Wednesday, December 20, 2017

The Bitcoin bubble, let's talk about it :


 The most popular word in any conversation about crypto-currencies after "Bitcoin" is certainly "Bubble". There is no way to avoid the subject. Whatever the reason, people are absolutely convinced that there is a bubble. While this may be the case, I would say that the vast majority of people who say this do not understand why this is, hiding behind the hyper-growth that Bitcoin is currently experiencing.

Their main argument can be summarized as follows: "Bitcoin has a value of zero, it is certainly not any kind of money since you can not buy anything with it, it destroys electricity and is especially speculation." So the logical conclusion is this: it will collapse. Some go further and say that it is a fraud.

"Bitcoin has a zero value"
Value is a relative concept. It's nothing more than a story that a group of people want to believe. If at a certain age stones were considered valuable for an "economy", they were valuable because enough people agreed. Does stone have value in itself? Zero. A common belief in an organized society is the founding principle of this relative concept. Of course, the stones did not last long as a valuable reference. Other assets came later.

Gold in itself was initially worthless. It is a brilliant stone. It has a peculiarity: it is rare. The first people who found gold had no idea of ​​its value. Soon, governments and banks have adopted a reference to define and guarantee value for money. The reason gold has value comes from the fact that a group of people believed, based on the rarity of this asset (and other properties like durability), that it was strong enough. .

The money we currently use is no different. The paper has no value per se, but the asset is distributed by a government we trust (most of the time) and which has reserves in a commonly accepted value (gold for example), which is a story that everyone wants to believe. Until they no longer believe in it, see hyper-deflationary economies like those in Venezuela or Zimbabwe.

To say that Bitcoin has a null value is to deeply ignore the way it is produced, stored, secured and governed. The concept of digital scarcity is not new: we already know it in many fields. Three-letter domain names are one example, digital rewards for video games are another. Focusing on Bitcoin as software with a few bits without understanding the underlying fundamentals and the network effect that has allowed the distribution of nearly 16 million bits on 21 million bits distributed is like trying to give value to an empty database.

But there are enough people who believe or want to believe that this digital asset decentralized, difficult to produce, difficult to store and highly secure and rare, has value.

What this value is really worth is nothing but law and supply and demand. But let me ask you: is a site like Privatejet.com really worth tens of millions of dollars? Enough people, including those who bought it, think so. And it does not matter whether you agree or not. It's a bubble? We will talk about it later.

"It's not a currency"
What can you buy with Bitcoin today? Nada.

"You see, I told you! The detractors will tell you.

Let's put aside the fact that bitcoin has become a de facto currency in countries where economic, banking and fiduciary models have collapsed (like Venezuela). And let's leave out countries like Japan, where tens of thousands of physical retailers accept bitcoin as a means of payment or companies start paying their employees in bitcoin. Can you pay something to Bitcoin today? And it is on these criteria that Bitcoin should be judged?

My point of view is this: it does not have to be a currency. At least not today. It is also not important at the moment that devices for quick and cheap payment are already in place, although this is the initial vision of Satoshi Nakomoto in his famous white paper. If you try to find an alternative currency in Bitcoin, you're wrong.

Bitcoin has existed for 10 years and for 10 years it is looking for a path of adoption. He finally found it, and now millions of people are rushing. But the story behind this adoption is not that of an immediate alternative or even better money. It's the story of a stock of value. The main "function" of Bitcoin today is to own it, not to spend it. In other words, buy and own bitcoin IS use bitcoin. This is a perfectly valid step, and that can lead to a bigger story in a second step: Bitcoin as currency.

What do you think will happen when more than 100 million people hold a bit of bitcoin? The world will have to be attentive and build around it. Even our beloved central banks will have to pay attention ...

That's where most people are wrong. When a new paradigm comes, it's a mistake to try to apply the old rules to a new world. Nobody says that Bitcoin will replace your dear currency-fiat. What is more likely is that a new category of services and economy will be built around Bitcoin and that it will be at the origin.

When the HTTP, FTP or SMTP protocols were invented, anyone who tried to imagine how this could improve the paper clip industry was wrong. The idea was rather to try to imagine businesses that would not have been possible otherwise. And when enough machines fell into the hands of consumers, we suddenly came up with domain names worth millions of dollars and native services like eBay, Yahoo and Google.

