BTC Price Falling Again. Will We See The Chain Death Spiral This Time?

Another Bloodbath!

Above is the 4 hour Bitfinex candle chart. Bitcoin has just dipped below $6000 and there is good reason to expect similar drops as in the previous 3 occassions. That is $1000 USD drop. I suspect we may even see Bitcoin test levels as low as $3800.

What is important to realise is that below $5000 it is unprofitable for many commercial mining operations. I have covered this in my previous post.

Bear in mind that the mining difficulty will increase by perhaps 10% or thereabouts in the next 3 days. 10% increase in difficulty will have the same effect as a 10% drop in price. This combine effect of a huge price drop and a 10% increase in BTC mining difficulty may be the perfect storm or black swan event that set in motion the dreaded chain death spiral.

One must ask why mining difficulty have gone up so much in the last few weeks? Is it because of newer, more efficient miners being deployed? Bitmain have always endeavoured to make their miners available to the public promoting mining decentralisation. Bitfury and newer manufacturers in Korea and Japan, employing more efficient chips, have kept their technology to themselves. It is certainly not good for mining decentralisation and could very well backfire on them. The future for BTC is not bright with this 'sword of damocles' hanging over it.

Something is happening and it is still hard to imagine what the crypto landscape will look like after the dust settles. The guiding principle I suppose is to invest in the technology and not the hype, and even this is hard to do as we often can't tell what or how much is hype until reality sets in. Shucks.

If in doubt, sit on the sidelines and many ( 3 billion USD ) are certainly doing this. It would be better is crypto is based on Tether than BTC or USD. I broached on this in a previous article. Whether it will, depend on the users, and in my opinion this is much better than the whole market rising and falling with the price of BTC. At least this shift will enable each coin and project to be valued on its' own merit alone. If you have a better solution - do comment!

A Terrifying Future For Bitcoin - Chain Death Spiral

Oh No - Not another Bitcoin obituary! We have had lots of that. But .... 

10 Years
In another 6 months Bitcoin would be 10 years old. The technology should have matured by now with mass adoption worldwide. Its' aim was to be the financial platform for every decentralised financial application. Sadly after steady increase in adoption over the early years, growth has now stalled.

Bitcoin could not scale and time has run out. Lightning cannot be a solution because it depends on users first owning some bitcoin. Preaching to the converted is not a recipe for mass adoption.

Bitcoin Cash moved in with the promise of unlimited blocksize and unlimited transactions. However since inception in August the number of transactions have not increased.

This means that Bitcoin Cash is also not able to gain users apart from the disillusioned initial converts who moved over from Bitcoin. Bitcoin Cash could not built on or inherit all the existing infrastructure. Herein lies the problem - It may not have the time.

The Chain Death Spiral

This phenomenon whereby Bitcoin chain slows down and finally grinds to a halt because it is unable to react to a sudden drop in miner defection, is still in play. Thus far the price of Bitcoin have kept mining profitable. This stage is fast coming to an end.

Bitmain has just stopped mining with S7 on Hashnest leaving only S9. 

As of today at a BTC price of $6100 the profit margin for BTC mining on Hashnest is 22.5%. Bitmain's S9 are the most efficient industrial miners in use today. When BTC price was $8000 the profit margin was around 60%. I believe that mining with S9 will be unprofitable if BTC's price falls below $5000.

For mining to remain profitable at $5000, the mining difficulty must decrease. Miners will shut down operations or moved to mining Bitcoin Cash which also means that the price of Bitcoin Cash must increase. If this process takes place in an orderly fashion then BTC price and BCH price will converge to equality. However this process will hardly be orderly or even predictable. If  BTC loses miners suddenly, the death spiral will set in. But will Bitcoin Cash be the winner even with BTCs' demise?

It really depends of how the future shapes out for crypto. Will there be many coins for different purposes, will there be one coin to rule them all or will there be only one coin? This has yet to be determined.

The more important question is, upon which protocol will all or most decentralised financial applications be built? Before we answer this question we have to consider another fundamental blockchain issue. Proof Of Work or Proof Of Stake.

This is a security issue. Proof of Work implies that the cost of a 51% attack is so exorbitant in the case of BTC that even governments will not attempt it. This makes BTC the most valuable blockchain because it is the most secure. Proof of Stake implies that the people owning the tokens will not attack their own basis of  wealth. Which of these two system is more secure or should we have a hybrid system like what Ethereum is proposing.

In technology two things are evident. Good enough is enough for a technology to be adopted. Take the example of TCP/IP. From mere packet transfers to online streaming today. The technology need not be perfect to start with. Users will put up with the quirks because the benefits outweighs the inconvenience. The second is being first to market. Bitcoin was first to market and has remained unassailable thus far. 

My current belief is that Proof of Stake is good enough. This is proven by Bitshares and Steemit. These two systems are still operating live, and now occupy the number 1 and 2 spots in transactions activity. 

I predict that EOS will be first to market as the protocol upon which most or all financial applications will be built. EOS is the first blockchain protocol that can scale and be used at an enterprise and industry level. You can fit all of Steemit and Bitshares in it and still have room for more.

