Cryptocurrency - The Hype

Chapter 1: This article is super boring (you are warned)

Well, probably not super hyped anymore due to the recent Bitcoin dip when this article was released. But who knows it might be hyped again?

This article is not meant to attack Bitcoin or cryptocurrencies in general. I believe that readers of this blogpost are intelligent and are able to consume more nuanced information (so many people read the super lengthy ADMF article, I can’t believe it).

Cryptocurrency is a large and complex topic. One could write a PhD thesis on crypto to analyse many components from multiple angles (technological, economic, social, etc). In order to make this article more readable, I will establish several scopes of discussion.

Before we begin, this article strives to illustrate a couple of points:

• Chapter 1: How I am looking at hype on cryptocurrencies in general. Answer is looking within
• Chapter 2: Describe what a cryptocurrency means to most people who’s into crypto right now
• Chapter 3: Describe what a cryptocurrency means to me (tentative)
• Chapter 4: I do myself invest in a cryptocurrency (not trade because trading is not my cup of tea) and I will explain my thought process (tentative)

Chapter 1: Hype on cryptocurrency

You might expect me to go and ridicule or bash investment influencers in this section. But let us begin by talking about the nervous system.

In my free time, I sometimes like to read about how the nervous system works. It is a complex system that no body truly understands. In the 20th and 21st century, there are more and more science breakthroughs that start to surface. All of the sudden, zero cost behavioural tools that arise from deeper understanding of nervous system, becomes available to be shared and implemented. Tools often involving increasing willpower, managing stress, getting better sleep, etc are effective and usually free of cost.

Maybe you have heard of it but in the nervous system, there is an organ called the brain. It is the most important organ in the nervous system and the most complex one as well. Without the brain, a human being wouldn’t be alive quite frankly.

And I think to understand a phenomena surrounding hype that is largely behavioural and governed by our brains, it is really important for us to get a comprehensive understanding of how the brain actually works.

So let’s talk about the brain

Here’s what most people know about the brain:

• It has two hemisphere left and right that allows people to be logical and creative respectively
• It is used to think and control your body

We can start from here and go a step further. We can firstly mention again that the primary goal of our brain is to ensure survival. This is done in 5 simple steps:

1. Needs: It is responsible to inform us on what our body needs for example food, shelter, procreation, etc
2. Think: It is responsible to inform us on how we can achieve that
3. Execute: It is responsible to generate the energy for us to accomplish things we need
4. Identify problem: It is responsible to alert us if danger arises
5. Adapt: It is responsible to calibrate our actions in the moment in response to various stimuli

Yeah that’s pretty much it as far as we understand it scientifically. Remember: needs, think, execution, problem, adaption. Okay, that’s a simple and comprehensive explanation of how our brain can accomplish its goal. Now let’s talk about features of the brain that support the capabilities that I have just highlighted.

IMPORTANT: the brain is built from bottom up

There is the most bottom part that is also the most primitive. It is readily available the moment we are born and it is known as the animal brain or reptilian brain. This is by far the oldest brain structure that we possess. Animals have this too and it controls super basic functionalities such as:

• Breathe
• Sleep
• Hunger
• Eat
• Sense temperature
• Sense pain
• Urinate & defecate
• You get the idea

Sitting on top of reptilian brain is the limbic system. Now this is where things get exciting, literally because it forms the basis that allows mammals (not just humans) to form relations, emotional connections and be in groups as social creatures. It is part of the brain that allows you to feel emotions for example:

• Judge if something is scary
• Judge if something is needed for survival
• Judge if something is an opportunity without rationalising it
• You get the idea

It essentially perceives stimulus from outer world not by reasoning and logic, but by emotions. Now when you combine reptilian brain and the limbic system, we get what is usually referred to as “emotional brain”. Here are some example behaviours that are governed by your emotional brain:

• Playing your phone at night even though you know that it will worsen your quality of sleep
• Eating processed food and drinking sugary beverages because it tastes good but you know it has detrimental effects on your health
• And other guilty pleasures you can think of that you probably should not be doing

Finally, the newest brain structure that is added into the party: prefrontal cortex also known as the rational brain. It occupies about 30% of our skull and it is mainly responsible for us to reason. Reasoning is powerful because it is key to understand the world around us in a factual and structured manner. It allows people to:

• innovate,
• break from bad habits (inhibition),
• polish existing skills,
• plan with a sense of time, etc.
• read Recompound’s blogpost instead of scrolling Instagram mindlessly ;)

Unfortunately, making full use of prefrontal cortex is onerous and everybody knows this. Who actually really prefers to do a calculus homework in high school over to eating a delicious chocolate ice cream? And even if we tell ourselves not to eat the ice cream, we still do.

