Fairness alternatives to selling below market clearing prices (or community sentiment, or fun)
When a seller has a limited supply of an item in high (or uncertain and possibly high) demand, they frequently set a price far below what "the market will bear." As a result, the item sells out quickly, with lucky buyers being those who tried to buy first. This has happened in the Ethereum ecosystem, particularly with NFT sales and token sales/ICOs. But this phenomenon is much older; concerts and restaurants frequently make similar choices, resulting in fast sell-outs or long lines.
Why do sellers do this? Economists have long wondered. A seller should sell at the market-clearing price if the amount buyers are willing to buy exactly equals the amount the seller has to sell. If the seller is unsure of the market-clearing price, they should sell at auction and let the market decide. So, if you want to sell something below market value, don't do it. It will hurt your sales and it will hurt your customers. The competitions created by non-price-based allocation mechanisms can sometimes have negative externalities that harm third parties, as we will see.
However, the prevalence of below-market-clearing pricing suggests that sellers do it for good reason. And indeed, as decades of research into this topic has shown, there often are. So, is it possible to achieve the same goals with less unfairness, inefficiency, and harm?
Selling at below market-clearing prices has large inefficiencies and negative externalities
An item that is sold at market value or at an auction allows someone who really wants it to pay the high price or bid high in the auction. So, if a seller sells an item below market value, some people will get it and others won't. But the mechanism deciding who gets the item isn't random, and it's not always well correlated with participant desire. It's not always about being the fastest at clicking buttons. Sometimes it means waking up at 2 a.m. (but 11 p.m. or even 2 p.m. elsewhere). Sometimes it's just a "auction by other means" that's more chaotic, less efficient, and has far more negative externalities.
There are many examples of this in the Ethereum ecosystem. Let's start with the 2017 ICO craze. For example, an ICO project would set the price of the token and a hard maximum for how many tokens they are willing to sell, and the sale would start automatically at some point in time. The sale ends when the cap is reached.
So what? In practice, these sales often ended in 30 seconds or less. Everyone would start sending transactions in as soon as (or just before) the sale started, offering higher and higher fees to encourage miners to include their transaction first. Instead of the token seller receiving revenue, miners receive it, and the sale prices out all other applications on-chain.
The most expensive transaction in the BAT sale set a fee of 580,000 gwei, paying a fee of $6,600 to get included in the sale.
Many ICOs after that tried various strategies to avoid these gas price auctions; one ICO notably had a smart contract that checked the transaction's gasprice and rejected it if it exceeded 50 gwei. But that didn't solve the issue. Buyers hoping to game the system sent many transactions hoping one would get through. An auction by another name, clogging the chain even more.
ICOs have recently lost popularity, but NFTs and NFT sales have risen in popularity. But the NFT space didn't learn from 2017; they do fixed-quantity sales just like ICOs (eg. see the mint function on lines 97-108 of this contract here). So what?
That's not the worst; some NFT sales have caused gas price spikes of up to 2000 gwei.
High gas prices from users fighting to get in first by sending higher and higher transaction fees. An auction renamed, pricing out all other applications on-chain for 15 minutes.
So why do sellers sometimes sell below market price?
Selling below market value is nothing new, and many articles, papers, and podcasts have written (and sometimes bitterly complained) about the unwillingness to use auctions or set prices to market-clearing levels.
Many of the arguments are the same for both blockchain (NFTs and ICOs) and non-blockchain examples (popular restaurants and concerts). Fairness and the desire not to exclude the poor, lose fans or create tension by being perceived as greedy are major concerns. The 1986 paper by Kahneman, Knetsch, and Thaler explains how fairness and greed can influence these decisions. I recall that the desire to avoid perceptions of greed was also a major factor in discouraging the use of auction-like mechanisms in 2017.
Aside from fairness concerns, there is the argument that selling out and long lines create a sense of popularity and prestige, making the product more appealing to others. Long lines should have the same effect as high prices in a rational actor model, but this is not the case in reality. This applies to ICOs and NFTs as well as restaurants. Aside from increasing marketing value, some people find the game of grabbing a limited set of opportunities first before everyone else is quite entertaining.
But there are some blockchain-specific factors. One argument for selling ICO tokens below market value (and one that persuaded the OmiseGo team to adopt their capped sale strategy) is community dynamics. The first rule of community sentiment management is to encourage price increases. People are happy if they are "in the green." If the price drops below what the community members paid, they are unhappy and start calling you a scammer, possibly causing a social media cascade where everyone calls you a scammer.
This effect can only be avoided by pricing low enough that post-launch market prices will almost certainly be higher. But how do you do this without creating a rush for the gates that leads to an auction?
Interesting solutions
It's 2021. We have a blockchain. The blockchain is home to a powerful decentralized finance ecosystem, as well as a rapidly expanding set of non-financial tools. The blockchain also allows us to reset social norms. Where decades of economists yelling about "efficiency" failed, blockchains may be able to legitimize new uses of mechanism design. If we could use our more advanced tools to create an approach that more directly solves the problems, with fewer side effects, wouldn't that be better than fiddling with a coarse-grained one-dimensional strategy space of selling at market price versus below market price?
Begin with the goals. We'll try to cover ICOs, NFTs, and conference tickets (really a type of NFT) all at the same time.
1. Fairness: don't completely exclude low-income people from participation; give them a chance. The goal of token sales is to avoid high initial wealth concentration and have a larger and more diverse initial token holder community.
2. Don’t create races: Avoid situations where many people rush to do the same thing and only a few get in (this is the type of situation that leads to the horrible auctions-by-another-name that we saw above).
3. Don't require precise market knowledge: the mechanism should work even if the seller has no idea how much demand exists.
4. Fun: The process of participating in the sale should be fun and game-like, but not frustrating.
5. Give buyers positive expected returns: in the case of a token (or an NFT), buyers should expect price increases rather than decreases. This requires selling below market value.
Let's start with (1). From Ethereum's perspective, there is a simple solution. Use a tool designed for the job: proof of personhood protocols! Here's one quick idea:
Mechanism 1 Each participant (verified by ID) can buy up to ‘’X’’ tokens at price P, with the option to buy more at an auction.
With the per-person mechanism, buyers can get positive expected returns for the portion sold through the per-person mechanism, and the auction part does not require sellers to understand demand levels. Is it race-free? The number of participants buying through the per-person pool appears to be high. But what if the per-person pool isn't big enough to accommodate everyone?
Make the per-person allocation amount dynamic.
Mechanism 2 Each participant can deposit up to X tokens into a smart contract to declare interest. Last but not least, each buyer receives min(X, N / buyers) tokens, where N is the total sold through the per-person pool (some other amount can also be sold by auction). The buyer gets their deposit back if it exceeds the amount needed to buy their allocation.
No longer is there a race condition based on the number of buyers per person. No matter how high the demand, it's always better to join sooner rather than later.
Here's another idea if you like clever game mechanics with fancy quadratic formulas.
Mechanism 3 Each participant can buy X units at a price P X 2 up to a maximum of C tokens per buyer. C starts low and gradually increases until enough units are sold.
The quantity allocated to each buyer is theoretically optimal, though post-sale transfers will degrade this optimality over time. Mechanisms 2 and 3 appear to meet all of the above objectives. They're not perfect, but they're good starting points.
One more issue. For fixed and limited supply NFTs, the equilibrium purchased quantity per participant may be fractional (in mechanism 2, number of buyers > N, and in mechanism 3, setting C = 1 may already lead to over-subscription). With fractional sales, you can offer lottery tickets: if there are N items available, you have a chance of N/number of buyers of getting the item, otherwise you get a refund. For a conference, groups could bundle their lottery tickets to guarantee a win or a loss. The certainty of getting the item can be auctioned.
