From 10k and Beyond: Discussing Crypto Currencies

2017 November 30, 17:04 h


After the historical USD 10,000 break a day ago, Bitcoin and cryptocurrencies in general finally reached the mainstream media in a bombastic way.

Like many in the tech industry, I tried the tech since the very beginning. I myself mined a couple bitcoins back in 2009, then lost my wallet private key, totally forgot about it, and many years later here I am, kicking myself in the butt :-)

When it reached USD 3,000 I had my interest in the platform totally renewed. And it was a very pleasant surprise to see how big it became. If you follow me, you know how eager I am to learn new things that have real potential. And also how easy I am to turn my attention full gear into something.

I can only do that because I am not a loyalist to anything. I don't pick and defend a single language, or a single OS, or a single manufacturer, or a single market. I find it very unproductive if I see myself just defending stuff.

Believe it or not, Cryptocurrencies are here to stay, for a few years at the very least. I remember the feeling when I tried the commercial Internet back in 1993. It feels like that all over again: an uncharted territory with a lot of potential and a lot of things we can't even imagine right now.

If you follow me, you also know that I am a big proponent of applying Reason. I hate both extreme hype and FUD. Anyone sharing either is someone that wants to be noticed, free attention, but has nothing actually useful to say. "Oh, it's gonna reach 100k soon! Buy in!" or "Oh, it's a tulip bubble, you're an idiot if you buy in!". Both extremes are imbeciles.

Education is key to anything. The reasoning is the starting point.

As a big disclaimer: I am not recommending anyone to buy into cryptocurrencies without doing your own due diligence. Anyone doing any recommendations for or against is irresponsible. All I can do is convey a personal opinion and technical analysis. This is my role.

One example: did you know that the so often repeated Tulip Bubble never actually existed? Yes, that shows how quick people are to share memes and fake news without actually doing research.

And it's even more hilarious in the tech industry, where I see many "evangelists" shouting about the "miracles" of starting your own tech startup in hopes of "disrupting" the industry with yet-another-Uber-derivative. Let's put this straight: anything can be a bubble.

Gold is only valuable because we created a story around it. Gold can't be eaten. Gold is not even a very good metal to work with. We just created a story and we agreed to it. The same goes for anything we consider "valuable". What is a fiat currency? It's a piece of paper, which is useless by itself. But if we all agree on the same story, that "$100" printed on it makes the paper super valuable.

Such is the power of belief.

Anything that we do requires some level of faith. If I perform a job to someone else, I need to have the faith that I will be paid in the future. The confidence comes from a piece of signed paper or even a simple e-mail, and the trust that institutions will help me enforce this payment if need be.

It's all stories, faith, and beliefs. If you didn't already, I highly recommend you read Yuval Harari's "Homo Sapiens" to understand how stories shape our history.

That being said, I find it hilarious that techies considered "serious" are super quick to shout out "this is a scam!" or "this is a bubble!" without giving it 1 second of consideration, check the fundamentals and check the sources. Engineers should know better, and that exposes who actually know how to do proper analysis and who just follow herds blindly.

You can't say that I was wrong if, for any reason, cryptocurrencies explode tomorrow all of a sudden. Nor that the naysayers were right. This is important: anything in the future is impossible to predict. You have to play the odds. If you don't have confidence, don't gamble. But creating stories to justify ignorance is beyond disappointing.

The interesting part about the financial markets is teaching people how to deal with improbability. I have been evangelizing Nassim Taleb in this blog for years, since the 2008/2009 economic collapse. We learned a lot. We learned about "Black Swans" and how to become "Antifragile" and, in good timing, how to have "Skin in the Game". Engineers should have more of this knowledge, they would come up with much better solutions.

Answering some specific FUDs I have been reading:

"It's a bubble!"

It may be. As I said, the tech industry is a bubble for all we know. It only requires a few VCs to collude and pull back and leave a bomb to explode behind. Everything is just stories, no matter how much you value something. That's it.

How do you operate in a bubble? In an antifragile way. First of all, if you're uninitiated, never, ever invest everything you have. Only invest an amount that, if you lose everything, you won't be left to die. This is Investment-101.

Try to buy in the lows, and perhaps sell in the highs. Or plan long-term and HODL for a few years. If you need quick returns, learn how to deal with stop-loss orders, for example. Don't try to up smart the market if you don't have trading experience. Or do, but don't complain when you lose.

Losses or profits, it's all on you and you alone, not "the market" or "the speculators". Everybody is an adult. Adults should take responsibility for their own acts. If they lost money in a gamble they didn't understand, it's their fault.

"Mining consumes more energy than certain small countries!"

It doesn't matter. First and foremost, they are not draining free energy. Every miner is paying for it. Now you will see why it's so bad when governments interfere with free markets. If some country subsidizes the energy than the supply and demand formula will fail. Obviously.

And techies should know this better. There never was enough bandwidth in ground telephone lines for everybody in the planet to connect to the internet. We had to evolve infrastructure, a lot. We had to add submarine lines. We had to go from dialed modems to ISDN, to cable modems, etc.

