Money For Nothing: Two Views of Crypto

Is crypto more like gold or a simple scam?

I have to confess some perplexity over crypto. Billed as currencies, they are not currencies. Billed as securities, they are not securities, either. They excite a weird kind of enthusiasm in libertarian circles, in dreams of asocial (if not anti-social) finance. From a matter of fringe speculation, they are migrating into the culture at large, influencing our politics, and becoming significant economic actors, with a combined market cap now over three trillion dollars. For me, there are two basic frames for thinking about crypto. One is that they are like gold, an intrinsically worthless, but attractive object of fascination, wealth storage, and speculation. The other is that they are straight Ponzi schemes, rising by a greater-fool process that will end in tears.

Currencies are forms of money with particular characteristics. They are widely used among a region or population, stable in value, and easy to store and exchange. They are typically sponsored by a government to ensure that stability and acceptance. This is done in part by specifying that currency for incoming taxes and outgoing vendor and salary payments. They are also, in modern systems, managed elastically, (and intelligently!), with ongoing currency creation to match economic growth and keep the nominal value stable over time. Crypto entities would like to be currencies. However, they have far from stable value, are not easy to work with, and are not widely used. Securities, on the other hand, have a basis in some kind of collateral (i.e. the "security" part) like business ownership, a contract of bond interest payments, etc. Crypto does not have this either. Crypto has only its own scarcity to offer, a bit like cowrie shells, or gold. Crypto entities are not investments in productive activity. Indeed, they foster the opposite, as their only solid use case has been, at least to date, facilitating crime, as demonstrated by the ransomware industry, which asks to be paid in Bitcoin.

So how about gold? Keynes railed against gold as the most useless, barbaric form of wealth, inducing people to dig holes in the earth and cause environmental degradation. And for what? A shiny substance that looks good, and is useful in a few industrial applications, but mostly was, at the time, held by governments in huge vaults, notionally underpinning their currency values. Thankfully we are past that, but gold still holds fascination, and persists as a store of value. Gold can be held in electronic forms, making it just as easy to hold and transfer as crypto entities, if one is so-inclined. Critically, however, gold is also physical, and humanity's fascination with it is innate and enduring. Thus, after the apocalypse, when the electricity is off and the computers are not connected anymore, gold will still be there, ready to serve as money when crypto has evaporated away. 

Bitcoin barely recovered from an early crisis. 

How durable is the fascination with crypto, as a store of wealth, or for any other purpose, under modern, non-apocalyptic conditions? Bitcoin is the grand-daddy of the field, and seems to have achieved dominance, certainly the field of criminal money laundering and transfer, as well as libertarian speculation. It appears to have a special mystique, whether from the blockchain, its "mining" system, or its mysterious pseudonymous founder. The other forms of crypto range from respectible to passing memes. There is a fascinating competition in the attention space that constitutes the crypto markets. Since they do not have intrinsic value, nor governmental buy-in, they float entirely on buyer sentiment, in a greater-fool cycle of rises and falls. Crashes in the stock market are halted by fundamental value of the underlying asset. As the speculative fervor wanes, vultures step in to, at worst, liquidate the assets. But for crypto, there are no assets. No fundamental value. So crashes can and do go to zero.

There are also external factors, like the fact that many crypto entities have been outright scams, or the environmental costs of Bitcoin, or their facilitation of criminality, which may eventually draw popular and regulatory scrutiny. Boosters have been trying to get the Federal Reserve and other validating entities to buy into the crypto craze, and political contributions from newly crypto-riche holders and exchanges have transformed the landscape to one that seems increasingly sympathetic, especially on the Republican side. Thankfully, the smaller memecoins have market caps in the low millions, so do not present a threat as yet to the financial system, in the almost certain event of their evaporation once each meme passes. This blasé acceptance of "securities" that are pure schemes of speculation is a sad commentary on our current age. The sophisticated investor of today would not study corporate efficiency, market prospects, or finances. He or she would be conversant in current memes on social media, ready to jump on the newest one, and sensitive to the withering of older memes, in an endless conveyor belt of booms and busts. 

