The Cryptocurrency Trading Journal

[Daal]

DOGE is actually a great example of Vitalik's blockchain trilema. People complain about the slow block times in Bitcoin (10 minutes) but look at the mess that 1 minute blocktimes lead to on DOGE. People can't sync their DOGE nodes with the network because there is constantly new blocks being mined and propagated in the network, by the time they are fully synched, they are no longer synched because they are a few blocks behind

This leads to less nodes having the 'real' blockchain, that means centralization on what the truth is. This leaves the network vulnerable to attacks and manipulation
But it does help with fees (even with the astronomical interest on DOGE, fees are still 50 cents) and the perception that transactions are fast. Its only a perception though, anyone receiving large amounts of funds on DOGE will require a ton of confirmations because they consider the payment made, because they cannot be certain what the blockchain is displaying is not the result of manipulation or an attack
Kraken requires 40 confirmations on DOGE before they credit the account, that skepticism is the result of a network that lacks security

So, the reason why Bitcoin fees are higher then other coins, is a good one. Its to prevent having centralization and less security. They are trying to strike a balance between decentralization, security and scalability but scalability is not a priority. This makes Bitcoin a rare coin because most of the other coins will go for scalability as it is a lot more flashy. It enables people to say 'transactions are faster and cheaper than Bitcoin!', but that comes at a steep cost
CBDCs will be like that as well, they will go for scalability and some security and sacrifice everything else. Its nice and flashy but its not rare, its easy to do that. Bitcoin could do that if the community wanted to but its a price not worth paying

 

[Daal]

As far as the DOGE price goes, I think there is the trade coming which will be to short DOGE using Musk's SNL as a catalyst. Buy the rumor sell the news. I wont take the trade because shorting is stressful but if I was on top of my swing trading game, I would do it. I used to do this type of trade a lot in bubbly stocks (The TLRY run to $300 was a great example) but I dont want to work so hard for profits anymore, longs are just easier and less stressful so I will leave this to the pros. but its a nice setup

 

[Daal]

At the end of his great piece on Sharding, Vitalik described (without directly mentioning) the risks associated with Binance Smart Chain

https://vitalik.ca/general/2021/04/07/sharding.html
"

1. Centralized infrastructure is more vulnerable to censorship imposed by external actors. The high throughput of the block producing nodes makes them very detectable and easier to shut down. It's also politically and logistically easier to censor dedicated high-performance computation than it is to go after individual users' laptops.
2. There's a stronger pressure for high-performance computation to move to centralized cloud services, increasing the risk that the entire chain will be run within 1-3 companies' cloud services, and hence risk of the chain going down because of many block producers failing simultaneously. A sharded chain with a culture of running validators on one's own hardware is again much less vulnerable to this.

Properly sharded systems are better as a base layer. Given a sharded base layer, you can always create a centralized-production system (eg. because you want a high-throughput domain with synchronous composability for defi) layered on top by building it as a rollup. But if you have a base layer with a dependency on centralized block production, you cannot build a more-decentralized layer 2 on top."

Binance Smart Chain essentially is trying to cut corners. They rely in a heavily centralized base layer that is extremely vulnerable to state actors. Binance currently allows people to withdraw over $100,000 in BTC without KYC. Binance is usally the first place crypto goes after a hacker steals coins. They have this ETH blockchain system without ETH's properties of not providing a clear target to go after. They have a CEO who says
"Binance Doesn't Have a Headquarters". Who Forbes said "Leaked Document Reveals Binance’s Elaborate Scheme To Evade Bitcoin Regulators"

I believe CZ, BNB and Binance will be the canaries in the coal mine. Before there is any chance of a widespread Bitcoin ban, they would go down first. I'm not making a prediction, I'm simply saying that IF governments ever were to go after crypto in a big way, Binance would be the canary that would die first. So in a way, they will be great indicators that things are turning sour. IMO

 

[johnarb]

