Crypto Dabble.

Zola.

Thrugelmir said:

Zola. said:

1. It is relevant because there are incentives from the miner to mine given the demand. Mining is a cutthroat business, if bitcoin failed they would mine something else. Network effect.

With some 6,600 cypto currencies in existance.  Eventually the appetite will be exhausted.  

Almost all of them are centralised "projects" with no viable future. Miners will typically flip between Ethereum and Bitcoin, whichever is easiest and produces the best returns at the time. Many miners will mine ethereum and sell it right away for bitcoin. 

Also this is timely (CEO of Microstrategy, and. a Bitcoin investor)

https://twitter.com/saylor/status/1458991225822924839

HCIMbtw

So I see the same questions repeated a few times these past couple of days, and wanted to offer my best overview of some key points (please feel free to correct me if you know more, i'm a relative crypto noob). 

Basics:

First point is fundamental and I really don't think many people posting here understand it - not all crypto is an attempt at digital currency, many of them are assets with purpose. 

Bitcoin is a digital currency. And I might be wrong here but i'm pretty sure coins/tokens like XRP and DogeCoin are also attempts at digital currency. Other than secure, decentralised transactional purposes, they have little other use (please correct me if I am wrong) 

However, beyond this we have other systems crypto like ETH, SOL, DOT. These are not a currency. They carry an associated value, but these crypto assets fulfill a role of allowing decentralised networks to run. !!!!!! am I talking about? take an NFT, a validation of ownership of a digital asset. Networks like ETH and SOL create the decentralised network to allow the NFT to be created, and traded. The networks run, based on thousands of developers around the world running development nodes on their on computer hardware. To be a developer you need some of the crypto asset, 32 ETH in the case of etheum. This is a really important point to understand what/how decentralised networks operate. There is no one developer, changes are made to a network by consensus of thousands of developers around the world, this is the whole point of decentralisation. ETH isn't perfect, SOL in theory is much better at present allowing 65,000 transaction per second, but ETH has years of first mover advantage with far more apps developed on its network and a development pathway to be as fast as SOL. However, it also doesn't need to be as good because a whole raft of L2 network solutions have been developed for ETH to allow faster, lower cost, transaction speeds. In the future when transactions happen some ETH will be burned, creating a sustaining network that requires ETH to operate, and carry out these transactions without devaluing the asset. You want to use the network, you need the ETH. And we are seeing business already developing market place technology to run on these networks? why? because there is literally billions to made in the future around digital decentralised trade, it is a progression from current trade in digital music, games and content creators will want to use because it will make money. And I personally don't have a clue about all the benefits for decentralised finance, but a lot of people see it as a complete game changer there. 

Then we also have tokens, which are much more akin to holding a share in an organisation. I am just going to refer to ENS here, as I haven't had chance to read up on DAOs to much. ENS is simply a decentralised (piece of computer code) that allows people to rename wallets from long alpha numeric codes to much more user friendly terms like james.eth. or googleaccounts.eth. So people will feel more comfortable about send transactions between one another or businesses. now ENS has issued a token to all ENS account holders (about 1.6 million), the pure purpose of the token is to allow those holders to govern the future development of ENS. You want a bigger voting stake, buy the token from some other people. I am personally not to conviced by the value some DAO's are achieving, ENS market cap is over $1bn already, and I would personally be relucant to place any of my value in a token purely for governing the future of development of the organisation (might change my mind in future.. who knows). 

Now to the questions - How do you value crypto? 

It's difficult, one argument I have heard put forward is metcalfes law, which essentially says the value of a network is proportional to the square number of nodes within it. Essentially valuing a decentralised system on its scale of use. But I believe with systems like ETH, SOL, DOT you can also model application for use in potential industries for trade. 

What is bitcoin backed by? 
Belief and finite supply. A lack of belief in the central regulation of FIAT currency, the ability of it to be printed in perpetuity without being underpinned by an asset. 

You are buying shares in something? 
Yes and no, in some circumstances it can be like a share in terms of governance, but in other instances it is just a currency, and in other instances it is an asset running a network. 

Personally I see most value in the network crypto like ETH, SOL, DOT and others which underpins apps will be needed in future. If you own the asset you wont even need to sell it to generate value, you will be able to stake the asset. Where people who don't own it, pay to use your asset and you generate interest and passive income from allowing your asset to be used to run the network.

Scottex99

Thrugelmir said:

Zola. said:

1. It is relevant because there are incentives from the miner to mine given the demand. Mining is a cutthroat business, if bitcoin failed they would mine something else. Network effect.

With some 6,600 cypto currencies in existance.  Eventually the appetite will be exhausted.  

I'd be surprised if that's even half. 95% going to 0 though

Scottex99

adam06_2 said:

MarkCarnage Patronising and avoiding the question. My concern is for inexeperienced investors who may assume that because crypto features in this section it is an investment......the whole S&I section seems to be dominated by it. I put forward what I believe is a good and robust rebuttal, which the crypto disciples have all ignored. 