A bigger and better Steemit 2.0 will be built by Block One on EOS. Bitshares is poised to move to EOS. Everipedia an improved version of Wikipedia is set to launch on EOS. You could build versions of  Youtube, Facebook, Twitter and more on EOS. The advantage is that you do not need to run your own servers to do so. Imagine running an operation like Facebook without investing in the servers and specialist personnel to maintain them. Yes that can be done on EOS. Every existing centralised social media platform can be cloned, disrupted and displaced. I expect that most of the existing centralised social media platform, will move to EOS, before they are disrupted because they can and the cost savings are enormous.

A new world is upon us. Aptly named DAWN. Will it spell the end for Bitcoin? Maybe, maybe Not, but the future is exciting.

The Fourth Reason Why EOS Will Take Blockchain Mainstream - Fairness

Fairness

Governance does not equate to fairness. We could easily have Governance in favour of the strong or those in control of making and changing the rules.

We are all born "good", with a consensus notion of what is "Fair". Basically we all know the difference between right and wrong and good and bad. It is the basic tenet of "Do unto others ----- ". While there are times when the few that differ from these standard norms may hold the sway, in time, the view of the majority always prevails, and ultimately we will arrive at the right path.

Immutability.
Bitcoin introduced to us the concept of truth and immutability. For the first time we can embedded 'a factual truth' into a blockchain and nobody will be able change it. The concept of, code is law, was born. For the first time a contract could be executed exactly in the way the contracting parties intended and no law or judge could alter the way the code executes. The path towards immutable smart contracts and notary functions on the blockchain was in full swing.

Then the DAO hack happened. 300 million dollars in Ethereum were stolen by a "clever" coder who in his defence said that he did nothing wrong as the code executed exactly as it was designed. Yes designed but not intended. Clearly this was not fair, therefore the developers of the Ethereum chain rolled back the transactions and thus broke the law of immutability of the blockchain. ( actually perhaps because most of the money stolen belong to them! )

But is immutability really that great a feature. Sure it takes away the abuses of the middleman but it also leaves behind a plethora of cases of loss from unintended consequences.

1) Loss of funds through loss of passwords
2) Loss of funds from fraud and security hacks
3) Loss of funds through errors in program codes

In a worst case scenario we could roll back the blockchain but this may also include all the innocent real and correct transactions within that time period as well.

Selective transaction reversal
EOS introduces the concept of selective transaction reversal. At any time if 15 of the 21 block producers agree, they can freeze and/or reverse a transaction. They become in effect the police and executors of transactions on the blockchain.

However they can only do so at the direction of the ECAF. What prevents them from acting on their own and in their own interest is the wrath of the community. Their position as one of the 21 block producer is continually "on review".

This chart on the producer vote summary is interesting. At the time of writing 26% have voted and we are starting to see the dominance of the small voters block (blue). Clearly this faction will be bigger than any whale or collusion of whales when the whole community exercise their right to vote.

This is the brilliance of the EOS system. The block producers with all their power can only exercise them with the tacit consent of the community. They have to hold themselves to the highest level of conduct, and to be seen as continuous positive contributors to the community or they will be removed by the community. There will be no nonsense like the recent censorship and years of protracted argument as in Bitcoin. The EOS ecosystem will adapt and change quickly.

We all want to live in a world where the people we elected to wield power over us are actually nice to us. This is only true in the EOS ecosystem. I guarantee that you will never see a block producer overtly expressing his or her own bias and prejudices in public. Yes deep down we are all bias and prejudice to some degree, but in the EOS ecosystem you have to keep them in check if you ever wish to hold any position of power and authority.

This underlying tenet driving all of us to behave "correctly" is what will make for a fair and equitable community. I have never seen EOS supporters speak ill of any other communities or of each other. Remember the the Go/NoGo vote? What a demonstration of co-operation and civility among competing individuals, of different ethnicity and across different continents. What a breath of fresh air. What a change to the crypto ecospace. This will bring in the crowd. The silent majority. I am all in.

http://eos-bp-votes.dapptools.info/s/api/block-producer-votes-stack-html/1/30

Perhaps weight should be given towards quantity and quality of votes
Quantity = Number of Tokens
Quality = Number of Voters

A Heads Up For EOSdac

A note about investments.

Investors put money into a security either for a return or capital gain. Most of us will be familiar with stocks and shares in private or public companies.

With the advent of blockchain companies small investors other than startup investors were able to invest in companies like Bitpay and Coinbase through investment aggregators like Bank To The Future.

Fast forward and the token ICOs on the Ethereum platform were all the rage.

The next phase will be airdrops on the latest blockchain platform EOS. EOSdac is the first.

EOSdac is currently 15 Cents and 104 on Coinmarket Cap. It has increased in price quite quickly since the EOS mainnet went public last night.