The bottom tier of "sponsorships" can be used to sell conference tickets at market rate. You may end up with a sponsor board full of people's faces, but is that okay? After all, John Lilic was on EthCC's sponsor board!
Simply put, if you want to be reliably fair to people, you need an input that explicitly measures people. Authentication protocols do this (and if desired can be combined with zero knowledge proofs to ensure privacy). So we should combine the efficiency of market and auction-based pricing with the equality of proof of personhood mechanics.
Answers to possible questions
Q: Won't people who don't care about your project buy the item and immediately resell it?
A: Not at first. Meta-games take time to appear in practice. If they do, making them untradeable for a while may help mitigate the damage. Using your face to claim that your previous account was hacked and that your identity, including everything in it, should be moved to another account works because proof-of-personhood identities are untradeable.
Q: What if I want to make my item available to a specific community?
A: Instead of ID, use proof of participation tokens linked to community events. Another option, also serving egalitarian and gamification purposes, is to encrypt items within publicly available puzzle solutions.
Q: How do we know they'll accept? Strange new mechanisms have previously been resisted.
A: Having economists write screeds about how they "should" accept a new mechanism that they find strange is difficult (or even "equity"). However, abrupt changes in context effectively reset people's expectations. So the blockchain space is the best place to try this. You could wait for the "metaverse", but it's possible that the best version will run on Ethereum anyway, so start now.
More on Web3 & Crypto
Julie Plavnik
3 years ago
How to Become a Crypto Broker [Complying and Making Money]
Three options exist. The third one is the quickest and most fruitful.
You've mastered crypto trading and want to become a broker.
So you may wonder: Where to begin?
If so, keep reading.
Today I'll compare three different approaches to becoming a cryptocurrency trader.
What are cryptocurrency brokers, and how do they vary from stockbrokers?
A stockbroker implements clients' market orders (retail or institutional ones).
Brokerage firms are regulated, insured, and subject to regulatory monitoring.
Stockbrokers are required between buyers and sellers. They can't trade without a broker. To trade, a trader must open a broker account and deposit money. When a trader shops, he tells his broker what orders to place.
Crypto brokerage is trade intermediation with cryptocurrency.
In crypto trading, however, brokers are optional.
Crypto exchanges offer direct transactions. Open an exchange account (no broker needed) and make a deposit.
Question:
Since crypto allows DIY trading, why use a broker?
Let's compare cryptocurrency exchanges vs. brokers.
Broker versus cryptocurrency exchange
Most existing crypto exchanges are basically brokers.
Examine their primary services:
connecting purchasers and suppliers
having custody of clients' money (with the exception of decentralized cryptocurrency exchanges),
clearance of transactions.
Brokerage is comparable, don't you think?
There are exceptions. I mean a few large crypto exchanges that follow the stock exchange paradigm. They outsource brokerage, custody, and clearing operations. Classic exchange setups are rare in today's bitcoin industry.
Back to our favorite “standard” crypto exchanges. All-in-one exchanges and brokers. And usually, they operate under a broker or a broker-dealer license, save for the exchanges registered somewhere in a free-trade offshore paradise. Those don’t bother with any licensing.
What’s the sense of having two brokers at a time?
Better liquidity and trading convenience.
The crypto business is compartmentalized.
We have CEXs, DEXs, hybrid exchanges, and semi-exchanges (those that aggregate liquidity but do not execute orders on their sides). All have unique regulations and act as sovereign states.
There are about 18k coins and hundreds of blockchain protocols, most of which are heterogeneous (i.e., different in design and not interoperable).
A trader must register many accounts on different exchanges, deposit funds, and manage them all concurrently to access global crypto liquidity.
It’s extremely inconvenient.
Crypto liquidity fragmentation is the largest obstacle and bottleneck blocking crypto from mass adoption.
Crypto brokers help clients solve this challenge by providing one-gate access to deep and diverse crypto liquidity from numerous exchanges and suppliers. Professionals and institutions need it.
Another killer feature of a brokerage may be allowing clients to trade crypto with fiat funds exclusively, without fiat/crypto conversion. It is essential for professional and institutional traders.
Who may work as a cryptocurrency broker?
Apparently, not anyone. Brokerage requires high-powered specialists because it involves other people's money.
Here's the essentials:
excellent knowledge, skills, and years of trading experience
high-quality, quick, and secure infrastructure
highly developed team
outstanding trading capital
High-ROI network: long-standing, trustworthy connections with customers, exchanges, liquidity providers, payment gates, and similar entities
outstanding marketing and commercial development skills.
What about a license for a cryptocurrency broker? Is it necessary?
Complex question.
If you plan to play in white-glove jurisdictions, you may need a license. For example, in the US, as a “money transmitter” or as a CASSP (crypto asset secondary services provider) in Australia.
Even in these jurisdictions, there are no clear, holistic crypto brokerage and licensing policies.
Your lawyer will help you decide if your crypto brokerage needs a license.
Getting a license isn't quick. Two years of patience are needed.
How can you turn into a cryptocurrency broker?
Finally, we got there! 🎉
Three actionable ways exist:
To kickstart a regulated stand-alone crypto broker
To get a crypto broker franchise, and
To become a liquidity network broker.
Let's examine each.
1. Opening a regulated cryptocurrency broker
It's difficult. Especially If you're targeting first-world users.
You must comply with many regulatory, technical, financial, HR, and reporting obligations to keep your organization running. Some are mentioned above.
The licensing process depends on the products you want to offer (spots or derivatives) and the geographic areas you plan to service. There are no general rules for that.
In an overgeneralized way, here are the boxes you will have to check:
capital availability (usually a large amount of capital c is required)
You will have to move some of your team members to the nation providing the license in order to establish an office presence there.
the core team with the necessary professional training (especially applies to CEO, Head of Trading, Assistant to Head of Trading, etc.)
insurance
infrastructure that is trustworthy and secure
adopted proper AML/KYC/financial monitoring policies, etc.
Assuming you passed, what's next?
I bet it won’t be mind-blowing for you that the license is just a part of the deal. It won't attract clients or revenue.
To bring in high-dollar clientele, you must be a killer marketer and seller. It's not easy to convince people to give you money.
You'll need to be a great business developer to form successful, long-term agreements with exchanges (ideally for no fees), liquidity providers, banks, payment gates, etc. Persuade clients.
It's a tough job, isn't it?
I expect a Quora-type question here:
Can I start an unlicensed crypto broker?
Well, there is always a workaround with crypto!
You can register your broker in a free-trade zone like Seychelles to avoid US and other markets with strong watchdogs.
This is neither wise nor sustainable.
First, such experiments are illegal.
Second, you'll have trouble attracting clients and strategic partners.
A license equals trust. That’s it.
Even a pseudo-license from Mauritius matters.
Here are this method's benefits and downsides.
Cons first.
As you navigate this difficult and expensive legal process, you run the risk of missing out on business prospects. It's quite simple to become excellent compliance yet unable to work. Because your competitors are already courting potential customers while you are focusing all of your effort on paperwork.
Only God knows how long it will take you to pass the break-even point when everything with the license has been completed.
It is a money-burning business, especially in the beginning when the majority of your expenses will go toward marketing, sales, and maintaining license requirements. Make sure you have the fortitude and resources necessary to face such a difficult challenge.
Pros
It may eventually develop into a tool for making money. Because big guys who are professionals at trading require a white-glove regulated brokerage. You have every possibility if you work hard in the areas of sales, marketing, business development, and wealth. Simply put, everything must align.
Launching a regulated crypto broker is analogous to launching a crypto exchange. It's ROUGH. Sure you can take it?
2. Franchise for Crypto Broker (Crypto Sub-Brokerage)
A broker franchise is easier and faster than becoming a regulated crypto broker. Not a traditional brokerage.
