Why you shouldn’t sell when the price dumps

You might be wondering, why does crypto/blockchain matter, besides potentially making me rich? Didn’t it just dump horribly, like 50% in a day?

Well, that was a coordinated shakeout. But more on that later. If you care to DYOR, it’s out there. Look I even gave you a link ffs just click on it.

Throughout history people have banded together to solve problems larger than themselves. Back then there were tribes, today they are companies, nation states.

Crypto lets us create organizations, organizations of anonymous people distributed all over the internet, coordinated by the coin, directed by the coin’s economics.

It’s like a company, but a normal company doesn’t have its own coin – they have shares, but only the top brass in the company have shares and can profit from them.

Imagine a company where even the janitor, the security guard are paid in shares, and they hold shares. Yes, even the lowliest of jobs! (I’ve only seen an enthusiastic janitor once, and it wasn’t because of his job)

(let’s call ‘shares’ coins/tokens from now on)

Within a company and outside it there are different roles. We can program the tokens and design the company’s internal economy to balance the different roles within our company. No longer will some central authority tell anybody to do something – people, motivated by the greed to earn tokens, and to increase the value of the tokens they already own, will naturally step up to do the work.

bottom up emergence, not top down direction

A body is made of millions of cells, all coordinated and nourished with blood. So it is with countries and their currencies, and crypto projects and their cryptocurrencies.

Bitcoin is a money that is not under the control of any country or government. Even though it is digital, it is scarce – only 21 million BTC will ever exist.

Even as governments try to ban and control it, people around the world constantly step in to keep Bitcoin running, thriving, evolving, changing, thanks to Satoshi’s economic genius that uses the individual’s greed for the good of all mankind.

Ethereum is a computer that is not under the control of any country or government. Anyone can upload programs to it and run them – although it costs ETH to run them. And of course, since it’s a general purpose computer, you can make your own coin on it, without having to write your own Bitcoin. There’s already a standard for how such programs should be written – ERC20. (not the last time you’ll hear that term)

(let’s call programs that run on decentralized computers like Ethereum ‘smart contracts’. Why smart? because unlike a contract, a useless piece of paper, the smart contract is a program and can do something)

A store of value that is, for the first time, virtual and digital yet independent of any single entity’s control. Platinum/gold, but more convenient. Uncensorable.

(governments and rich people are busy collecting it to add to their reserves, just like gold.You should too)

A general purpose computer that, by being decentralized and uncensorable itself, is an ideal platform for launching other decentralized projects.

One human making the decisions, or even a group of humans (governments), is a weak point, for power corrupts, and humans can always be bought out. The solution is to let ourselves be governed by algorithms, either entirely (Bitcoin) or partially (most projects these days).

Don’t like it? We can always choose to follow another algorithm. The masses have power once again.

This is why decentralization (of power) is important. We’re talking about a rebalancing of power. It would behoove you well to understand this new world, and not just think about your money.

how to pick which crypto projects to buy

Yourself

Everything in this section is about removing your emotions from the decisions.

What is your aim?

Do you want to accumulate BTC, ETH, or USD? Depending on which, you have different trading opportunities. One coin might be a good deal if you’re using ETH to buy it, but not BTC.

How much do you want to risk?

I find that 1 month’s living expenses is a good size, with many psychological benefits. You have a good intuitive feeling for how profitable the trade is, after all.

What is your trading plan?

If it goes up, do you plan to sell everything or keep something? How long can you afford to wait for it to move? Answer these questions first and you can ignore your emotions later, when they endanger you the most.

Project

What does the project do?

Look for something that generates value: opens a new dimension, makes new things possible etc. This is also better for the world.

The difference between a Ponzi scheme and Bitcoin is that the former is just moving money around, and it collects in a few hands. The latter is a whole new asset class with big social implications, i.e. it opened up a new dimension. That is, it generated value.

