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March 16, 2018 - Health Ranger - Mike Adams
41:31
Bitcoin miners "holding on with a death grip" - interview with Kevin Lawton
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Welcome to my show.
Welcome, everyone.
Today we are joined by cryptocurrency analyst and crowdfunding pioneer Kevin Lawton.
He's an open source programmer and he has a lot of interesting analysis about cryptocurrencies.
He was recently featured on Greg Hunter's USA Watchdog channel.
I did a great interview there, but I've got even more in-depth questions for him here at Natural News.
So this is going to be a fun one.
Thank you, Kevin, for joining us today.
Thanks, Mike.
Good to be here.
I've been watching your show for a long time, man.
Oh, that's great to hear.
Oh, I want to plug your book real quick, Beyond the Bitcoin Trap.
It's on Amazon or Kindle?
It's on Amazon and Kindle format only.
And Beyond the Bitcoin Trap, it sounds kind of negative on Bitcoin.
What's the overall emphasis of that?
The emphasis is essentially telling people a model of cryptocurrencies that would actually work for people in terms of the creation of the actual bitcoins and creating a system where it's not scarcity-based like the system we have now.
Okay.
Well, interesting.
I haven't read that book, but I'm going to.
I've got a lot of questions for you nonetheless.
Let's start with some basic background.
So you and I are both advocates of decentralization.
We're both advocates of the concept of cryptocurrencies.
We are both skeptical of fiat currencies and central banks and centralized control.
Is that a fair statement?
Yeah, I think that's fair.
Okay, cool.
Yet, at the same time, I've said some critical things about Bitcoin, just critically thinking about it, and you have too, and we've both been kind of blasted a little bit, maybe more than a little bit, by the Bitcoin community.
What's your overall assessment of Bitcoin today And cryptocurrencies in general.
Just to set some background before we get into the deep questions.
Sure.
So Bitcoin, I would say, is the first crypto coin that people know about.
And it set the stage, and it really sparked off a revolution of technology and people thinking about what could be done if we decentralized our ledger-keeping of money and the actual currency itself.
So we owe a lot to Bitcoin.
I mean, there's a lot of great things that have happened because of it.
But Bitcoin, you could think about it as sort of like 1.0.
And subsequently, a lot of technologies have come out.
For example, a lot of people are familiar with Ethereum network, which has the Ether coin and which, we can talk about it later, but by way of smart contracts, hosts a lot of other coins on top of the network.
So that's like sort of a 2.0, is you have the cryptocurrency and smart contracts on top of the blockchain.
And then subsequently, even after Ethereum, other technologies have come out that allow privacy, better scalability, and these kinds of things, even identification, which is something maybe you want to talk about as well, because certainly there's a lot of governments that like to get the identification angle in there.
So really, we're on 2.0 going on 3.0.
I think that's probably a good overall assessment of the situation.
So is it fair to say that Bitcoin, we both agree, it was a brilliant invention, innovation.
Bitcoin itself might be called a proof of concept, but if I'm hearing you correctly, you're saying that that's not the end of this.
Ethereum has already added logic layers and smart contracts, and you're talking about cryptocurrency 3.0.
Which could bring in other things as well.
Do you think that Bitcoin is going to remain a player in this mix?
Or it's going to be dwarfed by something else?
Or what's your take on that?
Well, let's start out by saying that if all the other cryptos existed but Bitcoin did not, and it came out tomorrow, all of a sudden Bitcoin surfaced.
No one would pay attention to it.
So the situation essentially is that Bitcoin itself doesn't really function well for the volume of transactions that we want.
It's certainly not functioning well as a micropayment or a small payment type of platform.
So layers and layers are getting built kind of off to the side or on top of Bitcoin in order to make it keep working.
How many transactions is it handling per second let's say or per day or whatever right now?
I think seven is the maximum and I've seen like three to seven per second yeah per second so now to put that into context that is incredibly low compared to let's say visa merchant processing or something like that right yeah visa Publicly, they state about 24,000 transactions a second, but someone has actually tested it.
They're sandbagging.
It can do 50,000.
A second?
Yeah, per second.
Now, by contrast, I mentioned Ethereum.
At the last Consensus 2017 conference, there was a bunch of projects that did demos.
