Tuesday, March 6, 2018

Blockchain technology might be the most over-hyped technology

Predictions that Bitcoin and other cryptocurrencies will fail typically elicit a broader defense of the underlying blockchain technology. Yes, the argument goes, over half of all “initial coin offerings” to date have already failed, and most of the 1,500-plus cryptocurrencies also will fail, but “blockchain” will nonetheless revolutionize finance and human interactions generally.

In reality, blockchain is one of the most overhyped technologies ever. For starters, blockchains are less efficient than existing databases. When someone says they are running something “on a blockchain,” what they usually mean is that they are running one instance of a software application that is replicated across many other devices.

The required storage space and computational power is substantially greater, and the latency higher, than in the case of a centralized application. Blockchains that incorporate “proof-of-stake” or “zero-knowledge” technologies require that all transactions be verified cryptographically, which slows them down. Blockchains that use “proof-of-work,” as many popular cryptocurrencies do, raise yet another problem: they require a huge amount of raw energy to secure them. This explains why Bitcoin “mining” operations in Iceland are on track to consume more energy this year than all Icelandic households combined.

Blockchains can make sense in cases where the speed/verifiability tradeoff is actually worth it, but this is rarely how the technology is marketed. Blockchain investment propositions routinely make wild promises to overthrow entire industries, such as cloud computing, without acknowledging the technology’s obvious limitations.

Consider the many schemes that rest on the claim that blockchains are a distributed, universal “world computer.” That claim assumes that banks, which already use efficient systems to process millions of transactions per day, have reason to migrate to a markedly slower and less efficient single cryptocurrency. This contradicts everything we know about the financial industry’s use of software. Financial institutions, particularly those engaged in algorithmic trading, need fast and efficient transaction processing. For their purposes, a single globally distributed blockchain such as Ethereum would never be useful.

Another false assumption is that blockchain represents something akin to a new universal protocol, like TCP-IP or HTML were for the Internet. Such claims imply that this or that blockchain will serve as the basis for most of the world’s transactions and communications in the future. Again, this makes little sense when one considers how blockchains actually work. For one thing, blockchains themselves rely on protocols like TCP-IP, so it isn’t clear how they would ever serve as a replacement.

Furthermore, unlike base-level protocols, blockchains are “stateful,” meaning they store every valid communication that has ever been sent to them. As a result, well-designed blockchains need to consider the limitations of their users’ hardware and guard against spamming. This explains why Bitcoin Core, the Bitcoin software client, processes only 5-7 transactions per second, compared to Visa, which reliably processes 25,000 transactions per second.

Just as we cannot record all of the world’s transactions in a single centralized database, nor shall we do so in a single distributed database. Indeed, the problem of “blockchain scaling” is still more or less unsolved, and is likely to remain so for a long time.

Although we can be fairly sure that blockchain will not unseat TCP-IP, a particular blockchain component – such as Tezos or Ethereum’s smart-contract languages – could eventually set a standard for specific applications, just as Enterprise Linux and Windows did for PC operating systems. But betting on a particular “coin,” as many investors currently are, is not the same thing as betting on adoption of a larger “protocol.” Given what we know about how open-source software is used, there is little reason to think that the value to enterprises of specific blockchain applications will capitalize directly into only one or a few coins.

A third false claim concerns the “trustless” utopia that blockchain will supposedly create by eliminating the need for financial or other reliable intermediaries. This is absurd for a simple reason: every financial contract in existence today can either be modified or deliberately breached by the participating parties. Automating away these possibilities with rigid “trustless” terms is commercially non-viable, not least because it would require all financial agreements to be cash collateralized at 100%, which is insane from a cost-of-capital perspective.

Moreover, it turns out that many likely appropriate applications of blockchain in finance – such as in securitization or supply-chain monitoring – will require intermediaries after all, because there will inevitably be circumstances where unforeseen contingencies arise, demanding the exercise of discretion. The most important thing blockchain will do in such a situation is ensure that all parties to a transaction are in agreement with one another about its status and their obligations.

It is high time to end the hype. Bitcoin is a slow, energy-inefficient dinosaur that will never be able to process transactions as quickly or inexpensively as an Excel spreadsheet. Ethereum’s plans for an insecure proof-of-stake authentication system will render it vulnerable to manipulation by influential insiders. And Ripple’s technology for cross-border interbank financial transfers will soon be left in the dust by SWIFT, a non-blockchain consortium that all of the world’s major financial institutions already use. Similarly, centralized e-payment systems with almost no transaction costs – Faster Payments, AliPay, WeChat Pay, Venmo, Paypal, Square – are already being used by billions of people around the world.

Today’s “coin mania” is not unlike the railway mania at the dawn of the industrial revolution in the mid-nineteenth century. On its own, blockchain is hardly revolutionary. In conjunction with the secure, remote automation of financial and machine processes, however, it can have potentially far-reaching implications.

