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help me understand crypto
Old 03-02-2021, 11:06 AM   #1
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help me understand crypto

I am trying to get a better understanding of the crypto space and what sort of major changes may or may not be occurring due to that. I have a general idea of how it works and have watched quite a few You tube videos from the proponents such as Rao Paul, Michael Saylor etc as well as some from the other perspective saying that BTC is worth $0.

Michael Saylor recommended a book called (don't quote me) something like "The Bitcoin Formula". I just bought it and am starting to read it.

So, my take on BTC is that it will never be good for transactions because the protocol does not scale well. I think that paying for things will be done by things like Square or Apple Pay that are much better at transactions.

If I were to take the view of BTC having value, I guess I would side with those who say it is a "digital gold" and its use case is as a store of value the same way that those who buy into gold claim that it is.

The main case for BTC being made by Saylor and maybe other institutional types is that the USD is being debased big time. The first chapter of the book disussed "hard money" and "soft money". It seems clear to me that the U.S. Government has no choice for paying off the huge debt other than debasing the currency and paying off with cheap USD. I read "This Time It is Different" by Reinhartt and Rogoff. The US seems to have passed the debt to GDP ratio that they say no country has ever recovered from.

So I am interested in discussing some of the following:

Is BTC a store of value?

Is crypto or BTC enough of a disruptive force that it may lead to an different monetary system, either non-USD or completely outside of the current banking system? It seems that large corporations may be looking for some international money. It seems that maybe the central banks may look to some sort of digital currency to break the USD monopoly.

Is there a generational effect in play that we boomers may be overlooking? One video said that everyone under 35 does not view gold as a store of value but instead views crypto for this function.

Does the argument that crypto will "de-monetize" gold, bonds and maybe even stocks have any traction? As I understand this they argue that the value of gold will revert to pure industrial use value and have no monetary component over time.

Well, I guess this is enough to get things started.

Thanks.
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Old 03-02-2021, 11:09 AM   #2
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One other thing that I wanted to ask about, so I put it in a separate post.

I can understand BTC as a sort of currency or a gold replacement.

However, I see other crypto things like Ethereum or Cardano that seem to be a protocol for doing advanced technical things like smart contracts. These other crypto coins seem to be originated by something that seems to me to be like a start up company.

Are some of these other crypto coins being used as a replacement for tradition issuing of stock or bonds by companies and side stepping the investment banks and stock exchanges?

Thanks.
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Old 03-02-2021, 01:50 PM   #3
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I guess my answer to most of that is "Who cares?" No one knows the future but there are plenty of reasons that the BTC proponents might end up being wrong, not the least of which is IMO that central banks and taxing authorities will never permit it to be very successful. ref yesterday: https://www.cnbc.com/2021/03/01/new-...-you-down.html

As to being a store of value, I think the prima facie evidence is that its wildly varying value precludes this for at least a time, if not forever. I will be happy to sell you a car for BTC but I am going to dump that stuff as quickly as I can and also charge you a premium based on the risk I perceive.

Bogel's maxim is my guide here: “Don't do something. Just stand there!” because I always try to heed William Bernstein's warning: “Make no mistake about it: The object of this particular game is not to get rich – It’s to not get poor.”

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Old 03-02-2021, 07:40 PM   #4
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I doubt any of my comments address OP, but it felt good to write.

My problem with understanding crypto currency is rooted in understanding money in general. Even the most basics. But - I can mentally translate from old ways to digital.

1) I have never understood the value of gold. It is simply a yellow rock. It happens to be a yellow rock with about the right amount of scarcity. People think it has value, so it has value. I do not actually want any gold as I have no need for the stuff. However, I do want it because other people value it. If we discovered 1 trillion tons of it tomorrow, it would become worthless. Crypto currency is the same. It is literally 1s and 0s in a computer. It happens to be 1s and 0s with the right amount of scarcity ((21 million BTC max). If we found 1 trillion BTC tomorrow, it would become worthless. I have no desire to have any BTC/crypto except that other people value it. My point is, if people are comfortable with gold as a currency, there is no reason to be uncomfortable with crypto. Dont even get me started with paper bills.

