Blog

digitalcoinsexchange.com

Understanding The Cryptocurrency Boom

A ground-level assessment
Friday, June 23, 2017, 9:26 PM

I recently came across a December 1996 San Jose Mercury News article on tech pioneers’ attempts to carry the pre-browser Internet’s bulletin board community vibe over to the new-fangled World Wide Web.

In effect, the article is talking about social media a decade before MySpace and Facebook and 15 years before the maturation of social media.

(Apple was $25 per share in December 1996. Adjusted for splits, that’s about the cost of a cup of coffee.)

So what’s the point of digging up this ancient tech history?

  1. Technology changes in ways that are difficult to predict, even to visionaries who understand present-day technologies.
  2. The sources of great future fortunes are only visible in a rearview mirror.

Many of the tech and biotech companies listed in the financial pages of December 1996 no longer exist. Their industries changed, and they vanished or were bought up, often for pennies on the dollar of their heyday valuations.

Which brings us to cryptocurrencies, which entered the world with bitcoin in early 2009.

Now there are hundreds of cryptocurrencies, and a speculative boom has pushed bitcoin from around $600 a year ago to $2600 and Ethereum, another leading cryptocurrency, from around $10 last year to $370.

Where are cryptocurrencies in the evolution from new technology to speculative boom to maturation? Judging by valuation leaps from $10 to $370, the technology is clearly in the speculative boom phase.

If recent tech history is any guide, speculative boom phases are often poor guides to future valuations and the maturation trajectory of a new sector. 

Anyone remember “push” technologies circa 1997? This was the hottest thing going, and valuations of early companies went ballistic.  Then the fad passed and some new innovation became The Next Big Thing.

All of which is to say: nobody can predict the future course of cryptocurrencies, other than to say that speculative booms eventually end and technologies mature into forms that solve real business problems in uniquely cheap and robust ways no other technology can match.

So while we can’t predict the future forms of cryptocurrencies that will dominate the mature marketplace, we can predict that markets will sort the wheat from the chaff by a winnowing the entries down to those that solve real business problems (i.e. address scarcities) in ways that are cheap and robust and that cannot be solved by other technologies.

The 'Anything Goes' Speculative Boom

Technologies with potentially mass applications often spark speculative booms. The advent of radio generated a speculative boom just as heady as any recent tech frenzy.

Many people decry the current speculative frenzy in cryptocurrencies, and others warn the whole thing is a Ponzi scheme, a fad, and a bubble in which the gullible sheep are being led to slaughter.

Meanwhile, tribalism is running hot in the cryptocurrencies space, with promoters and detractors of the various cryptocurrencies doing battle in online forums: bitcoin is doomed by FUD (fear, uncertainty and doubt) about its warring camps, or it’s the gold standard; Ethereum is either fundamentally flawed or the platform destined to dominate, and so on.

The technological issues are thorny and obtuse to non-programmers, and the eventual utility of the many cryptocurrencies is still an open question/in development.

It’s difficult for non-experts to sort out all these claims. What’s steak and what’s sizzle?  We can’t be sure a new entrant is actually a blockchain or if its promoters are using blockchain as the selling buzzword.

Even more confusing are the debates over decentralization. One of the key advances of the bitcoin blockchain technology is its decentralized mode of operation: the blockchain is distributed on servers all over the planet, and those paying for the electricity to run those servers are paid for this service with bitcoin that is “mined” by the process of maintaining the blockchain.  No central committee organizes this process.

Critics have noted that the mining of bitcoin is now dominated by large companies in China, who act as an informal “central committee” in that they can block any changes to the protocols governing the blockchain.

Others claim that competing cryptocurrencies such as Ethereum are centrally managed, despite defenders’ claims to the contrary.

Meanwhile, fortunes are being made as speculators jump from one cryptocurrency to the next as ICOs (initial coin offerings) proliferate. Since the new coins must typically be purchased with existing cryptocurrencies, this demand has been one driver of soaring prices for Ethereum.

As if all this wasn’t confusing enough, the many differences between various cryptocurrencies are difficult to understand and assess.

While bitcoin was designed to be a currency, and nothing but a currency, other cryptocurrencies such as Ethereum are not just currencies, they are platforms for other uses of blockchain technologies, for example, the much-touted smart contracts.  This potential for applications beyond currencies is the reason why the big corporations have formed the Enterprise Ethereum Alliance (https://entethalliance.org/).

Despite the impressive credentials of the Alliance, real-world applications that are available to ordinary consumers and small enterprises using these blockchain technologies are still in development: there’s lots of sizzle but no steak yet.

Who Will The Winner(s) Be?

How can non-experts sort out what sizzle will fizzle and what sizzle will become dominant?  The short answer is: we can’t. An experienced programmer who has actually worked on the bitcoin blockchain, Ethereum and Dash (to name three leading cryptocurrencies) would be well-placed to explain the trade-offs in each (and yes, there are always trade-offs), but precious few such qualified folks are available for unbiased commentary as tribalism has snared many developers into biases that are not always advertised upfront.

So what’s a non-expert to make of this swirl of speculation, skepticism, tribalism, confusing technological claims and counterclaims and the unavoidable uncertainties of the exhilarating but dangerously speculative boom phase?

There is no way to predict the course of specific cryptocurrencies, or the potential emergence of a new cryptocurrency that leaves all the existing versions in the dust, or governments’ future actions to endorse or criminalize cryptocurrencies.  But what we can do -- now, in the present -- is analyze present-day cryptocurrencies through the filters of scarcity and utility.

In Part 2: The Value Drivers Of Cryptocurrency, we analyze the necessary success requirements a cryptocurrency will need to excel on in order to become adopted at a mass, mainstream level. Once this happens (which increasingly looks like a matter of "when" not "if"), the resultant price increase of the winning coin(s) will highly likely be geometric and meteoric.

Sadly, the most probable catalyst for this will be a collapse of the current global fiat currency regime -- something that increasingly looks more and more inevitable. This will destroy a staggering amount of the (paper) wealth currently held by today's households. Which makes developing a fully-informed understanding of the cryptocurrency landscape now -- today -- an extremely important requirement for any prudent investor.

Click here to read the report (free executive summary, enrollment required for full access)

Endorsed Financial Adviser Endorsed Financial Adviser

Looking for a financial adviser who sees the world through a similar lens as we do? Free consultation available.

Learn More »
Read Our New Book "Prosper!"Read Our New Book

Prosper! is a "how to" guide for living well no matter what the future brings.

Learn More »

 

Related content

59 Comments

apismellifera's picture
apismellifera
Status: Bronze Member (Offline)
Joined: Jul 8 2010
Posts: 57
Ran across this piece yesterday

https://medium.com/@hudon/bitcoin-is-for-drugs-27dcc5923716

The main argument:

The blockchain is for censorship resistance. That’s it. Use cases such as buying drugs, gambling, tax evasion, sharing secrets, capital flight and scamming people eclipse all other use cases.

Investing in Bitcoin is investing in vice.

Not pleasant to state it so baldly, but it seemed pretty convincing to me.  Lots to say about scarcity vs. "real-world utility" too.  Interested to see what you think, Charles.

 

 

MarkM's picture
MarkM
Status: Platinum Member (Offline)
Joined: Jul 22 2008
Posts: 836
apismellifera
apismellifera wrote:

https://medium.com/@hudon/bitcoin-is-for-drugs-27dcc5923716

The main argument:

The blockchain is for censorship resistance. That’s it. Use cases such as buying drugs, gambling, tax evasion, sharing secrets, capital flight and scamming people eclipse all other use cases.

Investing in Bitcoin is investing in vice.

Not pleasant to state it so baldly, but it seemed pretty convincing to me.  Lots to say about scarcity vs. "real-world utility" too.  Interested to see what you think, Charles.

 

 

Remember, there is a large group that says the same thing about cash. Hmmm.

Mohammed Mast's picture
Mohammed Mast
Status: Bronze Member (Offline)
Joined: May 17 2017
Posts: 70
Crypto

We are clearly in the early stages of development as Chares points out. What needs to happen for cryptos to be real currency is for more people to use it as a stand alone currency. A number of years ago local currency was all the rage. Well cryptos are actually a global local currency. As the market matures one would hope that an actual economy will develop with people working for and exchanging goods and services for cryptos.

There are a few "marketplaces " now but the development of marketplaces online like Amazon will go a long way towards creating an economy. That will also include velocity which is almost nonexistenet at the moment

charleshughsmith's picture
charleshughsmith
Status: Platinum Member (Offline)
Joined: Aug 15 2010
Posts: 628
is blockchain limited to vice?

Interesting POV, but not the whole story IMO. As MarkM observed, this is precisely the same argument being made to outlaw cash.

I have used BTC for legitimate business purposes, so like cash, the medium of exchange cannot be tarred by what people use it for. All those vices existed before BTC and would still be around if BTC vanished.

Also, if the blockchain technologies were limited to secret vices, why are Goldman Sachs et al. pulling patents and Microsoft et al. in the Ethereum alliance?  they see something legit with a future.