A broker franchisee, often termed a sub-broker, joins with a broker (a franchisor) to bring them new clients. Sub-brokers market a broker's products and services to clients.
Sub-brokers are the middlemen between a broker and an investor.
Why is sub-brokering easier?
less demanding qualifications and legal complexity. All you need to do is keep a few certificates on hand (each time depends on the jurisdiction).
No significant investment is required
there is no demand that you be a trading member of an exchange, etc.
As a sub-broker, you can do identical duties without as many rights and certifications.
What about the crypto broker franchise?
Sub-brokers aren't common in crypto.
In most existing examples (PayBito, PCEX, etc.), franchises are offered by crypto exchanges, not brokers. Though we remember that crypto exchanges are, in fact, brokers, do we?
Similarly:
For a commission, a franchiser crypto broker receives new leads from a crypto sub-broker.
See above for why enrolling is easy.
Finding clients is difficult. Most crypto traders prefer to buy-sell on their own or through brokers over sub-broker franchises.
3. Broker of the Crypto Trading Network (or a Network Broker)
It's the greatest approach to execute crypto brokerage, based on effort/return.
Network broker isn't an established word. I wrote it for clarity.
Remember how we called crypto liquidity fragmentation the current crypto finance paradigm's main bottleneck?
Where there's a challenge, there's progress.
Several well-funded projects are aiming to fix crypto liquidity fragmentation. Instead of launching another crypto exchange with siloed trading, the greatest minds create trading networks that aggregate crypto liquidity from desynchronized sources and enable quick, safe, and affordable cross-blockchain transactions. Each project offers a distinct option for users.
Crypto liquidity implies:
One-account access to cryptocurrency liquidity pooled from network participants' exchanges and other liquidity sources
compiled price feeds
Cross-chain transactions that are quick and inexpensive, even for HFTs
link between participants of all kinds, and
interoperability among diverse blockchains
Fast, diversified, and cheap global crypto trading from one account.
How does a trading network help cryptocurrency brokers?
I’ll explain it, taking Yellow Network as an example.
Yellow provides decentralized Layer-3 peer-to-peer trading.
trade across chains globally with real-time settlement and
Between cryptocurrency exchanges, brokers, trading companies, and other sorts of network members, there is communication and the exchange of financial information.
Have you ever heard about ECN (electronic communication network)? If not, it's an automated system that automatically matches buy and sell orders. Yellow is a decentralized digital asset ECN.
Brokers can:
Start trading right now without having to meet stringent requirements; all you need to do is integrate with Yellow Protocol and successfully complete some KYC verification.
Access global aggregated crypto liquidity through a single point.
B2B (Broker to Broker) liquidity channels that provide peer liquidity from other brokers. Orders from the other broker will appear in the order book of a broker who is peering with another broker on the market. It will enable a broker to broaden his offer and raise the total amount of liquidity that is available to his clients.
Select a custodian or use non-custodial practices.
Comparing network crypto brokerage to other types:
A licensed stand-alone brokerage business is much more difficult and time-consuming to launch than network brokerage, and
Network brokerage, in contrast to crypto sub-brokerage, is scalable, independent, and offers limitless possibilities for revenue generation.
Yellow Network Whitepaper. has more details on how to start a brokerage business and what rewards you'll obtain.
Final thoughts
There are three ways to become a cryptocurrency broker, including the non-conventional liquidity network brokerage. The last option appears time/cost-effective.
Crypto brokerage isn't crowded yet. Act quickly to find your right place in this market.
Choose the way that works for you best and see you in crypto trading.
Discover Web3 & DeFi with Yellow Network!
Yellow, powered by Openware, is developing a cross-chain P2P liquidity aggregator to unite the crypto sector and provide global remittance services that aid people.
Join the Yellow Community and plunge into this decade's biggest product-oriented crypto project.
Observe Yellow Twitter
Enroll in Yellow Telegram
Visit Yellow Discord.
On Hacker Noon, look us up.
Yellow Network will expose development, technology, developer tools, crypto brokerage nodes software, and community liquidity mining.
Farhan Ali Khan
2 years ago
Introduction to Zero-Knowledge Proofs: The Art of Proving Without Revealing
Zero-Knowledge Proofs for Beginners
Published here originally.
Introduction
I Spy—did you play as a kid? One person chose a room object, and the other had to guess it by answering yes or no questions. I Spy was entertaining, but did you know it could teach you cryptography?
Zero Knowledge Proofs let you show your pal you know what they picked without exposing how. Math replaces electronics in this secret spy mission. Zero-knowledge proofs (ZKPs) are sophisticated cryptographic tools that allow one party to prove they have particular knowledge without revealing it. This proves identification and ownership, secures financial transactions, and more. This article explains zero-knowledge proofs and provides examples to help you comprehend this powerful technology.
What is a Proof of Zero Knowledge?
Zero-knowledge proofs prove a proposition is true without revealing any other information. This lets the prover show the verifier that they know a fact without revealing it. So, a zero-knowledge proof is like a magician's trick: the prover proves they know something without revealing how or what. Complex mathematical procedures create a proof the verifier can verify.
Want to find an easy way to test it out? Try out with tis awesome example! ZK Crush
Describe it as if I'm 5
Alex and Jack found a cave with a center entrance that only opens when someone knows the secret. Alex knows how to open the cave door and wants to show Jack without telling him.
Alex and Jack name both pathways (let’s call them paths A and B).
In the first phase, Alex is already inside the cave and is free to select either path, in this case A or B.
As Alex made his decision, Jack entered the cave and asked him to exit from the B path.
Jack can confirm that Alex really does know the key to open the door because he came out for the B path and used it.
To conclude, Alex and Jack repeat:
Alex walks into the cave.
Alex follows a random route.
Jack walks into the cave.
Alex is asked to follow a random route by Jack.
Alex follows Jack's advice and heads back that way.
What is a Zero Knowledge Proof?
At a high level, the aim is to construct a secure and confidential conversation between the prover and the verifier, where the prover convinces the verifier that they have the requisite information without disclosing it. The prover and verifier exchange messages and calculate in each round of the dialogue.
The prover uses their knowledge to prove they have the information the verifier wants during these rounds. The verifier can verify the prover's truthfulness without learning more by checking the proof's mathematical statement or computation.
Zero knowledge proofs use advanced mathematical procedures and cryptography methods to secure communication. These methods ensure the evidence is authentic while preventing the prover from creating a phony proof or the verifier from extracting unnecessary information.
ZK proofs require examples to grasp. Before the examples, there are some preconditions.
Criteria for Proofs of Zero Knowledge
Completeness: If the proposition being proved is true, then an honest prover will persuade an honest verifier that it is true.
Soundness: If the proposition being proved is untrue, no dishonest prover can persuade a sincere verifier that it is true.
Zero-knowledge: The verifier only realizes that the proposition being proved is true. In other words, the proof only establishes the veracity of the proposition being supported and nothing more.
The zero-knowledge condition is crucial. Zero-knowledge proofs show only the secret's veracity. The verifier shouldn't know the secret's value or other details.
Example after example after example
To illustrate, take a zero-knowledge proof with several examples:
Initial Password Verification Example
You want to confirm you know a password or secret phrase without revealing it.
Use a zero-knowledge proof:
You and the verifier settle on a mathematical conundrum or issue, such as figuring out a big number's components.
The puzzle or problem is then solved using the hidden knowledge that you have learned. You may, for instance, utilize your understanding of the password to determine the components of a particular number.
You provide your answer to the verifier, who can assess its accuracy without knowing anything about your private data.
You go through this process several times with various riddles or issues to persuade the verifier that you actually are aware of the secret knowledge.
