← The Peter McCormack Show
The Peter McCormack Show
Beginner’s Guide #9: Altcoins, A History of Failure with Nic Carter - WBD190
01:41:15
Location: Skype Date: Sunday, 26th January Project: Castle Island Ventures Role: Partner Welcome to the Beginner's Guide to Bitcoin. Bitcoin can be intimidating for beginners. The protocol is complicated, the community can be aggressive and...
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- [00:01]
Peter McCormack
Welcome to the what Bitcoin did podcast.
- [00:06]
Nick Carter
Hello there, how are you all? Welcome to another episode of the what Bitcoin did podcast which is brought to you by the mighty Kraken. The best place to buy, sell and trade bitcoin. I'm your host Peter McCormack and today I've got part nine of my beginner's guide to Bitcoin. A fascinating interview with Nick Carter looking at the history of altcoins and their high failure rate. But before that I do have a message from my show sponsors. So first up, today's show is brought to you by the amazing blockfi, the future of bitcoin and financial services. And BlockFi kicked off 2020 with a massive announcement. They will be launching a BTC rewards card where you can earn sets back rewards. I can't wait to get mine. I've been pushing Zach, I've been saying come on man, when do I get mine? As soon as I get it, I'll be showing you, I'll be demoing it. I will be earning stats back with my card. They have also got a mobile app coming soon which is very exciting. And this is on top of their already market le doing crypto backed loans and their interest accounts. And it's the end of the month. I'm a customer. I will be checking out my balance in the next couple of days, looking at my interest. I've been with them now, I think it's about six months, six or seven months getting my interest on my bitcoin. I love it. If you're interested in finding out more about this, head over to blockfi.com which is B L O-C-K-F I.com Next up, today's show is brought to you by the mighty Kraken. The best place to buy, sell and trade bitcoin. You know Kraken now but are you using them? Are you a Kraken customer like me? If not, why? They are the most secure exchange out there. You might have heard about various exchange hacks at times. Well, Kraken put the safeguarding of your funds and your privacy as their number one objective. And they also have the best suite of tools available for you traders out there. They've got kraken.com, which is the best place to trade bitcoin. You also get access to up to the second pricing data with their cryptocurrency indices which is powered by CEF benchmarks. Got next level trading with bitcoin futures. They've got their amazing OTC desk with Deeper liquidity and private and more personalized services. They've also got Cryptowatch, where you can access markets across multiple exchanges at a glance. And they also have Kraken Pro, a beautiful mobile first app so you can trade Kraken on the go wherever you want. There is no better place to trade bitcoin. So find out more@kraken.com which is K R-A K E N.com and the app is available for the iPhone and Android. Just search for Kraken Pro which is K R a k dash E N P. Okay, so onto the show today, part nine of my beginner's guide to Bitcoin and I've got Nick Carter on. He's been on the show a couple of times before and he was on to discuss the history of altcoins. Now, anyone new coming into bitcoin may be seduced by the world of crypto and altcoins. I certainly was made a bunch of mistakes and I just want people to realize that this can come with significant financial risk. So it's an important subject to cover in the bitcoin beginner's Guide, not only because it can save from financial pain, but also by understanding the failure of altcoins, it helps you understand a bit more about why bitcoin is king and why it's been designed in the way it is. It is very easy to fall for the marketing around shitcoins, whether it's quicker or cheaper, transactions, smart contracts, anonymity, different consensus mechanisms or anything else. And without a ton of experience, how would you be expected to navigate this? Well, price action certainly helps and the trend with altcoin valuations is hard evidence for you about this failure rate. So what I want to make it clear in this show is that when you hear some altcoin promoters noticed some technical benefit has over bitcoin, it usually comes at a trade off that's not worth it. Do not think that the core devs have not thought about these ideas and looked at the trade offs and realized it's not worth it. So Nick was perfect for this show and he is somewhat of an altcoin historian and in this show he runs through the history of the alts. We pick out the main projects and you know what they were trying to do. We also look at the ICO bubble of 1718 and then we get into why all alts are probably doomed for failure. Anyway, I hope you enjoy the show. You've got any questions about it, you can reach out to me. My email address is. Hello, bitcoindid.com.
- [04:10]
Nick
Nick. Hi, how are you?
- [04:12]
Peter McCormack
I'm doing great. Thanks for having me on again.
- [04:14]
Nick
No worries. Always a pleasure to have you on. So I'm doing this bitcoin beginner's Guy series. It's going to be about 15 episodes just to have a repository of interviews that if somebody wants to get into bitcoin, I can send them to, other people can send them to. And I've done a. Why we need bitcoin, the history of bitcoin. What bitcoin is the technical level. But in planning, I wanted to do a show about the history of altcoins because I think it's very easy for somebody discovering bitcoin or even an altcoin first, but discovering bitcoin then to suddenly be tempted with this world of cryptocurrencies and altcoins. And I've seen far too many people, myself included, lose money going down this rabbit hole. So I thought if we can do the history of altcoins, we can essentially go through what is really. As we discuss a history of failure. Are you cool with this?
- [05:03]
Peter McCormack
Yeah, yeah, that's right. The history of altcoins is a history of failure. Yeah.
- [05:08]
Nick
So we're going to cover a couple of things. I think we'll cover the types of altcoins, why they exist, and then we'll kind of chronologically go through some of the projects. I know you're, as you said, you're a bit of a historian, so you're.
- [05:21]
Peter McCormack
Going to enjoy this. I'm an. I'm an amateur altcoin historian. That's right. I just. I find it so interesting, you know, to see these things come and go. And I also think having an appreciation for the history of alts, you know, is important because people are sometimes naive, you know, like, they look at aggregate measures, like the total capitalization of altcoins, and they assume that the ancient alt that they're holding is going to pump again. But in fact, there's a huge amount of churn within that set. And so as it. I think in reality, most altcoins, generally, this is what we've seen so far, they just kind of fade away to nothingness over time. And then it's typically like newer alts or ICOs, which are like part of that new cohort of sexy new projects which end up pumping the next time.
- [06:09]
Nick
We often hear the overuse of the word scam. Some people say, oh, everything's a scam. And I've always felt that's unuseful. I always wanted to grade Certain projects to say, look, there are definite scams, projects which are invented just to rip people off. Then I think there's also misguided projects where people think they can use blockchain to build something of value. But that kind of goes into that history of failure that we've talked about. But just to call every everything a scam, I think it doesn't really help.
- [06:36]
Peter McCormack
Yeah, it's not very. Yeah, I agree. It's not the most helpful nomenclature. I sometimes call a subset of these things like deliberately extractive projects. So you can definitely do a gradation there where you find projects which seem like they're intended to extract value as opposed to create value. And then some projects which are just extremely naive.
- [06:59]
Nick
And you know what, you can still make money on these altcoins. That's not to say that as well. And there are people out there who are, you know, multi coiners who are fully believing in altcoins and will trade them all day. And there are people who are bitcoin maximalists who think these things have no value, but are still happy to trade them to make bitcoin. But the reality is trading these coins and timing them is very hard. And you know, for me, if somebody's news coming in, I really don't want them to risk losing their bitcoin by trading what is essentially junk.
- [07:26]
Peter McCormack
Yeah, absolutely not recommended. I certainly don't trade alts and haven't for a long time. And we're going to cover a lot of coins and projects today. And I want to very much stress that I am not endorsing any of them. But I also don't want to be too harsh. I want to basically give them a fair shake.
- [07:45]
Nick
Yeah. And also in fairness, some of these projects have led to innovations which have been used in bitcoin. Some of them, it's almost like we needed to go through this certainly a few times, maybe not thousands of times, but clearly you need to go through this a few times to learn what the power of the blockchain is for bitcoin and where the value is in bitcoin. Would you say that's fair?
- [08:04]
Peter McCormack
Yeah. And also there's a lot of lessons learned from some of these experiments. Some things that bitcoiners would caution against, like an unlimited block size, for instance, or exotic proof of work hash functions. These were then instrumentalized in other projects and we saw lots of failures. So empirically we learned a lot from the way some of these altcoins operated. So there was experimental value there too.
- [08:29]
Nick
Right. Okay, cool. So before we get into this, I did take a look on CoinMarketCap, there was 2,388 coins listed. And that doesn't include all tokens. We know on some of the exchanges there's endless tokens. So we're talking about thousands of projects. And between you and I, we have a long term belief in one, which is bitcoin. And I guess between you and I, we imagine there may be two or three that will continue to hold a community maybe for a few years, we don't know how long. But generally speaking, I think we're on agreement that if we had to put our, you know, we had to put our fork in the sand and say in 10 years time, the one that will still be there and probably will be worth more than it is now is bitcoin. Is that a fair agreement?
- [09:11]
Peter McCormack
Yeah, totally. But I'd also say that I've probably been watching these markets for about seven years and I've learned never to bet against the ingenuity of token issuers. So there's always going to be something out there. And I would also. Some of the bitcoiners might not like me for saying this, but I would say Ethereum seems to have critical mass. It seems to have enough momentum to stick around.
- [09:34]
Nick
All right, so listen, before we jump into the types of coins and how they're created and the different types of consensus mechanisms, you rightly said when I was planning this, we should probably look a little bit at the prehistory. And I've already covered this with Aaron Van Wearden. We did the prehistory of bitcoin, you know, we covered some of these projects. But I think the pre history and post history is very interesting because at the genesis of bitcoin, finally something that was created that solved a number of issues that those trying to create a decentralized or a digital currency beforehand had tried to hand managed to do. So before we cover the prehistory and the post history, do you want to talk about what it is that bitcoin solved that almost enabled all these other projects to exist after?
