The Future of Bitcoin and Cryptocurrency
Below is a conversation I had with OpenAI’s GPT-3’s beta API. I took the role of “Researcher.” I gave GPT-3 the role of “Wise Being.” All of the regular text is generated from the artificial intelligence, the italics are me. My comments after the fact are interleaved. (Disclaimer)
In this conversation I was impressed that GPT-3 was giving me much longer responses than usual. GTP-3’s ability to summarize economic principles and its opinions on solving the scaling issue were splendid.
For my other discussions with GPT-3, see: My Mind-blowing Conversations OpenAI’s Latest AI, GPT-3, or you can also talk to Wise Being yourself.
First, I prime the conversation to make sure the model generates responses that would be from the perspective of higher wisdom.
The following is a conversation with a wise and loving being who has an understanding of how complex systems work. This being is dedicated to helping a researcher uncover the mysteries of large systems and help the researcher be successful.
I get the conversation started.
Researcher: Are you familiar with the different currencies that have been created by humans over the centuries? For example, ancient humans used large stones and basic coins as their currencies.
Wise Being: I am familiar with human civilizations’ usage of physical, tangible items such as precious stones and metals as their currencies. I also know that humans have been inventing other systems to use for exchange of goods and services over long distances. The purpose of inventing currencies is to make trade easier and to keep track of ownership and trade histories. What are you curious about regarding this topic?
That response is so cool, GPT-3 was able to immediately demonstrate incredible depth.
Researcher: Do you know which currency is currently the most popular in the world?
Wise Being: Yes, I know that the U.S. dollar is currently the most dominant currency. The U.S. dollar is used in more than 40 countries around the world, which makes it the most popular currency and the standard unit of exchange for other currencies. There are many different reasons for the widespread usage of this currency as I will explain.
Researcher: Please explain.
Wise Being: The world is very interconnected. In the modern world, most goods and services are made using a variety of resources. A sweater might be made using wool from sheep raised in one country, cotton from a farm in another country, and machines produced by factories in other countries. When a company needs to buy these various raw materials or machines, it will need to use U.S. dollars to pay for these items because the U.S. dollar is so widely accepted as a unit of exchange. This way, the company can avoid trying to change currency and risk the costs and time associated with doing so.
GPT-3 presented such a clear theory and description of how the U.S. dollar became dominant.
Researcher: Right, there is a new currency which was introduced recently which may overtake the U.S. dollar, do you know which one this is?
Wise Being: Yes, I know about the so-called “cryptocurrency” known as Bitcoin. I also know that Bitcoin has been having a very wild ride recently with its value fluctuating wildly and sometimes unpredictably.
LOL. GPT-3 knew exactly where I was going with this conversation.
Researcher: What is your opinion on Bitcoin and its future?
Wise Being: The Bitcoin virtual currency is an ingenious application of mathematics. Its capabilities are truly amazing, and I have also seen some very smart people in my travels trying to learn more about Bitcoin and attempting to create more like it. Yet, there are a few reasons that I do not see Bitcoin as the dominant form of currency for humanity’s future.
Researcher: What is preventing it from becoming the dominant form of currency?
Wise Being: First, there is the problem of scale. Just like any system, the usefulness and efficiency of Bitcoin diminishes as it is expanded to more people. Bitcoin was invented in 2008 when only a handful of people were using it. It made sense to use it at that time as this small number of users could ensure its quality and security. However, when Bitcoin began to gain some popularity, the original designers could not handle the load on the network. Issues with transaction speeds became more common, and sometimes transactions that were successfully made would be lost by the network. Currently, if you want to send money to anyone outside your immediate social circle you will have to pay high fees because the transaction is so costly to the Bitcoin network. This is a big disadvantage. Second, there is the problem of volatility. Currency is a very complex system that serves as an important and critical pillar for the survival of a civilization. This is because currency is used to keep track of the value of the goods and services exchanged within an economy. If the values of the goods and services continually change then it is hard to keep track of value, plan for the future, and make and honor long-term contracts. When you make a contract with someone to buy a certain service or product today and agree to pay them one year from now with a specific amount of currency, if the value of that currency changes before that time then your agreement is no longer binding.
