BitCoin

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FT Alphaville Column Attacks BTC, No Mercy

Postby JackRiddler » Fri Dec 24, 2021 7:16 pm

Your thoughts?

Why bitcoin is worse than a Madoff-style Ponzi scheme
A Ponzi scheme is a zero-sum enterprise. But bitcoin is a negative-sum phenomenon that you can’t even pursue a claim against, argues Robert McCauley.

ROBERT MCCAULEY


[Paywall, missed the date but Dec. 2021...]
https://www.ft.com/content/83a14261-598 ... de528b33d0

This is a guest post by Robert McCauley, a non-resident senior fellow at Boston University’s Global Development Policy Center and associate member of the Faculty of History at the University of Oxford. In this post McCauley argues that comparing bitcoin to a Ponzi scheme is unfair to Ponzi schemes.

Bitcoin is off its all-time high of $69,000 set on November 9, 2021. It suffered a wrenching $12,000 flash crash over the first weekend in December, amid accounts of leveraged positions being closed out. And yet, even at the current price of $49,000, guests on financial TV news continue to tout it as the best-performing asset of the last N years, where N can be just about any number from one to ten. They also increasingly judge it as a credible investment in its own right.

This contradicts the longstanding sceptical view by many economists and others that what bitcoin really is, in effect, is a Ponzi scheme. Brazilian computer scientist Jorge Stolfi is one voice who has contended this. His view is based on the following observations:

1. Investors buy in the expectation of profits.
2. That expectation is sustained by the profits of those that cash out.
3. But there is no external source for those profits; they come entirely from new investments.
4. And the operators take away a large portion of the money.

All of this rings true true. But in calling bitcoin a Ponzi scheme, critics are arguably being too kind on two counts. First, bitcoin doesn’t have the same endgame as a Ponzi scheme. Second, it constitutes a deeply negative sum game from a broad social perspective.

On the first count, it’s worth assessing how it compares to the original scheme devised by Charles Ponzi. In 1920, Ponzi promised 50 per cent on a 45-day investment and managed to pay this to a number of investors. He suffered and managed to survive investor runs, until eventually the scheme collapsed less than a year into it.

In the largest and probably the longest running Ponzi scheme in history, Bernie Madoff paid returns of around one per cent a month. He offered to cash out his scheme’s participants, both the original sum “invested” and the “return” thereon.

As a result, the scheme could and did suffer a run; the Great Financial Crisis of 2008 led to a cascade of redemptions by participants and the scheme’s collapse. But the resolution of Madoff’s scheme has extended beyond its collapse on account of the remarkable and ongoing legal proceedings. These have outlived Madoff himself, who died in early 2021.

Many are unaware that a bankruptcy trustee, Irving H. Picard, has doggedly and successfully pursued those who took more money out of the scheme than they put in. He even managed to follow the money into offshore dollar accounts, litigating a controversial extraterritorial reach of US law all the way to the US Supreme Court. Of the $20bn in recognised original investments in the scheme (which the victims had been told had reached a value more than three times that sum), some $14bn, a striking 70 per cent, has been recovered and distributed. Claims of up to $1.6m are being fully repaid.

By contrast to investments with Madoff, Bitcoin is bought not as an income-earning asset but rather as a zero-coupon perpetual. In other words, it promises nothing as a running yield and never matures with a required terminal payment. It follows that it cannot suffer a run. The only way a holder of bitcoin can cash out is by a sale to someone else.

Bitcoin’s collapse would look very different to that of Ponzi’s or Madoff’s scheme. One possible trigger could be the collapse of a big so-called stablecoin, that is, ersatz US dollars that have sprung up to provide a cash leg for cryptocurrency transactions. These “unregulated money market funds” have been sold as dollar stand-ins with safe assets that match their outstanding liabilities.

Given the lack of regulation and disclosure, it is not hard to imagine a big stablecoin “breaking the buck”, as occurred with a regulated money market fund that held Lehman paper in 2008. This could so disrupt the whole ecology of crypto that there could be no bids for bitcoin. The market might close indefinitely.

In this event, there would be no long-running legal effort to chase down those who cashed in their bitcoin early in order to redistribute their profits to those left holding bitcoins. Holders of bitcoin would have no claim on those who bought early and sold. In its cashflow, bitcoin resembles a penny-stock pump-and-dump scheme more than a Ponzi scheme.

In a pump-and-dump scheme, traders acquire basically worthless stock, talk it up and perhaps trade it among themselves at rising prices before unloading it on to those drawn in by the chatter and the price action. Like the pump-and-dump scheme, bitcoin taps into the pure desire for capital gains. Buyers cannot stand the sight of friends getting rich overnight: they suffer an acute fear of missing out (FOMO). In any case, bitcoin makes no promises and cannot end as a Ponzi scheme ends.

On the second count, another big difference between bitcoin and a Ponzi scheme is that the former is, from an aggregate or social standpoint, a negative sum game. To the extent that real resources are used up to make bitcoin run, it is costly in a way that Madoff’s two- or three-man operation was not.

From the social standpoint, what Madoff took out of his scheme and finally consumed is a redistribution in a zero-sum game (the trustee sold his penthouse). Stolfi’s fourth observation above that “the operators take away a large portion of the money” lumps together Madoff’s take and bitcoin miners’ revenues, but these are very different in economic terms.

With bitcoin and other cryptocurrencies, the game is to name the country whose electricity consumption equals that of all the puzzle-solvers (miners) who get to effect transactions and receive bitcoin in reward. Even if the electricity were priced to include its contribution to global warming (its “environmental externality”)—which presumably it mostly is not—this represents a real cost.

How big a cost? At the beginning of 2021, Stolfi put the cumulative payments to bitcoin’s miners since 2009 at $15bn. At the then price of bitcoin, he put the increase in this sum at about $30m per day, which mostly pays for electricity. At today’s higher bitcoin prices, the hole is growing faster. About 900 new bitcoin a day require most of $45m a day in electricity.

Thus, the negative sum in the bitcoin game is in tens of billions of dollars and rising at over a billion dollars per month. If the price of bitcoin collapses to zero, the gains of those who sold would fall short of the losses of holders by this growing sum. To liken bitcoin to a Ponzi scheme or a pump-and-dump scheme, both basically redistributive, is to flatter the cryptocurrency system.

To conclude, an economic analysis of bitcoin must recognise its uniqueness in the history of manias. As an object of speculation, bitcoin is unprecedented in the degree to which there is no there there. This post-modern mania features big prices for entries on nobody’s spreadsheet. A zero-coupon perpetual has arrived not as a joke but as a trillion dollar asset.

Unlike a Ponzi scheme, bitcoin cannot end in a run. In a crash, the holders of bitcoin will collectively have lost what they have paid the miners for their bitcoin. This sum may be not far from the sum originally invested with Madoff, after accounting for inflation. But bitcoin holders will have no one to pursue to recover this sum: it will simply have gone up in smoke, a social loss. The holders of bitcoin would then only wish it had been a Ponzi scheme.


Interesting:

About 900 new bitcoin a day require most of $45m a day in electricity.


Confuses me a bit.

1. Is that a correct average for the current output of BTC from mining in a day? 900? Can someone confirm? Let's assume he means that, and has the figure correct.

2. At the current price of about 50K per unit these 900 new BTC would sell for 45 million.

3. So he's comparing that to the daily power bill for BTC mining. But how is he estimating that? Obviously in a very spongy way, thus the formulation: 'most of $45 million'. He doesn't know, and I wish he did.

Anyone have an idea how to figure out the current global daily power bill for BTC mining?