- [10:19]
Peter McCormack
Totally. So Satoshi made reference to this as well. So what he said was he talked about some of these digital cash schemes like Liberty Reserve and Egold, which had existed prior to bitcoin. And he said it was the centrally controlled nature of these projects that doomed them. So all of these digital cash schemes, Digicash, Liberty Reserve, Egold and many others, they all basically had a central issuer, kind of a bank or a coordinator managing the whole process. What bitcoin was able to do was take the peer to peer innovations which we saw with something like BitTorrent and layer on this costly ledger entry idea, which came from ideas like hashcash, which was kind of designed to prevent email spam. Put all those things together and create a decentralized issuer where you had miners working together to issue the coins and to order the transactions so that Bitcoin could solve this double spend problem. So it was a combination of many innovations which enabled Bitcoin to not rely on a single trusted third party. That was really the innovation.
- [11:27]
Nick
Right, okay, so listen, we covered Digicash in that previous show and I'll encourage people, if they haven't listened to it, to go backwards and do the whole beginner's guide sequentially. And it is useful. But do you want to briefly touch on digicash, who it is, what it, what it achieved and why it failed?
- [11:43]
Peter McCormack
Yeah, I like digicash. You know, David Chaum is a cryptographer and he invented these cryptographic signatures called blind signatures in the 80s and then he started a company called Digicash in 1990. So what it basically allowed was users to load money into essentially a bank of sorts which issued these digital bills. And so what his innovation was that users of that bank basically had privacy. So they could, you know, thanks to this digital signature scheme, they could know that they had provably know that they had anonymity from a transactional perspective. And I think this is one of the most influential kind of pre Bitcoin experiments because, you know, it was reliant on this corporation, you know, on the fate of the corporation which failed in the 90s. So I think a lot of the cypherpunks learned from that. Some of the cypherpunks actually worked at Digicash. So Zuko of zcash fame, he worked there. And you know, it was weird. Like digicash could have been really interesting. So like Bill Gates wanted to put a version of the Digicash software into every copy of Windows 95. So it was really on the cusp of greatness. But, but I think ultimately it was just relying on the existence of this company. And unlike Bitcoin, it was a product as opposed to just a protocol. So it was still this issue with the central issuer, basically.
- [13:15]
Nick
Yeah. And also I think David Cham deserves a lot of respect. He very early on identified issues with privacy relating to the Internet and he did a lot of very important work with cryptography. So even if that was a failure, I think the memory of what he does. We need to embed that in any work. There's a lot of people we could forget about in the history of bitcoin, but his work is so important.
- [13:38]
Peter McCormack
Yeah, absolutely foundational. And you're absolutely right. Even before the Internet really existed in a consumer fashion, we're talking about the 80s here. He was adamant that the advent of digital cash could create a panopticon for regulators, for the state, for corporations. And he was absolutely right. Look at central bank digital currencies today. That's a desire to create a system where every transaction is logged and known. And David Chaum rebelled against this incredibly hard. And he was like, no, we need to create an alternative with strong privacy. And many would say that's the biggest shortcoming of bitcoin, that there isn't this strong privacy.
- [14:16]
Nick
All right, now tell me a bit more about E Gold, because that isn't a project I know too much about.
- [14:20]
Peter McCormack
Okay, so E gold was also mentioned a lot by the cypherpunks. Part of the reason is because it failed just as bitcoin was being set up. So the two kind of intersected. In 2009, E Gold was failing. Bitcoin was getting started. So E gold was created by an oncologist, a surgeon basically. But he was also obsessed with monetary history, and he became absolutely obsessed with this idea of curating currency outside of the control of governments. Sound familiar? But bitcoin didn't exist back when he created it in 1996. So he decided to create basically a full reserve bank backed by gold deposits, actual gold. And the innovation was to make transactions digital. So unlike old timey banks, where you would get physical bills, here you would get a digital claim on some bank reserves, IOUs that you could, you know, spend. And like, people think that, you know, stablecoins are kind of a relatively new phenomenon, but this was basically the first or one of the first digital stablecoins, you know, and actually got a ton of usage. So at its peak, it probably had about $80 million of gold, physical gold in the vaults. It was doing $2 billion a year. They actually kept fairly good data. They had audits from an audit firm. But then eventually they were shut down because the Patriot act was passed after 911 and the bank secrecy act regulations came to encompass more and more different classes of activity, including E Gold. And so the founder actually went to jail for a little bit after that. So kind of a tragic story as well.
- [16:04]
Nick
Right. Okay, so the next two things are two projects I'd never heard of. I'd literally Never heard of Beans or Flus, but they're two things you raised and you appear to be fascinated by them.
- [16:16]
Peter McCormack
So I wanted to cover these because. So if you look at Digicash and Eagle, these were like really serious projects with a really serious objective. You know, digicash, transactional privacy, Egold to create a digital, essentially monetary system, a fully independent digital monetary system. Beans and Flus, by contrast, are two of the worst projects ever conceived, and I absolutely hate them. But they're interesting because they're the precursor to ICOs. So if anything, they were the first ICOs. So beans raised $100 million from VCs in 1998 at the absolute peak of the dot com bubble. Their idea was to create a Internet currency for Internet merchants, which were just getting started around the time, and they wasted this $100 million. They spent it on the stupidest stuff imaginable, like guerrilla marketing. So they actually paid magicians to slip flyers secretly into the pockets of the general public. It was a free floating coin, so it wasn't pegged to some reserve. And as it turns out, Amazon and other e commerce startups, they didn't want a volatile free floating Internet currency. They wanted to use credit cards for their payment processing. So Beans and Flu's, which was also very similar, both failed and they had celebrity endorsements. It was a whole mess that we saw 20 years later with ICOs.
- [17:40]
Nick
Yeah, I was just saying there's so many similarities between these projects in 98, 99, and all the kind of crazy ICOs of, you know, let's say 2017, 2018, where a huge amount of money was raised, wasted on the most ridiculous things I'll add into celebrity endorsements. You know, you had people raising money who were getting private jets and flying around the world and really enjoying themselves without creating any value. So there's a real similarity between the two. And I think that just kind of identifies a little bit about how the human psyche works.
- [18:12]
Peter McCormack
Yeah, totally. Everything is old, Everything old is new again, you know, and like, these were intended as utility coins. So it's amazing because like the founders of both Beans and Floos, which had this horrible like 90s aesthetic to them, they didn't give any thought to like, the economy of these projects at all. They just kind of figured that if there was enough transactional usage, the coin would have value. Does that sound familiar? So they were utility tokens. And they also did this amazing thing. When they started to fail, they hired economists to see if they could figure out how to figure out the token Economics, which is something we've seen with projects today. So I love these case studies because these were so, so similar to a lot of these subsequent VC backed ICOs.
- [19:03]
Nick
But it also shows that there is a desire amongst humans to be able.
- [19:07]
Peter McCormack
To create money 100%. It's the biggest prize imaginable. And the only difference between these early attempts to create money and now is that Bitcoin was created in 2009 and it made everyone realize subsequent to that that they could actually do it. You know, I like to say the Overton window was opened so it became permissible to really try your hand at creating a money. And also Bitcoin created a financial system that made it easy to send money to issuers. So it made it less frictional from kind of a capital markets perspective to create these new coins.
- [19:43]
Nick
And one of the important differences with bitcoin, and we can really only say up until the present day, but it appears whoever that creator is hasn't done it so far to enrich themselves. Now that's going to be something very hard to prove false. It's always going to be something in the future that we never know if Satoshi will reappear, move the coins and sell them. But you know, if that person is choosing just to wait for a certain time in the future, they have some nerves of steel because they've held their coins up through multiple bull runs and you know, some crazy numbers. But it appears that at present this hasn't been somebody attempting to create money to enrich themselves totally.
- [20:19]
Peter McCormack
And you know, Satoshi also chose anonymity and so they were never able to publicly take credit for their invention. So whoever they are, they've shown some extreme restraint in staying anonymous all these years. And that is something that really distinguishes Bitcoin from virtually everything else.
- [20:37]
Nick
Okay, so the one more project pre Bitcoin we should talk about is Liberty Reserve. Its history kind of is pre Bitcoin, but kind of carries through. But again, this is a really interesting project because actually what happened to the founders and the kind of the stretches of the government when they feel their money's being, you know, threatened, let's say.
- [20:57]
Peter McCormack
Totally, totally. So Liberty Reserve was what we would know today as a stablecoin. They were started in 2006, incorporated in Costa Rica, I believe, and shut down in 2013. So you would wire in funds through this kind of shadow bank network and you would get access to these Liberty Reserve tokens which you could send to anyone online with no KYC whatsoever. So you can see in kind of the in the light of day today, why the government would have not liked this idea. So they did a ton of volume. They did like 55 million transactions, billions of dollars transactional volume. So it was kind of viewed as a jurisdiction independent PayPal. So obviously money launderers and scam artists got a hold of it. Normal people also used it. And when the whole system collapsed, a lot of normal folks lost their money. Just because this notion of a financial rails online has a lot of appeal for a lot of people, not just people that are trying to launder money. And then when it was shut down, the founder got 20 years in prison. So the stakes were really high. The government cracked down extremely hard. And that was another lesson in kind of centralized money creation. So this was definitely a reason bitcoiners or satoshi was so paranoid and another reason why a decentralized model makes sense.
- [22:25]
Nick
So before we get into the world of the project, since bitcoin, people coming in are going to hear this term shitcoin. And when I first started hearing the term shitcoin, I didn't realize that most people are using it to reference anything that isn't bitcoin. Like anything that's not bitcoin is a shitcoin. We should probably explain where the history of that comes from.
- [22:43]
Peter McCormack
Sure, yeah. So shitcoin, not a word I use a lot, but very popular among bitcoiners. So I traced back the first mention. It looks like it was first used on bitcoin Talk forums in 2010 by a user ryback. So the quote is, if bitcoin really takes off, I can see lots of get rich quick imitators coming onto the scene. Gitcoin, which actually is a coin. Now bitcoin, witcoin, tickcoin, shitcoin, some of them are sure to attract users with promises. And he goes on and on. And then he says, of course the cheap imitators will disappear as quickly as those 90s quote unquote Internet currencies like flus and beans. But lots of people will get burned along the way.
- [23:30]
Nick
What's the date of that quote?
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Peter McCormack
In November 2010.
