Q&A

Question 1: Question 1: Bitcoin

How many of the 21 million Bitcoins are left? What will happen when we get to that number?

Bitcoin is getting mined every day, and already something like 18 million out of the 21 million Bitcoin have been mined, leaving only 3 million Bitcoin left. Fun statistics: out of the 18 million, at least 4 million, but probably more than that, are irretrievably lost. You know, and you should remember, that the private key is irretrievable, and if you misplace the private key, the wallet controlling the Bitcoin or other cryptocurrency corresponding to that private key is going to be also inaccessible. When we talk about the scarcity of Bitcoin, it is not even 21 million. We have to take at least 4 million and I think more than that, and that is the available amount of Bitcoin.

Bitcoin is divisible in a hundred million pieces each. That is why, when I ask the question “Do you own a Bitcoin or a fraction of Bitcoin?” that is much more meaningful than not asking if you own a fraction of a US Dollar or a fraction of a Euro, because both the US Dollar and the Euro can be broken only in 100 pieces, and anything less is not legally recognized, even if some accounting systems may take into account fractions of a thousands, or less. Bitcoin is really just the name for what is the true unit: 100 million Satoshi is a Bitcoin, and the question here is “What is going to happen when the mining process is over?”

The mining process will “end” because it is not going to happen in practice, but it is expected to end in 2140. So until then, the mining operation will go asymptotically to the total, and the network in the next 100 years or more is of course going to be extremely strong, extremely valuable, and one that guarantees that something will be done in order to make sure that the network stays secure and that the network keeps performing. Today, the rewards that are paid to the miners are the Bitcoin that is born in the network. Tomorrow, and it is not going to take 100 years, it will take much less, the rewards are going to be the transactions themselves. That is what is going to represent the mining, the return on the investment of the miners, the transaction fees. And as far as the pieces of Bitcoin that are lost it only means that Bitcoin is bound to become more valuable because it is going to be ever more scarce.

Question 2: Wallets

Amongst all wallets, which one would you recommend for a daily use? What is a hardware wallet?

The number of wallets that are available is really very large. You can look at many of them, for example Coinbase which is very successful and very trustworthy, except that it is not a true wallet because you don’t control it, and you don’t own your private key. Coinbase in this sense is similar to PayPal, and it is also relatively famous for being able to freeze an account: if your transactions are suspicious, then Coinbase is going to say: “Wait a minute, do you mind sending me your photo ID? Do you mind telling me what is the meaning of the transactions you are doing?”. The cost of the ease of use that Coinbase represents is paid with this kind of control that it is able to exercise over the accounts.

The reason why I am still recommending it is because the cost of owning your own hardware of your own private key is the risk of losing it. If you are not very, very, very, very, very secure that you are not going to lose your private key then you should not take on the responsibility of managing your own wallet. Is it worth it? Yes, it is worth learning how to manage your private key, not only for Bitcoin, but for many other reasons because the security of how to manage digital data is going to be ever more valuable: not only is Bitcoin going to be valuable, not being hacked is valuable as well. This kind of knowledge is practical, so you should learn how to handle it. Just to give you an example: I have 3272 different passwords, and I don’t remember them all, for sure. But I have a password manager, and its master password is not 8, not 12, not 20, it is more than 30 characters long, it is what is called a passphrase. For me it is almost like a prayer; I pray that I don’t lose my 3000 passwords, because I remember my passphrase.

Trezor and Ledger are hardware wallets that need a passphrase to open. Both of them have a USB interface, and you connect them to your computer with a USB cable, and the knowledge of your password, your private key rudder, never leaves these devices. You don’t have to trust your phone, you don’t have to trust your keyboard, you don’t have to trust a web browser, and they are today one of the better ways of managing Bitcoin wallets and Ethereum wallets, and also all the wallets for the cryptocurrencies that are sitting on top of the Ethereum blockchain. Learning how to use them is not easy, but it is worth it. It is a knowledge that is going to be very, very precious.

To summarize this question: if you want to play with Bitcoin and cryptocurrencies and learn a little bit, and maybe buy a few 10s of dollars or a few hundreds of dollars, Coinbase is what I recommend. If you want to manage Bitcoin, or Ethereum in the interval between a few thousand dollars and the million dollars, then I recommend the hardware wallets. If we are talking about a man amounts that are more than a million dollars then don’t trust yourself, and don’t trust just anyone. There are systems where, for example, multiple people are needed, with multiple digital signatures in order to move amounts from one wallet, to another wallet. There are very secure physical places where these operations can be conducted, and, it’s not a coincidence, most of them are in Switzerland. We don’t have the time to enter into details about them, but they are fascinating and they have some curious consequences. If you are the owner of a knowledge that is so precious that you need multiple people to share that knowledge, and compose it as a puzzle, a minimum solution is to have 5 people, and 3 of them are needed in order to be able to do something. 3 out of 5. That means that if 2 of you are, for example, you and your partner, you can still fly together on an airplane, but not more than 2 because if the airplane crashes the 3 people remaining can still control the wallet and the Bitcoin with it. This is just an anecdotal detail of that.