The blockchain is best understood as a triple entry accounting system:

https://hackernoon.com/why-everyone-missed-the-most-important-invention-in-the-last-500-years-c90b0151c169
Why Everyone Missed the Most Important Invention in the Last 500 Years
herewego's picture
herewego
Status: Silver Member (Online)
Joined: Aug 11 2010
Posts: 139
"scarcity vs. 'real-world' utility

Not sure what you mean by this apismellifera, but it made me think of real world utility a bit more.

I can’t get too excited about yet another foundationally incorrect currency. All currencies are systems that symbolize actual wealth. Their value is entirely derivative of the materials and supportive “services” of the biosphere combined with the intelligence and labor of the people. I don’t see our currencies, even gold, which is ruinous for the planet where it is mined, reflecting this base-line truth. They and the human-made economies they support instead reflect profound inaccuracies:
- that there are no limits to growth
- that the health of the biosphere is irrelevant to the human economy
- that our only concern is to make a profit, and our love of planet and life is irrelevant

Subtle and powerful traces of this conditioning easily skew my thinking, but when I drill down it’s screamingly obvious: no functioning biosphere = no human economy. Our economies are always a subset of the planet’s. Our currencies always have to function within the biosphere’s economy and are never independent constructs.

Could we have a currency that comes into being not through playing with ecologically harmful digital signals (huge power requirements, harmful electromagnetic fields, widespread damage to humans who sit staring at screens, zero benefit to the ecology of our home)? BTW, is no-one weirded-out by their extremely fragile nature (EMPs)? Rather, could a currency be created when we do something that creates utility for the biosphere? Create a unit of great compost and deliver it to your local farmer, get a unit of currency. Pull a ton of plastic garbage from the ocean and get it to a recycling depot, get a BIG unit of currency. Yes, these off-the-cuff examples would be hard to regulate, but they might give you the idea I’m striving for.

The idea of bypassing the banksters is intoxicating. I love it. Let the bastards suffocate on their perpetually inflating paper. Hold on for the ride.

But continuing to create currencies and run the human economy on abstractions that are incorrect about our real situation here on planet Earth just sounds problematic. I have no expertise to evaluate the technical aspects of Bitcoin et.al. It’s broad strokes for me. What utility does Bitcoin offer the host economy, our teetering biosphere? Ah. It burns a lot of electricity and keeps people, who could be a force for regeneration, sitting behind desks. Like modern human economics, the utility accrues only to human systems, with no reference to the real economy that we live within – the planet’s resources. I don’t mean to be Pollyanna. I know if Bitcoin goes away the brilliant nerds won’t necessarily decide to go homestead or rescue the ocean to create their newest currency. However, if something is off the tracks, not connected to reality, there’s no point in supporting it no matter how new and ingenious it is.

Currency has to be one of the most interesting of human inventions. It certainly keeps confounding me. I see how its roots go deep in to the foundations of our relationship with world, and how it contains powerful errors as well as utility. I never can quite unpack it, but it's always a ride into deeper levels of meaning when I try.

Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Online)
Joined: May 26 2009
Posts: 2730
Recognition of CHS's Efforts

I'd like to take a moment to thank Charles for his past efforts to put cryptocurrencies on the PP.com radar.

In addition to educating me in my private conversations with him (and, boy, do I wish I had acted on his advice), he published this report An Everyman's Guide To Understanding Cryptocurrencies on PP.com a year ago, when Bitcoin was under $600 (and Ethereum under $14)

His work has been informative and measured, highlighting the potential of cryptocurrencies without pushing them as a "must buy" for everyone -- leaving it up to each of us to make up our own minds.

I value his contributions here immensely, as I know many other readers here do, too. Thanks, Charles!

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4619
about vice?

Yeah, that's a no.

The current state of the art in payment systems (at least in the US, anyway) is that if I want to send money to my sister, it takes 2-3 days to do so.

With bitcoin, that same transaction takes 20 minutes.

If my bank account is in a different country, you can add a $50 wire transfer fee plus a trip to the bank to fully identify yourself, plus the bid/ask spread on the transfer is another opportunity for banks to increase their skim.

With bitcoin, that's all gone.

Lastly, a digital currency has the promise of utterly eliminating the banks skim from payment systems.  Because VISA is a quasi-monopoly, merchants end up paying 2-3% fees just to get their money from the VISA payment system.  With a bitcoin-funded electronic-cash card (at least in the future, anyway) that could be a nickel per transaction, flat rate.

If you sold things, you know this.  You'd hate VISA, because they always have their hand in your pocket.  VISA has been careful to structure things so consumers believe it is cost-free.  In reality, costs have just been shunted off to the merchants.

The utility story is 100% there.  And its not just porn and gambling - although like everything, they seem to be the "early adopters" of all new technology.

My only qualm with bitcoin is its claims to being unhackable.  It isn't.  Any state actor with international reach and an evil intent could cause utter mayhem in the bitcoin world.  Given that, its status as a "store of value" is a bit dubious, at least to me.  Bitcoin continues to exist because the bankers - for some reason - are willing to tolerate it.  If the bankers decide to stop tolerating it, if they decide to sever their connection with the exchanges, for whatever reason, all that utility is then gone.

 

acemiller1981@gmail.com's picture
Status: Member (Offline)
Joined: Apr 2 2011
Posts: 22
What bitcoins offers

A transparent ledger with a predicable unit of account with the ability to go anywhere in the world with accessed to it.   I have heard it said it doesn't matter what money is but who creates its supply.  Bitcion functions without borders and with limited creation.  

The electrical use is problematic.  But its vulnerability to emp I don't see.  As long as one master node remains intact you still have all you need to rebuild. That is  If my understanding is correct.

 I see a larger problem with the limit of transactions per second  and the length in time it takes for blocks to be filled.  The scalability as a world currency seems difficult if the network cannot handle the volume.  I once had to wait three days to get a confirmation on a payment.  That is a level stress an inconvenienced that will be something for bitcion to overcome if it to function as a world currency.  The decentralized nature of bitcion is fascinating but how does it organize when there is a real problem?  How does it fund R and D? What does future resilience look like with the ever increasing electrical demands?  What are the answers to these questions?  It seems if somthing changes or needs to change speed and consensus would be difficult to accomplish given the current model.   There has to be a better way than the current model.  It makes me wonder.   My guess is it would be easer to build a new network with more functionality than to change bitcion with a consensus model.  I actually expect bitcion to one day be overtaken for this reason.  A coin that can handle transaction in seconds and make decisions quickly and fund R and D.  Will just need to establish itself.  When problems happen with bitcion it will probably be replaced for something faster more convenient and easy to use.  The speed here is truly amazing.  I think that the nature this system.  Once it is apparent that there is something better how fast do miners change there computer to the next best thing?  How fast do you abandon a digital ledger?  If the mining computer can't be changed or used for something else that could provide some stability for a time. But the speed of a change could be so fast.  I love it but it's scary.  It's unlike anything I can imagine.  The consept of Internet money seems silly at first thought  a joke even.  I feel it illustrates just how terrible and unfair our systems really is.  Talk about ridiculous Some computers started doing math problems and keeping an honest ledger and bam!  Wow this is way better the dealing with banks and QE whatever... Crazy right OK where do I buy some digital honestly?  Boom bitcion 2000.  It definitely feels wrong that so much work =(electricity) has to be done for an honest ledger.  Why can't banks do that?  You would think it wouldn't be that hard.  Just makes me want to take care of my ducks and hang out in a garden.  

 

irukandji's picture
irukandji
Status: Member (Offline)
Joined: Jun 25 2017
Posts: 1
Investing in vice?

Does that mean investing in a knife is investing in murder?

LesPhelps's picture
LesPhelps
Status: Platinum Member (Offline)
Joined: Apr 30 2009
Posts: 704
charleshughsmith wrote:Also,
charleshughsmith wrote:

Also, if the blockchain technologies were limited to secret vices, why are Goldman Sachs et al. pulling patents and Microsoft et al. in the Ethereum alliance?  they see something legit with a future.

To me, Goldman Sachs being on board doesn't say anything about legitimacy.  

Years ago a SEC employee secretly taped a conversation where a Goldman Sachs executive basically said that laws didn't really apply to people with large enough portfolios.  As we have seen, repeatedly, laws do not apply or are insignificant where bankers are concerned.

Perhaps, Goldman Sachs wants a currency available that will support some of their transactions and those of their largest customers?

charleshughsmith's picture
charleshughsmith
Status: Platinum Member (Offline)
Joined: Aug 15 2010
Posts: 628
more perspective

Thanks for the kudos, Adam. Here is more evidence that the blockchain's influence could be a lot wider than currencies:

https://medium.com/product-hunt/the-reason-bitcoin-ethereum-are-surging-...

The reason Bitcoin & Ethereum are surging

 

charleshughsmith's picture
charleshughsmith
Status: Platinum Member (Offline)
Joined: Aug 15 2010
Posts: 628
two more links--China and the blockchain

As you've noticed, Medium publishes a lot of material on crypto-currencies and the blockchain (along with lots of other technology).