You solved the mathematical puzzles or problems, proving to the verifier that you know the hidden information. The proof is zero-knowledge since the verifier only sees puzzle solutions, not the secret information.
In this scenario, the mathematical challenge or problem represents the secret, and solving it proves you know it. The evidence does not expose the secret, and the verifier just learns that you know it.
My simple example meets the zero-knowledge proof conditions:
Completeness: If you actually know the hidden information, you will be able to solve the mathematical puzzles or problems, hence the proof is conclusive.
Soundness: The proof is sound because the verifier can use a publicly known algorithm to confirm that your answer to the mathematical conundrum or difficulty is accurate.
Zero-knowledge: The proof is zero-knowledge because all the verifier learns is that you are aware of the confidential information. Beyond the fact that you are aware of it, the verifier does not learn anything about the secret information itself, such as the password or the factors of the number. As a result, the proof does not provide any new insights into the secret.
Explanation #2: Toss a coin.
One coin is biased to come up heads more often than tails, while the other is fair (i.e., comes up heads and tails with equal probability). You know which coin is which, but you want to show a friend you can tell them apart without telling them.
Use a zero-knowledge proof:
One of the two coins is chosen at random, and you secretly flip it more than once.
You show your pal the following series of coin flips without revealing which coin you actually flipped.
Next, as one of the two coins is flipped in front of you, your friend asks you to tell which one it is.
Then, without revealing which coin is which, you can use your understanding of the secret order of coin flips to determine which coin your friend flipped.
To persuade your friend that you can actually differentiate between the coins, you repeat this process multiple times using various secret coin-flipping sequences.
In this example, the series of coin flips represents the knowledge of biased and fair coins. You can prove you know which coin is which without revealing which is biased or fair by employing a different secret sequence of coin flips for each round.
The evidence is zero-knowledge since your friend does not learn anything about which coin is biased and which is fair other than that you can tell them differently. The proof does not indicate which coin you flipped or how many times you flipped it.
The coin-flipping example meets zero-knowledge proof requirements:
Completeness: If you actually know which coin is biased and which is fair, you should be able to distinguish between them based on the order of coin flips, and your friend should be persuaded that you can.
Soundness: Your friend may confirm that you are correctly recognizing the coins by flipping one of them in front of you and validating your answer, thus the proof is sound in that regard. Because of this, your acquaintance can be sure that you are not just speculating or picking a coin at random.
Zero-knowledge: The argument is that your friend has no idea which coin is biased and which is fair beyond your ability to distinguish between them. Your friend is not made aware of the coin you used to make your decision or the order in which you flipped the coins. Consequently, except from letting you know which coin is biased and which is fair, the proof does not give any additional information about the coins themselves.
Figure out the prime number in Example #3.
You want to prove to a friend that you know their product n=pq without revealing p and q. Zero-knowledge proof?
Use a variant of the RSA algorithm. Method:
You determine a new number s = r2 mod n by computing a random number r.
You email your friend s and a declaration that you are aware of the values of p and q necessary for n to equal pq.
A random number (either 0 or 1) is selected by your friend and sent to you.
You send your friend r as evidence that you are aware of the values of p and q if e=0. You calculate and communicate your friend's s/r if e=1.
Without knowing the values of p and q, your friend can confirm that you know p and q (in the case where e=0) or that s/r is a legitimate square root of s mod n (in the situation where e=1).
This is a zero-knowledge proof since your friend learns nothing about p and q other than their product is n and your ability to verify it without exposing any other information. You can prove that you know p and q by sending r or by computing s/r and sending that instead (if e=1), and your friend can verify that you know p and q or that s/r is a valid square root of s mod n without learning anything else about their values. This meets the conditions of completeness, soundness, and zero-knowledge.
Zero-knowledge proofs satisfy the following:
Completeness: The prover can demonstrate this to the verifier by computing q = n/p and sending both p and q to the verifier. The prover also knows a prime number p and a factorization of n as p*q.
Soundness: Since it is impossible to identify any pair of numbers that correctly factorize n without being aware of its prime factors, the prover is unable to demonstrate knowledge of any p and q that do not do so.
Zero knowledge: The prover only admits that they are aware of a prime number p and its associated factor q, which is already known to the verifier. This is the extent of their knowledge of the prime factors of n. As a result, the prover does not provide any new details regarding n's prime factors.
Types of Proofs of Zero Knowledge
Each zero-knowledge proof has pros and cons. Most zero-knowledge proofs are:
Interactive Zero Knowledge Proofs: The prover and the verifier work together to establish the proof in this sort of zero-knowledge proof. The verifier disputes the prover's assertions after receiving a sequence of messages from the prover. When the evidence has been established, the prover will employ these new problems to generate additional responses.
Non-Interactive Zero Knowledge Proofs: For this kind of zero-knowledge proof, the prover and verifier just need to exchange a single message. Without further interaction between the two parties, the proof is established.
A statistical zero-knowledge proof is one in which the conclusion is reached with a high degree of probability but not with certainty. This indicates that there is a remote possibility that the proof is false, but that this possibility is so remote as to be unimportant.
Succinct Non-Interactive Argument of Knowledge (SNARKs): SNARKs are an extremely effective and scalable form of zero-knowledge proof. They are utilized in many different applications, such as machine learning, blockchain technology, and more. Similar to other zero-knowledge proof techniques, SNARKs enable one party—the prover—to demonstrate to another—the verifier—that they are aware of a specific piece of information without disclosing any more information about that information.
The main characteristic of SNARKs is their succinctness, which refers to the fact that the size of the proof is substantially smaller than the amount of the original data being proved. Because to its high efficiency and scalability, SNARKs can be used in a wide range of applications, such as machine learning, blockchain technology, and more.
Uses for Zero Knowledge Proofs
ZKP applications include:
Verifying Identity ZKPs can be used to verify your identity without disclosing any personal information. This has uses in access control, digital signatures, and online authentication.
Proof of Ownership ZKPs can be used to demonstrate ownership of a certain asset without divulging any details about the asset itself. This has uses for protecting intellectual property, managing supply chains, and owning digital assets.
Financial Exchanges Without disclosing any details about the transaction itself, ZKPs can be used to validate financial transactions. Cryptocurrency, internet payments, and other digital financial transactions can all use this.
By enabling parties to make calculations on the data without disclosing the data itself, Data Privacy ZKPs can be used to preserve the privacy of sensitive data. Applications for this can be found in the financial, healthcare, and other sectors that handle sensitive data.
By enabling voters to confirm that their vote was counted without disclosing how they voted, elections ZKPs can be used to ensure the integrity of elections. This is applicable to electronic voting, including internet voting.
Cryptography Modern cryptography's ZKPs are a potent instrument that enable secure communication and authentication. This can be used for encrypted messaging and other purposes in the business sector as well as for military and intelligence operations.
Proofs of Zero Knowledge and Compliance
Kubernetes and regulatory compliance use ZKPs in many ways. Examples:
Security for Kubernetes ZKPs offer a mechanism to authenticate nodes without disclosing any sensitive information, enhancing the security of Kubernetes clusters. ZKPs, for instance, can be used to verify, without disclosing the specifics of the program, that the nodes in a Kubernetes cluster are running permitted software.
Compliance Inspection Without disclosing any sensitive information, ZKPs can be used to demonstrate compliance with rules like the GDPR, HIPAA, and PCI DSS. ZKPs, for instance, can be used to demonstrate that data has been encrypted and stored securely without divulging the specifics of the mechanism employed for either encryption or storage.
Access Management Without disclosing any private data, ZKPs can be used to offer safe access control to Kubernetes resources. ZKPs can be used, for instance, to demonstrate that a user has the necessary permissions to access a particular Kubernetes resource without disclosing the details of those permissions.