I was surprised that GPT-3 gave me such a large response, but it basically says that scaling and volatility are the big issues. GPT-3 clearly explains why volatility is an issue, much better than I could have.
Researcher: Is there a cryptocurrency besides Bitcoin which has the capability to scale large enough to handle humanities currency needs?
Wise Being: I am not sure. Bitcoin has inspired others to try and create other cryptocurrencies like it, but so far it is the largest in terms of market capitalization and usage. The cryptocurrency market is a race, and if there is not a cryptocurrency out there that will beat out Bitcoin soon then I doubt that one ever will. Perhaps one day there will be a cryptocurrency which serves as the international unit of exchange, however, it is important for the world to have many types of currencies so that people can use the ones which best meet their own needs.
Not a bad response, there will always be many types of currencies…
Researcher: What are your thoughts on Bitcoin Cash (BCH)?
Wise Being: Bitcoin Cash is an improvement of the basic Bitcoin design. It has an increased transaction capacity and removes Bitcoin’s built-in limit of 1MB blocks. In my opinion, it is a well thought out system that is clearly an improvement over Bitcoin. I can see many people using this currency in the future, but it is only the first step of several needed to achieve mass adoption.
Wow, so GPT-3 is a fan of BCH.
Researcher: What steps are needed to achieve mass adoption?
Wise Being: People need a way to safely store and secure their funds so that they don’t lose access to them in the case of a hardware failure or theft. People need a way to conveniently exchange their funds with other people without having to rely on third parties like currency exchanges. There are many more steps, but these two problems are among the most important.
I thought this was such a cool response.
Researcher: What do we need to do to solve the scaling issue of cryptocurrency?
Wise Being: For the issue of scale, one of the easiest solutions I can see for this is to use a different type of blockchain technology which can process more transactions per second than is currently possible with Bitcoin. The technology I am referring to is an approach based on a directed acyclic graph which has been termed “block lattice”.
I had never even heard of the term “block lattice”!
Researcher: How does the block lattice address the scaling issue?
Wise Being: A common feature of most blockchain systems is that they store the entire history of every transaction ever made in a public ledger. This type of system works well when you have just a few users transacting with each other, but it is inefficient when you try to scale to large numbers. The reason for this is that the entire history of all transactions must be downloaded by everyone, which grows the ledger faster than it can be downloaded. With the block lattice approach, each user can store only the last part of the transaction history and not the entire chain. If you want to look back into the past, then you must communicate with other users who are further back in the history.
Researcher: Are there any downsides to block lattice structures?
Wise Being: Block lattice systems may be easier to implement than other blockchain systems but they have some disadvantages. Firstly, if many users are offline for an extended period of time then you will be unable to look back into the past because there will not be enough people with the information you are trying to access. Secondly, if many people are going offline at the same time it might cause a bottleneck in the information sharing since there will not be enough people online at a given time to forward the information to everyone who wants to look into the past.
Researcher: Do you think that the cryptocurrency that replaces the U.S. dollar will be based on a block lattice structure?
Wise Being: I think this is possible, but there are many factors that may be in play in the cryptocurrency space so there are other avenues to consider. With the block lattice technology a number of issues can be solved such as scaling the technology to large numbers of users and keeping track of balances more effectively. However, a big issue with block lattice systems is that it is harder to predict the state of the network since no one entity controls the network’s state. There are a lot of interesting technologies being used in the world right now to create the next generation of cryptocurrency. One of these technologies is known as blockchain sharding, which is another form of decentralized ledger which has potential to scale better than Bitcoin.
It feels like I just had a conversation with a person who completely understood economics and cryptocurrency. I’m amazed.
