Are Altcoins a Scam?

Summary

Market Mondays: Episode Summary – "Are Altcoins a Scam?"

Release Date: December 15, 2024
Host/Author: EYL Network
Guest: Ian Dunlap, Stock Market Expert

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Introduction

In this episode of Market Mondays, hosted by the EYL Network, stock market expert Ian Dunlap delves into a critical examination of altcoins, questioning their legitimacy and sustainability within the broader financial ecosystem. The discussion spans from the foundational mechanics of fiat currencies to the intricate dynamics of cryptocurrency markets, highlighting concerns about trust, value creation, and security.

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Critical Analysis of Altcoins

Ian Dunlap begins by drawing parallels between traditional fiat currencies and cryptocurrencies, particularly altcoins. He critiques the fundamental nature of how currencies are created and managed, laying the groundwork for his skepticism towards altcoins.

[00:10] Ian Dunlap: "The Federal Reserve creates the dollar out of nowhere... We're exchanging, but we can't create the dollar out of nowhere. We have to go work for it."

Dunlap argues that the ability of central banks to "print money" leads to inflation, thereby diluting the value of existing currency holdings. He extends this analogy to altcoins, suggesting that many are merely tokens created without intrinsic value, driven by speculative promises rather than tangible assets or services.

[04:45] Ian Dunlap: "In the case of altcoins, you just create the coin, promise a bunch of things, and then these people are believers in the coin. You're just exit liquidity for the developers."

He contrasts this with traditional businesses, which must provide products or services to generate revenue, emphasizing that altcoins bypass this essential value creation process. This, he contends, leads to unsustainable economic models where wealth generation is based solely on the influx of new investors rather than underlying value.

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Trust and Security Concerns in Cryptocurrency

Transitioning from the critique of altcoin creation, Host B introduces the topic of security within the cryptocurrency space, referencing past scandals like the FTX collapse.

[05:08] Host B: "We've been in the space for a few years... How do you feel about security inside the crypto space now, specifically with bitcoin?"

Dunlap responds by emphasizing the paramount importance of trust in cryptocurrency transactions and storage. He highlights the risks associated with centralized exchanges, where users must trust that their assets are securely managed.

[05:49] Ian Dunlap: "When you're buying your crypto on Coinbase... You have to trust that these people are paying their lease... I don't want to have to trust anybody."

Using the FTX debacle as a cautionary tale, Dunlap illustrates how reliance on centralized platforms can lead to significant losses if those platforms engage in fraudulent activities or mismanage funds.

[06:30] Ian Dunlap: "They went behind your back and started trading the money. You give them money, and your screen says you own X amount of bitcoin, but in reality, they weren't."

He advocates for self-custody solutions, such as cold wallets, hardware wallets like Ledger, or multi-signature vaults. By controlling private keys personally, users can mitigate the risks associated with third-party custodians.

[07:15] Ian Dunlap: "The phrase is not your keys, not your coins. When you have something like a treasure... it's on you to keep it yourself."

Dunlap stresses that this approach, while requiring greater personal responsibility, ultimately offers enhanced security and autonomy over one's assets, aligning with the foundational principles of decentralized finance.

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Notable Quotes

• Ian Dunlap [00:10]:
  "The Federal Reserve creates the dollar out of nowhere... We're exchanging, but we can't create the dollar out of nowhere. We have to go work for it."

• Ian Dunlap [04:45]:
  "In the case of altcoins, you just create the coin, promise a bunch of things, and then these people are believers in the coin. You're just exit liquidity for the developers."

• Ian Dunlap [05:49]:
  "When you're buying your crypto on Coinbase... You have to trust that these people are paying their lease... I don't want to have to trust anybody."

• Ian Dunlap [07:15]:
  "The phrase is not your keys, not your coins. When you have something like a treasure... it's on you to keep it yourself."

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Insights and Conclusions

Throughout the episode, Ian Dunlap provides a compelling critique of the altcoin market, underscoring the risks associated with speculative investments lacking intrinsic value. His analysis suggests that the allure of quick profits in the cryptocurrency space often obscures the underlying vulnerabilities, particularly regarding trust and security.

