A week in summary: Surging Bitcoin, troubles in Social Network Industry

  • This week, Bitcoin hit a nearly three year high of $18,500 USD (the record high price is $19,783 in December 2017). Ethereum 2.0 is edging closer and it might just be around the corner.
  • PinDuoDuo expands the Duo Duo Maicai across China. Taking group buying to the next level, PinDuoDuo aggregates consumer demand for high quality fresh produce at a cheaper price. Consumers are able to pick up their orders the next day at designated local community points.
  • Amazon finally enters the pharmaceutical market (valued at $4 trillion USD) using PillPack’s infrastructure, which they acquired in 2018 for $753 million. The tech giant is now going after GoodRx with Amazon Pharmacy. Promising savings to Prime members without insurance and enabling Americans to order prescription drives online, will Amazon begin vertically integrating more health services soon?
  • Whilst the battle between COVID-19 and the vaccine is incoming, the effects of second order effects of COVID-19 are slowly being felt. The Financial Times reports that it is the younger generation and not the older generation who are increasingly dissatisfied with democracy.
  • The Senate hearing of Mark Zuckerberg from Facebook and Jack Dorsey from Twitter. The two shared very different philosophies over their social media platforms being addictive and contrasting opinions on algorithm transparency.
  • Apple concedes on commission fees in the Apple store, halving it to 15% for developers earning less than $1 million. A win for more Indie creators.

Bitcoin - what’s driving the value? #HODL on for progress

At a time when its price is again soaring, bitcoin should essentially be viewed as a massive short position against the entire financial system.” - Michael J. Casey (CoinDesk Chief Content Officer)

A short introduction to the period before the previous all time high

Back in 2015 when I was working at JP Morgan, a few of my colleagues/friends were very excited about Bitcoin and the ‘end’ of fiat currency. Bitcoin (BTC) was valued at around ~$200 at the time and I was a little sceptical about it for investment purposes - I chose to invest any money I had into stocks instead. I didn’t bother to learn more about Bitcoin and it was only a year or so later where Bitcoin had done more than 10x that I met the same friends who had invested heavily into Bitcoins that I started delving deeper into the cryptocurrency world.

In 2015, the ‘official’ line of the Technology team at JP Morgan was more or less on lines that Bitcoin sucked but Blockchain was cool. To sound less scammy, a lot of big institutions iterated that same line and whilst chiding Bitcoin began creating their own blockchain systems. Love the tech, but hate Bitcoin.

In 2017, Jamie Dimon, the CEO of JP Morgan said that he would fire any employee trading it for being “stupid” has not changed his stance. However sometimes actions speak louder than words and JP Morgan’s Global Market Strategy group now touts Bitcoin as a viable alternative to gold.

So with Bitcoin reaching 35 months high in 2020, what has changed since the previous all time high?

In 2017, word on the street was that one could make the same hypergains seen on Bitcoin with ‘successors’ like Ethereum and the ‘alts’ (short for altcoins which are any coins aside from BTC), crypto had caught the public’s attention. Attending Ethereum’s developer conferences like DEVCON, EDCON, I observed that developers were talking about creating a world computer (Golem network), alternatives to AWS (Dfinity), sidechains and proof of stake (OmiseGo) to compete with Visa and Mastercard. In the later half of the year, crypto reached all time highs. Smart contracts was all the rage, Consensys was primed as the next Google (funny how Stripe is actually more likely to be this ‘lineal’ successor) - it seemed everyone and their granny was getting into the frenzy. Bitcoin ATMs popping up everywhere a hipster existed and ‘big’ partnerships happening for all the Initial Coin Offerings (ICOs) of not so transparent crypto currencies - remember Walton Coin that people weren’t sure was Chinese or Korean, had Alibaba partnerships or Walmart partnerships.

June 2017: How to get rich. Use misleading photos of notable figures as 'advisors'. Go to hackathon, take pictures with Vitalik, call it partnership, do a whitepaper. Launch ICO -> Buy Lambo.

It was a period of evangelists battling for the ‘soul’ of how blockchain should be used. It felt like there were competing interests in how blockchain should be used in society. Between permissionless and permissioned blockchain networks. The rebels preaching about the core need for decentralisation and anonymity to be a key tenet of any viable cryptocurrency. The corporates pushing for a more centralised solution with Ripple (XRP) holding their Swell conference on competing dates with SWIFT’s, and having headliners like Sir Tim Berners Lee (inventor of the World Wide Web) and Dr Ben Bernanke (ex-Chair of the US Federal Reserve).  

In 2020 we are perhaps witnessing a similar sloping climb to 2017 in crypto prices. This time however, the general public may be more enlightened, there are less inflated expectations and some interesting progress in solving the trilemma of decentralisation, security and scalability.

Why McAfee is the biggest shill ever.

John McAfee famously said he would eat his d*ck on national television if Bitcoin did not reach half a million dollars on the 31st of December 2020. We are 39 days away and Bitcoin has yet to hit $20K. The recent price jumps may be from certain factors such as institutions jumping in as a safe haven since the COVID-19 market uncertainty has meant other asset classes are less attractive.

What we have seen in 2020 is much more technical progress. There has been momentum in Decentralised Finance (DeFi), Decentralised Exchanges (DEX) and the growth in the use cases of Non Fungible Token (NFT) industry. There has also been more progress on getting closer to Ethereum 2.0 with Casper (the implementation of proof of stake rather than the mining intensive proof of work protocol for securing the network) and Sharding (creating smaller networks of the main network to improve Ethereum network scalability).

