Global Economics

Bitcoin and All Existing Cryptocurrencies Headed to Zero

MacroVoices host Erik Townsend has me convinced that Bitcoin fans have things ass-backward. Bitcoin is headed to zero.

Whether you are a Bitcoin fan or detractor, please do yourself a favor and play this excellent Webinar with Erik Townsend.

If you are a Bitcoin fan, don't let the title ‘Biggest Speculative Mania in History' scare you away. Instead, listen to the well-reasoned statements of Townsend.

Townsend compares current Bitcoin technology to the original Wright Brothers aircraft. There will be improvements. The technology will spread.

However, that technology will be used by governments to track everything. Ironically, that's the exact opposite of what the Bitcoin believers think will happen.

Blockchain Debunked

Townsend also has a 20-page white paper called "BlockChain Debunked". The paper is on Distributed Ledger Protocols (DLP), and CryptoCurrencies.

Once again, I encourage everyone to read the paper. Here are a few excerpts from the paper.

Both Bitcoin and its Blockchain are proof-of-concept quality at best. They have profound importance to history but little practical viability, despite the present mania surrounding them. They will eventually both be replaced by much more robust solutions that eliminate the serious shortcomings of Blockchain’s reliance on miners to validate transactions and the proof-of-work architecture that serves only to slow down the network and make it painfully inefficient and wasteful of electricity and other resources.

Will Leemon Baird’s HashGraph be the next big advancement in this field, or will it be a soon forgotten relic after someone comes along and finds fatal flaws in Baird’s math? I have no idea. But I’m confident that regardless of whether Leemon Baird has already invented a DLP that doesn’t need Bitcoin Blockchain’s miners and proof-of-work architecture, someone somewhere will invent one, sooner or later. And that won’t be the last advancement in this nascent field.

If I were able to prescribe an improvement for this whole process, it would be this: The crypto community needs to stop treating the Wright Flyer (Bitcoin/Blockchain) as if it were the holy grail, and instead refocus on moving ahead with the much more important task of advancing the field toward the eventual introduction of the Boeing 727. The prototype has already served its purpose. We need to standardize around a DLP that doesn’t depend on miners or Proof-of- Work, and which can operate with or without an associated cryptocurrency.

Bitcoin’s Blockchain was the Wright Flyer of DLPs, and it’s a pity that the Bitcoin crowd has yet to recognize just how seriously flawed its design truly is. If they could see the picture clearly, they would realize that Bitcoin is a flash-in-the-pan cryptocurrency that belongs in a museum.

Don’t get me wrong – digital currencies are definitely going to be the thing of the future. But like it or not, issuance of legal tender has always been the province of government. The only reason Bitcoin has been allowed to come as far as it has is because governments are notoriously slow and inefficient, and are only just now beginning to realize how seriously cryptocurrencies threaten to undermine the power of central banks.

Bitcoin and the other blockchain-based cryptocurrencies will be forgotten soon after the emergence of a viable digital currency based on a more robust, scalable DLP. It remains to be seen what technology will emerge as the preeminent de-facto gold standard of DLPs. HashGraph is but one of many contenders. But sooner or later, someone will figure out how to build a digital currency that doesn’t suffer the serious limitations and drawbacks of Bitcoin’s deeply flawed blockchain architecture.

One things’s sure: We live in interesting times, and this whole thing has just barely begun. DLP (not cryptocurrency) is the most important innovation here, and its potential is unlimited. Digital currencies will also be very important, but unfortunately, their future is likely to be determined more by actions of government than advances in technology.

Reader Emails

Like Townsend, I get dozens of emails from readers telling me, "I don't get it," and I do not even know what each of the cryptos is about.

There are now at leat 1534 of them. Does anyone understand them all? OK, Ethereum improved on Bitcoin. What happens when another idea improves on Ethereum?

One really has to laugh at Tether. That's a crypto that allegedly has a one-to-one tie with the US dollar. It evolved as a fast way to trade in and out of other cryptos.

But who is auditing the dollars? Are there dollar inflows that match crypto transactions? Fraud allegations have surfaced. Regardless, note the irony of tying a crypto to a non-verifiable system backed by the good faith of Tether.

And what about such transactions. Does the IRS consider trading Bitcoin for Ethereum a "like" transaction? What if it goes to US dollars first?

We have not scratched the surface of tax accounting yet. It's going to be a big deal.

And what about hacks? The cryptospace is proven unsafe.

Of course you can hold your coins in your own private vault. But that makes them totally useless in everyday transactions. Wasn't that one of the reasons for Bitcoin.

