Bitcoin popularity not down to decentralization or transaction lower fees

In a previous article, which discussed the role self regulation in the crypto space, we asked several experts and enthusiasts for their perception on this as well as the scourge of crypto scams.

The common view was that self regulation is the way to go if the intention is allowing innovation to continue but in an orderly fashion. However, there are dissenting views on this with some equating self regulation as a devious plan to move the burden of consumer protection responsibility away from the creators of fintechs.

In this Q&A, we speak to one of those dissenting voices, Jude Zambarakij, a co-founder at Brand Fort and a member of the EOS community. In this interview, Zambarakij doubles down on his earlier comments that self regulation alone with not work, while propounding that his unorthodox views (that he shared in the previous article) have a chance of being successful in the long term.

In this discussion, we also touched on Libra stablecoin, the decentralization question and the different types of self regulation as well as why he touts EOS and ETH ahead of Bitcoin.

Terence Zimwara, a journalist at posed the questions to Zambarakij.

  • Terence Zimwara-In a previous discussion, you suggested that Bitcoin has, just like Ponzi schemes, an inhuman aspect to it because others use it for speculative purposes. However, is it also not fair to say Bitcoin has given previously marginalized groups such as undocumented migrants an opportunity to send or receive remittances faster at much lower costs? Is this not something that has helped humanity?
  • Jude Zambarakij-The fact that Bitcoin is used primarily for speculation is not an “inhuman” aspect. Gambling is a very “human” activity and humans have been gambling with financial assets if not money for hundreds if not thousands of years. I would prefer to describe Bitcoin as an “unproductive” financial asset.

Even if we suppose that Bitcoin is a cheaper tool for global remittances for marginalized groups, it is likely not the cost of Bitcoin transactions that is the reason as to why these so called “marginalized” groups use Bitcoin for international remittances.

According to research conducted by stablecoin companies such as Reserve (built on Ethereum), Venezuelan citizens use Bitcoin because there are no fiat alternatives for remittances. If I’m not mistaken, the Venezuelan government and I think the Zimbabwean government too, have taken steps to limit or effectively ban the use of foreign currencies in international remittances.

It is when there are no other alternatives for remittances when citizens in a country experiencing hyper-inflation resort to using Bitcoin as a cross-border remittance tool.

According to companies such as Reserve, some Venezuelan retailers refuse to use Paypal and prefer Bitcoin because it is too easy to pay for an item via Paypal and then reverse the transaction for the paid item.

If we think about why Bitcoin is used for remittances and not some other speculative cryptocurrency then we come across the fact that Bitcoin’s popularity as a tool of speculation is the reason why it is the primary currency used for remittances. Speculation led to Bitcoin’s price rise (not the popularity of decentralized or privacy focused tech) and its popularity as a speculative financial asset increased its global circulation, thereby increasing its availability and accessibility to all financial markets in each and every country.

If decentralization or privacy was the main reason as to why people invested in cryptocurrencies then the cryptocurrency with the highest market capitalization would not be Bitcoin, but the cryptocurrency with the best privacy features (Monero) if privacy was the most popular feature. And if decentralization was the most popular feature then the most decentralized cryptocurrency would be the most popular i.e. one of the newly invented cryptocurrencies.

But the Top 10 most popular blockchain based cryptocurrencies are some of the least decentralized projects with the worst privacy features. The top 10 cryptocurrencies are described as less decentralized in their whitepapers, advertising documents, and social media accounts and, therefore, regardless of one’s technical skill in programming or math one would know that the top 10 cryptocurrencies are obviously the least decentralized and have no unique privacy features.

I also want to point out that Bitcoin will eventually be replaced by a stablecoin when it comes to remittances. I doubt that “cost” alone is an explanation as to why Bitcoin is used as an international remittance tool.

The thing is, those who are saying that Bitcoin is used for some purpose other than speculation are not writing detailed articles providing hard and indisputable evidence to support their claims. They are simply ASSUMING that Bitcoin CAN be used for some other purposes other than speculation. There are dishonest actors in this debate (not you and I of course).

I’m going to have to add another point about remittance: if you use Bitcoin, Ether, or EOS for international remittances then there is a possibility that at any point in time a large percentage of the value of the money you are sending will be wiped out.

If Bitcoin’s price falls by 20% on the day on which you, as a Venezuelan citizen, are receiving a remittance from a European country then the money you lose as a result of that price fall is greater than the money you would have lost if you had used a remittance service such as Western Union. Please note that the 20% price fall is added to all the transaction fees and conversion fees involved in converting Euros to Bitcoin and then sending the fraction of a Bitcoin from one account to another.

