Rajesh Jain

Thinks 605

Bloomberg: “Crypto is not an asset class. Stocks and bonds have cash flows. Commodities have industrial uses. Digital tokens have nothing but sentiment. Someday, they might prove useful as representations of assets, making transactions cheaper and more reliable. As things stand, buying them is pure speculation, not investment. They’re worth no more than you’re willing to lose, and certainly have no place in pension funds or retirement accounts…Perhaps the speculative frenzy surrounding crypto will eventually give way to the development of truly valuable applications, as happened with the internet.”

The New Founders America Needs: Bari Weiss spoke to the first students at The University of Austin. “We have to get more fundamental, more foundational. We have to get beyond the tired and rotted out ideas about left and right and ask: What are the virtues and values that have made America and the West the best, freest, most enlightened, most tolerant of minorities, most open to new ideas, most innovative places in the history of the world? The Founders that granted us independence from an older tyranny bequeathed to us a world-transforming set of ideas that, nearly 250 years later, still feel radical, especially in the last decade. I believe that after the un-American revolution we are still living through, a new generation of founders will lead us out by looking to those same bedrock principles…While the original Declaration of Independence had one call to action, I have ten.”

Nassim Taleb: “We’re living in Adam Smith’s world where this pencil is made by people who have never met one another and don’t even know that their contribution is going towards the pencil, except for one. We’re living in that world. Thanks to some globalization. And, of course, it’s going to have its limits. Nobody really wants autarchy. So, what we’re disagreeing about is the degree of the limits of that globalization; but nobody wants to go back to autarchy. So, when people say, ‘I’m against globalization,’ they usually mean ‘I would like it reduced in some places to–exactly–to be managed better.’ But, globalization visibly is the name of the game today. “

Web3 and India: A Wrong Turn (Part 9)

India – 2

The Indian bureaucrat’s innovation in the crypto regulation game has been to define a category called “virtual digital asset” (VDA) and then tax it heavily to the point where every incentive to transact is taken away. From Bloomberg: “On July 1, a tax deductible at source of 1% on all digital-asset transfers above a certain size takes effect despite industry warnings that it will sap liquidity. That’s on top of an existing 30% rate on income from such assets plus a proposed value-added tax increase that’s making its way through the bureaucracy. The government also doesn’t permit offsetting of trading losses on cryptocurrencies, treating them differently from stocks and bonds.” If that wasn’t enough to kill the golden goose, there’s more: “Adding to the pain, crypto exchanges have been largely cut off from the regular banking system since mid-April. That’s when India’s ubiquitous United Payments Interface was made unavailable to them without explanation, prompting some banks and payment gateways to also cut off service, which in turn meant traders couldn’t top up their accounts with cash.”

The definition of VDA is explained in this note from E&Y

Limb A

It means any information or code or number or token (not being Indian currency or any foreign currency), generated through cryptographic means or otherwise, by whatever name called,

Providing a digital representation of value which is exchanged with or without consideration,

With the promise or representation of having inherent value or functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to investment scheme; and

It can be transferred, stored, or traded electronically.

Limb B

A NFT or any other token of similar nature, by whatever name called. But NFT itself is defined to mean such digital asset as the CG (Central Government) may, by notification in the Official Gazette, specify

Limb C

any other digital asset, as the CG may, by notification in the Official Gazette, specify

Of course, Indian and foreign currency is excluded from the above.

And as so often happens, there came an exclusion list:

Gift card or vouchers, being a record that may be used to obtain goods or services or a discount on goods or services;
Mileage points, reward points or loyalty card, being a record given without direct monetary consideration under an award, reward, benefit, loyalty, incentive, rebate or promotional program that may be used or redeemed only to obtain goods or services or a discount on goods or services;
Subscription to websites or platforms or application

Another clarification was issued: “The CG has notified that a “token” which fulfils the definition of VDA under Limb A shall be NFT. But it shall not include a NFT whose transfer results in transfer of ownership of underlying tangible asset and the transfer of ownership of such underlying tangible asset is legally enforceable.”

VDA and the concomitant crypto regulation is now a bureaucrat’s delight and an entrepreneur’s nightmare. The ostensible targets were the cryptocurrencies and crypto exchanges. The Indian government succeeded; trading in alternate currencies has now almost ground to a halt.

