Tag: blockchain

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Bitcoin? Seems Like Bitcon…

I’ve never been a fan of crypto currencies. A few months ago, I wrote about some of the problems with crypto currencies. However, since I’m a techie, people always expect me to be paying attention to the crypto market. So, in the fall, I “invested” about $750 dollars into crypto. Like any good investor, I diversified between a variety of currencies. How did I far? Very poorly.

As I write this, Coinbase lists the overall market as down 41% from this time last year. But surely there must be some winners? If so, they weren’t among the 12 coins that I purchased. Bitcoin is one of the worst, and is down 47%. I selected a few that I thought had actual promise because of their utility – Fetch.ai and Internet Computer. Both of them performed even more poorly and are down by more than 60%.

Risks happen in any market, so this should be a surprise. However, crypto currency advocates have insisted that these currencies would protect against inflation and that they would be immune to geopolitical events. Currently, we’re seeing the highest inflation in 40 years and are closer to WWIII than we’ve ever been with Russia’s invasion of Ukraine. As such, crypto currencies have not lived up to their hype.

Now, investment firms are considering allowing crypto currencies to be included in retirement accounts. Why? Because supporters of crypto must be seeing the true nature of crypto’s Ponzi-scheme. They finally recognize that more investors are needed to inflate the value of their crypto “investments.”

Everyday, the evidence becomes more and more clear – it should have been named Bitcon from the beginning…

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Crypto Currency Problems

Even with the recent decline in cryptocurrency prices, enthusiasm remains high among blockchain supporters. However, after more than a decade, several key problems still remain before wide-spread adoption can be expected.

Investment / Currency Dilemma

The first problem is the investment/currency dilemma. Blockchain evangelists repeatedly tell us what an amazing investment crypto currencies are. Then, they tell about how crypto is replacing fiat currencies. Unfortunately, however, it’s not possible to be both an investment and a currency. Why? Because the two are – for the most part – mutually exclusive. Investments require volatility – something we see in abundance with crypto currencies. However, an actual currency requires stability. Nobody wants to be paid for work done this month at a wage that is wildly fluctuating. So, we need to decide which it is – a currency or an investment.

While some currencies – known as stablecoins – strive to maintain a 1-to-1 relationship with the dollar, this seems to fly in the face of the argument that fiat currencies should be replaced with crypto currencies. While these stablecoins may work great for purchasing goods and services, why not simply use the dollar instead and save yourself the transaction costs?

Energy Consumption

I have previously blogged about the crypto energy issue. In short, crypto currencies consume massive amounts of electricity while many around the globe are arguing that we need to reduce energy usage to prevent climate change. However, even if you reject climate change; it’s no secret that many places around the world suffer from energy shortages. Even in the US, brownouts are not uncommon in many communities on the hottest days of summer. Is it really reasonable to consume massive quantities of energy to create digital money?

Cyber Terrorism

Crypto has a long history of being used for money laundering, drugs, hacking, and other nefarious uses. While many will argue that this represents only a very small portion of the crypto market, it none-the-less is a real concern that the crypto community needs to address. This is particularly obvious with the growth of ransomware demanding payment in Bitcoin. Regardless of the actually percentage of illicit usage, it still reflects poorly on crypto currencies and will cause increasing oversight by government entities which could negatively impact the crypto markets and long-term viability of blockchain technologies.

Quantum Computing

Nobody seems to talk about it much, but quantum computing could unravel the entire blockchain in the blink of an eye. Since crypto currencies depend on encryption, it is absolutely essential that the encryption algorithms used be unhackable. Given the history of encryption protocols, that seems unlikely. However, it becomes even more unlikely when quantum computing enters the mainstream. While it may be years off, the introduction of a large quantum computer would allow the owner to rewrite the entire blockchain by simply having the majority of computing power on the internet – something not unreasonable with a modest quantum computer. This would rapidly shift financial power into the hands of a single individual.

Conclusion

While I continue to hear people talk about all the great things crypto currencies have to offer, few are interested in addressing the issues that will either prevent widespread adoption or create growing threats to commerce moving forward. If, indeed, nobody is interested in resolving these issues to support the long-term growth of blockchain technologies, then doesn’t it support the notion that this is really nothing more than a Ponzi scheme?

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Competent Investing

Regardless of social or economic status, as human beings we have the ability to invest our time, energy, and resources into a wide range of opportunities. Whether we invest in people, projects, or something else, there exists a responsibility and an importance in exercising reason and assessing our own competence beforehand. Using a bit of common sense, this should go without saying, though emotions can often cause people to overlook sound logic in many circumstances.

While this may seem obvious, people should address and assess competence when investing so that they can be prepared for various outcomes in light of uncertainty. Take cryptocurrency as an example. About a year ago, cryptocurrency news stories were finally flooding the mass media. Everyday people heard stories of investors who gloated a twenty fold (or more) return on their initial investment. Without understanding much of the history of cryptocurrency or its benefits and flaws, people started investing their life savings, mortgaging homes, and other unthinkable decisions based simply on their fear of missing out. Absolute mania.

In all honesty, a case could be made that these same people backed out on their investments when the market took a rough turn. In most instances, our investments fluctuate, growing sometimes and shrinking others. The difference between investing in stocks versus cryptocurrency, however, is that cryptocurrency investing is much more volatile. An increase or decrease of ten percent in a matter of hours is fairly common, whereas with stocks, it generally would take months, even years to see a price change that significant.