Ultimately, blockchain’s uses will be limited to specific, well-defined, and complex applications that require transparency and tamper-resistance more than they require speed – for example, communication with self-driving cars or drones. As for most of the coins, they are little different from railway stocks in the 1840s, which went bust when that bubble – like most bubbles – burst.

via www.project-syndicate.org/commentary/blockchain-technology-limited-applications-by-nouriel-roubini-and-preston-byrne-2018-03

Wednesday, February 14, 2018

Blockchain technology has not achieved much

"Conventional wisdom that Cryptocurrencies may crash but that the underlying technology, blockchain, is great & useful is still unproven. Most overhyped & underachieving new technology ever; it still has to deliver a single killer app."

"Blockchain is the most over-hyped technological innovation ever : a shaky solution looking for a problem that may not exist as intermediaries are necessary and evolving to sharply reduce transaction cost even without blockchain."

via twitter

Monday, February 12, 2018

Bitcoin the mother of all bubbles

"Bitcoin is THE biggest bubble in human history by a factor of 10X." 

"And the US Hearing on cryptoscams is only a day away. So a $5K handle looks highly likely unless the crypto-manipulation gangs starts pumping and dumping or wash trading again. So HODL nuts: be ready for a 75% loss from recent peaks."

"HODL nuts will hold their melting Bitcoins all the way down to ZERO while scammers and whales dump and run..."

"I have ZERO financial stake in any crypto-currency, ICO or blockchain business, either short or long or otherwise. Not talking my book like the thousands of conflicted, manipulative self-serving crypto insiders do."

via twitter

Wednesday, January 17, 2018

Nouriel Roubini slams Bitcoin and Gold

"At a typical Bitcoin exchange BTC is sold at a price 2% higher than market rates; then they charge u another 2.5% as a purchase fee; then they charge u another 5% as a credit card transaction fee. So total fees are 9.5%. So much for cryptos reducing transaction costs to 0%. Scam!"

"Gold is another scam with scammers peddling it all day long on Fox TV commercials to clueless retails investors - granpas & granpas -  & charging them prices above market + gouging fees.  And now all the fanatic lunatic gold bugs have become Bitcoin bugs. Gold & BTC: two scams."

via twitter

Wednesday, December 27, 2017

Why Bitcoin may be the Mother of all Bubbles

Bitcoin plunges...down 33% from highs...so much for a good and stable store of value...and the clueless suckers were the last to buy at the peak while the early insiders cashed out... 

The first question that EVERY man or woman I meet asks these days -  even the many who can't tell the difference between stocks and bonds, ie who have ZERO financial literacy - is whether they should buy Bitcoin. True sign of The Mother of All Bubbles...

Tuesday, December 12, 2017

Could USA be ruled by Emperor Trump ?

In the first year of his presidency, Donald Trump has consistently sold out the blue-collar, socially conservative whites who brought him to power, while pursuing policies to enrich his fellow plutocrats. Sooner or later, Trump's core supporters will wake up to this fact, so it is worth asking how far he might go to keep them on his side.

Donald Trump won the US presidency with the backing of working-class and socially conservative white voters on a populist platform of economic nationalism. Trump rejected the Republican Party’s traditional pro-business, pro-trade agenda, and, like Bernie Sanders on the left, appealed to Americans who have been harmed by disruptive technologies and “globalist” policies promoting free trade and migration.

The world’s leading thinkers and policymakers examine what’s come apart in the past year, and anticipate what will define the year ahead.

But while Trump ran as a populist, he has governed as a plutocrat, most recently by endorsing the discredited supply-side theory of taxation that most Republicans still cling to. Trump also ran as someone who would “drain the swamp” in Washington, DC, and on Wall Street. Yet he has stacked his administration with billionaires (not just millionaires) and Goldman Sachs alumni, while letting the swamp of business lobbyists rise higher than ever.
Trump and the Republicans’ plan to repeal the 2010 Affordable Care Act (Obamacare) would have left 24 million Americans – mostly poor or middle class, many of whom voted for him – without health care. His deregulatory policies are blatantly biased against workers and unions. And the Republican tax-reform plan that he has endorsed would overwhelmingly favor multinational corporations and the top 1% of households, many of which stand to benefit especially from the repeal of the estate tax.

Trump has also abandoned his base in the area of trade, where he has offered rhetoric but not concrete action. Yes, he scrapped the Trans-Pacific Partnership (TPP), but Hillary Clinton would have done the same. He has mused about abandoning the North American Free Trade Act (NAFTA), but that may be just a negotiating tactic. He has threatened to impose a 50% tariff on goods from China, Mexico, and other US trade partners, but no such measures have materialized. And proposals for a border adjustment tax have been all but forgotten.

Trump’s bullying tweets against US firms that move production offshore or undertake tax inversions have been no more than cheap talk, and business leaders know it. Manufacturers who fooled Trump into thinking they would keep production in the US have continued to transfer operations quietly to Mexico, China, and elsewhere. Moreover, international provisions in the pending tax legislation will give US multinationals an even greater incentive to invest, hire, and produce abroad, while using transfer pricing and other schemes to salt away profits in low-tax jurisdictions.