I think it's worth looking at how Chinese companies are developing blockchain utilities:

https://medium.com/@andrewkeys_88339/ethereum-growing-exponentially-in-china-31f1d24c8ee9
Ethereum Growing Exponentially in China
iPayNow uses Quorum, a version of Ethereum incoporating transactional privacy open-sourced by JP Morgan. The company provides aggregated payment service to hundreds of thousands of business clients, such as JD.com, MI, Baidu, Meituan, Ctrip and etc. To them, it is clear that blockchain technology will lead the next generation of mobile payment market.
 
Blockchain for the Rest of Us
https://medium.com/tradecraft-traction/blockchain-for-the-rest-of-us-c3fc5e42254f
 
On a personal note: my book describing a labor-backed crypto-currency, "A Radically Beneficial World," is scheduled to be published in China this summer. (I signed a contract and received a royalty advance 18 months ago.)  Perhaps China will be the source of future crypto-currencies.  Chinese entrepreneurs seem to have embraced the blockchain for micro-payments, as Dave P. suggested in his comment.
russiaways's picture
russiaways
Status: Member (Offline)
Joined: Nov 4 2008
Posts: 18
Money=energy-costs?

I would fantasize for money to be conceived as a unit of work/value/energy more directly and honestly than has yet to be achieved.  Just as gold is often admired for the honesty of the work required to produce it and digital currencies mimic this scarcity with the electro-computational challenges inherent within the blockchain record both incur unaccounted/unpaid for costs distorting their values. I yearn for a process that can make market like adjustments to value as costs emerge that may not have been paid/known but should be allocated once identified.  The mine tailings, leach fields, chemicalized rivers and shortened lives come to mind quickly for gold and the CO2/biosphere cost of electrical inputs as well as risk premiums to be experienced in the cyber world (the aforementioned EMP/government/bank influences) all can be seen now but have no blockchain of accountability available to adjust ongoing monetary values of any type. The way some systems want to consider all cradle to recycled grave costs for pricing products is the way I want to be inspired by a new currency.  Our fiat paper, that many of us here can clearly value at 0 or less over some unknown timeframe, seems to float along in the zero gravity provided by "the full faith and credit" imbued by our collective psychology alone at this point.  Would that the dismal science of economics provide accurate real time present value discounting to any kind of currency and I could find my way to embrace it. The emergence of Bitcoin and the blockchain has been a pleasantly surprising development but my dream remains elusive.  Come to think of it a more useful wish, and just as likely to be provided, would be to know the time, place and manner of my death, as there the ultimate outcome is most assured and inherently scaled to occur within the confines of our species currently typical timeframe. What a ride it is!

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5344
I'm cross-posting this here...

....sometimes a comment belongs in two places...this is one of those times.  I posted this over in the Etherium thread as well.

++++++++++++++++++++++

davefairtex wrote:

Well you knew it had to happen, and here it is.

https://www.technologyreview.com/s/608088/chinas-central-bank-has-begun-cautiously-testing-a-digital-currency/

State-sponsored digital currency allows them to track exactly where everything goes.  Its a central planner's dream come true.  They could require all wallets to be registered, with transfers to unregistered wallets forbidden.  And if they don't like you - your wallet contents get confiscated until you go and prove your innocence, which as we know, is not so easy to do.

And of course there is the potential for wealth taxes, massive financial repression, collecting taxes by force, electronically (but only from "the bad people", of course).  The mind really does boggle at the potential.

I thought I might just bold the parts I was in violent agreement with and ended up bolding the whole thing.

:)

Leaving aside currency for a minute, one trend that has been in place for decades is increasing state control of and intrusion into our lives.  Nothing is private anymore.  The Snowden leaks only confirmed what I had been reading about in Wired for a decade now...even the lowly FBI, staffed with probably not the greatest IT minds in the universe has had full remote, undetectable control of our smart phones' microphones and other features since the late 1990's.  

If you like what you see in advancing robotics and AI, you should probably be aware that similar strides have been made in the arena of information control in your life.

Heck, we could even deduce what the NSA was up to by the sheer size of their Utah facility.  Laughably they claimed that they were just collecting "meta data" about phone calls...you know...stuff such as which other numbers were called by someone, duration, etc, but not the content.  I say 'laughably' because you could fit the meta data of ALL the world's phone calls into a server room of medium to smallish size.    Let's call that a 50 x 50 room with a footprint of 2500 square feet.

The NSA built a facility with 1,500,000 square feet with exabytes of storage and requiring 65 megawatts of electricity and then claimed "meta data only" which the media ran, and ran, and ran with.  Shame on them, again.  State toadies all of them.  The NSA could store the meta data of the entire universe in this facility so they are clearly collecting a lot more than meta data.  In fact the facility is large enough to collect every single packet of electronic data.  Who builds a race car and then doesn't use it?

So now fast forward to cryptocurrencies which the states of the world, quite tellingly, have done nothing to hinder or delay.  What could be the interests of the state in such a currency?  Well, for one, there's absolutely no hiding your transactions.  Everything is recorded.  No privacy at all.  This means every transaction from paying your normal bills to the stuffed teddy bear you bought at a local garage sale are all recorded....and taxed appropriately of course.

It means that if you are accused of something, they don't just take your passport, they seize your wallet.  You cannot go anywhere, or buy anything, until you've cleared up the charges with the state.

This means that political enemies of the state are especially vulnerable.  The idea of either Trump or Clinton with the power to flick a switch and lock a political enemy from all their funds is chilling.  Goodbye dissent!  All hail Caesar!  

And just wait until the local numbskull sheriffs like those in Ferguson gain the power to flick those same switches.  

So...if you think that the prospect of complete government control over and perfect insight into every crevice of your economic and financial activities is a good thing, then I think digital currencies are an amazing thing.  If this gives you the willies, then you might admire what the currencies might do, but you also could be legitimately cautious over how they will almost certainly be used.

That's not a prediction, it's just respecting a multi-decade trend.  

thc0655's picture
thc0655
Status: Diamond Member (Offline)
Joined: Apr 27 2010
Posts: 1415
Digital currencies and the Christian apocalypse

I'm not the first person to recognize the evil that could be done by a tyrannical government with a digital currency and how that might fit into Christian prophecies of the apocalypse.  Imagine the control the government would have!  Imagine the evil that could be done with that level of control!

Fruitcakes have been seeing all kinds of things in John's "Book of Revelation" for almost 2,000 years, and I don't want to be counted among them.  But I find it interesting that such a simple man in a technologically primitive society would include a passage about an end-of-the-world dictator who controls the population by controlling who can buy and sell, and who can't; what they can buy and sell, and what they can't.  Instead of a digital government currency which would've seemed like magic to him, John described a tattoo on each citizen's head or hand which permitted them to engage in commerce.  Of course enemies of the state would be deprived of this tattoo and left to starve or try to survive on the margins of society.  The digital government currency would be orders of magnitude more powerful for controlling the population than a simple tattoo though.  Tucked into John's vision of the horrors of the end times dictator, is this brief passage:

He also forced everyone, small and great, rich and poor, free and slave, to receive a mark on his right hand or on his forehead, so that no one could buy or sell unless he had the mark, which is the name of the beast or the number of his name.  This calls for wisdom.  If anyone has insight, let him calculate the number of the beast, for it is man's number.  His number is 666.   (Revelation 13:16-18)

I say we all do our best among our family, friends and social contacts to keep harping on how dangerous a government digital currency would be in this time before some government actually tries it.  I'm certain that most people will see a government digital currency as cool, modern, safe, convenient and therefore desirable.  And we can count on the government and the central banks to talk up these exact same "benefits" to convince us all to go along with their new scheme (along with creating serious "disincentives" for not using their new-fangled currency).  Right after a huge economic and banking crisis would be a great time to introduce such a thing, wouldn't it?  The government and the bankers would ride in on their white horses to offer the desperate masses a solution to The Greater Depression!  The average person would fall for it: hook, line and sinker. However, right now we have time to innoculate them against the concept before it happens.  We don't have to convince everybody, just a large enough minority to create more inertia than TPTB can overcome.  Surely, there are plenty of movies, books and articles that would help us make our case and that our case is not one for paranoid fruitcakes only.  I'll start with the 1998 movie "Enemy of the State" starring Will Smith, focusing on the scene in which he and his wife are locked out of their bank accounts and credit cards by the rogue NSA operatives.

"Welcome to the Hunger Games. And may the odds be ever in your favor."

 

sand_puppy's picture
sand_puppy
Status: Diamond Member (Online)
Joined: Apr 13 2011
Posts: 1580
CAF on Digital Currencies.

From 2011:

“So long as it is digital and centrally controlled, Mr. Global could not care less whether the new currency system is called dollar, peso, franc, gold, silver or wampum beads. ~ Catherine Austin Fitts

(Though I understand that central control of the blockchain itself may not be possible with cc.)

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4619
two-pronged attack

So to institute Fedcoin, all they have to do is:

a) implement it, and have the "miners" be the various banking institutions - a sort of "proof of stake" implementation that is actually just a bunch of orgs who are all blessed by the central authority.

b) expressly forbid anyone with a banking charter from executing transactions (ACH, etc) with a non-Fedcoin exchange.

If merchants get to pay just a nickel per transaction, they'll fall all over themselves to make it happen.  It probably won't be that cheap (they do have to reward their banker buddies, after all).