It seems like a great warning indicator for a crash. By the design of BTC, the power bill will continue to rise, and the average number of BTC harvested per day will continue to fall. When the cumulative global power bill for mining definitively exceeds the amount of the average resulting number of BTC harvested at the current market price, the miners will have a huge incentive to turn off their servers, unless they think they can pump the BTC price up to cover the power costs. Maybe that's what the articles being posted here by Agent Orange are supposed to do?

All that is missing, it seems to me, is that someone should set this up as a daily index so as to keep the BTC market informed! [The ratio of average number of BTC mined daily times the current BTC price] to [the current estimated cumulative daily global power bill for BTC mining activities].

Call it the Daily BTC Power Bill Index, DBPBI. (Someone got something catchier?)

Or wait, am I ignorant and does this already exist?

In any case, alarm bells will ring once the DBPBI breaks its buck, i.e., goes under 1 (if it's formulated as I've rendered it here, that would mean the miners are paying more than the BTC they mined are worth on the market).

So "if" and when BTC crashes to zero, I realized thanks to this article:

1. Every player who has ever participated in mining loses the total cost of the mining, less the amount of real currency gained by selling some or all of their mined BTC before the crash.

2. Every BTC holder loses the total currency they've paid for the BTC they hold. For some, it may seem like a joke. If they bought it when it was down in the hundreds, and if they're rich anyway, then presumably they're not selling already only because of the thrill to see how high it will go, and a truly irrational dose of FOMO.

3. The rest of us lose because of the (until now fairly small but perhaps eventually huge) indirect contribution of the totally useless BTC mining activity to the ongoing ecological catastrophe.

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Re: FT Alphaville Column Attacks BTC, No Mercy

Postby Agent Orange Cooper » Sat Dec 25, 2021 12:33 am



My thought, as I was resurrecting this thread, was "I'll bet one of these guys responds with that McCauley FT article, lol." It's not at all surprising to me that someone who "spent most of his career in central banking at the Bank for International Settlements, and, before that, at the Federal Reserve Bank of New York" is anti-Bitcoin. It's also not a surprise that his article is riddled with falsehoods, as it's written by someone without an even rudimentary understanding of how Bitcoin works, and a major axe to grind. I wouldn't take anything he says seriously.

You can look up anything you want to know about Bitcoin's network statistics here: https://www.blockchain.com/charts

I don't know if your specific proposed index exists, but discussion surrounding the future of Bitcoin's block rewards abounds.

For instance, this paper might engage you: "A model for Bitcoin's security and the declining block subsidy"
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Re: BitCoin

Postby Agent Orange Cooper » Sat Dec 25, 2021 11:13 pm

Here you go, the CBECI: https://ccaf.io/cbeci/index
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Re: BitCoin

Postby drstrangelove » Sun Dec 26, 2021 10:47 am

I don't think bitcoin revolutionaries understand what the central banking institution is.

if politics is economics, and economics politics

then a world economic order is a world political order

the g* summits are quasi world government conferences.

best of luck overthrowing that 007
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Re: BitCoin

Postby Agent Orange Cooper » Mon Jan 10, 2022 5:23 pm





BITCOIN EMBODIES NIKOLA TESLA'S VISION FOR PEACE AND ENERGY ABUNDANCE

As an arbiter of truth for the most reliable and cheapest forms of energy, Bitcoin can enable Nikola Tesla’s vision of a peaceful, abundant energy future.
OCT 5, 2021

Many attempts to bring about the permanent end state of war can be found throughout history. “The war to end war,” mutual assured destruction, dynamite and machine guns — each of these failed to end wars, despite optimistic theories that they might.

In 1900, Nikola Tesla proposed revolutionary first principles to end war of his own. His idea was to remove humans from the battlefield altogether. He envisioned intelligent machines, with minds, competing against each other with a "maximum rate of energy-delivery" which would end wars and bloodshed, and bring about global peace.

Today, we have these first principles in Bitcoin mining — expressed by Tesla, in his own words:

“But now, what is the next phase in this evolution? Not peace as yet, by any means. The next change which should naturally follow from modern developments should be the continuous diminution of the number of individuals engaged in battle. The apparatus will be one of specifically great power, but only a few individuals will be required to operate it. This evolution will bring more and more into prominence a machine or mechanism with the fewest individuals as an element of warfare, and the absolutely unavoidable consequence of this will be the abandonment of large, clumsy, slowly moving, and unmanageable units. Greatest possible speed and maximum rate of energy-delivery by the war apparatus will be the main object. The loss of life will become smaller and smaller, and finally, the number of the individuals continuously diminishing, merely machines will meet in a contest without blood-shed, the nations being simply interested, ambitious spectators. When this happy condition is realized, peace will be assured. But, no matter to what degree of perfection rapid-fire guns, high-power cannon, explosive projectiles, torpedo-boats, or other implements of war may be brought, no matter how destructive they may be made, that condition can never be reached through any such development. All such implements require men for their operation; men are indispensable parts of the machinery. Their object is to kill and to destroy. Their power resides in their capacity for doing evil. So long as men meet in battle, there will be bloodshed. Bloodshed will ever keep up barbarous passion. To break this fierce spirit, a radical departure must be made, an entirely new principle must be introduced, something that never existed before in warfare — a principle which will forcibly, unavoidably, turn the battle into a mere spectacle, a play, a contest without loss of blood. To bring on this result men must be dispensed with: machine must fight machine. But how accomplish that which seems impossible? The answer is simple enough: produce a machine capable of acting as though it were part of a human being — no mere mechanical contrivance, comprising levers, screws, wheels, clutches, and nothing more, but a machine embodying a higher principle, which will enable it to perform its duties as though it had intelligence, experience, judgment, a mind! This conclusion is the result of my thoughts and observations which have extended through virtually my whole life, and I shall now briefly describe how I came to accomplish that which at first seemed an unrealizable dream.” –Nikola Tesla, “The Problem Of Increasing Human Energy,” The Century Magazine, 1900

cont'd @ https://bitcoinmagazine.com/culture/bit ... rgy-vision
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Re: BitCoin

Postby Elvis » Tue Feb 01, 2022 8:34 pm

Of course it's not just crypto miners facing a bitter winter.

https://www.ft.com/content/086b7ec7-f71 ... 44852056f3

Crypto miners in Kazakhstan face bitter winter of power cuts

Illegal miners and mass relocations after ban on crypto mining in China have overloaded energy grid

Martha Muir in London
November 25 2021

Matthew Heard, a software engineer from San Jose, is worried about his 33 bitcoin mining machines in Kazakhstan. In the past week, they kept getting shut off in an attempt by the national grid to limit the power being used by crypto miners.

“It has been days since my machines have been online,” he said. “During the last week, even if my machines do come on, they barely stay on.”

Kazakhstan has been struggling to cope with the huge popularity of crypto mining, driven this year partly by the steep rise in value of cryptocurrencies and partly by a mass migration of miners to its borders after China made mining illegal in May.

After three major power plants in the north of the country went into emergency shutdown last month the state grid operator, Kegoc, warned that it would start rationing power to the 50 crypto miners that are registered with the government, and said they would be “disconnected first” if the grid suffers problems.

Heard set up in Kazakhstan in August and his machines are managed by Enegix, a company that rents out space to run crypto mining machines.

He said his income has dropped from an average of $1,200 worth of bitcoin per day to $800 in October, and in the past week his machines have only been on for 55 per cent of the time. Machine owners are not notified when shutdowns are going to happen or when they will go back online, he said.

The pressure on the grid caused by crypto mining operations has caused blackouts in towns and villages across six regions of the country since October. The ministry of energy estimates demand for electricity has increased 8 per cent since the start of 2021 when mining companies began to migrate from China, compared with annual growth of between 1 and 2 per cent in previous years.

According to data gathered by the FT, at least 87,849 power-intensive mining machines were brought to Kazakhstan from China.