- [23:35]
Nick
That's pretty prophetic.
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Peter McCormack
Amazingly prescient. Yeah. And then Gavin Anderson, bitcoin's maintainer at the time, actually comments in that thread. He says the hard part would be getting anybody to use your alternative. It would have to be better in some way other than just I started the new chain, which is so funny to look at this stuff 10 years on.
- [23:57]
Nick
Well, so it's very interesting. I did a show with Jimmy Song a couple of months back called killing the hopes and dreams of shitcoin backholders. And he did a lot of research into this and he said the main reasons that shitcoins have attracted money, maintained money and maintained a community is all down to marketing. They market some benefit. It's faster, it's cheaper. So we often see people getting into rants online on Twitter about XRP or Nano or bcash, and it's usually some kind of different benefit. When they talk about Bitcoin is old technology, it's archaic and slow, blah, blah, blah, and they spout something about some technical improvement that the coin they're interested in has had. But really what they seem to miss is that it's never really down to the technical limitations of Bitcoin.
- [24:46]
Peter McCormack
Yeah, totally. And to be sure, bitcoin has some limitations, you know, you could say, well, the, the opcodes aren't sufficiently expressive, you can't do enough with it. And there is a narrow, very small category of coins that you know, can be more expressive and do more things. However, that often comes at a significant trade off. Then some of these claims that are used to promote altcoins are simply false. So Litecoin was always marketed as being just straightforwardly faster than Bitcoin. You'll see that. Or having ASIC resistance. It's faster in a very naive sense and not a realistic sense. I don't know if we have time to get into that. But in terms of being ASIC resistant, that was disproved. Someone made ASICs for Litecoin. So oftentimes the claims are either incredibly naive and are later proven to be false, or there's trade offs that basically aren't being mentioned. But yeah, this is kind of the premise of altcoins. There's always some slight innovation or claimed innovation against Bitcoin which they use to tout their project.
- [25:53]
Nick
But I could argue, and I have argued in the past, that sometimes these claims help improve the immune system of Bitcoin, help prove some of the design decisions were correct.
- [26:04]
Peter McCormack
Yeah, totally. So, for instance, many times when additional complexity is added, this often manifests later in some sort of unforeseen catastrophic failure of a sort. So one example would be this coin called Vertical, which had five hash functions, which was claimed to be more secure than Bitcoin, which just has the 1 sha256 and this 5 hash function system just added a lot of complexity and added attack Surface and Verge was attacked and there was kind of a hyperinflation event on Verge. So that's one example. Another One would be some of these privacy enhancing schemes. Now, I'm not against privacy, but we also have to be really careful in the way that we add it to Bitcoin. So bytecoin was a privacy coin with confidential transactions. Bitcoin had an inflation bug and it couldn't be directly perceived because of this privacy scheme where you couldn't see the amounts and transactions. So if that happened on bitcoin, it would be catastrophic. Right. So as I said, altcoins are an opportunity to learn about why bitcoin makes certain trade offs as opposed to others.
- [27:12]
Nick
Well, so we can work through the categories. So I've listed the categories of coins that exist and we can work through them and also kind of discuss where we think there's been any benefit, anything we've learned from them that help improve Bitcoin or prove themselves to be kind of like a wasted project. So yeah, I leave bitcoin out as its own category of coin. But then we have bitcoin like money coins, which is bcash, litecoin, dogecoin. And for me personally, they proved a couple of things. They proved to me firstly that having a leader is actually a bad thing. Having somebody out there as leading the project, as a figurehead. You know, we have Roger Ver with bcash, we have Charlie Lee with litecoin. You know, that proves actually to be a fault and that actually proves to be a problem with the coin because people, they kind of look towards their leader to make decisions or to, you know, drive investment. I mean, we've seen it only this week with BCash now having a tax for development. So that proved that for me. But also it proved to me that what's important with a money coin like bitcoin is that actually it isn't always about the tech. It actually is about the trust in the system, the developers. And actually one of the things about bitcoin that's most important is its immaculate conception, which Dan Held talks about.
- [28:27]
Peter McCormack
Yeah, totally. So the leadership, you know, having nice marketing and having leaders and central coordination around the narrative and the messaging, it seems like an asset, but really most of the time it's a liability for sure. So in the short term it can work because they can drum up support like sign partnerships with other projects or companies. But in the case of, for instance, litecoin, Charlie Lee infamously sold all his litecoins or claimed to sell all his litecoins near the top. And litecoiners kind of hate him for it. Now in bitcoin cash, they had these charismatic Leaders, some of them went and actually split the chain and created a fork which fragmented the community. And then now we have Roger Ver creating or trying to create a developer fund which is basically siphoning protocol rewards off for some kind of totally unspecified purpose. So generally speaking, having leaders creates a point of failure. Governments of the world could put pressure on these people, and I'm sure they will if these coins were to get traction and a big liability, kind of a long term liability. And you're also indexing the fate of your coin to the kind of mercurial attitudes of some Internet charismatic coin salesman. So kind of a bad idea. Overall, I'm pretty glad Satoshi, you know, stayed silent all these years.
- [29:51]
Nick
Yeah. So next we have the privacy monetary coins again, Bitcoin like, but have a they offer on chain privacy, such as Monero and zcash. And again, you know, privacy is something that's really important with Bitcoin, but if it's on chain, it comes with a trade off. And I think that's one of the things we've learned about that. Perhaps the trade off isn't worth it. And usually this refers to knowing that the 21 million exists and there's no inflation.
- [30:15]
Peter McCormack
Yeah, totally. And I would consider the privacy coin segment to be a super valid alternative design space. Right. So like Monero has no pre mine and it seems to render a pretty useful service to people that really need it. However, there are really difficult design considerations that need to be reckoned with. So it kind of depends on the privacy scheme you're using. But for instance, the way Monero works is it's difficult to prune outputs, so it's less scalable and transactions are much larger because it's a different kind of cryptography. And then of course you have these issue with potential inflation bugs which cannot be remediated. Zcash for instance, had a typo in their specification which many years later manifested in a potential inflation bug. Now they don't actually know if it was exploited because the shielded pool in zcash means you can't really see what's going on in there. So the privacy comes, it trades off against the auditability privacy at the base layer. And so that's a really kind of significant thing to be aware of. Again, I think privacy coins are basically a valid idea, but I would be very skeptical of incorporating this tech into Bitcoin as it's currently understood.
- [31:33]
Nick
Yes, and referring back to my previous show with Dan Hell, we discussed Bitcoin's monetary policy and one of the most Important things about it is the limited supply, the fact that it is 21 million. If there is some hidden inflation bug that could potentially increase the 21 million that actually devalues what is one of the main design points of Bitcoin?
- [31:53]
Peter McCormack
Totally. And if anything, that's one of the most important characteristics of Bitcoin is not only the supply cap, but also the predictability and the credibility of the system. And an inflation bug would basically be catastrophic.
- [32:07]
Nick
One of the things you did mention was a pre mine and that's probably going to come up later. We should probably explain what that is now though, if somebody's just heard that and what the problem with the pre mine is.
- [32:17]
Peter McCormack
Yeah, and so pre mine is a word that specifically relates to mining, which is not how all of these things were issued. But then it kind of took on this broader meaning. So really a pre mine was a concept introduced in the early days after Bitcoin when some of these altcoins were created. But the developers, you know, pre mined they basically allocated some fraction of supply to themselves as a reward for, you know, being these pioneering developers that created bitcoin alternatives. And you know, in my mind that's a pretty illegitimate thing to do. Most people agreed in the early stages and then later on the notion of a pre mine kind of became ratified and became socially acceptable. But you know, my thinking on this is if we're really talking about a monetary system that we want to scale that up to a global audience and user base, it's not a good idea to have any one entity in control of like 20% of the supply. Not only because that would make that person 10 times richer than Bezos if the money acquired global usage and that would delegitimize the system. But also because fairness is just a key variable which should be enshrined in the creation of these coins. And having deliberate unfairness, it seems to kind of compromise the project from its start. So my guess is the coins that do the best like Bitcoin are those that don't have this embedded unfairness in them. It makes them more likely to succeed. And also we can look at the history and see that some of these heavily pre mined coins were out competed by fairer counterparts.
- [33:53]
Nick
Okay, so the next up we have is essentially the smart contract platforms, the protocols, the likes of Ethereum, AOS and Cardano. And me going through my kind of history of Bitcoin and my experience with altcoins is that, you know, especially at my non technical level is that a couple of the problems that these seem to have is firstly adoption and to scaling. And when people talk about decentralized being a spectrum, I've heard this a lot. I tend to look directionally where it's going. You know, when I look at Bitcoin, all the development choices seem to be considering the trade offs for decentralization, you know, block size mining. But it seems to me something like Ethereum directionally is becoming more centralized, which means it adds more risk.
- [34:36]
Peter McCormack
Yeah, absolutely. And you know, one of the most important things when you design a cryptocurrency is to have easy verifiability so that a retail user, you know, a normal person like me, or you can verify the validity of an inbound payment. But to do this, you have to run a full node. You have to process the whole history of the transactions, process the whole ledger and keep current with the chain tip to make sure that that transaction is valid. It's following the protocol rules. The more data you add onto there and more computation you need your full node to run. The more difficult it is, the more costly it is to verify the validity of that inbound payment. So if we ever had a blockchain which had visa levels of transactions, no one would be able to run that full node. You'd need a whole data center to do it. And so the system would be pretty useless in terms of maintaining decentralization and trustlessness. So that's like the key concept to keep in mind here. So Ethereum made a deliberate trade off to have costlier validation, costlier full nodes, requiring more bandwidth, more computation, more space on your hard drive in exchange to have more scalability and expressivity at the base layer. And then some of these other coins, Eos in particular took this concept and kind of did the reducto ad absurdum. They took it to an absurd degree. So running an EOS full archival node, I can tell you, thanks to my experience at Coinmetrics, is incredibly difficult, incredibly costly. So in some cases this notion of user verification of the protocol, this idea was thrown out. And this is often the case in these smart contract platforms where there's really a deliberate attempt to make this trade off more expressivity, more scalability in exchange for much more expensive validation. And people criticize Ethereum for this, but it's actually not the worst offender by any means.
