Whether you are a Bitcoin fan or detractor, please do yourself a favor and play this excellent Webinar with Erik Townsend.
If you are a Bitcoin fan, don’t let the title ‘Biggest Speculative Mania in History‘ scare you away. Instead, listen to the well-reasoned statements of Townsend.
Townsend compares current Bitcoin technology to the original Wright Brothers aircraft. There will be improvements. The technology will spread.
However, that technology will be used by governments to track everything. Ironically, that’s the exact opposite of what the Bitcoin believers think will happen.
Blockchain Debunked
Townsend also has a 20-page white paper called “BlockChain Debunked”. The paper is on Distributed Ledger Protocols (DLP), and CryptoCurrencies.
Once again, I encourage everyone to read the paper. Here are a few excerpts from the paper.
Both Bitcoin and its Blockchain are proof-of-concept quality at best. They have profound importance to history but little practical viability, despite the present mania surrounding them. They will eventually both be replaced by much more robust solutions that eliminate the serious shortcomings of Blockchain’s reliance on miners to validate transactions and the proof-of-work architecture that serves only to slow down the network and make it painfully inefficient and wasteful of electricity and other resources.
Will Leemon Baird’s HashGraph be the next big advancement in this field, or will it be a soon forgotten relic after someone comes along and finds fatal flaws in Baird’s math? I have no idea. But I’m confident that regardless of whether Leemon Baird has already invented a DLP that doesn’t need Bitcoin Blockchain’s miners and proof-of-work architecture, someone somewhere will invent one, sooner or later. And that won’t be the last advancement in this nascent field.
If I were able to prescribe an improvement for this whole process, it would be this: The crypto community needs to stop treating the Wright Flyer (Bitcoin/Blockchain) as if it were the holy grail, and instead refocus on moving ahead with the much more important task of advancing the field toward the eventual introduction of the Boeing 727. The prototype has already served its purpose. We need to standardize around a DLP that doesn’t depend on miners or Proof-of- Work, and which can operate with or without an associated cryptocurrency.
Bitcoin’s Blockchain was the Wright Flyer of DLPs, and it’s a pity that the Bitcoin crowd has yet to recognize just how seriously flawed its design truly is. If they could see the picture clearly, they would realize that Bitcoin is a flash-in-the-pan cryptocurrency that belongs in a museum.
Don’t get me wrong – digital currencies are definitely going to be the thing of the future. But like it or not, issuance of legal tender has always been the province of government. The only reason Bitcoin has been allowed to come as far as it has is because governments are notoriously slow and inefficient, and are only just now beginning to realize how seriously cryptocurrencies threaten to undermine the power of central banks.
Bitcoin and the other blockchain-based cryptocurrencies will be forgotten soon after the emergence of a viable digital currency based on a more robust, scalable DLP. It remains to be seen what technology will emerge as the preeminent de-facto gold standard of DLPs. HashGraph is but one of many contenders. But sooner or later, someone will figure out how to build a digital currency that doesn’t suffer the serious limitations and drawbacks of Bitcoin’s deeply flawed blockchain architecture.
One things’s sure: We live in interesting times, and this whole thing has just barely begun. DLP (not cryptocurrency) is the most important innovation here, and its potential is unlimited. Digital currencies will also be very important, but unfortunately, their future is likely to be determined more by actions of government than advances in technology.
Reader Emails
Like Townsend, I get dozens of emails from readers telling me, “I don’t get it,” and I do not even know what each of the cryptos is about.
There are now at leat 1534 of them. Does anyone understand them all? OK, Ethereum improved on Bitcoin. What happens when another idea improves on Ethereum?
One really has to laugh at Tether. That’s a crypto that allegedly has a one-to-one tie with the US dollar. It evolved as a fast way to trade in and out of other cryptos.
But who is auditing the dollars? Are there dollar inflows that match crypto transactions? Fraud allegations have surfaced. Regardless, note the irony of tying a crypto to a non-verifiable system backed by the good faith of Tether.
And what about such transactions. Does the IRS consider trading Bitcoin for Ethereum a “like” transaction? What if it goes to US dollars first?
We have not scratched the surface of tax accounting yet. It’s going to be a big deal.
And what about hacks? The cryptospace is proven unsafe.
Of course you can hold your coins in your own private vault. But that makes them totally useless in everyday transactions. Wasn’t that one of the reasons for Bitcoin.
Store of value? Please be serious.
But these are simply near-term considerations.
All Existing Cryptocurrencies Headed to Zero?
Townsend did not make that statement. I did. Townsend merely stated, “Bitcoin investors will be disappointed.”
That’s like saying, “Nuclear war may kill some people.”
Read between the lines. Which of these is more likely?
- Cryptos will be the death of fiat currencies and governments
- Governments will mandate the use of the technology to track every penny for tax purposes
Neither Townsend nor I put any timelines on such events, but they are coming. The technology will live, but the initial implementation will die just as Kodak film gave way to digital even though cameras still live on.