Proof of work based mining consumes a heck of a lot of energy, and for good reason. We are trading off energy for integrity. But this is not the only alternative. There are proof of stake implementations starting to be deployed in other alt-coins which are super energy efficient while providing similar levels of trust in the consensus.

The point is that technology evolves fast, you can't extrapolate into the future based on what we have now. It's like someone in 1993 saying "the commercial internet can't happen because telephone lines are too slow if we ever want to have video streaming services".

"Bitcoin is too centralized, it is too dangerous!"

If you're a programmer and still don't know exactly what mining means, I recommend you read my previous article about it first.

Mining is not deterministic. Even if you have the best hardware ever, it's not guaranteed that you will mine the block first. It's more like a raffle.

Which is why miners organize into pools, which share the gains between the members.

The concern is that 4 of the biggest pools, AntPool, ViaBTC,, and BTC.TOP "control" 62% of the world's hashpower.

It's said that anyone with 51% of the hashpower control could launch a hack attack against the blockchain, being able to rewrite blocks in the recent past and allowing double-spend, for example.

But in practice, it's not that easy.

It is expensive to mine. USD 20,000 equipment can only mine around USD 11 per day, without subtracting all the costs including the depreciation of the machines. Anything other than mining is very risky and unprofitable. The system is built in a way that hackers would have to spend so much money at such high risks that it's easier to just follow the rules.

And again, the alt-coins and forks are experimenting into new ways to make it even harder in the future.

"Visa performs thousands of transactions per second. Bitcoin can never do that!"

Again, this is a useless argument. It's like saying "gold can't be exchanged fast enough, it will never be good".

We already have several alt-coins such as Litecoin and others trying to solve the problem of fast transactions. Consider that all alt-coins are kind of tied to Bitcoin, the same as the dollar used to be tied to the gold. And if the so-called Lightning Network ever goes live, we can cross boundaries between blockchains more easily as well.

Visa doesn't transact dollar "bills", they make virtual transactions in their internal databases. Only when the merchant withdraws, it's converted to fiat dollars.

You can easily add Bitcoin to the mix of options in a Visa transaction system. That's how a credit card work today. You only pay 30 days later. And it works. What's the matter?

And again, we will solve this in time. Let the technologies mature and demand start to need it and the solution will come up.

"It doesn't serve any social function."

Most of the criticism against cryptocurrencies come from the "elite" population in first world countries. If you're a white person in the USA, with a good income in dollars or someone similar in Europe, with lots of Euro. You are mostly concerned with "Bitcoin is too slow for me to buy goods on the shopping mall" or "the transaction fees are too high for my daily Starbuck's coffee". And you start shouting that "Bitcoin serves no social function".

But this is absurd. You don't live in South America, Africa, Southeast Asia. You are not in Venezuela where their currency was broken by the current dictatorship. Can you imagine your beloved dollar bill worth less than toilet paper?

You don't live in Zimbabwe where the army seized power. You don't live in Asia, a place in constant threat of nuclear missiles on their heads coming from crazy dictator Kim Jong-Un.

So, yeah it doesn't serve a social function in your daily sugar intake from 7-eleven. It's too slow to buy 2 gallon super gulps and the fees are too high. But if you live anywhere in the world where the government poses a threat to their citizens, having an unregulated, decentralized, store of value, which you can easily take out of the offending country, is a life saver. Even in countries like mine, Brazil, you don't want to have everything in Reais in case dictator-wannabes like Lula or Bolsonaro actually go crazy and coup.

"I don't see it. I just don't see it. And I don't care."

This is the most honest thing to say, at least it's assuming your own ignorance and your own lack of interest.

And there is a good reason for that. In terms of tech, the USA follows what Silicon Valley says. And many other countries just keep repeating what comes from there. So techies are used to following what Google or Facebook or Apple are saying.

Now, the blockchain technology didn't come from them directly. It's not a Google product. And worse, it touches their fragile moral beliefs. They think it's ok to receive huge amounts of VC money as a "reward" for what they "believe", their "culture", their arbitrary "values". They don't believe in making their own money. And even though VCs are from the financial market, techies despise Wall Street and the financials. The Starbuck's hipsters hate the suit and tie traders and their so-called "dirty tactics" to make money.

It's hilarious actually, in the end, they all want one thing, and one thing only: more money. But hipsters are very hypocrite when it comes to saying that. "I don't want money, I want to disrupt the market". Yeah, right, keep saying yourself that.

Now, consider that this whole cryptocurrency buzz is not coming from the Western. It's all from Asia. Japan, South Korea, Singapore, China, they are the ones steering the market. Japan, as a country, has already regulated and accepted Bitcoin as proper currency and they have 60% of the market share, alone.

This is a heavily Asian driven phenomenon. And we are just getting started.

So this is not, a "if it happens" scenario. It already did. Biggies like the CME Group, Nasdaq will start having Bitcoin offerings. We are lagging behind discussing stupid trivial issues that will be fixed in the long run.

Cryptocurrencies are here to stay. My recommendation if you are truly someone that values knowledge: learn about it.

tags: cryptocurrency bitcoin blockchain


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