It is weird how people fail to learn the lessons of the past, from the tulip craze and other speculative booms. Where there is no value, there is likely to be a very deep crash. The libertarians among us, who may have been gold bugs in the past and now have flocked to the new world of crypto, may represent a psychological type that is ineradicable, so motivated to ditch the humdrum official currency for anything that offers a whiff of notional independence, (though being tethered to the new crypto infrastructure of exchanges and wallets is not for the faint of heart or independent-minded), that they can float these crypto entities indefinitely. But in the absence of deeper value, might their psychologies change to those of hawkers who get in at the ground floor and make out, while the schlubs who buy at the top are left holding the bag? It comes down to human psychology in the end- what is personally and socially valuable, who you think your counterparts are on the other ends of all these trades, and who (and what sort of motivation) is making up the institutions and communities of crypto.

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Inside the Process of Speciation

Adaptive radiations are messy, so no wonder we have a hard time reconstructing them.

Darwin drew a legendary diagram in his great book, of lineage trees tracing speciation from ancestors to descendants. It was just a sketch, and naturally had clear fork points where one species turns into two. But in real life, speciation is messier, with range overlaps, inter-breeding, and difficulties telling species apart. Ornithologists are still lumping and splitting species to this day, as more data come in about ranges, genetics, sub-populations, breeding behavior, etc. And if defining existing species is difficult, defining exactly where they split in the distant past is even harder.

Darwin's notebook sketch of speciation, from ancestors ... to descendants.

The advent of molecular data from genomes gave a tremendous boost to the amount of information on which to base phylogenetic inferences. It gave us a whole new domain of life, for one thing. And it has helped sharpen countless phylogenies that not been fully specified by fossil and morphological data. But still, difficulties remain. The deepest and most momentous divergences, like the origin of life itself, and the origin of eukaryotes, remain shrouded in hazy and inconclusive trees, as do many other lineages, such as the origin of birds. It seems to be a rule that when a group of organisms undergoes rapid evolution / speciation, the tree they are on (as reconstructed by us from contemporary data) becomes correspondingly unclear and unresolved, difficult to trace through that tumultuous time. In part this is simply a matter of timing. If dramatic events happened within a few million years a billion years ago, our ability to resolve the sequence of those events is going to be weak in any case, compared to the same events spread out over a hundred million years.

A recent paper documented some of this about phylogeny in general, by correlating times of morphological change with times of phylogenetic haziness, which they term "gene-tree conflict". That is to say, if one samples genes across genomes to draw phylogenetic trees, different genes will give different trees. And this phenomenon increases right when there are other signs of rapid evolutionary change, i.e. changing morphology.

"One insight gleaned from phylogenomics is that gene-tree conflict, frequently caused by population-level processes, is often rampant during the origin of major lineages."

They identify three mechanisms behind this observation: incomplete lineage sorting (ILS), hybridization, and rapid evolution. Obviously, these need to be unpacked a bit. ILS is a natural consequence of the fact that species arise not from single organisms, but from populations. Gene mutations that differentiate the originating and future species happen all over the respective genomes, and enter the future lineage at different times. Some may happen well after the putative speciation event, and become fixed (that is, prevalent) later in that species. Others may have happened well before the speciation event, and die off in most of the descending lineages. The fact is that not every gene is going to march in lock step with the speciation event, in terms of its variants. So phylogenetic inference is best done using lots of genes plus statistical methods to arrive at the most likely explanation of the diverse individual gene trees.

Graphs drawn from different sources relating gene conflicts in lineage estimation, (top), versus rate of morphological change from the fossil record, (bottom), in birds, and over time on the X axis. There are dramatic upticks in all metrics going back towards the end-Cretaceous extinction event.

Similarly, hybridization means that proto-species are still occasionally interbreeding with their ancestors or other relatives, (think of Neanderthals), thereby mixing up the gene trees relative to the overall speciation tree. This can even happen by gene transfer mediated by viruses. "Rapid evolution" is not defined by these authors, and comes dangerously close to using the conclusion (of high morphological change during periods of "gene-tree conflict") to describe their premise. But generally, this would mean that some genes are evolving rapidly, due to novel selective pressures, thus deviating from the general march of neutral evolution that affects most loci more evenly. This rate change can mess up phylogenetic inferences, lengthening some (gene) tree branches versus others, and making a unitary tree (that is, for the species or lineage as a whole) hard to draw.