The Kazakh mining company Xive.io, which charges overseas customers to plug in their machines at its sites, shut down a major crypto mining farm on Wednesday and disassembled 2,500 mining rigs after power shortages made its operation unviable.

Xive.io’s co-founder Didar Bekbau tweeted a video on November 24 of the last mining rigs being taken apart, with the caption “so much work, [our] hopes are ruined”. In a livestream interview on YouTube in October, he had warned that the company was “under some stress” because it had invested in building new containers and farms before it became aware of the energy shortages.

Authorities and industry experts have placed the blame for power shortages on a spike in the number of “grey miners”, firms and individuals who operate illegally out of basements and abandoned factories, since the ban. The energy ministry estimates they are siphoning off 1200MW of electricity from the power grid — twice as much as the registered “white miners”.

In October Murat Zhurebekov, vice-minister of energy, said a response to crack down on their activities “cannot be delayed any longer”.

Denis Rusinovich, co-founder of Maverick Group, a mining services company that operates in Kazakhstan, said that while some miners were operating legally, some “moved too fast and cut corners”. These miners “will be targeted because they don’t have any of the paperwork”, he added.

To make up for the shortages, from 2022 legitimate miners will have to pay a surcharge of 1 Kazakhstani tenge ($0.0023) per kWh, a move that miners such as Rusinovich view positively, as it will “classify the official miners”.

Until the surcharge kicks in, Kazakhstan has turned to Russia to boost its reserves, entering into talks with Moscow-based energy company Inter RAO to bolster the national energy supply. On November 16 Alexander Novak, Russia’s deputy prime minister, announced that Russian companies would supply power to its southern neighbour, saying that the deal “must be based on commercial terms”. He did not specify an exact cost.

It is unclear exactly when the new supply of energy from Russia will arrive in Kazakhstan, and it is unlikely to be enough to provide a respite to the crypto miners affected by the winter power cuts. Inter RAO board chair Alexandra Panina told TASS, a Russian news agency, that the company could supply 600MW “in an ideal scenario”, while estimating that shortages could reach 1GW.

The ministry of energy and Inter RAO did not respond to requests for comment.

Some overseas miners such as Sydney-based Ricky Thoo, who owned 40 machines in Kazakhstan that were also managed by Enegix, have begun relocating machines elsewhere despite the country’s 12 per cent export tax on the value of the machines.

“Kazakhstan was one of the first places I sent miners to because it had cheap electricity, but all of them are off completely now,” he said. He has sent some of his machines to Russia, the third-largest mining country after Kazakhstan.

The cuts also raise fresh concerns about the long-term sustainability of Kazakhstan’s energy infrastructure. Luca Anceschi, professor of Eurasian Studies at Glasgow university, said the government’s focus on “grey miners” was an attempt to gloss over wider structural issues, such as the grid’s lack of maintenance and inability to carry power from the coal-rich north to the south. Kegoc has announced it intends to carry out maintenance work on damaged plants and power lines.

“Certainly having input of electricity from Russia can address the problem in the short term, but I think that there is a big discussion to be had about what kind of energy policy Kazakhstan is actually pursuing,” Anceschi said. He argued that the government thought bitcoin mining would be profitable, but it had not “bothered to create production generation capacity that could actually satisfy existing or prospective demand”.

“This is one of the most energy-rich countries in Asia,” Anceschi said. “On paper, this should not have happened.”





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Re: BitCoin

Postby Agent Orange Cooper » Fri Apr 15, 2022 9:34 pm

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Nicholas Weaver Interview

Postby JackRiddler » Sat May 14, 2022 2:45 pm

.

Where's this thread been? Fun times. Actually, lousy. Can't see that the Schadenfreude from the sidelines is equal in some cosmic-karmic way to the contribution to the ecological catastrophe, the boost to the net degradation of the culture as a whole, or even the distantly hilarious sight of billions lifted from... patsies, I should say, rather than suckers. ("I'm just a patsy," who was it who said that again?)

Anyway... here's what seems a pretty good primer on Garbage Ape derivatives, Doge Jokes, a moon and a planet, Salvadoran caudillos who lost their laser eyes, and other short-lived particles in the crypto bestiary.

Why This Computer Scientist Says All Cryptocurrency Should “Die in a Fire”
UC-Berkeley’s Nicholas Weaver has been studying cryptocurrency for years. He thinks it’s a terrible idea that will end in disaster.

Current Affairs
filed 13 May 2022 in ECONOMICS
https://www.currentaffairs.org/2022/05/ ... -in-a-fire


Despite being hyped in expensive Super Bowl ads, cryptocurrency is now having a difficult moment. As the New York Times reports, “the crypto world went into a full meltdown this week in a sell-off that graphically illustrated the risks of the experimental and unregulated digital currencies.” One of cryptocurrency’s most vocal skeptics is Nicholas Weaver, senior staff researcher at the International Computer Science Institute and lecturer in the computer science department at UC Berkeley. Weaver has studied cryptocurrencies for years. Speaking with Current Affairs editor-in-chief Nathan J. Robinson, Prof. Weaver explains why he views the much-hyped technology with such antipathy. He argues that cryptocurrency is useless and destructive, and should “die in a fire.”

The interview transcript has been lightly edited for grammar and clarity.

NATHAN J. ROBINSON:
Here’s a quote by you from 2018:

Cryptocurrencies, although a seemingly interesting idea, are simply not fit for purpose. They do not work as currencies, they are grossly inefficient, and they are not meaningfully distributed in terms of trust. Risks involving cryptocurrencies occur in four major areas: technical risks to participants, economic risks to participants, systemic risks to the cryptocurrency ecosystem, and societal risks.

In a 2022 lecture about cryptocurrency on YouTube, you are even more blunt and harsh:

This is a virus. Its harms are substantial. It has enabled billion dollar criminal enterprises. It has enabled venture capitalists to do securities fraud as their business. It has sucked people in. So either avoid it or help me make it die in a fire.

But perhaps before we get to your justifications for these verdicts, you could start by telling us what you think is the best way for the average person to begin to think about what a cryptocurrency is.

NICHOLAS WEAVER:
Well, I’d start with what it’s supposed to be in theory. So in theory, it’s supposed to be a way of doing payments with no intermediary. So the idea is that if Alice wants to pay Bob a bet for 200 quatloos…

ROBINSON:
Hang on, you’ve dropped a word that isn’t a real word. Quatloos is a fictional currency?

WEAVER:
It’s actually specifically a Star Trek reference. So if you want to gamble with your imaginary currency, there should be no intermediary that is responsible for executing the transfer. It’s just direct peer to peer electronic cash. Or at least that’s the idea.

Now the problem is: how do you know who has what balance? Electronic cash is actually something we’ve had for decades now. If I want to transfer you money, I use PayPal or M-Pesa or Visa or a wire transfer or this or that. Those all have a central intermediary. And there’s a disadvantage of central intermediaries: They don’t like drug dealers. So as a money transmitter, you are under legal obligations to block a lot of known bad activity.

With cryptocurrencies, the idea is, let’s eliminate the notion of the intermediary by making our balances public, but pseudonymous. So you’re no longer you, you are just some long sequence of random-looking numbers. And let’s create a ledger in the town square so that everybody’s bank balance is public in the town square, but only identified by the pseudonyms.

So for Alice to pay off her wager, she writes a check: “I, Alice’s Random Pseudonymity, pay Bob’s Random Pseudonymity 200 quatloos. Signed, Alice’s Random Pseudonymity.” Bob then checks to make sure that Alice indeed has a balance, and if so, posts that check to the public ledger. Now everybody knows that Alice is down 200, Bob is up 200. And that’s how it works.