And the technical team from J.P. Morgan, just to give you kind of like what the bankers are doing with this and what can be done, they took Ethereum and pulled out the consensus model, which is really what's slowing these things down, and put their own one in, which is from a distributed database and some other tweaks that they did.
But they got, it looks to me like in the hundreds of thousands of transactions per second.
But that's centralized consensus controlled by...
One party.
By a group of trusted parties.
Oh, I see.
I see.
So you have to be invited to the club.
You do.
Okay.
All right.
So there's a trade-off between how distributed the blockchain is versus transaction speed capability?
How distributed...
Yeah, how distributed the people who are operating the consensus model are.
Consensus is, in short, is you've got a chain of blocks that each hold a bunch of transactions and they link to each other.
And someone has to be in charge of putting in the next block.
And so in like a Bitcoin consensus model, you spin your wheels doing a really intense mathematical problem.
And it's sort of a lottery system, but you're advantaged by better hardware, but someone wins the lottery and then decides, okay, I get to make the next block, and then other people check it.
Mm-hmm.
Whereas in a trusted party system, you have a lot fewer players and you have a different protocol about who decides who puts the next block in there.
So when you have a small amount of people and a more efficient protocol, then you can string these things together really fast.
As you're explaining all of this, I want to back up because a lot of this gets very, very technical for a typical layperson who's not a programmer, doesn't have a background in software like you and I do.
There are a lot of really smart people involved in Bitcoin and cryptocurrency.
I mean, geniuses.
Absolutely.
But then there are also a lot of people who are, let's say, advocates of maybe Bitcoin in particular who really don't understand the tech.
And my question to you on this is, I see a lot of people saying, well, Bitcoin can just scale up and replace the U.S. dollar as the global reserve currency.
That it can just become the new currency globally and everybody can use it.
It seems like that's a pipe dream based on the transaction limits, right?
It's a pipe dream at the moment because of a couple of reasons.
So if you look at the layers of people...
So let me back up.
So you have this core of Bitcoin which is really slow.
It was a great proof of concept.
It worked with a small amount of people.
And to mitigate the problems of the transaction speed, people made a layer above where they're essentially acting as a clearinghouse for transactions.
And the more transactions they can clear in their own network, the better for them, and then they transact in bulk, so to speak, to the Bitcoin.
To the Bitcoin network.
Right.
But they have to have a critical mass of users themselves in order to efficiently clear microtransactions.
That's also true.
And so if you look at what could be done there, yeah, they could scale up to any amount, hypothetically.
But at the Bitcoin layer, first of all, it's way too expensive at the moment for scaling to micropayments or even small payments.
You have $1.50, $2.50 fees.
So you're not going to send $5.00.
I was seeing that the average transaction cost right now in Bitcoin went from $15 to $23.
So it's congestion-based.
Yeah, right.
You're in heavy trading.
Here's the deal with Bitcoin fees.
Let's just say that they're not overwhelmed with transactions.
So the miners are going to pick up whatever transactions are out there, try to stuff them into a block and beat the other guy, essentially, and then move on.
When there's an oversubscription, then the miner can pick and choose which transactions he wants to put into a block.
So guess which ones don't go in?
The lower fee ones.
So in that case, and all of a sudden you have to really spiff the Bitcoin network to get your transaction through.
So it's congestion based.
Right.
Seems like when Bitcoin was young and smaller, the transactions were almost free and almost instant.
Almost free, anyway.
There's a certain finite time that it's going to take to get into a block, but definitely very, very cheap.
In fact, actually, when Bitcoin was first becoming popular, at least between the technical crowd that was using it, people really didn't even think about Bitcoins as money.
They were really just sending big piles of Bitcoins around.
It was more like fun or it was like a game.
I think the amount that were spent on a pair of socks would probably be more than a million dollars today, for example.
People didn't care.
They're buying pizzas with a million dollars.
A 10,000 Bitcoin pizza.
Yeah.
So the scalability didn't really matter to them at this point.
But the biggest problem with Bitcoin isn't really that it has this archaic architecture at the moment that doesn't scale.
It's that they don't have an upgrade path between where they are and where they could go, whereas in a normal software project, there's some people running it, and somebody or a group of people is deciding, okay, we'll put these features in next, or these features will be delayed for later.
