March 11, 2024 | Read Online

This issue is brought to you by:

"Of course it is happening inside your head, Harry, but why on earth should that mean that it is not real?"

- Dumbledore

What is a Dog Coin, Anyway?

Humans would not have progressed much further than hunting animals with rocks without our unique ability to achieve "intersubjective understanding."

Intersubjectivity is a concept that defines the existence and meaning of things as a function of what we collectively believe them to be and mean (irrespective of how little we understand them).

The US dollar has value because we collectively agree to treat it as a representation of value.

Words have meaning because we collectively agree on what they mean.

Legal systems have authority because we collectively believe they have authority.

We don't question these things much and that is for the best, because living in the world requires taking a lot of shortcuts. We all have to use money, language and laws, but we can't all be economists, linguists and legal scholars.

Still, it seems important that someone has a first-principles understanding of what these things are, so it's good that we have universities where scholars can study them.

If crypto prices continue to progress at their current pace, we may soon need scholars devoted to the study of dog coins.

Crypto tokens 101

Buying a crypto token feels exactly like buying a stock: The tokens have prices measured in dollars, the prices are most often viewed as squiggly lines on charts and when you buy one, a number appears in your digital wallet that looks just like the numbers in your brokerage account.

Unlike the stocks in your brokerage account, however, tokens are never in your wallet — and you don't really hold some number of them.

Strictly speaking, a "token" is not a unit of ownership in the way that a stock is — a token is a smart contract on a blockchain.

It's not divisible and cannot be sent to your wallet or anywhere else.

Your digital wallet holds just one thing: A private key that gives you control over the blockchain-based accounts associated with your wallet's public key.

This, then, is what you acquire when you buy a "token" — the ability for your private key to change some numbers on a blockchain-based ledger that holds an account associated with your public key.

If, for example, you buy 100 USDC, then the USDC token (ie, the smart contract) will add an entry to its ledger noting that the address corresponding to your wallet has a balance of 100 units.

Your wallet then gives you the illusion of holding 100 USDC tokens by showing you the balance of 100 units recorded in the USDC smart contract.

By intersubjective understanding, we collectively agree that these units are "tokens" and that the tokens represent ownership in the same way that your percentage ownership of a company is expressed as a number of stocks.

That's not strictly correct.

With stocks, ownership is conferred by a legal claim on assets and cash flows.

With tokens, ownership is conferred by control.

In this, your digital wallet is more like a credit card than a brokerage account — it authorizes you to send funds out of an account held on a blockchain in the same way that a credit card authorizes you to send funds out of an account held at a bank.

The private key in your wallet is the equivalent of the CVC code you type into a web page when shopping online — it proves ownership of the wallet address and its associated assets.

(Note: This is based on my limited understanding of Ethereum's ERC20 standard. Things are a little different on Solana where code is run on one account and data is stored on another. Things are very different on Sui, which employs an object-oriented model that does seem to put tokens in your wallet.)

None of this, however, should change the way you think about crypto tokens — to make money in crypto, it's best to go along with the collective belief that tokens in your wallet are just like stocks in your brokerage account.

So why the 101 explainer?

Because knowing what you literally get when buying a dog coin might help you know when, and when not, to buy one.

Token wif metadata

Why would you ever buy a dog coin?

The intersubjective answer to that eternal question is simply that dog coins represent memes and that buying one effectively gives you an ownership stake in said meme.

Memes have never been tradeable before, so you might say that dog coins are a genuine innovation.

This may make no sense in theory, but it works in practice: When a meme gets more popular, the meme token gets more valuable.

We should also, however, be aware of the literal reason to buy a dog coin — to create an account on a smart-contract token that includes some distinctive "metadata."

Metadata is the bits of code in a smart contract that distinguish one blockchain-based ledger from another.

Here's the metadata for the blockchain-based ledger known as dogwifhat:

You might consider buying access to this particular ledger because it has a catchy name (dogwifhat), a good symbol (WIF), a friendly description ("vibes wif frens") and/or a URL that points to an image of a loveable dog. With a hat.

Does that justify WIF's $2 billion valuation?

To paraphrase the great Dumbledore: WIF's value may only be happening inside our heads, but that doesn't mean it's not real.

― Byron Gilliam

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We're Watching

In this week's roundup the Bell Curve crew is joined by Sergey Nazarov, co-founder of Chainlink, joins us to discuss the evolution of Chainlink from a focus on price feeds to a platform for data, compute, and cross-chain services.

Watch or listen to Bell Curve on YouTube, Spotify or Apple.

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Daily Insights

Balaji @balajis

Suppose there were 10 shares and you had 1. Now they print 90 more shares and give you 1.

You have more shares!
1 → 2 📈

But you have less ownership.
1/10 → 2/100 📉

And that's how inflation works. People are misled into thinking they're getting richer, while getting poorer.

Mar 11, 2024

3.09K Likes 576 Retweets 119 Replies

Nick Timiraos @NickTimiraos

All eyes are on the February CPI this week

Wall Street forecasters expect the core CPI index rose 0.3%, lowering the 12-month rate to 3.7% from 3.9% in January

They see the headline index up 0.4% in February due to higher energy prices, leaving the 12-month rate at 3.1%

Mar 11, 2024

305 Likes 94 Retweets 11 Replies

Joseph Wang @FedGuy12

A potential change in leverage calculations could make banks a limitless purchaser of Treasuries just as future issuance is surging. This well worn path of sovereign financing would boost liquidity across markets and place upward pressure on asset prices.