The reason I write about this topic today is not to influence anyone to invest or pull their investments from cryptocurrency. Rather, I simply hope to help people sincerely think about why they choose to invest or not invest. What do we value most in life? Do our investments align with these values? If not, it begs the question of whether or not we are acting as good stewards of our influence. On this Thanksgiving Day, we should consider what we’re truly grateful for. After we’ve done that, there’s only one thing left to do. Appreciate it.

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Transactional Friction

If you have ever considered where money originated or why we use it, then join the club.

Long before the day of the dollar, civilizations operated under a system of barter where goods were directly exchanged for other goods. While there are a few benefits with this system, people quickly realized the obvious flaws. For example, if a farmer had a cow to trade, they would need to find someone with goods of equal value. Further, there is often an expiration date associated with certain goods, such as a farmer’s milk or a baker’s bread. Therefore, even if a baker had enough bread to buy a cow, the farmer would have no use for that much bread.

These days, most of the world uses government issued currency that acts as a standardized means of exchange. While currencies address many of the issues of the barter systems, they are still often limited by some factors. For instance, if a person wants to spend money online or while vacationing in a foreign country, that spending creates transactional friction. In other words, customers pay fees to a middle man, whether it’s to exchange currencies or process transactions.

As a result, many have turned to cryptocurrencies as a solution to transactional friction, though  cryptocurrencies have not been able to handle scalability for the time being. As a result, using cryptocurrencies for their intended purpose is virtually impossible. For cryptocurrencies such as Bitcoin or Ethereum, consumers spend several dollars in fees to make a transaction, rather than the fraction of a penny that they initially boasted.

Consumers around the globe are losing billions of dollars each year to various fees. So what can we do to avoid transactional friction? One piece of advice is to avoid using money where possible. Try to exchange your marketable skills for something more valuable than money. Programmers are continuing to work on some of the scalability issues behind blockchain technologies. In the meantime, everyone else can have a bit of patience and remain on the lookout for the progress taking place.

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The Cryptocurrency Elephant

For the last 6+ months, cryptocurrencies have been the news over and over again. Ranging from the highs of Bitcoin at the end of last year through hacking of cryptocurrencies during the last week; cryptocurrency news has been everywhere. But with all the buzz about cryptocurrencies, the elephant in the room seems to be completely ignored: the huge waste of energy.

During the last several decades, there have been growing concerns about climate change, global warming, green technologies, etc. Al Gore insisted that we lower our green house gasses (ironically while traveling around the world in a private jet creating more green house gasses in a year than many of us will in our lifetime). Car companies want us to use electric cars to lesson our usage of fossil fuels. Wind and solar farms are showing up all over the place to decrease the nation’s carbon footprint. We’re asked to heat our houses to 66 at night and cool them to 75 or 80 in the summer. Turn lights off when not in use, ride a bike to work, shut off your computer when not in use, don’t idle your car in the winter to warm it up, on and on the list goes. But that’s not enough – the environmentalists say – we need to stop using all the earth’s natural resources on cell phone components, batteries, etc. Use rechargeable batteries, recycle your cell phones, don’t throw computers in the trash because they contain hazardous parts.

Then, cryptocurrency hits the market. No longer do we care about energy consumption. Cryptocurrency is intentionally designed to use as much power as possible – increase the difficulty of a block and the power consumption goes up. Mining generates huge amounts of heat, and then air handling systems need to be installed to keep machines cool. Cryptocurrency is both directly and indirectly causing global warming! To make matters worse, miners spend huge sums of money buying special chips (whether video chips or specialized ASIC chips) which require more mining to retrieve the necessary minerals. From an environmental perspective, cryptocurrency may be one of the biggest disasters of the 21st century. Yet, nobody wants to talk about it. A few years ago, it was suggested that I get rid of my Dodge Ram truck because it used too much gas. Now, the world is on fire for crypto mining.

Let me be clear, I think blockchain is an amazing technology. The potential is mind boggling. However, if it continues to grow like it currently is, how will we handle the energy requirements? How will we reduce green house gasses? How will we achieve any goals that involve using less energy when cryptocurrency is based on wasting energy? I think this is a problem the cryptocurrency community needs to resolve. The technology is great, but I doubt the global community is willing to sell out the entire planet for a few bitcoin.

I’d really love to hear thoughts from the blockchain community on how this can be resolved!

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Solidity

Recently, I was contacted by a company that does cryptocurrency to write smart contracts. I’ve never done this before, but I have no problem learning a new language – particularly for a blockchain technology. So what is a smart contract? Smart contracts are an amazing technology that allows you to run code on the blockchain.  Code is written in a language called Solidity, which is similar to Java or JavaScript. Once the code is written, it’s deployed to the blockchain where it can be called by others later. It’s similar to a cloud application, except the cloud is the blockchain instead. It’s always available because there are always machines mining cryptocurrency. Many sources are exclaiming how this kind of technology will change the world, and it’s easy to see why. The ability to write contracts in code that will later be triggered will be hugely impactful to banking, insurance, and countless other fields.

So what does Solidity code look line anyway? Here’s a simple Hello World app in solidity:

pragma solidity ^0.4.24;

contract HelloWorld {
    event log_string(bytes32 log);
    
    function() public {
        emit log_string("Hello World!");
    }
}

If you’re interested in learning more about Solidity, check out the MetaMask plugin for Chrome as well as the Remix IDE and find yourself a good online video for Solidity development. I feel confident that the future holds countless opportunities for developers who master this technology!

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