E026: “Wimps and War”


Bitcoin Numbers
Bitcoin price at recording is 5108 CNY/ 744 USD. The trend is distinctly up. We are headed to test the June highs of $789. I expect more volatility above the June highs.

Difficulty experienced a small decline of -1.9% last week, after two consecutive large increases of 6 and 7%. The estimate for the next difficulty change is now at +3%, which would be another all-time high difficulty. Rumors are coming out of China of Bitmain and perhaps others increasing their hashrate drastically over the next few months.

The Segwit 13.3%
Bitcoin Unlimited 9%

The earliest opportunity to start counting Segwit votes is Nov 15th. The hashpower of ViaBTC has decreased from 170PHs to around 120 PHs, and the number of BU blocks have dropped, from a max of 14% down to 9%. I expect this decline to continue, and accelerate when the increase in hash rate goes back positive.

Play-by-play from ZcashVictims

Bits and Pieces
Bitcoin for Luxury items
A new Finnish company that sells luxury yachts has started to accept bitcoin for payment. The owner also sells Teslas for bitcoin, and claims to have sold quite a few. I think this is a significant growth market for bitcoin, as larger transaction values replace the micro-transaction variety. The future of on-chain transactions is going to be LN anchors and these high value ones.
Finnish yachts

Tweet by Naval Ravikant CEO of AngelList
Naval’s Tweet

What Naval is saying here is that owning bitcoin is a bet on financial crises and on technology disruption out of Silicon Valley, with a much higher rate of return. There are multiple ways to win, and both seem likely.

This is a powerful concept that I’ve found is common in the psyche of bitcoin investors. I’ll say it again that the value of bitcoin doesn’t come from spending or using bitcoin, it comes from savings. I haven’t heard it in a while, but people used to say that buying bitcoin was a way to long the entire industry of cryptocurrency/blockchain. This is similar except now it’s multiplied by the financial crisis risk.

When you buy a call option contract you agree to buy an asset in the future at the strike price. In a call option, you want the price to go up. If you are out of the money, that means the strike price is above the spot price and the trade is currently not profitable, it also has more risk to never be profitable, but if it is the price goes up very quickly. A new investor to bitcoin should expect years before the trade pays off, if it ever does. It’s an all or nothing bet. It reminds me of the Wences Ceasares when he said, “Either bitcoin will be worth $1 million a coin or zero.”

Schiff on Money
Schiff Blog
This is hard for me, because I like Schiff and have watched him for years. I was a big gold bug, and have never sold any gold or silver. But as I read Schiff trying to describe the difference between currency and money in this piece, I can’t help but feel he’s failed to make his case, not only in this particular article, but in the whole collapsing case for gold.

Yes, gold has been used as money, but so have dollars. Money is a medium of exchange, it’s the most sellable thing in the economy, even Mises said that. Though the dollar started as a money substitute, a money derivative, or a money certificate, it’s not those things today. The word dollar was a term of measurement, like the inch or the kilo, measuring gold. To be money a thing must be a medium of exchange, a unit of account, and a store of value (that store of value has degrees, of course).

A thing can be money, but that doesn’t make it good money. It simply is the prevailing medium of exchange. It can be evaluated on the characteristics of money to determine its quality: scarcity, durability, portability, fungibility, recognizability, and divisibility. We end up being able to say that A as “good money”, or B is “bad money”.

This is a sobering theory. I think of the videos out there of a guy on the street not being able to give away a gold ounce. If Mises saw that video, what would he say? He’d probably say those people are crazy, which I agree with, but would he be forced to say that gold is not the most sellable thing; would he still be able to claim that it is money?

Please Watch!
Can’t give away gold.

Here’s another thought experiment. If I were to stand on the street and try and give away a $100 bill for $20. People would do it in a heartbeat. That’s because it is money. It’s the most sellable item in the economy. Gold is just a store of value for an educated minority. It’s a good store of value, but so is my house, a nice watch, or a collectible car. That doesn’t make them money, it just makes them a store of value. Being a natural store of value, makes a thing a candidate for money that arises out of the free market.

A thing can lose its definition as money. Of course, it doesn’t lose its unique properties that made it useful as money in the past, but it may no longer serve as a medium of exchange or a unit of account. In the future, it’s properties may be valued enough again to make it money again. Just because something is a store of value doesn’t make it money.

Believing that something will serve as money forever, despite the spectrum of human technology, values, and beliefs changing over time is untenable in my opinion. Something may serve as money for a period of time, when the market deems its unique properties most valuable, and then languish when the market chooses a different thing as money.

Realtor Essay
There is so much misunderstanding out there about bitcoin and blockchains. That’s why I’m doing the Bitcoin 101 series. Please share that series around to people at your meetups or friends and family. I’m trying to make it very accessible to everyone. Each lesson is short and sweet, because I know my target audience isn’t really interested in this stuff, but I just want to peak their interest.
Don’t Laugh

PDF version

StashCrypto
This is a new bitcoin full node for sale at a huge price tag of $1000. It boasts as a personal bitcoin server, which is a good idea. However, it runs Bitcoin Unlimited. That makes me question the political decision making of this group. It is also supposed to use Open Transactions, a concept that preceded the lightning network. My understanding is that there is some disagreement about the core architecture of Open Transactions, so it hasn’t garnered mainstream developer support in bitcoin. I’m interested in learning more about Open Transactions, but cannot recommend this product until they drop Unlimited and support scaling.
Website

Altcoinville
The Zcash pump was incredible
My position has changed from cautious to full out scam. This launch has been brewing for months if not years, and was marketed very well by its investors. Long time cryptocurrency expert, Zooko, is the central character, and Gavin Andressen is an advisor to the project. For those reasons alone this coin should have a longer run than other well marketed coins like STEEM. I think it’s only a matter of time before one of these ICO/launches goes horribly bad for speculators.

