OLD 2019 Draft about Flippening
This is a draft that I didn't published in 2019In 2018 I wrote an article on HackerNoon about:
I made a simple and pragmatic analysis on how this scenario could be possible in the future and especially I tried to defeat the Toxic Maximalists Culture more similar to a mystic greed than a mathematical analysis about Bitcoin as valuable by design.
The verdict was:
Without early adopters still involved, without a tech-driven vision and especially without a real-world use case, it sounds like a religion… The concept of Bitcoin as a secure Store of Value in the next years, in my opinion, it’s sounds like how people talked about the Real State investments before the 2008 bubble: Overvaulting houses as a secure and trustable investment, without cares on what was happening in the entire financial ecosystem.
On September 2019, at the state of the entire Blockchain Ecosystem my point of view is more radical.
At the time of writing the Market Capitalization of Bitcoin is dominating the entire industry for more than 90%, excluding Tokens and Coins without a considerable daily volume. So I was wrong 2018? Not at all, I’m more convinced than ever before, My observations are for the long-run not for short-them bubbles.
Let’s start the 2019 analysis:
Medium of Exchanges Theory:
Let’s start arguing about the ideal scenario for the long run expressed by Bitcoin Maximalists “Bitcoin as a Medium Of Exchange”
After the second world war USD become the world adopted medium of exchange and all of the foreign currencies started to based on USD debt. Before the USD as a medium of exchanges the Gold was the medium and it was because Gold was collateralized to build USD.
How Bitcoin could ever reach this goal? Only if we’ll start to use a new currency that have Bitcoin as a collateral.
Another important analysis is about the daily volume of BTC:
In 2017–2018 BTC was the most daily traded crypto, based on Coinmarketcap.com snapshots:
- May 14/17: BTC had $400M of Daily Volume followed by XRP with $69M
- February 04/18: BTC had $7B of Daily Volume, followed by ETH with $2B.
- December 9/18: BTC had $4.9B of Daily Volume, followed by USDT with $3.2B.
In 2019 an unexpected event happened USDT (Tether) have flipped BTC as a most Daily Traded Crypto:
- May 19/19: USDT had $26B of Daily Volume followed by BTC with $25B
- July 21/19: USDT had $18B of Daily Volume followed by BTC with $17B
- September 08/19 USDT had $16B of Daily Volume followed by BTC with $13B
This scenario was increased since this August from $1B between the USDT trading Dominance and the BTC volume to $3B and it’s growing exponentially.
Basically, BTC has already lost its dominance in Daily Trading and another important analysis is that USDTs are migrating from OMNIA (A layer on top of BTC) to Ethereum ERC20 Token (40% of USDTs are already ETH based Tokens).
De facto, the USDT Dominance in Daily Volume is a huge black hole in the BTC Maximalists aim as BTC to be the world currency, underlining the difficulty for holders and traders to recognize BTC as a Medium of Exchanges.
Stable Coins like Tether, are good for short therm speculations, because are not decentralized, but their values = to $1 is based on a centralized Custodian that maintain the same amount of USD issued as USDT in a scrutinized bank account, basically are USD derivates but on the blockchain and if the issuer will fail investors remains with nothing in hands.
USDT can’t be listed in Decentralized Exchanges but only in Centralized Exchanges that are able to orchestrate the price in a centralized way. At the end of the day a market dominated by a centralized Stable Coin is one of the most impressive treat for the crypto ecosystem.
Meanwhile in the Ethereum Ecosystem, the DEFI world is growing as crazy for one of the most important invention since BTC, the DAI. The DAI is Decentralized Stable Coin made by Maker DAO, that is able maintain a price = to $1 without any custodian or centralized exchange involved, but by a complicated math in its Smart Contract, based on the collateralization of ETH.
DAI is becoming the medium for the DEFI world, with an entire new Ecosystem of Dapps, more secure than every kind of financial services and especially with 0 point of failure. This Ecosystem is the first killer application of the Blockchain Technology in history.
At the end of the day BTC is a volatile store of value, can worth millions or nothing if nobody want it, DAI is for the first time in the Blockchain history a secure and stable store of value able to make the financial revolution that BTC aimed to do, before becoming no more than a speculative asset.
Basically, ETH is more likely becoming a “Medium of Exchanges” than BTC…
Digital Gold Theory:
As I wrote in 2018 arguing about the idea of Bitcoin as a Digital Gold:
In the lasts, 8 years Bitcoin was interpreted as digital gold because was the only Crypto easily exchangeable in USD and every altcoin were calculated as values using the price of Bitcoin. In this situation called Bitcoin, the digital gold makes perfect sense. Every new Blockchain related projects, especially after the 2017 ICO bubble, are exchangeable only in ETH and ETH is easily exchangeable in USD as well as Bitcoin.
This new analysis is based on the real valuable medium that makes gold a shared store of value.
As Peter Schiff a famous Gold trader sad in this interview at CNBC Africa, debating about the possible correlation of BTC and Gold:
The Gold in difference with BTC has its value based on the scarcity and the usage of it in different industries:
- Dentistry and Surgery (as a Bio-Compatible metal)
- Computer Parts (as a great Conductor of Electricity)
- Cable for Data Transferring (acts as a reliable conductor, allowing for the rapid and accurate transmission of digital data)
- Medicine (Gold salts are used to reduce swelling, bone damage and to relieve joint pain and stiffness)
- Real Estate (Gold is highly malleable and flexible)
- Space Vehicles (Space vehicles are fitted with gold-coated polyester film to reflect infrared radiation and to help stabilize core temperatures)
- Space Suites (Astronauts’ helmets are covered by the extravehicular visor assembly. The visor is coated with a thin layer of gold to filter out the sun’s harmful rays)
- Jewelry (Gold is basically beautiful and the luxury demand is crazy)
- Financial Speculation | (Banks and ETFs traded less than the 6% of the total mined Gold)
The gold has not a limited supply, but it has a continuous inflation, based on mining it and chemical research on reproduce it in laboratories. In fact the estimation of total gold mines is 190,040 tonnes and Countries are continuing mining as 3200 tonnes/year.
