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Market Lab Report - Dr. K's Crypto-Corner : TTP 1-18-18

Dr. K's Crypto-Corner

by Dr. Chris Kacher
Cryptotechnologies...Kryptonite for Governments™

A petition in South Korea against cryptocurrency regulation has reached more than 200,000 signatures, a number that would induce a government response. "Our people have been able to make a happy dream that they have never had in Korea because of virtual money," the anonymous author of the petition wrote, according to a Google translation. "People are not stupid. ... virtual money is invested because it is judged to be the fourth revolution."

Fourth revolution indeed, or World War 3 by some measures. I wrote in a piece "Getting to Human 1.0":

Maybe when we realize that cryptotechnologies can do the work of governments far more efficiently and cleanly, we will take a giant leap toward becoming Human 1.0. Such social structures empower the individual as power gets decentralized. No more dictators. No more power concentrated in the hands of the few. And when we realize we are all one, maybe then we will become Human 2.0.

Trusted Third Party (TTP)

As cryptotechnologies launch Web 3.0 and arguably Human 1.0, there will be massive resistance from governing bodies who resist change and much prefer the status quo. But if history is any guide, the masses always have the final say, typically by way of outright revolution. This time, however, there will be a sharp transformation away from old, inefficient, and corrupt paradigms and into decentralized platforms which eliminate the need for TTP (trusted third party) which blockchain does brilliantly. Blockchain is the beating heart of bitcoin, the brainchild of Satoshi Nakamoto. He was motivated to create the technology to prevent future government intervention that caused the financial meltdown in 2008. The elimination of trust is a key to human progress that is as pivotal as the concept of the right to privacy, property rights, freedom of speech, and freedom of religion.

Up until blockchain, transactions were conducted with TTPs who served as intermediaries between two parties who wished to transact business but required someone to administer the exchange. Centralized companies such as Amazon, Walmart, and Ebay serve as examples. Decentralized versions of such companies where goods and services can exist in the cloud ultimately will yield greater efficiencies and lower prices as the middle man, ie, the corporation, is substituted for a decentralized autonomous corporation (DAO). DAOs will spring up like mushrooms in the years ahead simply because they will easily outdo their conventional counterparts. But I will leave this to future discussions.

Government-induced TTP

A far more pernicious TTP is government-induced. Unfortunately, TTP over time was corrupted by government based on its own needs. Central banks which serve the government at the expense of the people are one of many examples.

Enter blockchain. Cryptocurrency such as bitcoin and hundreds of other technologies which aim to decentralize existing structures has put government on its back foot. The very threat that governments may lose their grip over their control of capital pushed them to issue by way of mainstream media propaganda against bitcoin and the cryptospace as a whole. For example, the UK just the other month issued a piece on how bitcoin's primary uses are in acts of terrorism as well as in the dark web where drug and child trafficking occur. Other governments such as China and South Korea are attempting to ban cryptocurrency to varying degrees. But the more a government isolates itself from this revolutionary technology, the more it will get left behind. Governments will also try to create their own digital coin but because they will want to control it, it will never be decentralized. Take away the decentralized aspects of the technology, and you're left with nothing revolutionary nor transformational. 

Decentralized structures function on a p2p (peer-to-peer) basis as no TTP is required. Governments will insist on centralized exchanges that are regulated but decentralized exchanges will be banned as they remain outside of the control of governments. Governments may have a tough time squashing such exchanges and is one of the reasons why renowned cryptotechnologist Naval Ravikant said in a 2017 interview that 90% of Wall Street jobs will be gone in 7 years. By way of analogy, if one uses p2p file sharing which has thrived since the days of Napster music file sharing in the late-1990s, one can see p2p file sharing has continued to grow despite legal take-downs of dozens of p2p websites over the years. For every p2p website removed, three new p2p websites spring up to take its place.

The End of Central Banks?

