Table of Contents
- Ponzi Schemes
- Not a Currency
- Offending Transaction Fees
- Slow Transactions
- A very crappy Store of Value
- Average Joe can’t safely handle a decently sized amount of Cryptos
- Blockchain is Garbage
- A Glorified Linked List
- A Climate Threat
- A giant Memory Leak
- A Laughable TPS
- 51% Attack
- Quantum Threat
- Evil Governments
I didn’t plan to write about Crypto today. It’s not a topic that interests me much. But every other question I receive is about Cryptos and NFTs, and I think it might make sense to vomit my thoughts about this fantastic world that my boomer brain can’t fully grasp.
I sometimes question my possibilist approach to almost everything. I will find convincing reasons behind every side of each debate about any topic. I’m aware of the work required to have an opinion and I do my best to keep my opinions at bay when I haven’t done all “the work required”. The more I look for “the truth”, the more I discover that I know nothing.
John Snowcrates is my hero.
But on the crypto thing, truth is so clear to me that I need to pay respect to my biases. I’ve looked for other sides of reality, listened to respectable exponents of the crypto-enthusiasts crowd, and approached the global discussion with an open attitude.
The more I look around, the more I think I see it clearly: in their current form, cryptos are Ponzi schemes. And NFTs are Ponzi schemes squared.
I’ll be wrong ad history will laugh at me. I’ll be “wrong” for my entire life, like they tried to make Galileo Galilei wrong about which celestial body was dancing around which.
I’ll be wrong like heretics have been for the last 2000+ years – because false claims can be made true if a lot of people believe in them.
I’ll be wrong like I’d be wrong if Flat Earthers would overtake the world and outlaw even thinking about a non-flat Earth.
But deep down I hold this position (and my agnosticism, and my “non-flat-Earthism”) pretty strongly.
The hype around Crypto today is a global hallucinations, and the explosion in crypto market prices is the biggest bubble of all time.
Ok, let’s get started.
Let’s focus on cryptos today.
I also want to talk about NFTs, but in a later episode of this series.
Nobody is “investing” in crypto because they think the value of their cryptos is going to be stable for the next 10 years. Nobody. If you know anyone, please let me know. No fucking body.
Everybody is “investing” in crypto because they want their money to 2-10x in the short term.
Everybody is just betting, looking for a greater fool.
Nobody signed a working contract with their compensation expressed in a crypto.
Wait, wait… before you scream, I know that there are two categories of people who do get paid in cryptos.
First fake group is populated by those who are working on yet another crypto startup and who are paid in their own shitcoin. This doesn’t demonstrate anything. it’s just betting that you’re going to be millionaire at the ICO or go broke. It’s like being paid 100% in stock while working in a startup. It’s betting in 10x or nothing. it’s another way (a crazy one) to look for a greater fool. And a good way for crypto startups CEOs to only pay their workers if they’d become billionaire themselves. Essentially a Ponzi Scheme definition.
Second fake group is populated by the crypto fanatics who work and interact with other crypto fanatics. I’ve seen a few guys claiming “to get their salary paid in crypto, and to pay their rent in crypto”. This usually means nothing more than having transactions in BTC or ETH but the reference value is good old Dollars, Euros, Swiss Francs or Zimbabwean Dollars. Which means they signed a work contract with amounts expressed in good old Benjamin Franklins, but on the pay day they get paid that amount converted in crapcoins. Then they can convert it on the spot back to real money or – again – look for a greater fool who’ll pay 10x their virtual amount in a month.
Nobody in the real world accept to sign a contract in BTC or ETH. it’s simply not a thing.
Italian average salary is 30k per year, nobody would sign a contract for 0.5 BTC per year. Either BTC will go to 1M and their employer will fire them to hire someone for 0.03 BTC/Year, or BTC goes to 10k or less and the employee will starve, quit, or ask for a raise in BTC – which means they’re essentially using EUR as the real contractual currency.
Btw, how to legally prove that the monthly salary has been paid? Who would you sue if you employer “forgot” to pay you a salary this month?
