With regard to Ethereum. I think Ethereum’s a security. I think it’s pretty obvious, it’s a security. It was issued via an ICO there’s a management team there’s a pre-mine there, there’s a hard fork there’s multi there. There’s continual hard forks. There’s a difficulty bomb that keeps getting pushed back the difficulty bomb is going to wipe out the entire east mining industry. It’s going to it obliterated murder it. The fact that somebody is able to murder an entire industry. Then they keep changing their mind every six months about whether to do it or not do. It isn’t disha that it’s a security and not a commodity for it to be a commodity.
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There can’t be an issuer and the truth is you can’t really make decisions. I mean one of the fundamental insights in the crypto industry is the fact that you can change it. What makes it security, that if you look at most of these cryptos where they have hard fork after hard fork after hard fork. The problem with a hard fork is that changing the protocol means that some development team is making a decision. If you can change the protocol in a material way you can change the monetary protocol right a hard fork can change the issuance pattern or can change the value of something and so that makes an investment contract under securities law and that means it passes the Howie test. So, what you want is – is a completely decentralized protocol where nobody can change it. Even if they wanted to change it. So, fundamentally the problem with Ethereum is they keep changing it right from a securities law point of view right.
There’s a team of people that make recommendations and want to establish yourself as a digital commodity then you’re trying to create something like gold in cyberspace. So, for example, no gold miners in the world could change the physical characteristics of gold right. If a government passed a law, I mean they wouldn’t send an email saying oh gold is now steel or steel is now aluminum right. If you can change the characteristics of it right. Then it’s not a commodity, it’s a security and securities have a place in the world. But, they need to be sold to the general public pursuant to a disclosure full and fair disclosure. You want to take the company public. You have to disclose who owns the company what are the risk factors.
I mean in theory you can create another digital commodity. But, you can’t leave on, you can’t leave questions unanswered oftentimes people in the crypto industry. They think, well, we’ll just resolve this by taking a vote taking a vote – doesn’t make something decentralized. If 51 percent of the people vote to double the supply or like if you look at this Solana thing Salend last two weeks ago. The fact that you can vote on something is proof that it’s a security if it’s truly decentralized. Then you have to release lease the protocol into the world and not change it even not template changing it. In fact that is one of the big problems with all. These proof-of-stake networks is, in order to, get them to work. They have to keep doing hard fork after hard fork.
The reason they’re doing it is that they’re putting the security into the software. Instead of into the hardware or into the physics. If you’re relying on the physics of the network with proof of work. Then you don’t have to keep upgrading the software if you keep upgrading software. Then someone’s got to write the software and when you write the software. You end up with this exploding complexity and then you have to keep changing it. So, this pursuit of functionality and performance via continual upgrade. That makes you a software company so I mean that’s the challenge in the crypto space.
They’re just all securities and the problem with it is they’re all securities trading on exchanges. That don’t have a license to trade securities. They’re being traded by management teams that haven’t issued a registration statement which means they’re non-compliant securities. But, what I know is there’s a lot of uncertainty. So, you’re either a speculator or you’re a venture capitalist. You’re waiting to see what’ll happen and bitcoin is different because it’s proof of work based. Ultimately there was no ICO. There was no pre-mine. Nobody could change it. Nobody wants to change it. It doesn’t need to be changed right.
You would generally think, you got to think more genetically like that. What you’re trying to do with a crypto asset network is you’re trying to release a protocol and not change it. So, it’s one more point, which is from an institutional investor’s point of view the point at which you consider trusting a crypto network. It is somewhere in the range of five to ten years after people stopped changing it. I mean I would say it’s after a hard. If there’s a hard fork to fix a fatal bug maybe that’s okay. If you’re fixing a fatal bug or if you’re improving the network against a fatal security threat right. Then maybe you can get past that, but if you’re hard forking to change the functionality or change the performance change the block size anything like that where you’re changing it. It resets the lendi clock and you have to wait for five to ten years after five years. It’s risky. After ten years you think well maybe all that combination of protocols is going to work – if someone changed that monetary protocol it. It calls into question – is the thing robust? Is it lindy right. I don’t look, I’m not advocating google stock apple stock or amazon stock.
I’m not even advocating my own stock like to be clear like I’m an equal opportunity ambiguous. Ambiguous analyst with regard to the property. I’m not going to tell you to buy property in New York City or Moscow or Los Angeles. I’m not going to advocate a trophy asset or a collectible. I’m not going to advocate or opine on any other crypto. I don’t know how they will end. I’m open-minded to the sense that it’s possible to create things. But, there are many different ways to do it right. I mean there are a lot of ways to create functionality. There are a lot of models and I think there are a lot of different countries in the world right so different countries and different regulators will have different opinions.
Different management teams will do different things and stuff will happen and I’m not going to advise you to invest in a private company. I’m not going to advise you to invest any public company, I’m not going to advise you to invest in any of 20 000. Other things, I think those are all individual decisions that people have to make but cryptocurrency is a global right. It’s not just in the US. So even if the US cracked down hard from a regulatory standpoint do you think crypto will continue to grow and gain users in five to ten years digital property in the form of bitcoin is going to grow. I think digital currency in the form of the dollar is going to is going to grow. I can’t be sure which network. But, I think that the overall digital currency network will grow. I think that other digital currencies will grow as well. But, much less so I think that the dollar is the king winner. I think the euro maybe number two and the CNY. Then all the rest will be small. I think that ultimately the digital currency will eat into fiat currencies the digital property bitcoin will eat into properties.
It’ll eat into gold. It’ll lead into real estate. It’ll demonetize other corporate bonds and stores of value instruments over time. I think that there’ll be a lot of innovation in other areas. But again like most of the proof-of-stake networks. They’re all companies right. So, they’re private companies and if they can if they can come public maybe they’ll be the next google or the next something. But, the way I think about them is I think of them as technology ventures all on Instagram or Snapchat or something like that and you manage your risk accordingly right I mean do you trust the people doing it do you understand the regulations. So, it’s what happens who knows what happens right people tend to get very sensitive when money is at stake as opposed to other things. But, people are sensitive about a lot of stuff, so so if you want to invest in technology. Then you go and invest in technology but just keep your eyes open about what the risks are the regulatory risk is huge. If you’re going to move money around and the reason that bitcoin works is because the use case is property.
I’m buying a block of money. I’m holding it for a decade and I’m not moving it around at the point that you want to move the money a million times an hour. You want to move it to a thousand or hundred thousand counterparties you start to cross into other regulatory jurisdictions right now. You’re dealing with the treasury and the OCC and you’re dealing with tax issues. So, if you’re going to get into those use cases. The big question that everybody in cryptos got to ask themselves is why is it that Google hasn’t already done this because Google has more money than god why has amazon not done this why has citadel not done this why has Apple not done this why has a centralized company running in silicon valley not done it, they all have infinite money. They all have infinite programmers. If the answer is because they thought they got shut down by the regulators. Then you have to figure out how you’re going to deal with that right.
This article is a transcription of a video made by Jamie Tree
Original video: https://youtu.be/6cYnZskerJo