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by
Neel Mehta
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June 26 - June 29, 2020
tangible money is insecure, inconvenient, easy to fake, and impractical for digital payments. Middleman-mediated money, or M3, solves these problems, but introduces problems of fees, lack of accessibility, and a different form of insecurity. Right now, we have to pick our poison.
M3 = Bank-based money
You can see details on all past Bitcoin transactions, but you have no way of knowing which transactions were for purchasing goods or services and which transactions were just gifting money to friends.)
imagine if there’s an economic downturn and employers need to cut employees’ wages. The problem is that employees don’t like seeing their salary on paper decrease. When there’s a little bit of inflation, employers can keep salaries constant, which keeps employees content but actually reduces the amount of goods they can buy with their salary.
the things that make an investment good are different than the things that make a currency good. Google stock is a great investment, but you would not want it to become the country’s only legal tender, because commerce would become much harder. (Consumers wouldn’t buy anything, since why buy something with shares today when you could wait a few months and, hopefully, be able to buy more with those same shares? And merchants would hesitate to accept it out of fear that its value could crash and they’d lose money.)
In other words, the thing that makes currencies good is stability, while the thing that makes investments good is growth. These are, of course, mutually exclusive. A financial instrument can’t be both growing and stable at the same time.
Bitcoin is a strange financial instrument that is both a currency and an investment. You can use bitcoins to buy and sell things online, or you can buy and hold (or hodl) bitcoins in the hopes of turning a profit. Bitcoin is like Venmo (or PayPal), but if you sent and received stocks. This makes Bitcoin a truly unique financial invention.
One possibility is that bitcoin will behave much more like a currency in the future, and much less like an investment.
the average fee was just a fraction of a cent back in Satoshi’s and Hanyecz’s days, but now that Bitcoin’s price has risen and there’s more interest in Bitcoin, the fee tends to hover between 50¢ and $1.[210] That’s not terrible, especially if you’re trying to move thousands of dollars. But if you’re trying to send a dollar to a friend, like Satoshi envisioned, you definitely do not want to pay fees that high, especially when apps like Venmo let you send money for free.
Satoshi thought that a primary use case for bitcoin was micro payments, yet the transaction fees are too high for that.
Satoshi can be wrong after all!
Merchants who accept Bitcoin are actually advised to wait for six more blocks to be mined after the transaction goes through to minimize the risk of fraud.[222] (Remember that an attacker with enough computing power could make a new chain and try to out-mine the main chain. The hope is that, once the main chain has mined six blocks, the attacker’s chain will have fallen behind.) So the average processing time for a Bitcoin transaction can be up to an hour in even the best of circumstances!
In sum, while Bitcoin does avoid routing payments through a middleman, it comes at a steep cost: it’s very inefficient for payments, especially the small payments that Satoshi hoped Bitcoin would be ideal for.
the remarkable transparency of Bitcoin’s blockchain makes Bitcoin far less anonymous than its supporters might make it out to
wallet just being a term for a private key and address pair.
Cold storage takes one of two common forms. The first is a paper wallet, where private keys and addresses are printed on a piece of paper and kept in a safe place.
The other form of cold storage is a USB stick that stores your private key, called a hardware wallet. It’s secure because your private key lives on the USB stick and never leaves it; transactions are signed on the private key, so you can send money without your (internet-connected) computer ever seeing your private key.
the best approach is to keep long-term savings in cold storage and keep money for daily expenses in a normal internet-connected computer, [291] known as hot storage.
Bitcoin’s energy use is steadily increasing, and the trend doesn’t appear to be slowing anytime soon. The University of Cambridge estimates that Bitcoin’s annual energy consumption skyrocketed from about 6 terawatt-hours (roughly the annual power consumption of Luxembourg) in 2017 to over 80 terawatt-hours (roughly the annual power consumption of Finland) in 2020.[296]
while smart contracts won’t get rid of lawyers or courts (or, regrettably, even bookies), as many Ethereum backers might hope,[443] they are an interesting new model of computation, and they could have their uses in less legally- or monetarily-fraught applications.
token-cryptocurrencies behave a lot like normal cryptocurrencies (which have their own blockchains), except tokens can’t be mined; they’re usually handed out by some other institution or algorithm.[491]
It remains to be seen whether BAT will achieve mass popularity, but its vision for a new business model for the web makes a lot of sense. Currently, the incentives are all misaligned: advertisers are incentivized to make advertising as intrusive and annoying as possible, publishers are incentivized to cram ever-more ads on the page, and consumers are incentivized to install adblockers because they get nothing but misery from ads. You only have to look at the absurd ad-blocking arms race to see how broken the system is: first there were adblockers, then websites started installing tools to
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BATs are Ethereum ERC-20 tokens.
While Bitcoin aims to be an investment vehicle and Ethereum aims to be an app platform, another class of cryptocurrencies — stablecoins — aims to be just a classic payment system.
fundamental problem with Tether: the stability of the currency is determined by the actions of a privately-held company — a middleman, so to speak. Without the Tether company, the Tether currencies would collapse. This runs counter to the spirit of blockchains and cryptocurrencies: the technologies should be able to run without human intervention, their future should be democratically decided, and they shouldn’t rely on the trustworthiness of a small group of people.[520]
Many crypto-startups offer cryptocurrencies whose values are tied, directly or indirectly, to the success of their products. They serve the same purpose as stocks do for regular companies: a way to raise money from investors and reward employees.)
Binance has proven exceptionally skilled at building a crypto-ecosystem and using BNB to tie it all together.
Storing things on the blockchain often leads to big efficiency gains, but efficiency is far from the only thing that matters; it’s more important that solutions integrate with existing power structures.
