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Bitcoinist Book Club: “The Bitcoin Standard” (Chapter 3, Part 1: Why Gold?)

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Welcome back, Bitcoin lovers! For those who’re just tunning in, we’re currently exploring “The Bitcoin Standard” by Saifedean Ammous. When we finish with the third chapter, you’ll know exactly why humanity picked gold as the most precious of metals and its form of money of choice. The reasons are unarguable. Humanity was extremely clever to do so.

However, you need this info before we get into it.

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About The Coolest Club On Earth

The Bitcoinist Book Club has two different use cases: 

1.- For the superstar-executive-investor on the run, we’ll summarize the must-read books for cryptocurrency enthusiasts. One by one. Chapter by chapter. We read them so you don’t have to, and give you just the gold-y bits. 

2.- For the meditative bookworm who’s here for the research, we’ll provide liner notes to accompany your reading. After our book club finishes with the book, you can always come back to refresh the concepts and find crucial quotes. 

Everybody wins. Gold medals.

So far, we’ve covered:

Let’s start with “Chapter 3: Monetary Metals.

Gold, person bathed in

Metals made obsolete the “artifact money” we deep-dived into in the previous chapter. Coins were easier to carry, highly salable, accepted everywhere, and resistant to all kinds of weather. Also, the difficulty metal mining presented at the time made it impossible to increase the supply significantly enough.

After an experimentation period, humanity settled down on three. Gold for serious transactions, silver for day-to-day life, and copper for small transactions. Those metals were rare enough, and, “Gold’s virtual indestructibility, in particular, allowed humans to store value across generations, thus allowing us to develop a longer time horizon orientation.

Metal coins were “the prime form of money for around 2,500 years.” Especially gold coins. Nevertheless, the system was flawed. First of all, the price of those three metals fluctuated, making it hard for people to keep track of what they owned. The most volatile was, “silver, which experienced declines in value due to increases in production and drops in demand.”

The biggest flaw, however, was that “governments and counterfeiters” could reduce the metal content of these coins, thus reducing their purchasing power. This early form of devaluation transferred some of the value of each coin to whoever kept the missing metal. The real problem, though, was that “The reduction in the metal content of the coins compromised the purity and soundness of the money.

Enter paper (backed by gold)

Technology and sophistication lead humanity to paper. As time went by, individuals began transacting with “checks backed by gold in the treasuries of their banks.” This made silver obsolete because it made gold infinitely divisible. However, the system had a “tragic flaw” that echoes into the present: 

By centralizing the gold in the vaults of banks, and later central banks, it made it possible for banks and governments to increase the supply of money beyond the quantity of gold they held, devaluing the money and transferring part of its value from the money’s legitimate holders to the governments and banks.

Gold price chart for 05/29/2021

Gold price chart on IDC | Source: XAU/USD on TradingView.com

But seriously, why gold?

Humanity tried it all and made its choice. The absolute victory of gold had two chemical causes: 

First, gold is so chemically stable that it is virtually impossible to destroy, and second, gold is impossible to synthesize from other materials (alchemists’ claims notwithstanding) and can only be extracted from its unrefined ore, which is extremely rare in our planet.

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And nowadays, the reasons are more solid than ever. Gold is virtually indestructible, so, almost everything that we’ve extracted from the earth is still around.

This all means that the existing stockpile of gold held by people around the world is the product of thousands of years of gold production, and is orders of magnitude larger than new annual production.

And that means that it’s “practically impossible for goldminers to mine quantities of gold large enough to depress the price significantly.” That extreme difficulty in production makes gold “hard money.” And the metal is still scarce enough to be sound money and a wise investment. 

You’ll have to figure out how to store it and keep it safe, of course, but a wise investment nonetheless.

Next time, we’ll finish chapter 3 by exploring how did this process played out. Historically speaking.

Images by Unsplash | Charts by TradingView.com

Source: https://bitcoinist.com/bitcoinist-book-club-the-bitcoin-standard-chapter-3-part-1-why-gold/?utm_source=rss&utm_medium=rss&utm_campaign=bitcoinist-book-club-the-bitcoin-standard-chapter-3-part-1-why-gold

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Evolve or die: How smart contracts are shifting the crypto sector’s balance of power

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One of the familiar themes seen in previous crypto market cycles is the shifting market caps, popularity and ranking of the top 10 projects that see significant gains during bull phases, only to fade into obscurity during the bear markets. For many of these projects, they follow a recognizable boom-to-bust cycle and never return to their previous glory. 