Question 3: Quantum and mining

Will Quantum computers take over the mining business?

They may, but only when it will be equally difficult for Quantum computers to find the solutions to the next generation consensus algorithm. The last word on the question is the crucial word: if it is a business, then it has to generate a profit. If it is hard to do, if anyone with a Quantum computer can do it, then it wouldn’t be a business. An alternative to the question is: “Are Quantum computers going to break the Bitcoin network and crash Bitcoin to zero value?” No, because by the time they could do that, the Bitcoin network will have migrated to a Quantum resistant consensus algorithm. What Quantum computers could be doing is to break the encryption of past transactions or past communications. It is not a coincidence that spy agencies like the NSA in the US, the National Security Agency or No Such Agency as it was known when it was really secret even that it existed, collect all communications, even encrypted communications, expecting that in the future they will be able to break them.

Question 4: Hedera

What do you think about technologies like Hedera as an alternative to the Blockchain? It seems cheaper and faster than Bitcoin/Ethereum.

This is a bit technical, but let me answer it quickly. Hedera Hashgraph is a wonderful approach that promises all kinds of novel solutions that avoid perceived dangers or perceived downsides of Bitcoin and Ethereum, and I like it a lot. If it is going to win or not is not going to be defined by it being better or worse; it is going to be defined by its ability to attract a superior number of developers than Bitcoin or Ethereum or anyone else, because, as it was for example demonstrated by the wars of video recorders between VHS and Betamax. These were two competing standards of video recording devices, and VHS won even if it was demonstrably inferior to Betamax. Similarly, the developer community is going to crown the winner, and maybe there will be multiple winners. I am following Hedera because it is very good.

Question 5: Other cryptocurrencies

What other Cryptocurrencies are there as important or similar to bitcoin? Which ones would you recommend as a savings base?

The Bitcoin code is open source, so you can create your own, we are literally just a few clicks away. They will be not only similar to Bitcoin, they will be identical to Bitcoin. Then there are variants of Bitcoin has already broken in alternatives that have been changed a little bit, and the people pushing those alternatives are promoting the fact that these alternatives are superior to Bitcoin. For example, we have Bitcoin cash, and if you look at the value it started very high and then it went down. Over the course of the past year, or even past months it is doing interesting things.

Beyond Bitcoin, the other very important cryptocurrency is Ethereum because it is the basis of so many applications. But if you really believe that you should put a few hundred US dollars worth in cryptocurrencies, go ahead as long as you don’t check the price daily or monthly or even yearly. You will be able to go back in 5 years or 10 years, and see important changes in the value of that saving. Then the question really is: Should you diversify that is something going to be better than Bitcoin to the point where putting your $100 in that other thing rather than Bitcoin is going to be significant?” I don’t think so. If you put $100 in Bitcoin, $50, in Ethereum, $20 in whatever else and $10 in whatever more, that is fine. Then you will maybe lose $20, lose $10, but you will not lose $100, you will not lose $50. If I am wrong and you are right, and if in 10 years time both of the former are going to greatly outperform Bitcoin, then great, that’s amazing! But as of right now, if you want to diversify still, the vast majority 80-90% should go into Bitcoin, and another fraction should go into Ethereum and a rapidly diminishing amount elsewhere. By the way, I am not a licensed financial advisor. This is not financial advice. You should make your own judgment and considerations.

Question 6: Halving

What is Halving on Bitcoin and why is it important?

Halving is not excessively important. Halving is the moment, approximately every two years,  when mining operators receive a reward. That is half of what it used to be, and it is one of the mechanisms with which Bitcoin is managing completely autonomously the network. It is based on other factors as well, not only on the time that passed. I would say that it is that the difficulty of mining is more important, and the difficulty adjusts much more dynamically with the network, making sure that it is hard, but still possible.

Question 7: Proof of Stake

What is Proof of Stake? Is it better than Proof of Work?

Proof of stake is the ability of arriving at the consensus, not through what we call the mining operations, but through the ownership of a given amount of cryptocurrency that has been frozen for the voting operations. I don’t think that it is better. One of the reasons is because at the end, the cryptocurrency that is at Stake and frozen in the voting mechanisms has been generated in some way. For Ethereum, which is about to adopt Proof of Stake, nothing will change because for a long time, all the Ethereum that is at Stake is generated through Proof of Work. It doesn’t make a difference with what was before, and it is still not sure that it will work. The Ethereum experiment is now going to go through a very very interesting phase. In December, it will be important to see it.