The value of Gold is based on the industrial and luxury demand for it / the inflation, the scarcity is the result not the main reason of its value.
BTC holders can only use their BTC to Hold or Transfer, without any sort of industrial or Services usage.
The Gold intrinsic value is more similar to the Ethereum intrinsic value, in fact as the Gold, Ethereum is not only exchangeable and money, but its work as a gas to run Smart Contracts, Decentralized Applications, Fungible and non-Fungible Tokens, Stable Coins and DAOs.
As we use the gold as a semi conductor metal to run our Computers, we use ETH to run our applications.
Today the request for ETH are to run Censorship-Resistant Application, builded via Smart Contracts in which people can transact anonymously, without needs to trust any entity or custodian like:
- Decentralized Finance (DEFI) applications (defipulse.com) like Stable Coins (makerdao.com) Derivates (dydx), Lending/borrowing (coumpound), Decentralized Exchanges (uniswap), Decentralized Insurance (Nexus Mutual) and even Wrapped Bitcoins (WBTC)
- Decentralized Digital Items/Collectibles (opensea.io , cryptokitties.com)
- Decentralized Gambling and Games()
- Industrial Tracking (Ikea)
- Decentralized Autonomous Organizations
- Decentralized Name Servises
- Fungible Tokens and Decentralized Crowdfunding
- Validate the Network and manage the Consensus(POS 2020)
Ethereum is open for developers even for Semi-Decentralized Applications like:
- Run Semi-Decentralized Financial Products (Tether)
- Run Semi-Decentralized Applications
At the end of the day Ethereum market cap is more calculable like the Gold scarcity Mined + Request/Usage = Scarcity.
The myth of BTC Fixed Supply:
BTC Maximalists argue that BTC have intrinsic values based on its fixed supply. This assumption doesn’t make sense because the intrinsic value if we compare it with Gold is based on mining and request = Scarcity.
The BTC request as analyzed before is not driven by any kind of usage, so it’s scarcity is more driven by the mining and the fixed supply, more like a piece of art or any collectible object rather than gold.
But the 21M fixed supply of BTC is a reality?
Unfortunately nope, if the community of BTC and especially miners, will change the protocols and will agree to start mining a new version with a different supply, magically BTC will be more than 21M. In fact the supply of BTC is dependent on the consensus of the Community, but it could increase or decrease if the community will decide to change it.
In fact with the introduction of the Lightning Network, the community is already discussing the idea to increase the supply:
Matt Luongo who floated the proposal, in response to a discussion about anticipated adoption of the Lightning Network (LN). With the block reward halving every four years, and onchain transaction volume likely to be low in future should LN take off, there will be little incentive for miners to secure the network. This could lead to it being vulnerable to 51 percent attacks that would undo the trust instilled in the Bitcoin network over many years.
In this case the problem is not about if the community will decide to raise the supply or not, the problem is that they can and at the same they talk about BTC as a coin with a not manipulable fixed supply.
The dark side of BTC Core Community:
The BTC community today is about to maintain the hype and the price, basically to sell consultancy on building centralized application on top of it.
This bad scenario is driven by big brands like BlockStream who maintain the developing in a shadowing way, involving the community, of non techy people with market expenses in their ideas, like a church rather than a decentralized community.
Lighting Network is the perfect example of this plan, basically LN, is state channel on top of BTC, state channels are already working on ETH too with projects like Rained Network.
State channels are no more than create a channel between two or more participants, blocking a number of BTC in a single on-chain transaction, transact money or code off-chain trusting the nodes and close the channel status with an on-chain transaction at the end of the channel.
As an idea is useful for fast deal, but its very scary on long run, because once users open a channel on lightning transactions are not stored on-chain, so at the end of the day, inside LN you’re trusting nodes, but this will increase the wallet of main sponsors of LN like Blockstream, with the idea of Lightning application (LAPP), basically centralized applications that are managed by off-chain servers and pay fees on bigger nodes on LN.
But, this BTC Mafia didn’t consider the reality of LN, in fact from the site defipiulse.com LN has only 850 BTC stored and it’s decreasing fast in the lasts days, on contrary WBTC, the BTC wrapped to became ERC20 on ETH to interact with the DEFI ecosystem are growing like crazy, near to surpass the number of BTC stored in LN, and this is totally funny.
Compared on the DEFI ecosystem on ETH with more than 2M of ETH locked LN is nothing today, because people simply don’t trust it even if its advertised like crazy and its a boring way to evolve this technology, removing too much layers of security and Trustless Features.
Another interesting investigation that underline this scammy trend in the BTC community was the Block Size debate.
In the BTC community maximalists and developers are crazy to take the word of the missed Satoshi Nakamoto as a god without disquss any assumption of him, but not if him words are against the BlockStream vision and LN.
In fact, the BTC core community started to censor every idea since Satoshi despaired, like Colored Coins, Smart Contracts and especially the Block Size increase, now called Bitcoin Cash.
