Complex Numbers

Dunning-Krugerrands

https://www.economist.com/finance-and-economics/2019/02/09/what-happens-when-you...

Ah... the frisson of schadenfreude.

BITCOIN WAS introduced to the world in August 2008, in the aftermath of the financial crisis. According to its techno-libertarian fan-base, one of its main attractions was the promise that users could avoid dealing with the hated banks. But after a decade of amateurism, scams and billions of dollars of lost or stolen money, it is clear that many of the ramshackle institutions that play the role of banks in the cryptocurrency world make even their most reckless conventional counterparts look like paragons of good management.

As an aside, there is literally no reason why anyone should be dealing with the Big Banks if they don't want to. While it will take a little work and maybe a little more planning, there are alternatives that don't involve ephemeral blockchain wizardry. Your local credit union, for example. Or national institutions such as USAA or Discover Bank. "But I like having the convenience of ATMs!" Yes, that is why these alternatives usually have deals where you get free withdrawals from any ATM. Most of them even have deposit-by-phone for checks. There are also debit cards available if you must go that route. And if you use credit cards or have/need a mortgage or whatever, there is, as I said, absolutely no reason you should ever have to deal with Wells Fargo and the like. And if people would stop dealing with Wells Fargo, they'd either have to change their ways or go out of business. Or, admittedly, pay off politicians to make the other banks go away, but that strikes me as way too obvious to ever actually work.

Anyway.

The latest example is QuadrigaCX, a Canadian cryptocurrency exchange that was granted protection from its creditors on February 5th. The problem, according to the firm, is not that it has lost its customers’ money, but that it cannot get to it. It says that Gerald Cotten, its boss, died unexpectedly in India in December.

And this is where the schadenfreude comes in. Look, I didn't know the guy, but I'm not celebrating his death; that's not the point. The point is that, unless he was delusional enough to believe in the Singularity or the promise of consciousness uploads - and, to be sure, anyone involved in cryptocurrency could easily be that whacked - he knew he was going to die, just as we all do. So it's not his death that amuses me; it's the fact that...

Mr Cotten was in sole charge of handling deposits and payouts, running everything from an encrypted laptop to which only he knew the password.

Now, to be fair, I don't have my passwords written down anywhere, either. That's just common sense. But then, I don't have (nominally) billions of dollars worth of bits hidden away in my laptop. Some stories and poems, some spreadsheets, some games, some porn, that's about it. Nothing anyone will miss when I inevitably kick it.

I can't say I really understand cryptocurrency. I have a vague understanding of what blockchain is, in a theoretical sense, and why it can underpin cryptocurrency. Thing is, though, I'm sure a lot of people don't understand cryptocurrency. But a lot of those people think they do, hence you get the wild speculation that we saw a couple years ago, culminating in a Dutch tulip-style bubble. That is why I call cryptocurrencies "Dunning-Krugerrands."

And I have a pretty firm rule about speculating in experimental markets: that is, don't speculate in experimental markets. You're better off going to Vegas, and that's not saying much.

Right now if any cryptofans are reading this, they're probably going, "Okay, sure, bitcoin isn't based on anything real, but neither are US dollars. ZING." Well, you have half a point. US dollars - most world currencies - are fiat currencies, meaning their value is pegged to no commodity (most used to be pegged to gold or silver, but that ended years ago). The USD is backed by the US government, which, despite attempts from all sides to bring it to a screeching halt, still keeps chugging along, if only on two cylinders. So, yeah, if the government collapsed, dollars would be worthless, just as bitcoins (or whatever) are worthless in the scenario in the linked article. But there's one important difference: If the US government actually collapsed, we'd have FAR bigger problems than the nominal value of the pieces of paper in our pockets. Contrariwise, if the owner of a cryptocurrency blockchain dies without a succession plan, you're boned - but you're still living in a semi-functioning economy.

Okay, enough of that. Yeah, some people bought bitcoins (or whatever) and got lucky. A lot of other people did not. Point is, a whole lot of people who really didn't understand what they were getting into are now boned. I can't feel sorry for them, though; it was a greed thing and not what anyone with any sense would call a wise investment. Look, you wanna gamble, I'm certainly not one to judge. But if you did, I don't think you knew the actual odds. And that's what's reckless, not the gambling itself.