Question 8: Blockchain outside the finance

Apart from the economic-financial aspect, in which industries do you think Blockchain technology will have greater acceptance in the coming years?

I think that one of the most important points about Blockchain is that it is part of our increasing ability to govern ourselves. One of the most under-appreciated experiments that failed was a Decentralized Autonomous Organization, DAO. If you think about it, the only difference between having a king that decides for everyone else, and having an elected parliament with an appointed or elected executive that decides for everyone else is the number of people involved. Just as it is ridiculous to believe that the king will make the right decisions, you will agree with me that politicians seldom make the right decisions. We know that it is better, but we also know that it is not good enough.

The most important application of Blockchain technology is still to be completely explored because we haven’t been ambitious enough, and it is going to be radically reforming what today we call “Representative Democracy”. In the future, we will look at it as barbaric as ridiculous, and we will laugh about it. Every organization is going to benefit by greater transparency, greater accountability, greater automation, greater flexibility, greater integration in an ecosystem of global partnerships. Every business. The ones that are going to be last are the ones that depend on all of this not happening. Let’s take Wirecard as an example. It is one of the top firms of the world and its auditors are called EY. For all the money that they have been paid, let’s say $1 Million, they were not able to prevent a multi-billion dollar fraud, which is the definition of their worthlessness. Auditors are worthless. and their industry is going to be completely destroyed by Blockchain. But the benefit to everyone of the transparency and accountability that the destruction of the auditing business is going to provide will be enormous.

Question 9: Bitcoin role

Why hasn’t Bitcoin gained a more important role in the global financial systems yet?

The global financial system is trillions and trillions of dollars. Today the Bitcoin market cap is $100 billion. In order to gain a broader acceptance, the crazy adventure of Bitcoin should have had the trajectory that is 100 times crazier than it was already; the disruption would have been probably excessive, and the financial system, as well as all the applications on top of the financial system, couldn’t have been able to be in a position to adapt. There is a balance between how fast things can change, and everything we build in the financial system will be on Blockchain sooner or later for sure, and it will increase tenfold or a hundredfold as a consequence in its impact and value and opportunity, but it will take some time. Another 10 years, maybe another 20 years, maybe. But that also means that rather than $200 billion in 10 years, Bitcoin will be $2 trillion. And then $20 trillion.

I am actually saying that Bitcoin is going to be worth each Bitcoin rather than being worth $15,000 or whatever it is today. It is going to be worth $150,000. If it gets to $100,000, then the risk of not getting to a million probably is lower. That is what I believe and that is what I expect. And then this important role is going to be fulfilled.

Question 10: Central banks role

Do you believe that the aggressive currency issuance by central banks is going to be a catalyst for Bitcoin?

Yes. The only reason for inflation to not have been higher is because technology is deflationary. When you buy a smartphone, you’re spending $1,000 or $500 or whatever is the model of smartphone you are buying, and you gain value that 10 years ago was a million dollars, and 20 years ago there was no amount of money that would have been able to deliver you this value. That is the degree of deflation that technology is providing in the market. The only reason why the incredible amounts of money that have been pumped into the system haven’t generated inflation yet is because of this interplay, even though the trust of people in Fiat currency is getting eroded, and the ability of central governments controlling their monetary systems is likely to go down. For example in countries like Argentina where inflation is already high and the adoption of Bitcoin is almost an existential necessity.

Question 11: Mining energy consumption

Doesn’t mining consume too much energy?

Well, it consumes a lot of energy and this energy is paid by the miners, and all of that energy is not taken away from other users because the miners are always looking for the most affordable source to the point where they are going to crazy locations, and very strange sources; those sources sometimes are built just for them, and the words “too much” in the question assumes that miners should have to use less energy. The proportion of energy that miners use is exactly what the network requires as the difficulty of mining goes up or down depending on the day of the month and the number of transactions. In this market perspective, the miners consume exactly the right amount of energy.

The question is: “Could it be put to better use?” Well, if there is a better return on investing that energy, then yes. So, for example, there are cloud based AIs and cloud based data centers for AI applications, and the centralized applications that use cloud based AI data centers, and they are viable because the output of the work that those data centers do is very valuable. The question is: “Should I build a data center for Bitcoin mining or should I build a data center for AI computing?” And anyone can make the decision. So for example a miner is produced by Bitmain, one of the leading Bitcoin mining hardware producers, which is now planning to go into Artificial Intelligence, and they have a fully owned subsidiary that is developing AI chips. Then the question can be changed to: “Doesn’t AI consume too much energy?” And the question will be a little bit more, evidently towards the benefit. If the benefit of AI is high enough, then we will keep putting in energy for AI.

Question 12: Bitcoin and Ethereum prices

What do you think of the new rally of the Bitcoin and Ethereum token price?