The problem is: how do you keep somebody from adding to the ledger and faking stuff? Well, that’s where the notion of the “mining” comes in. What the miners are doing is literally wasting tons of electricity to prove that the record is intact, because anybody who would want to attack it has to waste that similar kind of electricity.

This creates a couple of real imbalances. Either they’re insecure or they’re inefficient, meaning that if you don’t waste a lot of energy, someone can rewrite history cheaply. If you don’t want people to rewrite history, you have to be wasting tons and tons of resources 24/7, 365. And that’s why Bitcoin burns as much power as a significant country.

ROBINSON:
So this criticism that you hear about Bitcoin, that it uses the energy of a small to mid-sized country, that is true? You point out in your YouTube lecture that there are a number of ways that the enthusiasts of Bitcoin make excuses for this. They say “Well, it’s actually clean” or “It’s not too much of a problem.” But it’s actually very, very wasteful.

WEAVER:
Yes. The biggest one is “this incentivizes green power.” Which it does in the same way that a whole bunch of random shootings would incentivize bulletproof vests.

But wait, it’s worse! The problem with the Global Public Square is that it is a single, limited entity, and you have only so much you can add to it at any given time. So Bitcoin burns that much of the world’s electricity to be able to process somewhere between three to seven transactions per second across the entire world.

ROBINSON:
That’s not many.

WEAVER:
It’s not many. And worse, it never could work for payments. So we’ve seen waves come and go of companies saying “We’ll accept payments in Bitcoin.” They’re lying. Because they aren’t actually accepting payments in Bitcoin. They are using a service that allows them to price in dollars, presents Bitcoin to the customer, transfers the Bitcoin, turns it into dollars, and so the merchant is getting actual money. Which means if the system has to balance and you want to buy with Bitcoin and you don’t have Bitcoin, you have to convert dollars to Bitcoin. And this is, by design, a horribly expensive process, because Bitcoin and the cryptocurrencies are fundamentally incompatible with modern finance.

Modern finance has this rule that anything electronic needs to be reversible for short periods of time. This allows an undo in case of fraud. Have you had your credit card compromised before? I’ve had my credit card numbers stolen a couple of times. The amount of money I lost is zero. Because we have both good fraud protection and good ability to reverse transactions. That does not exist in the cryptocurrency space. If your cryptocurrency wallet is compromised, all your apes are fudged.

ROBINSON:
All your what, sorry?

WEAVER:
Your apes are fudged. Because the cryptocurrencies are often used for buying these “non-fungible tokens” that have pictures of ugly little apes. They just get liberated. But the result is, you cannot store cryptocurrency on an internet-connected computer. Because what will happen is, if your computer ever gets compromised, all your money gets stolen and there’s nothing you can do about it.

And that’s a fundamental problem. But it just doesn’t work for payments because of that throughput limit. And the volatility means you get people converting it to real money. And so what is it good for?

Well, there are classes of payments that the intermediaries don’t allow. The big ones are drug dealing, child sexual abuse material, and ransoms. As a consequence, the cryptocurrency actually used for payments is really only used seriously for: ransomware payments, where companies have to pay $10 million. Drug deals—drug dealers hate it, but it’s the only game in town. And we’ve had cases of websites selling child exploitation material paid with Bitcoin.

And the reason I’ve gotten so sour on the cryptocurrency space is the ransomware. It’s doing tens to hundreds of billions of dollars worth of damage to the global economy. And it only exists because people can pay in Bitcoin.

ROBINSON:
How does ransomware work, for people who aren’t familiar?

WEAVER:
So the way it works is that some bad guys in Russia break into, say, Colonial Pipeline. They encrypt all the data and say “Hey, Colonial Pipeline, pay me 5 million bucks or your data’s gone forever.” And Colonial Pipeline pays the 5 million bucks and is offline for a while anyway, and there are gas disruptions on the East Coast.

That exists only because there’s the ransomware payment method of cryptocurrency. Because the alternatives are cash or bank transfers. The banks will not allow payments of 5 million bucks to known criminals in Russia. (Gee, I wonder why.) And if the known criminals in Russia want to pick up a $5 million block of cash, well, that’s a 50 kilogram suitcase that they’re going to have to pick up, and when they go to pick it up they might just get a .308 caliber gift courtesy of the U.S. Marines. And so Bitcoin is the only game in town for them.

So it doesn’t work for payments. And it doesn’t work economically either. It’s effectively a giant self-assembled Ponzi scheme. You hear about people making money in Bitcoin or cryptocurrency. They only make money because some other sucker lost more. This is very different from the stock market.

I’m a savvy investor, and by “savvy investor,” I mean I put my money into index funds and ignore it for several years. During that time, there are dividends and share buybacks where the companies put their profits into me. I then eventually sell it to somebody else. And my gain is not just the difference between what I bought it for and what somebody else bought it for, but that plus the benefit of all the dividends and interest.

So the stock market and the bond market are a positive-sum game. There are more winners than losers. Cryptocurrency starts with zero-sum. So it starts with a world where there can be no more winning than losing. We have systems like this. It’s called the horse track. It’s called the casino. Cryptocurrency investing is really provably gambling in an economic sense. And then there’s designs where those power bills have to get paid somewhere. So instead of zero-sum, it becomes deeply negative-sum.

Effectively, then, the economic analogies are gambling and a Ponzi scheme. Because the profits that are given to the early investors are literally taken from the later investors. This is why I call the space overall, a “self-assembled” Ponzi scheme. There’s been no intent to make a Ponzi scheme. But due to its nature, that is the only thing it can be.

ROBINSON:
Is that why you see the pile of Super Bowl ads for investing in cryptocurrency? Because the people who are the early investors need to keep finding new suckers and trying to convince people that putting their retirement savings into cryptocurrency is a sound idea?

WEAVER:
Yep. Because it’s a self-created pyramid scheme, you have to keep getting new suckers in. As soon as the number of suckers dries up, it collapses. And because it’s not zero-sum, but deeply negative-sum, there are actually a lot of mechanisms that can cause it to collapse suddenly to zero. We saw this just the other day with the Terra stablecoin and the Luna side token. This was basically another Ponzi scheme implemented in the larger space of Ponzi schemes.

So the idea is, you had these two cryptocurrencies, “Terra” and “Luna.” Terra is supposed to be tied one-to-one with the U.S. dollar. Luna can float around. If Terra costs more than $1, you can turn Luna into Terra and make a profit, while if Terra costs less than $1 you can turn Terra into Luna and make a profit. But this only works as long as the value of Luna is greater than the value of Terra.

Now, why would you use Terra at all? Well, one, this is a stablecoin and these are necessary for the gambling aspects of cryptocurrency. They act basically as casino chips, because almost all of the cryptocurrency exchanges are really cut off from the banking system. But the other reason is, because you could take your Terra stablecoin, put it in a lending protocol that was created by the creators of Luna and Terra and get a 20% rate of return paid for by Luna and Terra, a.k.a. a Ponzi scheme.

And so billions of dollars of notional value went into this Ponzi scheme. And the backing of Luna just slowly crept down, down, down. And then all of a sudden, there was a crisis of faith. People no longer believed that Terra was worth $1. It pegged to 95 cents. The folks behind Terra and Luna go “Everything’s fine. Nothing to see here.” And then it collapsed amazingly quickly over the space of two to three days. And we’re now at the point where the Terra stablecoin that was supposed to be worth $1 is now worth 10 cents, and the Luna token has basically gone down by 99.99%. And people keep finding out that just because something’s gone down 95% doesn’t mean it can’t still go down another 95%.


ROBINSON:
What about the other major “stablecoin,” this “Tether”? Is that subject to the same kinds of risks?

WEAVER:
Yes and no. It is subject to the same kind of risks, but it’s different. It doesn’t have this algorithmic collapse model, but it does have the potential for bank runs causing collapse, because it’s unbacked.