Not a Currency
Cryptos are not currencies. They lack everything that make a currency a currency.
Limited supply is bullshit. No monetary policy is possible with limited supply. No deficit spending. No credit.
And if you think that “this is a feature, not a bug” you should be kept very far from places of command.
If the world was using BTC as the global currency during the covid pandemic, today we’d be talking about the ongoing third world war. Governments being able to borrow money from the present to find a way to pay it back in the future is what brought food on the table of hundreds of millions of individuals everywhere in the world. Stimulus checks, unemployment benefits, money being printed, interest rates being low and controlled… without this we’d be locked in our bunkers with weapons and canned food today. So, fuck you BTC.
I’m not saying that monetary policies are necessary or good every time (and governments today are abusing a bit in my opinion), but with a real government owned currency they’re possible. Of course I fight for more responsible governments and central banks around the world, and I complain with the distortions they’re creating to the free market, but their eventual mistakes are several orders of magnitude better than what would have happened if we’d be all using cryptos today.
No credit, no debts. Have you contracted a debt in BTC recently? No? Guess what, nobody did. Nobody could. Nobody would!
First of all, good luck designing a smart contracts to enforce debt repayment (or good luck asking for justice in this field) without a collateral lockable in the blockchain.
Second, assuming you were able to contract a debt in BTC for your home purchase few years ago, now your debt is just 10x larger. Tomorrow it could become 100x smaller. or another 10x larger.
Cryptos are not currencies.
Offending Transaction Fees
Bitcoin transactions are “free”. You just broadcast your intention to transact on the BTC network and some gentle miner will grab your transaction and try to mine a packet including it.
You can say “thank you” to your kind miner and add a “tip” for the job of mining. The tip should be specified in the transaction itself.
So far so good. So Hippie. So anti-establishment. Right?
Tips are non-optional. You MUST tip your miner, else he’ll pick other transactions to maximize revenues. in fact nobody calls them “tips” anymore. It’s a fee.
There are fee calculators based on number of bytes that your transaction occupies in the block, and a market price of satoshis per byte.
Currently we’re above 100 satoshis per byte, for a transaction that you want to be confirmed within 6 blocks (1 hour). Given satoshi’s price and average transaction size in bytes, on average your BTC transaction will cost 20 USD today. No matter the amount of coins being moved.
Ethereum fees are similar.
Essentially we got rid of the “evil banks and credit cards”, but now we’re begging an oligarchy of Chinese miners to grab our transaction into their packet for a fee that’s an offense to human intelligence. How cool is that?
Mind that the fees are:
- Doomed to grow with crypto price growth. Same satoshis per byte, but if BTC reaches $1M a satoshi would cost 13 times more than today in USD.
- Doomed to grow with future halving events. Every ~4 years the reward of mining a new block halves. Energy costs ain’t going to get slashed. Miners gonna need food on their table. Fees must grow, else what am I mining for?
Good luck 😉
“Hey bro, I can’t wait for ever. There are customers waiting on the other tables.”
“Wait, wait, I guess we should be close… let me check on Blockchain Explorer…”
“Your coffee is getting cold… it’s almost 15 minutes, I’m going to kick you out if you…”
“No no no wait, I’m wiring you the money, trust me. It’s 5 CHF, do not worry, it’s coming… that fucking miner didn’t grab my transaction before but I’ve raised the tip to 15 CHF, it should be enough… OH NO, AGAIN?? How much do you want, 20? 25? I’m fucking trying to pay a coffee!!”
“Bro, get out of here”
“No, no please, can you wait another 10 or 20 minutes? I promise, this is the future!”
imagine the above scene at a bar.
Currently, BTC blockchain difficulty is set up to mine a block every 10 minutes. It means your transaction can’t be immediate. You need to wait at most 10 minutes if you’re lucky and your transaction is picked up next by a miner that’s going to win the lottery of infinite hashing.
And even if your transaction is included in the latest mined packet, mind that the world might require 2-3 more packets after yours in the chain to validate your transaction to avoid lucky (cr)hackers.