2) In our modern world, nearly all money is 1s and 0s. When I pay my electric bill, some of the 1s and 0s in my bank account get subtracted and then add to the electric company account. If the US decides to give monetary aid to country X to help feed the population, all that happens is a bunch of 1s and 0s are transferred from the USA computer to country X's computer. How does that actually help country X feed people (it does)? Crypto currencies are just 1s and 0s. So if we are comfortable with the current modern world (I'm not), then crypto currencies seem ok. I think the big difference would be the decentralization, which I have no problem with. Instead of the 1s and 0s being exchanged between bank computers, they get exchanged between digital wallets.

3) All of that kind of leads into the subject of NFTs. I've never understood why baseball cards are valuable. It is "simply" a picture of Mickey Mantle on a piece of paper. Yet people think it has value and are willing to pay $5M. Why not the same for a video clip of Lebron James? That seems to me to be all that NFTs really are.
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Old 03-02-2021, 08:55 PM   #5
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I am interested in Crypto too. I have been reading a lot about it and why it is becoming popular. M. Saylor is one of the loudest proponents but there are a lot of others too and it is certainly starting to become mainstream, at least Bitcoin. The others to a lesser degree it seems. I can also understand the concerns in the crypto space about fiat money and how govts are printing more now than anytime in history and the massive inflation that should follow. But I also get a sense from the crypto folks that they look down on us "legacy investors" or "user of antiquated investment vehicles" and they think these good times are only just beginning. That has been a huge red flag for me. I am not thinking of investing in crypto but I do feel it merits some mindshare.


The more I read about blockchain however, this tech sounds exciting. It has the potential to change many industries at the root level. I think that's what a lot of the "alt coins" are doing, is trying to create a network effect so that there blockchain becomes the place for creativity, innovation and ultimately wealth creation.


Interesting times, as always!
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Old 03-03-2021, 05:27 AM   #6
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Quote:
Originally Posted by joesxm3 View Post
I am trying to get a better understanding of the crypto space and what sort of major changes may or may not be occurring due to that. I have a general idea of how it works and have watched quite a few You tube videos from the proponents such as Rao Paul, Michael Saylor etc as well as some from the other perspective saying that BTC is worth $0.

Michael Saylor recommended a book called (don't quote me) something like "The Bitcoin Formula". I just bought it and am starting to read it.

So, my take on BTC is that it will never be good for transactions because the protocol does not scale well. I think that paying for things will be done by things like Square or Apple Pay that are much better at transactions.

If I were to take the view of BTC having value, I guess I would side with those who say it is a "digital gold" and its use case is as a store of value the same way that those who buy into gold claim that it is.

The main case for BTC being made by Saylor and maybe other institutional types is that the USD is being debased big time. The first chapter of the book disussed "hard money" and "soft money". It seems clear to me that the U.S. Government has no choice for paying off the huge debt other than debasing the currency and paying off with cheap USD. I read "This Time It is Different" by Reinhartt and Rogoff. The US seems to have passed the debt to GDP ratio that they say no country has ever recovered from.

So I am interested in discussing some of the following:

Is BTC a store of value?

Is crypto or BTC enough of a disruptive force that it may lead to an different monetary system, either non-USD or completely outside of the current banking system? It seems that large corporations may be looking for some international money. It seems that maybe the central banks may look to some sort of digital currency to break the USD monopoly.

Is there a generational effect in play that we boomers may be overlooking? One video said that everyone under 35 does not view gold as a store of value but instead views crypto for this function.

Does the argument that crypto will "de-monetize" gold, bonds and maybe even stocks have any traction? As I understand this they argue that the value of gold will revert to pure industrial use value and have no monetary component over time.

Well, I guess this is enough to get things started.

Thanks.
My study of blockchain and Bitcoin led me to this book:
https://bubbleorrevolution.com/

It was critical enough to leave me with healthy skepticism about most of what I was seeing in YouTube videos and reading here and at Bogleheads.

The technology of blockchain should be examined separately from crypto currencies (which are a store of value). There's definitely generational differences in approaching these topics. As I recall every BTC topic gets shut down for one reason or another. Is it like gold, is it anti-indexing, and so on. These questions are worth discussing in a reasonable way, and have been in previous threads. Older investors are more suspicious and will frequently remind you.

One disturbing fact is how illegal activity finds its way into crypto currencies. I guess that's inevitable for any currency. Eventually governments will find a way to corral the coin so to speak and milk it.