Dunlap’s emphasis on self-custody aligns with the decentralized ethos of cryptocurrencies but also highlights a significant barrier for mainstream adoption: the need for users to manage their own security measures diligently. His skepticism towards altcoins serves as a cautionary perspective for investors, urging a deeper examination of the value propositions and sustainability of such digital assets.

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Significance for Investors

For investors navigating the complex landscape of cryptocurrencies, this episode underscores the importance of due diligence and skepticism towards ventures that promise rapid returns without clear value backing. Dunlap’s insights advocate for a shift towards more secure, self-managed investment strategies, particularly in a market prone to volatility and fraudulent activities.

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Final Remarks

"Are Altcoins a Scam?" serves as a thought-provoking episode that challenges the burgeoning enthusiasm around alternative cryptocurrencies. By dissecting the mechanics of currency creation, trust issues, and security vulnerabilities, Ian Dunlap provides listeners with a framework to critically assess their investment choices in the crypto space. This episode is a valuable resource for both seasoned investors and newcomers seeking to understand the intricate dynamics of modern financial instruments.

Transcript

[A]

But why don't you believe in altcoins? Okay, so I know every answer. I got to go in this long rant. My bad, y'all.

[B]

You good.

[A]

Rock out.

[B]

So don't worry, man. We control the time.

[A]

Look, this is. This is why. So what's happening right now is the Federal Reserve creates the dollar, right? And they're able, they have this crazy ability like a genie, to just create a dollar out of nowhere, right? And then we're forced to use that dollar, right? So we're exchanging, but we can't create the dollar out of nowhere. We have to go work for it, right? So I have to go spend my time, energy, effort, and resources to try to get a dollar, right? So I go get the dollar, and I'm storing my money in the dollar, and then they just print more of it. So that in turn makes me a little more poor, right? They're diluting the dollar, okay? So the basic concept that somebody is creating something out of thin air, and I'm trading my precious time for that thing, right? And we kind of understand that on a fundamental level. And, and we, we understand that. That's why we get our money out of cash and we put it into assets. So we understand this. Like, you can't hold the dollar. You will become poor, right? You. Your purchasing power will erode if you're holding the dollar. Now, if I think that's unfair, if I believe that it's unfair that somebody can create this currency out of thin air and force me to use it, and then they get a print as much of it as possible, then imagine a cryptocurrency. So if me and my homies come together and we just create this token out of thin air, right? We create the token. We pay influencers, we pay YouTubers, we pay these people to go promote it, or we make all these promises and they say, hey, in the future, we're going to do X, Y and Z. This coin has this utility, right? And then your viewers are like, yo, I believe in Chris's coin. Yada, yada, yada. They're making that same exchange. They're taking their hard earned money that they spent their precious time for in exchange for something I've created out of thin air. Now, if I'm holding some of that, if I'm holding some of that supply myself, and then as everybody buys in, buys in, buys and buys in, buys in, the supply I'm holding now goes up in value. So instead of. In the traditional business world, you have to sell a product, a service, information you have to do something in exchange for money. But in the case of altcoins, you just create the coin, promise a bunch of things, and then these people are believers in the coin, right? So then what happens is I just got wealthier by issuing this token, maybe paying for some promotion, maybe I actually do something, who knows? What I'm saying is I don't even want to make that gamble to be able to have to trust this person or trust that person, right? So I used to be a big Ethereum guy and I started realizing, well, the ethereum network owns 30% of the supply. So you issue something and then you keep it. And as we buy it, you get wealthier. And then that's how you're sponsoring corporate events, that's how you sponsor all these other things. So then going back to the traditional world in like stocks, why doesn't Apple have a token, right? They have to make their money by selling products, by selling services, right? So Apple has to go the long route and say, hey, it takes us money to buy these chips or to buy this material or to do this and do this. So there's this traditional flow of I'm buying things, I'm creating things, it's of use, it's of value. Now if you want to swap your money for this thing. Okay, cool, right. So what I've realized is in the cryptocurrency community or the space, people have basically found a way to fast track finding the liquidity. So if you guys have a startup idea and you guys come to like, let's say you come to me, for example, and you're like, hey, we need funding, blah, blah, blah, I might be an early seed, like I might catch, you know, an early round. So then you have to go into the market and you have to, you know, find your product market fit. You have to say, hey, this company, this, this product solves this solution. We're competing against these guys, blah, blah, blah, right? And then that's working, you're growing, you're getting market share and then you turn and say, we're going to go public. So when you go public now, that gives the early investors, me, an opportunity to get out, right? Because we need some liquidity from the stock market. That's a long process, right? So how long from when Uber was created until they went public? And that might be kind of on the quicker terms. Now if I'm a cryptocurrency, I can go from the idea to the liquidity instantly. Immediately I can create a coin and put out into the world and keep some of the supply in an hour, right? So people who realize this and they, they're going to capitalize on our thirst to get rich quick. So we're gonna buy it, hoping that it goes up. Not realizing, man, you're just exit liquidity for the developers. And so that's why I don't want to have to trust anybody.