“Hi Mr RIP, how can I help you? You should try the freshly baked wood oven bread! Also, taste these pastries 😉 ”
“Hi Gennaro, wow, your bakery is really amazing! I take this, this… and that. How much is it?”
“It’s just 125 satoshis (plus 10k satoshis transaction fee of course)”
“Excellent, 1% signal vs noise ratio, the miners in China are very generous today. Last month it was 0.5%!”
… 20 minutes later…
“Here we go! You should have received my satoshis!”
“Yes, received… hey RIP, congrats! I’ve seen you went to Gaetano’s bakery last week, why? Btw, congrats for the pay raise 🙂 ”
“Ehm… yes, thank you! About Gaetano… you recognized his address? Well, check his balance. He’s having financial problems and he’s low on satoshis as you can see. I wanted to help him. I’ve looked up your wallet and you’ve doubled it in 2035, last year.”
This is pretty awkward (says the guy who publishes his Net Worth on his blog), but BTC address, and their complete history of transactions and current balance are public.
Modern wallets bypass this by providing temporary addresses for each transaction. Harder and less convenient to do with paper wallets. And a death sentence to blockchain explosion in size.
I’m all in for transparency, but I’m not sure having it forced on everyone is a good idea 😀
A very crappy Store of Value
BTC is a crappy store of value, maybe only worth it for those who live in hyperinflationary economies.
If you were living in Venezuela during 2018-2019 you might have been better off relying on the “stability” of BTC than the local currency. Now that inflation is back to a “normal” 2000% per year, you might want to think twice before playing the crypto roulette.
Anyway, except for those who were living in Venezuela in 2018-2019, in Zimbabwe in 2008-2009, or in Germany during the Weimar Republic (and few other cases) you’re probably way better off storing your value somewhere else if you care about – like the words say – storing and preserving your purchasing power.
“What about Gold??”
That’s a fallacy.
First of all I don’t consider gold a store of value either. Just sayin’… I don’t have to defend Gold.
Second, Gold has some intrinsic value. A little, I know. But it’s still a thing we as a society value in terms of jewelry. We can wear Gold. We don’t wear hardware-wallet-necklaces.
Third, you can own Gold pepitas without having to rely on an intermediate network that could shut down their operations, or get hacked, or you get the password stolen or lost, or the company producing wallets shuts down, or you get cornered in the dark of a dead end with a gun pointing to your face and a gentle request to “wire” your satoshis to this guy.
Speaking of which…
Average Joe can’t safely handle a decently sized amount of Cryptos
A lot of kids are playing with hundreds of dollars worth of cryptos, and that makes a good paste time, I agree, a nice alternative to betting on sport games or playing the casino.
But what about holding 6, 7 or more digits amounts in cryptos?
Take a look at this amazing post on Swiss Mustachians Forums by user Dago about “Security tips on holding a large crypto position“.
just listing few threats:
- You lose your passwords. Like Stephan Thomas, who lost the password of his wallet holding 7k BTC ($400M).
- Your devices being hacked: mind that crypto transactions are not reversible. Banks or credit cards transactions offer infinite protections in comparison.
- Your devices being stolen. enough said.
- Paper Wallet stolen, lost, degraded. For hardcore paper walleters.
- Life threats. People recommends to use different addresses for each transactions, and cold storages usually work this way… how convenient! People also recommend to use a dedicated PC/Laptop to handle your cryptos, hardware always offline except when you need to trade, using a VPN to hide the IP address of your transactions, reducing the risk of being tracked down physically. How fucking convenient! I guess my father is eager to adopt this amazing technology!
- Explosion, earthquake, fire, tornado, flooding or other natural disasters happening to your home. There’s no bank with distributed datacenters holding your balance, sorry. Yes, you can hedge against it, like having a secondary wallet (paper or hardware) in a bank safe. How cool! Using banks to contribute to this revolution against the evil… banks!