During the 2017–2018 bull market and initial coin offering (ICO) boom, which was driven by Ethereum network-based projects, all manner of small smart contract-oriented projects rallied thousands of percentage  to unexpected highs.

During this time, projects like Bitcoin Cash (BCH), Litecoin (LTC), Monero (XMR) and ZCash (ZEC) also rotated in and out of the top 10 ranking, but to this day, investors still argue about which project actually presents a “useful” use case.

While all of these tokens are still unicorn-level projects with billion-dollar valuations, these large-cap megaliths have fallen far from their previous glory and now struggle to stay relevant in the current ecosystem.

Let’s take a look at a few of the current projects that threaten to unseat these dinosaur tokens from their perch.

Dollar-pegged stablecoins take the stage as the most “transactable” currency

Bitcoin’s (BTC) original use case stipulated that it would simplify the process of conducting transactions, but the network’s “slow” transaction time and the cost associated with sending funds makes it a better store of value than a medium of exchange when the other blockchain networks are considered as options.

Terra (LUNA), a protocol focused on creating a global payment structure through the use of fiat-pegged stablecoins, has emerged as a possible solution to the issues faced when trying to use the top proof-of-work (PoW) projects as payment currencies.

The main token used for transacting value on Terra aside from LUNA is TerraUSD (UST), a U.S. dollar-pegged algorithmic stablecoin that forms the basis of Terra’s decentralized finance (DeFi) ecosystem. The market cap of UST has steadily been increasing throughout 2021 as activity and the number of users in the ecosystem increased.

UST supply changes. Source: SmartStake

The recent addition of Ether (ETH) as a collateral choice for minting UST on Anchor protocol has given token holders a way of accessing the value in their Ether without having to sell and create a taxable event.

This opens the possibility for other tokens such as BTC to be utilized as collateral to mint UST that can be used in everyday purchases.

As it stands, the borrowing APR for UST on Anchor stands at 25.85%, while the distribution APR is at 40.67%, meaning users who borrow UST against their LUNA or Ether actually earn a yield while borrowing against their tokens.

From privacy coins to privacy protocols

Privacy is also a cornerstone characteristic of the cryptocurrency sector and privacy-focused projects like XMR and ZEC offer obfuscation technologies that support covert or what, for a time, were thought to be untraceable transactions.

Unfortunately, regulatory concerns have made it more challenging for users to access these tokens, as many exchanges have delisted them for fear of drawing the ire of regulators and the overall demand among crypto users has declined alongside their availability.

Their lack of smart contract capabilities has also limited what these protocols are capable of and, so far, users do not appear to be too excited about utilizing Wrapped Monero (WXMR) for use in DeFi, as the token loses its privacy capabilities in the process.

These limitations have led to the development of privacy-focused protocols such as the Secret Network, which allows users to create and use decentralized applications (DApps) in a privacy-preserving environment.

Privacy features are not common among smart contract capable platforms in the crypto ecosystem, which makes Secret something of an experimental case in the ever-evolving Web 3.0 landscape.

Decentralized applications on the Secret Network. Source: Secret

Secret is also part of the Cosmos ecosystem which means it can utilize the Inter-blockchain Communication (IBC) protocol to seamlessly interact with other protocols in the ecosystem.

The network’s native SCRT can be used as the value transfer medium on the platform as well as to interact with protocols that operate on the network, including Secret DeFi applications and the network’s NFT offering, Secret Heroes.

New enterprise solutions aren’t better but they come without controversy

One of the ways cryptocurrency projects sought to differentiate themselves from the “medium of exchange” label was to offer enterprise solutions as a way to help corporations navigate the transition to a blockchain-based infrastructure.

XRP and Stellar (XLM) are two of the veteran protocols that fit this bill, but continual controversy and slow development has resulted in these early movers now playing catch up with newer networks that also don’t have the legal controversy that has followed Ripple for years.

Hedera Hashgraph has emerged as a competitor in this field and data shows that the network is capable of processing more than 10,000 transactions per second (TPS), with an average transaction fee of $0.0001 and a time to finality of 3-5 seconds.

These statistics are comparable to both XRP and XLM, which have indicated that their ledgers reach consensus on all outstanding transactions every 3-5 seconds with an average transaction cost of 0.00001 XRP/XLM.