Tether is almost certainly what we’d call a “wildcat bank.” So, back in the 1800s, we didn’t have the Federal Reserve. Do you ever wonder why those pieces of paper in your pocket are technically called “bank notes”? It’s because the original model was not the government issuing pieces of paper. The government only issued coins. But heavy or bulky coins are hard to deal with. So you take your coins to the local bank, and they would give you a banknote, literally an IOU saying “if you want a $1 gold coin, take this IOU back to the bank and you get this dollar gold coin.”

What happened is, basically, fraudulent banks sprang up. They were called wildcat banks because they’d often have animal pictures on the bank notes. What they would do is take deposits and issue pieces of paper, completely unbacked. And when state bank regulators would come along, the wildcat banks would have barrels of coins that were fake. All but the top layer was just junk, with a top layer of gold coins. Or they’d cart around a barrel to all the branch offices just ahead of the inspectors.

And Tether is clearly doing the same thing. Because if Tether was backed by real money, this would mean that there is some $80 billion worth of money from institutional savvy investors that wanted to invest in the cryptocurrency space, but didn’t want to just buy in CoinBase. So they had to go to this third party that has been caught lying about its reserves, run by who-knows-who—the CEO is basically MIA. [Slate reported in 2021 that he “hasn’t been seen in public in years.”] It keeps its reserves in the Bahamas. Why would you invest that way? It’s just complete nonsense.

So what’s really almost certainly happening with Tether is Tether creates new Tether tokens, loans them to their big colleagues in the cryptocurrency space—so Alameda Research and a couple of others like that. Alameda Research provides IOUs so Tether says they’re backed by loans. Then Alameda goes out and buys Bitcoin, driving up the price. And now the Tether is backed by Bitcoin. And so Tether in the end is backed by underlying cryptocurrency.

They refuse to get audited. [Bloomberg reported that Tether CFO, an Italian former plastic surgeon, was “urged … to hire an accounting firm to produce a full audit to reassure the public,” but “said Tether didn’t need to go that far to respond to critics.”] They refuse to even do more than the most basic attestation, which is literally “Here, accountant, sign this.” We’re honest, Scout’s pledge. It’s just a house of cards. And the problem is that when these houses of cards fail, they fail so catastrophically and so swiftly that things go from being worth $1 to being worth nothing in the space of three days.

ROBINSON:
I want to zoom out again to talk about cryptocurrency in general and go back to some of the broad critiques you have. Is it accurate to summarize what you were saying before as, essentially: There is no problem that cryptocurrency solves, and to the extent that it is functional, it does things worse than we can already do them with existing electronic payment systems. To the extent it has advantages, the advantage is doing crimes. And every other claim made for the superiority of cryptocurrency as currency falls apart if you scrutinize it.

WEAVER:
Yes. So let’s take the cost of a transaction. The cost of a transaction in cryptocurrency systemically is the amount being used to protect it. I could build a system that would have the same throughput as Bitcoin, three to seven transactions per second, but with a centralized trusted entity. In fact, not even a centralized trusted entity. Ten trusted entities, only six of which need to be honest, because I use a majority vote system. I could do it on ten computers that look like this, that would burn as much power as a light bulb.

ROBINSON:
For listeners and readers, he is holding up a tiny … uh, what is that?

WEAVER:
I am holding up a Raspberry Pi computer module. This entire computer is like 50 bucks. So for 500 bucks worth of [computing power], I could do the same functionality as Bitcoin, with just 10 named entities. Why don’t I do this? Because those 10 named entities would have to follow money laundering laws. And apart from getting a structure where the named entities don’t follow money laundering laws, there’s no advantage for the cryptocurrencies, despite burning nine orders of magnitude more power.

ROBINSON:
One of the kind of jaw-dropping moments in your YouTube lecture is when you show just how wasteful this is, how easily you could do the exact same thing, and not have this pathetic three to seven transfers per second all around the world.

You do note that it suggests that Elon Musk—who is touted for the electric cars that are supposedly going to be an important contribution to stopping climate change, but has invested billions of dollars of Tesla’s money in Bitcoin—probably isn’t that serious or consistent about reducing our carbon emissions.

WEAVER:
Phony Stark over there has a walking talking Dunning-Kruger syndrome going and his investment in cryptocurrency is clearly one of those. The cryptocurrency that he often highlights is Dogecoin. Dogecoin was a literal joke invented in the early days of cryptocurrency about, “Hey, this stuff is so stupid. Let’s make a coin about a meme of a talking dog.” The founder of Dogecoin says, “This is a joke, avoid the cryptocurrency space, it is total garbage.” [Note: Dogecoin creator Jackson Palmer concluded: “After years of studying it, I believe that cryptocurrency is an inherently right-wing, hyper-capitalistic technology built primarily to amplify the wealth of its proponents through a combination of tax avoidance, diminished regulatory oversight, and artificially enforced scarcity.”] This joke is now the 10th most valuable cryptocurrency.

ROBINSON:
I am sure you have heard people say things like “Well, blockchain technology itself has lots of potential applications, it’s really interesting, offers lots of possible solutions to problems.” But one thing you point out in your lecture is that often, they are pretty vague about what these uses are, and usually when you get down to the facts, there’s a much simpler solution to whatever problem it is that wouldn’t use blockchain. You cited the example of someone who touted how blockchain could help with vaccines in India.

WEAVER:
So the thing is, the idea behind a blockchain is actually a 30-plus-year-old idea. It’s called a hash chain. And we’ve known how to build these for longer than most of my students have lived. But people who spout “Blockchain!” don’t understand the technology. This [the vaccines suggestion] was a concrete example that made me create [Weaver’s Iron Law of Blockchain], which is: When somebody says you can solve X with blockchain, they don’t understand X, and you can ignore them.

ROBINSON:
So it’s useful in that sense.

WEAVER:
Yes, it is useful as a filter [to know if people know what they’re talking about]. So, this was an example given by a purported expert in a blockchain class at Berkeley: Okay, we have the cold chain problem. Vaccines, you need to ship cold, and if they ever get out of temperature spec, you have a ruined batch. And we can solve this with blockchain.

And my reaction is: No. The problem is you need to know when it got out of spec, and know that the receiver can know that it had gotten out of spec. And there’s an easy solution. It’s called a $1 ShockWatch label. So the ShockWatch group makes these temperature labels. You stick them on the package. And if it ever gets too warm, the color changes. No blockchain necessary.

The fact that somebody was purporting this to be a real-world application meant they had not even thought about the problem for five seconds. They had no familiarity with how cold chain works. They had no familiarity with how the sensing process works.

We see the same thing when people talk about cryptocurrency being able to “bank the unbanked.”

ROBINSON:
Oh, yeah, that’s a big argument for it. This is going to be very useful in the developing world.

WEAVER:
If you take any of these people and you ask them what M-Pesa is, they will look at you like you’re speaking Swahili. Because, well, you are. So for those who aren’t familiar, M-Pesa is a payment system started in Kenya by Vodafone about the same time as Bitcoin. [Note: Pesa is Swahili for money, and the “m” stands for “mobile.”] It has eaten the Third World. It’s huge. Because it just basically attaches a balance to your phone account. And you can text to somebody else to transfer money that way. And so even with the most basic dumb phone you have easy-to-use electronic money. And this has taken over multiple countries and become a huge primary payment system. [Whereas] the cryptocurrency doesn’t work.