The side-effect of this is going to be that any Web3/crypto company with a token as its model will not be able to operate in India. They will simply domicile themselves outside India. And Indians will figure out a way – like they always have – to participate. Black money and smuggling were the answer to high taxation and bans in the India of the 1970s. Governments will never learn. The phrase “laissez faire” which literally means “let go” does not exist in their dictionaries.

So, where does India go from here? What are the Web3 opportunities in India? What about Indian entrepreneurs wanting to build Web3 businesses?

Thinks 604

FT on vertical farming: “The benefits touted by vertical farmers are manifold. Without having to worry about outdoor scourges such as pests, flooding or drought — “externalities”, as [Irving] Fain calls them — Bowery’s scientists can choose from a wider and tastier variety of cultivars that might never otherwise make it to a grocery store. The indoor environment allows them to grow crops without pesticides or herbicides — and with 90 per cent less water than is used in traditional farming. In a closed loop, the moisture that growing plants emit is sucked up by dehumidifiers and recycled for irrigation. With rows of crops piled one on top of another, several storeys high, vertical farms can produce many times more per acre than a comparable greenhouse — let alone a traditional field. And, because vertical farms can, in theory, be located just about anywhere, produce can be grown in an industrial park beside New York City rather than having to truck it across the country. That means it can be shifted from a cutting machine to a store shelf in hours — not days.”

Caleb Fuller: “To be a successful student of economics, therefore, one must come ready to understand the world—not to judge it. My experience with teaching Econ 101 suggests that “judging” is the single most relevant barrier to understanding. Potential learners on both the ideological left and the right stand ready to condemn the world for a host of real and perceived deviations from perfection. Such an attitude short-circuits any meaningful attempt to understand why the world is the way it is. Cultivating a healthy curiosity is the antidote.”

WSJ: “Psychologists believe it’s possible to boost optimism with practice. Their recommendation: Aim to feel optimistic part of the time. Unless we were born with the sunniest of dispositions, full-time optimism may be impossible to achieve. It’s also not ideal. Negative emotions are important sometimes because they help us identify what is wrong and motivate us to seek change. “We don’t want to bury our heads in the sand,” says Dana McMakin, associate professor of psychology at Florida International University, who studies how to increase positive thinking. “Yet at the same time, we want to take breaks from worry to build resiliency so we can take on the world.””

Web3 and India: A Wrong Turn (Part 8)

India – 1

Mint wrote about RBI’s dislike for crypto:

The RBI has made its displeasure towards cryptos more than clear, over and over again. In fact, in the latest edition of the Financial Stability Report (FSR), published June-end, it offered several reasons for the same.

First, “anything that derives value based on make believe, without any underlying, is just speculation under a sophisticated name.” Second, “cryptocurrencies, typically created on decentralised systems, are designed to bypass the financial system and all its controls, including Anti Money Laundering (AML)/Combatting the Financial Terrorism (CFT) and Know Your Customer (KYC) regulations.”

… Third, “historically, private currencies have resulted in instability over time… as they create parallel currency system(s), which can undermine sovereign control over money supply, interest rates and macroeconomic stability.” This is the RBI’s and many other central banks’ major fear.

Fourth, cryptos “are characterised by highly volatile prices” and this can create its own set of problems along with the “increased use of leverage in investment strategies; concentration risk of trading platforms; and opacity and lack of regulatory oversight of the sector.”

Given these reasons, it is hardly surprising that the central bank has been highly vociferous in opposing cryptos.

T C A Srinivasa-Raghavan wrote about the government stance:

The latest official statement on cryptocurrencies comes in the form of a written Lok Sabha answer by Finance Minister Nirmala Sitharaman on July 18, 2022.

“Cryptocurrencies are by definition borderless and require international collaboration to prevent regulatory arbitrage. Therefore, any legislation for regulation or for banning can be effective only after significant international collaboration on evaluation of the risks and benefits and evolution of common taxonomy and standards.”

In other words, there’s not going to be any regulatory legislation on cryptocurrencies, probably for decades. That’s the bad news for investors because even in the best of times major economies around the world take decades to hammer out a common approach toward regulatory or taxation issues.

WSJ wrote that “India has almost killed domestic crypto trading with draconian taxes that signal potentially more pain for virtual-currency investors.”