Crypto is an investment. You are investing in projects you believe in by buying tokens. Same as buying shares... Yes it's not regulated yet which increases risk... But it's still an investment... And things are changing rapidly, regulations are starting to come in and even the big banks are investing in crypto as they realise that it's going to be around for the long term.

Take decenetraland as an example they are developing a metaverse... Facebook are doing the same thing... But you consider buying Facebook shares as an investment, but buying dencentralands token is not?

If the section was just called "savings" then I would agree that crypto is too risky.. but shares are also too risky.

Yup, exactly that. I do my research, I decide what I think is going to increase in value and the I buy it.

I get the feeling people think it's some proud and noble deed to be a stock investor whilst if I buy/hold/trade crypto, I must be some kind of gambling degenerate by default. I am a degen but that's beside the point haha.

For the other guy:
If it's new people coming to the forum that you're worried about, go and read what people actually advise here. It's certainly not "oh you're new to investing, you should DEFO open a 20x long on ETH with all of your bankroll".

There's a place for both. You have to put up with the Crypto threads because people are interested and post her for info. Same way I have to put up with people talking about which flexible bank is paying them 0.78% for their GBP even though I couldn't care less.

 

MarkCarnage

I do agree with you on the multiple threads on which bank is currently offering 0.01% more in interest.

Three Forums: Savings, Investment, Crypto. 

User232002

Aegis said:

Stupid comparison. We know the earth is a globe because, among other things, we have actual pictures of it from space. I have asked repeatedly for a pricing mechanism, but I just get told that I should already know, or get insulted by "HODLers". So go ahead, show me how you calculate value for BTC and DOGE and why they are different. I assume this will lead to yet more evasions, or wishful thinking that bitcoin is somehow worth as much as gold (but no other coins despite having the same utility).

I've posted about how to value Bitcoin in the past and given my relevant value target. Please go and find it. Actually, I stated it was a lower bound, because at that point I didn't care to work out more nuanced factors that would be additive - such as to what degree we can assume RE is used as a sound money alternative / possesses a monetary premium.

Aegis said:

Also, I am indeed a Chartered Financial Planner. I'm happy to have that checked by people on the board that I trust. The insinuation that this isn't true is frankly deperate and insulting.

Not my point. Telling lay people that you are a financial planner is a desperate appeal to authority. In reality, most financial planners have no more in depth knowledge of financial markets than any other graduate. They sell packaged TradFi products to clueless customers, often in ways that benefit them at the expense of their clients due to misaligned incentives. The 60/40 portfolio enshrined in that rent seeking world devoid of original thought has been crushed for the last decade, and with bonds at 1.5% and inflation at 6%, they will be for the next decade as well. Your entire sector is either going to be subsumed by a piece of code like YFI, or in 10 years time you'll do a CPD course on the latest Bitcoin backed savings product and be touting the benefits of it to your customers.

Aegis said:

My money is firmly where my mouth is - nowhere near crypto and nowhere near short positions. If you think this is in contrast to what I say, please show how. Otherwise I'll just assume this is more flapping your mouth for the shear pleasure of insulting others.

If you are correct that there is no difference between BTC and DOGE then DOGE at BTCs price is a ~40x from current prices. If BTC should be at DOGE's prices then that's potentially a 95%+ return opportunity. Either way, far in advance of other options, incredible risk/reward and almost criminal to not have a percentage of your portfolio dedicated to this if this was your thesis. If you think there's this big of a market inefficiency then why aren't you pursuing it? I can only assume its because you lack conviction in your thesis...

Aegis said:

A true crash is really hard to define, and it's certainly possible that bitcoin has had what would be called crashes in the past. The biggest issue is how long they last and how much of an impact they can have. Look at the equity crash from 2000-2003 - over 3 years of falling markets with countless individual companies going bust (i.e. a permanent loss of all value for investors). For bitcoin, the price is so volatile that I generally wouldn't call it a crash until about 80% loss, and possibly it would need to be wiped out almost entirely for drops to be more than the normal operation. In essence, it's like a penny stock on speed - we don't call it a crash every time a penny stock falls by 50%, for example.

What? Your original point was that nobody in Bitcoin has any idea of what a crash is and is a hopeless idiot; now a crash is 3 years and -80%? Dec 2017 - Mar 2020, -85%. Most of us have been around long enough to see declines of this magnitude so this is just a provably false statement.

Aegis said:
The implication you have there is that your model for fair value is dictated by the probability of BTC falling to zero value. This is progress - it's more than I've had from anyone else when it comes to answers to the question of how to value a coin. I don't think it's a good answer, but at least it represents an attempt to answer.

All models should be probabilistic. Which is why anyone arguing that Bitcoin is 'definitely' going to zero (as others have done here) are basically just doxxing themselves as deterministic thinkers.

And the original point was that, if the probability of going to zero was actually of significance, there is basically zero chance it could have diverged so far away from zero over the last decade. In other words, the price history would prove the original assumption (that it has a significant probability of going to zero) to be patently false. 