At the end of his great piece on Sharding, Vitalik described (without directly mentioning) the risks associated with Binance Smart Chain

https://vitalik.ca/general/2021/04/07/sharding.html
"

1. Centralized infrastructure is more vulnerable to censorship imposed by external actors. The high throughput of the block producing nodes makes them very detectable and easier to shut down. It's also politically and logistically easier to censor dedicated high-performance computation than it is to go after individual users' laptops.
2. There's a stronger pressure for high-performance computation to move to centralized cloud services, increasing the risk that the entire chain will be run within 1-3 companies' cloud services, and hence risk of the chain going down because of many block producers failing simultaneously. A sharded chain with a culture of running validators on one's own hardware is again much less vulnerable to this.

Properly sharded systems are better as a base layer. Given a sharded base layer, you can always create a centralized-production system (eg. because you want a high-throughput domain with synchronous composability for defi) layered on top by building it as a rollup. But if you have a base layer with a dependency on centralized block production, you cannot build a more-decentralized layer 2 on top."

Binance Smart Chain essentially is trying to cut corners. They rely in a heavily centralized base layer that is extremely vulnerable to state actors. Binance currently allows people to withdraw over $100,000 in BTC without KYC. Binance is usally the first place crypto goes after a hacker steals coins. They have this ETH blockchain system without ETH's properties of not providing a clear target to go after. They have a CEO who says
"Binance Doesn't Have a Headquarters". Who Forbes said "Leaked Document Reveals Binance’s Elaborate Scheme To Evade Bitcoin Regulators"

I believe CZ, BNB and Binance will be the canaries in the coal mine. Before there is any chance of a widespread Bitcoin ban, they would go down first. I'm not making a prediction, I'm simply saying that IF governments ever were to go after crypto in a big way, Binance would be the canary that would die first. So in a way, they will be great indicators that things are turning sour. IMO

Very good post. As much as I hate it, I agree with many of the points you mentioned on centralization risks

I have been planning to trade/trim some of the positions out of BNB and Cake (for weeks now)

I don't know if you follow any of the recent pump and dump spilling out into the mainstream media, like safemoon, cummies, etc, but those are BSC coins due to the ridiculous fees on Ethereum, they cannot thrive on

Even with the recent gwei levels at much lower than in the past, the Eth price at ath still makes the defi transaction fees and even regular transfers of erc-20 tokens costing very high in $ price

Cake is doing more transactions than all of the Ethereum ecosystem combined

Ethereum price is going to keep going higher, imho. I think this is due to a "corner" effect of not having enough Eth supply circulating for sale, many are locked staking in Eth 2.0 and in defi (native chain and as wrapped Eth in foreign chains) and as part of the investment world SoV (i.e. ETHE, in people's wallets for hodl, etc.)

I'm planning to pick up a position in Eth, maybe around half of what I used to have

Not trying to start an argument, but Eth has an existential risk as well, with all of the planned upgrades. There was one that caused a fork for a small part of the network a few months ago

Whether I have a position or not in Eth, I am praying and hoping that Ethereum does not have catastrophic problems, I've posted on different threads in the Cryptocurrencies forum on how important Ethereum is to the whole cryptos ecosystem

 

[Daal]

Yes, ETH does have development risk, they have to deliver on their vision. But at least their vision is huge so there is risk but there is also return. But also, I dont doubt if there are problems, they will just hard fork and reverse the blockchain (or something equivalent of that). Yes, its a controversial move but it doesnt mean it is wrong. If you look at ETH's market cap vs ETC, the market has spoken that they are fine with that. Much in the same way they approved BTC's approach to scalability vs's BCHs.
Maxi's will split their hair out when ETH's hard fork's to reverse hiccups but unless they have a time machine, how do they know that is the wrong approach to develop blockchain technology? They confuse phisolophy/ethics with tech developement/investing, the two do not have to be correlated. This world is not an Austrian economics test to see who gets more points for being more Austrian
Bitcoin smart contracts (Through STX) seem to be largely dead, the market is speaking

