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Kid Mercury
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46 followers
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EOS: a Step in the Right Direction

I view EOS as a critical step in the right direction for where blockchain technology needs to go, and a vital part of bringing about the world beyond the nation-state. With that said, it is only a step -- I don't think it is far enough.

1. EOS is a block chain in which 21 block producers are responsible for writing transactions to the blockchain. 20 of these block producers are voted for by EOS token holders, while the last one is selected through a partially random process.
2. All block producers must meet certain criteria. This ensures that all block producers have the computational power needed to validate blocks quickly, and given that there are only 21 of them, coordination costs should be sufficiently low. The result is that EOS can support far greater transactions at a far lower cost.
3. Critics of EOS say that 21 block producers ensures a high degree of centralization, and that EOS will essentially be a cartel, or oligopoly, that writes whatever transactions it wants -- and ignores those that it does not, in addition to doing what essentially amounts to printing money and giving it to itself.
4. Proponents argue that voting will keep the system honest, and that EOS is far more akin to a democratic government than any other blockchain.

Personally I agree with both sides. The democratic aspects of EOS are true, but they do not go far enough. Voting will only work if a citizenry is sufficiently active, for the price of freedom, in both the blockchain world and the nation-state world, is a vigilant citizenry. For a citizenry to be vigilant, it must be united by common values and purpose, generally of a somewhat moral or spiritual persuasion. EOS does not have any of that, in my opinion, which will result in a dangerous form of cartelization -- if it manages to get substantial adoption in the first place. I tend to think values are needed for substantial adoption anyway.

Really, in my opinion, there are vital components to a blockchain economy/government:

1. Technology. EOS does a pretty good job with this.
2. Monetary/economic policy. EOS inflates its money supply at up to 5% per year, with the proceeds going to block producers, who in turn execute transactions without fees. I think this is close to being correct, but some capital needs to be set aside to build the community and attract developers to build applications on top of it.
3. Governance philosophy. EOS has a vague at best governance philosophy. It has a constitution, but really this needs to be fleshed out much more, and perhaps something akin to a multi-body governmental system with checks and balances is needed. I believe we will increasingly see blockchains that serve a deep moral purpose, and this moral purpose will dictate their economic policy and governance philosophy (which will be served by the technology).

The three components outlined above need to work together. I don't think EOS is there yet, which is why I think it will still have trouble getting adoption, and why I think its critics are somewhat correct in their complaints. With that said, from a strictly investment perspective, I can see how EOS could be a token worth buying. I am not long at this time, mainly because I'm focused on my own entrepreneurial opportunities, but I see the appeal of buying EOS.

Most importantly, this is a vital step in the right direction. I do expect EOS to be more successful than Ethereum. And I do think in a few years time we may see a major blockchain emerge that has a more robust governance system in place, backed by its own moral code, with a monetary policy and technological protocol that is complementary. This system may emerge as the dollar-based system that underpins most global trade experiences an acceleration in its collapse.
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how currencies get valued

I've seen some folks around the web talk about cryptocurrencies using a framework that has two components:

1. store of value -- the idea that some cryptocurrencies, most notably bitcoin, can effectively preserve wealth, and thus will appreciate in value
2. utility hypothesis -- the more a currency gets used, the more valuable it becomes

Both components here are false. For starters, bitcoin has gone from $19,000+ to around $6,000; this kind of a swing in a short amount of time is not doing a good job of storing value. What store of value proponents may wish to consider is that bitcoin and its ilk are not stores of value, but rather are a form of currency insurance: if political currencies fail, bitcoin can serve as a currency free of any attachment to a state. Thus, it is potentially an insurance policy of sorts for political currencies, much like what gold is.

As for utility driving value, if that were true, then how would the US dollar -- a currency that perpetually runs a trade deficit -- be the premiere currency for wealth preservation and appreciation? And how could China's currency, the renminbi, avoid appreciation in spite of growing its share of trade exports?

I would suggest that currencies derive their value from governments and political agreements. The US dollar derives its value from the Bretton Woods agreement, in which a political agreement was struck to make the US dollar, then backed by gold, the reserve currency of the world. When the US abandoned the gold standard entirely in 1971, a political agreement to construct the petrodollar was born, in which oil exporting nations agreed to price their oil in dollars, and, more importantly, take dollars they received for the sale of oil and re-invest them in US Treasury bonds. US Treasury bonds are an appealing source of value because the US government can always tax its citizens, using force if need be to do so.