- Phishing and Scamming. You sent some BTC for your purchases and nobody is shipping your product? Call your bank and block the… wait, which bank? But you can always sue… wait, who?
- Exchanges being hacked. Do you remember Mt Gox? I do! It was 2014… A lot of BTC have been stolen back then. Now things are way safer! Or… are they?
- Your fucking death. Are your survivors able to handle your wallet? Are you prepared to die tomorrow? Last time I checked, Mr. Death wasn’t required to call you the day before coming for a visit.
And luck loves to mix ingredients, like having your wallet on Quadriga exchange being lost because the CEO suddenly died in a mysterious way with his encrypted wallet and it turns out it was a giant Ponzi Scheme.
Is this a technology ready for mass adoption?
No, this is garbage!
Speaking of which…
Blockchain is Garbage
For those who don’t know, the blockchain is the core data structure behind today cryptos.
The Bitcoin blockchain introduced by Satoshi Nakamoto in 2008 was not an original concept. it’s been theorized in 1982 by David Chaum, later expanded in 1991-1992 by Haber, Stornetta and Bayer. In 1998 Szabo worked on Bit Gold, the first decentralized currency.
It’s 40 years we’re playing with this glorified linked list and still it has no practical use cases.
Yes, the blockchain is a glorified linked list. It’s a very inefficient database. It’s a giant “memory leak”. Its large adoption is a climate threat. And it’s slow and expensive to use.
This is the definition of garbage.
A Glorified Linked List
Not much to add.
It’s just a distributed linked list, no rocket science.
Queries on such an inefficient data structures are expensive. You need to “integrate” the entire blockchain history to check if a trade is possible, i.e. if the source addresses of a transaction have enough funds.
Good luck handling that in 20 years.
A Climate Threat
To “remove the middleman” we decided that proof of work would be the “thing to trust” instead.
But proof of work is the largest dystopian enabler in current era. Forget about nationalism or alt-right, the least dystopic dystopian scenario I can see in the far future is a planet whose available energy gets depleted to calculate an insane amount of hashes with increasing difficulty. Good job humans!
Currently BTC mining energy consumption doubled in less than a year, and the entire mining network consumes more energy than Argentina (Population 45M). It was Switzerland (Population 8M) a couple of years ago, and it’s just a doubling away from entering the top 10:
Bitcoin average energy consumption per transaction is 6 orders of magnitude larger than 1 VISA transaction. Current estimates say that one Bitcoin transaction required the amount of electricity needed to power up 1.57 American households for a day (source).
This is a visual from Statista:
This is ridiculous, and mining this shit should be forbidden by the United Nations. Greenpeace activists should occupy mining farms instead of caring about irrelevant (in comparison) whales and oil spills.
Take a look at this nice article on TechCrunch about The debate about cryptocurrency and energy consumption.
“But RIP, Proof of Stake…”
… isn’t what 80%+ of Crypto Market Cap is currently based on!
Anyway, since Ethereum is planning to move to PoS soon-ish we’ll have more data do analyze.
A giant Memory Leak
The blockchain is jut a giant “memory leak”. Ok, not exactly “memory” but disk. But the meaning and the implications are similar. Blockchain is doomed to keep growing in size. And there’s no official “entity” who’s entitled to distribute “snapshots”.
There’s no monthly statement saying “this is your balance and transaction list. If you shut the fuck up, we’ll take it as an acknowledged response and get rid of your transaction history beyond the legally required minimum time frame of say 5 years”
Yeah, banks are evil, but banking and credit cards data don’t trace back transactions since the invention of banking.
This has huge implications.
First, as I said above, glorified linked list with “append only” behavior is domed to linear O(N) access complexity, where N is the number of blocks. Since the “difficulty”-picking algorithm keeps constantly spaced in time, e.g. a block every 10 minutes for BTC, N is also Time.
Second, the storage required to store the entire BTC Blockchain is growing more than linearly, and it surpassed 300 GB earlier this year (link):
Impossible to store on a smartphone, very expensive to store on a desktop/laptop.
