The end of the world crowd got their heads up this week on China’s crackdown on crypto mining as well as investor sentiment, and high gas prices are starting to bring the market to the market
On the morning of May 19, 1536, the fallen Queen Henry VIII climbed onto the scaffolding, delivered a conventional speech extolling the king as a “gentle and sovereign lord,” and knelt to receive the fatal blow. The hangman cut off Anne’s head with a single blow of his sword. She even tipped the hangman before the hack to show her gratitude for his hard work. What a classy woman.
Bitcoin and Ethereum are the king and queen of cryptos, while ETH is technically an altcoin, it really isn’t. While BTC definitely gets credit for creating the space, like most households, it leaves the woman to do all the chores, like creating the DeFi space. And how many couples are crypto people either in the BTC or in the ETH warehouse, but not in both. Similar to skating, you have your figure skaters in glamorous outfits with their fancy Axel and Lutz jumps, while the main goals of hockey are to keep their teeth intact. Both disciplines are skaters – but different.
2020 was DeFi’s year with a Total Locked Value (TVL) of over $ 100 billion. That’s because Ethereum was brilliantly created to make Turing complete. In other words, Ethereum transactions can execute programmed code called SmartContracts. If certain conditions are met, SmartContract carries out further actions itself. SmartContract is a powerful paradigm that is at the core of the value of Ethereum, and therefore the creation of DeFi.
BTC has now positioned itself as Gold 2.0, but missed the DeFi buzz because it is not Turing-enabled, which means smart contracts in the context of DeFi. BTC HODLers would either have to exchange their BTC for ETH or wrap them in WBTC, an ERC20 token that is 1: 1 linked to BTC. In either case, using BTC for DeFi is impractical at best, while incurring exchange transaction and gas fees at the same time. However, this may change with the Taproot upgrade.
Taproot and polygon
The key to tying the two camps or to interoperability starts with the introduction of Taproot, a BTC soft fork, or an upgrade that adds many new features, including the ability to activate smart contracts on the BTC blockchain. The consensus vote is looking good and Taproot will be activated in November. Other important functions are integrated in Taproot, e.g. B. Schnorr’s digital signature for native multi-sig support, improved block storage, and other things that should improve efficiency and thereby lower transaction fees.
Yesterday I received my salary in the form of cryptos and due to my choice for an ERC20 based coin, more than 10% of my salary had to be paid in GWEI (gas) to carry out the transaction. That really goes against crypto’s promise of efficiency. But not to be outdone, on the Ethereum side, Polygon will help lower gas charges by essentially making the Lightning equivalent for Ethereum and allowing interoperability between all blockchains.
Both Taproot and Polgyon are really significant initiatives in the crypto world, and a lot of people, effort and energy, with no pun intended, are being allocated to the crypto space to further its development. Chia Network, founded by Bit Torrent and my classmate at Stuyvesant, is working on a greener alternative based on Proof of SpaceTime (PoSt) and suddenly mining hardware prices have collapsed in exchange for a surge in storage prices.
This has been a very interesting week for cryptos, especially with the ongoing volatility in cryptos. Redemptions have increased at my crypto investment company QuantDART, which is completely understandable. However, many of our investors have basic confidence in the future of cryptos or an increasing distrust of the value of fats due to recent quantitative easing from the pandemic.
I believe the Fed did the right thing by putting money into the economy. However, printing from 9 to 14 tons depending on the source is a tough pill to tackle for the future. Let’s call it down the street, but house prices are already starting to rise and could have a significant negative socio-economic impact later on. Stocks seem to be doing well, but that’s only because they’re valued against the US dollar. This is just one more expression of the emerging potential hyperinflation.
I don’t know if crypto prices will go up or down. I have no idea how to tell everyone and our customers. But a runaway rocket is NEVER good on any investment, and BTC is still up over 300% over the past year despite the correction. I also see corrections analogous to vaccinations. Yes, it stings. You may feel nausea, fever, chills, and pain. But it’s a small price to pay for a bigger calamity. In red states, I’d swap the vaccine analogy for the Capitol Insurrection – a few rioters could be killed, but at least you’ve got your message across.
China recently announced the end of crypto mining operations in China. While this has fueled the corrective fire, the good news is that it is merely a disruption in BTC prices and that Crypto valuations have little long-term impact. Yes, big mining operations are moving out of China and there are crypto trading firms in China and HK is affected, but for the most part these are small disruptions.
Here is my bulleted summary:
- Corrections are fearful, but the long-term prospects for any type of investment are good.
- This fix should be minor compared to previous major crypto fixes, although it cannot be said with certainty. Participants in the last ramp-up have also attracted more institutional capital, indicating that crypto adoption is spreading. And since this is still early in the long scheme of things for cryptos, it bodes well for cryptos in the long run.
- The two rather dissociated sides of BTC and DeFi (ETH), now coming together with Taproot on the BTC side and Polygon (MATIC) on the Ethereum side, will add more synergies to the crypto space.
- Other mining models such as PoSt and other new technical innovations will make Kryptos and DeFi more efficient and user-friendly.
- Crypto stake is reaching a level where even big news like the recent crackdown on Chinese mining does not have a long-term negative impact.
If BTC and Ethereum can work together to create synergies, the future of cryptos will be even better. Stay tuned.