Store of value? Please be serious.

But these are simply near-term considerations.

All Existing Cryptocurrencies Headed to Zero?

​Townsend did not make that statement. I did. Townsend merely stated, "Bitcoin investors will be disappointed."

That's like saying, "Nuclear war may kill some people."

Read between the lines. Which of these is more likely?

  1. Cryptos will be the death of fiat currencies and governments
  2. Governments will mandate the use of the technology to track every penny for tax purposes

Neither Townsend nor I put any timelines on such events, but they are coming. The technology will live, but the initial implementation will die just as Kodak film gave way to digital even though cameras still live on.

My reference to Kodak was purposeful. That Kodak is now into selling crypto mining servers suggests it may have another date with zero as well.

Tulips never went to zero.

Mike "Mish" Shedlock

43 Responses

  • tedr01

    Feb 7, 2018

    At least tulips have some real value. LoL. Another great post.

  • KafkaLee

    Feb 7, 2018

    I'm a none native speaker, please forgive my bad English. Mish. I would like to say to No to your conclusion. As a professional programmer, investor , IT architect, I am convinced that he doesn't understand blockchain technology at all. Blockchain technology will be improved for sure. We can already see extreme improvement like this : https://github.com/tendermint . This github repository shows extremely advanced blockchain technology which developed by top tier computer scientist. And this blockchain technology (Tendermint) is specifically designed to resist to almost all government attack. Blockchain technology is not born to be a tool of government. That is inherentlly, mathmatically imposiible. After spent last 10 years to read technical / academic papers, and programming this technology by myself, I came to conclusion that nature not made this mathmtaical tool(blockchain) to be a tool of government.

  • Seb

    Feb 7, 2018

    So because we didn’t start out with a Boeing it won’t work? That’s the argument here? OF COURSE these technologies will evolve. The fact that their first iterations aren’t perfect DOES NOT MAKE THEM A TOTAL FAILURE. The code evolves. It’s malleable and will change to meet needs and desires. “You can’t easily spend it on a cold wallet” is the perfect example. Ox is already implementing programs on ledger wallets to not only SPEND easier but actually one will be able to execute trades wallet to wallet over a decentralized exchange. Just because governance is executed perfectly now doesn’t mean the code won’t be changed and improved later. I kept hearing the same bullshit about solar and how it will never meet the cost of coal and natural gas but right now it’s coming down to between .05 to .12$ a KWh. Technology advances. The code advances. The consensus advances. Jesus age Christ it we listened to all the “never” and “cants” of so called experts we’d still be painting pictures on the cave walls!!! How the hell does Kodak even compare to this? The “camera” is still there. The “film” changed. Cryptos will definitely have different iterations and many ideas will be tried. No one trusts governments right now which is why Bitcoin was made in the first place. You guys have a seriously antiquated way of thinking and cannot see all the moves on the chess board. Will bitcoin be the winner? Maybe not. But we all agree that fiat has always gone to zero. Gold will go to zero as technology advances and we start to mine in outer space which isn’t that far away. The robots are coming-remember? Once we are able to get resources from off planet efficiently commodities markets will have insane adjustments to make. He’ll just being able to mine the depths of the ocean will drastically change that. Small thinking doesn’t see big change. It never will.

  • Seb

    Feb 7, 2018

    By the way- i did watch the video. He doesn’t understand code for sure.

  • Seb

    Feb 7, 2018

    And if he does remind me to only buy stuff from him he types on a typewriter.

  • tedr01

    Feb 7, 2018

    Well Warren Buffett doesn't see much value in cryptocurrency but hey what does he know? Actually I own a coal mining company. We produce metallurgical coal. You can't make steel without us. Coal will be around for a long time.

  • Seb

    Feb 7, 2018

    But, if we get coal from space-that’s a hugely deflationary position. And I’m not saying there’s NO use for coal but as far as energy is concerned there’s a definite possibility it goes the way of whale blubber.

  • Seb

    Feb 7, 2018

    And warren buffet invested in Wells Fargo who raped their clients and Clayton Homes who routinely predatorily lends at 15% plus to people who can barely afford even that. What DOES he know? That’s the question for sure.

  • Carl_R

    Feb 7, 2018

    I have a question for Bitcoin fans. Once upon a time an IBM 360 was a technological marvel, and they were very valuable. Now that there are better computers, the only value an IBM 360 would have today would be due to it's gold content, which might be $20-50,000. What about bitcoin will allow it to continue to have value, once better technology comes along?

  • bradw2k

    Feb 7, 2018

    He had me at "it's retarded"

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