 

[johnarb]

I dont doubt if there are problems, they will just hard fork and reverse the blockchain (or something equivalent of that). Yes, its a controversial move but it doesnt mean it is wrong. If you look at ETH's market cap vs ETC, the market has spoken that they are fine with that. Much in the same way they approved BTC's approach to scalability vs's BCHs.
Maxi's will split their hair out when ETH's hard fork's to reverse hiccups but unless they have a time machine, how do they know that is the wrong approach to develop blockchain technology? They confuse phisolophy/ethics with tech developement/investing, the two do not have to be correlated. This world is not an Austrian economics test to see who gets more points for being more Austrian
Bitcoin smart contracts (Through STX) seem to be largely dead, the market is speaking

Whoa! I said that I do not want to start an argument, but seeing that just blows my mind, I do not even know where to start

You think taking away the censorship-resistance and immutable portion of the decentralized cryptocurrencies is ok for the greater good???

I said I agreed with your points on centralization risks, re: BSC

You're basically not seeing the fact that any government or hostile group can force, kidnap, torture, the people in-charge of Ethereum to make changes to Ethereum under the guise of "greater good to satisfy some regulatory requirements such as not allowing non-kyc'ed coins to transact on the Ethereum blockchain" Eth = FB DIEM

Let me say this to you as a bitcoin maximalist, there's over $1T of value on bitcoin and if bitcoin blockchain can be reversed because some too-big-to-fail entity or event happened, I will dump all my bitcoins so fast on all exchanges and means possible and would not hold a single satoshi

And you can bet Michael Saylor and Tesla and Gugenheim and Paul Tudor Jones and others with big holdings will do the same, as it is no longer a pristine collateral asset that it was designed

--------------------------------------------------------

I'm not as good with words, please click the video below and listen for 1 minute and close out the video

 

[Daal]

Whoa! I said that I do not want to start an argument, but seeing that just blows my mind, I do not even know where to start

You think taking away the censorship-resistance and immutable portion of the decentralized cryptocurrencies is ok for the greater good???

I said I agreed with your points on centralization risks, re: BSC

You're basically not seeing the fact that any government or hostile group can force, kidnap, torture, the people in-charge of Ethereum to make changes to Ethereum under the guise of "greater good to satisfy some regulatory requirements such as not allowing non-kyc'ed coins to transact on the Ethereum blockchain" Eth = FB DIEM

You might want to re-read Vitalik's post, he goes through this:

"One common refrain in Bitcoin circles, and one that I completely agree with, is that blockchains like Bitcoin (or Ethereum) do NOT completely rely on an honest majority assumption. If there is a 51% attack on such a blockchain, then the attacker can do some nasty things, like reverting or censoring transactions, but they cannot insert invalid transactions. And even if they do revert or censor transactions, users running regular nodes could easily detect that behavior, so if the community wishes to coordinate to resolve the attack with a fork that takes away the attacker's power they could do so quickly."

If they were to torture Ethereum people, the community would know about that and they would not update their node software to the new malicious update the government could force them to issue. At the end of the day, you need the nodes to join on the attack otherwise it will fail.

There is a difference between censorship and mutability that is being forced by a government, and something that arose out of consensus. If it came from the consensus from the community, by definition it was non coercive and in a lot of cases it can do a lot of good and work out great. The DAO hard fork was the correct decision, judging by all the dApps that were developed and the market cap of ETH vs ETC. If they needed to do that again, they would IF the community decided it was the right decision

Its like war, most people are in favor of peace and diplomacy and dont want to go to war but in some cases you dont have a choice. Its either war or you get destroyed.