You gotta trust snapshots, isn’t it fun? Blockchain is Trustless!1!
If you don’t wanna trust an entity who owns the ledger and “aggregate” the past, you’re doomed to keep growing, and track down every Satoshi movement since the beginning of time. Excellent! Very scalable!
Btw, Ethereum is another 200 GB, you better pick a single currency, your computer can’t handle holding multiple coins in a “really trustless” way. What? You buy BTC on Revolut off chain? LOL, you’re really on top of things 😀
Take a look at this IBM document: Storage Needs for Blockchain Technology.
A Laughable TPS
Let’s mass adopt Bitcoin for daily transactions! Yay!
Let’s check, how many transactions per second does the Visa network handle today?
It seems that they handle ~2000 Transactions per Second today, with a Peak capacity of 65k+, according to their 2018 factsheet.
What about the BTC blockchain? How many TPS?
Yes, 7 TPS. Not joking. I’ve bene working as a SRE on low level services at Google who handle 8-9 digits QPS. Digits QPS, not QPS. In the range of 100,000,000(s) QPS. And the future of currency is a piece of garbage that can’t handle a two digits amount of concurrent transactions? Are you kidding me? Italian National Pension System website – which is the Wikipedia definition of garbage software – crashes several times per month under “massive amount of 300 connections per second” and still it outperforms BTC by almost two orders of magnitude.
This is know as the Bitcoin Scalability problem:
And you better keep maximum number of concurrent transactions low or else… do you remember the storage problem above? Well, good luck with that in case BTC would allow 1000x more transactions per second, or 1MB blocks and same “a block every 10 minute” policy. The bugchain will grow by 1.5 GB per day or 0.5TB per year! You gotta rent a datacenter and call it your “wallet” 😀
And that’s another currency! It’s not your beloved BTC. And in fact, even if it’s a better version of your BTC, it’s trading at $200, not a $60k.
“Yeah, but it’s free money spawned from my existing BTC. I love forks!”
But it’s part of the same global hallucination, and it’s not going to last. You can’t keep creating “something” out of thin air for long.
It’s like if the Flat Earthers took over the world and then… puff, you now have a Flat Mars, a Flat Venus and so on. A forked lie doesn’t turn into a truth.
And btw, who the hell decides when to fork, or what changes to the protocols / software should be applied? I never fully accepted that. isn’t this shit supposed to be trustless? Who takes decisions? Are you really letting “entities” vote?
… speaking of which
As we’ve seen, blockchains are based on trustless consensus algorithms, the most famous being Proof of Work (PoW) and Proof of Stake (PoS).
Both suffer from majority attack risks, also known as 51% attack for PoW based Blockchains, or 34% attack for PoS based blockchains.
(Plus 200+ more vulnerabilities, according to Cloud Security Alliance)
It means that if 51% of computational power among the miners cooperate to append malicious packets your cryptos are screwed.
“Oh come on RIP! Do you have any idea of how huge is 50+% the mining power of the entire Bitcoin blockchain? It’s impossible to coordinate a 51% attack at this scale!”
Guess where the Bitcoin mining power is currently located:
Yeah, two thirds of BTC mining power is in China!
Last time I checked China was not a democracy. Last time I checked the government was able to do the hell they wanted with internet stuff.
How safe you feel now against a 51% attack?
I don’t know you, but my idea of “getting rid of evil intermediary” didn’t involve me waiting for an hour for my transaction to be picked up by a miner whom I offered $20 for the service, and it didn’t involve me trusting a non-democratic nation to care for the ledger where my holdings are stored.
I’m not an expert on this field, so here my criticism is less strongly held. But I think it should be mentioned in the list of crypto-problems.
There are serious threats to cryptography and cryptocurrencies coming from advancements in Quantum Computing. This report by Deloitte says 25% of BTC are currently vulnerable to Quantum Attack.
Deloitte is not the only source I’ve found that worn us about the problem. Take this Crowdfund Insider article on the subject.