Bitconnect was an obvious scam, but many people apparently couldn’t tell. A trading bot cannot always make profit. Even if it does, trading is basically taking value from someone else, a zero sum game, so it cannot generate value. This means the value it can gain is limited.

Why will the project succeed?

community

Look at the people involved with the project. What sort of people are they? For example, Ethereum has many idealists building things on top of it. They talk about a world with ‘fair distribution’, ‘decentralized finance’, ‘solving the commons free rider problem’. In many ways it’s about solving social problems that the governments and capitalism can’t fix.

In contrast, if you take a look at the communities of other smart contract projects, it’s usually ‘our coin’, ‘our coin’, ‘something similar to Ethereum project but on our coin’. You cannot inspire people to join you if you’re all about yourself.

There are many people who are really good at something, but because they don’t know how to market themselves, society doesn’t pay them as much, or even listen to them. Projects are like that too. You must look at a project’s community like a person. What’s his character? Is he trustworthy? Is he doing something worthwhile? Can he convince others to believe in him?

For instance, Decred has the best codebase I’ve ever seen, and they have anonymous transactions, a great treasury, a community composed of mature, level headed individuals, but the way they shill their coin on Twitter is just childish, no better than how Emin Gun Sirer keeps trumpeting about Avalanche all the time. Yes they have more than Bitcoin, but they haven’t done enough to truly leapfrog Bitcoin.

economics

A coin’s worth is based on many things, but the most important one of all is people’s belief in the coin, or what Vitalik called Legitimacy.

Take a coin whose worth is purely based on 1 bar of gold. If the number of coins goes up, but the 1 bar of gold is still 1 bar, then the value of each coin must have gone down.

Take a coin whose worth is based on people’s belief. The UK Pound, for example, is based on the belief that a king’s promise to repay a debt (to the bankers) is worth something. If the number of coins goes up… but here’s the thing, it’s difficult to quantify people’s belief. That’s why you can print some more coins. But if you suddenly print trillions in stimulus like the US Fed, then people’s belief will start to waver.

So the question is: can the project market itself successfully to make others believe in it? This ties back to the community section above. What kind of people could inspire you to believe in them?

environment

Even a strong individual can succumb and die if you place him in the wrong environment.

How many competitors are there? How strong are they?

Does the world want something like this yet? (is the time right)

What is the state of the world?

What is the state of the crypto world, i.e. is it going up overall, or is it going sideways, or is it going down?

What is the state of the sector that this crypto project is in? Does it still have room to grow, or is it still relatively unknown?

You need to be able to explain all these by yourself. If you get this information from someone else, and the coin goes down, you will just blame him, sell to cut losses, and learn nothing. Then the coin goes up and you curse yourself.

Then, you need to keep a log to keep track of what you were thinking, whether it was right back then or not.

Optionally you may also choose to create certain rules for yourself so you’re even more divorced from your emotions.

The Art of Buying

A small number 10x-es easier than a large number.

A small number also 0.1x-es easier than a large number, so please take profits. Sell into a coin with a larger number, like BTC or ETH, or into USD.

Iron rule that’s served me well 99% of the time: if the token has gone up, it’s already too late. Buy when the coin is flat. This means nobody knows about this coin yet.

If the coin is going up already, try to catch it on a red candle/correction. What goes up must come down, although not perhaps down to the same level.

Use buying to manage your emotions. Buy a very small stake if you think you get in, but are unsure about the future. Van Tharp calls it Position Sizing in his book, Trade Your Way to Financial Independence.

The Art of Selling

As always, divorce yourself from your emotions.

When you buy, set a target for yourself. You want to 2x your investment. But you might wait a long time for the price to go up at all, if the coin has been flat. So let’s say 10x, to make the wait worth it.

Let’s say the token jumps up 4x. Divorce yourself from your emotions. Your thoughts should be: “Good, but I was expecting more. What is the overall market situation like?”

If the bullrun is just getting started, go do something else like clean your fingernails.

