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