What will be the companies born from the massive adoption of Bitcoin? Patience. We are witnessing the massive adoption of a new stock of value that will give birth to a new economy. When a sufficient number of people begin to possess something that they believe is worth something, then a new economy begins to develop and the "money" model or, more precisely, the "value exchange" models begin to appear. . Do not try to apply a model where your everyday coffee will taste better because you pay in Bitcoin.

 "It destroys world electricity"
Yes, crypto-currencies are made with GPU processors that are black holes of electricity consuming a lot of energy. But must we stop everything? We all have in mind two or three industries that destroy the world in order of importance and produce nothing good in exchange (yes, I think about guns, toys and cigarettes).

Assuming that Bitcoin production will remain as environmentally unfriendly as ever, this is a typical analytical error that is observed in many paradigm shifts. It's like twenty years ago that the Internet would never be good because it was running on AOL modems, or that printers should be exterminated because they needed a day and a gazillion. ink to print half a page of paper. Hardware is improving, software is improving and power generation is improving ALL THE TIME. Let's stop sensationalism and look to the future, never forget that the industry is changing.

"It's a bubble. It's going to collapse
Scoop # 1: Crumbling is what cryptocurrency does best. This is not new. Bitcoin should have died ten times and has already collapsed several times.

Scoop N ° 2: yes, but it will still crash. A big gadin this time. Of course he will do it. So what ? These markets live and die by massive and continuous corrections. This is how they develop and penetrate step by step in our lives. Ignoring this fundamental quality is a major mistake. The crypto-currency creation protocols have a resilience of their own and make them incredibly valuable. I would also say that Bubbles are a good thing. The bubbles are what gave birth to the radio, television and Internet industry as we know it today. They are painful when they occur and they cause a lot of damage, but it is collateral damage compared to an exceptional result.

Now, I will refrain from comparing the "Bitcoin bubble" to the big Internet bubble we had 20 years ago. Indeed, when it broke, there was a difference MAJEURE: nobody had a computer. Today everyone is connected and potentially two clicks away from owning cryptos. The world has never been so fit and ripe for a new paradigm. And that's precisely why the adoption curve is now happening at unprecedented speed.

And for those who really want to compare the Internet bubble to the "crypto bubble", they have to remember this: when the internet bubble exploded it was valued at $ 1.7 trillion. Something like three times the total market of the cryptocurrency industry today. So, before calling it the "greatest bubble of all time" (see above), it is appropriate to relativize and document.

Should we reject Bitcoin because it's a bubble? There are many good reasons to be really skeptical about the future of Bitcoin: is the protocol safe and secure enough? Can a "fork" break it in the near future? Can governments create a 51% attack to destroy its value (perhaps via quantum computing, or by nationalizing the mining farms)? Will another protocol take over because it is more efficient and better designed? And I can continue.

Let's stay informed
I think that the "bubble model" is actually a necessary and good thing for its development. This is not a valid reason why it should be rejected.

What's really worrying me right now is that most people who have recently bought Bitcoin have little or no understanding at all - and this is a major change from there. a year. And those who cover Bitcoin news in the media are only interested in spectacular headlines (showing both misunderstanding and poor guidance of their readers). In fact, if there is one, it could be the first major cause of the collapse of the market, because these people are not "equipped" to digest what will inevitably happen: a sharp correction of the market. This is the unfortunate level of information we have to deal with.

Get ready for the "I told you", "bunch of idiots" ... The world badly needs a better education on what cryptocurrency is, how it works and how its security works. We need more information, more responsible coverage, less sensationalism.

People who do not like or do not believe in cryptos, that's fine. Everyone is right. I just have a problem with people who make superficial arguments and who are lazy in their analysis. We had people (including very intelligent) who rejected the Internet in the early days, who rejected social networks (a rejection I still bear some stigma for being one of the first followers of Twitter), which n have not believed in the iPhone (cuckoo Steve Ballmer), nor in mobile applications and their economic potential. And now we have people who reject cryptos. This is what happens in innovation cycles. They all share a common model: the inability to look beyond the immediacy of the current paradigm, with strong resistance to change.

Do not misunderstand me: I do not absolutely want Bitcoin to succeed at all costs (no more than any other cryptocurrency). I am very optimistic about the future, but I also have a lot of reservations. Be that as it may, it is important to shed some light on the debate and avoid easy and unfounded criticism for focusing instead on the real issues.

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