Owning EOSdac is owning a share in a decentralised block producer as EOSdac sits firmly at number 3 on he EOS block producer list. It stands to reason that EOS holders are likely to vote EOSdac as a block producer because they all hold EOSdac tokens from the Airdrop on 15 April 2018. We can expect EOS to maintain its' position as one of the 21 Block Producers.

Financial Reward
With the block producers actually producing blocks we can make accurate calculations.
EODdac earns on average 900 EOS a day

EOSdac Block Reward  900 @ $11X 360 = $3,564,000

The circulating supply based on Coinmarket Cap is 660755177  add the 300,000,000 held by developers and we get a total supply of 960,755,177 tokens

Earnings per token is therefore = 0.0037 cents or@ 13.1 cents = 2.83% Annual Return

This would mean that the market have priced the token appropriately

We can expect that the price of EOSdac will be directly proportional to the price of EOS

Looking at it another way.

900 EOS a day = 328500 EOS per year = 0.00034 EOS per year per token
10000 EOSdac = Cost $1000 = Returns 3.4 EOS PA = No End Limit
1 Bitmain S9 = $1400 = uneconomic after 6 month = Will never recover cost


Price Upside

The price of EOSdac will directly correlate with the price of EOS which is expected to rise as the airdrops and Dapps start operating on the EOS platform.

Bitfinex and Binance have not started trading EOSdac so I would expect the price to increase when they do. You can trade EODdac on CoinEx.

Price Downside

EOSdac drops out of the 21 block producer status.

EOS - The Value Proposition

I suppose this is what most people are interested in. How high will the price of EOS go? The pure technocrats do not care. They are in it for the technology and most probably will not even hold any EOS other than to use in their application and protocol developments. The rest of us will always need to seek assuring warm comfort in on our token holdings and "bet".

For those of you that lament that you were too late and you wished that you had bought Bitcoin when it was only worth pennies, do not despair. Contrary to popular perception, most of the early investors are not millionaires. Many have lost their "fortune" because they lost their keys or crashed their hard drives. Many others lost their "fortune" investing in scams and other nefarious schemes. Even hodlers will not be spared as they could be holding on to a coin that goes to zero. The only safe course is to understand how this ecosystem develops and to change your crypto portfolio as the landscape changes.

There are of course those we know of who have made it "big" so to speak. However making a fortune and keeping it are two very different things. This is true in the real world as well as the crypto world. The person sitting on a pile of crypto wealth today could very well be sitting on nothing but fresh air tomorrow. This is because there is really no intrinsic value in crypto tokens.

Intrinsic value meaning a value derived from a useful property of the commodity. Platinum has more value as an industrial metal than its' use in jewellery. Gold has more intrinsic value as a store of value because nations hoard it, than in the industrial and ornamental use of the metal.

Bitcoin as a token has no intrinsic value at all and its' value is only derived from its' usefulness as currency and a store of value. This means that if that usefulness diminishes or become obsolete, its' value will also decline proportionally. We can take the example of feathers and shells, which in one period of time had value, but those properties that gave it value were replaced by other commodities that better exhibited those properties.

For Bitcoin to possess and hold intrinsic value it had to be a protocol on which all other financial applications are build upon. This is where it has failed and I am afraid will lead to its' decline in both as a store of value and as a currency. First mover advantage in holding on to just a property ( scarcity, immutability, transportability ) is not enough as other tokens also share the same properties. It has to be the bedrock on which every financial application is built upon so that its' position cannot be usurp, because for that to happen you will have to take down the whole social and financial infrastructure first.

Failing this Bitcoin has to acquire mass adoption so that everyone in the world uses it and nation states hoards it. This it has failed to achieve. As a token it is only worth what the collective human mind space is willing to exchange for it.

Crypto currencies are not going away. When we look at this space we must not overlook the forest for the trees. Tokens are like individual species of trees making up the forest. Under changing conditions certain species thrive and others die away, but this crypto forest will continues to grow and capture a bigger share of the global net worth.

Here is my value proposition for EOS.

EOS is the first industry grade protocol that is ready for the mass on boarding of every financial application to dis-intermediate the financial middlemen. Assuming that this turns out as I expect in the next few weeks, we can navel gaze on what the valuation of 1 EOS token will look like.

For a reference perspective global net worth is estimated to be around 280 trillion dollars. Gold accounts for about 8 trillion and total global real estate is estimated to be around 214 trillion. These are all asset classes of which crypto is but one asset class with a valuation of only 350 billion.

Current EOS valuation is 14 Billion - $14

1) If EOS rise to number 2 in market cap. it will have a valuation of 70 billion - $70

2) If EOS gets to number 1 in market cap, it will have a valuation in excess of 100 billion - > $100

3) If EOS is a compared to a global company with tokens representing shares in this company then it would be a global company with shareholders in every country of the world. Apple Inc, a largely American held company, is at the moment the largest company in the world with a valuation close to 1 trillion dollars. If EOS were to become the largest company in the world it need to have a valuation in excess of 1 trillion dollars - >$1000

At this moment EOS is a GO 100% unanimous. Magic. Let's see if we get to Stage 3. GO EOS.