- [36:40]
Nick
All right, so next up we're going to have stablecoins. And again, this is an area which does have some validity around it, especially with many bitcoiners and especially again with Tether, because you know, one of the problems that Traders of bitcoin had early on was having the ability for on and off ramps, but tether gave people the ability to trade bitcoin. So I still believe a lot of bitcoiners believe there's a world where it's bitcoin and tether.
- [37:06]
Peter McCormack
Yeah, people think that there's a contradiction in using blockchain rails to issue fiat denominated assets, right? I actually don't think there's a contradiction. The stablecoin idea precedes bitcoin. As we saw with Liberty Reserve and Egold, those were basically stablecoins. The only difference was they didn't exist on a blockchain. They exist in a more centralized manner. So there has always been, since the dawn of the Internet, a demand to take regular dollars and make them digital and then reduce the permissions around them. So give them the ease of use and the settlement guarantees of actual physical cash, but in a digital context so that you could send your cash to your relative in the Philippines or Mexico. So this has always been a really seductive idea and lots of entrepreneurs have tried to create this product. Stablecoins just leverage the nice assurances that we have of blockchains to replicate this. However, they're subject to totally the same pitfalls as the predecessors like Liberty Reserve and Egold. There's always a central issuer, aside from in rare cases like make or Die, where it's created in a different way. But so Tether, USDC, TrueUSD, Paxos, these are some of the better known stablecoins for the most part. They all have an issuer that could all be compromised and governments might lean on them to perform really aggressive KYC or just surveil the chain. So these are not a panacea. I think if there was a way to create stable value online, kind of fiat denominated, and that had been possible in a truly decentralized way, that's what we would have got instead of bitcoin. And people would have been pretty happy with that because something people really like cryptocurrencies for is these large inter jurisdictional transfers. Stablecoins are good for that. However, there's always this trust trade off to be made.
- [39:05]
Nick
All right. And the last one we're going to cover is utility tokens, of which exchange tokens really are just a utility token. We have the likes of Bat Augur 0x. So the biggest lesson for me here was, and this is where I think the world of cryptocurrency went completely lunatic in 2017, was there was two main problems I Noticed with these. Firstly, it added friction into anything you wanted to do by having to go to an exchange to buy these tokens to access whatever utility they wanted to provide. And secondly, nobody really wants volatility with a utility product.
- [39:39]
Peter McCormack
Yeah. So utility tokens, these follow from the philosophical tradition of beans and flus, which, as we've discussed, was deeply, deeply flawed. You know, it betrayed a total ignorance of economics and how consumers would engage with these things. And so most ICOs, they didn't want to be understood as securities by the regulators, so they didn't have dividend mechanics or anything. The theory was just that as usage of some online system or network increased, if there was a token required to use that system, the value of that token would appreciate and stabilize. This was the fundamental fallacy that we saw repeated hundreds of times in 2017. 18. It was just a nonsense idea. It's astounding to me that even one of these saw any uptake. And if you look at utility tokens today, virtually none of them have any usage whatsoever. Because, of course, you don't stockpile gasoline in your basement before you go out for a road trip. You just buy it as you need it as you're on the road. Right. And so the utility token folks thought, well, if users need this computational resource, they're just going to buy it up in huge quantities beforehand. This didn't happen. And for the most part, these networks were totally abortive. Nobody used them. So, yeah, the utility token was, in my mind, like the worst fallacy of the blockchain space in the last five years.
- [41:08]
Nick
All right, so let's get into the history of these altcoins so the listeners know. I mean, I started in 2016, so some of these predate me. You know, you're a bit earlier, but some of them predate you. So some of this isn't based on our history of experience at the time, but you know what we've learned since.
- [41:23]
Peter McCormack
Yeah, I am going to be relying on my experience from about dogecoin onwards, but prior to that I had to do some archaeology. So the 2011 through 2013 class of alts I don't have any personal experience with. I'm just relying on my Internet research skills.
- [41:38]
Nick
All right, so Bitcoin launches January 3, 2009, and it's a couple of years before we get the first altcoin. And my guess is in that reason is because it was probably 2011 that people started trading bitcoin. So it started to have value and the incentive then was there to create altcoins. I'm just going to go, that's a guess. And then we've got the first one, which was Namecoin.
- [42:00]
Peter McCormack
Yeah. So, yeah, you're right. Nobody really cared about Bitcoin for the first year in 2010, it got a bit of attention. And then even Satoshi was actually involved in the discussions around the protocol that would eventually become Namecoin. And what's interesting is the very earliest altcoins were maybe some of the most interesting and then they got kind of worse and worse as time went on, and then maybe there was some genuine innovation much, much later. But so namecoin, it was first called Bit DNS. So the idea was to have a domain name system with the data itself stored on a blockchain. Right. So a domain name system is how we resolve URLs on the Internet and it's kind of done in a centralized way. So once the idea for Bitcoin had been proven out, it was kind of a logical extension to say, okay, well here's another data structure that we all benefit from. It needs to be highly available. Wouldn't a blockchain be good for that? And so Namecoin was created in April 2011. And so it was a code based fork of Bitcoin. So when I say code base fork, I mean a new chain started from scratch using the code of Bitcoin. Because Bitcoin was open source, you could reuse the code and the idea was to create these dot bit domains. You could buy them from the protocol for 0.01 name coins. And it was basically an alternative to the domain system. And interestingly, it was also the first example of merged mining. This meant that bitcoin miners would also do a tiny little bit of extra work to mine namecoin blocks. So its security became tethered to that of Bitcoin. And this is a concept that would become popular later on. The interesting thing is namecoin didn't really catch on. And also if you type a namecoin domain into your URL, it won't work. You have to go through a lot of like, configuration to get it to work. So you could try Bitcoin bit, which is a valid namecoin domain, odds are it won't work in your browser. So it didn't amount to much. But it was the first altcoin and it had a financial value.
- [44:07]
Nick
But conceptually it seemed like a good idea. It seemed a valid experiment.
- [44:13]
Peter McCormack
It's honestly not a terrible idea. I would question the need for an entirely new proof work. Blockchain to pursue this idea. But, yeah, this is a popular idea. There is handshake which isn't launched yet. Is this same idea on steroids? Zilliqa is a smart contract chain. They built a domain system. There's a startup, unstoppable domains doing that. So using blockchains as a DNS alternative is a pretty valid idea, I think. It seems to me that lots of people are keen on doing that. So Namecoin was the first version of this.
- [44:51]
Nick
All right, then we get Litecoin, which was a fork of Tenebrix. And some people actually confuse Litecoin. They think it's a fork of Bitcoin, but it's slightly different. It's a copy of the protocol.
- [45:02]
Peter McCormack
Well, it's all descended from Bitcoin. Right. So this is where the distinction between code base fork and kind of protocol fork comes into play. So Tenebricks was a code base fork of Bitcoin. It had a pre mine, I believe it had faster blocks and a different hash function. So script instead of SHA256. And then Charlie Lee forked Tenebricks to create fair bricks without the pre mine. So that's the. As we were saying, sometimes the coins without pre mines that were like identical clones of coins with pre mines, they won. So this was an example, although Fairbricks itself failed for a number of reasons. And so then Charlie Lee took that same code base, improved it a little bit and created Litecoin. So Litecoin's value prop was, it seems kind of hilarious in hindsight, faster blocks. So the blocks came four times faster and a different hash function, which meant that ASICs were going to be more difficult to create. Although, of course ASICs were ultimately created. And so Litecoin was a fork of Fairbricks, which was a fork of Tenebricks, which was a fork of Bitcoin. But, yeah, I mean, it's a very, very, very similar code base to Bitcoin.
- [46:20]
Nick
Again, I don't hold too much against Charlie for creating this because this is very early days for Bitcoin. It just seems like he was mucking around, playing with the code, just having a bit of fun. It was only later on that actually, you know, Litecoin actually ended up having some value. But a thing that was really interesting with Litecoin, that proved to me, and, you know, I bought Litecoin quite early on and you know how to play with it. And, you know, it's been mistakenly called silver to Bitcoin's gold. But what it kind of proved to me is that there is a winner takes all with this kind of design.
- [46:51]
Peter McCormack
Yeah, I mean, and silver to bitcoin's gold. That was probably the first slogan for an altcoin. You know, that was marketing. I mean, does bitcoin like. Bitcoin is not literally gold. You know, silver existed because there wasn't really enough gold and it wasn't gold wasn't sufficiently divisible to create a metallic standard. So silver to bitcoin's gold had this kind of implicit presumption that bitcoin wasn't sufficiently divisible in some way, which is obviously nonsense. Like one satoshi is a really tiny amount. And so this is a great example of marketing really leading an undifferentiated coin to be super influential for a really, really long time. I mean, litecoin has been in the top 10 or top 15 coins for a super long time. But yeah, I don't fault Charlie Lee too much. You know, he didn't pre mine it, so he didn't give himself an unfair advantage. He created it in October 2011 when basically nobody cared about bitcoin. So the stakes were super low. It's only much, much later that litecoin actually grew into this big thing.