So, El Salvador. The president of El Salvador is a totalitarian nutcase. And one of the things he did as a totalitarian nutcase is pass a law saying Bitcoin is legal tender. But you aren’t actually using Bitcoin. Instead, they created a new wallet, the Chivo wallet, that’s an electronic payment channel that takes Bitcoin and dollars and just updates your balance in a central database. It’s not actually doing a transfer. And the Bitcoin folks like to go, “Oh, but there’s this lightning network thing that allows these layer two transfers in a trustless environment, so you aren’t trusting the central Chivo app.” That is still limited to adding three to seven people per second globally to the system. So you can’t actually onboard that system. It just doesn’t scale.

And so the one case where we’ve had an attempt to do a wide-scale “pay with Bitcoin” system, El Salvador, they gave up and aren’t actually using Bitcoin. They’re using a centralized database in an app. And because the value of the numbers in the centralized database bounces around, nobody actually uses it. People just signed up for the free money, then transferred it, and have since stopped using it. [Note: Seeking Alpha reports that “virtually no downloads [of the Chivo app] have taken place in 2022” and “it seems that people were incentivized to download Chivo given the $30 bonus offered by the government.”] So even when you have a central database and a central authority, cryptocurrencies don’t work for payments, because they bounce around in price.

ROBINSON:
One of the things you’ve said, if I recall, is that the cryptocurrency space is “speed-running 500 years of financial history.” By which I take you to mean that all of the financial disasters of centuries past are playing out in short order, and then they have to rediscover the solutions that were put in place for those things not to happen. So you start off thinking, “Oh, wouldn’t it be fantastic if there were no central authority?” and then all of a sudden you realize, “Actually, it really would be nice if we had a central authority to regulate fraud and such” and you rediscover the virtue of banks and government.

WEAVER:
Yeah. Cryptocurrency: teaching libertarians about market failure since 2009. The thing is, though, the cryptocurrency space itself has the object permanence of a horny mayfly. They simply don’t remember their own scams.

So Ponzi schemes in the cryptocurrency space have existed since 2012, 2013. Back in those days, a huge amount of Bitcoin—10% of all Bitcoin at the time—got invested into a Ponzi scheme. This Ponzi scheme was so big in the cryptocurrency space that the editor of the Bitcoin magazine bet $90,000 that it wasn’t a Ponzi scheme. And so the investors in the Ponzi scheme were then taking the other side of that bet in order to protect themselves. So, when the Ponzi scheme inevitably failed, well, they were out their money, and the bets didn’t pay off because the editor of Bitcoin magazine didn’t have the money. But it gets better. Guess what the name of the guy running the Ponzi scheme was? “Pirate@40.” Ten percent of all Bitcoin at the time got invested into a Ponzi scheme run by a guy calling himself Pirate@40.

And then they keep repeating it. So like Celsius as a system is clearly Ponzi economics. They’re claiming 10 to 20% rate of return lending out cryptocurrency. The only way they can be providing that is by providing either money from venture capital or money from previous investors. It’s a self-created Ponzi scheme.

ROBINSON:
Can we discuss “smart contracts”? I don’t understand what these are.

WEAVER:
A smart contract is not a contract. The theory behind smart contracts is “code is law.”1So let’s do programs that cannot be updated that handle money. Now, we’ve had programs that handle money for decades now. So I’m a savvy investor, I have an index fund, my index fund is run by a computer that’s running a fairly simple set of programs, trading on my behalf to make sure it matches the index.

Now, there’s two things about that program: It’s not generally accessible to the internet, so no random person can go up to it. And it’s running on a fabric that’s reversible. So if there’s a catastrophic screw up, you get the people involved and can undo the mess.

The smart contracts really are computer programs that operate on money. But there’s a few riffs on them. There’s no mechanism to fix problems if they occur. There’s no undo button. In fact, there’s often no way to upgrade at all. So if a bug is found, you’re out of luck. They are written in a truly awful set of programming languages, but that’s just the icing on the cake. And any random person in the world can interact with them.

And so the question is: if I can go up to a “smart contract” and say, “Hey, smart contract, give me all your money” and it does, is that even theft? But catastrophic theft and catastrophic bugs occur all the time. So the first smart contract, the DAO, back in 2016, was “Hey, let’s make a voting distributed mutual fund.” So anybody can invest in the DAO and get a say in how we invest the money. Ten percent of all Ethereum got invested in the DAO. And it basically got invested because it’s got a cool name. And it was basically a self-assembling Ponzi scheme.

What happened is: somebody realized there was a bug in it, where what they could do is do a deposit, then a withdrawal, then that withdrawal they could withdraw again and again and again recursively. Because what would happen is it would transfer the money, then decrement the balance, but in transferring the money you could trigger another withdrawal. So you would basically be able to withdraw a gazillion times, then the balance gets decremented. And, oops, all the money’s gone. And so somebody did this. So the first smart contract of note failed catastrophically due to a bug. Yet they keep doing this over and over and over again.

And as a bonus, remember that whole “code is law” business? No central authorities [the code determines the outcome]. That’s a lie. Because the developers of Ethereum have their 10% in this self-assembled Ponzi scheme. So they updated the code to steal all the money back.

The reason why I say it’s rerunning half a millennium of failure is that at the start, there’s a huge amount of “tulip mania.” Back in 2018, we had a tulip mania of these deformed cats called “crypto kitties” that shut down Ethereum. Now we have a tulip mania of these deformed apes that shut down Ethereum, because of course it can’t really do all that much. And so the thing is, there’s just no object permanence in the space. They don’t remember their old mistakes. And so they just keep making them over and over again.


ROBINSON:
I suppose we have to talk about the apes. I really, really don’t get this NFT thing. I really don’t understand what people who pay large sums of money think they’re getting. I don’t know how you can own a JPEG without owning the copyright to it. I don’t know what you’re buying. What is this? Can you tell me how this fits into the picture and the best way to conceive of it, as a normal person?

WEAVER:
So most of the NFTs are as follows: A bunch of computer generated variants are created. They’re put up on a web page. I sell you a receipt to a URL that says you theoretically own this receipt. And that’s it. You can trade this receipt to somebody else. By default, an NFT gives you no rights. It is literally just a receipt for your purchase that you can trade to somebody else.

ROBINSON:
Can I just stop you? I want to break this down. What does “own” mean?

WEAVER:
You have a receipt that says “I am the owner of this.”

ROBINSON:
But what does it mean to “own” it?

WEAVER:
You can sell that receipt to somebody. Now, the apes are a little bit different. Because there is a part outside of the smart contract for the apes, which is that you have a license to make as many derivative works as you like of the apes you own as long as you own it. And that is actually pretty unique. Most of the NFTs don’t offer that option. The apes do. So what ends up happening is the big market for the apes is for people to make derivative apes. So buy four or five ape NFTs, use that to create the base for 400 to 500 algorithmically-derived alternate apes, like caked apes or spaced apes or apes that eat their “slurp juice” or whatever, to create more derivative apes that you then sell to more suckers.

ROBINSON:
So they’re like baseball cards, essentially? You have to convince people there’s some pleasure in owning these things, or that they’re going to go up in value?

WEAVER:
That they’re going to go up in value. The only part of it that isn’t [speculation] is the conspicuous consumption, like “Oh, I’ve got the Rolex.” But the problem is the ownership is so weak that all you have to do is right-click “save” and you have your own copy. So Elon Musk inadvertently, I hate to say it, but he actually did something right. He showed the whole stupidity of this place by temporarily putting his profile portrait to a collage of apes he didn’t own.

ROBINSON:
Which shows you that “ownership” really does not mean terribly much, because the people who own those apes can’t enforce a copyright claim against him for doing that.

WEAVER:
No, because the copyright is still owned by Bored Ape Yacht Club, and the owners of the apes just have licenses to be able to produce derivative works.

Also, the other thing is: they’re ugly!

ROBINSON:
They’re really, really hideous.

