflect assets on the blockchain using both traditional financial controls and bureaucracy, and taking advantage of the technology. It's an opportunity that people haven't done yet because of this cultural disconnect.