‘Theoretical’ or not, Bcashers are still deceptive

Some quick background for anyone newer to bitcoin: There was a group who split off from the original Bitcoin blockchain in August 2017, into a chain they call “Bitcoin Cash” with ticker BCH (which many bitcoiners prefer to call “BCash” since it is not actually bitcoin). The Bcashers had a different approach to scaling bitcoin, and despite not having the lion’s share of investor or bitcoin node support, claim to still be ‘bitcoin’. e.g. this tweet below by Ryan.

Nick Szabo has called out Bcash for being centralised sock puppetry here:

Oh also, Bcash has far fewer transactions than Bitcoin:

So anyway, one blog post by a Bcash proponent struck me as oddly attempting to justify Bcasher deception. From Derek Magill’s “Theoretical Bitcoiner” post, where he essentially tries to argue that there haven’t been that many instances of people who lost money due to Bcash proponents deceiving people:

The Theoretical Bitcoiner is the imaginary victim of Bitcoin Cash. It is used by Bitcoin Core supporters to attack the Bitcoin Cash community and technology. The argument usually goes as follows: there are some people out there, somewhere, who are being tricked into buying Bitcoin Cash or sending their Bitcoin Core to Bitcoin Cash wallets because of sites like Bitcoin.com, members of the community, and online discussions. Bitcoin Cash is bad (bcash bcash bcash).

Here’s the problem: whether or not people have actually fallen for it – your behaviour was still deceptive. e.g. the tweet by Ryan above. Or how the bitcoin.com website listed Bitcoin as BCH, instead of listing the BTC token as bitcoin.

Ignoring the counter factual (if honest bitcoiners hadn’t called out the deceptive behaviour)

Imagine if honest bitcoiners had not called out the Bcasher deception? Surely more people would have been deceived and might well have lost money.

Real lesson – if you want to make a contentious change and have everyone come along with you, first build support

Here’s the real lesson: Before forking off to create your own BCH shitcoin, do better at building consensus. This requires skills in persuasion and reasoning.

You should play the honest game of trying to win hearts and minds, and not play the dishonest game of deception.

Velocity and demand to hold money

I saw this tweet thread by Tushar Jain at Multicoin Capital and it spurred some thoughts:

Why I think it’s a flawed approach:

  1. Investment implies risk of loss
  2. Tax rules for realisation of capital gains/losses
  3. Conceptual confusion about why people hold money

1. Investment implies risk of loss

When you invest in something to earn return, you are risking loss of part or all your investment. This investment is distinct from the money you hold for day to day and short term spending.

You might well hold a diversified portfolio of stocks, bonds, real estate and other assets. But you’d still maintain some level of cash balance precisely because you need to be able to quickly spend on things either for living expenses, or because you’ve spotted entrepreneurial or investment opportunities that you need cash to take part in.

Tushar’s tweet storm implies that we’d all just be selling off some small chunk of our stock/bonds/other tokens portfolio to pay for things and thus would have less demand to hold money itself.

I think this is conceptually flawed, there would still be one most liquid, most saleable commodity. Remember, that commodity would be half of every transaction, and it’d be what we denominate things in. That commodity will be what we call money. It’s our contention as bitcoin maximalists that bitcoin is most likely to play this role.

2. Tax rules on realisation of gains/losses

As I understand it, most countries have legal tender laws and the like, that mean you don’t have to calculate capital gains (Capital Gains Tax) for ‘selling’ your USD or AUD to buy milk. The accepted money isn’t treated as a capital asset on disposal and this generally gives it a pretty big tax advantage. Tushar does mention software selection based on tax treatment, but in practice: in many cases, it would not be beneficial to sell off the non-money token as this would come with a higher tax burden due to CGT.

If this is really how it plays out, your wallet software would compute the costs associated with simply spending the dominant money (no CGT) vs the cost associated with selling some other token representing stocks, bonds, or the ICO token (with its associated CGT cost).

3. Conceptual confusion about why people hold money

Tushar’s argument seems to be that money would not be as highly valued or demanded to be held because people can just transact ‘through it’. In tweets 10 and 11 he makes this argument on the basis that there would be very high velocity:

‘Velocity’ is an irrelevant way to think about this. It’s not about how quickly or not money turns over through the economy, but rather – how those individuals purposefully act to achieve certain ends. And to understand that, we have to understand why people hold money in the first place.

I recommend reading, “The Yield from Money Held” Reconsidered by Hoppe. When people think of cash being ‘good for nothing’, why then, do people hold cash now?

If cash holdings are indeed “good for nothing,” no one would hold or add to them — and yet almost everyone does so all the time! And since all money is always held or hoarded by someone — when it “circulates,” it only leaves one holding hand to be passed into another — money must be continuously “good for something” all the while it is being held (which is always).

Here’s the relevant part:

Based on this fundamental insight, we can state as a first provisional conclusion concerning the positive theory of money that money and cash balances would disappear with the disappearance of uncertainty (never) and, mutatis mutandis, that the investment in money balances must be conceived of as an investment in certainty or an investment in the reduction of subjectively felt uneasiness about uncertainty.