With Bitcoin, they have sort of a very weak mechanism where there are proposals that are put out there called BIPs.
Then the miners and the users have a signaling mechanism to tell people, yeah, I'm in favor of that proposal or not.
And so there are mechanisms for enforcing those proposals so that if enough people signal, then they sort of lock in a certain change.
But you have very disparate sets of interest in Bitcoin.
For example, miners.
Right.
They probably don't have that much problem with higher fees because they're getting paid higher fees.
The users have a problem with higher fees.
You don't want to pay $15 or $1.50.
So therein lies the problem is that some of the solutions for scaling are minimizing either the fees or minimizing the impact or really how lucrative it is to be a miner or how important it is to be a miner.
For example, let's actually just talk about Ethereum because it really relates to this.
They're using a similar mechanism to Bitcoin called proof of work.
You spin your wheels and someone wins the lottery, makes the block.
They're switching over to a different consensus model in the future.
In fact, they're going to tiptoe into it and then move over and wholesale probably next year.
That's going to eliminate the miners.
The miners know about it, so what they'll do is they'll switch over their mining rigs to a different set of coins.
But that can be done when there's a group of people or some mechanism.
I'm not really a fan of centralization, but there are mechanisms to create a quorum or whatever so that people can decide.
And it doesn't exist in Bitcoin, so they're always fighting each other.
Right.
I mean, you bring up so many issues here.
Decentralization is important for freedom and liberty purposes and even trust factors as well.
However, the upgrade path is not clear and you can have self-interest parties that are more interested in their own gain than what's good for the future of the cryptocurrency.
In other words, you could greed crash this thing.
You could back yourself into a corner as a community.
They're almost doing that now to an extent.
So they give a little bit of lay of the land on what's going on with this fork situation.
We're really playing to your comment.
Roughly, I could say the camps are the developer camp, like the hardcore Bitcoin developers who really are geniuses, as you mentioned.
Some of these guys, you'd love to have them working for you.
And then there's the, we'll call them the commercial interest, so mining, mining pools, some venture capital types, whatever, and payment processors like BitPay, a lot of people are familiar with.
The commercial interest, you know, they have like a proposal, a path they want to go down to because they need the scalability.
And the developers, they have their own path.
And each of them have a mechanism that's going to come into play plus or minus around August 1st.
And instead of sort of getting together and creating maybe some compromises but realizing then they'll do another one and another one and another one, they're really kind of fighting each other and racing to be the mechanism that enforces and locks in.
It's like a game of chicken.
It really is.
It really is.
It could potentially wreak havoc on the Bitcoin network if temporary chain splits happen, and even worse, if real hardcore hard forks happen.
There are actually possibilities of multiple forks happening.
Now, just one second, just in the last few days, The signaling for, there's a mechanism someone, a brilliant guy, came up with that will bridge the gap between the two, and so the commercial interest mechanism will supersede the developer's mechanism.
And so I think the reason they knew that they had to do that is a way to sort of take over what was going to happen from the developer's proposal.
So that's all coming into play.
It has the appearance of being a good thing.
The problem is that the signaling is being done largely manually.
The software that they're going to run, that the commercial interests are proposing and will be invoked soon, that actually is only at Release Candidate 1, and tomorrow, supposedly, the real release comes out.
Oh, wow.
So they're not signaling with the real release yet.
They're what I call fake signaling.
Wow.
So in software standards world, this is really poor to take something that you've just rolled out, run it for some few days, and then have it lock in.
Well, we've seen news reports of claims that the so-called Bitcoin civil war has been averted because of this that you're mentioning.
That was from Goldman Sachs, I think.
Yeah.
And Goldman Sachs has been suddenly bullish on Bitcoin for some reason.
Right.
And there are a lot of Bitcoin advocates arguing with Bitcoin critics and so on.
There's a lot of animosity happening right now, both inside and outside the system.
But the overall thought that occurs to me on all of this is how new this is in the history of money.
It's all really, it's fascinating, it's innovative, but it's unproven.
It hasn't lasted the tests of much time at all.
I mean, Bitcoin has only been around for a few years.
