What is Crypto and Why Invest in It?

1/1/22

What is Crypto and Why Invest in it?

  • some hate it, some love it
  • 3-part course
    • Democratized Digital Money
    • Money Legos
    • Anything as a Service
  • Each part will demystify some of the layers of crypto
  • Not quite a currency
  • More of a hybrid of digital real estate and a franchise
    • control the digital machinery of a business operation
    • are one of the shareholders who can improve this machinery
    • can vote to change its parameters (more investor/user friendly)

Disclaimer

  • Course is from software developer perspective
    • It does get technical
    • Won't write code
  • There is tendency to glaze over the technical concepts
    • Bad idea!
    • Will fall for scam, pump & dump scheme
      • wild west out there, thousands of people get scammed everyday in crypto
      • don't listen to any youtubers before understanding these fundamentals
    • You will be taken advantage of if you glaze over this

Democratized Digital Currency

Brief History of Money

  • Because BTC derives its value the same way as currency, important to understand how currency works
  • DeFi is based on banking
  • Concept of banking, loans
    • Assyrian/Babylonian traders used grain as collateral
    • Bank is Italian word for 'bench'
  • Internet did not support transactions initially
  • Convenience of digital money
    • PayPal
    • Do you "trust" the website
    • Problems w/ trusting single source of truth
      • convenience vs securiy
      • same w/ banks

Why Current Banking System is Broken

  • Gold Standard and inflation (Nixon)
  • 2008 Financial Crisis
    • gist: poor risk incentives -> sub-prime lending
    • gov't stepped in, made unpopular decision
    • https://www.youtube.com/watch?v=2ddxbxpba9M (good content in 2nd half)
    • banking on BTC documentary (https://www.youtube.com/watch?v=ICNBX1vkwMk)
  • 2013 Cyprus bail-in
    • (https://www.youtube.com/watch?v=NLRMVecEuSY around minute 59)
  • 2020 COVID response (stimulus)
  • Your money isn't yours
    • Bail-Out/Bail-in/Inflation
    • Surveillance on transfers
    • Decisions are made by the few in power (monarchy)

Incentive to Cheat

  • Assange, Snowden
  • "Quis custodiet ipsos custodes"
  • Current financial system doesn't reward efficiency, it rewards bureaucracy and creation of barriers to entry
  • Your tax dollars are wasted (military, education)
    • Funding is based on how much dept. consumes
  • Government systems are not transparent, no customer support
    • USCIS, SSA, USPS
    • gross negligence needs to occur for investigation to start (BTC theft by Secret Service agents: Shaun Bridges, Carl Force)
    • Ben Lawsky
  • Lying through data (CPI: https://www.investopedia.com/articles/07/consumerpriceindex.asp)
    • basket of goods
    • goods replaced in response to "preferences" (beef vs chicken)
    • like-kind
    • taking credit for technology

6 D's

  1. Digitization: easier access, sharing, distribution
  2. Deception: dismissed, ridiculed, attacked
  3. Disruption: MicroStrategy, Tesla, Hedge Funds, banking system
  4. Demonetization: $35 wire fees, inability to transfer between countries
  5. Dematerialization: cost falls to zero
  6. Democratization: mass adoption, no need for regulation

Why Democratization is Important

  • Censorship resistance
  • Trust/Truth
  • Anonymity
    • Sharing controversial material
    • Buying controversial material

How BTC works

  • Address: private/public
    • Numerous, Anonymous
    • Can be discarded
  • Ledger (of confirmed transactions)
    • Read-only
  • Transaction broadcast (mining)
    • verified + packed into blocks
  • Giant financial computer
    • blocks are clock cycles

Ethereum

What if we add logic to these clock cycles? (smart contracts)

  • if this, then that
  • bought goods didn't show up -> revert transaction
  • no lawsuits, no customer support
  • extend this to property records, registration
  • if you trust your government, do you trust democracy?
  • concept of DApps
    • token vs coin + tokenomics

Problems w/ BTC + ETH

  • Transaction speed (7/s BTC, 15/s ETH)
  • Transaction cost
  • Energy use

Beyond Bitcoin

Beyond Bitcoin Cont'd

  • Energy use -> Proof of Stake
  • Transaction speed/cost (Binance, Solana, Harmony)
  • Privacy (Monero, Secret Network, Tornado Cash)
  • Helium (IoT internet mesh)
  • DAO (decentralized autonomous organization)
    • a digital equivalent of a country/city-state
    • own currency, own banking system, own regulations (smart contracts), own taxes/fees, digital land (NFTs, metaverse)
    • could take on cities/countries/corporations legally
  • 95% of crypto will be worthless in 5 years

Conclusion

  • smart-contract systems build upon each other (money legos)
  • why these concepts important to you as investor?
    • can't I just buy dogecoin / shiba-inu?
      • avoid sub-prime mortgages
      • don't buy real estate in a war zone
    • have to understand market forces
    • have to separate signal from noise
      • shitcoins (pink-sheets / penny-stocks)
      • scams

Why Crypto?

By Alexander Tsepkov

Why Crypto?

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