The Rational Reminder Podcast Understanding Crypto 2: Igor Makarov: Economics of the Crypto Ecosystem
01:26:42
Role of Intermediaries
- Intermediaries allocate resources, transfer wealth, and manage risk.
- They are necessary but can charge excessive fees due to limited competition.
Rents in DeFi
- Decentralized finance, despite open access, doesn't eliminate rents.
- Rents can accumulate due to network effects and security concerns, similar to traditional finance.
Ethereum Fees
- Ethereum's fees were 100 times higher than Visa's.
- High fees are due to proof-of-work protocols, and the shift to proof-of-stake aims to reduce costs.
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Introduction
00:00 • 3min
Intermediaries - Are They Overly Excessive?
02:37 • 3min
Rents Are a Sign of Limited Competition
06:06 • 4min
The Fault in the Fault of the Fuse
09:45 • 2min
How to Solve the Systemic Risk Problem
11:24 • 2min
Is Block Jan Trustless?
13:23 • 2min
How to Execute Smart Contracts Without Human Intervention?
15:07 • 2min
Does the Concentration of Ownership Cause Problems in Cryptocurrency?
17:08 • 3min
Cryptocurrency and Defi
19:54 • 2min
The Decentralized Financing of Cryptocurrencies
21:45 • 3min
The Permission Network Is a Good Idea, Right?
24:41 • 2min
The Limitations of Understanding Bitcoin
26:23 • 3min
Block Chain Analysis of the Bigcoin Market
29:36 • 2min
The Difference Between Intermedra and Individual Addresses?
31:43 • 2min
How to Separate the Concentration of Bitcoins Within Exchanges
33:27 • 4min
How Large Did Exchanges Play in the Total Volume of Bicoin Transactions?
37:14 • 2min
How Important Are Exchanges to the Network?
39:00 • 2min
The Challenges in Enforcing Cryptocurrency in a Global Financial System
41:07 • 4min
The Problem of Decentralized Exchanges in Cryptocurrency Exchanges
45:19 • 2min
Ibi Coin Protu
47:11 • 3min
How Much Illegal Activity Is Being Facilitated by Bitcoin?
50:06 • 3min
How to Calculate the Volume of Bit Coins
52:57 • 3min
The Future Price of Bitcoin
55:56 • 5min
How Did You Identify Individual Pit Coin Miners?
01:01:03 • 5min
Mining Concentration Variates Overtime
01:05:52 • 2min
Mining Concentration - Risks to the Bitcoin Eco System When Concentration Is High
01:07:29 • 3min
Is There Anymining Activity in China?
01:10:19 • 2min
Mining Concentration
01:12:11 • 3min
How Does the Concentration in Mining Power Affect the Security of Block Chains?
01:15:38 • 3min
Bitcoin Proof of Work
01:18:24 • 2min
Double Spending Transactions
01:20:40 • 2min
Bitcoin
01:22:22 • 2min
Are Cryptocurrencies Living Up to Their Promise of Democratizing Financial Services?
01:24:00 • 3min
Understanding the complexity surrounding cryptocurrencies is essential in making the correct decisions regarding investing in DeFi technology. To help us understand the basics, we talked to Dr. Igor Makarov who is an expert on cryptocurrency and Bitcoin, particularly Bitcoin and the associated mining processes. He is based at the London School of Economics, where he serves as an Associate Professor of Finance. Dr. Makarov is also the author of several papers focusing on DeFi and crypto markets in general and has provided new insights surrounding governance and mining processes. In today’s show, we learn about the basics of cryptocurrencies, mining and the future of DeFi. In particular, we talk about the role of intermediaries, what drives the prices of Bitcoin, how concentrated mining processes are, the role DeFi in increasing governance, the upsides and downsides of cryptocurrencies, and much more. Tune in to make sure you don’t miss out on advice from a respected figure in the industry, Dr. Igor Makarov!
Key Points From This Episode:
- A brief outline of Dr. Makarov’s professional background and experience. [0:00:39]
- What role do intermediaries play in the traditional financial system. [0:02:36]
- Find out if economic rents that intermediaries collect are unwarranted. [0:03:36]
- Makarov explains the complexities of cryptocurrencies and the elimination of fees. [0:06:06]
- How rents are different on cryptocurrency exchanges. [0:09:44]
- Systemic risks associated with the traditional banking system. [0:11:24]
- Whether Bitcoin and DeFi can improve banking by reducing systemic risk. [0:13:22]
- Learn if blockchain or DeFi ecosystems can exist without human intervention. [0:15:06]
- Why it is unlikely decentralized autonomous organizations will improve governance. [0:17:06]
- Breakdown of the potential problems that concentration of ownership could have on governance. [0:19:53]
- Opportunities where cryptocurrencies and DeFi can improve the traditional financial system. [0:21:44]
- Some of the potential benefits of a permissioned distributed ledger system. [0:24:39]
- Why is it important to understand the Bitcoin ecosystem. [0:26:22]
- What are the limitations of understanding the Bitcoin ecosystem. [0:27:12]
- How Bitcoin addresses are associated with with real-world entities. [0:29:36]
- Ways to differentiate between addresses belonging to individual investors and those belonging to intermediaries. [0:31:42]
- What happens when you send Bitcoins to an exchange. [0:32:49]
- Details on how Dr. Makarov calculated the concentration of Bitcoins. [0:33:25]
- How did Dr. Makarov gain an understanding of what Bitcoin is used for. [0:37:14]
- The role exchanges play in influencing the total volume of Bitcoin transactions. [0:39:00]
- Why exchanges are essential to the overall network. [0:41:06]
- The challenges in enforcing KYC and AML rules for the crypto ecosystem. [0:41:56]
- How fungibility could effect the use of cryptocurrencies in the marketplace. [0:45:19]
- Whether most important cryptocurrency exchanges are generally decentralized. [0:46:36]
- What portion of Bitcoin transactions does Dr. Makarov consider to be economically meaningful. [0:47:06]
- Why most Bitcoin transactions comprise of irrelevant transactions. [0:48:08]
- What the meaningful Bitcoin transactions are being used for. [0:50:06]
- Why the estimates of illegal activities by Dr. Makarov differs from other studies. [0:52:56]
- A more in-depth explanation of what is driving the price of Bitcoin. [0:55:54]
- How Dr. Makarov was able to identify individual Bitcoin miners for his paper. [01:01:57]
- Makarov explains why the original vision of DeFi has not been realized. [01:05:52]
- Reasons for the concentration of miners in the Bitcoin space. [01:06:42]
- What are the risks are for the Bitcoin ecosystem when mining concentration is high. [01:08:24]
- How Dr. Makarov determined the geographic locations of mining operations. [01:10:52]
- What the function of a mining pool is. [01:13:36]
- How the concentration in mining power affects the security of smaller proof of work blockchains [01:16:20]
- How concentrated the ownership of Bitcoin in the hands of individual investors is. [01:22:40]
- We find out if cryptocurrencies are democratizing financial services. [01:25:03]