Senate blockchain hearings missed key issues

Roubini

“Crypto is the mother and father of all scams and bubbles, a bubble that has finally gone bust this year. Second, blockchain is the most over-hyped technology ever and is no better than a glorified database.”

“A recent study shows that 81% of all ICOs were scams to begin with. 11% of them have been failing or are dead. And only 8% are still trading on exchanges. Second, after a massive bubble in 2017 Bitcoin has fallen by 70% this year, other major cryptocurrencies have fallen by 80%, and thousands of other ones have fallen by 95%. This entire asset class is literally imploding now. Just yesterday major cryptocurrencies plunged another 10% in a day.”

“These assets are not currencies, calling them cryptocurrencies is nonsense. They’re not a unit of account, they’re not a means of payment, they’re not a stable store of value. Bitcoin can do only five transactions per second. VISA can do 25,000 per second. Nobody uses Bitcoin for transactions apart from criminals and terrorists. Crypto mining is also an environmental disaster as the system wastes masses amounts of energy.”

“They crypto idealogical utopia is a libertarian dream of full decentralization of all human transactions. No governments, no central banks, no corporations no banks, no trusted institutions. It’s totally utter nonsense.”

“Cryptoland is now subject to the opposite and dangerous trend. Massive centralization. Mining is centralized and controlled by oligopolies in totalitarian countries like China and Russia. Trading is centralized as 99% of all transactions occur on non-secure centralized exchanges that are being hacked on a daily basis. Development is centralized as a technological elite is police, prosecutor, and judge. They arbitrarily change the code and fork coins into new ones when things go wrong. And wealth is massively concentrated in cryptoland. The Genie coefficient of inequality in Bitcoin is worse than North Korea. It’s quite an achievement.”

“There is massive price manipulation in cryptoland. Widespread pump and dump schemes, spoofing, wash trading, insider trading, cons like Tether that are created by fiat and used to manipulate upward prices. Massive criminality.”

“ICOs associated with security tokens are non-compliant securities. They break all security laws. They are mostly scams, and even the SEC created a fake website to warn investors of such initial coin scams.”

“Utility tokens and widespread tokenization would mean the return to the stone age of barter. Even the Flintstones new better than crypto as they used clam shells as their own one currency.”

“Corporate blockchains or so-called enterprise DLT are glorified databases and have nothing to do with blockchain. They’re private rather than public. They’re permissioned rather than permissionless. They’re based on trusted authorities verifying transactions rather than being trustless. They’re not distributed on millions of computers but rather on a few selected controlled ledgers or databases. They don’t use cryptographic means to authenticate transactions but rather trusted permissioned authorities.”

“In summary, they claim to be blockchain but have nothing to do with blockchain. And 90% of all corporations experimenting with them have decided they are no better than traditional databases. And since they are more costly and less efficient than databases, they will not use them. Only 1% of all CIOs say there will be any adoption of DLTs in their organization. ANd 80% of all CIOs have no interest in this technology.”

“It’s no wonder as an organization, government, corporation or bank would ever want to put on a public permissionless distributed trustless ledger all these transactions with customers and suppliers. It doesn’t make sense, and it’s not going to happen. So blockchain is a lot of hype and almost no reality as an expert senior analyst recently concluded.”

van Valkenburgh

“Unlike every other tool for sending money over the internet, it works without the need to trust a middleman. The lack of any corporation in between means that Bitcoin is the world’s first public digital payments infrastructure. And by public, I simply mean available to all and not owned by any single entity.”

“We have public infrastructure for information, for websites, for email. It’s called the internet. But the only public payments infrastructure that we have is cash. As in paper money. And it only works in face-to-face transactions. Before Bitcoin, if you wanted to pay someone remotely over the phone or the internet, then you could not use public infrastructure. You would rely on a private bank to open their books and add a ledger entry that debits you and credits the person you’re paying. And if you both don’t use the same bank, well then there will be multiple banks and multiple ledger entries in between.”

“With Bitcoin, the ledger is the public blockchain, and anyone can add an entry to that ledger transferring their Bitcoin to someone else. And anyone regardless of their nationality, race, religion, gender, sex or creditworthiness, can for absolutely no costs create a Bitcoin address in order to receive payments digitally.”

“Bitcoin is the world’s first globally accessible public money. Is it perfect? No. Neither was email when it was invented in 1972. Bitcoin’s not the best money on every margin. It’s not yet accepted everywhere, it’s not used often to quote prices, and it’s not always a stable store of value. But it is working. And the mere fact that it works without trusted intermediaries is amazing. It’s a computer science breakthrough. And it will be as significant for human flourishing as the birth of the internet. ”

“And Bitcoin is just the beginning. If we can replace private payments infrastructure, then we can replace other private choke points to human interaction as well.”

“Why should we want to build more public infrastructure? Why should we embrace blockchains over corporate intermediaries? Why should we tolerate their inefficiencies and work to make them better? Why should we want the pioneers of this technology here in the United States and not fleeing overseas? Because the corporate intermediaries today providing critical but privately owned infrastructure are becoming fewer larger and more powerful. And their failures are increasingly grave. So roughly half of all Americans, 143million people, had their social security numbers exposed to hackers because of a breach at Equifax. ”

“The SWIFT network has relayed hundreds of millions of dollars in fraudulent transactions because of hacked member banks in Bangladesh, Vietnam, Equador, and Russia. The FBI suspects now that the largest of these hacks was perpetrated by North Korea. Corrupt low-level employees at an Indian bank Punjab National were able to fraudulently certify SWIFT messages stealing $1.8 billion. It’s the largest electronic bank robbery in history. In fact, it’s the largest bank robbery in history.”

“Vulnerabilities are inescapable in systems that have single points of failure. It doesn’t matter if the point of failure is a corporation or if it’s a government. There shouldn’t be a single point of failure. Similar choke points existed before the internet. If you wanted to deliver a message you’d have to go through one of three television broadcasters or a handful of newspapers.”

“Private corporations are essential, but no critical infrastructure should rely on one or two. The internet removed single points of failure in communications infrastructure and ushered in a wave of competition among new media corporations building on top of its public rails.”

“Blockchains can similarly disintermediate critical payments and IoT infrastructure. The technology is not yet ready to answer all of those questions today, but it is our best hope. And as with the internet in the 1990s we need a light touch, pro-innovation policy to ensure that these innovations flourish in America for the benefit and security of all Americans.”

On the topic of institutional investment:

“Fortunately we are now seeing institutional investment coming online with respect to Bitcoin. And eventually other cryptocurrencies as well. We’ve got CFTC regulated Bitcoin derivative markets, and that means we’ll have I think better sell-side research from the institutional investment class and there will be the possibility for people to take short positions and rationalize the market.”

“Now key to this effort is more institutional grade products that are regulated by the proper authorities. So we have CFTC regulated derivatives. We could use ETFs regulated by the SEC where there is institutional grade custody and where there are known accounting standards and where purchasers know where they stand. We could also use better custodians in general. ….A nationally chartered bank that custodies cryptocurrency is something I think would bring more rationality to these markets.”