Last week, perma crypto bear and highly decorated economist Nouriel Roubini squared off against crypto bull Peter Van Valkenburgh, Director of Research at Coin Center, presenting in front of the US Senate’s committee on Banking, Housing & Urban Affairs on October 11, 2018.
Roubini, or “Dr. Doom” as his prescient nickname infers, built his reputation by predicting the 2008 housing bubble and crash. Over the past decade, he has become the media’s and the government’s go-to source for negative information about anything related to the economy.
Broken Record (not the good kind)
After hearing Roubini’s testimony (you can read it here) and listening to his answers to the senator’s questions (hell, if you have an hour, watch the whole thing here on CSPAN), the one thing I noticed was his constant broken-record response to many questions: Bitcoin’s blockchain can only process five transactions per second (it can actually handle up to seven) whereas Visa can handle 24,000 transactions per second (because you asked… Ethereum=15/sec, Ripple= 1,500/sec).
This isn’t new information. Everyone in the crypto space knows this already (and is working toward solving the problem). Which is why there are numerous other cryptocurrencies (altcoins or, as Roubini loves to call them, “Shitcoins”) that have been invented since Bitcoin in 2008/2009 that claim to surpass these transaction rates. Vitalik Buterin, Ethereum’s birth father, has even stated that layering and using a new cryptography could help Ethereum itself process 1,000,000 transactions per second in the not-too-distant future.
Back to the Future
As Roubini continued to repeat his 5-per-second mantra, the 80s kept popping into my head and more specifically, 1980s video technology. You see, I remember vividly when my father brought home our family’s first VCR, a Sony Betamax player, or “Beta” for short. He said to me, “Son, this is the future!” But when I pointed out that all our favorite movies were only sold in VHS he told me, “Don’t worry, the quality of Beta is far superior to VHS. Once people watch things on Beta, they’ll never buy a VHS player or a VHS tape.” And so I believed him.
For two, maybe three years, my mother would take me to the video store. We’d walk through aisles of VHS tape after VHS tape just to get to the Beta “section.” This “section” was literally one shelf with about five to ten videos to choose from at any given time, mostly R rated films. If I was lucky, there’d be more than one age-appropriate video for me to choose from (#ChampagneProblems, I know). It wasn’t until our local store stopped carrying Beta tapes all together that we were able to convince my father to bite the bullet and splurge on the far cheaper VHS player.
How did this Beta vs. VHS war come about? Basically, Sony wouldn’t license its technology to any competitors so that they too could create Beta machines. You know who did license their technology? JVC. JVC licensed its VHS to numerous companies around the world, thus creating competition and bringing down prices so the average consumer could afford it. Their tapes could also record twice as long as Beta (120 minutes vs only 60 (originally)). Eventually Sony caught up and came out with a much longer tape and licensed its technology to other companies, but by this point the damage was done and VHS had cornered the market (with a little help from the porn industry, but that’s a whole other discussion).
History is Bound to Repeat Itself
Now that you’ve gotten a glimpse of my technologically-repressed childhood, why on earth did my brain correlate this blip in history to the current state of Bitcoin and why the Bitcoin bulls might be in for a disappointing future?
Here is my hypothesis:
- Bitcoin is a digital technology (right?). No digital technology in existence today is in its same form and used consistently and successfully as when it was first created or released. Computers, data storage, internet, cell phones, cameras, etc. have all been improved upon since inception. No one is using a computer from the 1970s today!
- Bitcoin was the first, but it doesn’t mean the masses will adopt it. If someone invents a cheaper (it’s already been done), faster (it’s already been done), “sexier” (who finds code sexy?) cryptocurrency, and the masses flock, there will be plenty of bulls left holding their bag’o Bitcoin.
Bitcoin, please don’t let history repeat itself. - Bitcoin is Sony’s Beta and Ethereum (ETH) is JVC’s VHS in my above analogy. Ethereum was designed so others could use its blockchain platform (don’t worry, ETH bears, we all know how VHS fared). For a good laugh, look at Sony’s ad from 1979. They knew they were f*cked even before the 80s!
- How many people reading this still own or have ever owned a VCR? How about a DVD player? The technology has completely changed and is now obsolete. I’m not saying that all cryptocurrencies will be obsolete, but if the advances in technology are ever-changing, it is fair to assume that the future of cryptocurrencies is yet to be realized.
I know, Cryptocurrencies are Not VCRs
You don’t actually see anyone of real importance in this field screaming from the rooftops, “Hey, everything is perfect and we need Little Bo-Peep to sell her sheep in exchange for ETH or BTC!!”
But here is where the perma bears, including Dr. Doom and I, differ. They are living in the right now. The people actually working day-in and day-out in this space already know all the above information and are thinking three to five years down the road. You don’t see true crypto geniuses really trying to push Walmart to accept ETH as a true payment today, do you? You don’t actually see anyone of real importance in this field screaming from the rooftops, “Hey, everything is perfect and we need Little Bo-Peep to sell her sheep in exchange for ETH or BTC!!” What you do see is thousands of people working day-in and day-out to build this industry into a reliable, trusted technology of the future.
Bitcoin’s seven transactions per second is just a current technological obstacle that some crypto savant will solve. The real threat to Bitcoin (and others) is unregulated exchanges and custody apparatuses around the world that have the ability to manipulate prices for their own gain or be hacked. Because there is no single global regulatory authority on this industry currently in place, scams, theft, and manipulation will continue to be the prevalent headline and will make near term mass adoption nearly impossible.
Unsolicited thought of the day:
The very people who want true decentralization and zero government involvement are like captains of a sinking ship. They will remain proud and stubborn until they hit rock bottom. Salud!
**Please share your own Beta vs. VHS war story in the comment section below**
The views expressed in the above article are for informational purposes only and should not be construed or considered investment or legal advice in any way whatsoever. Currency Wars always advises you to seek professional guidance from a licensed financial adviser and/or attorney prior to making any financial decisions in the crypto space.