I spent the last two weeks investigating cryptocurrencies. The value proposition of cryptocurrencies is that they are like digital cash without inflation, thereby being both a good store of value and a means of efficient anonymous transactions. But none of this is true as I will explain. I will look at Bitcoin which is the worst cryptocurrency, and Monero which is the best cryptocurrency.
Bitcoin puts the public keys of people doing transactions on the public blockchain. This means that if anyone can tie your public key to you, then they know all transactions you made and how much Bitcoin you have. And anyone who does a transaction with you will know this. So Bitcoin is not anonymous. Bitcoin also isn't very efficient for transactions for various technical reasons. Bitcoin claims to be immune to inflation because its supply is limited. But Bitcoin competes with other cryptocurrencies that are just a good or better than it is. I have heard people claim that Bitcoin has some special network benefit like leading social media platforms have, but this is nonsense because cryptocurrencies can easily be exchanged so there is no natural monopoly here. Bitcoin currently has an advantage by being the leading brand in a new space, so all the morons flock there. This advantage will fade as people become familiar with cryptocurrencies in general. And when this happens, cryptocurrencies in general will suffer from inflation, especially Bitcoin.
Monero has a much better case than Bitcoin. Its blockchain is designed for privacy. And it is technically efficient. Being the best cryptocurrency means that a case could be made that it won't suffer from inflation. But unfortunately none of this really matters as I will explain.
Monero's blockchain requires a user to use a key to see his transactions. Therefore it is anonymous to those who don't have the key. But it is not anonymous for anyone who can get the key. So someone can point a gun at your head and demand the key, and then the anonymity is lost. And of course that someone is most likely to be the government. The government can simply demand that everyone has to file a read-only key with their taxes. The American government is already moving in this direction with new regulations on exchanges. The government is unlikely to ban cryptocurrencies. Instead it will simply destroy their privacy with increasing regulation.
Monero is efficient, but so are most other new cryptocurrencies. Governments will soon offer digital currencies which will be just as efficient as any cryptocurrency, so this advantage of cryptocurrency over government fiat currency will disappear.
The only advantage that Monero will have over government digital currencies is that its supply is limited. Monero may suffer from competition from other cryptocurrencies, but maybe this can avoided if Monero developers manage to maintain a technical competitive advantage. The real competitor to Monero will be gold. Here Monero has absolutely no advantage since gold is truly limited in supply. The point that gold is not so good for transactions is irrelevant since Monero has no advantage here over government digital currency. And strictly as a store of value, gold wins.
So are cryptocurrencies worthless? Theoretically no. I have thought about this and I can see a way of creating a cryptocurrency without a blockchain. Such a cryptocurrency would be like cash or precious metal coins in the sense that it would be anonymous because no record would exist. To understand the idea, consider how time differs from physical dimensions. Time is a one-way dimension while one can move in either direction in the other dimensions. Therefore the past isn't accessible in time. This property needs to be replicated for an anonymous cryptocurrency. To do this, one can use one-way cryptographic functions. Such a function produces Y from X but it is impossible to get X from Y. If one applies such a function iteratively then one gets a sequence of values with the one-way characteristic of time. And if one only keeps the current value then the past is lost. If one uses this idea to iteratively generate private keys, then one can construct a cryptocurrency where the past is inaccessible.
So are cryptocurrencies worthless? Practically yes. Just because a theoretical solution exists means nothing. Humanity has degenerated into depraved moronic scum, and programmers are the worst of them all, the scum of the scum. Such people hate everything that is good and love everything that is bad. So any good suggestion will be hated and whatever is worst (in this case Bitcoin) will be most loved. I assume that Bitcoin will continue to increase in price because it is the worst investment in history being bought by the worst population in history. Eventually this will come to an end and Bitcoin will collapse. But as the Bible says, God is slow to anger.
So what is the practical course of action? If you are in tune with the trends of the masses of moronic scum, then maybe you can trade to make money from Bitcoin. I am not, so I won't try. Stocks are the traditional form of investment, so that is how I invest. And gold is the most traditional form of money, so I will keep some gold coins in my possession as safe money. And I won't waste any more time thinking about cryptocurrencies.
