Thursday, July 27, 2017

Bitcoin and Blockchain for Babies

Aye, I know it's not really for babies, but I really wanted a catchy and an alliterated title, haha.

As most of you guys know, I am probably one of the handful of financial bloggers in Singapore that talks about and writes about blockchain and cryptos.

I had an interesting talk with some university friends the other day. Like I said, I know genius level people operating on a whole different level. Yet my genius friend had issues grappling with cryptocurrencies. I would say this is more of a failing of my explanation and of watered down mainstream media news reporting than the lack of intellect from my friend.

While thinking about how I could better help him understand the massive paradigm shift in blockchain techologies (speculation, making tons of money put aside), I came across these 2 videos which I think explained things very well.

The first video is comparing Bitcoin vs normal currency.
The second video is about the underlying technology of blockchain.

Why do I choose to present the first video first? Most people easily understand the context and application of Bitcoin used as money, and I think it is better to work backwards from that understanding.


GMGH Notes for the 1st video:
- Bitcoin has a capped, finite supply -> More money cannot be magically added into the system
- Normal currency is unchecked and it is never known how much is circulating in the system
- Central banks follow Keynesian economics where inflation is good
- GMGH follows Austrian economics and believe bitcoins follow that line of thinking better
- *Trust is embedded in the system*
- No one needs special permission or hardware to own a bitcoin bank account (bitcoin wallet address)
- Bitcoin itself, as of now, is "unhackable"
- All hacks related to Bitcoin has been at individual parties losing control of their bitcoin bank account
- Bitcoin can be used without government's or bank's permission, especially when permission is usually denied
- Transactions takes minutes, not days to occur
- Transactions costs are in the dollars and cents
- Bitcoin is NOT untraceable, in fact, it is even more transparent than normal currency
- *This traceability actually hurts it as money because it is not fungible*
- ColdFusion AND GMGH are both skeptical of the idea of a government-backed cryptocurrency
- "Investing" in bitcoin or any cryptocurrency comes with huge risks
- Not knowing what you're buying is a great way to lose money, regardless of the underlying investment
- Not knowing when to buy or sell is another great way to lose money, regardless of the underlying investment

GMGH Bonus Notes:

Why did I highlight that trust is embedded in the system? Because this is actually what blockchain technology is all about and it will be explained in the 2nd video.

Why is fungibility an issue? Fungibility is a key property of money (meaning every unit is interchangeable with each other, and holds no history of its previous usage and owners) and without it, bitcoin or any other cryptocurrency cannot be used without making a devil's pact and surrendering and forever putting data of their transactions on the blockchain. Oops, you "accidentally" went to a transgender bar in Thailand? That $100 bitcoin transaction for drinks and whatnots from your known wallet to the known wallet of that bar is going to look awfully suspicious to your wife, family, friends and co-workers. GREAT SHAME AND DISHONOR. That is one of the reasons why money HAS to be fungible and why bitcoin is still lacking in that department. Privacy should not be taken lightly, and everyone should have the right to privacy (in my opinion).


GMGH Notes on 2nd video:
- The internet started with almost zero adoption as well
- Every paradigm shift solved a major gap in how society functioned
- The printing press solved the (distribution of) knowledge gap
- The engine solved the (man)power gap
- The internet solved the distance (and communication) gap
- Blockchain was NOT designed to solve the gaps of money
- *Blockchain is a way to solve the TRUST gap*
- Cryptocurrencies is an application of blockchain in an experiment to use it as money
- Blockchain ledgers are superior to normal ledgers because they are tamper-proof
- Blockchain ledgers are superior to normal ledgers because they are decentralized
- That is why for normal ledgers, we must always "Trust, but verify"
- He sees strong applications for protecting personal identities and also for building reputation

GMGH Bonus Notes:

Trust, trust, trust. Why does it always appear? We all live by and transact based on trust.

How can you trust that your bank didn't overcharge your credit card? You check and verify
How can you trust that your employer paid your wages correctly? You check and verify

How can you trust xxxxxxx that yyyyyyyy was done? You check and verify.

This is a bonus bonus video that explains why trust and DISTRUST is important and how blockchain fits in. But since it's a bonus bonus video, there's no notes for this one.


Every time I hear talks like these, it gets me all riled up about how crazily and mindblowing radical and awesome blockchain technology is.

Really, put aside the obvious questions about making money regarding this and consider it more of an after thought. Do you not see how this technology is going to change plenty of things?

Before you jump onto the hype train, you might want to consider my thoughts on cryptos from an investing point of view, and also read the things that you REALLY need to know before buying cryptos.

Let me very explicit: I am not encouraging anyone to invest in cryptos. This shit is both volatile and risky af (note: volatility and risk are two VERY different things). What I am doing is encouraging people to read up more about it and get interested in it. It is going to be massively disruptive, both in terms of business and in our own futures moving forward. If you eventually do decide to jump down the rabbit hole after me, be my guest. But as always, GMGH is NOT a financial advisor, your investments are your own responsibility, not the responsibility of the anonymous 27 year old blogger (or so he/she claims) that you follow.

6 comments:

  1. Haha your genius friends will probably go into R&D on blockchain. Already mainstream investment banks & blue chip tech companies are implementing blockchain solutions & offering blockchain as a service to customers. Some stock exchanges are also trialing blockchain as well.

    Internet took 30 years from invention to viable commercial usage & corporate use; and 40 years before it was truly dumbed-down for the masses who could treat it as another appliance -- just on & use, like a TV or light switch.

    Blockchain?? Maybe 10 years to mainstream commercial & corporate use, mainly backend. We'll be using it, but unconsciously.

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    1. Hi Anon,

      I agree, I think blockchain is going to be used a lot in the corporate backend. Immediately there would be benefits for anything data related, such as records and auditing. I doubt govs would be as innovative and risk-taking and private organizations with profit-seeking motives,

      As much as I would love to see users interact directly with the blockchain (running your own node and keeping your private keys is basically like running your own bank connected to the global SWIFT network), I think it is beyond the comfort zone of most people.

      Just like how most of us don't understand internet protocols yet everyone is still able to enjoy the internet, I think that is how blockchain will be for most people.

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  2. Hi GMGH,

    Thanks man, I learnt something. Thought fungibility is the ability to grow fungi, LOL!

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    Replies
    1. Np Jes. Lol fungi growing ability, sounds like it could be a horrible superpower to have haha

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  3. Thanks a lot for this post! And your sharing of knowledge on CC! :)

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