Bitcoin/blockchain renders obsolete the central banking system’s status as a trusted third party. Nakamoto designed bitcoin to empower individuals by allowing them to control their own finances. Meanwhile, with the trillions in quantitative easing that have been printed since 2009, the world has never seen so much debt nor historically low interest rates. Fiat currencies are at a tipping point. Bitcoin's skyrocketing price since $0.001 in 2009 that shot to well over $10,000 so far in 2018 may well be due to the race to zero among the world's fiat currencies. Indeed, it will be interesting to see how the world manages to climb its way out of the current onerous levels of debt. In the history of the world, such debt has never been repaid. Fiat currencies have an average lifespan of roughly 40 years. It seems the world is at an important tipping point. Ed Seykota who wrote "Govopoly in the 39th Day" just a few years ago forecast this tipping point based on thousands of years of history. The 39th day represents duckweed which doubles each day until the 39th day when it doubles once more and suffocates all life in the pond. But this time, revolution will take the form of the rise of the blockchain, thus circumventing any sort of dark period that often comes after a revolutionary-induced collapse.

Meanwhile, cryptocurrency seems to offer rare protection from the onset of hyperinflation and financial implosion. The bitcoinization of Venezuela and Zimbabwe are taking place and other countries are soon to follow. Indeed, fiat everywhere is losing public support, and central banking systems are rushing to create their own versions of digital currency. Countries such as China are recognizing how quickly monetary control is melting away. 

Governments are therefore using the excuse that they must keep society safe from terrorists, drug cartels, and money launderers when their real aim is to force the public to make payments through their financial system so, as economics professor Joseph Salerno wrote, “This enables governments to expand their ability to spy on and keep track of their citizens’ most private financial dealings, in order to milk their citizens of every last dollar of tax payments that they claim are due.”

1500 yeas ago, everyone knew the sun revolved around the earth. 500 years ago, everyone knew the earth was flat. There are still many who believe we need governments to rule over us. This supposedly keeps law and order. Yet in Spain, when the government stopped altogether for several months, there was not anarchy, chaos, nor mayhem. In fact, productivity actually increased: https://www.huffingtonpost.ca/2016/10/14/spain-no-government-economy-booming_n_12489226.html

Animals don’t need governments. Why do we?

And if your answer is something along the lines of “To prevent us from blowing ourselves up”, it is these very governments which brought us to the bring of nuclear annihilation during the Cold War of the last century and have spawned all major wars is the history of humanity. In contemporary times, governments stockpile nuclear weapons of mass destruction. The US has more military installations by far than any other country even though they want people to believe that Russia poses the grave threat.

As has been shown time and time again, government will always want to control as it consumes productivity and freedom. Government rules by fear via mainstream media thus gets people to vote in new laws which are often disguised as safety measures but in reality cripple personal rights. As two of many examples, the Patriot Acts obliterated the Bill of Rights while the Rave Act obliterated the freedom to assemble.

Nakamoto understood that governments would always own the individual as long as TTP remained part of the structure. Centralized government control has always resulted in dictatorships in one form or another which enrich the few at the expense of the many. Such dictatorships are often disguised as democratic. Any economic justice was short-lived if 5000 years of history is any guide. In today's world, theft through the central banking system is rampant. Governments have many justifications for QE money printing in the form of 'too big to fail' and in their attempts to jump start the global economy.

Nakamoto knew that governments and central banks are artificially constructed TTP monopolies which was the inspiration behind bitcoin when he wrote "“I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party.” This is arguably the greatest invention in the history of humanity, not just because it propels existing paradigms into a much higher order of efficiency, but because it frees people from the shackles of government. It therefore comes as no surprise that the migration of top minds from their respective professions into the blockchain space well exceeds the migration witnessed during the internet boom in the 1990s. And currently, the blockchain space is still in its infancy. It is perhaps where the internet was in 1998-99 when companies attaching 'dot.com' to their name doubled overnight.

Rest assured, while astronomical gains have been seen in the cryptospace, most of these companies will not survive. Think of how many dot.com companies perished. Thus if you decide to trade in this space, always know your exit point as what a 10-fold gain can be completely reversed by a 90% loss. A log plot of many cryptocurrencies showcases this point nicely. The log chart below is of the first decentralized exchange called Bitshares (BTS). It had a 100-fold move during the first half of 2017 then corrected 93% by October 2017 then had a 27-fold move to new highs through January 2018. Other decentralized exchanges have launched since 2017 with success, so the question is whether BTS can maintain its first-mover advantage. Government action against decentralized exchanges will also serve as a significant headwind, though p2p has managed to thrive in the file sharing space since the days of Napster.


(͡:B ͜ʖ ͡:B)  Riding the Revolutionary Rocket with Cryptotechnologies... Entirely Evolutionary™ 


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