June 2, 2023

Exploring transformation of value in the digital age

By Michael J. Casey, Chief Content Officer

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One thing I appreciated after first going down the crypto rabbithole in 2013 is how much the principles behind this technology helped me look at problems differently. This week's column argues that this community's decentralization mindset can be applied to many concerns around artificial intelligence.

For our Money Reimagined podcast, my co-host Sheila Warren and I reflect on her recent trip to visit regulators and crypto advocates in the U.K. and Europe, and then explore the widening differences in different regions' approaches to this technology.

Have a listen after reading the newsletter.

What AI Governance Can Learn From Crypto

(Win McNamee/GettyImages)

The titans of U.S. tech have rapidly gone from being labeled by their critics as self-serving techno-utopianists to being the most vocal propagators of a techno-dystopian narrative.

This week, a letter signed by the more than 350 people, including Microsoft founder Bill Gates, OpenAI CEO Sam Altman and former Google scientist Geoffrey Hinton (sometimes called the "Godfather of AI") delivered a single, declarative sentence: "Mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks such as pandemics and nuclear war."

Just two months ago, an earlier open letter signed by Tesla and Twitter CEO Elon Musk along with 31,800 others, called for a six-month pause in AI development to allow society to determine its risks to humanity. In an op-ed for TIME that same week, Eliezer Yudkowsky, considered the founder of the field artificial general intelligence (AGI), said he refused to sign that letter because it didn't go far enough. Instead, he called for a militarily-enforced shutdown of AI development labs lest a sentient digital being arises that kills everyone of us.

World leaders will find it hard to ignore the concerns of these highly recognized experts. It is now widely understood that a threat to human existence actually exists. The question is: how, exactly, should we mitigate it?

As I've written previously, I see a role for the crypto industry, working with other technological solutions and in concert with thoughtful regulation that encourages innovative, human-centric innovation, in society's efforts to keep AI in its lane. Blockchains can help with the provenance of data inputs, with proofs to prevent deep fakes and other forms of disinformation, and to enable collective, rather than corporate ownership. But even setting aside those considerations, I think the most valuable contribution from the crypto community lies in its "decentralization mindset," which offers a unique perspective on the dangers posed by concentrated ownership of such a powerful technology.

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Off the Charts: Tether Vs. USDC

The market capitalization of the stablecoin Tether, or USDT, reached an all-time high of $83.2 billion this week, as demand for the token as a dollar-proxy payment vehicle has risen. Meanwhile, rival stablecoin USDC, issued by Circle, is floundering, as memories of its cash challenges amid the collapse of Silicon Valley Bank three months ago continue to impose a modest discount on its one-to-one value claim versus the dollar. Here's a chart of the two stablecoins' relative performance in market cap terms over the past year, courtesy of Coin Market Cap.

The frustrating aspect to this is that, by all measures, there is considerably more transparency around USDC's reserves and general financials than Tether's. It has a far better, more trustworthy system of governance, as JP Koning, a CoinDesk columnist, wrote at the time.

But given the uncertain U.S. regulatory environment, which has stalled Circle's bid to be licensed as a bank and gain access to Federal backing, the market appears to currently hold some concerns about USDC's vulnerability to further banking crises. With Tether, by contrast, investors are currently shrugging off its governance limitations and relying on the fait-accompli liquidity that comes from being number one. The logic seems to be: if so many people are willing to exchange USDT at one-dollar, who cares what's under its hood? Of course, any number of new concerns about Tether or generalized crypto risks could in the future quickly shift demand away from USDT and back to USDC, or some other alternative.

The Conversation: Worldcoin's Rise

In addition to running OpenAI, the AI development company whose GPT-4 product has taken the world by storm, Sam Altman is also co-founder of Worldcoin, the controversial crypto project that provides people with a device to prove their human-ness via biometrics. Amid increasing, GPT-4-stoked buzz around the need to prove human content versus fake AI-generated content, Worldcoin last week announced it had raised a whopping $115 million.

That is making both Worldcoin's critics and its supporters sit up and take notice. Is its approach to biometrics really a threat to privacy or does Worldcoin's device-based cryptographic model sufficiently mitigate that threat? Do the benefits of its proof-of-human solution for AI outweigh the risks?

Some, like Spencer Bogart, a general partner at Blockchain Capital, overcame their prior concerns and invested money in the project. Others, like Kyle S. Gibson, a long-time critic of the crypto industry, saw nothing but cynicism in the whole thing.

Relevant Reads: Rounding 10 Years

This week, we close out the final week of contributions to CoinDesk's month-long exploration of crypto history – a project timed to coincide with the 10-year anniversary of our founding – with four articles that capture the boom-bust cycle of this industry.

David Z. Morris reflects on the initial coin offering (ICO) boom and bust from 2017 to mid-2018. He explains the excesses of the ICO fundraising, the scams it attracted and the legacy it left in terms of fraught relationships between fundraisers and the general public. He notes, however, that ICOs produced many success stories to go with the headline failures.

Dan Kuhn looks at the launch of Ethereum in 2015, reflecting on how the founders' stated goals match up with the state of the project today. The takeaway: for an immutable blockchain, Ethereum has changed quite a bit in the last eight years.

George Kaloudis looks back at the bombshell announcement in 2021 that El Salvador would make bitcoin legal tender and then at the struggles the country faced in implementing it amid market turmoil.

And finally, the big one: Anna Baydakova unpacks the rise and rapid, ignominious fall from grace of Sam Bankman-Fried, the former CEO of collapsed exchange FTX, who was looked up to as a hero… until he wasn't.

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