Furthermore, remember when Bitcoin had a bug and BILLIONS of bitcoin were issued by an overflow bug
https://bitcointalk.org/index.php?topic=823.0

Satoshi was quick to get everyone to hard fork Bitcoin and ignore the inflated chain, in order to save bitcoin. Its a last resort but when push comes to shove, its war or death

 

[Daal]

The hacker that exploited this overflow bug met all consensus rules, otherwise his transaction would have been rejected by the nodes. Yet Satoshi decided to censor and punish him by creating a new Bitcoin through a hard fork and everybody came with him (miners, nodes). The hacker was left alone with no nodes or miners to support him, all because he was censored by Satoshi. Was it the right decision? Yeah, but lets call a spade a spade, the guy didnt technically violate the rules, otherwise his transaction would have been ignored

 

[johnarb]

You might want to re-read Vitalik's post, he goes through this:

"One common refrain in Bitcoin circles, and one that I completely agree with, is that blockchains like Bitcoin (or Ethereum) do NOT completely rely on an honest majority assumption. If there is a 51% attack on such a blockchain, then the attacker can do some nasty things, like reverting or censoring transactions, but they cannot insert invalid transactions. And even if they do revert or censor transactions, users running regular nodes could easily detect that behavior, so if the community wishes to coordinate to resolve the attack with a fork that takes away the attacker's power they could do so quickly."

If they were to torture Ethereum people, the community would know about that and they would not update their node software to the new malicious update the government could force them to issue. At the end of the day, you need the nodes to join on the attack otherwise it will fail.

There is a difference between censorship and mutability that is being forced by a government, and something that arose out of consensus. If it came from the consensus from the community, by definition it was non coercive and in a lot of cases it can do a lot of good and work out great. The DAO hard fork was the correct decision, judging by all the dApps that were developed and the market cap of ETH vs ETC. If they needed to do that again, they would IF the community decided it was the right decision

Its like war, most people are in favor of peace and diplomacy and dont want to go to war but in some cases you dont have a choice. Its either war or you get destroyed.

Furthermore, remember when Bitcoin had a bug and BILLIONS of bitcoin were issued by an overflow bug
https://bitcointalk.org/index.php?topic=823.0

Satoshi was quick to get everyone to hard fork Bitcoin and ignore the inflated chain, in order to save bitcoin. Its a last resort but when push comes to shove, its war or death

I really don't want to continue this, Daal and I promise I will let you have the last word after I mention a few things

a blockchain without immutability = a very slow database

You're very smart and you can seek how much truth is in the above statement

A couple of things hypotheticals for the future and based on what happened in the past are not equal due to what's at stake now on the current blockchain versus the blockhain of the past for both Ethereum and Bitcoin

You know how much $ values truths are stored on Ethereum now and Bitcoin as well, stablecoins notwithstanding, but defi ecosystem

I lost $ in the DAO hack. Ethereum survived and thrived afterwards as that catastrophe happened at the time Ethereum could survive that incident

Exactly the same thing in bitcoin. That catastrophe happened early in bitcoin adoption cycle when literally, there was very little $ value stored on the Bitcoin system

As I said, and I pray and hope Ethereum does not have any problems with their upgrades, and of course same goes without saying on Bitcoin upgrades going forward, i.e. Taproot

The approach to upgrades/updates are extremely different on both Ethereum and Bitcoin

I am not an Ethereum hater.... I very, very much want for Ethereum to be successful, it is very very important to the cryptos ecosystem

Please, please, please, I'm begging you to watch the video below for 5-8 minutes from the point of clicking on it and that's my last word on this

 

[Daal]

a blockchain without immutability = a very slow database

a blockchain that wont change in order to survive = a database that will dissapear in a decade.

Whats the point of an immutable ledger that could only be found on Bittorent and has had no transaction in years? Because if it dies, that's what will happen. Also, if its on Bittorent, its not immutable anymore because anyone can change things there, and who will verify? So your immutable ledger became mutable and insecure, all because it was too rigid in protecting its survival

What I like about the Ethereum community is that they follow that old quote "The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function.". Maxi's cant function like that, its either black or white, they cant have grey.
I own Bitcoin and ETH, that way I'm diversified in the two mentalities but if you ask me, I think I will make a lot more money on ETH than I will on Bitcoin in the long-run