This is fourth or fifth time I’ve used Neil Gaiman as the touchstone for an Epsilon Theory not
American Gods
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This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results. Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
The difficulty with “DLT” is that it is a database. To have a well-distributed ledger people have to have incentive to run the protocol. Without going down a rabbit hole, there needs to be a form of consensus, and often the incentive for determining that consensus is money. Whether it’s fiat, or bitcoin, or any of the other thousands of tokens/coins. If people aren’t getting paid to have a truly decentralized DLT, what is their incentive to run the protocol. That to me is the fundamental disconnect between the “blockchain not Bitcoin” crowd. Having a company or government or some form centralized group that is responsible for distributing or maintaining this ledger will require money. Often that requires some form of initial capital, it creates chokepoints, it creates attack vectors for the State, or just for bad actors in general. To me, it’s much more efficient to just run a database. Unless, it’s money. Which is the whole purpose of bitcoin, not blockchain.
This says it better than I can re:bitcoin.
https://medium.com/swlh/why-bitcoin-3fdee2328759
This is my favorite starting point for thinking about Bitcoin. It is more than “fiat vs sound money”. Bitcoin proponents are driven by a collective interest in exploring how we can evolve money for a better society, and how we can make the global financial system more stable and distributed. The creators of Bitcoin didn’t see how they could contribute to fixing the holes in the current system, because of powerful incumbents who have a strong interest in preserving the status quo. So they found a way to compete with them.
But it’s not a hostile takeover attempt. Bitcoin’s purpose is not to destroy, but rather to offer us freedom and choice, and in so doing to spark a conversation about the nature of money and its crucial role in our society.
Another very interesting company looking to address the problems of the unbanked is Tala (https://tala.co/). They use machine learning to determine credit scores based off mobile phone use. The currency they leverage is M-Pasa . (https://en.wikipedia.org/wiki/M-Pesa). M-Pasa was developed in Kenya as a way to use mobile phone minutes as currency.
There are great ideas moving forward that don’t get attention. That lack of attention is probably a good thing, in that it allows them to mature before they’re scrutinized.
Andy
“if you don’t recognize that both crypto and small-l liberalism are religions, you’re just not paying attention”
Isn’t “religion” the wrong word here? I recognize “religion” as a subset of “belief systems” but not a proper subset - religious thinking typically depends on appeal to a ‘higher’ or ‘extra-reality’ power. Believing can be based entirely on a perception of reality, on evidence sensed and perceived, whether accurate or not. Claims that atheism is a religion fall into the same trap. I’m paying attention; enlighten me.
Avoiding government knowledge of my use of money defeats taxation. Bitcoin seems to have been devised for such a purpose, unless we include the laundering application as a more general usage.
First of all, I can’t tell you how much I enjoy reading Epsilon Theory and it’s contents.
I think that there is a misconception here about Bitcoin.
I bought bitcoin several years ago for all of the wrong reasons.
But I’ll tell you them anyway.
When the ‘net first started decades ago, arguably the first viable commerce was done through porn, ie. The buying and selling of it.
Back then, no one was sure if the ‘net would be a viable way of transacting and selling, and even if one did, buying the right company/companies was in itself problematic.
A wise friend said, if you see an illicit economy forming, see how they are transacting, and it just might be a viable investment.
So, when I read that drug runners/arms dealers/ (ie. the most ruthless capitalists in the world) etc were using bitcoin, I read a little bit about it (for the record, I’m not a tech guy) and bought some, less than 1% of my net worth.
Also, for the record, I am a conservative investor, who might buy or make one trade or sale per year from my portfolio.
Partly, I liked the potential anonymity, the ease of transaction and the idea that one day it could be used to make transactions world wide with out the involvement of institutions.(I read/listened to Andreas Antonopoulos, please read/listen to this guy before forming a opinion on the subject…)
But mostly I liked how out of the box the idea in itself was.
But Ben, for the hodlers etc and INITIAL bitcoin enthusiasts the story was never about PRICE.
It just wasn’t.
It was the idea that bitcoin was something different that might help accomplish so much of what you speak of in your writing.
I agree, that a lot of people were burned, because they got into the story of PRICE way too late in the game.
And now that story is gone.
But for most of us who initially bought, and I wasn’t even that early a buyer, the price right now this second isn’t THAT important.
For us, the story, now that the price has gone down, might just continue in much the same way that tech moved on after the tech crash.
We might be wrong, if so, oh well.
And yes, I know a bunch of hodlers are hoping to get rich( I wouldn’t complain if it sky rocketed again either.)
But many of the rest of us are willing to wait on the sidelines and wait to see what develops.
Thanks for reading this, I hope it added some insight,
Tim
PS…And yes, when I speak on this, everyone asks “did you sell any…”? Yes, I sold about 1/3 of my holdings at 13.5k(on the way down not up), made about 20 times my original investment on that sale before taxes, and have held the rest since then.
And yes, I’ve declared each coin bought and sold on my taxes.
Just because I COULD do these transactions anonymously, doesn’t mean I would.
So though I am an idealist, please don’t call me crazy.