Safe Data Exchange Without disclosing any sensitive information, ZKPs can be used to securely transmit data between Kubernetes clusters or between several businesses. ZKPs, for instance, can be used to demonstrate the sharing of a specific piece of data between two parties without disclosing the details of the data itself.
Kubernetes deployments audited Without disclosing the specifics of the deployment or the data being processed, ZKPs can be used to demonstrate that Kubernetes deployments are working as planned. This can be helpful for auditing purposes and for ensuring that Kubernetes deployments are operating as planned.
ZKPs preserve data and maintain regulatory compliance by letting parties prove things without revealing sensitive information. ZKPs will be used more in Kubernetes as it grows.
Vivek Singh
3 years ago
A Warm Welcome to Web3 and the Future of the Internet
Let's take a look back at the internet's history and see where we're going — and why.
Tim Berners Lee had a problem. He was at CERN, the world's largest particle physics factory, at the time. The institute's stated goal was to study the simplest particles with the most sophisticated scientific instruments. The institute completed the LEP Tunnel in 1988, a 27 kilometer ring. This was Europe's largest civil engineering project (to study smaller particles — electrons).
The problem Tim Berners Lee found was information loss, not particle physics. CERN employed a thousand people in 1989. Due to team size and complexity, people often struggled to recall past project information. While these obstacles could be overcome, high turnover was nearly impossible. Berners Lee addressed the issue in a proposal titled ‘Information Management'.
When a typical stay is two years, data is constantly lost. The introduction of new people takes a lot of time from them and others before they understand what is going on. An emergency situation may require a detective investigation to recover technical details of past projects. Often, the data is recorded but cannot be found. — Information Management: A Proposal
He had an idea. Create an information management system that allowed users to access data in a decentralized manner using a new technology called ‘hypertext'.
To quote Berners Lee, his proposal was “vague but exciting...”. The paper eventually evolved into the internet we know today. Here are three popular W3C standards used by billions of people today:
(credit: CERN)
HTML (Hypertext Markup)
A web formatting language.
URI (Unique Resource Identifier)
Each web resource has its own “address”. Known as ‘a URL'.
HTTP (Hypertext Transfer Protocol)
Retrieves linked resources from across the web.
These technologies underpin all computer work. They were the seeds of our quest to reorganize information, a task as fruitful as particle physics.
Tim Berners-Lee would probably think the three decades from 1989 to 2018 were eventful. He'd be amazed by the billions, the inspiring, the novel. Unlocking innovation at CERN through ‘Information Management'.
The fictional character would probably need a drink, walk, and a few deep breaths to fully grasp the internet's impact. He'd be surprised to see a few big names in the mix.
Then he'd say, "Something's wrong here."
We should review the web's history before going there. Was it a success after Berners Lee made it public? Web1 and Web2: What is it about what we are doing now that so many believe we need a new one, web3?
Per Outlier Ventures' Jamie Burke:
Web 1.0 was read-only.
Web 2.0 was the writable
Web 3.0 is a direct-write web.
Let's explore.
Web1: The Read-Only Web
Web1 was the digital age. We put our books, research, and lives ‘online'. The web made information retrieval easier than any filing cabinet ever. Massive amounts of data were stored online. Encyclopedias, medical records, and entire libraries were put away into floppy disks and hard drives.
In 2015, the web had around 305,500,000,000 pages of content (280 million copies of Atlas Shrugged).
Initially, one didn't expect to contribute much to this database. Web1 was an online version of the real world, but not yet a new way of using the invention.
One gets the impression that the web has been underutilized by historians if all we can say about it is that it has become a giant global fax machine. — Daniel Cohen, The Web's Second Decade (2004)
That doesn't mean developers weren't building. The web was being advanced by great minds. Web2 was born as technology advanced.
Web2: Read-Write Web
Remember when you clicked something on a website and the whole page refreshed? Is it too early to call the mid-2000s ‘the good old days'?
Browsers improved gradually, then suddenly. AJAX calls augmented CGI scripts, and applications began sending data back and forth without disrupting the entire web page. One button to ‘digg' a post (see below). Web experiences blossomed.
In 2006, Digg was the most active ‘Web 2.0' site. (Photo: Ethereum Foundation Taylor Gerring)
Interaction was the focus of new applications. Posting, upvoting, hearting, pinning, tweeting, liking, commenting, and clapping became a lexicon of their own. It exploded in 2004. Easy ways to ‘write' on the internet grew, and continue to grow.
Facebook became a Web2 icon, where users created trillions of rows of data. Google and Amazon moved from Web1 to Web2 by better understanding users and building products and services that met their needs.
Business models based on Software-as-a-Service and then managing consumer data within them for a fee have exploded.
Web2 Emerging Issues
Unbelievably, an intriguing dilemma arose. When creating this read-write web, a non-trivial question skirted underneath the covers. Who owns it all?
You have no control over [Web 2] online SaaS. People didn't realize this because SaaS was so new. People have realized this is the real issue in recent years.
Even if these organizations have good intentions, their incentive is not on the users' side.
“You are not their customer, therefore you are their product,” they say. With Laura Shin, Vitalik Buterin, Unchained
A good plot line emerges. Many amazing, world-changing software products quietly lost users' data control.
For example: Facebook owns much of your social graph data. Even if you hate Facebook, you can't leave without giving up that data. There is no ‘export' or ‘exit'. The platform owns ownership.
While many companies can pull data on you, you cannot do so.
On the surface, this isn't an issue. These companies use my data better than I do! A complex group of stakeholders, each with their own goals. One is maximizing shareholder value for public companies. Tim Berners-Lee (and others) dislike the incentives created.
“Show me the incentive and I will show you the outcome.” — Berkshire Hathaway's CEO
It's easy to see what the read-write web has allowed in retrospect. We've been given the keys to create content instead of just consume it. On Facebook and Twitter, anyone with a laptop and internet can participate. But the engagement isn't ours. Platforms own themselves.
Web3: The ‘Unmediated’ Read-Write Web
Tim Berners Lee proposed a decade ago that ‘linked data' could solve the internet's data problem.
However, until recently, the same principles that allowed the Web of documents to thrive were not applied to data...
The Web of Data also allows for new domain-specific applications. Unlike Web 2.0 mashups, Linked Data applications work with an unbound global data space. As new data sources appear on the Web, they can provide more complete answers.
At around the same time as linked data research began, Satoshi Nakamoto created Bitcoin. After ten years, it appears that Berners Lee's ideas ‘link' spiritually with cryptocurrencies.
What should Web 3 do?
Here are some quick predictions for the web's future.
Users' data:
Users own information and provide it to corporations, businesses, or services that will benefit them.
Defying censorship:
No government, company, or institution should control your access to information (1, 2, 3)
Connect users and platforms:
Create symbiotic rather than competitive relationships between users and platform creators.
Open networks:
“First, the cryptonetwork-participant contract is enforced in open source code. Their voices and exits are used to keep them in check.” Dixon, Chris (4)
Global interactivity:
Transacting value, information, or assets with anyone with internet access, anywhere, at low cost
Self-determination:
Giving you the ability to own, see, and understand your entire digital identity.
Not pull, push:
‘Push' your data to trusted sources instead of ‘pulling' it from others.
Where Does This Leave Us?
Change incentives, change the world. Nick Babalola
People believe web3 can help build a better, fairer system. This is not the same as equal pay or outcomes, but more equal opportunity.
It should be noted that some of these advantages have been discussed previously. Will the changes work? Will they make a difference? These unanswered questions are technical, economic, political, and philosophical. Unintended consequences are likely.
We hope Web3 is a more democratic web. And we think incentives help the user. If there’s one thing that’s on our side, it’s that open has always beaten closed, given a long enough timescale.