Blockchain has already been a significant disruptive force. Companies that are involved in developing it further may be worth a bet.

I own no crypto currency is but will be mining HNT next month. I'm not expecting much, though.
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Old 03-03-2021, 05:40 AM   #7
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So how does one invest in blockchain and not crypto?
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Old 03-03-2021, 05:49 AM   #8
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I would start by reading about ETFs invested in this way:

Quote:
Blockchain exchange-traded funds (ETFs) own stocks in companies that have business operations in blockchain technology or in some way profit from it.
https://www.investopedia.com/news/3-...etfs-buy-2018/

At some time I may invest in an ETF like that, or try to identify individual companies.
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Old 03-03-2021, 05:57 AM   #9
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Bitcoin is a store of nothing. Doing a math problem that solves a useless equation that is hard and takes time does not give something value. A pile of fools have given it value.
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Old 03-03-2021, 06:16 AM   #10
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I dabbled in some alt coins early on, then lost interest for many years. Every so often I would check in and see what, if anything, I could actually purchase w/ crypto-currency. The answer was always 'not much.' I was approaching it as an alternate currency, and as it turns out that was the wrong approach.

I am now putting some money in BTC because I view it as a store of value and an investment vehicle. The built-in scarcity is a major factor, the distributed ledger that is blockchain is another factor, and its 10-year history helps as well. Most importantly, an individual from the Netherlands who works in commercial finance (and goes by the moniker 'PlanB' online) has produced a model for BTC price that has held up very well. It is based on the concept of stock-to-flow and uses Gold and Silver as comparison points. It includes the blockchain and miners and the built-in reward points and 'halving' points to project BTC price. This model has also given me much more confidence in crypto.

Here is the original article on this model, and a one-year follow-up.

Now, it's just a model, and it may not continue to hold, but it is at least a mathematical way to look at the issue.
As far as other systems go, like Ethereum, I am still skeptical. There is a lot of interest there, but so far the system comes with extremely high transaction fees. In many ways the crypto space is very much a wild west. Caveat emptor.
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Old 03-05-2021, 02:59 AM   #11
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Originally Posted by jim584672 View Post
Bitcoin is a store of nothing. Doing a math problem that solves a useless equation that is hard and takes time does not give something value. A pile of fools have given it value.
Yep, just like green bills ($$), yellow rocks (gold), and 0s and 1s in your bank account.
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Old 03-05-2021, 04:20 AM   #12
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We learned in grade school that money is just a symbol for things of real value (food, goods, services). It doesn't matter whether it's gold (OK, gold is a very useful substance), bills, or strings of shell beads. The only thing that matters, is whether I'll give you some of my goods and services in return for your symbol, so I can exchange that symbol for other goods and services.

I don't quite "get" the "generational" label being placed on Bitcoin and other e-currencies. Is it that older people have more life experience, and thus are cautious about yet another monetary "symbol" trying to break into circulation? Or is it the notion that "old people can't understand anything digital"? (Which might have been true 20 years ago, but is a bit dated now).

Quote:
Originally Posted by clobber View Post
Yep, just like green bills ($$), yellow rocks (gold), and 0s and 1s in your bank account.
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Old 03-05-2021, 07:00 AM   #13
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Yep, just like green bills ($$), yellow rocks (gold), and 0s and 1s in your bank account.
reminds me of an old fave song:

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Greenback, greenback dollar bill,
Just a little piece of paper coated with Chlorophyll
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Old 03-05-2021, 09:02 AM   #14
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The more I read about blockchain however, this tech sounds exciting. It has the potential to change many industries at the root level. I think that's what a lot of the "alt coins" are doing, is trying to create a network effect so that there blockchain becomes the place for creativity, innovation and ultimately wealth creation.
I fail to see how currencies of any type create value. I see that currencies are useful, in that they allow exchange with minimal friction. Somebody can take something "real", like an hour of labor, or a loaf of bread and exchange it for a currency so they can later trade for something else that's "real". The difference between government currencies, with their meddling, and other currencies, with their instability, are differences worth mentioning, and affect the friction, which I define as anything that gets in the way of a perfect store of value that everyone uses.

The technology of crypto currency is simply a distributed database. Normally the totals by person or entity are held centrally (at the bank, for instance). With block chain, one does not need to trust the issuing government nor the bank (although unless your wallet is offline, you would typically have to trust an exchange).