- [47:58]
Nick Carter
Next up, I talked to Nick Moore about the history of altcoins. But before that, I have a message from my amazing sponsors. And this is the last sponsorship for Kelman Law. So let's go out with a bang. Make sure you embed their name in your brain. If you've got any needs for lawyers related to Bitcoin and fintech, make sure it's Kelman Law that you reach out to. They are run by Bitcoin OGs out in New York and other like these bullshit crypto lawyers you might find online. These guys totally get it. They understand Bitcoin and also do you know what? They accept Bitcoin as payment. That is skin in the game. One of the partners, Zachary Kelman, is known for drafting a bill submitted to US Congress in 2014. It was aimed at exempting on chain bitcoin transactions from US regulations. The other founding partner, Daniel Kellman, he was on my show as part of my Mt. Gox series, helping me understand some of the complexities around civil rehabilitation. The Kalman Law team is staffed with lawyers with expertise in litigation, dispute resolution, anti money laundering, and US and international corporate structuring for fintech businesses or companies and individuals in the bitcoin space. So listen, if you operate a fintech business, if you've got a dispute involving bitcoin Maybe some fucker rose you some bitcoin or you need some legal advice related to Bitcoin or fintech? Open up your email, send a message to infoelman law that is k e l man dot law Kalman with one L, not two. Or just head over to their website www.kalman.law. and today's show is also brought to you by. Drop it. The only mobile wallet I use for sending and receiving Bitcoin. Have you downloaded it yet? Have you tried it out? I've got it with me. I've been using it this last couple of days. I'm out in Latvia. I have had my wallet with me. It's such a great way to send and receive bitcoin when you're out on the move. They are the Venmo bitcoin. They really, really are. That's what they told me at the very start. They're like, pete, we're the Venmo bitcoin.
- [49:49]
Nick
I was like, what's Venmo?
- [49:51]
Nick Carter
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- [50:32]
Nick
All right, in 2012. 12, we're gonna, we're gonna talk about ripple now. XRP. Now again, this is a very interesting one because it. You will find very significant communities around XRP like crazy passionate cultists who absolutely love it. You know, they love things such as the speed of xrp. They think it's like bitcoin, but so much better. You know, for me personally, it kind of proves a number of things. Firstly, it proves that, you know, people can easily be sucked into the marketing of something. Secondly, it proves to me that people often incentivized financially for a project to succeed way beyond what it means for society as a whole.
- [51:13]
Peter McCormack
Yeah, to me, Ripple is the greatest beneficiary of the creation of bitcoin outside of bitcoin. Basically, so Ripple predated Bitcoin. The kind of corporation that became Ripple predated Bitcoin. After Ripple had took off, Ripple itself created a token kind of modeled on Bitcoin, kind of implying that it had the same guarantees and assurances as Bitcoin. And then that token took off because there was a single firm involved in marketing this thing and getting partnerships. So they were the most transparent project in terms of just like really deliberately pushing a narrative that they thought would cause the price to appreciate. And this was their business model and has been their business model for about a decade now. And they've sold over a billion dollars of this 100% pre mined, 100% pre mined token to the general public. So the Ripple folks will push back and they'll say, oh, well, we actually quote, unquote discovered, or the leadership of Ripple discovered xrp or they gifted it to the corporation. And actually, I think I factually dispute that. So I believe if you look at the history, the co founders, Chris Larson, Jed McCaleb and Arthur Brito, they created 100 billion XRP in 2012. 20 billion went to themselves, 80 billion went to Opencoin. Opencoin became Ripple Labs in 2013. So as far as I'm concerned, the IP, the coins have always been owned by the corporate entity as opposed to this alternative narrative. But really, Ripple is not decentralized. It has no proof of work. It just relies on this kind of consensus mechanism involving large nodes. And if you actually try and run a Ripple node, it's really, really interesting and eye opening. So we tried to run one for Coinmetrics to do blockchain analytics. And it ended up being more efficient to get a mailed hard drive version of the Ripple ledger history as opposed to hitting the API and downloading the history. So you could say the Ripple runs on the sneaker net because they will offer to mail you a hard drive with all of the ledger data in there because it's too difficult and too burdensome to download it all because there's like terabytes and terabytes of data there. Bitcoin, by contrast, is about 200 gigabytes. So running a Ripple node is really not a viable thing for an end user. And there's no Nakamoto consensus. There's no proof of work. So in my opinion, it's not meaningfully decentralized. So the assurances that you get by using the chain are very weak. It's always been marketed as something which is similar to Bitcoin, has its properties in some way. But in my view, that's just not right.
- [54:07]
Nick
Yeah. Okay, so next we're going to talk about Fricoin. Is that how it's pronounced?
- [54:12]
Peter McCormack
Yeah. I wanted to talk about Frycoin just because it's an interesting example of how these things failed, not just for technical reasons, but for economic reasons.
- [54:21]
Nick
So I've never heard of it.
- [54:23]
Peter McCormack
Yeah. So I liked it as a case study, just because. So it started in 2012, developed by Mark Friedenbach, who actually is a bitcoin developer, or has been. Fricoin is an example of a coin with an interesting economic idea, which was an experiment and turned out to be really bad. So people always criticize Bitcoin by saying it's deflationary, it doesn't encourage people to spend, so the bitcoin economy will never develop. I think that's empirically false. It's a very kind of Keynesian idea that you have to induce people to spend for the economy to work. Bitcoin is rebelling against this. So Frightcoin is a rebellion against Bitcoin's rebellion. And they introduced this concept of demurrage, which just means each coin would decline or lose purchasing power by 5% every year. So it had a disincentive to hold it, and it meant that the developers wanted people to spend it. But of course, this got out. Competed by Bitcoin because it would never hold value if it had this deliberate disincentive to spend. So that's just an interesting example of a coin which failed for economic reasons as opposed to technical.
- [55:36]
Nick
Okay, next up, we get mastercoin. And mastercoin is one of these projects that I've heard a lot about. I don't know too much about it, but again, it had credibility when it was launched.
- [55:46]
Peter McCormack
Yeah. And Master Coin is notable because it was the first ico, the first ICO with bitcoin contributions. And I think it's such an interesting case study. It was actually very successful in its own way. But of course, the value of the token went to essentially zero. So that's the lesson. Even if the protocol introduced by this coin is incredibly, wildly successful, that doesn't guarantee that the token itself will have value. That's the takeaway from Master Coin. So this guy, J.R. willett, went on the Bitcoin Talk forum in 2013 and said, I want to create an asset issuance protocol on top of Bitcoin, a decentralized exchange on top of bitcoin. I need some money to do it. Would you send me a donation? And so he collected $500,000 worth of Bitcoin. And he also said, and if you donate to this project, you'll get a little token called a master coin. And maybe even those tokens will have some special privileges within this new system. This was a utility token. This was the first ICO'd utility token. And it wasn't exactly clear what the privileges were. There ended up not being any. I like it as well, because he actually put risk disclosures in the prospectus. Like when you look at a real IPO prospectus, they put risk disclosures. Almost never in ICOs, do you see disclosures of risk, because there is no requirement to do that. Right. But. So this is the first ico and the issuer was saying, yeah, actually, it's actually quite risky. It could fail for these reasons. I kind of like that. I think he maybe had a little bit more authenticity and credibility compared to some of these later ICO issuers. But. So what mastercorn actually did was it created this Omni Protocol, which is what Tether was issued on. So this asset issuance protocol, it was basically a way to keep track of assets by including data in the opreturn transactions in Bitcoin, which is just an arbitrary data field, so just a different transactional type. And Tether, of course, ended up mediating hundreds of billions of dollars in transactions and doing tens and tens of millions of transactions. So Master coin became Omni, which was used by Tether, which is the most successful stablecoin, really. But despite all that, the coin issued by J.R. willett in 2013 on Bitcointalk has no real usage. It never manifested any value accrual as a utility token. Didn't work.
- [58:22]
Nick
It's quite interesting that the first ICO to ever launch is probably the most professionally put together of all of them.
- [58:30]
Peter McCormack
Well, I mean, it was pretty amateurish, but he just was a little bit more sensible than some of his successors, for sure, with the risk disclosures. But he couldn't figure out the value crawl thing, which would be a theme repeated hundreds and hundreds of times.
- [58:47]
Nick
Yeah, especially in 2017, 2018. Okay, let's get up.
- [58:51]
Peter McCormack
It was one of the most successful. It was one of the most successful. Like he created the Omni Protocol, which got a ton of usage. That's like the amazing thing. And then most of the subsequent ICOs didn't produce anything at all.
- [59:03]
Nick
Well, that's potentially a good case study for the future value of Ethereum, which we will come to. But next we're going to talk about Peercoin, because this was the first Proof of stake coin. Right. And we should just do a very quick discussion between proof of work, proof of stake, because if somebody is first hearing this going to be, well, what does proof of stake mean? Why should I care?
- [59:22]
Peter McCormack
Yeah, so peercoin I like, we're just doing all the firsts, which is great because peercoin was. It's a great example of why this like virtue signaling argument against bitcoin being environmentally costly doesn't work. Because people don't make moral assessments when they make investment decisions. They make economic and financial assessments. Right. So peercoin was started by this guy, Sonny King, pseudonymous, nobody knows who it is. There's actually some conspiracies that it's a well known bitcoin developer, but I don't, I really don't know who it is. It was the first implementation of this idea of proof of stake, which meant that your rewards in the kind of not mining, but like the validation, the issuance of new coins, your rewards would be proportional to the fraction of supply that you owned. So if you owned 50% of supply, you would get 50% of rewards. Of course, this is different from proof of work which stipulates that your rewards in mining are proportional to the fraction of hash power that you have. And hash power requires committing real world resources to the problem, electricity, which you have to burn to produce a block. In proof of stake, by contrast, it's meant to be quote, unquote greener because you don't have to burn anything. All you have to do is show that you had a certain fraction of coins. This actually gave rise to a lot of problems. There's this nothing at stake problem whereby it was costless to produce alternative histories which isn't present in proof work. So the creation of proof of stake coins allowed us to evaluate whether proof of stake was a viable idea or not. And even stretching all the way back to 2012, it became pretty clear that proof of stake introduced a whole new class of problems that aren't present in proof of work. And so what happened actually was it became hyper centralized. And because of the nothing at stake problem, the peercoin developers signed, they had these central checkpoints just signing the blocks. So there became basically one single node that mattered in the whole blockchain. And lots of the subsequent proof of stake developers will say they fixed this problem. But this was a great example of how this environmental argument a isn't convincing because it never caught on, and B, how introducing an alternative consensus or civil resistance mechanism can cause all sorts of unforeseen Problems.