It certainly has only been well known for less than five.
So, we've never gone through this before.
Yeah, I mean, there's—besides the—let me touch on the Goldman Sachs thing, and then I'll—some more topics that I have to your point.
So if you looked at the last few days at the—what are the proposals that does this bridge so that they can sort of avoid the Civil War— The price of Bitcoin exactly correlated with the signaling percentage from all the miners.
I saw that.
So just in the last few days, it ran up.
Yes.
And then Bitcoin price ran up.
But I just want to caution people.
I'm not trying to say that Bitcoin's going to go down, it's going to go up.
But they do have to caution themselves that It's not solid yet.
Right.
I mean, we don't even have the actual lease of the software yet that's being proposed from the commercial interest.
And someone did identify a potential flaw in this bridge logic.
Really?
Now, supposedly it's a highly unlikely case, etc.
But these are the kind of things that can pop up.
It could be other things lurking.
So I wouldn't declare victory until, like, somewhere in the first week of August we'll have a really good idea if any forks happened.
And you look at the miners and the wallet holder, the online wallets and whatnot, some of these guys are putting out memos saying, we may prevent withdrawals and deposits for a few days and let the smoke clear.
So they're not even certain what's going on.
So the front running with the wars over is more of trying to get in front of the potential upside and you look smart about it.
And everything is at stake for Bitcoin holders because if your wallet is with an online wallet like Coinbase, which I've been very critical of Coinbase because they put out a memo that said they're going to suspend all accounts both before and after this hard fork takes place.
And they have a history of seizing accounts in Wyoming and Hawaii where those account holders can't even log in and change their state of residence.
Yeah.
So all those coins are lost to those users.
And there's no regulation.
So it's not like you can call anybody, you know, a federal authority to come in and say, make them give me my bitcoins back.
You know, it doesn't work.
Yeah, there's no one to call here.
There's no one to call.
I mean, the great part about this, at least I hope, is that there'll be a learning experience from the population that you have to look out for yourself.
Yeah.
This is, you know, there's no nanny there to protect you.
And even in, you know, Ethereum is being used to create all these new coins.
They call them coins instead of cryptocurrencies.
And these coins, I love some of them.
I mean, there's probably two or three that are going to be like the next Apple or whatever.
Most of them are probably crap, and they'll be zero by a year or two from now.
Right.
But speaking to the point about there's no one there to help you out, we're seeing a lot of problems with these coins when people make an ICO, which is initial coin offering, kind of like an IPO for coins.
Right.
We're seeing phishing scams where people send out the wrong wallet address.
It's the address of a hacker.
We see at the last minute when the ICO starts, the website gets hacked and they switch over the front page or the ICO page and they put their own address there.
We see people doing some pretty crafty things on Twitter, making names that look just like the other guys.
Unless you really look twice, you don't notice it.
Yeah, and millions have already been stolen.
Millions of dollars worth.
Yeah, well, wallets.
There's a multi-signature wallet that was hacked recently.
It became a zero-signature.
And I think 32 million so far have disappeared from three different ICOs because of that.
Which doesn't mean that I'm being an alarmist about ICOs.
In fact, I don't mind playing with them myself.
But, you know, back to the usual standards of portfolio, diversifying a little bit, not throwing in any more you can lose and all this kind of stuff.
But we are, you know, we're pioneering this.
This really is a bit of the Wild West.
Well, this is really what I love about your analysis and one reason why I invited you for this interview because You understand the technology.
You're very much in favor of decentralization in many forms, not just currency, as I am.
But you also understand where there might be vulnerabilities or weaknesses or criminal intent that comes in and tweaks things.
This is based on code, and no code is 100% secure.
We all know that as developers.
And when you think about, you know, there's an argument out there of what's a better store of value, Bitcoin or gold.
And, you know, me as a lab scientist, I look at the table of elements and I see gold, AU, I know that can't disappear.
That's a cosmic element.
And I look at Bitcoin as a software guy in the past, I'm like...
This is all layers of logic on layers of logic and computational.
It can disappear.
Not saying it's going to tomorrow, but it's not like an element of the cosmos.
You can't transform gold into something else.
There's a couple of things I've got to say.