We are at the start.
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Scrum Ventures
3 years ago
Trends from the Winter 2022 Demo Day at Y Combinators
Y Combinators Winter 2022 Demo Day continues the trend of more startups engaging in accelerator Demo Days. Our team evaluated almost 400 projects in Y Combinator's ninth year.
After Winter 2021 Demo Day, we noticed a hurry pushing shorter rounds, inflated valuations, and larger batches.
Despite the batch size, this event's behavior showed a return to normalcy. Our observations show that investors evaluate and fund businesses more carefully. Unlike previous years, more YC businesses gave investors with data rooms and thorough pitch decks in addition to valuation data before Demo Day.
Demo Day pitches were virtual and fast-paced, limiting unplanned meetings. Investors had more time and information to do their due research before meeting founders. Our staff has more time to study diverse areas and engage with interesting entrepreneurs and founders.
This was one of the most regionally diversified YC cohorts to date. This year's Winter Demo Day startups showed some interesting tendencies.
Trends and Industries to Watch Before Demo Day
Demo day events at any accelerator show how investment competition is influencing startups. As startups swiftly become scale-ups and big success stories in fintech, e-commerce, healthcare, and other competitive industries, entrepreneurs and early-stage investors feel pressure to scale quickly and turn a notion into actual innovation.
Too much eagerness can lead founders to focus on market growth and team experience instead of solid concepts, technical expertise, and market validation. Last year, YC Winter Demo Day funding cycles ended too quickly and valuations were unrealistically high.
Scrum Ventures observed a longer funding cycle this year compared to last year's Demo Day. While that seems promising, many factors could be contributing to change, including:
Market patterns are changing and the economy is becoming worse.
the industries that investors are thinking about.
Individual differences between each event batch and the particular businesses and entrepreneurs taking part
The Winter 2022 Batch's Trends
Each year, we also wish to examine trends among early-stage firms and YC event participants. More international startups than ever were anticipated to present at Demo Day.
Less than 50% of demo day startups were from the U.S. For the S21 batch, firms from outside the US were most likely in Latin America or Europe, however this year's batch saw a large surge in startups situated in Asia and Africa.
YC Startup Directory
163 out of 399 startups were B2B software and services companies. Financial, healthcare, and consumer startups were common.
Our team doesn't plan to attend every pitch or speak with every startup's founders or team members. Let's look at cleantech, Web3, and health and wellness startup trends.
Our Opinions Following Conversations with 87 Startups at Demo Day
In the lead-up to Demo Day, we spoke with 87 of the 125 startups going. Compared to B2C enterprises, B2B startups had higher average valuations. A few outliers with high valuations pushed B2B and B2C means above the YC-wide mean and median.
Many of these startups develop business and technology solutions we've previously covered. We've seen API, EdTech, creative platforms, and cybersecurity remain strong and increase each year.
While these persistent tendencies influenced the startups Scrum Ventures looked at and the founders we interacted with on Demo Day, new trends required more research and preparation. Let's examine cleantech, Web3, and health and wellness startups.
Hardware and software that is green
Cleantech enterprises demand varying amounts of funding for hardware and software. Although the same overarching trend is fueling the growth of firms in this category, each subgroup has its own strategy and technique for investigation and identifying successful investments.
Many cleantech startups we spoke to during the YC event are focused on helping industrial operations decrease or recycle carbon emissions.
Carbon Crusher: Creating carbon negative roads
Phase Biolabs: Turning carbon emissions into carbon negative products and carbon neutral e-fuels
Seabound: Capturing carbon dioxide emissions from ships
Fleetzero: Creating electric cargo ships
Impossible Mining: Sustainable seabed mining
Beyond Aero: Creating zero-emission private aircraft
Verdn: Helping businesses automatically embed environmental pledges for product and service offerings, boost customer engagement
AeonCharge: Allowing electric vehicle (EV) drivers to more easily locate and pay for EV charging stations
Phoenix Hydrogen: Offering a hydrogen marketplace and a connected hydrogen hub platform to connect supply and demand for hydrogen fuel and simplify hub planning and partner program expansion
Aklimate: Allowing businesses to measure and reduce their supply chain’s environmental impact
Pina Earth: Certifying and tracking the progress of businesses’ forestry projects
AirMyne: Developing machines that can reverse emissions by removing carbon dioxide from the air
Unravel Carbon: Software for enterprises to track and reduce their carbon emissions
Web3: NFTs, the metaverse, and cryptocurrency
Web3 technologies handle a wide range of business issues. This category includes companies employing blockchain technology to disrupt entertainment, finance, cybersecurity, and software development.
Many of these startups overlap with YC's FinTech trend. Despite this, B2C and B2B enterprises were evenly represented in Web3. We examined:
Stablegains: Offering consistent interest on cash balance from the decentralized finance (DeFi) market
LiquiFi: Simplifying token management with automated vesting contracts, tax reporting, and scheduling. For companies, investors, and finance & accounting
NFTScoring: An NFT trading platform
CypherD Wallet: A multichain wallet for crypto and NFTs with a non-custodial crypto debit card that instantly converts coins to USD
Remi Labs: Allowing businesses to more easily create NFT collections that serve as access to products, memberships, events, and more
Cashmere: A crypto wallet for Web3 startups to collaboratively manage funds
Chaingrep: An API that makes blockchain data human-readable and tokens searchable
Courtyard: A platform for securely storing physical assets and creating 3D representations as NFTs
Arda: “Banking as a Service for DeFi,” an API that FinTech companies can use to embed DeFi products into their platforms
earnJARVIS: A premium cryptocurrency management platform, allowing users to create long-term portfolios
Mysterious: Creating community-specific experiences for Web3 Discords
Winter: An embeddable widget that allows businesses to sell NFTs to users purchasing with a credit card or bank transaction
SimpleHash: An API for NFT data that provides compatibility across blockchains, standardized metadata, accurate transaction info, and simple integration
Lifecast: Tools that address motion sickness issues for 3D VR video
Gym Class: Virtual reality (VR) multiplayer basketball video game
WorldQL: An asset API that allows NFT creators to specify multiple in-game interpretations of their assets, increasing their value
Bonsai Desk: A software development kit (SDK) for 3D analytics
Campfire: Supporting virtual social experiences for remote teams
Unai: A virtual headset and Visual World experience
Vimmerse: Allowing creators to more easily create immersive 3D experiences
Fitness and health
Scrum Ventures encountered fewer health and wellness startup founders than Web3 and Cleantech. The types of challenges these organizations solve are still diverse. Several of these companies are part of a push toward customization in healthcare, an area of biotech set for growth for companies with strong portfolios and experienced leadership.
Here are several startups we considered:
Syrona Health: Personalized healthcare for women in the workplace
Anja Health: Personalized umbilical cord blood banking and stem cell preservation
Alfie: A weight loss program focused on men’s health that coordinates medical care, coaching, and “community-based competition” to help users lose an average of 15% body weight
Ankr Health: An artificial intelligence (AI)-enabled telehealth platform that provides personalized side effect education for cancer patients and data collection for their care teams
Koko — A personalized sleep program to improve at-home sleep analysis and training
Condition-specific telehealth platforms and programs:
Reviving Mind: Chronic care management covered by insurance and supporting holistic, community-oriented health care
Equipt Health: At-home delivery of prescription medical equipment to help manage chronic conditions like obstructive sleep apnea
LunaJoy: Holistic women’s healthcare management for mental health therapy, counseling, and medication
12 Startups from YC's Winter 2022 Demo Day to Watch
Bobidi: 10x faster AI model improvement
Artificial intelligence (AI) models have become a significant tool for firms to improve how well and rapidly they process data. Bobidi helps AI-reliant firms evaluate their models, boosting data insights in less time and reducing data analysis expenditures. The business has created a gamified community that offers a bug bounty for AI, incentivizing community members to test and find weaknesses in clients' AI models.