My reference to Kodak was purposeful. That Kodak is now into selling crypto mining servers suggests it may have another date with zero as well.
Tulips never went to zero.
Mike “Mish” Shedlock
link to obatperangsangmanjur.net
I have watched Bit cion for 3 years now. I friend of mine who deals in crypto has made a nice few pounds for him self and others. He told me to get involved but like many I didn’t. Now with all the rt coverage and watching Mish along with many others talk Bit coin up and down, I think my time has come to get in. A friend once told me don’t worry how much the house price goes up, keep buying because you will always make money what ever happens to the price. Along with the clever people who say one thing and the not so clever who say another thing I will get on board and see what happens next.
You could almost place the sex definition of money on firm biological grounds, except that it must be guaranteed that the offspring resulting from the sex will themselves attain this same circularly-defined guarantee of sex->offspring. Only then can you complete the life cycle, or biological positive feedback loop if you prefer. And alas, not all sex does lead to sexually-successful offspring.
Therefore, in biology, Foundational Currency is not to be equated with sex, but an infinitely-recurring function: circular-certainty(Sex->Offspring).
Following from that, it should be noted particularly that most people don’t care if the sex that they have leads to sexually successful adolescent children. In fact, many would rather it didn’t, most of the time! In evolution, this is a selection pressure on humans that’s even greater than the black death.
And whereas the victims of the black death at least struggled against and resented their fate: the people who don’t hate birth control don’t even hate the fact that they don’t hate birth control!
Dear Go- errh, Biology! They actually campaign in favour of it!
Sex, especially of the feminine variety, is the foundational currency.
If a perfect DLP is created where every penny can be tracked, how on Earth will the wealthy be able to continue defrauding the less fortunate?
CNBC weighs in, and says Bitcoin is going to $50,000 this year: link to cnbc.com
As long as the cryptos only suck up money from the stock market or the housing market, and not used to launder money, all is well. Eventually, they can stay locked there forever.
I believe Bitcoin won’t go to zero, but it just might go to 12,000 BTC per pizza.
If you think bitcoin is going to absolute zero then clearly you have never tried to buy drugs online, get money out of china, or maybe just evade taxes.
Captain, Seriously? You’ve got the nerve to tout buy more gold here? I actually did what you said back in 2010. Bought some physical gold. Still sitting in my safe looking pretty and otherwise completely useless — dead money. 2nd most stupid purchase I ever made. (most stupid was buying a german car; didn’t know they actually design their cars to fail at 100K miles). Smarter to use excess cash to pay off the house if still early in the mortgage. But agree with you — valuations are meaningless. All we can do is try to stay on the right side of the trend. The definition of blindness is investing without a long term chart.
“Fundamentals”??? What are they? Should AMZN “fundamentally” be worth a PE of 200? Should TSLA “fundamentally” be worth more than zero? I’m not trying to be funny here but how can anything be “fundamental” to a monetary system that has no fundamental value because it’s all debt based? Because of this, ALL paper assets are inherently worthless. People receive their monthly Madoffian account statements and believe themselves to be rich but fundamentally the money supply is faith based which requires confidence to exist and that is no different than bitcon (sic). So forget fundamentals. The whole shooting match (i.e. global debt Ponzi) exists because of the madness of crowds. Physical gold in your personal posession is money and everything else is credit. Credit can be defaulted on. When people stop loaning the in-debt 20 Trillion USA cheap money, everyone is going to figure out that the dollar is fundamentally different than the Venezuelan Bolivar.
Gold’s most important utility is that it is shiny and women like it. Especially as jewelry. Gold = Sex.
I’d like to see this clown offer a protocol that
A) Incentivizes actors to do the work of verifying transactions across a network to prevent doublespend, while
b) Somehow prevents competition for that incentive, from driving the cost of obtaining it, up to the level of incentive that is provided…..
Gold Is money specifically BECAUSE mining it is hard and resource intensive. Miners will develop ores that are resource demanding enough so that the cost of mining each ounce, pretty close to equals the price per ounce. No form of money works, nor can work, any differently. As soon as someone can mine money at below cost, all you are left with is the simple excuse for systematic theft known as fiat.
Now, this doesn’t mean that the mining reward currently isn’t possibly temporarily a bit out of whack, at least at December valuations, prompting an excessively expensive arms race. But the reward is being cut over time. Until all the reward that is left, is the incentive provided by transacting parties. No, or at least a much smaller, reward per successfully verified block, IOW. Who knows how that will work out in practice, as far as resource utilization, transaction costs, possible shutout etc. is involved. But one thing will hold true, and must hold true: Miners will expend resources roughly equaling the value they expect to get from engaging in mining.
