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Swimming Naked Moment for Crypto

The year is 2022 & the month is September, and we’re probably in a recession.

Probably because we’re still hopeful, foreclosures haven’t kicked in, unemployment is still the lowest, and the government hasn’t declared recession. 

On the other hand, Crypto & Stock prices paint a different picture, as there has been carnage across the board. Stocks are down by up to 90% & crypto projects are down by even 99.99% in a few cases.

 While stocks have a clear path to recovery as the revenue grows, what’s the revival case for Crypto?

Crypto came with a few firm promises, which lit up a beacon of hope for folks fed up with the current financial system, such as

#1 – Decentralization

#2 – Self Custody

#3 – Cost

How many make a use case and are adoptable on a wide scale?

When covid appeared, everything tanked, but due to stimulus, we saw unprecedented growth in valuations across every asset class. For the sake of this article, I’ll focus on Crypto. 

Why was Crypto worth 3T, and would we ever go back? 

First, on the valuation, the UK economy is worth less than 3T, and the Market cap of Apple is around 3T while Microsoft is 2T ( at its current stock price)

Crypto, UK, Microsoft & Apple. Who contributed to or changed lives the most and deserves this trophy? 

Now that we’re not closing NFT whitelists in minutes, it’s time to revisit Warren Buffet’s 1992 letter where he mentioned the famous warning.

“It’s only the tide goes out that you learn who’s been swimming naked.” 

Bitcoin was born after the ’08 recession as a hedge against fiat. 

This is bitcoin’s first test if that promise holds.

Past promises of cheaper transfers globally didn’t hold up, so we moved to the storage of value instead, which I buy as we’ve seen currencies being destroyed in many countries & hit hard by inflation.

Most people regard USD or Gold as a refuge, but volatility aside, bitcoin provides a perfect use case for value storage.

While crypto sceptics are thrashing Crypto left and right, where do we stand? 

Have we found the AHA moment, and is it good for anything rather than pure speculation because you can tell fairy tales for a while before the audience realizes it’s just a fairy tale?

So what’s the Crypto use case? 

We went through ICO, Defi, and NFT cycles, but neither of them is yet to make an impact on the masses. 

While building a startup, you’ve to be 10x better ( to have some edge); here we are talking about an entire industry.

Is Crypto making your life better by 10X?

So far, it looks like these are just better casinos with more games to play, the ability to have an alpha & more importantly, 24/7 without any jurisdictional requirement (yeah, I’ve heard of KYC 😉  

So the question of the decade is 

What’s the problem we’re ultimately solving?

And please, it’s not banking the unbanked or expensive wire transfers. 

I’ve generally kept myself away from crypto projects & cycles, but I think we’re onto something now as the pieces seem to be coming together. You don’t have to explain bitcoin to people anymore, and the silk road isn’t the first thing that comes to mind with bitcoin. 

Now that we’ve got passengers on board, can we sail in the right direction?

Web3 concept has been talked about for a few years but started to pick up recently, and as a sceptic, it’s easy to write it off as any other cycle. Because Why?

There are many answers to Why?

  • They want to keep custody of their data
  • They want ownership of the network.

Combine tokenization with a product with PMF, and you can take off. 

Personally, this is an opportunity for us to build the next generation of the internet. Web3 where you’re not the product

24
2022-09-05T00:08:27+00:00September 5th, 2022|

Is it a Swimming Naked moment for crypto ?ďżź

However, stocks are down by up-to 90% & crypto projects are down by even 99.99% in a few cases. While stocks have a clear path to recovery as the revenue grows, what’s the hope for crypto?

46
2022-09-05T00:01:00+00:00September 5th, 2022|

51% attack – Biggest Flaw of decentralized proof of work network

Biggest selling point of bitcoin & cryptocurrencies is decentralization & open contributor network (mining) where any one can contribute to the network hash power to reap the benefits, it does opens up the opportunity to bad actors who can take over the network & bend it accordingly. Once they’ve the control of network, they can pretty much do anything they want. These kinds of attacks are not easy in bigger networks such as bitcoin but smaller networks are very much vulnerable to it.

Imagine a single financial institute having control of the entire world ledger where they can manipulate the information & enforce new rules. They can send fake deposits that appear real or deprive any one of their balance.

Yesterday, Ethereum Classic suffered a 51% attack where approximately 1 Million worth of ETC tokens were fraudently transferred on the network. This fraud in specific is “double-spent”, where a single transaction is spent more than once. You can think of it as counterfeit currency that looks 100% as original. This devalues the existing token value since now you’ve more supply that was produced illegitimacy & negatively impacting the tokenomics.

Bitcoin so far has been safe from such 51% attach though there were many potential opportunities. It however has impacted coins with much smaller market cap, because it’s easy to control it. Again, take an example of taking over a small company vs large company. You can purchase a small company stake for much cheaper over large company. Protections in case of small networks are generally small as well.