WEAVER:
The actual usability of the intellectual property outside the space of the lunatic ape collectors is zero. So like MeUndies, which is a company that does underwear, bought themselves a Bored Ape, and they were going to make Bored Ape underwear with the ape. The backlash was so swift that they gave up and sold their ape because the intellectual property was useless.

ROBINSON:
We’ve talked about a lot of different aspects of what is called the “cryptocurrency space.” We’ve talked about the inefficiency, the volatility, the way that “irreversibility” is touted as a feature but in fact enables fraud and ransom. We’ve talked about the environmental destruction. One other thing I wanted to ask you is: you said in your lecture that cryptocurrency enables venture capitalists to “carry out securities fraud as a business model.” Could you explain what you mean by that?

WEAVER:
So there are a lot of securities regulations out there. And the definition of “security” is very broad. It dates back to the Howey Test in the Great Depression era. That happens to be one of the cleanest legal tests ever for “Is this an investment contract?” and therefore a security that should be regulated by securities regulators. It’s very much “if it walks like a duck and quacks like a duck and swims like a duck and flies like a duck, it’s a duck.”

So in the old days, like a few years ago, you’re Andreessen Horowitz, you invest in several companies. And these companies get to a point where either they implode and you lose your money, or they get bought by a bigger company, and you make a profit, or you go public. But in order to go public, you have to do a lot of paperwork. Basically, you have to do honest financial disclosures, etc.

But how they work now is basically securities fraud by inducement. So they invest in a cryptocurrency-related company. They strongly encourage that cryptocurrency company to issue a token that acts as a promise for some eventual service, like say dental care or an orange tree in Florida. And they sell that token to the venture capitalists at a huge discount. So the venture capitalists get a huge pile of these tokens. And then what happens is they encourage the company to go out and sell the token to the general public. And ideally they get that token listed on CoinBase, which is partly owned by Andreessen Horowitz. And if not, they just use the decentralized exchanges or whatever.

And now the venture capitalist is able to sell their tokens to retail investors. This is blatantly an unlicensed security. This is blatant securities fraud, but they didn’t commit the securities fraud. It was just the companies they invested in that did the securities fraud, and the SEC has not been proactively enforcing this. They only retroactively enforce against the initial coin offerings after they fail. So what will happen is Andreessen Horowitz and company invested in a bunch of startups that all issued tokens, that all got dumped on retail including Andreessen Horowitz dumping a lot of them on retail, and when things fail, the only people to prosecute are the companies, not Andreessen Horowitz itself. So they’ve been able to make securities fraud a business in such a way that they are legally remote, so you will not be able to throw them in jail.

ROBINSON:
Well, what you said suggests that to some degree they’re working carefully within legal loopholes but also that there are ways in which regulators ought to be stepping up. You wrote an article in Slate with the security expert Bruce Schneier about the way that, without banning cryptocurrency outright, we can regulate it sensibly. So perhaps you could outline what you think is the necessary approach to mitigating the various harms that this is doing.

WEAVER:
The first thing is, you don’t in many cases need new laws. You just need existing laws to be enforced. So every initial coin offering, every single one of them, checks every box of the Howey Test. The SEC has the authority to stop those proactively rather than reactively. They choose not to.

Most of these “decentralized” organizations are not actually decentralized. They are identifiable entities. So when you have regulations that apply to identified entities, like say money transmission laws, apply them to the named entities. Cryptocurrency is pseudonymous, not anonymous. So actually enforce requirements on transfers to make sure that money that’s been contaminated by bad stuff is not allowed. That would disrupt a whole bunch of bad activity.

To put it bluntly, the SEC needs to grow a pair. Because this space is provably negative sum. It can only harm investors. Everything in this space, for the most part, ticks boxes for stuff that the SEC is allowed to regulate, which it should regulate.

Basically, there’s a fear among regulators—that I think started in the ‘80s—of being accused of “stifling innovation.” There’s no innovation to stifle. So regulate away. Because the problem with the current regulation model is they’re doing “let’s pick up the pieces afterward.” So after the things fall apart we’re going to go pick up the pieces, rather than “Hey, let’s stop things from falling apart in the first place,” which would save billions of dollars of investor money.

ROBINSON:
What is the future of cryptocurrency in the absence of changes to existing regulation? Is it doomed inherently through features internal to it? Where’s this going if allowed to follow its own logic?

WEAVER:
It will implode spectacularly. The only question is when. I thought it would have actually imploded a year ago. But basically, what we saw with Terra and Luna, where it collapsed suddenly due to these downward positive feedback loops—situations where basically the system is designed to collapse utterly and quickly—those will happen to the larger cryptocurrency space. Because, for example, the mining process is horribly expensive. We’re talking [a measurable percentage] of the world’s electricity consumption, most of that has not been paid for. So the mining companies for the most part have been taking the cryptocurrency and borrowing against the cryptocurrency that they create, rather than sell it, because the market’s actually very thin.

This means there’s a huge amount that is subject to potentially catastrophic margin calls. And that creates a feedback loop where the price drops a little, somebody’s forced to sell. That drops the price more. They’re forced to sell more. This creates a feedback loop that drives the price into the ground, catastrophically.

The previous times this has happened, we had the bubble at 100, powered by fraud at Mt. Gox. And that imploded down to 10. We had a bubble a 1000 powered by fraud, it imploded and went back down to 100. We had a bubble at 10,000 powered by Tether, it blew up and went back down to 1,000. And now we’re at a bubble where Bitcoin blew up to 60,000, fueled by Tether and falling. But I don’t think there’ll be a fifth bubble. Because basically, they will have broken all the suckers left to break. There’s only so many more suckers that can be brought into that space. Once you burn out a sucker, they don’t come back. They’re a non-renewable resource. So they’re going to end up running out of greater fools.

So I suspect that the cryptocurrency space will go fine absent regulation, until one day it goes and collapses greatly.

ROBINSON:
What you said about finding suckers, I think I’d like to end on this. Because I was in New York City recently on the subway, looking around at the ads, and a bunch were for investing in some new crypto thing. They were encouraging people to put their money in, saying it was a safe investment. And I mentioned the Super Bowl ads earlier. And I think the thing that it might be worth emphasizing is when we say “sucker,” we’re talking about people being taken advantage of. When you talk about the ransomware, the fraud, the child exploitation material, when you talk about people who put their savings into these things, even leaving aside the environmental destruction, we’re talking about pain being inflicted upon people by the proliferation of this.2

WEAVER:
Yes. That’s the problem, and that’s why I’ve actually changed my view over the past decade. Back in 2013, I thought it was amusing and silly, and I could get cool papers out of it. In 2018, I thought it was amusing, but pretty bad. [In 2022], it’s time to really think about burning it down. Now I just want to take the entire cryptocurrency space and throw it into the sun. I know astronomers will tell you it’s easier to throw something into the void of space than to throw it into the sun. But it’s worth the extra energy to make sure some alien doesn’t find this mental virus.

ROBINSON:
Well, good luck. You’re battling Bill Clinton and Tony Blair, who both showed up at a cryptocurrency conference recently.

WEAVER:
And I bet they got paid in actual money. Like, the Washington Nationals just the other day started doing a lot of tweets for their business relationship with Terra. That was $5 million for five years prepaid in advance in cash. So for the next five years, the Washington Nationals are obliged to hype a cryptocurrency that failed spectacularly already.

ROBINSON:
But they got their money.

WEAVER:
They got their money. They just have to hype it now. For five years.

ROBINSON:
Well, Professor Weaver, thank you so much for joining me and explaining this. There’s so much bullshit to wade through and there are so few people who are talking about this in a really intelligent way and I really appreciate your work. Good luck with your mission to throw it into the flames.

WEAVER:
Thank you very much for having me.


*

HOWEY TEST
https://www.findlaw.com/consumer/securi ... -test.html

[...]