When observing how the US dollar gets its value, every step of the way involves the US government enforcing and negotiating this value. In my opinion, it will not be different for cryptocurrencies: they will need something akin to a government to establish their value, at which point they will be able to draw in large amounts of capital and displace nation-state economies. The crucial difference is that it is now possible for anyone to create their own currency and economy, and so the path by which tyranny is avoided does not involve avoidance of large government, but rather a willingness and ability to create new governments as needed -- effectively creating a marketplace of governments that compete for citizens and the right to tax them.
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About the lightning network

The lightning network is, if I understand it correctly, a proposed change to the Bitcoin protocol that would allow side chains of sorts to be developed in the name of faster transactions. For instance, two parties could agree to form a channel, and make payments on this channel that are off the official block chain. When they close the channel, then the net result gets logged in the blockchain and if real. Until then, it's really just a series of documented promises/IOUs.

In my opinion, if Bitcoin is digital gold, which is the only valid utility I believe it could possibly have, then this type of innovation is not worthwhile. Bitcoin as a store of gold means security and sanctity of ownership is Paramount. Stores if wealth can move slowly -- in fact they should move slowly -- so long transaction times and high transaction fees are acceptable, if not outright preferred. Ambiguity of ownership, which I feel lightning network will introduce, is a real problem for the store of wealth value proposition. These types of innovations are best left to other protocols or companies built atop the protocol rather than embedded within the protocol itself.
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Lessons from almost two decades of failing

I've been working on entrepreneurial endeavors online since 1999. Not consistently, but the general pattern has been:

1. idea
2. try it out
3. fails
4. get a job, save up money, learn new skills, meet new people, brainstorm, come up with new idea

Here's what I've learned:

1. Focus. Everyone says this, and at least for the past 10 years I would tell you that I understood it too. In hindsight I didn't understand it deeply enough (hopefully I'm better now). I think it is very difficult to overstate the importance of this one.

2. Operate from a position of strength. As a startup everyone is bigger and stronger than you, so the challenge is to find something where you are the strongest (or at least very strong) at. Intellectuals might phrase as this seeking out disruptive opportunities, and while I agree, thinking about how I feel -- and whether or not I feel as though I'm operating from a position of strength -- helped the idea click with me much more. I think you can often talk yourself into seeing disruption, but at least for me, my feelings are much better at keeping me honest.

3. Learn software development. I saw big progress when I focused on becoming a good programmer. This is especially true if you are lacking funds and not well positioned to fundraise.

4. Establish KPIs, measure your growth. This helps with focus, and with understanding if/when a significant change is needed.

5. Position your product to ride current trends, if you can. Often the core of the product can remain the same, but if you are able to convince others you are riding the new hot technology trends, I think you'll get greater interest from everyone (including paying customers). If you're not, you won't have the trends that lift all the other boats working for you.

6. Enjoy yourself. If you're not enjoying yourself something is wrong.

7. Stay confident. Failing can rattle you, but if you lose your confidence you'll never get back up to try again.

This is all obvious stuff, probably stuff that has been written about since the dawn of entrepreneurship probably, but I thought it was worth writing down to avoid forgetting.
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Are we finally there yet?

I've been expecting something to resembling a run out of the US dollar for about ten years now. That's a long time to be mostly wrong.

But I've remained by my expectation because the data leaving to that hypothesis had in my opinion only gotten more convincing. Most notably, the yield on the ten year treasury bond had finally broken above its 30 year trendline. The US tax cut will also increase the budget deficit, which means the US government will need to borrow more at a higher borrowing cost. As the cost of servicing debt takes up more and more of the budget, until it becomes clear that even servicing will not be possible, I think pressure to exit the dollar will only grow.

So what comes next? I suggest this will be the opening for new currencies and new "digital nations" -- net native governments whose borders are delineated by the economic transactions if their cryptocurrencies.

In the meantime, though, gold should come into favor can once again.
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A Framework for the Crypto-Economy

I've been thinking a lot about bitcoin and cryptocurrencies lately, and I think I finally got to a point where I feel comfortable with a framework on its future. This post is simply to help me crystallize my thinking.

1. I've come to loosely accept the Exter's pyramid meme being floated out there, in which bitcoin is digital gold and ethereum is likely digital silver. This means bitcoin is not for transactions but is a store of wealth, and ethereum is sort of the common person's gold -- costs less, more realistic for small transactions if needed for a currency, but more volatile, plentiful and subject valuation gyrations from industrial demand (i.e. applications that actually use the token).

2. From this perspective, an allocation to bitcoin as a store of wealth may be a legitimate part of any portfolio. However, I wouldn't buy bitcoin or ethereum now, since I simply am better at buying and selling value than momentum. If the ~$19,000 high holds and we are popping in the process of deflating the bubble, I would look to buy at around $4,500-$5,000. Of course it would be preferable to see a range form at this price level, and to accumulate in this range over time.