[B]

It's a perfect segue to where I was going to go next in that there's a lot of people that have now becoming new to the cryptocurrency space, obviously, as we saw it climb over the past six months, new investors or new people who are trying to create savings from it. It brings up the issue of security. And so we've been in the space for a few years, probably six, seven years now. We've seen FTX collapse. I actually had Cryptotopia the day it would no longer existed. So how do you feel about security inside the crypto space now, specifically with bitcoin? Do you feel like we've gotten to a point where we've gotten some of these fake exchanges out of here? It's becoming a safer space. And I mean, if you want to.

[A]

Talk about that, okay, so it goes back to trust, the concept of trust, right? So when you're buying your crypto on, let's say, Coinbase, let's say you're buying your bitcoin on Coinbase, right? You don't actually have the bitcoin itself, right? So your bitcoin isn't actually on Coinbase or it actually isn't on something like, like a treasure, for example, right? They just have. It's stored in the blockchain and then you have a secret phrase that only you know to get access to it, right? So you're giving up that secret phrase because they're holding your bitcoin, right? So what happens is it's like parking your car in somebody else's garage, right? So you have to trust. There becomes like a line of trust. I have to trust that these people, I'm storing my car in their garage are paying their lease, right? So Coinbase itself, they have to be good actors, right? And I don't even want to have to pick who's a good actor and who's not, right? So I don't even want to have to trust Coinbase. I don't have to trust Kraken, I don't have to trust Robin. I don't have to trust anybody. So I bought. Because you remember when, you guys remember when the FTX thing was going on they were painting Sam Bankman fraud to be the next Warren Buffett. And that's building our trust. Yeah, this guy isn't gonna do anything. Look at him. You know they had that YouTube video like this guy's a billionaire, drives a Toyota Corolla. Like, you know, and it's kind of, they're just playing on people's trust. So in this case we were all putting our money into ftx, buying the bitcoin in hopes that they would turn and actually buy the bitcoin and they weren't. So you give them money. And your screen, the number on your screen says that you own X amount of bitcoin. But in reality they went behind your back and they start trading the money. And it worked until it didn't. So this whole thing comes down to like being trustless. I don't want to have to trust anyone, all right? I don't have to trust Coinbase, Robin Hood, Kraken. So I can use these exchanges to buy my bitcoin, but then I'm going to take self custody, I'm going to put it on a treasure, I'm going to put it on a ledger, I'm going to put it on a cold wallet, I'm going to put it into a multi signature vault like Casa or like Unchained. And these are all open source so people can verify. Like, hey, like we ran all our security things, right? Like I don't want anybody to be able to say hey, I'm taking your bitcoin from you or sorry, we got hacked. So you lost your bitcoin, right? So the phrase is not your keys, not your coin. When you have something like a treasure, for example, they generate your private key for you, right? They don't know your private key, they just, they generate it for you. That's on you to keep it yourself. And that's kind of counterintuitive for how we're used to storing our assets and how we're used to storing our wealth. I just keep my stocks with, with JP Morgan or I just keep my stocks with, with bank of America, right, or whatever with E Trade. So this is a different ball game. This is me saying I'm going to be in charge of my wealth, I'm going to store my wealth because I don't trust anybody. I don't, I don't know Brian Armstrong. I don't know what this guy does. I don't know what he eats for breakfast. And I'm not putting my daughter's future in his hands. I'll take self custody.