Hedera is also smart contract capable, meaning users can create both fungible and nonfungible tokens, and developers can build decentralized applications to accompany the network’s decentralized file storage services.

For each sector (stablecoins, privacy and enterprise solutions), the main difference between the old-school and next-generation projects has been the introduction of smart contract capabilities and plans to develop within the side-chain and DeFi sectors where the top protocols exist. This gives newer projects additional utility, allowing them to meet the demand of investors and developers, thus increasing their token values and market caps as a result.

With smart contracts, the ability to interact with the growing DeFi landscape comes built-in, whereas the legacy tokens like LTC, XMR and BCH require special wrapping services which insert middlemen and thus insert additional fees, rigor and risk into the process.

Newer protocols have also embraced the more eco-friendly proof-of-stake consensus model that aligns with the larger global shift toward environmental awareness and sustainability. A plus is that holders can also stake their tokens directly on the network for a yield.

It remains to be seen if the slow march of time will eventually lead to a capital migration from older large cap projects to the newer generation protocols or if these legacy blue-chips will find a way to evolve and survive into the future.

Want more information about trading and investing in crypto markets?

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.


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Source: https://cointelegraph.com/news/evolve-or-die-how-smart-contracts-are-shifting-the-crypto-sector-s-balance-of-power

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‘Overlooked’ Part of Senate Infrastructure Bill Renews Worries From Crypto Lobby

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The $1 trillion infrastructure bill, which passed in the Senate in early August and is expected to be approved by the House, is the gift that keeps on giving.

At first, it was about roads, bridges, and clean water. Then a pay-for provision promised to give American crypto users new tax reporting requirements. And now there’s a new twist.

A report published today by the Proof of Stake Alliance (POSA), an advocacy group that counts Coinbase Custody and Solana as members, details an “overlooked” amendment to the tax code within the 2,700-page bill that will make it a felony to incorrectly report receiving cryptocurrencies, NFTs, or other digital assets.

Writing in his role as an advisor to the POSA, law professor Abraham Sutherland details how the infrastructure bill amends Section 6050I of the tax code. The amended section 6045 that caused so much consternation when it made it through the Senate changed the definition of “broker” to cover those handling cryptocurrencies. 

Industry lobbyists and cryptocurrency advocates such as the think tank Coin Center argued that the bill as written would force Bitcoin miners and validators on other networks to file 1099 forms for the people whose transactions they were processing—even though they lacked the personal information needed to do so.   

Section 6050I, on the other hand, deals with the tax reporting requirements of those who ultimately receive the cryptocurrencies. While Americans must already report their crypto gains to the IRS just as they would with other investments, Sutherland says the amended provision goes much further: They must tell the government who sent it, including reporting social security numbers, when the value of the digital assets is more than $10,000. Not doing so within 15 days constitutes a felony.

This raises at least two issues. First, as Sutherland notes, it’s just as unwieldy as the section 6045 amendment: “This provision demands the impossible because the digital assets might not be ‘received’ from a person whose personally identifiable information can be verified and reported—including cases where the digital assets are not ‘received’ from a person or entity with a tax ID number, period.”

Second, as Sutherland alludes to and as Coin Center Research Director Peter Van Valkenburgh hammered home in a blog post, it might just be unconstitutional. The tax code currently mandates that people report such information to the IRS when they receive $10,000 in cash. That passes Constitutional muster because the bank acts as a third party; otherwise, authorities would need a warrant under the Fourth Amendment. But in cryptocurrency, a peer-to-peer transaction doesn’t have a third party

Writes Van Valkenburgh: “One person to a two person transaction is obligated to collect a load of sensitive information from her counterparty and hand that to government officials without any warrant or reasonable suspicion of wrongdoing.”

Though he writes that Coin Center usually doesn’t “object to equal treatment of cash and cryptocurrencies,” in this case the “provision is a draconian surveillance rule that should have been ruled unconstitutional long ago. Extending it to cryptocurrency transactions would further erode the privacy of law-abiding Americans.”

Sutherland also calls into question the process by which the amended IRS code will become law—via a bill on completely unrelated topics. “A statute creating felony crimes for users of digital assets should be debated openly, not quietly inserted into a spending bill,” he wrote.

Source: https://decrypt.co/81236/overlooked-part-senate-infrastructure-bill-renews-worries-crypto-lobby

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