3. I suspect the next phase in the cryptoeconomy will be the creation of digital states, whose primary task will be to establish monetary and fiscal policy for the currencies they issue. This phase will be where digital states usurp the role of nation-states. The states built using cryptocurrencies will be vastly larger than the dollar-based market cap of bitcoin and ethereum. To put it in perspective, the total value of all gold mined is around $7.8 billion (this is the above ground, legitimate economy only; the hidden economy is estimated to be vastly larger, but for this discussion I will only consider the acknowledged economy, since the hidden economy is too vast of a subject. I acknowledge this as a major assumption that could derail this part of the analysis). Meanwhile, the US GDP is over $18 trillion. China's GDP is over 11 trillion. The next phase will involve creating the digital China, digital USA, etc. These states won't come from national governments -- though they certainly will try -- but rather will emerge in a more "net native" manner.
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Post has attachment
Is bitcoin digital gold?

I've been thinking a lot about this question lately.

Bias disclosure: I own a very small amount of Bitcoin that I bought in 2014, and some ethereum that I bought in the first half of 2017. I own a substantial amount of gold (relative to my overall personal wealth) that I accumulated from 2008 through 2015.

I understand the argument that bitcoin, with its supply fixed and its detachment from any governmental monetary system, is a potential universal store of wealth -- much like gold. The reason I'm reluctant to buy more of it, even if it were not so bubblicious, is because:

1. software decay: https://en.wikipedia.org/wiki/Software_rot. bitcoin is still subject to software decay, which makes its future hard to predict and more mutable. it's not as constant as a truly stable store of value should be, in my opinion. for instance, once bitcoin is fully mined, i suspect there will be a push to create a fork to induce greater supply. that kind of stuff doesn't inspire trust in me. it may be decades or more away, but the big money that moves these kinds of markets are often taking a long term view on how to preserve wealth for generations.
3. electricity and security: what if the power goes out, how can i securely store it....this is part of the risk that may lead to the reward for those who get in now, but i'm not wiling to take that risk with an amount of money that is substantial for me.
4. i have trouble with the whole satoshi nakamoto thing, a mysterious guy/girl/team create this thing and don't spend any coins....i'm much more comforted by seeing and reading vitalik buterin of ethereum; the fact that he's real and out there and interacting gives me confidence in the future of ethereum.

meanwhile, gold has remained relatively calm while everything else has gone through the roof in 2017. when the everything bubble pops, i think that is where a fair amount of money will go -- doubly so since china continues to slowly push the yuan towards internationalization, and the PBOC is accumulating gold to make this a more viable offering.

i do like ethereum a lot, though. i'm not sure if it will go up a lot in value, since it seems to me to be a platform for transactional currencies -- and such a platform may not have sustainable incentives for appreciation in value -- but i do think it's going to be a big part of the future, and so it may be worth staking a claim to it in whatever way possible. all of my high risk capital is put towards entrepreneurial endeavors, but if i have any excess high risk capital, some of it will certainly go towards increasing my ethereum position -- especially if/when the crypto bubble deflates.
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The end of California dreamin'

I'm in Palo Alto now for some potential business. I just don't see how California is going to survive. Ive had that mentality since I left here in 2012, but I feel it's gotten even worse somehow now, and that we are finally at its breaking point. It costs way too much, the state government keeps raising taxes and giving so little back in value. I know the network is here, and that is undeniably a huge source of value, but I think we finally have enough of a network in many other cities to make the California advantage seem smaller -- especially when the costs and lack of government support are considered.

I'm reading Meredith Whitney's book now, fate of the states. In it she talks about how the central corridor of states in the US are in such a better financial state that they will end up drawing migrants from other states that are so financially messed up that they keep raising taxes and see are still unable to improve infrastructure, schools, security, etc.

I think, finally, she will be proven right.
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The wrongest I've ever been

I don't think I've been as wrong about anything as I have been about Facebook, which is why I've come to admire the company so much -- though I do find it's trajectory to be creepy and dangerous in some ways.

But I didn't think Facebook, or any social network, could get beyond a few hundred million members, and that niche was a better strategy. I didn't think they could monetize their product well, I didn't think they could exist mobile, I didn't think WhatsApp or Instagram made sense as those acquisition prices.

I think it's reasonable now to say I was entirely wrong on all of that.
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The next depression has started

I think it has. Retailers closing en maase I think is the clearest sign. But also interesting is that we are starting to see things like the cryptcurrency bubbles, US tech stocks still soaring, and certain real estate markets soaring. So I don't think this will be a conventional crash that sends everything down. I think, finally, money will start leaking out of public debt and nation state currencies, and this will create a speculative frenzy and price instability everywhere. If so, a great opportunity will exist in bringing about price stability.
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