Easier solution to avoid double spent is by having longer confirmation threshold. While speed is an essence & experience, at times recipients are okay with 1-2 confirmations, but in this case they’ve to rely on 6 confirmations in majority cases. If the network is busy, it may take hours or even days for a transaction to clear. Imagine every bill verified at a toll booth through counterfeit currency checker. There is a tradeoff between experience & protection.

Decentralized networks operate on a trust level where every contributor is expected to act in good faith & by design if 51% of the contributor decide to change something, rest have to follow. This is a limitation in any proof-of-work network. If you remove this clause, it pretty much removes the basic promise of proof-of-work network.

Going a bit deep, I’ll try to explain how it actually happens. Miners are the driving force in any proof-of-work (PoW) network. Their goal is to support the network by validating & storing every transaction on the shared network. This shared network is referred to as “blockchain”. If one of the contributors have got the 51% power, means he has simple majority on the network. He can now forge transaction history, add a new fake transaction or reject any upcoming transaction. Consider it as equivalent to a ruling party with simple majority in the parliament who can rewrite anything they want. Actually, worse than that because here you don’t even know who the ruling party is who can come, conquer & leave without any indication of their identity.

This forge or chain manipulation is also referred as “chain reorganization”. Every chain reorganization has two attributes. depth & length. Depth is number of existing blocks which were replaced & length is number of new replaced blocks.

In all honesty, it’s very difficult to carry on similar attack for long so generally they last anywhere between couple of minutes to hours with rare exception of more than 24 hours. Once there is any suspicious activity detected, major merchants or recipients stop accepting transactions on that network till things have figured out. Once the attack is over, blockchain is resynced excluding all the fraudulent transactions.

Victim in this case is the recipient if he delivered the product with the assurance that the funds are legit. Once the blockchain is reverted back to original form, that transaction doesn’t exist anymore. This also has a major impact on the confidence that users have on the network & can be used to manipulate the prices. Imagine you’ve a massive short position that’s not in your favor & you’ve to cover short. You may be better off by attacking the network rather than covering your short due to margin call.

With smaller networks, it’s very cheap to conduct such activity & interestingly in many cases it’s less than 0.1% of the network value that can bring it to knees.

This also may define a new model for valuations where networks would be valued at multiples of cost of 51% attack. I’ll cover cost of such attacks in next post along with the market cap they’ve. Subscribe to my mailing list to be informed.

503
2019-05-12T18:03:38+00:00January 8th, 2019|

Happy 10th Birthday to Bitcoin Genesis Block !

Today is the 10th anniversary of bitcoin Genesis block!!! Here is the screen shot

The first Bitcoin block of 50 bitcoins was mined on January 3rd, 2009 12:15 PM CST with the following hash.

0x000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f

Here is the link to 1st transaction

Bitcoin Genesis Block

Concept of Bitcoin was introduced by a pseudo entity Satoshi Nakamoto through a white paper on 31st October 2008. This genesis block was mined on the principles laid out in that white paper

On 3rd Jan’09, The London Times ran a cover story entitled “Chancellor on Brink of Second Bailout for Banks”. This title was quoted and embedded into the very first transaction ever to be included in the new Bitcoin blockchain, by Satoshi Nakamoto.  The block containing this transaction is called “The Genesis Block”

The London Times – 3rd Jan’09

This note has been interpreted as both a timestamp and a comment on the instability caused by fractional reserve banking.

First recipient of the bitcoin transaction was Hal Finney, a cyberpunk who created the first reusable proof of work system ( RPOW) in 2004. He was probably the first person to download the software upon release & was transferred the first set of 10 bitcoins from Satoshi on 12th Jan’09. This was the first ever transfer that took place on bitcoin network.

Bitcoin has sparked a movement or a strong debate in existence of programmable money that leads to open & financial financial system.

It’s been a roller coaster ride. I got involved 7 years ago & thought late to the party. 10 years since first bitcoin transaction & I still think we’re early to the party

Industry has been growing daily defying any resistance internally & externally. This is probably the most undisputed financial technology innovation till date. It’s not just the tech, but combines economical, financial, political & philosophical movement.

Biggest strength of bitcoin is that it’s running now for 10 years in a row with 100% uptime, without a single fraudulent transaction that exists today & not deviating from its original monetary issuance schedule. Only 20% more bitcoins will be issued over next 10 years. In comparison, we’ve no clue how much of government issued fiat will exist even in next 12 months. I am really a fan of the transparency, where I can predict with a very high degree of certainty that every 10 mins, a bitcoin block will be created.

So unless the bitcoin network disappear which I find slightly hard to believe at-least over next 10 years or governments start putting a check on their money printing press, there will be a serious competition for storage of value. I suspect majority of the governments will give up on their currency & adopt another currency. It’s similar to languages where major languages have a network effect. With every passing day, confidence is bitcoin is growing & the pedigree that bitcoin has achieved over it’s competitors is unprecedented

Though we’re very far from where we should be, today’s the day to celebrate the bitcoin genesis block’s 10th birthday. Looking forward

#Happy10thGenesisBlock

1,262
2019-01-03T17:15:30+00:00January 3rd, 2019|