One is, maybe as a middle ground for people who like the commodity space, There's a suite of, I guess you could call them proxy coins, where one coin would represent, for example, an ounce of silver or one unit of a fiat currency.
And so the problem there is that somebody has to make that bridge, so you're still going to have some centralization, very likely.
But once you get the coin into the system, the coins are interchangeable.
Which then means you can lose them for all the same reasons, too.
So there's that, too.
Sure.
But it's a non-fiat cryptocurrency, is what you're saying.
Or it could be.
It's essentially a representation of a fiat currency.
So someone's willing to backstop it so that whenever you want to sell it, you'll make sure you get $1 for your coin.
But, I mean, if it's silver.
If it's backed by silver, let's say.
I mean, because Bitcoin right now is essentially a crypto fiat currency.
Yeah.
In fact, actually, part of the reason I wrote the book is to identify a major flaw with pretty much all the cryptos.
So I don't have a problem with the miners getting spiffed for doing their thing.
That helps the whole network.
But the way that the currency is created is created essentially at the miner.
Yes.
There's really no reason for that.
Really what you're doing is you're locking yourself into the same system we were in before.
So for most people, if they want Bitcoin, they have to go buy a Bitcoin.
The other route is to buy some really expensive hardware that will be able to at least keep up or outgun the competition, who are running some really sweet hardware too.
If you just put an old computer on it, it'll sit there and it'll never make a Bitcoin.
So really, that's not much different than the system we had.
You still need money to buy Bitcoin, unless you already had it and you're one of the lucky few who are following it.
So that's not exactly revolutionary.
Now, what if we take the model and instead of having the miners create the Bitcoin, we just create Bitcoins into people's wallet and essentially push creation of the currency all the way out to the maximum decentralization, which is people.
And then thereafter, all the same transactionality happens.
Miners get spiffed.
People are buying and selling and trading and whatnot.
It's just that it takes away...
For example, people talk about...
Bitcoin has a lot of mythology.
Say it's decentralized, it's anonymous, it's really neither of those.
It's, you know, look at the, where's the mining happening?
Over half in China.
Why?
Because they have cheap power, and one of the biggest inputs alongside with the hardware costs, like a big GPU, and now you need an ASIC. You need a real piece of dedicated hardware that spins its wheels doing it faster than the GPU, which was faster than the general processor.
But that's expensive.
But the power cost...
I've heard people talking about how, like, I made a couple of Bitcoin, but my power cost cost me more.
Right.
It's very common.
In China, it's cheap and it's subsidized.
So what happens is over half the mining is happening in China.
And then there's only really a handful of big exchanges, and there's only a handful, a smaller handful, of people who make mining hardware.
So it's not really that decentralized, not as much as we'd like it.
In fact, one political decision in China would make havoc for Bitcoin.
So we need to change that.
Back on the power question, I have so many technical questions for you on this.
One is, you know, the Bitcoin limit is supposed to be 21 million coins.
And we're at, what, 16.4 million or something like that right now?
The electrical costs of mining Will they be worth it after all the coins are issued just for the transaction costs?
In my opinion, they're not worth it now.
I mean, right now, the approximate, because no one really knows, but the approximate consumption is about 600 to 800 megawatts globally, and it's anticipated to be in the thousands by 2020, probably over 2,000 megawatts.
So, wait, wait.
You're talking a couple of gigawatts of electricity to support the Bitcoin infrastructure.
That's unreal.
I mean, that is orders of magnitude larger than what Visa is using.
That consensus model needs to go in Bitcoin.
That model that forces people to spin its wheels, which is what's burning the power.
This is why Ethereum, a long time ago, planned the switchover.
And they actually have a mechanism to make the existing system harder and harder intentionally so it will force people to go over into the new system.
But Bitcoin had no such plan because they didn't have the benefit of the...
Like, the hindsight from Ethereum is they actually looked at Bitcoin and said, okay, like some of the stuff...
But some of this needs to be changed.
But wait a minute, has Al Gore heard about this?
Because he would say that Bitcoin mining is causing global warming because of all the coal being burned in China, which is the dirtiest coal on the planet, right?
To support the Bitcoin mining infrastructure, a gigawatt of power, just to handle seven transactions a second?