Investment in India’s crypto sector surged after the Supreme Court quashed a ban on banks facilitating crypto trades in 2020. According to data shared by private-markets data provider Tracxn Technologies, India’s cryptocurrency industry has raised $24.2 billion in funding since the beginning of 2020.

But things have taken a turn for the worse this year. In July, India imposed a 1% tax on all digital-asset transfers above a certain size, deductible at the time of transaction. That tax is on top of a 30% rate on income from such assets promulgated in April.

… India’s move to both tax crypto more and dilute some of its signature anonymity should be deeply worrying for the technology’s backers—particularly if other rapidly growing markets begin to believe it has the right idea.

Thinks 603

K K Kailash: “Our popular image of a party is that of the classical mass party, which rises from societal movements and is essentially internally democratic. They are linked to mass organisations and groups that share a common goal encompassing different dimensions of societal life. The leadership comes from the organisation, is accountable to it and is committed to the goal. Our normative posturing comes from this ideal type. This is what even the Election Commission of India imagines a party should be since many of its guidelines lay stress on the ‘democratic spirit’ and the need for transparency and participation in internal decision-making. However, in reality, parties are anything but this. While they mobilise and compete around identity and group solidarity issues such as mass parties, the internal democracy element is missing, and their links with society and mass organisations are at best tenuous. Today’s parties are centralised vote-getting machines which primarily work to ensure the return of political leaders to office. Mass inputs and ideas do not matter, and it is the central leadership that counts. All party activities begin and end with elections.”

Arnold Kling: “The political ecosystem consists of Deceivers, Skeptics, and Enablers. Deceivers have a gift for gaining power over others. Think Clinton, Obama, or Trump. Think of the purveyors of the folk versions of critical theory. Skeptics are those who see through the Deceivers and who stick with classical liberal values. Think Thomas Sowell, Robin Hanson, or Bryan Caplan. Enablers are those who help Deceivers gain power. Think of people of strong partisan faith. They think that the candidate they are voting for is not a Deceiver. They take the professed intentions of political activists at face value.”

Rita McGrath writes about Jeffrey Pfeffer’s book “7 Rules of Power: Surprising – but true – Advice on How to Get Things Done and Advance Your Career”: “[Rule 1]: Get Out of Your Own Way. This rule basically says that if you think going for power is unethical, unpleasant or not for you, you are highly unlikely to succeed at getting it. Of note is the “imposter syndrome,” that uneasy feeling that many extremely accomplished people have that they don’t deserve the accolades they’ve received or don’t belong amongst a group of other distinguished people. Jeff suggests, start there – if you don’t believe you deserve to be in a powerful position, nobody else is likely to either.”

Web3 and India: A Wrong Turn (Part 7)

Web3 – 4

Gilad Edelman in Wired:

If cryptocurrency was originally about decentralizing money, Web3 is about decentralizing … everything. Its mission is almost achingly idealistic: to free humanity not only from Big Tech domination but also from exploitative capitalism itself—and to do it purely through code.

Bitcoin, the original blockchain-based cryptocurrency, created a way to send and receive digital money without needing a bank to approve those transactions. Instead of regulators and cops, a set of carefully designed incentives would, in theory, keep everyone acting in the best interests of all Bitcoin users. Web3 aims to apply these two concepts—decentralization and game theory—to all of digital life.

…One way to think about Web3 is right there in the name: It’s the successor to Web 2.0, the era that was supposed to democratize the internet but instead became dominated by a handful of huge platforms, like Google and Facebook. Web3 is about re-decentralizing the web.

…At the most basic level, Web3’s approach to financial incentives is an ingenious way of solving new technology’s adoption problem. Let’s say you make a new decentralized platform built on the blockchain, one that works so smoothly that people can use it without getting a PhD in cryptography. Users control their own data and everything is open source. The thing is, those ordinary users probably don’t care much about data ownership or immutable public ledgers. They care about convenience and fun and being where their friends are. So how do you get anyone to use your new Web3 app?

The answer is tokenomics. The business model of nearly every proposed Web3 platform entails distributing tokens to everyone involved, thus incentivizing them to use and improve the platform to make the value of those tokens go up. In Web3-speak, this is called “aligning the incentives.”