This is less about bitcoin than it is about CAF (and Tom's) view about the end-times prediction.

Nate's picture
Nate
Status: Platinum Member (Offline)
Joined: May 6 2009
Posts: 556
old school

How long will it take a cryptocurrency to become a kleptocurrency?  I'm sticking with the stuff that has a 5000 year track record.

DennisC's picture
DennisC
Status: Silver Member (Offline)
Joined: Mar 19 2011
Posts: 204
Dang Right Amigo

I assume you are referring to vigorish, right?  Long history and all of that.

Just kidding, of course.

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1397
Public Education and Money

https://mises.org/blog/danger-public-education

Governments want to get rid of cash and control digital currency so independence is eliminated.  Its work so well since 1971...

thatchmo's picture
thatchmo
Status: Gold Member (Offline)
Joined: Dec 14 2008
Posts: 409
Black Hats and

Black Hats and pitchforks.....would that be our defense against "the Beast"?   Aloha, Steve.

thc0655's picture
thc0655
Status: Diamond Member (Offline)
Joined: Apr 27 2010
Posts: 1415
You couldn't make this stuff up!

No sooner than I mentioned it, I see an example already of how we will be sold on a government-controlled blockchain currency: blockchain currency is needed to protect us from economic collapse and hyperinflation.

http://observer.com/2017/06/illinois-is-venezuela-and-the-solution-is-cryptocurrency/

The author is a true believer in cryptocurrencies and thinks he has found in Illinois the perfect issue with which to convince everyone he talks to in the US that crypocurrencies are the way to go when government drives the economy and the government currency into the ground.

So what I’ve been searching for in these years of evangelizing and explaining the revolutionary power of cryptocurrency—including bitcoin, ethereum, ripple, litecoin, this new one BAT that I’m interested in and others—to transform basically everything, are examples that will resonate without sounding like I’m talking about 1930s Germany or the struggles of the second world. These last few weeks, I think I’ve got what I need. And it comes heartbreakingly from my home state.

Illinois faces financial distress that’s unprecedented for any American state. Without a budget for two years and sitting on top of over $15 billion in unpaid bills, the state is, to use a phrase that State Comptroller Susana Mendoza borrowed from Bonfire, “hemorrhaging money as the state’s spending obligations have exceeded receipts by an average of over $600 million per month over the past year.”

To be fair, he's talking about the value of cryptocurrencies that are NOT created by governments because they "can't" be inflated away into oblivion by printing more and more.  However, he's laying the groundwork for a future government and central bank to "save" us by introducing a government-controlled cryptocurrency. By then the government will have some real world cryptocurrency disasters to point to to show why a government-controlled cryptocurrency will be superior to paper dollars and private cryptocurrencies (which of course are used by criminals and terrorists).

Time2help's picture
Time2help
Status: Diamond Member (Offline)
Joined: Jun 9 2011
Posts: 2661
Soooo beautiful...

...and priceless, yes?

 

MJB's picture
MJB
Status: Silver Member (Offline)
Joined: Jan 5 2016
Posts: 117
I think your argument is

I think your argument is flawed.. No one trusts Illinois bonds because they are afraid they wont be paid back. If and when the last 2% of purchasing power the USD has is inflated away do you think that the United States citizens will trust any solution coming from government? If the government decides to outlaw legit cryptos they in essence create a black market to rival drugs. I have seen how those in charge have been able to keep people from using drugs. Legit cryptos are more powerful than most realize and adoption is catching on very quickly... No one will trust a government issued one and as such it will fail.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4619
"no one will trust"

MJB-

Legit cryptos are more powerful than most realize and adoption is catching on very quickly... No one will trust a government issued one and as such it will fail.

Really?  I disagree.  I believe that lots of people would trust a government issued crypto currency.  In fact, I'm willing to bet that MORE people would be willing to use a US government-backed crypto currency than bitcoin.  Lots and lots of people already trust government-issued currency.  They'll think: "same thing as a dollar bill - I trust a dollar bill - I can exchange 1:1, so what's not to like?"

Go to the man on the street.  Ask him if he trusts a dollar bill.  He'll shrug.  Sure.  With 7 of them I can get some overpriced thing at Starbucks.  How would this be different?

Then say, "Imagine that your bank lets you send digital cash to anyone on the Internet, instantly.  And all the internet merchants would give you a 2% discount for cash if you used it.  Would you do it?  Or does it sound too scary?  Or would you prefer to use bitcoin - where you need to set up an account, buy this 'hardware digital wallet', transfer money to the exchange, buy the bitcoin, hope it doesn't go up or down too much in value before you spend it."

If I were tasked with marketing Fedcoin, I think it would be pretty easy.

"Full faith & credit of the US government."

Last time I checked, the USD was still the reserve currency of the world.  The dollar is always "just about to turn into confetti" but for some reason, it hasn't.

MJB's picture
MJB
Status: Silver Member (Offline)
Joined: Jan 5 2016
Posts: 117
The Few Who Trust.

Really?  I disagree.  I believe that lots of people would trust a government issued crypto currency.  In fact, I'm willing to bet that MORE people would be willing to use a US government-backed crypto currency than bitcoin.  Lots and lots of people already trust government-issued currency.  They'll think: "same thing as a dollar bill - I trust a dollar bill - I can exchange 1:1, so what's not to like?"

Agree to disagree Dave

Last time I checked, the USD was still the reserve currency of the world.  The dollar is always "just about to turn into confetti" but for some reason, it hasn't.

In our lifetime the last 2% of purchasing power of the USD will be gone and it my as well be confetti. I believe this to be true and am positioning for it. Again agree to disagree.

It is very apparent to me that we view the role of government and it's perceived powers very differently. I understand you are from CA? the most regulated state in the union? so I get it you are used to big government telling you what you can and can't do. Maybe you even think they know best? If you ever venture east I bet you will meet a whole group of people that can't stand government and don't trust them at all. Look into the Bundy Ranch case for a different line of thinking. 

There are others that would welcome a USD alternate, not being connected to the government is a strength not a weakness. Review Ron Paul's thinking for what real money is, if our legislators only followed the US Constitution the USD would still be measured in grains of silver. Oh wait Government said "trust us with your money" and our ancestors did.. 

The people dependent on government handouts I'm sure would agree with you.. The pool gets larger every day unfortunately and desperate people often times do desperate things.

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4619
how do you define "nobody"

MJB-

There are others that would welcome a USD alternate, not being connected to the government is a strength not a weakness. Review Ron Paul's thinking for what real money is, if our legislators only followed the US Constitution the USD would still be measured in grains of silver. Oh wait Government said "trust us with your money" and our ancestors did..

Oh sure.  There are definitely others that would welcome a USD alternate - there are probably a few million of them in the US.  But that's dramatically different from what you said earlier.  You said, "nobody would trust Fedcoin."  Rephrased: none of the 326 million people in the US will trust Fedcoin.  Are you now saying, "there are a few million out of the total US population of 326 million that wouldn't trust Fedcoin?"

If you want to say that now, I'll agree with you.  But the two statements are very, very different.

...it is very apparent to me that we view the role of government and it's perceived powers very differently. I understand you are from CA? the most regulated state in the union? so I get it you are used to big government telling you what you can and can't do. Maybe you even think they know best?

You stated, "Nobody would trust fedcoin." I am 0.000000003% of the population.  Dragging me and my beliefs into this doesn't support your case, since I am 1 person in 326,000,000.

You were making a general assessment about the other 99.99999994% of America, (i.e., not you, and not me) and claimed that none of them would trust a USD-backed Fedcoin.  To back up that statement, you need to provide evidence that the vast majority of the US population have already lost their faith in the currency.

You can't do this by attacking my beliefs.  Try using some large numbers that represent how (in general) Americans feel about their currency.  Like money velocity, for instance.

 

 

mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 290
Niave

Haven't been paying much attention here for a while, but I'll chime hoping to be helpful.

Zero Ring signatures on the blockchain change everything most people currently understand about blockchain privacy. Here’s information on what it is and how it will change some of the better and more privacy focused blockchain. More importantly it will be adopted in the next Ethereum release. It is already used in Z-cash and JP Morgan is adopting it for financial privacy in their blockchain solutions.

https://arxiv.org/pdf/1612.01188.pdf

 

Blockchain can be a regular guy's bazooka against tyrannical governments.

I’m sure conspiracy theorist will throw up a host of claims to repel this idea because it doesn’t conform to their confirmation bias.

Before you issue your dismissive, please recognize your own possible logical fallacies before you write them. I will call you out on any you try to slip by.

 

https://en.wikipedia.org/wiki/List_of_fallacies

Please self-check your work before you click “save”.

Thank you,

 

mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 290
Ripple? Really?

Whomever quotes Ripple as a real currencies is laughable.  It is nothing but air.  It's not even a blockchain currency in the slightest.  It has no block.  It has no chain. It is a company. It is not decentralized.

 

Please.

 

Time2help's picture
Time2help
Status: Diamond Member (Offline)
Joined: Jun 9 2011
Posts: 2661
Self-Check

This thread is beginning to channel the spirit of the great and powerful Fonestar.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4619
bitcoin update

Looks like the move down has found some support @ 2400.  The bullish engulfing pattern today is a pretty strong one.  The 65% chance refers to the likelihood that this marks the low for the next 8 days.  That's a good rating for this particular pattern.