If you make the counter-argument that the price of Bitcoin could rise by 20% then I would counter that point by saying Bitcoin’s price fluctuations are unpredictable and that’s where the problem lies.

In fact the price fluctuations of all speculative cryptocurrencies are unpredictable. But what can be predicted is that when Bitcoin’s price falls the prices of the majority of cryptocurrencies fall in tandem (this also happens in other financial markets as explained in financial history books such as the Rise and Fall of Long-Term Capital Management by Roger Lowenstein).

  • Terence Zimwara-Perhaps for the benefit of some in our audiences, can you explain further why you say ETH and EOS (the dapps platforms) are better than Bitcoin and its blockchain?
  • Jude Zambarakij-I’m not saying that ETH and EOS are better than Bitcoin. I’m simply pointing out the fact that Bitcoin is almost always used for the sole purpose of financial speculation and that Bitcoin’s price rises are caused by speculation.

Some people may be speculating on the price of Bitcoin by betting that people will invest in Bitcoin for the purpose of promoting decentralization, but there is the possibility that everyone investing in Bitcoin because they think others care about decentralization may not care about decentralization at all and are simply mistaken about how much other people care about decentralization.

In fact, Daniel Larimer (the founder of EOS) has written in one of his blog posts that people are often mistaken about what they believe other people believe about what they themselves believe. A famous economist by the name of John Maynard Keynes once compared the practice of betting on the price of stocks as participating in a beauty contest in which one must guess what other people think is a beautiful model:

But I disagree with the notion that Kenynesian beauty contests are won by “rational actors”. Let’s not confuse skill with dumb luck (or random chance).

  • Terence Zimwara-Some might say that ETH and EOS do not exactly pass the decentralization test like Bitcoin does. In addition, there is no crypto project that is without flaws. So while you feel that EOS is better because it indirectly helps human productivity yet others who are concerned about uncontrolled government spending which fuels inflation, see Bitcoin as the best option that shields savings from erosion by inflation. In other words, there is one size fits all in the crypto space. What is your response?
  • Jude Zambarakij-I do not possess the technical skills to say with any degree of certainty if Bitcoin is more decentralized than EOS and ETH. But what I can say about decentralization is that the discussion as a whole is very misleading and intellectually dishonest. For example, it is difficult to compare Bitcoin to Ethereum because Ethereum, if I’m not mistaken, does not have “partial nodes”. 

Even if you argue that Bitcoin has more nodes you have to honestly point that Bitcoin has lots of “partial nodes” that have no political power in the sense that those nodes do not determine the outcome of attempted Hard Forks or chain splits and are not the primary cause of said events.

Developers such as Vitalik Buterin talk of 3 different types of decentralization yet if one studies the history of economics one would realize that such a perspective creates 3 problems:

1) It assumes that “leadership” is a separate form of political decentralization. Leadership is an irrelevant red herring in this discussion.

2) It assumes that there is a separation between political decentralization and economic decentralization. This is a patently false view. In cryptocurrencies, political decentralization is primarily determined by economic decentralization.

3) It assumes there is always a difference between political power and economic power. This is not always true because in a capitalist economy, economic power is in fact a huge source of political power e.g. the effect of lobbying in the United States.

  • Terence Zimwara-The crypto and blockchain space is still evolving, and quite logically, no one can predict how it will be structured in the next twelve months. This means attempts by governments to regulate at this early stage will potentially slow down or kill innovation. Is this not a good reason why the industry must continue to self regulate?
  • Jude Zambarakij-No, it is in fact possible to predict how it will be structured in the next few months. In fact, it was easy to predict that at some point in time there would be a huge marketing push for “privacy” in the crypto space if one was an experienced cryptographer. Privacy features are technically easier for programmers to implement, because cryptography was thoroughly studied during World War 1 & 2 and modern cryptography techniques were developed before the invention of the personal computer.

Cryptography is an older subject than computer networking, which is the basis of the ideas behind “decentralization”. The fact that cryptography is an older subject than computer networking is the reason why privacy coins were implemented before more decentralized cryptocurrencies.

The other reason is that the first cryptocurrency was a Proof-of-Work coin and its easier to re-invent the wheel and market such a re-invention than to create a radically new product especially when transactions are deliberately designed be to irreversible and new cryptography for decentralization presents new security risks. In other words, the timing and nature of crypto project market campaigns are built around and sometimes determined by technical limitations.

