Friday, July 7, 2017

Why NOT Government-backed Cryptos

While many people are just waiting for the day that a government will back a crypto (I'm talking tokenization of a sovereign currency, not legalization as a form of payment), legitimize it and make it mainstream before they jump in on the crypto hype, I am personally not too thrilled with that idea (not thrilled with the idea of a government-backed crypto, but still thrilled about cryptos gaining mainstream traction).

In fact, this can already be EASILY be done, similar to the fashion that Tether is able to issue USDT which are supposed to be valued 1:1 with actual USD.

This is a short video clip, about 5 minutes.

At about 1.58, shit starts getting real. We can already see it happening, where governments are both openly and secretly racing to develop and push out their own STRAINS of digital currency (Project Ubin? Coming to a mainland near YOU soon!). And rest assured, your balance and activities will be watched and monitored.

Some people thought it was just crazy when China announced it is planning to monitor its citizens and grade them based on certain things. Some actions get you more points. Some actions deducts points. Points determine your standing in society. Imagine if the government has one extra way to watch you, and a massive crippling way of punishing you too. It's sounds crazy, doesn't it?

But just watch Season 3, Episode 1 of Black Mirror to see how ridiculous society can get in such a system, yet how such a system can be almost immediately adopted today if it was rolled out.

But I digress.

Personally, I do NOT see Bitcoin becoming the cryptocurrency of the future. Yes, it definitely is the cryptocurrency of today, mainly because of 2 reasons:

1) It is the main gateway from fiat into cryptocurrency
2) It is the base pair to trade into any other coin

However, will it be the cryptocurrency of the future? There are problems with its transaction cost, speed, governance, centralization and exclusivity (of mining, and hence securing the network).

Almost every new cryptocurrency out there have made changes to tweak and refine certain aspects to improve it - in their opinion. Each coin out there is working to find out the "secret sauce" to make the next global cryptocurrency and I would say that the study of this could be an entire field of its own.

Airdrop? Pre-mine? Fair start? Inflationary? Fixed supply? CPU / GPU alogrithm? Blend of hashing algorithms? Or should POW even be used? POS? Hybird POW-POS? POI? Blend of Proofs? Mining rewards? Nodes? Masternodes? Minimum stake? Staking deposits? Governance system? Foundation funds? Voting rights?

There are plenty more questions that can be debated about what would constitute the "perfect" cryptocurrency, but I think it would be a mix of perceived fairness (I feel that the current avenues of accumulation is more important that the mode of initial distribution), a store of value and real-world utility for the average user.

Maybe a globally pre-announced ICO that lasts a FEW years, that accepts all fiat, governed by a DAO? Hybrid POW-POS with multiple algorithms and see-saw rewards? I'm just thinking outloud here. Actually, it sounds a little bit like Decred. 

One of the things which Andreas does say, which I believe in, is that the initial early adopters who took massive risks in the beginning on a completely untested technology with barely any other users, should be rewarded and become rich.

Let's be honest here. If the knowledge that the government can, and will, and have been, printing ridiculous amounts of money hadn't scared you enough to move into hard assets like precious metals, this 5 minute Youtube video and my blog post certainly isn't enough to get you to move into cryptocurrencies.

Maybe it's disbelief. Maybe it really is ignorance. But the outcome is still inaction regardless of the reasons.

I am unfazed that the majority of the people are NOT in cryptocurrencies at this point of time. Just like I am unfazed that almost no one has any precious metals, yet it is my largest position. The best trades are the trades that everyone else don't even know about. You know me, I hate crowded trades. (Probably the reason why I don't really fancy BTC even as a crypto-enthusiast... but that doesn't mean I don't have any)

No doubt a government-backed cryptocurrency will have uses and be widely adopted, but that doesn't mean that unbacked ones are not worth looking into. The fact that they are not backed makes it even more attractive in my opinion.


  1. Govts are mainly interested in regulating & taxing the backend infrastructure for control & revenue collection. They're not interested in cryptos or the frontend per se. As endusers, govts will utilize the technology if it can cut cost and streamline their processes.

    1. Hi Anon, I agree that their MAIN interest would be on making sure taxes are not evaded and being used for illicit activity. However, I do not like that they can see my financial activity, even though they probably wouldn't. My preference is that they should have zero business snooping into my finances and should only do so if they have reasonable suspicions on my activities.

      For example, I would prefer that my monthly p0rn subscriptions not to be available for the govt to scrutinize.

      To me, this issue is about the right to privacy. Of course, I'm sure that using such a network automatically waives your right, therefore I believe that a parallel system should also be in place.

  2. Bitcoin may not be the CC of the future in terms of daily usage, but I reckon it will be the base that the CCs of the future will be measured against. Or it becomes similar to the gold of today, i.e. not used daily but kept as store of value.

    What do you think?

    1. Hi Anon,

      I think that this would be so for quite a long time to come. Until the problem of moving between alt coins at low spreads can be solved, BTC will be safe with its position as the gateway currency.

      However, I would think that past a certain point, BTC does not become viable due to mining. Now things are still healthy with blocks being filled up and miners collecting fees. Once the block fees drops and if transactions dwindle because people use it as a store of value instead as a transnational currency, mining profits will plummet and that will affect the security of the network.

      I don't think that a pure POW model is sustainable in the long run, but to be fair, that long run is still a long ways to go. But then again, POS is not without its own problems. I do see hybrid POW/POS systems and even POI as very promising solutions as far as reaching consensus and having network security goes.


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