So the claim about creativity and innovation might have merit in blockchain applications outside of currencies; in some cases, we want to all agree on one source of "truth" and if that truth is held in a block chain that no one entity controls, that might be a source of innovation. But the idea of using block chain for yet another currency seems like just piling on to what was an earlier innovation.

A fact that many people haven't heard was that bitcoin started it's life as a email spam solution. The idea came about with the thinking that if we made the sender prove they solved a hard problem, then regular senders could solve a problem that took 5 seconds of computing to send an email, but the spammers would be thwarted by having to spend 500,000 seconds to send 100,000 spam messages. And now the bad guys have the last laugh, as they collect their ransoms in bitcoin. The world is a strange place.
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Old 03-05-2021, 11:19 AM   #15
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Have no idea how money works. Barely get trading eggs for labor cleaning out a barn. HOWEVER, this explanation of how bitcoin works does look plausible:

https://www.reddit.com/r/ethtrader/c...t_true_of_eth/
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Old 03-05-2021, 05:13 PM   #16
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I think the complexity of bitcoin is a warning. I don't want to try to understand the math behind it or the possible corruption that might exist in that "market". And how am I going to buy/sell this stuff? Even selling my one stupid Canadian Maple Leaf gold coin from 1980 is a chore. What a dumb "investment".

The US dollar might vary a bit but it's not going to evaporate. I've had many decades of experience with it and I keep collecting more.

I'd rather put US dollars into US and foreign equities and take my chances. That is a bet on human ingenuity and hard work that makes sense to my old brain.
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Old 03-05-2021, 05:38 PM   #17
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I’ve been reading up on crypto currency a bit myself. I did buy into a little bit of Bitcoin and Ethereum. I’m intrigued by BlockFi that pays 6% interest on Bitcoin and 5.25% on Ethereum if you hold it with them. They also pay 8.6% on GUSD which is staked to the value of the dollar. So I put some money in to see how it goes. I won’t get much interest with what I put in, but it’s better than a savings account. It’s money I can afford to lose, but I don’t think crypto will fall apart, unless the government breaks it up.
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Old 03-05-2021, 06:01 PM   #18
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I’ve been reading up on crypto currency a bit myself. I did buy into a little bit of Bitcoin and Ethereum. I’m intrigued by BlockFi that pays 6% interest on Bitcoin and 5.25% on Ethereum if you hold it with them. They also pay 8.6% on GUSD which is staked to the value of the dollar. So I put some money in to see how it goes. I won’t get much interest with what I put in, but it’s better than a savings account. It’s money I can afford to lose, but I don’t think crypto will fall apart, unless the government breaks it up.
How do they get the more then 6% to pay you? Is this FDIC insured? You don't have to answer that last question .

Here is a hot off the press news story:
https://www.cnbc.com/2021/03/05/john...d-charges.html

Quote:
Federal prosecutors accused antivirus software company founder John McAfee and his associate of orchestrating a fraudulent scheme to rake in millions of dollars from cryptocurrency investors.

McAfee and his “cryptocurrency team” advisor Jimmy Watson allegedly engaged in an “age-old pump-and-dump scheme,” authorities said.

The pair used McAfee’s popular Twitter account to tout “various cryptocurrencies through false and misleading statements to conceal their true, self-interested motives,” a U.S. attorney said.
And this juicy tidbit:

Quote:
McAfee, who presents a larger-than-life online persona and has twice run for president, is currently being held in Spain, where he faces separate criminal tax evasion charges. McAfee resigned from the antivirus company he founded in 1994, but in 2013 created a profane parody video explaining how users can uninstall the software. In 2019, he was ordered to pay $25 million in damages over the killing of a former neighbor in Belize in 2012.
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Old 03-05-2021, 06:09 PM   #19
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How do they get the more then 6% to pay you? Is this FDIC insured? You don't have to answer that last question .
They do loans, have a credit card, charge fees for transfers, plus there is a markup on each purchase or sale.
No, it's not insured and they say clearly that there is a risk of losing all principal. I'm not betting my retirement account on this, but maybe I can make a few bucks. Keeps me from going insane with this Covid thing going on!
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Old 03-05-2021, 06:11 PM   #20
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I think the "B" in "BTC" is "Bind" and the "T" is "Torture", but I'm not sure about the "C"
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