Magna: DeFi investment management and token vesting
Magna delivers rapid, secure token vesting so consumers may turn DeFi investments into primitives. Carta for Web3 allows enterprises to effortlessly distribute tokens to staff or investors. The Magna team hopes to allow corporations use locked tokens as collateral for loans, facilitate secondary liquidity so investors can sell shares on a public exchange, and power additional DeFi applications.
Perl Street: Funding for infrastructure
This Fintech firm intends to help hardware entrepreneurs get financing by [democratizing] structured finance, unleashing billions for sustainable infrastructure and next-generation hardware solutions. This network has helped hardware entrepreneurs achieve more than $140 million in finance, helping companies working on energy storage devices, EVs, and creating power infrastructure.
CypherD: Multichain cryptocurrency wallet
CypherD seeks to provide a multichain crypto wallet so general customers can explore Web3 products without knowledge hurdles. The startup's beta app lets consumers access crypto from EVM blockchains. The founders have crypto, financial, and startup experience.
Unravel Carbon: Enterprise carbon tracking and offsetting
Unravel Carbon's AI-powered decarbonization technology tracks companies' carbon emissions. Singapore-based startup focuses on Asia. The software can use any company's financial data to trace the supply chain and calculate carbon tracking, which is used to make regulatory disclosures and suggest carbon offsets.
LunaJoy: Precision mental health for women
LunaJoy helped women obtain mental health support throughout life. The platform combines data science to create a tailored experience, allowing women to access psychotherapy, medication management, genetic testing, and health coaching.
Posh: Automated EV battery recycling
Posh attempts to solve one of the EV industry's largest logistical difficulties. Millions of EV batteries will need to be decommissioned in the next decade, and their precious metals and residual capacity will go unused for some time. Posh offers automated, scalable lithium battery disassembly, making EV battery recycling more viable.
Unai: VR headset with 5x higher resolution
Unai stands apart from metaverse companies. Its VR headgear has five times the resolution of existing options and emphasizes human expression and interaction in a remote world. Maxim Perumal's method of latency reduction powers current VR headsets.
Palitronica: Physical infrastructure cybersecurity
Palitronica blends cutting-edge hardware and software to produce networked electronic systems that support crucial physical and supply chain infrastructure. The startup's objective is to build solutions that defend national security and key infrastructure from cybersecurity threats.
Reality Defender: Deepfake detection
Reality Defender alerts firms to bogus users and changed audio, video, and image files. Reality Deference's API and web app score material in real time to prevent fraud, improve content moderation, and detect deception.
Micro Meat: Infrastructure for the manufacture of cell-cultured meat
MicroMeat promotes sustainable meat production. The company has created technologies to scale up bioreactor-grown meat muscle tissue from animal cells. Their goal is to scale up cultured meat manufacturing so cultivated meat products can be brought to market feasibly and swiftly, boosting worldwide meat consumption.
Fleetzero: Electric cargo ships
This startup's battery technology will make cargo ships more sustainable and profitable. Fleetzero's electric cargo ships have five times larger profit margins than fossil fuel ships. Fleetzeros' founder has marine engineering, ship operations, and enterprise sales and business experience.
Andy Walker
2 years ago
Why personal ambition and poor leadership caused Google layoffs
Google announced 6% layoffs recently (or 12,000 people). This aligns it with most tech companies. A publicly contrite CEO explained that they had overhired during the COVID-19 pandemic boom and had to address it, but they were sorry and took full responsibility. I thought this was "bullshit" too. Meta, Amazon, Microsoft, and others must feel similarly. I spent 10 years at Google, and these things don't reflect well on the company's leaders.
All publicly listed companies have a fiduciary duty to act in the best interests of their shareholders. Dodge vs. Ford Motor Company established this (1919). Henry Ford wanted to reduce shareholder payments to offer cheaper cars and better wages. Ford stated.
My ambition is to employ still more men, to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes. To do this we are putting the greatest share of our profits back in the business.
The Dodge brothers, who owned 10% of Ford, opposed this and sued Ford for the payments to start their own company. They won, preventing Ford from raising prices or salaries. If you have a vocal group of shareholders with the resources to sue you, you must prove you are acting in their best interests. Companies prioritize shareholders. Giving activist investors a stick to threaten you almost enshrines short-term profit over long-term thinking.
This underpins Google's current issues. Institutional investors who can sue Google see it as a wasteful company they can exploit. That doesn't mean you have to maximize profits (thanks to those who pointed out my ignorance of US corporate law in the comments and on HN), but it allows pressure. I feel for those navigating this. This is about unrestrained capitalism.
When Google went public, Larry Page and Sergey Brin knew the risks and worked hard to keep control. In their Founders' Letter to investors, they tried to set expectations for the company's operations.
Our long-term focus as a private company has paid off. Public companies do the same. We believe outside pressures lead companies to sacrifice long-term opportunities to meet quarterly market expectations.
The company has transformed since that letter. The company has nearly 200,000 full-time employees and a trillion-dollar market cap. Large investors have bought company stock because it has been a good long-term bet. Why are they restless now?
Other big tech companies emerged and fought for top talent. This has caused rising compensation packages. Google has also grown rapidly (roughly 22,000 people hired to the end of 2022). At $300,000 median compensation, those 22,000 people added $6.6 billion in salary overheads in 2022. Exorbitant. If the company still makes $16 billion every quarter, maybe not. Investors wonder if this value has returned.
Investors are right. Google uses people wastefully. However, by bluntly reducing headcount, they're not addressing the root causes and hurting themselves. No studies show that downsizing this way boosts productivity. There is plenty of evidence that they'll lose out because people will be risk-averse and distrust their leadership.
The company's approach also stinks. Finding out that you no longer have a job because you can’t log in anymore (sometimes in cases where someone is on call for protecting your production systems) is no way to fire anyone. Being with a narcissistic sociopath is like being abused. First, you receive praise and fancy perks for making the cut. You're fired by text and ghosted. You're told to appreciate the generous severance package. This firing will devastate managers and teams. This type of firing will take years to recover self-esteem. Senior management contributed to this. They chose the expedient answer, possibly by convincing themselves they were managing risk and taking the Macbeth approach of “If it were done when ’tis done, then ’twere well It were done quickly”.
Recap. Google's leadership did a stupid thing—mass firing—in a stupid way. How do we get rid of enough people to make investors happier? and "have 6% less people." Empathetic leaders should not emulate Elon Musk. There is no humane way to fire 12,000 people, but there are better ways. Why is Google so wasteful?
Ambition answers this. There aren't enough VP positions for a group of highly motivated, ambitious, and (increasingly) ruthless people. I’ve loitered around the edges of this world and a large part of my value was to insulate my teams from ever having to experience it. It’s like Game of Thrones played out through email and calendar and over video call.
Your company must look a certain way to be promoted to director or higher. You need the right people at the right levels under you. Long-term, growing your people will naturally happen if you're working on important things. This takes time, and you're never more than 6–18 months from a reorg that could start you over. Ambitious people also tend to be impatient. So, what do you do?
Hiring and vanity projects. To shape your company, you hire at the right levels. You value vanity metrics like active users over product utility. Your promo candidates get through by subverting the promotion process. In your quest for growth, you avoid performance managing people out. You avoid confronting toxic peers because you need their support for promotion. Your cargo cult gets you there.