In reality, outside the imaginary construction of an evenly rotating economy, uncertainty exists.

Now if uncertainty exists, and there is a point to holding money, what makes the best money? The one that is most marketable / saleable.

Faced with this challenge of unpredictable contingencies, man can come to value goods on account of their degree of marketability

Money does the best at alleviating uncertainty.

While this brief reconstruction of the origin of money is familiar, insufficient attention has been drawn to the fact that, as the most easily and widely salable good, money is at the same time the most universally present — instantly serviceable — good (which is why the interest rate, i.e., the discount rate of future goods against present goods, is expressed in terms of money) and, as such, the good uniquely suited to alleviate presently felt uneasiness about uncertainty.

Because money can be employed for the instant satisfaction of the widest range of possible needs, it provides its owner with the best humanly possible protection against uncertainty.

Now, with the ability to trade around different assets very quickly or even using a fancy techno-robo-advice-automated-trading – do you think that would alleviate the uncertainty that man feels? Remember, the value of these non-money assets would be constantly fluctuating up and down, relative to the value of the dominant unit of account (again, this would most likely be BTC in my view).

I think once we understand why people hold money in the first place (to alleviate uncertainty), and how the litany of tokens and techno-robo-trading doesn’t actually resolve the uncertainty, we can see that Tushar’s argument doesn’t really work.

I welcome your thoughts though.

Book Review of The Bitcoin Standard by Saifedean Ammous

Bitcoin is going to become the global standard for money and you need to understand the how and why. The single best book I can recommend to you is The Bitcoin Standard by Saifedean Ammous.

Here’s my video summary:

Some quick thoughts in written form:

  • Why this book? There’s a lot of altcoin/ICO/appcoin garbage out there. This book is the signal vs the other garbage ‘noise’.
  • Saifedean explains the roots of sound money and how it arises on the market as the most saleable medium of exchange.
  • He talks through the history of how we got where we are now with government currency debasement and control, which sets the scene for why bitcoin is so important.
  • We have an overview of Austrian business cycle theory and how the malinvestments create a distorted capital structure.
  • He stresses the importance of the stock to flow ratio of bitcoin versus other potential monies (fiat and gold being the big examples). Projecting out over the next 4-8 years, Bitcoin has a better stock to flow ratio and it is only getting better.

Overall, Saifedean spells out a vision of bitcoin as a high powered sound money, forming the base layer on which other layers may be built.

Go order the book today! I have ordered a physical copy myself.

Bitcoin exchange attack survival of the fittest

It is simply amazing how quickly the bitcoin world is evolving. We’ve gone from having one large exchange (Mt.Gox) being able to take the whole space down with it in 2013, to now having many exchanges capable of handling large volume (Binance, Bitfinex, Kraken, Gemini, GDAX etc).

Binance underwent a large, coordinated hack and managed to repel it. They have a summary post on their support page here: Summary of the Phishing and Attempted Stealing Incident on Binance.

However, as withdrawals were already automatically disabled by our risk management system, none of the withdrawals successfully went out.

But it looks like that wasn’t all, as they’re now putting up a bounty for information leading to the arrest of the hackers.

In this post Binance state:

Binance is offering a $250,000 USD equivalent bounty to anyone who supplies information that leads to the legal arrest of the hackers involved in the attempted hacking incident on Binance on March 7th, 2018.

This is certainly raising the stakes for would be exchange attackers. It also makes it more costly to run these hacking operations, if any one of the hacking team could defect for the bounty.

Decentralised bitcoin exchanges vs centralised exchanges

While some people believe that decentralised exchanges are the future, I’m not as convinced this will work, as there is always an interaction back with the centralised fiat banking system. This interaction back with the centralised fiat system becomes more important for anyone wanting to do significant $ volume or number of trades. There are also still some concerns about whether the decentralised exchanges can get the requisite liquidity.

I think we’re probably moving into an era where centralised exchanges exist alongside decentralised exchanges. Centralised exchanges will be used by the more legitimate, big time players who need the volume. Decentralised exchanges will be used by smaller, retail level players who want more privacy and anonymity.

Remember though, this is mostly a temporary ‘on ramp’ thing anyway. Once enough people have been on-boarded into bitcoin, we’ll see the full gamut of people just being paid directly in bitcoin, selling things for bitcoin, and normal everyday banks offering bitcoin bank accounts. In the post hyperbitcoinization world, maybe there won’t be as much need for bitcoin exchanges.

Crazy survival of the fittest game

In any case, this episode in bitcoin’s history helps show that as people attack bitcoin and bitcoin businesses, those businesses evolve different responses to attack. Rather than killing bitcoin, bitcoin ends up becoming even more hardened against that particular type of attack.

Method Of Payment Is Not Medium of Exchange

A common error in crypto land is the confusion between method of payment, and Medium of Exchange. They’re distinct concepts!