The psychology of marketers and entrepreneurs in the cryptocurrency industry is predictable. But what is not predictable and will likely remain unpredictable in the indefinite future is PRICES. Here are the 2 reasons why I believe that prices will remain unpredictable:

1) Most people are too lazy and too emotional to put the necessary time and effort required to AVOID making bad or impulsive investment decisions. I call this wilful irrationality.

2) Information asymmetry as economists call it is impossible to avoid and is generally insurmountable for any human being regardless of one’s technical proficiency. No human being will ever have absolute knowledge of any given financial market.

In other words, no person knows everything there is to know about every single cryptocurrency in existence. But an AI bot can, in fact, learn everything there is to know about everything single cryptocurrency and remain constantly up to date about every single new detail about the cryptocurrency market as a whole.  As long as there are human beings trading in the cryptocurrency market or telling their AI bots what to do then the market will remain unpredictable.

But the RANKING of cryptocurrencies by market capitalization without reference to their prices may actually be more predictable. Bitcoin’s price has never been overtaken and there may in fact be a greater than 50% chance that it will hold the no.1 spot for as long as the cryptocurrency market exists for reasons that have to do with the fundamental nature of both human psychology and the nature of our global quasi-capitalist culture (I write quasi-capitalist because pure capitalism does not exist and has never existed).

  • Terence Zimwara Explain the difference between industry focused self regulation   and consumer focused regulation?
  • Jude Zambarakij-Industry focused self-regulation would involve local or international cryptocurrency associations creating a certification process for crypto startups and awarding those start-ups with certification based on how well they meet certification criteria (whether or not a fee is involved in the certification process).

Consumer focused self-regulation is about providing more advice to consumers on how to make the right investment decision and in the process of doing so shifting the burden of responsibility for identifying and reporting scams from the creators of cryptocurrencies to the users of cryptocurrencies.

  • Terence Zimwara-If I may stay on this regulation question a little bit more. Now, we have seen how regulators and governments treat crypto projects that actually seek to engage with them. Libra might have suffered a stillbirth because it chose a path of engagement with ignorant regulators. If Bitcoin creators had followed a similar path, it is safe to conclude that the world’s largest cryptocurrency would not have seen the light of the day. In fact, all other crypto projects only came to being because there is presently no regulation that impedes or places barriers to new entrances. What’s your take on this?
  • Jude Zambarakij In my opinion, Libra was a scam from the get go, which was intended for institutional investors (other major corporations) and not regular investors. Facebook made tens of millions of dollars ripping off big investors such as Paypal with the Libra Project. It is easy to see that Facebook, a company with vast resources, could have legally registered Libra in every country in the world before launching Libra and before the US congress even had a chance to launch such an inquiry into the nature of Libra.

Facebook didn’t bother to legally register Libra in the US before the US congress launched an investigation, because they never cared whether or not Libra would become a functional product. Facebook’s primary goal was to make as much money as possible from gullible institutional investors in the immediate short-term. Successfully launching Libra was merely an afterthought.

Those who are making the argument that any amount crypto regulation will lead to ‘zero innovation’ in the crypto industry are creating a false dichotomy and may in fact be creating a political front to avoid paying taxes on their cryptocurrency earnings (the taxes on their cryptocurrency earnings may be the only reason why some people making this argument chose to make such an argument).

This argument’s false dichotomy is this: that innovation can only happen when no regulation exists and any amount of regulation will lead to zero innovation. The truth is that reckless or careless regulation and outright bans, which is also a form of regulation rarely if ever referred to as actual regulation, can hinder innovation in the cryptocurrency space.

Copy pasting regulation from the stock market to the cryptocurrency industry will hurt the latter industry simply, because “dividends” are extremely rare or non- existent in the cryptocurrency industry and there is still no cryptocurrency platform whatsoever, where tokenized stocks are traded. American regulator, CTFC’s classification of Bitcoin, Ether, and EOS as commodities is actually helpful, but some projects such as Ripple look indistinguishable from unregistered non-dividend paying company stock.

Reckless or careless regulation would hurt any industry whether or not it’s a financial market. But assuming that all forms of regulation will not work is either dogmatic – if you’re generally ignorant – or intellectually dishonest if you are knowledgeable about the potential solutions being presented by government officials in the US and Europe, but only care about evading taxes.