Believing you can have a limited resource that is somehow cheap to create, makes about as much sense as belief in perpetual motion. Or belief in some mythical government that is somehow able and willing to do something useful, which is honestly even more ridiculous.
It could be 1 dollar or…it could be 100K. Fundaments missing, don’t relally know what’s it worth “But independent crypto trend analyst Ronnie Moas said bitcoin’s value could reach $100,000 if it maintains its current market share.” link to express.co.uk
I have to admit, I wish I bought BTC a year or so ago so I could sell it to some idiot for 10x what I paid for it.
van, I don’t know if WB really said that, but regardless, gold has a LOT of utility.
I came across this article in Feedly and just skimmed it. Lots of people made money on BTC and lots are now making money on calling it a bubble. Seems like a good way to get lots of click-bait revenue these days. And, to be clear, I do not care if they are right or wrong about BTC. Also don’t care if Max Keiser is right or wrong about BTC.
I set a goal for a BTC position, I took the gains, and I got out. So people can be bearish on it or bullish all they want; doesn’t matter to me at all. Every single thing that you put your money into should be approached by establishing a risk threshold, setting a limit on how much you are willing to loose, setting a limit on how much you are willing to gain, and adhering to it no matter what anyone says. This includes BTC, gold, buying individual stocks, bonds, trusting a state pension fund, tulips, etc.
It’s a once in a lifetime chance to make millions if you have the money and the courage to short cryptos and hang on for the wild ride. But in the end (say two to five years) one will be rich. Mish- You are an investment advisor. Are you shorting bitcoin futures?
Well I guess that just leaves physical gold and silver!
A short note on bitcoin
We noted before that bitcoin supporters – many with a background in information technology, mathematics, or the sciences – have little regard for the centuries of knowledge gained by economists, sociologists, and anthropologist, on the deep meaning of money. Likewise, economists tend to dismiss bitcoin and blockchain in the way that monopolists treat potential competitors – with disdain and apathy. Agustín Carstens, the former governor of the Mexican central bank and now general manager of the BIS, is clearly in the latter camp.
Carstens yesterday dismissed bitcoin as “a combination of a bubble, a Ponzi scheme and an environmental disaster”, as the FT reports from a speech he gave in Germany. We would like to note that this may all be true. It is also true that central banks do not find that the blockchain technology offers advantages over existing technologies that underpin payment systems. We also agree that there are financial stability concerns that need to be addressed. But the idea that we can organise a globally coordinated crackdown on bitcoin is delusional when we can’t even orchestrate global financial regulation and effective tax avoidance measures.
Central banks, and the economists who run them, are worried that in the future monetary policy may lose traction, and that they will lose their policy monopoly. This is bad for central banks, and bad for economists. And their ability to control the financial system with the current macroprudential tools will also be impaired. These concerns are justified to some extent, but the idea that they can reign in the use of a global private-sector technology is hopping mad. The state’s money monopoly is coming to an end as is the ability of states to use financial channels as the main tool to fight organised crime. Carsten is right in his assessment that bitcoins are often used for criminal transactions. We didn’t know that the energy consumed in the minting of bitcoins equals the entire energy consumption of Singapore. This is a nice statistic, but then again, Singapore is a small country and it is hard to estimate future energy consumption based on sheer extrapolation. And while it is perfectly sensible to ringfence the financial system from the consequences of excessive cryptocurrency speculation, none of this will stop the rise of cryptocurrencies because there is genuine demand for them. And while we, too, have supported the unconventional monetary policies of central banks, there can be no doubt that some of this demand is due to debasement fears propagated by some of the critics of the policy.
A comment from Eurointelligence Morning Briefing:
Nouriel Roubini says on Bloomberg “There is all this hype about blockchain saying …..blockchain is really a revolutionary industry. It has been around for ten years, the only application is Bitcoin or crypto-currencies that are a scam. And in the early days of the internet people say well in the early days you had html, you had web [web?], you had email, you had lots of other things, you had [millions?] of applications and hundreds of millions using them. After ten years what they can offer in the blockchain space – nothing, just a bunch of crypto-currencies that are a scam.” – see end (after c. 1.24) of video interview @ link to bloomberg.com . Well I never!
Thanks Mish. A most cogent appreciation of why bitcoin is doomed.
20 Y is now 3.14, 30 Y 3.10. And now the 7Y is 2.78 and the 10 Y is 2.745. So this week we add another inversion. Starting to look like a DNA helix.