Jad Esber and Scott Duke Kominers in HBR:

Web3 platforms…have the potential to unlock a novel and especially powerful form of network effect through community engagement and social cohesion. Ownership of digital assets fosters a sense of psychological ownership that can make consumers feel so invested in a product that it becomes almost an extension of themselves. A platform’s users literally become “fans” who form a bond through the shared platform experience — similar to how fans of a sports team or obscure band see themselves as a community.

…More generally, sharing ownership allows for more incentive alignment between products and their derivatives, creating incentives for everyone to become a builder and contributor. The underlying technology standards also enable every Web3 company to be built on top of. This means the community around a platform can co-create in a way that’s much less adversarial than in the past and with more derivatives in circulation — making the platform ecosystem grow even stronger.

…In the short-run, this model gives up some share of consumer surplus to the builder or creator. But because the builders get more, they’re strongly incentivized to invest and grow the total pie for everyone – which means that in the long run, Web3 should raise consumer surplus as well.

In their textbook on economics, Tyler Cowen and Alex Tabarrok have a chapter on Cryptoeconomics. They end with a couple open questions: “The first is how effectively crypto and blockchain innovators will be able to capture additional gains from trade. The second question is how the authorities will regulate these markets. Cryptocurrencies and decentralized finance are not immune to problems of traditional finance including bubbles, excess leverage, and bank runs. Thus, as these markets get bigger, we may expect more regulation. As regulation increases on crypto innovations that may slow their future growth and also make traditional and decentralized finance more similar. Governments may also create new digital currencies of their own, sometimes called central bank digital currencies (CBDCs), which will be convenient but won’t necessarily have the privacy or security of an unregulated digital currency like bitcoin.”

It is the second question which has been worrying governments – the loss of possible control in the future, especially on their fiat currencies.

Thinks 602

Tyler Cowen, Atta Tarki and Alexandra Ham offer suggestions on streamlining the hiring process. Among them: “1. Reduce the number of interviewers in your process. If you have more than four or five interviewers, chances are that the costs associated with the additional complexity in your process have exceeded the benefits they produce. 2. Be explicit about whose decision it is. Steer your organizational culture away from a consensus-oriented approach. Instead, for each role make it explicit whose decision it is, who else might have veto power, and that other interviewers should not be offended if a candidate is hired despite not getting their approval. And then keep repeating this message until most of your colleagues adapt to this new approach.”

Nicholas Stern of LSE: “We know India has grown the fastest when it has invested strongly. I would focus on the conditions for private investment and how confident people are getting things done and realising returns from their investments. Clarity in the tax system is another one and I do think that GST is a very important step in a good direction. So building on that is the basis for taxation. India needs to increase the share of taxation to GDP. It is perhaps 3 or 4 percentage points below what you would expect on income per capita basis. Now you have the tools to do that. But it is important to use it in a simple and transparent way so that it doesn’t complicate people’s lives too much…I don’t think India is in anyway nearer to a middle income trap. The policies that we have been discussing about sustainable infrastructure, creating new, clean cities, electrification of transport and particularly the energy transition in power invokes strong investment and will drive India’s growth. I am very hopeful of India’s growth in the next couple of decades. India will work out its production, investment, and trade policies. We have to see how that develops.”

Read: The 6:20 Man by David Baldacci

Web3 and India: A Wrong Turn (Part 6)

Web3 – 3

The crypto ecosystem has evolved a lot in the past few years. An April 2022 report by CV VC lists the categories in the value chain:

Brokers & Crypto Banks
Crypto Exchanges
Custodians
DAOs
DeFi
Launchpads
Market Makers
NFTs & The Metaverse
Platforms & Protocols
Service Providers
Token Issuance Platforms

From the introduction on the promise of crypto: “The world is globally transitioning as it rebuilds from a pandemic, endures geopolitical wars, and survives a climate crisis. Underpinning the transition is humanity’s new mindset. Climate, war, and a pandemic are only at the tip of the iceberg as an indicator of how humankind is reaching into itself and adopting a self-determining, caring, and globally focussed mindset. Institutions, companies, and brands will need to embrace this transition to stay relevant to existing and new customers. Humanity seeks trust and transparency, the democratization of institutions, and a better way of interacting and doing business. Throughout history, substantial global upheavals, as we are currently witnessing, have resulted in transformation and renaissance. When these renaissances occur, renewal emerges and heralds the world toward better functioning and wellbeing. We are already entering a new epoch, driven by the new mindset and underpinned by the internet and the catalyst technology known as blockchain.”