- [61:50]
Nick
I think the other thing is you can wrap in the pre mine here. If you have a pre mine and then have a proof of stake consensus mechanism, you are essentially, when you're creating money, you're essentially. It's like you referred to earlier, it creates bad incentives.
- [62:04]
Peter McCormack
Not just that, but you become the oligarch of that system. So you can assign yourself 30% of the coins and then from then on you have 30% of the power in the system in perpetuity. You have a costless advantage in perpetuity. You basically have the ability to transform economic power into political power, which in my view is a really bad thing. That's the way that our current government works. If you're rich, if you're Michael Bloomberg, you can kind of buy your way into relevance. I think that shouldn't be the case in cryptocurrency. It's not the case in bitcoin. If you have lots of bitcoins, that doesn't automatically mean that you have influence, but in a proof of stake system it does.
- [62:45]
Nick
Yeah. And then you can wrap it up and make it even worse as something becomes more centralized. If you have the pre mine and proof of stake and have influence over the monetary policy, you essentially. If Ethereum was to become money for the world, you're more than an oligarch.
- [63:01]
Peter McCormack
Yeah. The early Ethereums would be in control of virtually everything. And I generally feel it's best to have financial wealth be a totally distinct concept from political power. Of course you can always sort of transform the two by doing lobbying and so on. But I really find it elegant, the bitcoin. No matter how much Bitcoin you have, the protocol will basically treat you in the same way.
- [63:28]
Nick
All right, so tell me about Prime Coin. I don't know much about Prime Coin. I do remember it when I first came in.
- [63:33]
Peter McCormack
So it was also created by Sonny King. And Prime Coin was also an innovation, acclaimed innovation on proof of work. It introduced this concept of useful proof of work. So people really. Another thing people don't like about Bitcoin is that the hashes are quote unquote wasted. Of course, then you have to explain to them why it's actually important to have this cost be remunerated only in the form of bitcoins. This is what actually keeps bitcoin secure, that all miners have this sunk cost element. But so Prime Coin didn't like that and they decided that the proof of work would be used for finding long chains of prime numbers, which actually isn't that useful either, which is Kind of funny. So they found what are called Cunningham chains of prime numbers. There's no scientific use for these. There may be one day, but. So primecoin actually found a bunch of prime numbers. So congrats to them for that, I guess. But, yeah, this useful proof of work idea did not catch on at all.
- [64:34]
Nick
All right, so now 2014, we get real coin, which is Tether.
- [64:39]
Peter McCormack
Yeah. So this is one of the most controversial coins ever. It was set up by Brock Pierce, who would later be part of eos, Craig Sellers, who I believe was on the Bitcoin Foundation. So it was issued on Omni, it was issued on Mastercoin, as I said, in January 2015, Tether became a way to get dollar exposure on Bitfinex. So you'd basically wire these guys some dollars and you would get tethers, which were representations of dollars, which existed on Bitcoin, which you could trade using the Bitcoin infrastructure. So that was pretty interesting. Although it was very small for a long time, it ended up being kind of folded into the Bitfinex entity. So Phil Potter of Bitfinex set up Tether Limited in the British Virgin Islands, which became a subsidiary of. Of the Bitfinex parent company. And so Tether became a way for Bitfinex to create liquidity, basically between traders and itself and between Bitfinex and other exchanges. So it took something which didn't really exist was dollars. And it transformed them and made them useful in the crypto system, in the crypto financial system. And this was actually a hell of an innovation, basically. I mean, it meant that traders could hold their capital in a, roughly speaking, stable currency like dollars, instead of being exposed to Bitcoin all the time. So from that perspective, it was pretty useful. However, it did rely on these single points of failures, these central issuers, basically banks that would hold the actual dollars somewhere. And this is where all the trouble began. I don't think we have to go into the whole history of Tether, but basically they had to use these shady payment processors who ripped them off to the tune of 850 million. And then Tether made a really catastrophic mistake, which was remediating that theft by basically taking capital off Bitfinex's balance sheet, which led to a run on Tether. So people thought that Tether was insolvent, which it basically was for a while, which meant that it traded well below the $1 peg. Although tether today seems to have recovered from that and it's worth about $4.5 billion. So tether is one of the Success stories of crypto, I would say, and all of the other stablecoins. That said, it's had an extremely checkered past and it's still fighting with regulators. So that's the issue with these stablecoins. They're always dependent on these single points of failures, the banks.
- [67:13]
Nick
Right now we get into the world of privacy currencies and I know there was like some early ideas, but we get Dash and Monero, which both now exist as very well respected projects. And I say that within the world of crypto people, but they were two attempts at bringing privacy to crypto.
- [67:32]
Peter McCormack
Yeah. So I think Monero, the history of Monero is absolutely fascinating. So Monero is also a code based fork of a project called bytecoin B Y T E Coin and bytecoin appears to have been a deliberate scam from inception. So it introduced this really interesting technology, this notion of confidential transactions, which is a different cryptographic primitive basically or cryptographic system which hid the balances. So that was really interesting. However, bytecoin had this enormous embedded pre mine which the developers had tried to hide and then they issued this backdated white paper to claim that they'd been around in 2012, which they hadn't. And all of this was in service of trying to hide a pre mine. So bytecoin was a very sophisticated attempted scam, which it was a shame because they also introduced some really interesting tech. So you'd have thought that they could just have produced a new protocol without including the scam element. But be that as May, some folks saw the code base, thought it was interesting, they forked it, they created Monero. So Monero, it's been around for a long time, they've had some issues in terms of linkability. There are definitely adversarial ways to link together outputs and maybe break the privacy a little bit. But overall it's pretty private. I would say the amounts are hidden, so you wouldn't be able to see on a block explorer how much Monero I had in a single output or address. And also the transactions have this plausible deniability, so it's hard to see which prior transaction led to the next transaction. So I would say as far as privacy coins go, it's the most adopted on the place that matters for privacy coins, which is the Dark web. So if you look at any of these dark web marketplaces, aside from Bitcoin, the most popular coin will be Monero. It's the most popular of the privacy coins there. So these dark web marketplaces aren't as big as they were, but that's always one way to evaluate what the people with lots and lots of money and reputation are at stake, I guess, what they think of the various privacy coins. So it seems to be the most respected among those kind of underground circles, which I don't know if that's good or bad. Right. By contrast, Dash was a more checkered project, I'd say probably less successful. So DASH did have a pre mine, but it was in the form of an insta mine. So what that meant was the initial software released to mine the coin upon launch didn't work. So the few insiders that had the correct software, they were able to mine a lot of Dash coins. And then the other interesting thing about DASH is DASH introduced this notion of masternodes, which meant that there were some privileged nodes in the systems. So by locking up 1000 dash in a single node, you could basically have control over system parameters. So those were called masternodes and those were compensated. Like not only the mining would compensate you, but also the masternodes. Anyway, the point was, if you had a lot of Dash, you had a lot of control over the system and you could also get a financial reward for that. So it was kind of an extractive mechanism. And also the privacy elements on DASH didn't work very well. So, you know, Dash is held, I would say, in much lower regard generally.
- [71:16]
Nick
All right, next we're going to talk about dogecoin. And this is one you struggle to say without smiling when you consider the history of it, some of the things it's been involved in, the community around it. You know, I would love myself to do almost like a documentary about dogecoin in the community, because it is just so funny.
- [71:33]
Peter McCormack
It is funny. And this was like, remember this was 2013, when, like, the crypto, the bitcoin community really was pretty small and it didn't take itself seriously, but it was just on the cusp of maybe growing into something more significant. Right. And Dogecoin was just at that transition phase when stuff was really still playful and fun, at least from my perspective. And also the financial clout was sufficiently large that you could actually do things that mattered. So I think dogecoin was really the first time people realized that through altcoins you could pool your finances and actually kind of make a difference, even if, albeit in some kind of, like, marginal way. So Dogecoin was basically a fork of litecoin with faster blocks. It wasn't interesting from a data or from a technology perspective, but, you know, and it was a meme Like, Dogecoin was like a. Not that or Doge itself was like a sort of silly meme from back in the day. And the idea that a coin based on this meme could be worth hundreds of millions of dollars, that was basically the joke. And it was like, pretty entertaining for a while. I really got my start mining Dogecoin tipping people on Reddit. I thought that was pretty funny. They ended up doing crowdfunding to sponsor NASCAR car. So the community thought it was absolutely hilarious to get like the dogecoin logo on the front hood of a NASCAR vehicle. And they actually sponsored the Jamaican bobsled team to pay for them to go to the Olympics. So they did like, funny marketing stunts like that. It was a very collegiate atmosphere. And I think that was one of the first times that and altcoin community developed, realized that they had some financial clout, basically.
- [73:16]
Nick
I think one of the most interesting things for me with Dogecoin as well is when I first started doing the podcast, going around meeting people, one of the questions you usually ask people is, how did you get into bitcoin? And so many people got into bitcoin through Dogecoin.
- [73:29]
Peter McCormack
Yeah, it was like a gateway drug kind of thing. I remember thinking to myself, like, wow, I would go to the bitcoin subreddit on Reddit and be like, ugh, these guys are so serious. They're talking about, like, monetary history and stuff. And like, I don't care about any of that stuff. Or I didn't back then. And what I did care about was like, micro payments and like, tipping people online and like, having a good time with my pals, you know. So Dogecoin was like a great, like, first coin for me to. To get to care about. And that's what led me to bitcoin.
- [73:57]
Nick
All right, so it's going to start getting a bit more serious now. Some of the projects that people are most likely to see and probably possibly be tempted by. So we're going to talk now about Ethereum, because that's going to be. Yeah, we could probably say that's the second most credible project in cryptocurrency, if you consider anything outside of Bitcoin credible.