Great article and this explains why you need to stay away from crypto currencies in their present form!
this guys view on bitcoin and PoW is that of Warren Buffets on gold…
‘ Legendary investor Warren Buffett, who usually has a good eye for value, explained gold like this: “It gets dug out of the ground in Africa or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” ‘
technically WB is correct … that’s a lot of work for something that just sits there!! Why waste all that energy devouring the earth for a piece of metal that just sits there?
btw – In order to make a fake blockchain entry, a bad-actor would need 51% percent of total bitcoin compute (hashing) power. The more computers that “waste” power doing PoW, the more computing power a bad-actor would need to insert fake entries into the blockchain. the bitcoin network is currently “wasting” power to the tune of ~25 million terahashes per second. that’s more hashing power than the worlds top 500 super computers, COMBINED … by thousands of times!!!! Good luck with that buddy. Your other option is to break SHA256! Unless you know something no other human knows, I suggest you stick to the 51% attack.
I love it! Thanks Mish!
“Of course you can hold your coins in your own private vault. But that makes them totally useless in everyday transactions.” Mish, what do you mean totally useless? This is exactly how I fund/make withdraws from my broker — to/from desktop wallet, then cash out to USD on an exchange or just load to a debit card. Pretty smooth process really…
“Does the IRS consider trading Bitcoin for Ethereum a “like” transaction?” Mish, actually Greentradertax is way ahead of you on BTC related tax issues. The answer is no, this is not a like-kind exchange but taxable event (e.g. sold BTC for USD then sold USD for ETH). Another interesting thing I’ve been using for the past couple of years is the BTC denominated Forex trading account. You can trade FX and CFDs just like a regular account, but the account is denominated in BTC. And of course you can short a BTC CFD to hedge your account. Anyway, this kind of account creates a more complicated tax situation because any loss creates 2 taxable events — the loss on the derivative and the selling of physical bitcoin. Complicated yes, but there are tax packages available that can track all this and even download trading activity as file for turbotax.
He had me at “it’s retarded”
I have a question for Bitcoin fans. Once upon a time an IBM 360 was a technological marvel, and they were very valuable. Now that there are better computers, the only value an IBM 360 would have today would be due to it’s gold content, which might be $20-50,000. What about bitcoin will allow it to continue to have value, once better technology comes along?
And warren buffet invested in Wells Fargo who raped their clients and Clayton Homes who routinely predatorily lends at 15% plus to people who can
barely afford even that. What DOES he know? That’s the question for sure.
But, if we get coal from space-that’s a hugely deflationary position. And I’m not saying there’s NO use for coal but as far as energy is concerned there’s a definite possibility it goes the way of whale blubber.
Well Warren Buffett doesn’t see much value in cryptocurrency but hey what does he know? Actually I own a coal mining company. We produce metallurgical coal. You can’t make steel without us. Coal will be around for a long time.
And if he does remind me to only buy stuff from him he types on a typewriter.
By the way- i did watch the video. He doesn’t understand code for sure.
So because we didn’t start out with a Boeing it won’t work? That’s the argument here? OF COURSE these technologies will evolve. The fact that their first iterations aren’t perfect DOES NOT MAKE THEM A TOTAL FAILURE. The code evolves. It’s malleable and will change to meet needs and desires. “You can’t easily spend it on a cold wallet” is the perfect example. Ox is already implementing programs on ledger wallets to not only SPEND easier but actually one will be able to execute trades wallet to wallet over a decentralized exchange. Just because governance is executed perfectly now doesn’t mean the code won’t be changed and improved later. I kept hearing the same bullshit about solar and how it will never meet the cost of coal and natural gas but right now it’s coming down to between .05 to .12$ a KWh. Technology advances. The code advances. The consensus advances. Jesus age Christ it we listened to all the “never” and “cants” of so called experts we’d still be painting pictures on the cave walls!!! How the hell does Kodak even compare to this? The “camera” is still there. The “film” changed. Cryptos will definitely have different iterations and many ideas will be tried. No one trusts governments right now which is why Bitcoin was made in the first place. You guys have a seriously antiquated way of thinking and cannot see all the moves on the chess board. Will bitcoin be the winner? Maybe not. But we all agree that fiat has always gone to zero. Gold will go to zero as technology advances and we start to mine in outer space which isn’t that far away. The robots are coming-remember? Once we are able to get resources from off planet efficiently commodities markets will have insane adjustments to make. He’ll just being able to mine the depths of the ocean will drastically change that. Small thinking doesn’t see big change. It never will.
I’m a none native speaker, please forgive my bad English. Mish. I would like to say to No to your conclusion. As a professional programmer, investor , IT architect, I am convinced that he doesn’t understand blockchain technology at all. Blockchain technology will be improved for sure. We can already see extreme improvement like this : link to github.com . This github repository shows extremely advanced blockchain technology which developed by top tier computer scientist. And this blockchain technology (Tendermint) is specifically designed to resist to almost all government attack. Blockchain technology is not born to be a tool of government. That is inherentlly, mathmatically imposiible. After spent last 10 years to read technical / academic papers, and programming this technology by myself, I came to conclusion that nature not made this mathmtaical tool(blockchain) to be a tool of government.
At least tulips have some real value. LoL. Another great post.