The trend forecaster remains bearish - however it is usually later in triggering than the candle patterns, which can spot reversals the day they happen.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4619
anonymous transactions on the blockchain

mrees-

Welcome back.

I have several thoughts about private transactions.

First, if it does succeed in providing real privacy, that's a massive advantage over the competition, and people will most definitely choose it over other alternatives.  I looked at a handful of the suggestions, and they all sound like varying degrees of something interesting.  I like the direction this is headed.  Once again, you're really useful to have around.

Second, any blockchain implementation presupposes a largely incorruptible codebase, and/or a largely incorruptible operating system & platform.  I'm not sure that remains operative in the face of the NSA's demonstrated technical ability.  Can you make reasonably certain that the collection of public, critical, internet-connected "miner" operating systems remains largely secure?  I didn't see any discussion of underlying OS & hardware security and/or dealing with NSA-style hacking attempts in the paper you provided.  "Beyond the scope of the blockchain problem", I suspect.  NSA generally doesn't attack crypto directly.  They act to subvert the endpoints.  Thats why they have a large supply of 0-day bugs to exploit.

Third, any truly private transaction mechanism would - quite possibly - terrify the gang in charge to the point where they jump in with both feet.  They are trying to eliminate anonymity, not increase it.  They like bitcoin just as it is, thank you very much.  If they made the decision to attack, the tool I believe they would use to make this happen is the banking connection.  Nobody with a US banking charter would be allowed to connect to any exchange that had a "truly private" (terrorism-and-crime-supporting) *coin implementation.

But please don't get me wrong.  I'm really all for it.  I support the rebel alliance.  I love the idea of truly private blockchain transactions.  I just think it will be opposed by the gang in charge.  The Empire will Strike Back.  How successfully?  That's hard to say.  When?  Perhaps when we see those anonymous transactions start to outnumber the ones they can easily track.

Might be good for a nice pop in ETH when the anonymous stuff gets deployed though.  :)

 

MJB's picture
MJB
Status: Silver Member (Offline)
Joined: Jan 5 2016
Posts: 117
Nobody

Dang it Dave and your lawyer-ish ways! I appreciate the check. Agree there will be people that will accept and adopt Fedcoin. My HOPE is there are enough people that won't to throw a wrench in the govt machine. The machine that gives them the power to create money out the thin air. I am not a fan of that machine, it wields to much power and the people operating it cannot be trusted.. IMHO.

Thanks again for the check!

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4619
hope as strategy

MJB-

I would personally love for other currencies to rise up and compete with the buck.  At the same time, I have to realistically assess how the other side will behave.  As they say, "the enemy gets a vote."  They won't just let stuff happen without response.  And the vast majority of the US population are just fine with the buck. Absolutely 100% fine.  It would be like asking them about air.  "So, what do you think about air?  Is it good?  Bad?"  Uh.  Air.  Its fine.  Never thought much about it.

Time was, I believed the dollar-is-about-to-be-confetti storyline, and my belief led me to make a lot of bad choices that cost me too much money.  Then I asked myself, "what is wrong about this story?"  A lot of research later, I figured out the answer:

Historically, reserve currencies don't get turned into confetti without a whole lot of really bad things happening everywhere else first.  Failing that, something really bad has to happen to the nation with the reserve currency.

Since neither of those things has yet come to pass, no hyperinflation.

Here is the key insight: hyperinflation only happens when a government is unable to borrow.

Even then, hyperinflation is a policy choice.  The government can decide to either default, or hyperinflate.

Mohammed Mast's picture
Mohammed Mast
Status: Bronze Member (Offline)
Joined: May 17 2017
Posts: 70
charleshughsmith's picture
charleshughsmith
Status: Platinum Member (Offline)
Joined: Aug 15 2010
Posts: 628
Empire will resist, failed states cannot

As I have noted before, empire has the means to resist cryptos but failed states with destroyed currencies cannot (Venezuela for example).  This is where the opportunity is for BTC et al.   If all fiat currencies are doomed, well, there you go. The first dominoes are the Bolivar, and the fire will spread up the chain from there.

As I said in my book, a smallish failed state might choose a decentralized crypto-currency as its reserve currency--a move that would change BTC (or whatever they selected as a reserve currency) from "outlaw" to "legal global currency."  BTC would make an excellent reserve currency b/c it's limited and outside the control of any state

Lastly, all fiat-based systems are doomed. What we're talking about is what replaces them.

charleshughsmith's picture
charleshughsmith
Status: Platinum Member (Offline)
Joined: Aug 15 2010
Posts: 628
Empire will resist, failed states cannot

As I have noted before, empire has the means to resist cryptos but failed states with destroyed currencies cannot (Venezuela for example).  This is where the opportunity is for BTC et al.   If all fiat currencies are doomed, well, there you go. The first dominoes are the Bolivar, and the fire will spread up the chain from there.

As I said in my book, a smallish failed state might choose a decentralized crypto-currency as its reserve currency--a move that would change BTC (or whatever they selected as a reserve currency) from "outlaw" to "legal global currency."  BTC would make an excellent reserve currency b/c it's limited and outside the control of any state

Lastly, all fiat-based systems are doomed. What we're talking about is what replaces them.

Mohammed Mast's picture
Mohammed Mast
Status: Bronze Member (Offline)
Joined: May 17 2017
Posts: 70
BTC

Charles save your time and bandwidth, Dave does not like cryptocurrencies

I do appreciate your contributions. As Michael Feldman would say " they are well reasoned and insightful"

 

Mohammed Mast's picture
Mohammed Mast
Status: Bronze Member (Offline)
Joined: May 17 2017
Posts: 70
mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 290
Fiat Currencies, the Last Man Standing, give way to blockchains

If we compare the word’s currencies – we know that eventually, all fiat returns to zero. Given game theory, when currencies begin to fail – where do people turn?  Generally, they turn to the reserve currency. You will likely see USD in all counties as a backup and in many countries, they much prefer USD to their native currency. For all of its faults – what currency is stronger?

The US can export its inflation everywhere else because other countries require USD to conduct nation to nation transactions. This is nothing new. French President Charles de Gualle complained of this in 1965 before Nixon too the US off the Gold Standard five years later. This is captured in the Youtube video of his speech on the topic.

I suspect we would see about every other county’s currency crumble under the strain before the USD?  Whose currency would the US turn?  Whose currency is stronger? When they begin to fail – I suspect the USD would only become stronger as the rest of the world grows to rely on it even further.  Many on this site would clamor to say to say Gold and Silver. But I would counter that the current generation – given the choice would not go back to the standard of centuries past.  It is my belief that gold and silver have had their day. There is simply not enough to go around for 8 billion people. Going back to paper receipts for the material only opens again the corruption of third parties and central banks who most agree already manipulate prices and the world already over reports the amount of gold held for accounting where 100 to 1 people think they own it.

Some argue that day of reckoning will only justify those who hold gold. But this is still not enough to sustain a world economy. Subdividing it into micro-grams won’t be enough. The power of blockchain is that it is considered immutable and those who hold the private keys are the recognized owners that can move ownership of the tokens containing records.

Many here have expressed concerns over the various forms of “Fed” coins that are likely to emerge. They are likely correct in seeing the possible erosion of privacy that may be a design ‘feature’ the Feds would like to introduce- supposedly for the expressed reasoning of fighting terrorism. However – some seem to believe that would be the end for neutral, permissionless, open standard public blockchains and the host of use-cases that are being developed around them.

Only the least educated in blockchain technology still believe the Genie can be put back in the bottle and the great experiment will simply be forgotten. I wonder if they imagine some ‘Kind of the World” will declare that everybody must stop their research and progress immediately as if some sought permission of anybody, to begin with. We are the rebel forces.

Some people have a very narrow view that the USA or the friendly governments are ‘the powers that be’ would simply stop it..if they could. See the Ted Talk from the prosecutor in the Silk Road Case.

She admits in the talk that the US government found even back in 2013 there was no way to stop bitcoin. Let alone the 800 cryptos created in its wake. It all goes back to the fact that all the armies in the world cannot stop an idea whose time has come.

 

It would be trivial now, given the knowledge gained in the last eight years, that the world’s best computer scientist would spin off a near-clone of any crypto currency that might be infiltrated, outlawed, breached or whatever dastardly dead you might think up. Creating hardware solutions to break encryption has already been done. So it is likely and probably following game theory that this could and would happen again if possible.  But no spy agency works in a vacuum. The NSA has been infiltrated, I’m quite certain that there isn’t a spy agency in the world that is immune to this. People run these agencies. People are human and can be bribed, coerced, embarrassed, killed for their secrets. However, you can’t fool math. Having a number of private keys in excess of all the atoms in the universe is a physical law. Elliptical curve encryption and one-way functions are physical limitations for today’s technology. There are quantum-proof encryption techniques.

Perhaps one day there is a computer so advanced we can’t imagine it yet. But you also cannot discount the human desire for privacy, for fairness, and our ingenuity to overcome whatever barriers are thrown up to limit one’s freedom.  I do not discount the human spirit.  That was this inventiveness and rebel spirit that created the invention of blockchain and cryptocurrencies, to begin with after the 2008 banking crisis.

