As someone who has up until now been lifetime profitable with his investments (and I include playing poker (up) and even other forms of gambling (down) here, which are also a form of investments), I thought I’d share with the reader the notes I made about Ethereum (up) during the first half of 2016, which might be kicking a dead horse by now, or might seem stupid one day when we all buy our government approved food rations and testosterone inhibiting designer drugs using the World Central Bank ETH barcode stamped on our foreheads. This is not meant to be taken as investment advice whatsoever, I’m just sharing what goes on in this addled, blood-infused brain of mine.
I started reading about Ethereum on several messageboards, IRC channels and internet outlets somewhere at the end of 2015, and it stood out from the other bitcoin (up) clones in the sense that it seemed more sophisticated and had a lot more true believers behind it. For what it’s worth, I understand how the bitcoin protocol works (not down to the implementation, mind you), and I had read a couple of the white papers on new coins that claimed to improve on bitcoin. Around this time I had seized doing that, however. I had come to the conclusion that all enthusiasm behind new altcoins hinged on one simple thing: the hope and/or will to recreate the bitcoin miracle, a >1000% appreciation over a short time-span. Either that or conmen playing into that hope. I think part of my investing success has to do with the fact that I can emulate true believers, but snap out of it in time. Or maybe I’m just a lucky donkey, who knows? Better lucky than good is my motto, at any rate. Creators of altcoins would combine bitcoin with every hype-word possible in order to get the investors’ (or are they marks?) attention. So we get bitcoin plus social media, bitcoin plus cloud storage, bitcoin plus that currency you had before the Euro because you long for the past when everything was better (it wasn’t, by the way), et cetera. Ethereum seems to be the ultimate version of this, combining bitcoin with Everyting A Computer Can Do!
Ergo, I didn’t read the white paper, and had my reservations after watching some hype-word filled videos. But it did start to look somewhat interesting in the internet hype department. To paraphrase someone on a messageboard: “When altcoin creators start blasting a stream of buzzwords at you, run for the hills. Except when Vitalik (the Ethereum creator) does it. He’s a genius!” Pro-tip: when large groups of people are willing to bypass their bullshit detector like that, you know that someone, somewhere stands to make a lot of money or gain a lot of power. There also seemed to be a couple of big firms and banks that pledged their support or interest, and at that point I bought in around the $1 mark.
As time went on, and the price started to rise, I started having doubts. My main concern was this: if Ethereum is to be the basic layer of future monetary dealings, wouldn’t it be very dangerous to introduce complexity into this layer? Wouldn’t we want this layer to be minimalistic, doing what it should do (verifiable peer-to-peer transactions, irreversibility) and nothing more? Then third parties could build their applications on top of that and if you’d need certain additional services you’d pay for them. Furthermore, I thought that there would be a big problem with accountability for smart contracts. I would be scared to send money into any non-trivial smart-contract as a company, especially in light of not being able to sue anyone when things go horribly wrong. Why not just use bitcoin and pay a reputable company you can sue to implement whatever you need on top?
Needless to say, at this point, my emulated enthusiasm had taken a hit, and the whole thing started to look like a bubble to me. When I checked the site with applications, nothing really stood out, no killer app, just a lot of gambling apps. Here I thought other investors (many of whom seemed enthused by the prospect of “fair” gambling with smart contracts) were making another mistake; who are the people that lose money at gambling, in other words, who are the people gambling companies consistently generate income from? Let me give you a hint: most of them can barely install the gambling client. Why would any of the parties involved even care about smart contracts? Patrons don’t care about the code at all (except those patrons the gambling venue would rather lose, anyway). Gambling companies all over the internet are generating revenue in the billions using SQL and JAVA or somesuch, there didn’t seem to be anything of interest here for them. Also, their smart contract code would become public domain. Companies are normally very protective of their codebase. The price was now around $5, and I sold it all.
A while later, the price had risen to more than $10, and although it seemed to be severely overpriced to me, the internet enthusiasm didn’t seem to die down. On the contrary, it seemed to reach a fever pitch. This prompted me to get in at $10 or so, planning to ride the upward trend but keeping an eye out to dump at any time something bad would happen. Then the DAO came around. Now the DAO didn’t make any sense to me. This was my reasoning at the time:
1. It is clear I will not own a majority of shares in the DAO. I’ll be at the mercy of the crowd or a big (group of) investor(s).
2. If I’m not well versed in investing, there is no way to make a good decision with relation to any particular investment the DAO will decide on. It would be gambling, with other people deciding what to do with my money. I’d rather play roulette (down), then. I shouldn’t invest.
3. On the other hand, if I’m an investor that generally makes +EV decisions, and thus generally is ahead of the crowd, letting unknowns vote on what to do with my money is pretty dumb. I shouldn’t invest.
This didn’t even take the technical details and complexity of the application into consideration, but it seemed clear to me that the DAO was destined to only ever be a huge amalgam of mediocrity at best, or a total disaster at worst. Maybe even a scam. By now a case can be made for all of the above. Around this time I cashed out of ETH again, somewhere around the $14 mark. This was the last time I had anything to do with Ethereum. I was also eyeing Monero (up) at that time, so I decided to move into that.
One small caveat: I got me some ETC (up) around the time of the forking disaster, and dumped it all again when the price doubled. It felt good and dirty at the same time. I’m kind of out of the altcoin loop now, my general feeling is they will all go the way of Litecoin (d… down… sorry senpai!) et al, where they slowly bleed dry as everyone but the true believers get out of their positions. So this Ethereum story is also the story of me not really bothering with cryptocurrencies anymore (bitcoin I still believe to be a great and useful invention, however).
At this point you might notice the title contains “the will to decentralization”, but I didn’t mention it. I honestly thought I would touch on it during my rant, but I didn’t. So let me add the following, as a bonus. You see here at Reuel.eu, the value:money ratio approaches infinity for the most esteemed reader. Or is equal to ERROR, if you’re a nitpicker.
What struck me during my journey through the “cryptocurrency community” was this deification of decentralization, or the will towards decentralization as an end-goal, and at one point it started bothering me. First off, it is hypocritical. What people really want, is not decentralization, it is recentralization, of (monetary) power, around themselves instead of the current wielders of power, for many embodied by the central banks. This is then accompanied by socialistic promises of money and banking services for everybody. Greed being all good and healthy, don’t package it as altruism, please, it’s an eyesore! Second, and this goes even deeper, in many cases this want to decentralize money bears resemblance to wanting revenge on the world, to a form of resentment, a reaction to power that betrays weakness. I find the will to build something new and great and interesting laudable, but here it goes accompanied by a hidden hatred for the world, in many cases. Ironically, or better said, naturally, it didn’t take long for mining power in Bitcoin to be centralized, and I don’t doubt the bitcoins themselves will be (or are already) distributed according to something resembling a power law. Ethereum was more or less centralized from the start. If something is decentralized, that just means there hasn’t been anyone powerful enough to control it, or no one could be bothered to.
That’s about it. I’m spent, and the world is grey and meaningless yet again. I’ll have to hit the cold streets now, out for the lifeblood of a young maiden and scratch tickets (down). But I will be back, revitalized. And so will you!