Let’s use a basic example: I want to pay you $10 AUD. I could do this by either handing you $10 AUD cash, or I could bank transfer it to you. In this example:

  • AUD is the Medium of Exchange
  • The method of payment is either the cash note I give you, or the bank transfer

But people struggle to see it this clearly with Bitcoin the payment network, and bitcoin the money/token. So then people go and commit further ‘knock-on errors’ such as thinking that bitcoin has to scale to 1 bazillion transactions/second right NOW or otherwise we lose to VISA/mastercard!

But they’re mixing it up. They’re confused. Medium of Exchange as a concept is about solving the double coincidence of wants, and also about being a more ‘saleable’ commodity or money. Method of payment is just the technical way we achieve moving that money token around.

While other people might go around making really fast, centralised payment networks – what matters is sound money. This is why bitcoin the money matters, and Ripple’s centralised, premine shitcoin doesn’t (despite Ripple’s Xrapid and Xcurrent solutions having much higher transaction rates).

For more on saleability and the Carl Menger’s work on the origins of money, see the YouTube video I did on this topic here.

Thoughts on Mt.Gox trustee mass bitcoin sales

Offering a few quick thoughts on the recent Mt.Gox trustee news: Meet The ‘Man’ Who Crashed Bitcoin In 2018 from zerohedgeThe recent bitcoin price crashes were possibly driven by the Mt.Gox trustee selling large batches of bitcoins to recover fiat money to make Mt.Gox creditors whole.

Some of the bitcoin wallet transactions overlayed on a price chart.  Bitcoin sales are assumed to have occurred soon after the bitcoin transaction to the exchange:


Grim, but funny in a sad way:

More sales are on the way:


Here are some thoughts:

Timing and Method

These coins were going to be sold eventually, this was just a question of when. The Mt.Gox trustee could have used Over the Counter (OTC) markets to try and sell the stash on dark pools so that it didn’t necessarily all hit an exchange at once, to limit the impact. But in the grand scheme of things, this is not a huge deal, it just means temporarily cheap coins.

What’s promising about how it played out

The fact that people were (and still are) clamouring to buy more bitcoin after each dump is a good indicator. It’s not that the demand for bitcoin died and people went to other cryptocurrencies, these people continually bought bitcoin (mostly).

The ‘strong hand’ / HODLer mentality

The truly strong hand veteran HODLers do not care. They care about the long term vision for bitcoin. Along the way, of course there will be some mass bitcoin sales, as whales sell their stash down. Even if we have more periodic cycles up/down, these are more chances to accumulate more bitcoin cheaply.

From the bitcoin maximalist view, your future net worth will be measured in BTC. So any chance to cheaply acquire more BTC now is an exciting opportunity.

Cost is what you pay, value is what you get

If anything, from the HODLer point of view, it’s a great time to accumulate more while the Mayer Multiple is low.


Fundamentals are virtually unchanged

  • The SEC appears to be cracking down on ICO’s, but not on bitcoin
  • Bitcoin’s development is proceeding rapidly with many new technologies coming in the pipeline (see Rusty’s talk here for an overview)
  • Lightning network is coming online with many people on testnet and mainnet
  • Institutional money is still looking for ways to get into this space once custody and other related issues can be solved
  • Retail investors are just getting started and we’re probably still <5% adoption overall
  • Governments continue to inflate their fiat currencies, and continue to impose capital controls. There is also discussion of banning high denomination cash notes, which also drives people into the arms of cryptocurrencies.

Given the above, why wouldn’t I be bullish?

Coinbase creates an index fund

Today, Coinbase announced a new index fund tracking digital assets listed on the Coinbase exchange, GDAX. It is limited to US accredited investors only, which does reduce the number of people who are able to participate.

Judging from Coinbase index info here, the initial breakdown will be as follows:


Bright side

So what does this mean for us? On the bright side, this move will increase the availability of investing in bitcoin. There will be many richer people who might have a passing interest in getting some small level of exposure to crypto/digital assets, and don’t want to spend the time learning to hold their own private keys etc. This fund is probably easier for them to buy – so it does mean more money can flow into bitcoin.

Down side

On the down side, it is pushing what I believe to be an incorrect narrative. This idea that “we should diversify across crypto assets” strikes me as a category error. It is treating Ethereum, Bitcoin Cash (BCash), and Litecoin like they are a good way to diversify instead of holding one sound money, Bitcoin.

What happens in practice is:

  • They’re not really that uncorrelated to each other.
  • All altcoins live in the wake of Bitcoin and basically ride its coat tails.
  • There is an opportunity cost to holding more ETH, BCH and LTC: You could have otherwise held more BTC.

That said, I understand that Coinbase are not a company operating under a bitcoin maximalist ethos.


On net, this is good for bitcoin in that it helps draw in more investors. But it does unfortunately push a belief or narrative that I disagree with, and I believe it will ultimately be harmful if this narrative is kept alive for too long. In the end, people will be driven by their own greed and price signals towards bitcoin and away from the others. The cream will rise to the top eventually.

For the meantime, it will be: Play stupid games, win stupid prizes.