If the rest of the crypto market is dead, dying, or waffling around, sell and be happy.

Use selling to manage your emotions. If you feel like you have a lot to lose, sell a bit along the way up.

Often it pays to be ignorant of what’s going on. Read Edwin Lefevre’s Reminiscences of a Stock Operator: it was always his sitting tight that made him money! The more he paid attention, the worse he did.

Don’t worry, when the rest of the world starts talking about crypto, it’s God’s way of telling you it’s about time to sell.

Emotional Management

When you’ve decided upon a coin, your actions should come from managing your emotions, not how much you hope to make.

Not sure how much to stake? Try a number you won’t care losing.

Not sure how much to stake, but you wanna finally make a difference in your net worth? Try 1 month’s living expenses.

Not sure to buy, but think you probably should? Buy 100USD worth, to keep your inner monkey satisfied.

Not sure to sell, but think you probably should? Sell a part, to keep your inner monkey satisfied.

A Blockchain Use Case for Dancers

Hellen the dancer

wants to make a name for herself, so she uploads a video to Youtube, err, I mean, Odysee/LBRY.tv, which are just the same thing in the background, the LBRY blockchain.

Uploading the video and reserving the channel name @ZoukBerlin costs some LBRY Credits (LBC).

The end result is that the website doesn’t have to show ads, annoying everyone, to sustain itself. It earns from the very act of people uploading and curating videos.

People can choose to tip her in LBC, or support her video (again with LBC) which helps it move up in the search results.

Imagine if a normal company did this with their own credits system. They’d make it impossible for people to cash out their custom credits, locking people in! Those travel companies are doing it right now as we speak.

As people tip her LBC, Hellen could use those to boost her videos, or cash out by converting them to Bitcoin, Ethereum, or anything else. It’s a balancing act.

The Video In Question

Youtube is famous for demonetizing videos for whatever reason. Since Hellen doesn’t usually dance to silence, inevitably some record company will step up and say:

Using our song in your video is a privilege. All proceeds belong to us now, thanks!

Hellen doesn’t think so, naturally. Anselmo Ralph should be honoured that she wanted to dance to his song! Indeed, if you asked the artist himself, he might even say:

Hey, thank you for dancing to my song! (nice ass)

Suffice to say this doesn’t happen on blockchain platforms. If LBRY ever considers demonetizing videos based on their audio, as a LBC token holder, Hellen and many other content creators can even vote on the issue.

Do You Need a Blockchain? Think Again.

So went the memes a few years ago.

But they said that about computers before.

“I think there is a world market for about five computers.”

IBM’s President Thomas J. Watson, early 1940s

Hell, I said that about smartphones too when I first heard of them.

But there are 2 good use cases for a blockchain and 1 great one I thought of myself, hear me out.

An uncorruptible, un-biasable Being

Governments are made of humans, so they can be put under pressure by, let’s say, rich groups of companies. Just like humans, they usually cave in under pressure.

But Bitcoin doesn’t cave in. It doesn’t say “whoops election day is coming up so let’s approve a bailout/stimulus package (aka print more money)”. It doesn’t even need money – it’s its own money! It only needs people agreeing to participate in it.

Well, okay, both Bitcoin and governments print their own money. The only difference is that Bitcoin’s printing is determined by the program that says there will only ever be 21 million Bitcoin, while governments’ printing is determined by humans.

But wait a minute, you say. Humans wrote the program, so how is it going to be any better?

Well, let’s say you want to change the rules to benefit you. Which is harder – convincing everybody who’s already running the Bitcoin software to run your new economic policy Bitcoin, or convincing a few government officials to push your policy?

I thought so.

Distributing power even more than the current stock market allows

I have news for you. None of these startups with their friendly pastel coloured ad campaigns and sans-serif fonts are on your side.