There are of course factions who claims that quantum threat is non-existent or not as impactful. For example, Roger Huang explains why in this article, even though he admits that “The real threat is when quantum computers become many scales larger than they currently are“.
Last two sources I’ve found interesting and worth mentioning are more equilibrate: this RSOS publication titled Committing to quantum resistance: a slow defence for Bitcoin against a fast quantum computing attack, and this article on Forbes titled The Bitcoin Boom And The Quantum Threat.
I couldn’t make my mind, I lack knowledge in the field of quantum computing, but I think it’s worth mentioning in this article.
What about governments regulations?
So far so good. Mostly because no anti-crypto laws have been approved (yet) in the western world.
But no country loves to see citizen evading taxes with ease.
Because let’s be honest, if we start moving money this way, in a decentralized p2p uncontrollable way, how are government supposed to verify your income (and collect income tax)? By voluntary disclosure? 😀
You might also be interested in this publication by 3 MIT professor in defense of Bitcoin Legitimization. Still not convincing enough, in my opinion. I’m too old for this level of hype on idealistic but unpractical ideas.
Unmotivated hype around literally nothing.
Dopamine driven prices, a global hallucination.
Current implementations of the most hyped coins are thrash. ETH is thrash. BTC is thrash. They’re both unusable for their original intents. Defi is imploding, PoW is exploding, fees are growing.
Your Privacy and safety are at risk.
Cryptos with a limited supply are “deflationary”, and no monetary policy can be adopted on a deflationary currency. If the world was using BTC during this pandemic we’d have blood on the street right now.
I LOVE having protections with banks and other circuits where payments are reversible, there’s a backup mechanism if I lose my passwords, and scams and frauds are partially reversible as well.
Nobody can point a gun and force me to give them my wallet. Well, technically they could, but my (physical) wallet is almost empty!
Cryptos are not usable by the masses in their current form. My father would never be able to use them. My wife neither. I’m not sure I could use them safely if all my wealth was in cryptos right now.
They’re tools for nerds and games for kids.
They might find a place in the real world in the future, but at the moment there’s a 100x speculation overpricing multiplier that is pure nonsense.
I know that I could and will be wrong!
But… a global hallucination could keep going forever. See Religions. imagine Flat Earthers convincing everyone what the earth is flat. A lie doesn’t become truth because everyone believes in it. Even (especially) if famous people keep pumping it.
[Begin of Mini Side Rant on Tesla]
One day someone will explain to me why the fuck this guy with this meme company that keeps raising capital in late 2020, asking money to shareholders while being the 6th largest company in US, has “invested” its first profits since years in BTC!
money that, btw, came from selling regulatory environmental credits (i.e. governments thanking you for using clean energy, taxpayers money), not from a sustainable business model.
It’s like if your old broke cousin who asks you money at every Christmas to bring food on the table for his 3 children one day gets a job in the “alcohol addiction prevention office”, and with his first paycheck instead of returning you some of the money he asked over the previous two decades, or just saving it, or even squandering it on random stuff… he buys 100 bottles of whiskey! And next time you meet him he will ask you money again “for the children”.
Please, come on…
[End of Mini Side Rant on Tesla]
Maybe a real, solid, new crypto will show up (or it is already here) and I can change my mind, but current mainstream cryptos are thrash.
Change my mind.
“Yeah, I know, BTC has some limitations… but you can’t dismiss the crypto world because of BTC limitations. I’m a fan of the technology… current implementations are just proof of concept, how can you not be excited about the potent…”
Oh come on, shut up! It’s BTC that’s trading at 60k per “coin”, isn’t it? BTC dominance is 60% according to coinmarketcap today! If you think BTC is just “a prototype” then let’s all give up on this bullshit, let this garbage go to zero and let’s design a real, useful, decentralized currency if we can find a valid idea – I doubt it, but I’m willing to listen.
Anyway, there are some good/promising aspects of Cryptos, even in BTC and ETH (in terms of ideas, not implementations), and I might want to publish a “Part 3 – The Good” one day. It’s not in my short & mid term plan though.
Have a great day!