But these are all rather abstract ideas. How does this process look on the ground? A wonderful paper on the tomato gives us some insight. This group traced the evolutionary history of a genus of tomato (Solanum sect. Lycopersicon) in the South American Andes (plus Galapagos islands just off-shore, interestingly enough). These form a tight group of about thirteen species that evolved from a single ancestor over the last two million years, before jumping onto our lunch plates via intensive breeding by native South Americans. This has been a rapid process of evolution, and phylogenies have been difficult to draw, for all the reasons given above. The tomatoes are mostly reproductively isolated, but not fully, and have various specializations for their microhabitats. So are they real species? And how can they evolve and specialize if they do not fully isolate from each other?

Gene-based phylogenetic tree of Andean tomato species. The consensus tree is in black at the right, while alternate trees (cloud) are drawn from 2,745 windows of 100 kb across the tomato genomes, clearly giving diverse views of the lineage tree. Lycopersicon are the species under study, while Lycopericoides is an "outgroup" genus used as a control / comparison. 

In the graph above, there is, as they say, rampant discord among genomic segments, versus the overall consensus tree that they arrived at:

"However, these summary support measures conceal rampant phylogenetic complexity that is evident when examining the evolutionary history of more defined genomic partitions."

For one thing, much of the sequence diversity in the ancestor survives in the descendent lineages. The founders were not single plants, by any means. Second, there has been a lot of "introgression", which is to say, breeding / hybridization between lineages after their putative separation. 

Lastly, they find a high rate of novel mutations, often subject to clear positive selection. Ten enyzmes in the carotenoid biosynthesis pathway, which affects fruit color in a group that has evolved red fruits, carry novel mutations. A UV light damage repair gene shows strong signs of positive selection, in high-altitude species. Others show novel mutations in a temperature stress response gene, and selection on genes defending plants against heavy metals in the soil. 

Their conclusion (as that of the previous paper) is that adaptive radiations are characterized by several components that scramble normal phylogenetic analysis, including variably preserved diversity from the originating species, post-divergence gene flow (i.e. mating), and rapid adaptation to new conditions along with strong environmental selection over the pre-existing diversity. All of these mechanisms are happening at the same time, and each position in the genome is being affected at the same time, so this is a massively parallel process that, while slow in human time, can be very rapid in geologic time. They note how tomato speciation compares with some other well-known cases:

"Nonetheless, based on our crude estimates within each analysis, we infer that relatively small yet substantial fractions of the euchromatic genome are implicated in each source of genetic variation. We find little evidence that one of these processes predominates in its contribution, although our estimates suggest that de novo mutation might be relatively more influential and cross-species introgression relatively less so. This latter observation is in interesting contrast with several recent studies of animal adaptive radiations, including in Darwin’s Finches [18], Equids [14], and fish [13], where evidence suggests that hybridization and introgression might be much more pervasive and influential than previously suspected, and more abundant than we detect in Solanum."

Naturally, neither of these studies go back in time to nail down exactly what happened during these evolutionary radiations, nor what caused them. They only give hints about causation. Why the stasis of some species, and the rapid niche-finding and filling by others? Was the motive force natural selection, or god? The latter paper gives some clear hints about possible selective pressures and rationales that were at work in the Andes and Galapagos on the genus of Solanum. But it is always frustratingly a matter of abstract reasoning, in the manner of Darwin, that paints the forces at work, however detailed the genetic and biogeographic analyses and however convincing the analogous laboratory experiments on model, usually microbial, organisms. We have to think carefully, and within the discipline of known forces and mechanisms, to arrive at intellectually honest answers to these questions, insofar as they can be answered at all.

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Capitalism on the Spectrum

Prospects for the new administration.