- [74:16]
Peter McCormack
Yeah. And Ethereum is very divisive. Lots of longtime bitcoiners really don't like it because they don't like the way it was marketed or sold or the fact that there was pre mine. But if you consider reality, Ethereum has a ton of people building things on it. It seems to have delivered on at least some of its promises and it seems to have really captured the imagination of a lot of developers, maybe in a slightly different way from Bitcoin. So Bitcoin was always this really serious project about tilting at the state's monetary privilege and creating a monetary system free from debasement and so on. The central idea behind Ethereum was well, what if we had a similar system to that but but we enabled permissionless applications at a big scale on the Internet. The interesting thing was the original vision for Ethereum didn't really pan out. I would say they did realize that scalability was just this inherent trade off on blockchains and you couldn't put too much data on chain. So this unstoppable applications idea didn't really pan out at the mass scale like they envisioned. However, Ethereum proved useful for other things like quote unquote decentralized finance. So basically creating derivatives and different flavors of risk on chain. So I would say Ethereum got by far the most traction of any alternative to Bitcoin. And my guess is that it'll exist for the foreseeable future. It's definitely had a ton of scandals as well. Ethereum had a charismatic leader of Vitalik Buterin and Bitcoiners would always point to that as a central point of failure. Right. If Ethereum became big enough, presumably various nation states would try to interfere with it or co opt it in some way. And they have a very obvious access to do this based on the Ethereum foundation and Vitalik. But that was always the way that Ethereum operated, basically making these deliberate trade offs kind of go against everything that Bitcoin has held dear. But despite it all, it seemed to work basically. And I think Ethereums are awake to the fact that they've made these significant trade offs in terms of centralization, interfering in the protocol more or changing it more frequently, making these political discretionary one off decisions like the bailout of the dao, which was this really infamous event and by having this leadership and having a pre mine. So those are all axes in which it differs from Bitcoin really significantly and totally violates the Bitcoin philosophy and so on. But I do think it's at the state where the two projects can basically coexist.
- [77:05]
Nick
Yeah, and one of the things we have to consider is that you, I and many other bitcoiners talk about the fact that there is a role for stablecoins. You know, stablecoins do have a valid role in this essential crypto world and pretty much all of them are Ethereum.
- [77:21]
Peter McCormack
Based for the most part. Yeah, Although Tether still exists on Bitcoin partially. And about $800 million of tether exists on Tron of all places. But for the most part all the other stablecoins are on Ethereum. Yeah, Ethereum has a different class of innovation. You might say that it's not worth it in terms of the trade offs it makes. That's certainly a valid critique. And you also might say it's like a less essential task. Bitcoin's task is to fix the money. It's not clear what Bitcoin's core task is to do. I don't think it's killer app has actually been developed yet. We'll see.
- [77:59]
Nick
All right, now we're going to talk about zcash, which is different from other privacy coins in that has optional privacy, which also technically seems like something interesting but theoretically proves to be kind of stupid.
- [78:12]
Peter McCormack
Well, Monero has default privacy, although you could say that the two privacies aren't necessarily interchangeable. So zcash was created by Zuko. Zuko was an early cypherpunk. He was around on the mailing list long before Bitcoin was created. Zuko worked at Digicash. As I said, he has a very long history in the digital cash space and the privacy space space.
- [78:36]
Nick
And you would also say, you know, having worked with David Chaum on privacy, you know, this is probably something that is passionate towards him. I don't believe Zuko is somebody who wants to create a coin just to scam people.
- [78:46]
Peter McCormack
No. Yeah. His credentials are unimpeachable. Unimpeachable. Just about the best credentials you could have in the, in the digital cash industry. He clearly authentically cares about this stuff. I happen to know him personally. I believe his motives are pure for sure. Zcash itself is a bit more controversial. So set up, I believe in 2014 to finance the development of the cryptography, they took investment from individuals and firms which meant that there was Basically, I believe 20% of the supply was allocated to this kind of founder's Reward. Might be 10% of the supply. I need to double check that. So there was this element of a founder's reward which was basically a pre mine which vested over time as the rewards were mined. So a fraction of each block was vested over time to the founders and to the company which was set up. So people don't like that because. Or Bitcoiners don't like it because they believe that this is a critical vector of centralization and that it's also unfair to have anything that Resembles a pre mine. However, that said, they developed some pretty interesting innovative cryptography. These zero knowledge proofs which have now taken over and are an incredibly popular area of experimentation. So they do have optional privacy. So in practice zcash is mostly used in a non private way, I would say. So that could be one critique of zcash. I think the biggest difficulty for them is this governance issue where you have this pot of money and it's not clear what to do with it. The corporation had an entitlement to it for a while and now the community is kind of rebelling against that. So there's a lot of rancor, a lot of really heated discussion over that. And that's a function of the fact that they had this centralization at inception.
- [80:40]
Nick
All right, so let's talk next about bitcoin cash. We got that in 2017, I believe August 1st by memory. But perhaps I'm wrong, but this is probably the most controversial alternative project in bitcoin. It created a split in the community, a lot of anger, a lot of fighting, but itself is a very key lesson in bitcoin.
- [81:02]
Peter McCormack
And you have to remember that bitcoin cash is the consequence of probably 5 years of arguments over the block size and really over who is in control of the bitcoin system. And so, you know, Satoshi had instituted this one megabyte block size cap in bitcoin. Some people thought it was a problem, especially people whose businesses depended on there being low fees in the bitcoin system. Other people didn't think it was a problem. They thought bitcoin needs to have fees at maturity. I'm in that camp. Full disclosure, I think for bitcoin to survive long term and for the block rewards to transition away from the subsidy and towards a fee driven model, bitcoin needs to keep its black space capped. But the bitcoin cash people, for the most part, they didn't agree with this. And Gavin Anderson was one of the main proponents behind this idea. He created this alternative version of Bitcoin called Bitcoin XT in 2015, which had no block size. Right. So bitcoin cash was an outgrowth of this idea. And it had been an argument in a civil war, which was a really long time running and split the bitcoin community, although I would say the vast majority of core developers were on the capped block size front. And so after Segwit, which was an improvement to bitcoin, which would have allowed the lightning network to be developed, which was the kind of the orthodox bitcoins favored, Scaling mechanism. After that happened, some miners basically created this alternative version of Bitcoin called Bitcoin Cash. And that was not a code based fork, that was a protocol fork, A chain split. So they basically created a version of Bitcoin which was incompatible with the prior history, but it did inherit the entire UTXO set. So it took the state of Bitcoin, all the account balances, and it just created a new chain based on that, with the idea that they would have bigger blocks and more commerce and so on. Empirically, I think the idea has been a failure because Bitcoin Cash is only worth Something like 3% of what Bitcoin itself is worth. So, like, the market really assessed its value as being vanishingly small relative to Bitcoin. But for a while, Bitcoin Cash, like, looked like it might potentially overtake bitcoin. It was worth $4,000 for a while. On Coinbase, there was a lot of support behind this notion of unbounded block space. But I think eventually the market basically realized that block space had to be capped and that miners were not unilaterally in control of Bitcoin. Developers matter. Economic nodes matter. So this was really an experiment in both governance and also the technical realities of block size.
- [83:59]
Nick
And through 2017, 2018, we had this bull run. But this bull run was this crazy market where we were getting new coins and tokens issued weekly, like tens. And it was relentless. There's no point discussing all of them because, well, adversely, there's far too many. But I think the one we can discuss which is the epitome of all of this is eos.
- [84:23]
Peter McCormack
Yeah, totally. So EOS is the token which raised, or the ICO which raised the most amount of money. In fact, it's probably the biggest crowd sale of anything in history, you know, so, like, if you look before cryptocurrency existed, there was some big crowd sales. Like there's this space MMORPG which raised a few hundred million dollars. I'm trying to remember what it was called. I wish I could remember. But all of that was eclipsed by like a full order of magnitude by EOS. And EOS wasn't the only one. There were many ICOs. I think the ICO fever really kicked into gear and like, like spring 2017, that seems like the time when it really kicked off like, crazy. Keep in mind, Most of these ICOs were happening on Ethereum because it was kind of like really convenient to submit Ether into a crowdsale contract and for it to spit out a different token so that was one of Ethereum's early killer use cases was enabling these permissionless capital formation to occur. Of course, most of these projects were totally without merit. EOS was the most ambitious one. So the founder of EOS is this guy, Dan Larimer. Previously he'd founded this blockchain social network called Steemit, which actually had some usage, although the token didn't amount to much. And before that, he'd founded bitshares, which was. Bitshares had issued some of the first algorithmic stablecoins. Fun fact. And I think it had a decentralized exchange. So Larimer had a history of creating these alternative blockchains, crucially not in a proof of work protocol manner, but with a delegated proof of stake. So basically appointing certain nodes to be the guardians of the network and throwing away this notion of decentralization at the protocol layer. So basically appointing certain super nodes and they would be in control of the network. And so Eos was had some revolutionary ideas. So there wouldn't be any transaction fees you would have to. Your ability to use Eos would be a function of the amount of EOS you held, which would entitle you to the computational resources of the system. There wouldn't be any mining or proof of work. There would just be essentially 21 nodes that signed all the blocks. And these nodes would be appointed democratically through voting. You can kind of see where some of the issues might result there. The other thing was they wanted to have kind of human governance in the system. They wanted to have the discretion to have these nodes have a political process of like, really a bureaucratic process of like blacklisting certain accounts and having recourse if transactions went bad, which again, you can really easily imagine how this would be abused or go bad. And so from about spring 2017 through to spring 2018, EOS took donations into this contract. The questionable thing was they had outflows from that contract during the same period, which a lot of people criticized them for, because that meant that they could recycle ether deposited into the EOS crowdsale contract in a circular way, take that ether and deposit it in their own crowdsale, which effectively that would give them an arbitrary amount of the supply of Eos. So they could basically buy their own ICO if they wanted. There's no evidence they did this, but it's basically impossible to disprove. So this was a cloud of suspicions that hung over the project for a long time. So they raised about $4 billion, they launched EOS, and then, interestingly, a lot of people thought it would, they would be slapped down by the US regulators, the securities regulators, because this thing looked like a security. Right. But earlier this year in 2019, they actually settled up with the US regulators for a really small fine, only $25 million. So this was the biggest ever ICO and they basically got away scot free. Now, the EOS system itself has a lot of problems. This governance forum thing they had didn't work. And there's now allegations that all of these block producers are colluding with each other, forming cartels, which is very foreseeable. And the resource system they developed doesn't seem to work very well. But EOS is the greatest example of optimism and techno utopianism and hubris that the crypto world has ever seen, both in terms of the size of the raise and the scale of their ambitions. So it's a really interesting case study, even if the project itself doesn't work that well. Oh, and the other thing I'll note is that it's virtually impossible to run an EOS full archival node. Virtually impossible. I've tried.