Yep, and it really boils down to, well, that's why the price is high.
Because if you think about it, just economically, miners are going to have to, there's going to be a certain cost of running the hardware, buying the hardware, maintaining the people.
That's going to get translated into the fees, which means in the current system that they have, the current consensus model, it's essentially impossible for it to come down and handle micropayments.
Right.
Basically, the price probably just keep going up as it keeps becoming oversubscribed even further.
Well, and doesn't it also mean, you know, the electrical efficiency of ASICs has a physical limit rooted in quantum physics, really, but as the complexity of the mining algorithm goes higher and higher, doesn't this mean ultimately more and more global electricity has to be put into Bitcoin in order to keep it going?
Yeah, there's essentially an arms race in hardware.
By the time you buy a piece of hardware in ASIC, probably someone else already has another version of it cooking, right?
Maybe someone else already has that version.
So a lot of times you'll see people buy them and then sell them online.
So essentially it's just a no-win.
They just need to gut that model out and change over to something else.
But Bitcoin doesn't, like we talked about before, doesn't have an upgrade path to handle that, so it's kind of stuck.
In a system that is non-sustainable.
It's even worse than that, yeah.
They don't have a real upgrade-upgrade path because of the lack of sort of a...
They talk about consensus.
They have it in the software, but they don't have a model for making consensus among the players.
So first of all, they're stuck because of that.
And second, because the model that they need probably eliminates this hardware that they're using and this advantage that they have.
Essentially, the miner should be your smartphone.
It should just be as many people as we can get in the network as possible.
And your smartphone doesn't need to grind through some mathematical proof.
We can have another model for consensus.
So, you know, like in Ethereum, they just decided a while ago, well, eventually the miners are going bye-bye.
And so they've just accepted that the miners have.
They don't have any say in it.
But in Bitcoin, they're holding on with a death grip.
So it's sort of even worse.
They have an anti-path.
For upgrades.
So what's happening is it's pushing up into layers above where those people do their own clearings so they can have micropayment style.
Kind of like what PayPal does, you know, you could do in the Bitcoin space if you're doing your own clearings because you're just clearing in bulk to the Bitcoin network.
Right.
Wow.
This is fascinating because, well, let's talk about Ethereum for a minute.
You mentioned they're moving away from mining.
Now, the mining demand for Ethereum has caused a shortage of GPUs, just graphics cards.
Skyrocketing in price.
You can't even buy a graphics card on Amazon these days if you want to play games because all the Ethereum miners have bought them all up and now they're selling at a premium.
So they've created a bubble in graphics cards just to mine Ethereum.
That means there's going to be a slug of those going on the market.
With no one to buy them at some point in the future.
So Ethereum is doing a hard fork that will include some of these changes in the consensus model, probably end of this year, beginning of next, but they're only tiptoeing into it.
So it'll be sometime next year that all those Ethereum miners will have to switch over.
And then who knows what will happen with Bitcoin.
But you're absolutely right.
That's an interesting point.
I never see anyone talk about the fact that there's a bubble for these.
Yeah.
Like AMD and NVIDIA, they end up making specific miner GPUs that essentially are headless or have some kind of a downrated video connection so that you're not really using it for playing a game or what have you.
It's really for mining.
Now, some of these Ethereum mining rigs, can't they switch over to mine other coins with the same GPUs?
And they will indeed.
The problem is that...
Ethereum and Bitcoin are the top two at the moment.
When Ethereum switches over, it's going to be a huge impact.
Because at this point, I still think Ethereum will pass the market cap of Bitcoin probably by next year.
You call that the flippening.
The flippening, yeah.
It won't be that long.
And so it gives you just that one coin alone changing over.
But once people understand kind of the advantage of moving away from that, then I think newer coins, first of all, a lot of them are created on Ethereum, and then people make their own infrastructures are not tending to make the same mistakes, in hindsight, to be fair, that Bitcoin made.
So it's going to be, yeah, there'll be a trend to dumping a lot of these This is the one thing that always struck me about these cryptocurrencies is the fluidity of the psychology.
If someone, let's say a newbie in Japan or Korea, has put a lot of speculative bets on Bitcoin, but they don't really understand cryptocurrency, all they know is it's going up and we're all going to get rich, right?