Think of how Uber is organized. At the top you have C-level executives (who own a large part of company stock), and then somewhere below them the programmers (who mostly don’t own any stock), and finally, at the very bottom, the Uber drivers (who most definitely don’t have any stock).

The Uber drivers have to do what the executives want them to do. They don’t have a choice, and they suffer as a result . After all, they’re not stockholders.

But what if in order to have anything to do with Uber, you had to own stock, even a tiny minuscule bit, and that stock came with voting rights? At the very least, drivers would have a way to push back instead of just leaving.

Bitcoin, Ethereum, any of these cryptocurrency tokens are just like a stock – except you don’t have to ask your bank to handle them for you. You can deal with them yourself by going to a website and buying them. That’s the key: it makes owning the token more direct and thereby distributes ownership/power amongst more people.

Escape a bad economy

I’m the most proud of this one, because I thought of it myself.

Think of a healthy, smart, hardworking person in a poor country (let’s call him George). No matter how healthy, smart, or hardworking he is, he’s still poor compared to the average American/European! Why? because he has to use his country’s own currency (assuming he lives there). Maybe his country has bad politicians – but that’s not his fault and he can’t do anything about it.

Now what if George had his own economy, the GeorgeCoin?

(ok it’s an economy of one person but bear with me)

George’s country makes a bad economic decision, and overnight its currency is worth nothing, so food prices skyrocket. But GeorgeCoin’s value is still intact, because it’s separate.

It’s just like owning your house vs renting it.

This works because even if the country’s economy tanks, people still believe in George. You just need an efficient way of converting between everybody’s own Coins.

Blockchains coordinate Humans into larger Organisms

this post is closely related to How token economies organize people around endeavours

The first time I had a hint that “as above, so below” was when learning how to trade crypto. Prices go up and down in waves, and there were waves that manifested themselves on the 10 minute chart, and waves that manifested themselves on a 1 day chart, and one could make money trading on both timeframes. That is, within the larger, longer term waves, there were smaller, short term waves. It’s like fractals that you can zoom infinitely into.

Recently I found this essay “Cognition all the way down” (archive), which proposes that even cells, genes, DNA are agents that are autonomous, who find their way through life, who sense opportunities and try to accomplish things.

Thinking of parts of organisms as agents, detecting opportunities and trying to accomplish missions is risky, but the payoff in insight can be large. Suppose you interfere with a cell or cell assembly during development, moving it or cutting it off from its usual neighbours, to see if it can recover and perform its normal role. Does it know where it is? Does it try to find its neighbours, or perform its usual task wherever it has now landed, or does it find some other work to do? The more adaptive the agent is to your interference, the more competence it demonstrates. When it ‘makes a mistake’, what mistake does it make? Can you ‘trick’ it into acting too early or too late? Such experiments at the tissue and organ level are the counterparts of the thousands of experiments in cognitive science that induce bizarre illusions or distortions or local blindness by inducing pathology, which provide clues about how the ‘magic’ is accomplished, but only if you keep track of what the agents know and want.

OK, so cells are actually selfish agents. How do they cooperate to form a cohesive whole, like a human who has no sense of his constituent cells? I’m just going to quote liberally from this article just to hammer home that you should really read it.

When two cells connect their innards, this ensures that nutrients, information signals, poisons, etc are rapidly and equally shared. Crucially, this merging implements a kind of immediate ‘karma’: whatever happens to one side of the compound agent, good or bad, rapidly affects the other side. Under these conditions, one side can’t fool the other or ignore its messages, and it’s absolutely maladaptive for one side to do anything bad to the other because they now share the slings and fortunes of life. Perfect cooperation is ensured by the impossibility of cheating and erasure of boundaries between the agents. The key here is that cooperation doesn’t require any decrease of selfishness. The agents are just as 100 per cent selfish as before; agents always look out for Number One, but the boundaries of Number One, the self that they defend at all costs, have radically expanded – perhaps to an entire tissue or organ scale.