PPS, I wrote this some hours ago, and just posted it, but Ken P’s comments below, I believe are in sync with mine.
Tim’s story sounds familiar. My early recognition around the idea of bitcoin was thinking of an mp3 for money. Ditto on Andreas Antonopoulos. He’s a gifted communicator and makes some compelling arguments about the need for censorship resistant money. In his words, “Political dissent can be snuffed at the bank.” But his most persuasive knowledge comes from being a long time contributor to the evolution of the internet. As Ken P suggests, there are technical considerations why a blockchain or DLT may not accomplish what it sets out to do if it is being used to try and make the existing walled-garden of banking a little more accessible. To relate back to the early days of the internet, prior to mass adoption of the world wide web there was a broad assumption that the internet would primarily consist of curated private networks (intranets) that were hosted by large corporations. Individuals would then pay to subscribe to those networks because obviously they would have the best content available due to dedicated support. This concept was utter failure and all of the privately hosted garden networks withered against the onslaught of development that took place in the wilds of the open internet. The most interesting development taking place outside hit upon the most value for users. And even today we find that the partially fenced gardens of Facebook, Twitter, and Google have become choked by the weeds of commercialism and divisiveness. So it remains to be seen whether distributed ledger technology can be successfully grafted onto the closed network of legacy banking. Maybe there are some efficiencies it can offer if merchants at every level are empowered to act like mini credit bureaus. But I personally wouldn’t wager any faith on it. Poverty is not a technology problem. It’s political.
My very first question hearing about any proposed standard is whether or not it will be open source. I do not see any sort of technical description on the Kiva site at present but I assume the project will be supported through private development. I hope it has set aside a substantial portion of the budget for ongoing security because I don’t see how this project would differ greatly from the costs associated with protecting a full-fledged credit bureau from data breaches. Encryption software is not a magical panacea and still requires a lot of persistent support in order to stay ahead of developing cyber attacks. One of the great advantages of open standard protocols is that the security research community can fully audit it for vulnerabilities. Otherwise we end up with never ending difficulties like that of the privately developed protocols put forward by the WiFi Alliance. Every single implementation of wifi standards to date has had nasty security flaws that should never have made it into common usage. Broadly speaking, privately maintained software does not accumulate the same kind of immunity without a lot of expensive support. How a distributed ledger is supposed to bestow the blessings of minimal infrastructure costs while offering robust security is beyond me. My non-expert recommendation for any such project would be to utilize the backbone of an existing crypto network with lots of participation (bitcoin or ethereum being the only likely candidates) in order to provide for its necessary security. That’s the sort of truce between heaven and hell I’d hope to see rather than yet another attempt to create a digital paradise on earth.
For good measure, I think it’s worth reminding that bitcoin does not currently offer a robust method to maintain anonymity. The entire bitcoin ledger is a publicly accessible record that can be analyzed by any party that chooses to do so. At best, it seems as impossible to stop someone from transacting over the bitcoin network as it would be to stop someone from using email. Yet that doesn’t afford any guarantee of anonymity. There are supposed to be some roundabout ways of obfuscating a cryptocurrency trail but my general understanding is that use of crypto represents a very small proportion of the overall illegal economy. Why go to the trouble when the existing banks remain very capable of hiding and laundering ill-gotten gains?
I think an interesting Metagame (and this is heresy in the crypto-world) would be Bitcoin becomes Ceasar’s. In fact, it’s already there. It’s highly efficient at creating government knowledge of your use of money, which then goes directly to the taxation authorities. The current chokepoint in the regulatory system in the US are the gateways for fiat to be exchanged into Bitcoin. Every one of those chokepoints requires a license and registration at the federal level (FINCEN, and/or SEC, etc) and usually the State level as well. Each of those licensees are required to know their customers and keep tabs on every transaction they make for the benefit of the regulators (see Bank Secrecy Act, Patriot Act, and a whole host of other laws designed to prevent illicit activity). Long story short, if you transact in Bitcoin and think you’re not being 100% transparent to the taxation authorities then you are not paying attention. We can discuss privacy coins, but they are a very small percentage of the transaction volume relative to Bitcoin.
Could a “Render Bitcoin to Caesar” Metagame work? Yes. Is it what the corporations are already doing? Yes. Will the idealists and crypto-purists be on board? No. Do they matter? That’s the important question. I think the answer is no. I think the End User is not a crypto-purist. I think the End User is not the predominantly white male 30-40 year old well educated personality that dominate the current market. I think the End User is predominantly poor, and a minority of some sort that does not have a traditional bank account but that lives in an increasingly digital world. A digital world requires digital money, and that creates a chokepoint which becomes a problem for poor or uneducated people. There are a lot more of them out there in the world as Potential End Users than there are crypto-purists.
I think we need to stop singing songs to crypto-purists and start singing songs to Potential End Users.
Plus this fits oh-so neatly into every central bank’s desire to eliminate paper currency. I think you have to launch a new gov’t-sponsored coin, so it’s dollars as crypto rather than Bitcoin per se, and it probably starts as something that’s already fully virtual, like bank reserves. Fedcoin?