Aegis

MarkCarnage said:

I do agree with you on the multiple threads on which bank is currently offering 0.01% more in interest.

Three Forums: Savings, Investment, Crypto. 

I agree, and I've fed this back to the forum team. 

User232002

Aegis said:

The tokens do not grant a fraction of the ownership of the underlying company

They grant a fractional ownership of the underlying protocol, which is essentially the same thing. Arguably, more powerful - I'd rather have a stake in a monetised version of HTTPS than I would FAANG.

Aegis said:

They don't give ownership of the intellectual property

This is an open source world. Nobody cares about IP in crypto. Our moats are built in other ways.

Aegis said:

The owners aren't entitled to a fraction of either wind-up value or future revenues

Sorry to burst your bubble here, but they are indeed entitled to a share of future revenues.

Aegis said:

As I have said before, the problem with the decentralised nature of cryptocurrencies is the fact that ownership of the tokens doesn't mean ownership of the functionality or the intellectual property of the network beyond the very basic 50% requirement to do anything major.

Again, grossly out of touch with the reality. You clearly haven't heard of on-chain governance.

I really don't want to go over how AAVE, UNI and SUSHI are basic examples of cryptographic tokens as shares for the 4th time on this forum. Please go and read about them before making incorrect assumptions.

Strongly suggest reading HCMI's post above.

HCIMbtw

Darren, what do you make of SOL and other L1 style solutions like DOT? Is SOL largely an ETH hedge, or do you see a future in which we have a few different L1 solutions being used for different purposes/industries

And what do you make of the current state of L2s on ETH? As much as GME is in part a meme when I read about some of the efficiency of loopring and ZKrollups.. I start getting interested in diversifying outside of ETH/BTC.. not sure to what extent some of the concerns I read about with the rollups happening off chain should be a factor of concern 

Lastly I've also got some friends doing what I would consider is gambling on the outcome of the XRP case with the SEC. Sure people tout the benefits of transactions speeds and efficiency of different currency tokens. But I cannot see the logic in any of the tokens trying to be currency replacement? even bitcoin to a certain extent, but just see that has the first mover finite supply thing going for it. Do you think there is any credible place for these alt currency coins? 

User232002

I'll preface this by saying that I have no real strong opinion as to what the future L1 looks like and whilst I know way more than the normies, I'm not sure my opinion on the true intricacies of this stuff has any real weight behind it. I'll just ramble on and feel free to challenge because, as always, that will help me form my own thoughts as well.

My guess is that the future is multi chain, but not as multi chain as we are at the moment. The chains do benefit from network effect and so at some point the proliferation of chains will start to cannibalise each other. We probably end up with 4 - 8 'winners' that will specialise in different use cases. Want to run a game or a high throughput exchange? Use BSC or SOL because centralisation might not matter that much but TPS does. Want to auction off E100m of ECB bonds? Use ETH because of its security (this happened earlier this year). Fees are counter intuitive, because whilst ETH is unusable unless you have $100k+ really, that says something about the demand for blockspace on the chain. Cheap fees will onboard the masses, but cheap fees don't mean the protocol is valued highly unless you have a seriously high number of users. We need to also be honest and say that ETHs real moat isnt its technology, but its developers and the fact that all real innovation has happened on ETH first and then been copy/pasted on to other chains.

Full disclosure, 'use arbitrum' has been on my to do list for ages now (because token airdrop obviously). I'm very much behind when it comes to using L2 solutions though so I really have no idea. On that front, if you want to explore outside of ETH/BTC I'd encourage you to take a few hundred and use some of these protocols in the hope of getting an airdrop later down the line. Clearly that depends on your financial situation of course though because thats no easy ask for someone who doesn't have much invested. Be careful of airdrops though because there are some scams where they send you a fake token and then drain your wallet when you try to sell them. Still though, the UNI airdrop would be worth $10k right now. DYDX about $5k if I remember correctly. All for using the protocol with a few hundred dollars.

Yeah, Bitcoin as a currency is certainly a long way off and may perhaps never be a thing, although w/ Lightning and such I'd not rule it out entirely. I think its won the money competition though, which is enough for my needs. I don't think a currency necessarily has to accrue value in order to be a good medium of exchange, so 'investing' in a currency (which by definition is something you should be willing to exchange somewhat freely) hoping it goes up in value seems flawed. One of them might be used for transacting value, but I don't see why a CBDC (with a fair implementation, which is potentially none of them) would be shunned in favour of one of those alt currency coins. I think XRP is awful, same with all of those ones like XLM, LTC, BCH, BSV, but I do think the SEC case will resolve in XRP's favour. But the asset is still terrible, so you're just counting on the ponzi continuing, and it then becomes an issue of timing as well - it can resolve in their favour but BTC could have crashed 30% the month before and you're still underwater on the play. Not something I'd be interested in pursuing tbh even though it may very well have a positive expected value. Stick your money in a farm somewhere instead and avoid the variance.