Sounds just like relationships, doesn’t it? Would you want to connect your innards with somebody who hasn’t got their life together?

The other amazing thing that happens when cells connect their internal signalling networks is that the physiological setpoints that serve as primitive goals in cellular homeostatic loops, and the measurement processes that detect deviations from the correct range, are both scaled up. In large cell collectives, these are scaled massively in both space (to a tissue- or organ-scale) and time (larger memory and anticipation capabilities, because the combined network of many cells has hugely more computational capacity than the sum of individual cells’ abilities).

To paraphrase: a cell’s lifespan and goals are short, perhaps on the order of seconds or hours (don’t ask me I’m not a biologist). As more of them collect together, their biological feedback mechanisms interact such that their lifespan and goals are larger, whether it be in terms of time or space.

Doesn’t this remind you of large sea creatures, or tall trees hundreds of years old?

The cooperation problem and the problem of the origin of unified minds embodied in a swarm (of cells, of ants, etc) are highly related. The key dynamic that evolution discovered is a special kind of communication allowing privileged access of agents to the same information pool, which in turn made it possible to scale selves. This kickstarted the continuum of increasing agency. This even has medical implications: preventing this physiological communication within the body – by shutting down gap junctions or simply inserting pieces of plastic between tissues – initiates cancer, a localised reversion to an ancient, unicellular state in which the boundary of the self is just the surface of a single cell and the rest of the body is just ‘environment’ from its perspective, to be exploited selfishly. And we now know that artificially forcing cells back into bioelectrical connection with their neighbours can normalise such cancer cells, pushing them back into the collective goal of tissue upkeep and maintenance.

Let’s return to talking about blockchain now, remembering that Ralph Merkle first compared Bitcoin to a lifeform.

Recently, humans discovered that they can unite areas larger than towns with the notion of a nation-state. A nation state is a bigger organism than humans, can accomplish more and reach for bigger goals, yet some things are still the same. It’s got an organ that poses a direction called the government (the brain). A nation, just like a human, needs to maintain its boundaries with force and keep order internally (the immune system). And last but not least, a system of transferring value within itself, keeping its various parts fed and nourished (the blood). It’s called a currency.

If we think about it like this, it is only natural that countries stamp out alternative currencies like Bitcoin as soon as they exist, like the Wörgl Experiment in Austria. From their point of view, it is a cancer – a totally different organism. Case in point: the new STABLE ACT from the US is all about banning stablecoins. A coin that has exactly the same value as the USD, but isn’t under the US Treasury’s control? Obviously going to undermine them at some point, which is why this isn’t surprising at all.

How token economies organize people around endeavours

When you think about it, Bitcoin is incredible. It got many people to pour lots of money into running a public goods system, a very important system that we all need – a monetary system.

Sure, there have been monetary systems before. But which one is valuable and easy to transport at the same time, yet easy to verify its authenticity? Not gold. Paper is supposed to be backed by actual reserves of (whatever’s valuable, usually gold), but who trusts the people running the reserve? Plus they all encourage you to spend (inflation), not save (deflation).

But we’re not here to debate monetary systems. We’re here to generalize the Bitcoin achievement into other subjects.

A Very Quick Overview of the Bitcoin Concept

The best way to make a system uncensorable (countries hate it when you issue your own currency, because it makes them irrelevant – just see Wörgl in Austria) is to spread the system across many computers, just like Bittorent.

But how do we coordinate many computers and get them to share the same state? Bitcoin says “might makes right”, or “whoever has the most computing power is correct”. Specifically, “whoever can take a bunch (block) of valid transactions and create a hash (fingerprint) that starts with n zeros in front is correct”, where n is adjusted for difficulty periodically.

Since you have to spend a lot of electricity and computational power to find such an answer, you probably aren’t trying to sabotage the Bitcoin system. Congratulations, the algorithm will reward you with some Bitcoin (12.5 BTC as of time of writing).