Decentralised Finance and Decentralised Exchanges

A quick way to see how much of an increase in the DeFI activity is observing how much ETH is locked in and the level of activity. DEXs have seen exponential growth this year.

Source: Aleth.io 

Another is to compare and contrast the growth how various companies are building on top of decentralised protocols. There’s two big popular ones: Compound Finance which is a decentralised lending protocol for people to lend or borrow directly from their crypto wallets has seen and Aave which runs on liquidity pools. The former having $3.4 Billion and the latter a $1.8 Billion pool size already.

There are also several startups such as who are building fiat savings accounts with these protocols as the back end. Donut, Dharma and Voluto being three examples where you can connect your bank account and start making interest with DeFi. In January of this year there were 98,409 users of DeFi (measured by unique addresses), as of November 21, there are 939,940 users. A 955% increase this year!

Source: Dune Analytics

In 2015 when I looked at crypto, it was still kind of challenging to buy. LocalBitcoins was still relatively popular. Centralised exchanges like Kraken and Huobi were a bit challenging to use and I felt at the time it was a little bit dodgy with all the hoops and processes one had to go through to get crypto. It required no small effort to trade fiat into BTC or ETH and into alts. Whilst the two aforementioned exchanges are still top 5 in traffic, trade volume, liquidity - the top DEX, Uniswap (45.1% of DEX market share) is seeing hundreds of millions of daily volume per day. The popularity and liquidity in the DEX market is likely to stay with increased competitors to Uniswap and players seeking alpha.

Non-Fungible Tokens - NFT

Aside from the growth in DeFi, what is interesting in 2020 is that it’s not just about CryptoKitties.

Non-fungible tokens are smart contracts with identifying information that make each one unique. They tend to be tied up a specific asset, to show digital ownership. Since CryptoKitties, there have been new marketplaces, games and applications. Rarible, a marketplace to sell digital collectibles and Axie Infinity see around 25,000 daily active users. The latter being the top Ethereum NFT-based game on number of daily active users and a place where people can farm the game to make Small Love Potion (SLP) tokens that translate to real cash (and it pays better than farming World of Warcraft gold!).

Whilst there’s not much tangible physical value in owning a $300,000 piece of code that represents Kitty #896775, there are more and more games using NFTs. Although there is a problem with yield farming (getting in-game tokens that may or may not be worth something for more established cryptocurrency). There’s a possibility of applying the NFT concept into longer term market status games where reputation matters and creates incentives for ways where they can be applied to protect digital collectibles.

Coming back to Michael Casey’s opinion of Bitcoin, there has been significant progress in the cryptocurrency space to justify that this time, pricing may not be the speculative hype from 2017.

Bitcoin’s prices may be a short position against the entire financial system. A reflection of people’s fears of the century-old governance model of the global financial system. It may be as Michael Casey says, “a reaction against unsustainable debt levels; anemic growth despite masses of quantitative easing; economic inequality; the COVID-19 shock; and how, in a decentralized, social media information system where truth is being questioned, people sense a loss of agency in their and their communities’ lives”.

In perhaps slightly less heavy news…

Twitter Vs Facebook - a tale of two different approaches to social media algorithms.

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Brain Gems

Awakening From The Meaning Crisis (lecture series by John Vervaeke)

There’s a feeling of disconnectedness from ourselves, each other, the world and a viable future. A meaning crisis at the root of modern crises of mental health, responses to environmental collapse, and the political system. Vervaeke dives into philosophy and explores concepts like parasitic processing to explore and getting a grasp on the current crises.

Status Games: Engineering scarcity in a world of abundance (by James Currier)

Why do some networks succeed and others fail? One consistent pattern of successful networks is that they have scarcity from early on so that people can signal status and then over time the network begins moving towards providing more utility. James explores how humans are hard-wired for status games, providing status as a service, the entertainment trade offs and shifting dynamics of status.

What the History of Airlines Tells Us About Blockchain Commerce (by Paul Brody)

The vast majority of the world’s productive assets are offline. In the coming years, blockchain, wireless networks and the Internet of Things (IoT) may start connecting, digitising and tracking the world’s stock of productive assets. The digitalisation of the airline industry may shed some insights into how pricing and structural elements of an offline ecosystem may change with an IoT pricing connection.

What The Death Of Coffee Shops Tells Us About Silicon Valley (by Tim Bradshaw)

There’s been a long allure for techies and entrepreneurs to move to Silicon Valley. Where Los Angeles might be the place where you could bump into a well known performer, it was a similar tale in Silicon Valley. This happened in the low key coffee shops. With the changes in social norms due to COVID-19, this is changing. Maybe Clubhouse and Discord is the future?

Vitalik Buterin & Tyler Cowen talk Ethereum

1 hour+ discussion between Vitalik Buterin, the founder of Ethereum, and Tyler Cowen, economics professor and author of the Marginal Revolution. Cowen’s perspective as a distant observer: “The flow of wealth into crypto has meant all these incredible experiments, new worlds, new vocabulary. At the same time it has so weakened the market tests for these things, the normal metrics I would use… can’t be used in these areas. At the end of the day, my mental models that let me narrow it down to questions reproducible to a few dimensions”.

If you don’t smoke pot because you’re afraid it’ll make you paranoid, you’re experiencing the side effect without even smoking”.