- [89:12]
Nick
All right, so the last one we're going to cover in this history of altcoins is Bitcoin Private, which also has a checkered past.
- [89:19]
Peter McCormack
Yeah, I wanted to talk about Bitcoin Private because I'm actually, I gotta phrase this carefully. I like Bitcoin Private because it's an example of how things can go terribly wrong in the case of an altcoin. So Bitcoin Private was interesting in that it merged the UTXO sets of Bitcoin and Z Classic. Z Classic was a fork of zcash. So it's already very exotic. And it was, the idea was to take the Bitcoin UTXO set and give everyone the ability to use zcash style transactions. So you can see how these altcoins are being recombined and mixed and mashed all together. So, you know, maybe that was a valid idea. Who knows? What happened was during the import process there was 10% covert inflation which went to an address which was not anticipated or planned for, and it didn't go discovered for about nine months. So 10% extra supply was printed out of thin air and deposited in a specific address. Nobody knows who had it, and it also went undiscovered. So then the coinmetrics folks did a routine audit of supply and found this. They found that supply wasn't what the leadership claimed. And then at that point the leadership of Bitcoin Private said they were really shocked by this. They didn't know it had happened. I don't know who to believe. They claim it was an exploit. Other people think they were involved. Who knows? But I thought that was such an interesting case study because then that led to a chain of events that basically caused the dissolution of the coin. So the developers, in response to this, actually burned the shielded pool on Z Classic to reduce the supply, and that actually burned some of the coins held by exchanges, including HIP btc. So they didn't ask these exchanges if they had coins in that shielded pool. So HIP BDC did, and it caused them to lose money. So then HIT BDC delisted Bitcoin Private in protest. Bitcoin Private had paid HITBDC for that listing. And so they sued them. That's how we know this, because there's a lawsuit. And then that was their main liquidity provider. And that led to the demise of the coin. But so there are countless examples of coins like this, projects like this, where there's some catastrophic failure, there's some information asymmetry where the public don't know about this stuff, and maybe the insiders in the coin do know. This is just one of dozens and dozens and dozens of case studies of coins that fail in interesting or unexpected ways which caused retail investors to lose money. Right. Bitcoin private was worth 2 billion or over a billion dollars at one point. So it wasn't like a tiny project and it's not a particularly notable coin, But I just thought it was an interesting case study in how these things are very fragile. And just because bitcoin was successful doesn't mean that an altcoin built on the bitcoin code base will be successful.
- [92:28]
Nick
Right. I do want to talk about one future coin. There's so many coins we could talk about, but one future coin. And I don't even know if to call it an altcoin, but it's libra. We should just touch on that very quickly.
- [92:40]
Peter McCormack
Totally. So, you know, we've talked a lot about stablecoins today. There were, quote, unquote, stablecoins that existed before bitcoin. Bitcoin itself facilitated the rise of stablecoins. Libra takes this concept, privately issued money, to the extreme. Libra is intended to be issued by Facebook or consortium run by Facebook. And the basic idea is to have a basket of sovereign currencies which is managed by this consortium, and then the value of that basket creates a unit of account, a digital coin, which could then be used by all of Facebook's users all over the world. Facebook has like two and a half billion users. So the idea is to take fiat and render it digital and very transferable, kind of seamlessly transferable, and give retail individuals all over the world this seamless transactional experience with the idea that it would bring commerce to places like Indonesia and India and so on. Now it hasn't launched yet because the regulators are pretty skeptical of this idea. You know, they don't really necessarily want a private company to be issuing money. They tend to think that's the job of the government. Of course that hasn't stopped people doing it in the crypto context without permission. Libra maybe made the mistake of asking for permission first, but if they can pull it off, it would be one of the bigger events in the history of cryptocurrency. Especially because they'll probably be using a lot of the infrastructure that's been built to support Bitcoin and other cryptocurrencies. We'll see how permissionless it becomes and whether they let it be used with third party wallets and so on. But if it launches, it's like a huge validation of this idea of non state money being created. Now lots of bitcoiners don't like it. They think dollar backed or sovereign currency backed money is boring. And the whole thing that's interesting thing, the interesting thing here is to create a new monetary standard that's independent of a government. So I'm sympathetic to that idea. But I also think that Libra is the first case of a whole class of new corporate monies that will exist, likely exist as a consequence of the founding of Bitcoin in 2009, which reopened the Overton window, made it acceptable to dream of creating a new money, even if you're a corporation. So from that perspective it's pretty interesting.
- [95:10]
Nick
And probably one of the most viable whether or not people like it or not.
- [95:13]
Peter McCormack
For sure, because we've never had an enormous corporation like Facebook try not in the modern era really trying to shoot their own currency. So it's like a throwback to the days of yore before we had central banks, back when banks themselves issued currencies that were free floating and traded against each other. So maybe we are returning to the kind of the pre civil war era in the us.
- [95:37]
Nick
So listen, that's a obviously a very good history and it goes in line with what we said. It's really a history of failure. I personally adore Bitcoin. I believe Ethereum like you will probably exist whatever I think of it or not. And I do think there's a role For a maybe stable coins, but maybe just one stable coin. I think that's just a reality check. But again, why do you think there's been such a high failure rate?
- [96:03]
Peter McCormack
Well, because it shouldn't be easy to create a new money and bitcoin shouldn't have succeeded. You know, it succeeded against all odds. Like every digital cash prior to bitcoin had failed miserably and the founders went to jail. And then Satoshi comes along with this revolutionary idea and says, well, what if we decentralize everything and no one's in charge? That was the only reason bitcoin succeeded. But even despite that, it had a very brittle and risky early days. Like bitcoin had an inflation bug, it had a rollback. Its largest exchange, Mount Gox collapsed. It could have failed in a myriad of ways. And it's absolutely amazing that it succeeded so. So many altcoins took that model of bitcoin as this behemoth and they just presumed that they could kind of piggyback on its success. But the truth is that like the hardest problem is maybe not even technical. It's just convincing the world that you've created a valid alternative money. And just because it's technically maybe easy to do that in the wake of bitcoin does not mean it's politically or economically a viable idea. So it's not surprising to me that virtually all of these altcoins have failed. That should be the default. New monies shouldn't come around every day. You know, when was the last time like a non sovereign currency came into existence? Like gold, you know, is the only one I can think of and that's been around for thousands and thousands of years. So unfortunately or fortunately, the world we live in today is one where sovereign countries have dominion over currency. So it's an extremely aggressive and dangerous idea to say I'm going to create a new money, I'm going to become a new monetary authority. So it's amazing that bitcoin did it. And it's absolutely no surprise to me that virtually everything else has failed.
- [97:57]
Nick
I don't think there's a better way to finish than that. I will let you close out by telling people what you do, where to find you. You referred to your company a couple of times.
- [98:08]
Peter McCormack
Yeah. So I was the co founder of a blockchain analytics company called Coinmetrics, which is, is part of the reason I know so much about these various alternative coins. And a partner at a Boston based venture firm called Castle Island Ventures. We invest in companies building on top of public blockchains like bitcoin, not the coins. We don't invest in the coins. I just happen to have an infatuation with the history of these coins, especially the history of failure, because I think there's so much we can learn. And you can find me on Twitter. NickCarter. That's two underscores.
- [98:47]
Nick
Amazing, Nick. You absolutely smashed it. Really appreciate you doing this.
- [98:51]
Peter McCormack
Thanks so much for the opportunity. You know, like, I was starting to get worried that this useless knowledge I'd accumulated over the years would never amount to anything. But, you know, you finally gave me the opportunity to share it with people.
- [99:02]
Nick
Well, it'll be out to the world next week, so. Yeah, thanks a lot, Nick.
- [99:05]
Peter McCormack
All right, thank you very much.
- [99:09]
Nick Carter
Okay, what did you think of that one? Did you enjoy that? For me, this is another really important topic for beginners. I have seen so many people caught up in the hype of altcoins only to lose money. I was in there myself when I was very early into all this stuff. I was seduced by the world of altcoins. I was trading them, thinking I was a genius making money, then suddenly losing money. So I think it's really easy to fall for all the altcoin marketing, whether it's directly from the projects or because of some cult group on Twitter which builds around a coin. You tend to see this around Ripple or Nano or BSV or some other bullshit, but the trend is your friend here. Bitcoin has an 11 year trend of survival and value accrual, whereas all the other altcoins are really trending towards zero. So it is a history of failure and there is a reason why. And you should really try and look at this as objectively as you can. As I said, for a while I had an interest in alts and I traded alts. And when I started going down the bitcoin rabbit hole, after losing a bunch of money on alts and, you know, trying to be as objective as I can, I started to realize why bitcoin is the only project worth concentrating on. And so to cover in detail the reasons that alts are a bad investment, I think it's really crucial to have this as part of the beginner's guide. Anyway, I hope you found it useful as ever. You got any feedback, you can reach out to me. My email address is. Hello@what? Bitcoindid.com?
- [100:32]
Nick
Oh yeah.
- [100:33]
Nick Carter
And I also need to thank everyone who helps to support the show, everyone who's sharing this beginner's guide out on Twitter. Thank you so much. Anyone who writes to me. Anyone who comes on the show, anyone who sponsors. I love you all. If you do want to help, it's all up on my website. Just go to what bitcoindid.com click on the support section. Everything you can do to help is listed there. Anyway, hope you enjoyed the show. As I said, if you want to reach out to me, my email address is hello@whatbitcoindid.com.