Mohit Mamoria outlines the importance and necessity of the blockchain:

To establish trust between ourselves, we depend on individual third-parties.

For years, we’ve depended on these middlemen to trust each other. You might ask, “what is the problem depending on them?”

The problem is that they are singular in number. If a chaos has to be injected in the society, all it requires is one person/organization to go corrupt, intentionally or unintentionally.

…For years, we have been putting all our eggs in one basket and that too in someone else’s.

Could there be a system where we can still transfer money without needing the bank?

…Think about it for a second, what does transferring money means? Just an entry in the register. The better question would then be —

Is there a way to maintain the register among ourselves instead of someone else doing it for us?

…The blockchain is the answer to the profound question.

It is a method to maintain that register among ourselves instead of depending on someone else to do it for us.

The requirement of this method is that there must be enough people who would like not to depend on a third-party. Only then this group can maintain the register on their own.

A series in New York Times in March 2022 offered a simplified explanation of the blockchain:

You can think of a blockchain like a Google spreadsheet, except that instead of being hosted on Google’s servers, blockchains are maintained by a network of computers all over the world. These computers (sometimes called miners or validators) are responsible for storing their own copies of the database, adding and verifying new entries, and securing the database against hackers.

So blockchains are … fancy Google spreadsheets?

Sort of! But there are at least three important conceptual differences.

First, a blockchain is decentralized. It doesn’t need a company like Google overseeing it. All of that work is done by the computers on the network, using what’s called a consensus mechanism — basically, a complicated algorithm that allows them to agree on what’s in a database without the need for a neutral referee. This makes blockchains more secure than traditional record-keeping systems, proponents believe, since no single person or company can take down the blockchain or alter its contents, and anyone trying to hack or change the records in the ledger would need to break into many computers simultaneously.

The second major feature of blockchains is that they’re typically public and open source, meaning that unlike a Google spreadsheet, anyone can inspect a public blockchain’s code or see a record of any transaction. (There are private blockchains, but they’re less important than the public ones.)

Third, blockchains are typically append-only and permanent, meaning that unlike with a Google spreadsheet, data that’s added to a blockchain typically can’t be deleted or changed after the fact.

The blockchain is the underlying construct for Web3, just like the HTTP protocol is for data exchange on the Web.

Thinks 601

Chip Morningstar: “People have this tendency, particularly people who have utopian yearnings, to say, “We’re going to build this thing and everybody will behave. Everybody will do X.” Those plans get disrupted when it turns out that everybody doesn’t do X. This was one of the very early lessons from Habitat. You can build experiences predicated on a model of user behavior, but if it’s wrong, those experiences will not work. That seems like a trite thing to say. Well, of course. But the reality was that early on, we designed things that didn’t take into account a realistic model of user behavior. When everybody didn’t do whatever thing it was predicated upon, it would fail. We learned the hard way to pay attention to that. That’s a lesson that people have to learn over and over again…Prototyping, playtesting, and don’t think that you as the developer are representative of your users’ behavior.”

Cedric Chin: “The goal of reading from history, then, is to expand the set of prototypes in your head. Treating history in this manner sidesteps many of the problems we’ve discussed earlier. You don’t have to worry about path dependence, for instance, since you’re not drawing tight lessons from specific scenarios. Nor do you have to care as much about the narrative fallacy — if you have enough samples of the thing in action, your brain will be able to pattern match against the similarities across cases, never you mind that retellings of each case may be inherently flawed. When you’re hunting for concept instantiations, the criticisms of historiography are a wash; they fall to the wayside.”

Isaac Saul: “Misinformation is “incorrect or misleading information.” This is slightly different from “disinformation,” which is “false information deliberately and often covertly spread (by the planting of rumors) in order to influence public opinion or obscure the truth.” The notable difference is that disinformation is always deliberate.”

Web3 and India: A Wrong Turn (Part 5)

Web3 – 2

Momentum Works has a couple of slides which shows the simplified history of the Web through its three evolutions:

a16z’s May 2022 report on the state of crypto shows the evolution:

The three key points it makes about Web3:

Web3 gives people property rights: the ability to own a piece of the internet
Web3 aligns network participants to work together toward a common goal — the growth of the network
Web3 empowers a collective owned future over a corporate or government owned future

It offers the following view on the future: