Is the Bitcoin Bubble the New ‘Subprime Mortgage’ Bomb?

Bitcoin as ‘Digital Tulips Bitcoin demand and price appreciation may also be understood as the consequence of the historic levels of excess liquidity in financial markets today. Like technology forces, that liquidity is the second fundamental force behind its bubble. To explain the fundamental role of excess liquidity driving the bubble, one should understand Bitcoin as ‘digital tulips’, to employ a metaphor.The Bitcoin bubble is not much different from the 17th century Dutch tulip bulb mania. Tulips had no intrinsic use value but did have a ‘store of value’ simply because Dutch society of financial speculators assigned and accepted it as having such. Once the price of tulips collapsed, however, it no longer had any form of value, save for horticultural enthusiasts.What fundamentally drove the tulip bubble was the massive inflow of money capital to Holland that came from its colonial trade in spices and other commodities in Asia. The excess liquidity generated could not be fully re-invested in real projects in Holland. When that happens, holders of the excess liquidity create new financial markets in which to invest the liquidity—not unlike what’s happened in recent decades with the rise of unregulated global shadow banking, financial engineering of new securities, proliferating liquid markets in which securities are exchanged, and a new layer of professional financial elite as ‘agents’ behind the proliferating new markets for the new securities.Bitcoin Potential Contagion Effects to Other MarketsA subject of current debate is whether Bitcoin and other cryptos can destabilize other financial asset markets and therefore the banking system in turn, in effect provoking a 2008-09 like financial crisis………….Deniers of the prospect point to the fact that Cryptos constitute only about $400 billion in market capitalization today. That is dwarfed by the $55 Trillion equities and $94 trillion bond markets. The ‘tail’ cannot wag the dog, it is argued. But quantitative measures are irrelevant. What matters is investor psychology. ……For example, should cryptos develop their own ETFs, a collapse of crypto ETFs might very easily spill over to stock and bond ETFs—which are a source themselves of inherent instability today in the equities market. A related contagion effect may occur within the Clearing Houses themselves. If trading in Bitcoin and cryptos as a commodity becomes particularly large, and then the price collapses deeply and at a rapid rate, it might well raise issues of Clearing House liquidity available for non-crypto commodities trading. A bitcoin-crypto crash could thus have a contagion effect on other commodity prices; or on ETFs in general and thus stock and bond ETF prices.”

Source: Is the Bitcoin Bubble the New ‘Subprime Mortgage’ Bomb?

Did Bitcoin just prove it can’t scale? | Hacker News

If proof of stake proves itself to actually work, Bitcoin will adopt it. Migrating a 200 billion dollar network to an untested PoW proposal would be irresponsible.Arbitrarily increasing blocksize without addressing propagation delay and centralization impacts is also irresponsible.Bitcoin has been tirelessly working on the scaling problem in a responsible way. SegWit will allow up to 12t/s. Mimble Wimble and Schnorr Signatures will further compress transaction size and increase t/s to roughly 20t/s. All this without increasing propagation delay (increasing blocksize).Lightning network further reduces the number of onchain transactions necessary.Rootstock adds ethereum compatible smart contracts to bitcoin as a side chain.All these technologies responsibly scale Bitcoin. Your comment implies Bitcoin is stagnant which to me implies you don’t know what you’re talking about.reply PaulRobinson 1 day ago [-]PoS will never be adopted by Bitcoin. The mining pools that have invested in PoW won’t allow it.Every attempt to date to improve transaction rates on BTC have been hampered by a small group of developers who have a vested interest in it not scaling for reasons explained here: https://www.reddit.com/r/BitcoinMarkets/comments/6rxw7k/info…Bitcoin won’t get any of the improvements you hope it will because there is too much money vested in keeping it exactly how it is today.

Source: Did Bitcoin just prove it can’t scale? | Hacker News

Everyone’s crazy about CryptoKitties

(we thought it bc would change the world. instead…) There’s a new craze in the world of cryptocurrencies: kitties. A game called CryptoKitties, built on Ethereum’s blockchain, has exploded since its launch last week, with players spending thousands of dollars worth of ether (Ethereum’s currency) on digital cats. There’s a problem, though: The game is so popular that it’s clogging Ethereum’s network

Source: Everyone’s crazy about CryptoKitties

The environmental costs of bitcoin are not worth the candle

The recent spike in the price of bitcoin to over $7,600 has delighted cryptocurrency speculators and early investors the world over. Many consider the windfalls as vindication of their belief that bitcoin is not just an experimental currency but a viable asset class in its own right.Adding credence to that view was the decision last week by one of the world’s top derivatives exchanges, CME Group, to launch bitcoin futures in the fourth quarter of 2017.Yet there is an irony here. The further bitcoin mutates into a price-defying asset class, the less useful it becomes as a medium of exchange and, worse still, the more expensive and energy intensive it becomes to maintain. This is an awkward situation for investors who are supposedly becoming more aware of the implications for environmental, social and corporate governance (ESG) when making allocation decisions. When I recently asked a room of approximately 50 students how many had heard of bitcoin, almost all raised their hands. Asked how many had bought bitcoin, about a third of them raised their hands. But when I asked how many had used bitcoin actually to buy something, only one raised a hand.That people would prefer to hang on to their bitcoin than spend it is not surprising given its soaring value. This clingy behaviour is an instance of Gresham’s law, which states that bad money always drives out the good, and that if there are two forms of commodity money in circulation, the more valuable one will disappear as it is hoarded. But these days there are other reasons to hang on to your bitcoin. The era of costless bitcoin transactions is long gone. For some time, fees have ranged from $3 to $6 per transaction, depending on the network’s available capacity. The situation makes small, day-to-day payments from coffee purchases to bus ticket sales increasingly impractical.In energy terms, meanwhile, a recent analysis by Motherboard estimated that a single bitcoin transaction requires 215 kilowatt-hours of electricity to process. That is the equivalent of what an average American household consumes in one week.Add this energy wastage to the reputation bitcoin already has for opaque governance, cyber crime and dark market trade, and you can see how, from an ESG perspective, bitcoin proves an even more controversial investment than a holding in a developing world commodity-extracting company. In that light, CME’s plans to list bitcoin futures might not be enough to dissuade responsible investment managers from shunning the asset class in ESG-friendly indices in the long term. Remy Briand, head of ESG for index creator MSCI, says: “If we assume that consumption will continue to increase roughly in line with the bitcoin price . . . then we could end up in a situation within a few years where the electricity consumption of bitcoin mining would be equivalent to a country like the Netherlands or Switzerland.”In Mr Briand’s opinion that would make a lot of the efforts to reduce emissions in the context of the Paris Climate Agreement entirely pointless. Bitcoin enthusiasts retort that the energy consumption is justified if it amounts to less than all that of existing processors and banks combined. But for this to be true, incumbents would have to be eliminated by competitive forces — a big ask for a system which already charges well in excess of rivals, implying relative inefficiency. Moreover, for bitcoin — which is capital intensive, decentralised and opaque by design — to become more sustainable, powerful vested interests who have an incentive in keeping the system inefficient would have to be taken onAnd even if all that were possible, none of it changes the fact that if bitcoin’s primary use is for speculation rather than transaction, the energy wastage serves very little constructive social purpose at all.

Source: The environmental costs of bitcoin are not worth the candle

Why The DAO failed (and others might too) — Steemit

Experiments in Algorithmic GovernanceThe following is an excerpt of an academic article [PDF] I wrote detailing why The DAO failed, and why other DAOs and blockchain technologies might also fail. In a nutshell, lack of an appropriate governance structure and plan, and insufficient recognition of the challenges of building new social models doomed The DAO. When building new blockchain platforms, one ought to plan for these eventualities.

Source: Why The DAO failed (and others might too) — Steemit

Eight Things Cryptocurrency Enthusiasts Probably Won’t Tell You | Great Wall of Numbers

The empirical data and stories above do not mean that investors should stop trading all cryptocurrencies or pass on investing in blockchain-related products and services.To the contrary, the goal of this article is to elevate awareness that this industry lacks even the most basic safeguards and independent voices that would typically act as a counterbalance against bad actors.  In this FOMO atmosphere investors need to be on full alert of the inherent risks of a less than transparent market with less than accurate information from companies and even news specialists.Cryptocurrencies aren’t inherently good or bad.  In a single block, they can be used as a means to reward an entity for securing transactions and also a payment for holding data hostage.One former insider at an exchange who reviewed this article summarized it as the following:The cryptocurrency world is basically rediscovering a vast framework of securities and consumer protection laws that already exist; and now they know why they exist. The cryptocurrency community has created an environment where there are a lot of small users suffering diffuse negative outcomes (e.g., thefts, market losses, the eventual loss on ICO projects). And the enormous gains are extremely concentrated in the hands of a small group of often unaccountable insiders and “founders.” That type of environment, of fraudulent and deceptive outcomes, is exactly what consumer and investor protection laws were created for.Generally speaking, most participants such as traders with an active heartbeat are making money as the cryptocurrency market goes through its current bull run, so no one has much motive to complain or dig deeper into usage and adoption statistics.  Even those people who were hacked for over $100,000, or even $1 million USD aren’t too upset because they’re making even more than that on quick ICO returns.We are still at the eff-you-money stage, in which everyone thinks they are Warren Buffett.85  The Madoffs will only be revealed during the next protracted downturn.  So if you’re currently getting your cryptocurrency investment advice from permabull personalities on Youtube, LinkedIn, and Twitter with undisclosed positions and abnormally high like-to-comment ratios, you might eventually be a bag holder.86Like any industry, there are good and bad people at all of these companies.  I’ve met tons of them at the roughly 100+ events and meetups I have attended over the past 3-4 years and I’d say that many of the people at the organizations above are genuinely good people who tolerate way too much drivel.  I’m not the first person to highlight these issues or potential solutions.  But I’m not a reporter, so I leave you with these leads.While everyone waits for Harry Markopolos to come in and uncover more details of the messes in the sections above, other ripe areas worth digging into are the dime-a-dozen cryptocurrency-focused funds.Future posts may look at the uncritical hype in other segments, including the enterprise blockchain world.  What happened after the Great Pivot?[Note: if you found this research note helpful, be sure to visit Post Oak Labs for more in the future.]Acknowledgements

Source: Eight Things Cryptocurrency Enthusiasts Probably Won’t Tell You | Great Wall of Numbers

Code is Law and the Quest for Justice | Ethereum Classic

People keep repeating the phrase “Code is Law” without clear understanding of what it’s supposed to mean. Some deliberately misinterpret it to mean that “ETC supports thieves and crooks” and similar nonsense. Let’s get some things straight. Code is law on the blockchain. In the sense, all executions and transactions are final and immutable. So, from our (Ethereum Classic supporters) standpoint by pushing the DAO hard fork EF broke the “law” in the sense that they imposed an invalid transaction state on the blockchain.This has nothing to do with contractual or criminal law, or other legal considerations. Stating that “code is law” is similar to acknowledging the laws of physics. The law of gravity says that when I push a piano out of a window, the piano will fall downwards. It does not mean that it’s necessarily “legal” for me to push that piano out of that window. And if I do so and the falling piano kills some passer-by, it would be insane for me to argue before the judge that I shouldn’t go to jail because I broke no laws of physics.On Ethereum blockchain, a Turing complete code operates with a very real and tangible value. Because of this, there is always a potential for mistakes and unintended outcomes. There will always be transactions and code execution results that someone is not happy about. There will be conflicts and disagreements, there will be code vulnerabilities and exploits, there will be scams and thefts, there will be all kinds of ugly things.Who should deal with all these conflicts? Let’s imagine for a moment that we decided ‘the blockchain community’ will take it upon itself to deal with it all.Who is going to make a call which on-chain code execution is “theft,” and which is not? Is this ponzi contract scammy enough to shut it down? Do we tolerate this dark market while it sells fake ids and marijuana, but draw the line once it starts to dabble in child porn and cocaine?Should there be a democratic voting system (moot court) to decide on these cases, changing the blockchain state based on such decisions? Should there be a committee that decides what smart contract behavior is ‘unacceptable’ and what transactions are ‘illegal’ enough to justify a hard fork?What may serve as a basis for such decisions? Where is the applicable body of law? Who is going to be the police, the judge and the jury? What is a due process? What is the appeal procedure? A lot of questions, and no good answers to these questions, when it comes to “blockchain justice”.But it’s even worse if there is no system at all. If ‘the blockchain community’ just makes a special exception in regards to a ‘special case’, choosing to administer justice ‘just this one time’. What is so special about this case, one may ask? Why does this theft get a special treatment, and the other thefts don’t? Who do you need to know, whose buddy do you need to be to get such exceptional treatment? How are you going to defend such preferential treatment against legal cases citing a precedent and subpoenas demanding reversal of specific transactions?It’s this whole snake’s nest that could be avoided by refusing to be dragged into conflict resolution and quest for justice as related to smart contract execution. And it only requires sticking to principles of blockchain neutrality and immutability.So, code is law on the blockchain. All executions are final, all transactions are immutable. For everything else, there is a time-tested way to adjudicate legal disputes and carry out the administration of justice. It’s called legal system.

Source: Code is Law and the Quest for Justice | Ethereum Classic

Blockcerts: Using blokchain for identity management is (mostly) ridiculous // Jaap-Henk Hoepman

I was invited to speak at the Bitcoin in Education (BCINED) conference held in Groningen, September 5, 2017. Topic of my presentation: “Blockchain & Identity: Why you should avoid the blockchain like the plague“. While listening to the morning keynotes, praising the many benefits of using blockchains in education and for managing (academic) credentials in particular, I realised my message might provide a very much needed counterpoint. The short summary: using blokchain for identity management is ridiculous.

Source: Blockcerts: Using blokchain for identity management is (mostly) ridiculous // Jaap-Henk Hoepman