The value proposition of cryptocurrencies is that they are like digital cash without inflation, thereby being both a good store of value and a means of efficient anonymous transactions.
... I have heard people claim that Bitcoin has some special network benefit like leading social media platforms have ...
This is a good summary of the all the pro-Bitcoin arguments.
I have another analogy.
You can think of Bitcoin as a company, and a coin is just a share of the company. Of course coins are scarce, because every company's shares are scarce.
Buying a bitcoin is no different from buying a share of a technology company. Bitcoin's market cap is about $500 billion, Vs Tesla is $700 Billion, Amazon $1,590 Billion, Apple $2,200 Billion etc. Bitcoin price went up 2.5 times this past year vs Apple and Amazon both went up 2.5 times. High-growth technology companies that I follow typically went up by more than 3 to 4 times this past year. Tesla was 10 times.
The fundamentals of the Bitcoin Inc is actually two fold: 1. efficient anonymous transactions 2. ponzi scheme. What kept the fundamentals strong is the ponzi scheme.
I think it's worth watching because it shows the dilemma of companies with lots of cash. Most companies are like that. They are not growing, but also not dying. Even dying companies can still get cheap loans from banks because they have assets or some cash-flow. So, where do all these money go?
This guy picked Bitcoin, but you can see he's comparing Bitcoin to Tesla stocks. If he understands that they are both shares of a company, then he would probably just use the cash to by Tesla stock.
I watched this video and this was part of what inspired my thinking. Both of these people are complete morons. Not only doesn't Michael Saylor understand crypto, but he doesn't understand stocks or gold either. He seems to understand nothing other than how to talk. Both a stock index fund and gold would protect corporate cash from inflation. Buying Tesla is fine for an individual who wants to speculate but would be irresponsible for a corporation which should be looking for a sound equivalent to safe bonds. Of course I don't expect corporations to do the right thing. I sincerely hope they invest in Bitcoin because I hate them and want them to go broke.
I have an update. I have figured out a way to make Monero work by using it in a way that it wasn't intended to be used. But I am not going to give away this secret publicly. So my plan has changed and I will be buying Monero instead of gold coins.
What I wrote based was based on my technical opinion of cryptocurrencies. My thoughts on Bitcoin versus Monero have now been verified in this video with John McAfee. My opinion of Bitcoin is also shared by Warren Buffett.
On the surface, Bitcoin seems to compete with Monero. But at a deeper level, Bitcoin competes with Tesla, and Monero competes with cash and precious metal coins. Bitcoin and Tesla are both fantasy investments, the main difference being that Tesla is a plausible fantasy while Bitcoin is a delusional fantasy. Naturally I would expect modern morons to prefer the delusional fantasy. I personally avoid fantasies.
Monero is not a fantasy because it already functions as cash on the dark web. But speculating about the future is hard. The argument for Monero is that the government outlaws cash and Monero takes its place. But there are other possibilities. The most obvious one is that only the insane West outlaws cash but cash continues to exist outside the West, and all sane people in the West either leave or wind up in gulags. In this case, Monero doesn't have much value. Another perfectly plausible possibility is that precious metal coins beat Monero to become the new cash. My point is that the future is too uncertain for me to bet on Monero.
I mentioned that I figured out how to make Monero safe, and I might as well explain this now. You make two wallets which I will call the private wallet and the public wallet. Your private wallet only ever transacts with your public wallet, and you keep most of your money in your private wallet. So when you first get Monero, it goes first to your public wallet and then most of that gets transfered to your private wallet. The key here is that periodically you transfer everything from your public wallet to your private wallet, then you delete all record of your public wallet wallet including the seed, and then you create a new public wallet. Your old transactions remain on the blockchain but now no one, including you, can ever access these transactions. So now no accessible record of your old transactions exist, making this as safe as cash.
Anyway, now I am done with cryptocurrencies. My personal investments will simply be 90% VT (Vanguard Total World Stock Index Fund). That is close to what Warren Buffett recommends, is very simple, and lets me focus on more interesting subjects than investing.