E038: “Fear Uncertainty & Doubt”

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BTC Status Update as of 3/19/2017
Bitstamp $1045
Okcoin ¥7150
Localbitcoins vol (7d) $31.8 mil
Network vol (24h) $465 mil
Difficulty est. +4.1%
Segwit 27%

Sources: PricesLocalBitcoinsBlockchain VolumeDifficulty, SegWit


Trending Topics Imminent Hard Fork, price drop, Altcoin insanity

7:50 – ETF Recap

The Winklevoss COIN ETF was disapproved. :( I was probably the most bullish on the approval than anyone one I knew of in bitcoin. I was very wrong, I can admit that. No problem. I was never 100% sure. Many commentators are using the argument that this was not good for bitcoin as some sort of reason they thought it wouldn’t get approved. I think that long term this an ETF is net negative to neutral, but short term it’s a positive because we need a higher market cap to help some of the social and manufacturing issues in bitcoin. I agree that the average view is that an ETF is bad for bitcoin, which is why I thought the SEC would approve it. THey don’t have bitcoin’s best interest at heart, so they’d screw it over by approval. I anticipated their intentions wrongly.

Again, I was wrong. I over estimated their understanding of bitcoin and the dynamics in bitcoin at the time.

DECISION

Reggie Middleton’s thoughts

The main reason given in the disapproval letter on the first page was, “the Commission believes that the significant markets for bitcoin are unregulated”. Which major exchanges are unregulated!?

Surveillance-sharing agreements” was harped on. The SEC wants Gemini to have agreements with other exchanges, “a non-U.S. entity will be able to produce and share relevant information about market trading activity, clearing activity and CUSTOMER IDENTITY, without being materially impeded by the non-U.S. entity’s rules, or secrecy or blocking laws.”

In other words, the SEC first needs to see a majority of trading to be on regulated exchanges that will provide customer data on a whim from the US government.
This will never happen. They expect a Gold fix like market, or a futures market similar to gold that is dominated by a few friendly exchanges. Gold futures are ~80% concentrated on COMEX/NYMEX, and ~10% SHFE.

The arbitrage point mentioned was totally fair, US regs do handicap arbitrage. However, the AP would be able to source the bitcoins on any exchange, and the ETF volume would definitely bring the center of the market to the US.

This is a hilarious Catch 22, because the ETF seems to want 80% trading in the US, but that won’t happen until they approve an ETF.

19:30 – FUD, Vinny Lingham, Bitcoin Wu (Unlimited)

There’s lots of FUD (fear uncertainty and doubt) coming from some oracle types in bitcoin. I was on Adam Meister’s youtube panel show on 3/17/17 and Vinny Lingham came on halfway through. He started claiming that a hard fork was imminent and spreading FUD imo. On the podcast I go into many reasons for this.

Bitcoin Wu is crap code. Many independent auditors have looked at it and concluded the same thing, it’s riddled with bugs and is highly immature. This is a great story on Bitcoin Magazine around Charlotte Gardner’s reporting of the most recent Wu bugs.

The biggest question I have for the imminent hard fork FUD people is what implementation is the fork going to run? It’d be insane to use Bitcoin Wu with all the bugs.

Open problems with Bitcoin Wu via reddit:

  • BU has no flag day
  • BU has no wipeout protection
  • BU has no miner activation threshold
  • BU has no replay attack prevention
  • BU had a bug enabling the remote shutdown of the nodes, yet not even for a minute do they rethink and advise people that BU is not ready to use yet
  • BU’s EC mechanism is totally broken and vulnerable to attackers, and this has been explained to them on many occasions and yet they keep pushing people to run this software
37:00 – Altcoin Rally

We are in a cyclical altcoin bull market due to the attack on bitcoin. There’s been some developments with Monero being used by some ransomware, and Ether being supported by Alpha Bay on the dark markets. These are direct competition to bitcoin, but not a threat for reasons I outline on the show. This is also give us an opportunity to see that value doesn’t come from spending but from people’s desire to hold. When ETH is spent on Alpha Bay sellers will want to trade ETH in for cash, pressuring the price down, and since there’s no established localbitcoins market for ETH, it will be hard to get rid of.

Now to the altcoin bull rally, There’s no fundamental difference in these coins from 2 weeks ago that would logically lead to 10x moves in their prices. Bitcoin’s media coverage around the ETF has brought new eyes to the bitcoin space, and as bitcoin is under a FUD attack, these newbs will by alts. Maybe whales are buying them as a hedge, too.

The technical problems of altcoins remain.

  • Dash has shady economics based on marketing, not long term holders or viability. They also suffer from blockchain bloat, future governance attacks on built in model, more fair clones with no instamine. PIVX is an up and coming rival that doesn’t have the instamine.
  • Ethereum is bloated and centralized. It’s being forked to be used by big players own codebase (ie Quorum), there is two competing Caspers (there proof-of-stake upgrade) leading to a contentious hard fork, Solidity’s (ethereum’s scripting language) compiling of variables and a switch to more of a Rolang type language, sharding, bugs, founder vulnerability, etc etc etc.
  • Zcash is a direct clone of btc, with all the same issues, except it’s more centralized and no network effect. Plus there’s a 20% founder reward in each block.
  • Monero has a blockchain bloat issue. Their transactions are signature heavy and they’ll have technical problems as they scale.

Ansel Lindner Written by:

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