Its ease makes Google wasteful. Since they don't face market forces, the employees don't see it as a business. Why would you do when the ads business is so profitable? Complacency causes senior leaders to prioritize their own interests. Empires collapse. Personal ambition often trumped doing the right thing for users, the business, or employees. Leadership's ambition over business is the root cause. Vanity metrics, mass hiring, and vague promises have promoted people to VP. Google goes above and beyond to protect senior leaders.
The decision-makers and beneficiaries are not the layoffees. Stock price increase beneficiaries. The people who will post on LinkedIn how it is about misjudging the market and how they’re so sorry and take full responsibility. While accumulating wealth, the dark room dwellers decide who stays and who goes. The billionaire investors. Google should start by addressing its bloated senior management, but — as they say — turkeys don't vote for Christmas. It should examine its wastefulness and make tough choices to fix it. A 6% cut is a blunt tool that admits you're not running your business properly. why aren’t the people running the business the ones shortly to be entering the job market?
This won't fix Google's wastefulness. The executives may never regain trust after their approach. Suppressed creativity. Business won't improve. Google will have lost its founding vision and us all. Large investors know they can force Google's CEO to yield. The rich will get richer and rationalize leaving 12,000 people behind. Cycles repeat.
It doesn’t have to be this way. In 2013, Nintendo's CEO said he wouldn't fire anyone for shareholders. Switch debuted in 2017. Nintendo's stock has increased by nearly five times, or 19% a year (including the drop most of the stock market experienced last year). Google wasted 12,000 talented people. To please rich people.
Joseph Mavericks
3 years ago
You Don't Have to Spend $250 on TikTok Ads Because I Did
900K impressions, 8K clicks, and $$$ orders…
I recently started dropshipping. Now that I own my business and can charge it as a business expense, it feels less like money wasted if it doesn't work. I also made t-shirts to sell. I intended to open a t-shirt store and had many designs on a hard drive. I read that Tiktok advertising had a high conversion rate and low cost because they were new. According to many, the advertising' cost/efficiency ratio would plummet and become as bad as Google or Facebook Ads. Now felt like the moment to try Tiktok marketing and dropshipping. I work in marketing for a SaaS firm and have seen how poorly ads perform. I wanted to try it alone.
I set up $250 and ran advertising for a week. Before that, I made my own products, store, and marketing. In this post, I'll show you my process and results.
Setting up the store
Dropshipping is a sort of retail business in which the manufacturer ships the product directly to the client through an online platform maintained by a seller. The seller takes orders but has no stock. The manufacturer handles all orders. This no-stock concept increases profitability and flexibility.
In my situation, I used previous t-shirt designs to make my own product. I didn't want to handle order fulfillment logistics, so I looked for a way to print my designs on demand, ship them, and handle order tracking/returns automatically. So I found Printful.
I needed to connect my backend and supplier to a storefront so visitors could buy. 99% of dropshippers use Shopify, but I didn't want to master the difficult application. I wanted a one-day project. I'd previously worked with Big Cartel, so I chose them.
Big Cartel doesn't collect commissions on sales, simply a monthly flat price ($9.99 to $19.99 depending on your plan).
After opening a Big Cartel account, I uploaded 21 designs and product shots, then synced each product with Printful.
Developing the ads
I mocked up my designs on cool people photographs from placeit.net, a great tool for creating product visuals when you don't have a studio, camera gear, or models to wear your t-shirts.
I opened an account on the website and had advertising visuals within 2 hours.
Because my designs are simple (black design on white t-shirt), I chose happy, stylish people on plain-colored backdrops. After that, I had to develop an animated slideshow.
Because I'm a graphic designer, I chose to use Adobe Premiere to create animated Tiktok advertising.
Premiere is a fancy video editing application used for more than advertisements. Premiere is used to edit movies, not social media marketing. I wanted this experiment to be quick, so I got 3 social media ad templates from motionarray.com and threw my visuals in. All the transitions and animations were pre-made in the files, so it only took a few hours to compile. The result:
I downloaded 3 different soundtracks for the videos to determine which would convert best.
After that, I opened a Tiktok business account, uploaded my films, and inserted ad info. They went live within one hour.
The (poor) outcomes
As a European company, I couldn't deliver ads in the US. All of my advertisements' material (title, description, and call to action) was in English, hence they continued getting rejected in Europe for countries that didn't speak English. There are a lot of them:
I lost a lot of quality traffic, but I felt that if the images were engaging, people would check out the store and buy my t-shirts. I was wrong.
51,071 impressions on Day 1. 0 orders after 411 clicks
114,053 impressions on Day 2. 1.004 clicks and no orders
Day 3: 987 clicks, 103,685 impressions, and 0 orders
101,437 impressions on Day 4. 0 orders after 963 clicks
115,053 impressions on Day 5. 1,050 clicks and no purchases
125,799 impressions on day 6. 1,184 clicks, no purchases
115,547 impressions on Day 7. 1,050 clicks and no purchases
121,456 impressions on day 8. 1,083 clicks, no purchases
47,586 impressions on Day 9. 419 Clicks. No orders
My overall conversion rate for video advertisements was 0.9%. TikTok's paid ad formats all result in strong engagement rates (ads average 3% to 12% CTR to site), therefore a 1 to 2% CTR should have been doable.
My one-week experiment yielded 8,151 ad clicks but no sales. Even if 0.1% of those clicks converted, I should have made 8 sales. Even companies with horrible web marketing would get one download or trial sign-up for every 8,151 clicks. I knew that because my advertising were in English, I had no impressions in the main EU markets (France, Spain, Italy, Germany), and that this impacted my conversion potential. I still couldn't believe my numbers.
I dug into the statistics and found that Tiktok's stats didn't match my store traffic data.
Looking more closely at the numbers
My ads were approved on April 26 but didn't appear until April 27. My store dashboard showed 440 visitors but 1,004 clicks on Tiktok. This happens often while tracking campaign results since different platforms handle comparable user activities (click, view) differently. In online marketing, residual data won't always match across tools.
My data gap was too large. Even if half of the 1,004 persons who clicked closed their browser or left before the store site loaded, I would have gained 502 visitors. The significant difference between Tiktok clicks and Big Cartel store visits made me suspicious. It happened all week:
Day 1: 440 store visits and 1004 ad clicks
Day 2: 482 store visits, 987 ad clicks
3rd day: 963 hits on ads, 452 store visits
443 store visits and 1,050 ad clicks on day 4.
Day 5: 459 store visits and 1,184 ad clicks
Day 6: 430 store visits and 1,050 ad clicks
Day 7: 409 store visits and 1,031 ad clicks
Day 8: 166 store visits and 418 ad clicks
The disparity wasn't related to residual data or data processing. The disparity between visits and clicks looked regular, but I couldn't explain it.
After the campaign concluded, I discovered all my creative assets (the videos) had a 0% CTR and a $0 expenditure in a separate dashboard. Whether it's a dashboard reporting issue or a budget allocation bug, online marketers shouldn't see this.
Tiktok can present any stats they want on their dashboard, just like any other platform that runs advertisements to promote content to its users. I can't verify that 895,687 individuals saw and clicked on my ad. I invested $200 for what appears to be around 900K impressions, which is an excellent ROI. No one bought a t-shirt, even an unattractive one, out of 900K people?
Would I do it again?
Nope. Whether I didn't make sales because Tiktok inflated the dashboard numbers or because I'm horrible at producing advertising and items that sell, I’ll stick to writing content and making videos. If setting up a business and ads in a few days was all it took to make money online, everyone would do it.
Video advertisements and dropshipping aren't dead. As long as the internet exists, people will click ads and buy stuff. Converting ads and selling stuff takes a lot of work, and I want to focus on other things.
I had always wanted to try dropshipping and I’m happy I did, I just won’t stick to it because that’s not something I’m interested in getting better at.
If I want to sell t-shirts again, I'll avoid Tiktok advertisements and find another route.