That's what they've been told.
They put their money in Bitcoin.
Well, they don't have any philosophical tie to the concept of decentralization or cryptocurrency or anything.
They don't really know what those mean, which means there is fluidity in their decision-making process.
They could just jump ship immediately to Ethereum or Zcash or whatever becomes the next big thing.
Yeah, I mean, some of the wallets plug into the exchanges and you can just swizzle your coins.
So, in fact, Some of the interesting projects that are coming down the pipeline are smart wallets that do more than that.
They can help you do transactions and bring, like if you want to buy stuff, they can bring sellers to you.
So eventually, people really won't care that much about the particular coins that they have.
They probably just fold a portfolio of them.
And so it's probably even more fluid in the future.
Right now, there's sort of like a few big ones that people are chasing.
But there are some real problems besides the fact that, you know, who knows how is this Bitcoin thing going to resolve in the end?
How is it going to be all that effective?
The other problem is that you see these big liquidity spikes because of a couple reasons.
One is, whenever there's an ICO for a big quantity, like some of these Companies have raised like $100 million, $150 million, like Bancor.
When they do a raise, they're not using fiat to do the raise because then they're in securities territory.
They're raising in coins, which is, you know, I'll leave that to someone else's determination.
But when they do a raise...
If everyone who was buying their coin was already in the system, it wouldn't really fluctuate the price that much of, say, Bitcoin.
However, a lot of people, all these new people, they're like, oh my god, a new coin, let's get in that.
So they're buying Bitcoin first to buy the ICO. Yeah, or Ethereum.
And so you'll see these run-ups.
Some of them fund them in both, or a few coins.
So you'll see these run-ups.
And then at some point, the company is like, I have these coins.
Well, I need cash.
I need fiat.
So they basically start dumping them.
And then next year, their employees get unlocked from their allocation, like their vestation.
And now, what do you think they're going to do?
They're going to diversify to some of the other coins that have more features or faster or better.
So you spoke about this.
There are many timelines coming up where employees of some of these startups are going to be free now to start cashing out of Bitcoin.
And these are smart people, so you would think they understand the importance of diversity, risk aversion.
They will still hold some Bitcoin, no doubt, but they will try to offload quite a bit of it as well, you would think.
Yeah, they'll definitely offload them, because when you see the volatility spikes like that, even to a newcomer, that spooks them.
But let me tell you about one other thing that's going on that I've uncovered recently.
I want to give a hat tip to a guy named Brad Peters, He has an idea for a coin called Precious Coin.
He has a white paper, if anyone wants to search for that.
In there, he identified, starting in May, first we had two things in Congress that were agitating for investigating Bitcoin, for anti-money laundering capability, and terrorism, right?
So some of those are going to culminate at the end of the year, the studies.
But on top of that, then right after that, we had the WannaCry, So this ransomware using Bitcoin is a currency.
Which some people think was a false flag to discredit Bitcoin.
You know, yeah.
In fact, it was fingerprinted back to some of the tools that leaked out there identified in WikiLeaks.
So it may be.
I'm not claiming that.
Yeah, I'm not either.
It's just out there.
It's out there, right?
Yeah.
And then all of a sudden, there was this huge run-up in Bitcoin.
Now, that's my analysis, but back to Brad Peter's.
Back in that same time frame, he identified this thing that he calls a pulse wave attack.
And so the way it works is that he'll see five or ten days of solid buying of Bitcoin, And he's identified that it's sourcing from U.S. dollar.
It's not from one or it's not from any other currency, euro, whatever.
It's not even from other coins.
It's coming from the U.S. dollar.
Buying massive amounts for 5 to 10 days.
And then, over 3 to 12 hours, three short pulses of massive selling.
And the way he's...
It's the treasury.
The way he's characterizing it is that it's not maximizing profit.
It's maximizing damage to the price.
Right.
So somebody, and it could just be hedge funds or, you know, people with lots of money playing around.
I don't know.
Somebody is inducing artificial massive volatility in the price.
No, I talked about this, too, in some podcasts.
If you were the central bank...
If you ran the central bank and that was your lifeline, you would do exactly the same thing.
I would, yeah.
Right.
Unfortunately.
