Butchering Cryptocurrency’s Holy Cows

Here’s the mentality of a typical crypto-trader “oooh I’m making huge returns, and I’m helping bring about the future of decentralised computing and data storage”

Nope, in fact the bigger the speculative bubble, the more conservative the crypto’s blockchain development becomes because so much money is at stake. Cryptocurrency trading and blockchain innovation are almost mutually exclusive.

Cryptocurrencies are essentially tradable synthetic financial instruments. the difference being that with traditional derivatives, the price of the instrument is calculated from some parameter of the underlying asset (volatility, price, etc), while with crypto the value is determined by the promise of future real-world, broad adoption of some blockchain-based technology.

The crypto boom started largely due to two main factors, FOMO and preying on the general public’s lack of understanding of the technology. The boom continues because the internet-savvy crypto creators have learned from Silicon Valley how to overhype yet-to-be created technology.

Want to transfer money internationally in about a day at near market exchange rates? Try TransferWise (not that patent hype machine: Ripple).

Want a decentralised and collaborative knowledge repository? Wikipedia

Want a not-for-profit financial institution owned by its members? Join a credit union or a mutual bank.

Want a store of value because you hate fiat currency? Buy physical gold or purchase government-backed Perth Mint Gold (ASX:PMGOLD) stock on the ASX.

None of the above actually-functioning and broadly-adopted examples above uses blockchains.

But Blockchains are Trustless, and Smart Contracts, and Decentralisation!

Fundamentally, blockchains as a data type are tamper-resistant, linear, append-only logs, and “smart” contracts are simple IF-THEN statements.

“Permissionless” or “trustless” is mostly the result of Proof-of-Work(PoW), and PoW requires f$*k tonnes of energy, it’s unsustainable and inefficient. PoW is no substitute for trust. And, with crypto, you still must trust the exchanges, several of which have lost 100s of millions of customers money.

For crypto fanatics, these exit scams, hacks and crypto heists are just bumps on the road to a world of “smart” contracts and no lawyers or regulated financial institutions.

Blockchain-based cryptocurrencies purport to solve problems that either don’t exist or are unsolvable, such as the issue of societal trust (how can I trust you? How can you prove who you say you are? How do I know you’ll keep your promises?). It’s scams all the way down.

We need the law, and lawyers, and regulated financial institutions with government guarantees on our personal savings. We also need fraud protection on our credit cards. Lawyers exist for when disputes arise between parties that have entered into a contract, not for the simple execution of an agreement. That’s not smart, that’s just simple scripting.

Some uses like supply chains and IoT can make good use of blockchains. And for those blockchain uses you don’t need a highly-volatile cryptocurrency tacked on.

Crypto-traders, you’re parasitic speculators gambling on risky and barely-regulated synthetic instruments. Don’t kid yourself, most of the hyped technology will never be able to beat non-blockchain incumbents.

The boomer generation speculated on property and gave us the GFC. This isn’t “the future” unless the future is a dystopia of middle class people grabbing more than their fair share of basic human necessities (the wasted energy used in mining, residential property speculation which is making the ownership of a home unaffordable to most).

There’s nothing subversive about crypto, once this generation ages — who so vehemently disparaged the institutions of society they grew up with— they in turn will demand government legislation to protect their crypto assets. Cryptocurrency exchanges will be the new Goldman Sachs, JP Morgan and Bear Stearns, just as vampiric and unethical.

Also, posted on my blog here.