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4619
not how you fight it

Mrees-

You don't need to fight "wild terrorist anonymous crypto" currency directly.  You just pass a law that says exchanges that trade it can no longer link to the banking system.  No more USD in or out.  And if you are the head of the central-banking-warfare system, you make this rule apply to any banks that do business in your country - or do business on the SWIFT network.  Its the same technique the US used to force the Swiss to cave on banking secrecy.

So Russia & China can play with anonymous bitcoin all they like but the rest of the world pretty much has to comply.  No anonymous crypto - "for the children."

And localbitcoins still work, but boy how tedious is that?  And you can criminalize that too, just for good measure - at least as regards the anonymous terrorist-funding crypto transactions.

This approach will deal effectively with 95% of the (prospective, anonymous) crypto use in the west.  And maybe the second prong of the attack is an NSA-driven subversion of the anonymous crypto code itself.  Drive away the "mainstream" anonymous-crypto traffic through criminalization, and the traffic that remains are the criminals - who are then trackable because of the NSA's secret hacks.  Surprise!

Same concept was used by NSA to restrict deployment of encrypted email traffic.  If they can keep the "normals" from using encrypted email, then they can focus their attentions entirely on the criminals that do - mainly by hacking the endpoints.  That one worked great, btw.

Again, this (maybe) only happens if we start to see more widespread use of truly anonymous transactions, and our central planners start to get upset that they can no longer trace everything.

I'm fully in favor of truly anonymous transactions.  It was my one reservation about using coins - the traceability.  I just think it will bring about a reaction from the Empire.

As for fiat "going away", well that's never happened in the history of the world.  Fiat remains with us regardless of its poor track record over the long haul.  You may say "it is different this time" - I'm going to go with the historical experience and say its never different this time.  Fiat in one form or another will remain.  Look at Argentina selling 100 year debt after defaulting 6 times in the past century.  3 times oversubscribed.  I don't think fiat is going away.  People like it too much.

Charles - I agree that failed states cannot effectively fight crypto - or really any other form of comparatively hard currency, because the incentive to find a relatively stable currency of any kind is so huge in the general population.  Note that a relatively more stable fiat acts as a hard currency in these places.

The criminalization-of-alternative-currency approach only works when the mainstream alternative is good enough.  Once the local currency is destroyed, nobody minds becoming a criminal if that is what it takes to survive.  "If the law says that, then the law is an ass."

An example: Cambodia today uses USD as their currency.  Not as a reserve currency, as the actual circulating currency of the country.  All the locals quote goods and services directly in dollars.  Its very odd to see.  You land in Phnom Penh, go to the ATM to get some local currency, and out pops a couple of crisp C-notes.  USD went from de facto currency to de jure currency - I'm not even sure when.  Do Cambodians say "boy, this filthy fiat money, its 98% confetti?"  Not so much.  My sense is, they think its awesome.

mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 290
It's not money - it's a protocol.

Many people continue to make the mistake of thinking of these tokens performing only one of their thousands of identified use-cases.  Money is just the tip of the iceberg.  Do you suppose they can kill TCP/IP.  Radio? Television signals. Money is communication. While the fiat system works well for the most part, there won’t be much reason to switch to an alternative. Except for cross-border internet transactions, I suspect nobody will care.

But blockchain technologies by nations will still be issued by fiat. Blockchains will only be a method of issuance and tracking as it is likely to save money over issuing printed paper and coins, and the associated counterfeiting that happens. That all goes away. But it is possible and probably in some cases where some governments abuse that power. Some of the fears brought up by others might happen. But that doesn’t mean the technology will go away.

Although Ethereum is often thought of as a currency, Its main purpose is to act as a transport layer for holding contract data – storage and computation. It is also the value payment mechanism for the network nodes. It is likely the transport layer creating web3. Although using it can be made private – the governments are as likely as anybody to utilize this. Just like they use the internet but realize enemies of the state also use it. It’s silly to me to think they would shut it down when they’ve perhaps shown the most interest in it. They will likely be among the first to use privacy features.

If they don’t eventually like Ethereum. There are endless alternatives that will be happy to take up the slack. The so called “Powers that Be” will look like key-stone cops playing whack a mole when they then have to fight Monero, zcash, Dash, and a hundred more – plus the thousands of more that would be created right after that. It’s a fight they can’t win. The rules have already changed. That’s a big reason you saw Russia switch so suddenly from creating laws that would put people in jail for attempting to conduct business in bitcoin – to completely legalizing as a form of currency in a matter of months.

 

These developments aren’t sneaking up on agencies of the world, not just the US. Game theory suggests that the US would LOVE the citizens of Russia to be able to use Z Snarks to protect them against a brutal Russian Government as a form of Self Defense.  Likewise the Russians might think the same for US population against the US government. Expand this out to each country encouraging the ‘freedoms’ of their enemy countries and you soon come to realize that what’s good for the goose is good for the gander. This will even the playing field as the internet knows no borders and when you learn more about web3 and mesh networking, you’ll likely see your argument and expectations are rooted in current internet technology not that of the next generation. It seems some people assume the governments all work in coordination with each other to form the solid “TPTB” group. But this is silly. The playbook is available for everybody – if one nation decides not to pursue it – they will be left behind. Only the least prosperous nations continue to stifle innovation.

See the world economic forums recommendations of using blockchain to help solve a host of problems of the world. See their report issued yesterday. http://www3.weforum.org/docs/WEF_Realizing_Potential_Blockchain.pdf

 

Mysterium.  Token based virtual private networks.  Think of a world-wide tor network. On and off the fly as a continuous fight against tyranny. Each nation would LOVE the other nations to have the freedom of that is afforded some place like China or Iran to bypass the national censorship. Yet might not like that same sunlight shown on themselves. Yet sunshine is a powerful disinfectant.

Auger\Gnosis – Prediction markets. Not currency – although they are traded on open markets – and markets that will soon be \ are decentralized. It will be entertaining to hear one try to describe how any government is going to stop a decentralized autonomous organization living in the cloud and processed by tens of thousands of nodes around the world.

Factom \ Sia \ Interplanetary File System \ Filecoin. Operate as storage tokens for Distributed File Tables. Grid \ cloud open sourced file storage held by encryption.  Not currency. But traded as currency for their expected future value.

Platform coins:  Ethereum, Status, Maidsafe, Waves, Bitshares, Nxt…and more – entire ecosystems that can contain their own protocol systems and units of value including currencies \ asset recording \ land and title, property etc.  Not currencies – yet traded as tokenized rights and digital assets.

I think you might be giving way too much respect to law and politicians to keep up with technology it is clear they don’t understand. I can site you several examples of senators and  other lawmakers whom at one point held press conferences and forums \ special committees to outlaw bitcoin years before understanding it well enough. I can show you none that continue to do so. Once they take time to education themselves. It would be fun to hear anybody make an argument showing the opposite is also true. Which one has taken the time to speak to experts and learn…and also continues to want to ban them?

In my years of experience, the only people disregarding \ disparaging \ talking about banning them – have almost no real understanding of them.  I’m sure we can find an idiot here and there who will continue to be idiots even when confronted with an opportunity to learn and make intelligent observations. You can cure uneducated – but you can’t cure stupid.

This just touches the surface of the thousand-arm octopus that continues to grow more arms. It has grown enough in so many directions that there is no one country that can control them all world-wide. As people and other governments have use – they will go on. A government can only have a hope of slowing it down in their own country – while the rest of the world flourishes in the new paradigm.

Yet, we will likely see some continue to try (see Ecuador)

Mohammed Mast's picture
Mohammed Mast
Status: Bronze Member (Offline)
Joined: May 17 2017
Posts: 70
davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4619
empire will strike back

mrees-

Sometimes it feels as though you spend a fairly large amount of time arguing against things I didn't say, and about which I already agree with you 100%.  It is informative, but its also a bit confusing.  "Did he read what I had to say?" I ask myself.  But anyhow.

First, a technical objection.  The coins are not protocols.  I've lived protocols my whole life, and they aren't that.  The closest CS description I could apply is a replicated database - which implies an embedded protocol whereby all the databases negotiate an agreement on what comprises the records in storage.  Replicated database problems are hard.  I'm not a database guy, but I've noodled around on the problem.  That's why "sharding" is both key to scaling, and a really hard thing to get right, especially in the presence of adversaries.  At the core though, its a shared, replicated, fault tolerant database, not a protocol.  All the language describing the hard stuff - that's all database language.

The good news is, if you get it right, you've solved some really hard problems, which is intrinsically very useful for the world.  And that's the promise.  Databases remain "the hard problem" for most shops.  Scaling the database is usually the big, expensive bit.  Its cheap to increase capacity for serving read only content.  Its quite expensive to increase the TPS of your database, assuming you actually need to write as well as read.  Hard problems in *coin are thus database, not protocol.

As for how the coin world appears to the Empire - coins walk like currency, quack like currency = its a currency.  But it is only a currency with instantaneous value because of the banking system link.  No link = no value.  That's extreme, but I'd say, 90% true.  Eliminate the banking system link, and the coin market cap probably drops by 90%.