Basically, if you you do honest work (Proof of Work) for the system, the system will reward you with Bitcoin. Now how can we use this to reward other kinds of work?

Decentralized Computation/AWS Lambda: Ethereum

Proof of Work: Ethereum works just like Bitcoin. The only difference is while Bitcoin tokens have no use on Bitcoin other than transferring them around, Ether is actually useful. A developer can upload programs and other people who want to use them pay for the program to run with Ether.

Or they could just send them around like Bitcoin.

Decentralized CDN/cloud storage: Siacoin, Filecoin

Siacoin: Proof of Storage + Proof of Work: A user uses SIA to pay for a file he wants stored on the Siacoin network. This SIA is set aside in escrow. To earn the SIA, storage hosts regularly submit a random segment of the original file and a list of hashes of the other segments to prove that they’re still storing the file. Regular Bitcoin-style Proof of Work ensures that everybody in the Siacoin network agrees that these proofs are valid.

Filecoin: Proof of Storage + Byzantine “Expected Consensus”: Filecoin has a very different design – nevertheless, the idea is still the same if you zoom out enough. Storage hosts must stake FILC token as collateral in case they behave dishonestly. Every 24 hours, every storage host must submit a proof that they stored the data over a period of time. If they miss this deadline, their staked FILC is slashed and they won’t earn extra FILC for that round. Randomly chosen storage hosts validate each other and produce the chain in Filecoin’s Proof of Work replacement, called Expected Consensus.

Observe: the system wants to reward you for honest work, and wants to punish you for dishonest work.

It’s just that sometimes, it’s difficult to tell a computer what “honest work” exactly is.

Decentralized Video Transcoding Service: Livepeer

Proof of Stake + proof of correctly done work: since it is difficult and expensive to verify that a video was transcoded properly, Livepeer makes it difficult to be a Transcoder. To earn the right to transcode video on Livepeer, you put lots of LPT tokens on escrow (you can ask other people to contribute to this stake, i.e. delegate their tokens to you) and if you’re in the top n, the network trusts you enough to send your computer some transcoding work. Livepeer sends random segments of the video you encoded to a third party service on Ethereum called Truebit.

I don’t quite understand just how Truebit verifies the transcoded video without actually doing the same computation, though.

If Truebit finds that a Transcoder didn’t transcode anything, Livepeer will slash the Transcoder’s staked LPT tokens. To further increase peer pressure on the Transcoder to be honest, delegated tokens are also slashed.

Decentralized Spotify: Audius

What does one need to run a streaming music service? (let’s read their whitepaper) Audius defines a content service, which hosts the actual music, encrypted of course; and discovery service that keeps track of what content is out there.

Obviously if you run the content service, you could pirate the music that artists uploaded to your server. And obviously if you run the discovery service, you might try to game the system by unfairly promoting certain artists. That’s why you have to stake (put in escrow) at least 200,000 AUDIO for the network to recognize you as a content host, and the same for the discovery service. Artists can stake their own AUDIO tokens on you if they trust you not to pirate their music, or run their own services. If you misbehave, your tokens get slashed, just like in Livepeer.

However, a blockchain can’t tell if music was pirated, or if an artist was unfairly promoted. Audius therefore leaves these behaviour checking mechanisms to the community to call a vote on. This pattern is obviously not as reliable as having a computer check things, but we will definitely see more of such patterns in the future as we apply token economics to new use cases which computers cannot completely evaluate.

A new way to organize humans around endeavours

As you can see, having your own economy enables you to do what a company does – except that while a company motivates you with salaries in a national currency, in these new organizations you’re motivated by earning their own token.

And while in companies, humans approve your salary, in these new organizations the computers give out rewards – humans are only needed to verify that honest work was done.

You can’t pay for rent and food with these tokens, but it’s not like they’re useless either.

In fact, a group of people with their own economy can be thought of as its own living unit, its own organism. Isn’t that what a country is?