Likewise, despite Trump’s aggressive rhetoric on immigration, his policies have been relatively moderate, perhaps because many of the business people who supported his campaign actually favor a milder approach. The “Muslim ban” doesn’t affect the supply of labor in the US. Although deportations have accelerated under Trump, it’s worth remembering that millions of undocumented immigrants were deported under Barack Obama, too. The border wall that Trump was going to force Mexico to pay for remains an unfunded dream. And even the administration’s plan to favor skilled over unskilled workers will not necessarily reduce the number of legal migrants in the country.

All told, Trump has governed like a plutocrat in populist clothes – that is, a pluto-populist. But why has his base let him get away with pursuing policies that mostly hurt them? According to one view, he is betting that social conservatives and white blue-collar supporters in rural areas will vote on the basis of nationalist and religious sentiment and antipathy toward secular coastal elites, rather than for their own financial interests.

But how long can anyone be expected to support “God and guns” at the expense of “bread and butter”? The pluto-populists who presided over the Roman Empire knew that keeping the populist mob at bay required substance as well as diversion: panem et circenses – “bread and circuses.” Raging tweets are meaningless to people who can scarcely afford a dignified living, let alone tickets to the modern-day Colosseum to watch football.

The tax legislation that Republicans have rushed through Congress could prove especially dangerous, given that millions of middle-class and low-income households will not only get little out of it, but will actually pay more when income-tax cuts are phased out over time. Moreover, the Republican plan would repeal the Obamacare individual mandate. According to the nonpartisan Congressional Budget Office, this will cause 13 million people to lose health insurance, and insurance premiums to rise by 10%, over the next decade. Not surprisingly, a recent Quinnipiac poll found that a mere 29% of Americans support the Republican plan.

Nevertheless, Trump and the Republicans seem willing to risk it. After all, by pushing the middle-class tax hikes to a later date, they have designed their plan to get them through the 2018 midterm elections and the 2020 general election. Between now and the midterms, they can brag about cutting taxes on most households. And they can expect to see the economic-stimulus effects of tax cuts peak in 2019, just before the next presidential election – and long before the bill comes due.

Moreover, the final legislation will likely lower the federal deduction for mortgage interest and eliminate deductibility for state and local taxes. This will hit households in Democratic-leaning states such as New York, New Jersey, and California much harder than households in Republican-leaning states.

Another part of the Republican strategy (known as “starve the beast”) will be to use the higher deficits from tax cuts to argue for cuts in so-called entitlement spending, such as Medicare, Medicaid, food stamps, and Social Security. Again, this is a risky proposition, given that elderly, middle-class, and low-income Americans rely heavily on these programs. Yes, the working and non-working poor who receive welfare payments or food stamps include minorities who tend to vote for Democrats. But millions of the blue-collar, socially conservative whites who voted for Trump also rely on these and similar programs.

With the global economy expanding, Trump is probably hoping that tax cuts and deregulation will spur enough growth and create enough jobs that he will have something to brag about. A potential growth rate of 2% won’t necessarily do much to help his blue-collar base, but at least it could push the stock market up to its highest point ever. And, of course, Trump will still claim that the US economy can grow at a rate of 4%, even though all mainstream economists, including Republicans, agree that the potential growth rate will remain around 2%, regardless of his policies.

Whatever happens, Trump will continue to tweet maniacally, promote fake-news stories, and boast about the “biggest and best” economy ever. In doing so, he may even create a circus worthy of a Roman emperor. But if gassy rhetoric alone does not suffice, he may decide to go on the offensive, particularly in the international sphere. That could mean truly withdrawing from NAFTA, taking trade action against China and other trading partners, or doubling down on harsh immigration policies.

And if these measures do not satisfy his base, Trump will still have one last option, long used by Roman emperors and other assorted dictators during times of domestic difficulty. Namely, he can try to “wag the dog,” by fabricating an external threat or embarking on foreign military adventures to distract his supporters from what he and congressional Republicans have been doing.

For example, following the “madman” approach to foreign policy, Trump could start a war with North Korea or Iran. Or he could post further inflammatory tweets about the evils of Islam, thereby driving disturbed and marginalized individuals into the arms of the Islamic State (ISIS) or other extremist groups. That would increase the likelihood of ISIS-inspired attacks – for example, “lone wolves” blowing themselves up or driving trucks through crowded pedestrian areas – within the US. With dozens, if not hundreds, slain, Trump could then wrap himself in the flag and say, “I told you so.” And if things got bad enough, Trump and his generals could declare a state of emergency, suspend civil liberties, and transform America into a true pluto-populist authoritarian state.
You know it’s time to worry when the conservative Republican chairman of the Senate Committee on Foreign Relations, Bob Corker, warns openly that Trump could start World War III. And if you’re not convinced, consider the recent history of Russia or Turkey; or the history of the Roman Empire under Caligula or Nero. Pluto-populists have been turning democracies into autocracies with the same playbook for thousands of years. There’s no reason to think they would stop now. The reign of Emperor Trump could be just around the corner.

via project-syndicate.org/commentary/trump-populist-plutocracy-by-nouriel-roubini-2017-12