Because you want to induce volatility.
I'd probably do worse.
Right.
Well, you know, we have CFTC just approved options for Bitcoin.
I saw that.
So now we already have places that have leverage.
Risk on top of risk on top of risk.
You have leverage.
You can short Bitcoin.
And now we have options.
Oh, my God.
So it's going to be playtime for people with a lot of money.
Oh, my God.
So, that's not to say that...
My theory, anyway, is that people who want to manipulate a price, they don't specifically create the movements, but what they do is they amplify natural movements.
Right.
It's a lot more efficient to do.
Yeah.
But now, I mean, you get a situation now, a guy who doesn't know what they're doing, and they buy a put option with a strike price out of the money, or they sell a put option.
Now, they're getting hammered 400 to 1 on their equity.
They lose their house in two hours.
Yeah.
Probably on margin, too.
Yeah, right.
At margin on top of all.
I mean, this...
Look at the flash crash in Ethereum.
A lot of people don't know what they're dealing with here.
Yeah.
You want me to talk about that a little bit?
Yes, please.
So, the exchanges for cryptocurrencies have not grown up to the point of some of the equities exchanges.
They have safeguards built in probably because they had some hard times before and they found out the hard way.
So on GDAX, which is operated by Coinbase, perhaps not your favorite exchange.
Not my favorite exchange, no.
They had the situation where a big whale, which is someone with a lot of coins, came in and put a, it was over 10 million.
It might have been in the tens of millions, but anyways, it put a large sell order in.
Now what happened was it quickly consumed the buy order book.
And it went from like $3.20 to $2.40, but then that tripped people's, they'll have like stop loss.
Yeah, stop loss orders.
So that tripped them.
And then that tripped the margin calls.
Right.
And it dropped it on GDAX down to about a quarter, from $320 to less than a dollar.
Now, of course, that's momentary situation.
However, The exchanges don't know what's going on, so they had to shut down.
Because if it were a real problem, then they really did need to shut down.
So multiple ones, it cascaded, and multiple ones had to shut down and do triage.
And then they determined, well, that was just the mechanics.
They didn't really come out and say this, but they should have had a...
I actually talked to a trader who said it's unbelievable that they didn't have the safeguard in there.
They should consult with some real traders.
Well, see, this is the lack of experience that I'm talking about.
You know, the regular New York stock exchanges, they all have, you know, short circuit protections for this kind of thing.
Let people cool off and come back to their senses.
Yeah, yeah.
But even the regular stock markets have had similar issues, right, with automated flash crash trading, automated systems.
The, you know, what's it called when they're trading in microseconds?
Yeah, high frequency trading.
Yeah, that's right.
High frequency trading.
But it's all automated now.
It's faster than the speed of human intervention.
Right.
You've got robots battling robots.
Right.
It can ripple quick.
And you've set up an avalanche without knowing it, right?
Yeah.
It's like you've built a skyscraper, but you haven't connected any of the floors to each other, and you pull out one like a Jenga game, and the whole thing tumbles.
Now imagine that, besides the robots, battling robots, that you're in the Exchange, and you can see all sides of the order book.
And then on top of that, you have the opportunity to play shenanigans.
So I won't call it any names, but I'm in the community.
I talk to a lot of people, go to all the meetups and all this kind of stuff.
And there are people who have told me straight out that some of these exchanges are pulling all kinds of hijinks.
So when they're matching buyers and sellers, they're not actually giving either party the fair deal.
They're playing man in the middle and scooping some profit from them.
They learn from Wall Street.
This has been going on since the beginning of Of the stock market.
You're getting hit from all angles here.
So, you know, all I can say about this is that it's a learning experience for people.
Whenever you don't have a safety net, then sort of this organic mechanisms come up, whether it's just that people are telling each other about it or they create some mechanism to kind of wire around the fraud.
But right now we are in a bit of a Wild West, you know.
I kind of like it in the sense that I like cutting edge, but if people don't really understand all these things, it's not enough to understand cryptocurrencies.
You need to understand trading and what kind of fraud goes on in exchanges and wallets.
People are just putting all their money in online wallets.
I would never touch an online wallet.
Right.
If they have your private key, you're really in trouble.
Thank you for watching.
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