The Empire hates cash - that has been demonstrated in a thousand different ways.  Modi in India eliminating banknotes, Draghi at the ECB whacking the 500E note, and Summers here in the US calling everyone with cash a criminal.  Civil asset forfeiture.  "Structuring."  Anti-money-laundering rules.  The system - the Empire - hates cash.  Anything that looks or smells like cash gets hated too.  Cash is a safety valve, a way for common people to bail out of an untrustworthy system, and to buy things the Empire prefers they don't buy.  In the eyes of the Empire, that's all a bad thing.

Will the Empire act to further hose cash (and/or currency conversion) instruments when times get tough, and they want to impose capital controls, prevent bank runs, increase financial repression, apply negative interest rates, remove safe havens, etc?  That's the question.  If they want to do this, coins will have to be in the crosshairs, and the coin exchange banking link is (I believe) how they'll try to enforce their will.

Will the underlying technology disappear?  Of course not.  Its way too useful.  But when the cash-hating starts to get real, I don't see the coin world acting as a safe haven, just like "shorting" isn't a guaranteed protection because when times get tough, the Empire will change the rules just like they always do.  Things you thought were permitted and "just fine" will suddenly be taken away.

You are welcome to talk about the long term promise of the coin world, how a great idea can't be stopped, how you can't eliminate TCP, how its an octopus, and all the rest of it.  I agree with the tech bits.  But when it comes to market cap, I say: if the Empire responds during a crisis by "suspending" the banking links to the exchanges, that coin market cap will plunge faster than you can blink.  The tech aspects of coins will remain, but the market cap will vanish.  Temporarily, of course.  Hang on tight, I think you say.  As long as you don't really need access to all that value to pay your rent, it should all turn out fine.

I stand by what I say about trusting anonymity, however.  NSA works by compromising endpoints, mostly.  A system is only as secure as its weakest link.  Given the hardware & OS are provably insecure, I'd guess that's the vector through which the attack will come.  IOW, I wouldn't trust my life to blockchain anonymity, any more than I assume that my own personal computing machine is safe.  That doesn't mean blockchain is useless, far from it.  I think its great stuff.   In normal day-to-day commerce, it will be awesome.   Just don't operate under the delusion this very public resource is "100% anonymous."  Such a delusion just might get you killed, in the wrong circumstance.

charleshughsmith's picture
charleshughsmith
Status: Platinum Member (Offline)
Joined: Aug 15 2010
Posts: 628
fiat has gone away plenty of times

Dave, not to quibble, but Rome never issued paper currency and they had a very robust Imperial order. In Venezuela, fiat issued by the national govt. is very definitely going away.

I have explained the source of USD strength and predicted its further strengthening here for years. That said, the end game has always been simple: 1) debauch the currency to inflate away unpayable debt or 2) write off the unpayable debt.  The end game is forced by interest payments rising to the point they squeeze out all other spending.

The first impoverishes all owners of the fiat currency equally, the second impoverishes the owners of all the debt, i.e. the wealthiest class. This explains why the political class favors inflation/devaluation as the "solution," and half-measures that maintain the status quo such as debt jubilees, and Universal Basic Income (UBI), which is designed to funnel enough cash to debt-serfs so they can continue to service their debts, under the guise of "helping" them.

Nobody has to be "believe" in cryptocurrencies, any more than they have to "believe" in a stock, asset, kind of capital, etc. You own what you want to own. The future rewards those who bought the right stuff and destroys those who bought the wrong stuff. There is a Darwinian aspect to a quasi-free market. If you think BTC is bad (only used for vice, etc.), doomed, bound to be outlawed, whatever, don't own any. It's that simple. 

As I have tried to explain here, cryptos (at this point, especially BTC) serve the interests of the wealthy in the end game. For this reason alone, they will remain legal in enough jurisdictions to be useful. Download your BTC on a thumb drive, tell the authorities you lost the drive, oops, my bad, open the drive in a jurisdiction in which BTC is legal and away you go.

The buffers in the current system of fiat, fractional reserve and credit/debt are thinning rapidly. Phase change ahead. Buy what you think will survive the phase change.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4619
fiat has gone away

Charles-

I totally agree.  Fiat has gone away a very large number of times.

Is it gone now?  Clearly not.

Fiat money is a cat with a million lives.  Perhaps this life will be the last.  I'm going with the odds and say no.  Fiat promises a free lunch.  People love the promise of a free lunch.  We just can't say no.

Major price risk to crypto right now that I see is when the Empire pulls the plug on the banking link to control the flow of money in a financial crisis.  You definitely still get to keep your crypto - that's not the issue - and it will keep functioning.  Again, not the issue.  Its the exchange rate that I'm concerned about.  I believe it will undergo a massive move.  And it won't be in the up direction.

Crypto survives anything.  So does gold.  Throughout the process, the key question is - what's the price?

 

mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 290
Crypto tokens not a protocol. HAHAHAHAHA

Dave said

First, a technical objection.  The coins are not protocols.  I've lived protocols my whole life, and they aren't that.  The closest CS description I could apply is a replicated database - which implies an embedded protocol whereby all the databases negotiate an agreement on what comprises the records in storage.  

 

He is relying on the logical fallacy called. "Argument from Authority" - Which states just because somebody is an expert in one field doesn't make them an expert in all fields. I won't have my doctor fixing my car for example.

https://en.wikipedia.org/wiki/Argument_from_authority

Everyone can prove this to themselves by looking at coinmarketcap.com - search on probably any of the tokens listed and Google it - with the world "Protocol" after its name. Guess what...  They ALL are protocols. Often - it's the very first description.  That David made this claim is likely something he'll wish he could take back.

Some of these platform tokens are a HOST of several layered protocols that would not work without the token itself as the keystone of it all. 

Because these are indeed communications\ data layers \ transport layers, applications themselves - and useful \ required for the explosion of innovation - it is laughable behond words that a.  A government would ban them. B.  A government could ban them.

This is roughly the equivalent of saying they will ban BitTorrent. We see how successful that has been.  Some would like to ban TOR - Nope. Some would ban VPN - Good luck.

In fact, the opposite is true. In a complete 180 of David's theory - the banking system is embracing them.

https://www.ft.com/content/f15d3ab6-750d-11e6-bf48-b372cdb1043a?mhq5j=e1

 

Even the Whitehouse is loading up with blockchain and bitcoin fans.

https://bitconnect.co/bitcoin-news/437/trump-administration-adds-more-pr...

Because the apps\platforms\nertworks\tokens all have many uses and represents the future of networking \ the internet - and mostly all innovation, it is often called the most important invention of our lifetimes. I don't see many governments hurrying to shut the door.  Of course, Dave didn't even know about ethereum until about two months ago. He's still got a LONG way to go before he gets his head wrapped around it - Let alone the other 800 tokens not called bitcoin.

Let alone the others still convinced this is a tulip bulb mania. Speaking of which - I found this hysterical. I wonder if their calendars are still from 2013.

 

 

 

 

 

 

 

 

 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4619
protocol or database

Mrees-

I notice that in your response you chose not to address my central point, that of cutting off the exchanges' access to the banking system by the central authorities, nor about the NSA-related security issues, but instead you chose to focus on other stuff.

We all know that technical people love focusing on stuff in the weeds - while others (probably correctly) shake their heads and view it as "angels on the heads of pins" discussions.  But since I happen to like the weeds, here goes.

I gave some evidence for why I felt bitcoin was a shared, replicated, distributed database problem.  I thought you'd be able to extrapolate the whole picture from the parts I mentioned.  I was wrong.  So let me spell it out further.  :)

The central piece of any coin is "the blockchain", yes?  Everyone is excited about blockchains.  Lets see.  Blockchains are stored on disk.   You have many, many writers to the blockchain.  One "hard part" of the problem is mediating which writes win.  All three things are characteristics of databases.   You have to store the blockchain somewhere.  Database.  Readers want to execute queries against the blockchain.  Database.   Everyone wants an authoritative, current copy of the blockchain.   The blockchain is essentially a transaction log - which in some cases, actually gets reverted (DAO).  That's database in spades.  Internally, I'd be willing to bet that the code has a database that gets updated with each new block - which we could just as easily call a transaction.  In fact, now that I'm remembering, when I downloaded a full client, it actually said - building database.  The guys writing the code viewed it as a database.  Perhaps that's why I think of it as a database.  Because they did.

In fact, all a blockchain is, is a database transaction log.  Each block is an atomic transaction, which can be reverted if necessary.  To see the current state of the bitcoin world (who owns what coins), you play the log forward, executing the instructions in each transaction in series, and you construct a database as a side effect, with coin balances moving from one record (wallet) to another.  I've simplified, but that's the core.

Of course there are protocols embedded - as there are with any shared, replicated database design.  But when you have something stored on disk, to which there are many writers, and the writes must be mediated somehow, and then authoritatively marked as committed, with the changes being sent to all readers who want to keep their local copies up-to-date - that's a database.

Mediated.  Writes.  Committed.  Shared.  Stored.  Updated.  Query.  Transaction.  All database words.