Good things about Zcash are it’s just money, no fancy smart contracts, and it’s based on bitcoin. It’s a fork of bitcoin and still has similar monetary policy, with PoW and 21 million coins. But there are some fundamental issues that I don’t think have been addressed, and might not be able to be solved at this point, and that’s why they haven’t been addressed.

The big differences between bitcoin and Zcash are that bitcoin was launched in relative anonymity, with only very elite cryptographers and cypherpunks knowing about it in the first several months. Zcash was well advertised, took investors, and was pumped hardcore. Bitcoin’s trusted setup was one person, Satoshi, who left and didn’t take his stash with him. Zcash’s trusted setup was a group of 6 well-known people. There were rumblings over the last couple of months, about the setup process was vulnerable to attack. If the coin was compromised from the very beginning it’d be impossible to detect due to its very nature of strong anonymity. These concerns were basically swept under the rug.

Bad things about Zcash is the founders’ cut of the mining rewards. They are awarded 20% of each block reward for the first ~4 years, to pay for development and other things. This adds a moral hazard into the mix, because this power over the system creates incentives that can’t be quantified. Similar messed up incentives pervade Ethereum, and has caused outrage, along with a propensity to hard fork (break existing clients) to “fix problems.” The goals and judgements of the small development team, outweigh the individual’s property rights, the free market and the community as a whole. This argument has been launched at Bitcoin Core in the past, but it’s a little bit different. Bitcoin version 0.13.0 had over 100 contributors. The core developers aren’t paid by the network, so they are on level footing when it comes to rival implementations. Just in the last 6 months, there has been 3 new implementations of interest that I’ve noticed, Bitcoin Unlimited, a fork of bitcoind for CryptoStash, and bcoin a pure javascript version. Everyone is free to develop their own thing, and are on equal footing due to the absence of any founders’ reward.

The investors include Barry Silbert and Erik Voorhees. This is symbolic of a big issue I see out there in bitcoin today, trusting celebrities. While it’s obvious to some that these investors are here to just make a buck, the majority of people will view and investment by Barry Silbert and an endorsement by Erik Voorhees as a green light that the project isn’t a Paycoin like scam. That trust is misplaced in my opinion. These investors don’t make money by a slow and steady 5 year project getting on its feet and growing into a viable product. They make money through front running flashes in the pan. The VCs in the bitcoin space have been starved for success. Most companies aren’t profitable, and the ones that are, gambling, porn, and DNMs are not investible.

The main selling point of zcash is “zero-knowledge-proofs” which make the transactions virtually anonymous. In the next year or so, expect lots of money to raised, and many hyped projects to use that keyword.

Litecoin signals new bear trend for altcoins
In a great chart from @Beetcoin, we see that litecoin has broken a two year support level. This is dangerous territory for a precipitous decline. Though litecoin isn’t flashy, there are a lot of long term hodlers from it’s early days. Also litecoin fits into my definition of valid use case of cryptocurrency. I’m staying away from alts, except for some shorting maybe.
Beetcoin

Chart

Tone’s chart
This was a good chart put out by Tone Vays. He compared the purchasing power of the dollar, the famous chart you’ve probably all seen where the dollar has lost about 95% of its value since the Federal Reserve was created, and compared it to STEEM’s chart. I connected some dots on my reply.

A hard fork of a cryptocurrency can be considered an Altcoin. Bitcoin has been forked many times to add features that result in an altcoin. My point was is the dollar an altcoin or gold? It started from a gold standard, and even had some official gold backing until 1971. So is the dollar a HF/altcoin of gold, and the same thing that explains the general chart shape of altcoins, top left to bottom right, is going on in the dollar?

Anyway, that is an interesting question I think. Might do some more thinking on that, and flesh out the analogy better.
My tweet

Ethereum Alert about Solidity
There’s an issue with being able to change variables in contracts in Solidity, the language of Ethereum. I feel the tide moving out of Ethereum. There is a lot of money to be made with “zero-knowledge-proofs” and fungibility, so app devs and VCs will go in that direction I think. This is a HUGE blow to people that faithfully touted the superiority of Ethereum (Vitalikcoin). With each major issue they have to invent new psychological defenses against them, and this particular issue might be just a little too core to the system to explain away so easily.
Ethereum Blog

Featured Article
Reddit posts regarding the war that we are in. I really like that these posts are getting attention. We are in a war with the money changers, the protectors of the system. They will go to any end, including jail, “suicide”, and taking down a nation state and killing millions of people.

Bitcoin Unlimited doesn’t matter to bitcoin. This show and the bitcoin network don’t care about the weak little, cute hard fork attempt. They are weak compromisers that resort to terrorist tactics. No one would ever let them control bitcoin.
r/bitcoin

r/ethereum

Flash Point
Hillary Coup? Counter Coup? Who is Steve Pieczinck?

Is the US about to have a silent coup? This video surfaced on YouTube on Nov 1st.
The Video

Steve Pieczenik

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Ansel Lindner Written by:

Ansel is a bitcoin specialist, economist, and podcast host.