Under the Howey Test, a transaction is an investment contract if:

It is an investment of money
There is an expectation of profits from the investment
The investment of money is in a common enterprise
Any profit comes from the efforts of a promoter or third party

Although the Howey Test uses the term "money," later cases have expanded this to include investments of assets other than money. The term "common enterprise" isn't precisely defined, and courts have used different interpretations. Most federal courts define a common enterprise as one that is horizontal, meaning that investors pool their money or assets together to invest in a project. However, other courts use different definitions.

The final factor of the Howey Test concerns whether any profit that comes from the investment is largely or wholly outside of the investor's control. If so, then the investment might be a security. If, however, the investor's own actions largely dictate whether an investment will be profitable, then that investment is probably not a security.

[...]
We meet at the borders of our being, we dream something of each others reality. - Harvey of R.I.

To Justice my maker from on high did incline:
I am by virtue of its might divine,
The highest Wisdom and the first Love.

TopSecret WallSt. Iraq & more
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Re: BitCoin

Postby Agent Orange Cooper » Sat May 14, 2022 5:20 pm

Bitcoin is not a security. This has already been established by the SEC. It's property. The thousands of centralized cryptocurrencies out there pretending to be just like Bitcoin are a much different story. Bitcoin rolls on through yet another test of its anti-fragile properties. Tick tock, next block.

Some reading:

https://www.uncerto.com/only-the-strong-survive
Only The Strong Survive
A Philosophical, Technical, and Economic Critiqueof Prospects in “Crypto” Beyond Bitcoin
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Re: BitCoin

Postby drstrangelove » Sat May 14, 2022 10:17 pm

The best thing about bitcoin is that it couldn't be pegged to reserves of something. Got billions in "secret reserves" of stablecoin, so exciting like chicken spice. What we they be, drum roll please . . . .Chinese commercial real estate bonds.

Millennials holding the bag on Chinese ghost cities.
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Re: BitCoin

Postby Agent Orange Cooper » Sat May 14, 2022 11:16 pm

drstrangelove » Sat May 14, 2022 10:17 pm wrote:The best thing about bitcoin is that it couldn't be pegged to reserves of something. Got billions in "secret reserves" of stablecoin, so exciting like chicken spice. What we they be, drum roll please . . . .Chinese commercial real estate bonds.

Millennials holding the bag on Chinese ghost cities.


Actually Tether recently claimed that they are mostly in US treasuries now. The possibility that Tether might eventually replace China as the primary buyer of US treasuries is real.

And Bitcoin doesn't need to be pegged to reserves of something - it is the something itself.
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Re: BitCoin

Postby drstrangelove » Sun May 15, 2022 7:52 am

Reserves are made up of $34B treasuries and $24B of commercial paper as of five months ago.

https://assets.ctfassets.net/vyse88cgwf ... -31-21.pdf

Bad to be a creditor with a monetary system that is inflationary.

I've been wondering how they were offloading all that debt. Seems so obvious now but it never struck me before now.

But yeah, Bitcoin will survive because it isn't pegged to any of the financial mechanisms that are controlled by the people trying to crash the system.
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Re: BitCoin

Postby Belligerent Savant » Sun May 15, 2022 10:03 am

BlackRock and Citadel allegedly caused one of the largest #crypto crash of the last years. The two investors allegedly borrowed 100k #BTC from Gemini, swapped 25K of #BTC into #TerraUSD (#UST), called Terra Foundation suggesting they’d want to sell a large chunk of BTC for UST, and hinted to buy them at discount to avoid moving the market. (Source > https://lnkd.in/dAi_yJm2)

Terra ($Luna) agreed to buy BTC for UST at a discount, lowering its own UST liquidity and reserves significantly. After which, BlackRock and Citadel dumped all UST and #BTC causing massive slippage and triggering a cascade of forced selling in both assets.

At the same time, this also triggered a cascade of withdrawals from another large crypto, $AnchorProtocol, holding large quantities of UST. The withdrawals were more than Anchor could repay, triggering a further sell-off in $Luna, thus further breaking the $1 peg of UST/USD.

#BTC currently trading below $27,000 (down 32.2% in 1 week) can now be bought by BlackRock and Citadel much cheaply, they can repay their loan, and pocket billions in difference. Meanwhile, over $300bn of long positions in stable and altcoins were wiped out, and $Luna tumbled from $86 to $0.16 in less than a week.

While BlackRock and Citadel denied the claims, only the actions of very large institutional investors could trigger such a tumble by two of the largest #cryptocurrencies. This was pure market manipulation. It is surprising that the largest investors in the world and loud advocate for ESG and Ethical investment is allegedly behind such actions. At which point trading and investing becomes market manipulation? Is #crypto investing supposed to align to #ESG standards, or is it still considered no man's land due to lack of regulations?


https://www.linkedin.com/posts/paolo-ca ... 46944-eE_B
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Re: BitCoin

Postby JackRiddler » Sun May 15, 2022 5:11 pm

.

Oh look, investors in a huge scam are complaining that bigger investors sooner or later exploit it for their own hyperprofit through "market manipulation." The latter phrase is synonymous with the unregulated globalized financial sector itself. There is no other kind of major action on these markets. The architects of crypto schemes know that well enough (other than a few who might be insane and believe the bullshit about how cryptos will be the new world currencies).

Of course it's the biggest makers engaging daily in schemes at incomprehensible volumes who have the mass to decide when to dump and pop the bubble and get the most out of it. And to lure in a couple of ambitious medium-size sharks, as the above post claims they did. Inside every con artist there's a sucker waiting to come out. I'm sure the SEC and Treasury are on it!

But what determined that the time for the inevitable shakeout was ripe, triggering this predictable "manipulation"? Presumably they saw the weaknesses of some of the specific ponzi-stamp securities sold as if they are currencies or assets and went in for the quick kill, again as described above. Sure.

Of course we all see the inflation panic -- speaking of manipulation, there's also the ideological kind in which phenomena of supply shock and ongoing deglobalization are blamed on the plebeians supposedly getting a percent or two more in gummint money than before. So we see rate-hike trajectories signaling recession and a general market bloodbath (or correction if you will), where crypto with its marvelous volatility can be a lucrative multiplier.

But you know it was also that hilarious Super Bowl coming-out party and, of course, the NFT thing. Garbage Ape derivatives and the like are really too far on the hubris. Wile E. Coyote doing a victory dance fifty feet out from the cliff edge at the same time that the crypto companies do a big roll-out urging the population that the time has come to shift their meagre savings into new perpetual money machines. They're running out of suckers and making it too obvious to conceal.


https://www.youtube.com/watch?v=svQ9_IjXaGk

ON EDIT: As I post this, I see it's seven minutes before Musk starts a livestream that promises "Elon Musk about Changes His Mind on BITCOIN! Bitcoin & Ethereum set to EXPLODE in 2023! Crypto News!"


https://www.youtube.com/watch?v=mYDQ5umvbvU

#surelynotmarketmanipulation

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Re: BitCoin

Postby drstrangelove » Sun May 15, 2022 9:42 pm

JackRiddler » Sun May 15, 2022 5:11 pm wrote:.
But what determined that the time for the inevitable shakeout was ripe, triggering this predictable "manipulation"? Presumably they saw the weaknesses of some of the specific ponzi-stamp securities sold as if they are currencies or assets and went in for the quick kill, again as described above. Sure.
.

I think alot of the escape capital from crypto went into meme stocks on friday as fake rally to draw in retail investors who think we've hit the bottom. Check out the Nasdaq on friday just after the the crypto crash.

Image

There was also something weird going on with one of the 10y Treasury bond charts around that time. It wasn't yields and i couldn't figure out what it was actually tracking.

Image
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