I have no idea. As a matter of fact in the past few days, the price of Bitcoin came down a bit, and in the last few days it was not as high as before, but still it reached almost an all time high. I know I don’t very much look at the short term, where I define short term as many months, because to me it is just too hard, almost like a superstition, to correlate the price over this short period of time with anything.

Question 13: Blockchain thoughts

Don’t you think that Blockchain is overrated in its capacity for managerial and production solutions?

According to http://doyouneedablockchain.com/, the answer to that is easy: databases work very well. But if you don’t have multiple parties with conflicting incentives, and the rules that are not uniform, you do need to be able to go back and see if someone tried to cheat. But the rules, even though not uniform, are fairly static. At the end of that decision process you can say: “Okay, I can use a Blockchain” which will be either a private or a public Blockchain depending if you need the transactions to be private or public, but you see most of the time you don’t need it.

So yeah, oftentimes the applications are not necessary. However, most of the applications are fairly elementary, not very sophisticated. As I mentioned before, I expect much more ambitious applications to emerge. And then starting to be impossible to renounce, it will be impossible to give up on those applications, they will be vital and essential to businesses everywhere.

Another remark I’ve received is about Pixivus, which is actually an Argentinian startup. Some of you may have heard of it: it is able to apply blockchain technology for certifying results.

Question 14: Voting using Blockchain

What is your view about decentralization and voting power? Example, 100 token 100 votes VS 100 token 1 vote. Is it more distributed?

We did mention Proof of Stake, but of course voting and applications of decentralized decision making, are possible on top of the existing blockchains as well. I very much believe in the ability that we should be able to improve governance, in general, both in the public sphere, as well as in the private sphere. I firmly believe that we will get to systems that use Blockchain based voting of all kinds, and they will be perceived as superior to what we have today.

Question 15: Ethereum layer 2

Is Ethereum layer 2 a solution for scalability?

This is a bit technical as well. Layer 2 basically means that you have applications built on top for various kinds of systems, and the scalability of the Blockchain is about how many transactions they can handle. Let’s take Visa as an example: it handles 1700 transactions per second, wondering 50 million transactions per day. Whether Ethereum or Bitcoin, rather than doing 4.6 transactions per second, It has to improve 1000 times in order to be able to generate that kind of value, and Layer 2 solutions are important. So for example, the lightning network for Bitcoin is promising to be able to do that, and Ethereum has its own approaches. Everyone is aiming to improve the transaction abilities of blockchains.

Question 16: DeFi

How would you summarise the relevance and impact you see DeFi will have on blockchain adoption and finance in general?

DeFi stands for Decentralized Finance, it is a new wave of exciting applications that is really gaining in acceptance. It can implement all kinds of applications, solutions and products that traditional financial systems also have. The ability to participate in these financial transactions is what is very interesting because anyone can be part of it. You don’t need to be a bank, you don’t need to get a license, you don’t need to get permission: you can participate in these decentralized finance experiments. They are not without risk because for the same reason: there is no regulator, there is no controller, there is no auditor, even though we have just seen that the organizations that are supposed to be controlled, audited and regulated still can fail and decentralized finance applications are very novel. And there are everyday hiccups.

I believe that they will be very important and they will drive blockchain adoption in the financial industry and decentralized finance will provide novel solutions for lending to small businesses, for example, or to individuals. They will provide new ways of earning an interest on your capital, while being able to precisely measure risk. That is the direction where we are going. They will also provide all kinds of derivative products that will be even crazier than not the data that they have said that we had, until now.

Question 17: Bitcoin for trading

Is an uprising in the use of Bitcoin as means of trade something to be expected? It seems that it has been more broadly adopted as a value protection mechanism than as a trade element.

The features of money are the ability to be used as a unit of account, as a store of value, and as a medium of exchange. The Bitcoin evolution, until now, it has favored us as a store of value. If I am in a country with high inflation, with political risk, civil unrest, and I have a hardware wallet or the private key in a passphrase that nobody, hopefully, will try to extract from my brain, then Bitcoin is a very good solution for storing my value or at least part of my value. One of the reasons why gold in India is liked so much as a store of value is because you can store a lot of the value of your family in chains, rings, earrings or necklaces. Hopefully, nobody will rob you and you keep that store of value.

The medium of exchange requires a price stability that Bitcoin hasn’t had, and it is not going to have for a long time. Bitcoin hasn’t been built to be stable in price. Either we psychologically adapt, or maybe we adopt electronic price indicators in supermarkets everywhere, which are programmable, and then we don’t mind that the prices of the goods that we want to buy change every day. Or there will be some other stable coins, as they are called, that become the medium of exchange, because the price of a stable coin, by definition, doesn’t fluctuate every day, but stays stable over time. I don’t believe that Bitcoin should necessarily be everything for everyone. I believe in variety. So if Bitcoin stays a store of value, and then other Blockchain based cryptocurrency becomes a medium of exchange, that is fine. I have no problem with that.