Political economics can be seen as a spectrum from anarchic gangsterism (Haiti) to total top down control such as in communism (Cuba, North Korea). Neither works well. Each end of this spectrum ends up in a state of terror, because each is unworkable on its own terms. Capitalism, in its modern form, is a compromise between these extremes, where free initiative, competition, and hierarchical relations (such within corporations) are allowed, while regulation (via the state and unions) makes humane what would otherwise a cutthroat system of gangsterism and corruption. The organization and stability allowed by state-sponsored legal systems raises system productivity far above that of the primeval free-for-all, while the regulatory rules also make it bearable to its participants- principally the workers. The magic comes from a dynamic balance between competition and guardrails to keep that competition focused on productive ends (that is, economic/business competition), rather than unproductive ones (war, assassination, corruption, capture of the state, etc.)

The new Trump administration promises to tear up this compromise, slash regulations, and cut government. That means that the workers that voted for this administration, and who are the primary beneficiaries of the regulatory state, will be hurt in countless ways. The grifting nature of so many in this incoming administration is a blazing alarm to anyone who pays attention. Whether it is stiffing workers, bloviating on FOX, hawking gold sneakers, making a buck off of anti-vax gullibility, defrauding the government of taxes, promoting crypto, or frankly asking for money in return for political favors like petroleum deregulation, the stench of corruption and bad faith is overwhelming. Many of them, starting from the top, see capitalism as a string of scams and frauds, not exactly Milton Friedman's vision of capitalism. An administration of grifty billionaires is unlikely to rebuild US manufacturing, help workers afford housing, or fulfill any of the other dreams of their voters. Indeed, a massive economic collapse, on the heels of bad policy such as crypto deregulation, or a world-spanning trade war, is more likely, and degraded conditions for workers all but certain.

Freedom for capitalists means permission for companies to abuse workers, customers, the environment, the law, and whatever else stands in the way of profit. We have been through this many times, especially in the gilded age. It can spiral into anarchy and violence when business owners are sufficiently "free" from the fetters of norms and laws. When the most powerful entities in the economy have only one purpose- to make money- all other values are trampled. That is, unless a stronger entity makes some rules. That entity can only be the government. It has been the role of governments from time immemorial to look to the long term interests of the collective, and organize the inherent competition within society into benign and productive pursuits.

OK, more than a little ironic, but you get the idea.

On the other hand, there is a problem even at the golden mean of governmental rule-making over the capitalistic free-for-all, which is that the quality of the rule makers and their rules, their attention to real conditions, and their prompt decision making, all can decline into bureaucratic inertia. While this may not be a Stalinist system of top-down planning and terror, it still can sap the productive energies of the system. And that is what we have been facing over the last few decades. For instance, there is the housing crisis, where home construction has not kept up with demand, mostly due to zoning stasis in most desirable places in the US, in addition to lagging construction after the 2008 financial and real estate crisis. Another example is public infrastructure, which has become increasingly difficult to build due to ever-mounting bureaucratic complexity and numbers of stakeholders. The California high speed rail system faces mountainous costs and a bogged-down legal environment, and is on the edge of complete inviability.

Putting rich, corrupt, and occasionally criminal capitalists at the head of this system is not, one must say, the most obvious way to fix it. Ideally, the Democrats would have put forward more innovative candidates in better touch with the problems voters were evidently concerned with. Then we could have forged ahead with policies oriented to the public good, (such as planetary sustainability and worker rights), as has been the practice through the Biden administration. But the election came up with a different solution, one that we will be paying for for decades. And possibly far worse, since there are worse fates than being at a well-meaning, if sclerotic, golden mean of governmental regulation over a largely free capitalist system. Hungary and Russia show the way to "managed democracy" and eventual autocracy. Our own history, and that of Dickensian Britain, show the way of uncontrolled capitalism, which took decades of progressivism, and a great depression, to finally tame. It would be nice to not have to repeat that history.

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Cranking Up DNA, One Gyration at a Time

The mechanism of DNA gyrase, which supercoils bacterial DNA.

Imagine that you have a garden hose that is thirty miles long. How would you keep it from getting tangled? That is unlikely to be easy. Now add randomly placed heavy machinery that actively twists that hose as it travels / pulls along, causing it to wind up ahead, and unwind behind. And that machinery can be placed in either direction, often getting into head-on conflicts, not to mention going at quite different speeds. That is the problem our cells have, managing their DNA. 