Technological breakthroughs are useless in the hands of people who have no power to have an effect in the world.
In other words, technological breakthroughs alone do not give you power.
supply chains are one of the killer apps of blockchain — a use case where a blockchain is head and shoulders above every alternative.
blockchains and smart contracts can lead to tremendous efficiency gains for the back offices of financial institutions like stock exchanges. But it’s not as easy as dropping in a new piece of software: hot new tools like these come with growing pains and potential legal difficulties.
Block chains are probably well adapted to other types of marketplaces besides stock exchanges as well.
blockchain technology has a remarkable amount of overlap with some of the other hot technology trends: cloud computing, big data, and machine learning. That’s no accident; each of these technologies feeds off the others, and they work best when used together.
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600?
the Venezuelan government has a history of devaluing currency and setting arbitrary exchange rates.[750]
And the US has a history of trying to extend its sphere of influence to oil producing countries, forcefully or not.
The US (or authors from the US) declaring Venezuela‘s behavior questionable is questionable in itself.
Getting to an IPO is incredibly difficult, though — it takes years of paperwork, intense scrutiny by regulators and auditors, and countless sales pitches to potential investors.[759] And, these days, tech startups are staying private longer and longer,[760] meaning that only venture capitalists can invest in startups for most of their high-growth early years — everyday investors are locked out until the IPO, at which point much of the company’s growth is behind it.[761]
Utility tokens are unique: you buy the tokens that are used to pay for the startup’s services.
When you buy a utility token, you are paying in advance for a product or service that the token issuer provides.
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I really like Bitcoin… It’s a store of value, a distributed ledger. It’s also a good investment vehicle if you have an appetite for risk. But it won’t be a currency until volatility slows down. —David Marcus, former CEO of PayPal[818]
The logical conclusion from this reasoning is that:
✅late stage securities whose price has stabilized are usable as currencies‼️
At a high level, currencies and securities can be thought of as being the same thing viewed at different times !
But why would a social networking company get into crypto? The most obvious reason was that it would help Facebook track exactly what people were spending money on, which would be extremely valuable data for advertisers — thus helping Facebook target ads better and charge a higher price for ads.[822] But, second, Facebook had long shown interest in evolving from a social network to the app for all economic activity.[823] The role model here was the Chinese app WeChat:
(It’s said that governments can make their money have value by forcing people to pay taxes with it;[856]
Our hunch is that China will eventually ban all non-government-controlled cryptocurrencies
for blockchains to really work for IoT, you have to get rid of the linear chain — you have to let multiple people add transactions at the same time. Only then can you process thousands or millions of transactions per second. In other words, to make a blockchain work for IoT, you have to get rid of the blockchain. The tangle The started IOTA took on this challenge and created an alternative to the blockchain that was optimized for IoT. This alternative, known as the tangle, lets many people add transactions at once. Instead of a single linear chain made of blocks, the tangle connects a bunch of
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The tangle gets rid of mining entirely. To add a transaction to the tangle, you don’t have to pay someone who verifies your transaction. Instead, you have to verify two randomly-chosen transactions that came before you. Anyone who makes a transaction effectively serves as a miner for people who made previous transactions. This means that nobody using the tangle has to pay for transactions at all![901]
Volatility is still a huge problem. So far, all stablecoins have been pegged to fiat currencies.[914] If there are no more fiat currencies, it’s hard to see a new way of making stablecoins.
most people want a monetary system that just works: it should be stable, forgiving, and easy to use. On all these fronts, crypto loses to our current system. The average person doesn’t care much about decentralization. So we wouldn’t expect to see entire populations clamoring for cryptocurrencies to replace their government-run currencies.
Private blockchains, at a high level, help organizations optimize the flow of information and goods through processes they control.
Public blockchains, at a high level, aim to track the ownership and movement of assets held by the general public.
Private blockchains have had a relatively strong record so far. They have already transformed several sectors: supply chains, clearinghouses, and royalty payments, to name a few. And all kinds of companies can now build private blockchain apps now that Microsoft’s Azure,[945] Amazon Web Services,[946] Oracle,[947] Google Cloud, IBM,[948] and other cloud computing services now offer cloud blockchain solutions. Meanwhile, public blockchains’ only major success story has been with cryptocurrencies, and even those are facing increasing scrutiny and regulation as they grow. Projects to build
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Crypto will make governments and big corporations more, and not less, powerful — consider how the blockchain helped titans like Walmart and Microsoft grow their profits, or how China can dominate more of the world’s countries and economies thanks to tokenized currency.
Alternative scenario:
If big businesses with stable share prices were to publish their own (crypto)currencies, then potentially governments could be become less influential in economic spheres.
It can be said that nations and economies are two ways of organizing human societies. The prevalent view up until now has been that economic actors are subservient to governments. This view could be challenged in the future if businesses where to publish their own currencies, which would contribute to reducing the power of governments to interfere with the business world.
Blockchains and cryptocurrencies are well-built technologies: they’re secure and reliable, and the computational theory behind them is solid. The idea of an immutable, shared history of past transactions is extremely powerful. But, when these technologies came out, not much serious thought was put behind the nitty gritty of how these technologies would actually drive social change. Sure, you can start tracking real estate and stocks on the blockchain, but who is going to turn those systems from prototypes into battle-hardened systems used — and accepted — by the whole world? Sure, you can
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IOTA is a crypto startup focused on the internet of things (IoT). IOTA does away with the blockchain and instead lets you track transactions in the “tangle,” a spaghetti-shaped data structure that offers faster and cheaper transactions than a blockchain.[1192] You pay for IOTA with MIOTA coins.