Why is this the case?

Flow of information

Now comes the most important part of this mini science sub-essay which hopefully has not bored you that much.

When there is a sensory input:

• An influencer telling you to "borong" (buy quickly) bitcoin
• Your friends just made a crypto exchange account to buy ethereum for the first time
• You see that price of bitcoin is sky high at coinmarketcap and expect to rip even further
• You see Michael Saylor with his laser eyes and telling people to mortgage their homes to buy bitcoin
• and many more

All this information is a perception that is then cooked in the Thalamus. Afterwards, it gets sent to 2 directions: down and up. Down to the limbic system (amygdala) and up to the frontal lobes as they reach our consciousness and a more polished interpretation. Neuroscientist Joseph LeDoux calls this the “low road” and “high road” respectively.

What’s been found is that pathway to the emotional brain is milliseconds faster than pathway to your rational brain. All what I am saying is that before you even interpret the information rationally, your brain has already dealt with the information emotionally by inducing stress hormones and make you feel in a certain way.

A classic example of behaviour that is induced by stress hormones in response to the emotional brain is fear.

In the case of cryptocurrency to be more complete: fear of missing out or losing money (depending on what cycle we’re at).

You can imagine when being flooded by repeated information like a broken radio about Bitcoin halving, Ethereum becoming full Proof of Stake (is that even still on?), SEC approving Bitcoin ETFs, El Savador acknowledging Bitcoin as legal tender, Elon Musk mentioning Doge is going to the moon, Federal Reserve money printer go brr and you need to escape the fiat system and Bitcoin is your Noah’s Ark (savior). All those are going to your emotional brain that creates stress inside you if you don’t participate in the hype. You feel like a sucker and perhaps you have heard from Bitcoin maximalists saying: “Have fun staying poor” if you don’t go all in on Bitcoin.

If this feels like you now, do you know why? Because I have been there and done that back in 2018 ??

The more intelligent amongst people would learn about theories like Plan B’s Stock to Flow ratio or Chris Burniske’s cryptoasset valuation MV = PQ or Ethereum forming the basis of decentralised finance (DeFi) and decentralised applications using Web3 which would accrue value from their various use cases as championed by famous eth influencers like David Hoffman.

Seeing these smart visionaries explain cool stuff that you don’t probably understand fully (I certainly don’t understand them fully) might make you be even more Fearful. Fearful of what? Missing out of course.

And if you are still with me this far, my argument in this article is this: it is dangerous (very risky) to only trust your emotions or instincts when buying anything of excessive amounts.

And this argument rests on the following points:

• Most people don’t understand the basics of cryptocurrencies as it is actually really boring (involving a lot of your prefrontal cortex or rational brain)
• Most people get flooded with information that play with their emotions (fear or greed)
• Most people get affected by this information without them knowing it because of biology (yes, because of how our brain is structured, see above)
• Alas, most people would end up making suboptimal decisions that adhere to fear or greed. That’s why cryptocurrency is inherently suuupeeerrr speculative and volatile.

In doing so, I will attempt my very best to share with you what I personally look at in cryptocurrencies. Just a heads up, it is going to be really, really boring because we will really be asking fundamental questions about what we are interested in here. And it will just cover tip of iceberg of Cryptocurrency here. I won’t be covering:

• Terra Luna, FTX, and countless other cryptocurrency crashes in detail
• Layer 1 and layer 2 (for e.g. bitcoin and lightning network)
• Privacy coins (Monero’s ring signature, Zcash’s shielded transaction, Decred’s coinshuffle++)
• Decentralized exchanges that use atomic swap technology like DCRDEX, Swap DEX, etc or those that use liquidity providers like Thor chains
• Decentralized Autonomous Organisations (DAOs)
• Non Fungible Tokens (NFTs)
• Other proofs like Proof of Transfer, Memory, etc
• and many more
• p.s. see? it’s not hard to sound smart in crypto. So always be careful on selecting people whom you can trust in this space :)

You can learn the things above by looking at the project pages or white papers yourself.

See you in chapter 2 folks!