And now sharding.  Where does that word "sharding" comes from - the major hard piece that ethereum is trying to do?  The protocol world?  No.  It comes from the database world.

https://dev.mysql.com/doc/mysql-utilities/1.5/en/fabric-quick-start-sharding-scenario.html

https://en.wikipedia.org/wiki/Shard_(database_architecture)

Databases have done sharding for years.  Why?  its a scaling technique.  For databases.  If ethereum isn't at its core solving a database problem, why on earth would they need to employ sharding as a technique?

So in review, it walks like a database, quacks like a database - it even gets database diseases, and everyone talks about the thing using database terminology.  I wonder why that is?

Again, love the technology, it will never die, it is solving some really tough problems, and when it does, it will do some really interesting work.  V1.0 is already doing interesting stuff, and surfacing interesting problems.  But I don't need to have studied it for decades to spot a database when I see one.  Its especially helpful when the writers of the code actually call it a database in their debugging output.

Ok.  My final bit of evidence.  Wiki.  Paragraph 1, sentence 1:

https://en.wikipedia.org/wiki/Blockchain

A blockchain[1][2][3] – originally block chain[4][5] – is a distributed database that is used to maintain a continuously growing list of records, called blocks.

At some level it really does matter what we call it.  If you put a proper frame around it, it will help you to understand both the problems that other things like it have had, as well as what it is trying to accomplish.

I can definitely see that individual coins have their own record formats as well as mechanisms of interaction - we can call those protocols, why not - but they all happen on top of and are enabled by the distributed (blockchain) database.

Mohammed Mast's picture
Mohammed Mast
Status: Bronze Member (Offline)
Joined: May 17 2017
Posts: 70
mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 290
Differences between Database, Blockchain, and DLT. Educational

Let me do a little teaching here. Since I've taught courses on this dozen of times to hundreds if not thousands of students by now, I even have portions of some of my classes linked in other sections of the blockchain discussion group.

As I've got years of studying including over 10,000 hours and many published papers, you can infer that I am an expert in this field. From my conversations with David, he assumed all were basically bitcoin. That should shed a little light about qualifications to speak of this topic. FYI, I'm currently creating coursework for online education that will be available shortly,

Calling a blockchain a database is akin to calling a computer just a hard drive.  Yes, there is an element of ledger and database in a blockchain, but everything David described could more accurately be called a distributed ledger technology.  This is what IBM’s Fabric and Corda like to use the word “Blockchain” as a buzzword, but that is false advertising because they do not have the most important aspect of a blockchain – they are missing the token of value. As such, they miss all the incentive and inventiveness that go along with aligning parties in game-theory and capitalism of competing. DLT is what communism would love as it keeps those in power – without disrupting the status quo.  DLT’s aren’t all that inventive – and IBMs people have called them just distributed databases which we’ve had for years.

Some go further and say that DLTs where “blockchain inspired’ – but they only use half of what a blockchain uses and these are the points that David fails to either recognize or address. People don’t see true reality – they see their interpretation of reality and how they see themselves projected into their version of reality. We all do this and take our background, experience, education, political and religious backgrounds with us and they all influence how we categorize things.  David likely has a strong Database background so in his natural viewing lens is to naturally see anything having database-like qualities will fall into the categories he is most comfortable with his previous experience.  This is just how I interpret his thinking, but it makes sense and there is nothing wrong with that. It reminds me of the story of the six blind men touching the elephant and describing what they think an elephant is. David see's the database-like ledger and jumps to the conclusion that this elephant is a database.

Differences:

            Databases generally trust all participants the write to it. Blockchains do NOT trust anybody who writes to them. They are generally fierce competitors. People that write to these ledgers have economic incentives with the promise of the token as a reward.  Because of this competition – they all verify the rules were followed and because of the combined action – the entire safety of the blockchain is enhanced, because all of the competition means that if somebody tried to infiltrate and change a record, they would have to have more computing power than all of the others combined. The net effect is the ‘invisible hand’. David makes no mention of any of these most important qualities.

Databases as generally centralized. One person can pull the plug or change the rules if they like. IBM, for example, has the final say on the "Fabric" DLT they've made open-source and are trying to get companies around the world to adopt. The method they interact with all of these rules is called a protocol. The protocol defines the speed, what information is contained, how many transactions get reconciled into blocks and how difficult the competition becomes for the right and reward to include these blocks creates the different value each token is found to be worth on the open markets which are decided by laws supply and demand.

The security encryption, mathematical algorithms vary between all of the hundreds of tokens available. Of course, many of these are scams and offer no real benefit. The PROTOCOL can keep the participants private, or they can be open. Entries on the ledger can as well indicate complete openness or privacy. As important than the database is his value is what drives interest by the public, press, and investors that utilize it. There is little news creating headlines for people clamoring for DLT and probably no possible riches for common poeple. Although the DLT users have their own use-cases for keeping untrusted parties on the same ledger – they use already established banking fiat money instead. This is because its dictated by decades-old laws and regulation that couldn't image the computing power and real-time auditing that can take place with triple book accounting abilities that up-end the 500-year double accounting methods. Again, law and legislation will be slower to adapt, but you see it happening more quickly now in Delaware :http://www.coindesk.com/delaware-house-passes-historic-blockchain-regulation/

And Illinois . http://www.coindesk.com/illinois-blockchain-initiative-policy-regulation-bitcoin-blockchain/

 

With a DLT, there are endless tokens to carry the information. There is no concept of scarcity. Therefore smart contracts can be broken as they rely on payments from national fiats which can loose value. Protocol tokens issued in blockchains are limited in supply, these are the first digital items that cannot be copied endlessly like cat pictures on the internet. Because of their usefulness, protection - and non-counterfietablity they don't rely on a national backing.  Some people still think that not having a nation backing them is a bug - I think of it as a feature. They are backed by physics (in proof of work) - and math - and economic incentives, through game-theory and utility. I think of this utility and usefulness as intrinsic value.  You can't have value without all of these combined functions all working together from within the protocol rules themselves.  The database-like functions are just one (vital) piece of the puzzle. 

However, if the fiat system breaks down the DLTs might also be useless. Tracking all the bank's race to the bottom might prove interesting to historians they won’t do much for the other populations that are scrambling to put savings into these cryptocurrencies that can run just fine without a fiat once the adoption is more common. This is already happening in countries with hyperinflation. And likely to David's surprise, don't move in and out of that nation's fiat. They are bypassed.

https://www.forbes.com/sites/realspin/2017/02/03/why-venezuelas-currency-crisis-is-a-case-study-for-bitcoin/#51e8af2c19b2

David makes the silly argument that once a country bans it, it will be over. This has already proven to be false:


https://news.bitcoin.com/use-bitcoin-ecuador-grow-government-ban/

 

I suspect governments themselves will be scrambling for the lifeboats of neutral currencies that are tamper resistant.  

Finally, David goes out of his way often to speak of the hardware abilities of the NSA to create chips that can infiltrate a blckchain and the encryption that relies on it. But I suspect he hasn’t researched the defensive measures that are built into protocols such as DASH which uses the X11 protocol which includes at least 11 different security encryption protocols which are wrapped inside each other as layers.  A partial list of these various competing security algorithms used in the various protocols needed for mining and protecting the network can be found at one of the profitability websites currency miners use. One of these is "Coinwarz.com"

 https://www.coinwarz.com/cryptocurrency

 

Even if a chip could be created to decrypt each of these algorithms into a hardware which would require massive expense and be hidden from view of the world – it is trivial to add another layer which would require rework and starting from scratch on a new chip that would have to be included in new hardware running from warehouses around the world in computing power to rival the rest of the network combined. Which would then just encourage a new software defense. In software, this is done with a few lines of code and take minutes and is asymmetrical. The key-stone cops doing the hardware whack a mole will soon run out of money and patience when they see the futile of this.

If they outlaw it, the other countries that are not in the domain of the USA influence will happily continue to use blockchain-based currencies. The nation that foolishly attempts legislation against them is limited to the borders of influence and we've already proven several examples of where this fails.  There are many more examples - and this is just baby technology - imagine what it will be like in a decade. Technology is a natural force and like water – will just move to the path of least resistance. Nations that stifle it will just be left behind. The world is only discovering that they can’t beat math. Converging national problems with fiat will converge necessitating these currencies as a life-boat as Charles mentioned. Tokens are the result of the protocols first, the blockchain relies on one some of the features of a database but goes far beyond that aspect.

Tokens have private and public keys that allow for ownership. These are all encrypted and using processing power – this establishes trust – and the ‘trust machine’ There are dozens if not hundreds of moving parts. The ledger is important – perhaps even a center piece, but David likely will move past his present specialty knowledge and will come around to learning of the other important parts of blockchain technology.  I'm proud of David - he has come a long way in a short time once the barrier of thinking everything worked like bitcoin. He's extremely smart. I believe he'll get there.

And we haven’t even gotten to the part where he plants the digital tulip bulbs that some crazy people still think must exist in their somewhere. :-). If would be ironically funny if somebody created a new secure encrypted protocol called "Tulip Bulb".

David, if you get to the point where you find those invisible tulip bulbs - be sure to let me know.

:-)

 

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments