As I understand Cryptocurrency economics very well and I term myself as a “Decentralized economist”
There is only one question I have to ask myself in relation to being long on Bitcoin in the long term or not:
Q: What effect will win out in the end: “Ignorance” or “information and education” ?
If i believe Ignorance will win out then Bitcoin is surely a good bet, as with any investment most of the exuberance is faith based.
however, if education spreads to the peers of the economic industry we would see a stagnation of low volume and if newer ignorant investors can’t be brought in then we will see ultimately Bitcoin move to its “base money” market price.
don’t get me wrong, normally I do bet on ignorance, however from the extensive analysis that I have done, I don’t believe that the traditional peers of the economic industry can shuffle ignorant investors off into this flawed design.
I see a key information technology paradox here:
- I think traditional financial managers will struggle to bridge the technology gap and will not come across as a peer to ignorant investors.
- Then the paradox, those that do undertake the education will educate themselves to how flawed the product is.
So for these and other reasons, which include the speed at which information is proliferating, I’m unable to take the bet on ignorance with regard to Bitcoin.
Here are some replies and explanations for RAOUL PAL quoting from this business insider article:
RAOUL PAL: Bitcoin Is Worth $1,000,000
“So I said OK well let’s assume it’s something like gold — There’s a finite amount of it,” Pal said in an interview with Grant Williams on Real Vision Television. “There’s a finite amount that’s been mined. The rest is underground. We kind of know how long it’s going to take before all the gold is mined or before all the bitcoins. Put them in the same kind of equation we get a value of bitcoin and that value is a million dollars. Now, you’ll never hear an analyst say this — but I don’t mind this — I could be wrong by 90%, and it’s still worth $US100,000.”
Ok here is the problem;
Bitcoin is nothing like Gold, it was designed to be issued out “kind of like Gold” but that’s where the similarities end.
Bitcoin is a issuance monopoly in which a “Gold”(Bitcoin) miner in Europe can stop (or drive out of all profitability) a local miner in say, Australia from mining local gold.(just by the act of mining)
that is a very problematic effect, if you want to learn more about it read here:
What is the result?
Well unlike Gold Bitcoin has a hard mathematical finite cap, Which Gold does not have these are the key vectors of the flaw:
- hard finite mathematical cap.
- An issuance monopoly arms race with “winner takes all”
- The flawed algorithm + distribution which has allowed the monopoly to exist.
- the remote nature of one miner being able to make mining difficult for the other remotely and at a distance across the globe.
Whoever wins the difficulty arms race wins the whole control (or the largest %) of the issuance.
So you can say :
“Bitcoin is Gold, if there was only a finite amount of Gold in the universe, plus a global monopoly arms race with winner takes all stakes, however with a bizarre twist that one miner can make mining more difficult for the other just by the act of mining, even if that miner is across the other side of the world.”
What’s the problem with that?
The monopoly winner can control and even “game” the system, they can disrupt the network and even in circumstances bribe, blackmail and execute “double spends.” i.e breaking the Bitcoin protocol rules.
This flaw was discovered fairly early on in the Bitcoin protocol, however the “foundation” could or would not fix or correct it.
The key flaw is in the algorithm, the finite hard mathematical cap and the distribution method.
What’s the next problem?
That would or could be all possibly fine and acceptable if Bitcoin had some special property that made it have the effect of perhaps being able to turn urine into gold lace (or some such special effect) , however Bitocin does not have any of these special properties and in a set of universal competitors, i.e other Cryptocurrency protocols that can (and have) fixed these flaws, Bitcoin is not the only horse in the race.
however the key to finding what is a good set of investment metrics in Cryptocurrency is something that seems to be still eluding the primary set of peers in the industry.
I am pushing to introduce an index called PoW+ and i think this will go a long way to helping start to bridge the education gap, see more about PoW+ in my coinspeaker article here:
You may notice in the comment section the “healthy” debate as people that commit fraud don’t often like to see education spread.
The second part of this article relates to how the PoW+ index works.