They use a set of topoisomerases to manage the topology of DNA- that is, its twist-i-ness. One easy method is to nick the DNA on one of its two strands, allowing it to relax by spinning around the remaining phosphate bond, before resealing it back to a double strand and sending it on its way. But what if you encounter coils or knots that can't be resolved that way? The next level is to cut one entire DNA molecule, not just one side/strand of it, and pass the conflicting one though it. All organisms contain topoisomerases of both kinds, and they are essential.

How DNA gets twisted. While most topoisomerases relax DNA (top) to resolve the many twisty problems posed by transcription and replication, gyrase increases twist by grabbing and holding a quasi-positive twist, then cutting and resolving it, as shown at bottom.

Bacteria have an additional enzyme that we do not have, called gyrase, to crank up the supercoiling of their DNA, to make it easier to open for transcription. Gyrase works just like a type II topoisomerase that cuts a double-stranded DNA and lets another DNA through, but it does so in a special way that puts a twist on the DNA first, so instead of relaxing the DNA, it increases the stress. How exactly that works has been a bit mysterious, though gyrases and the general principles they operate under have been clear for decades. Gyrase uses ATP, and grabs onto two parts of a DNA molecule, one of which is pre-twisted into coil, after which one is cut and the other passed through to create a change (-2) in the twisting number of that DNA.

A general model of gyrase action. The G segment of DNA is firmly held by the gyrase dimer in the center.  The same DNA is forcibly twisted about, around the pinwheel structures, and bent back around to enter through the N-gate (as the T segment). Then, the N gate closes, paving the way for the G-segment to be cut and separated (step 3). ATP is the energy source behind all this structural drama. The T-segment then passes through the cut, enters the C-gate, and the cycle is complete.

A recent paper determined the structure of active gyrase complexes, and was able to trace the pre-twisted conformation. This, combined with a lot of past work on the ATPase and cleavage functions of gyrase, allows a reasonably full picture of how this enzyme works. It is a symetric dimer of a two-subunit protein, so there are four protein chains in all. There are three major regions of the full structure. The N-gate at top where one segment (the T-segment) of DNA binds, then the central DNA gate, where the other (G-segment) DNA binds and is later cut to let the T-segment through, and the C-gate, where the T segment ends up and is released at the end of the cycle. 

Focus on the pinwheel structure that dramatically pre-twists the DNA around between the G and T segments, pre-positioning the complex for strand passage and increased supercoiling.

The magic is that the T-segment and the G-segment of DNA are parts of the same DNA molecule, by being wrapped around the ears of the protein, which are also called pinwheels. That is what the newest structure solves in greatest detail. These pinwheels essentially allow the enzyme to yank an otherwise normal DNA strand into a pre-knotted (positive supercoil) form that, when cut and resolved as shown, results in a negative increment of supercoiling or twist. If they mutated the pinwheels away, the enzyme could still hold, cut, and relax DNA, but it could not increase its supercoiling. It is the ability of the pinwheel structures to set up a pre-twisted structure onto the DNA that makes this enzyme a machine to increase negative supercoiling, and thus ease other DNA transactions. 

Topoisomerase enzymes through evolution, from gyrase (left) to human topoII on the right. Note how the details of the protein structure are virtually unrecognizable, while the overall shape and DNA-binding stays the same.

Bacteria also have more normal type II topoisomerases that cut DNA merely to relax it, so one might wonder how these two enzymes get along. Well, gyrase is responsible for the overall negative supercoiling of the bacterial genome, while the other topoisomerases have more localized roles to relieve transient knots and over-twisting. Indeed, if you negatively twist DNA enough, you can separate its strands entirely, which is not usually desirable. Further research shows that too much of either topoisomerase is lethal, and that they are kept in balance by transcriptional controls over the amount of each topoisomerase. This suggests a futile cycle of DNA winding and unwinding, as the optimal condition in bacterial cells when both are present in just the right amounts. 

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