Paper on Cryptocurrencies

Proposed BENEFITS:

1- One cryptocurrency to replace all currencies / Forex hedging will become obsolete

2- Secure & safe / Hack-proof / Flawless technology / Unregulated means freedom

3- Cryptocurrencies have guaranteed value and legal tender

4- Built by smart people, with reputable backgrounds and honest intentions

5- Immediate payment / No need to wait

6- No need to disclose the government any data / It will “democratize” finance

7- Compliant with financial regulation (e.g., AML/CFT, sanctions, tax, etc.).

8- Easy to use and transfer / Preserves wealth for future generations

9- Value preservation in a “rare” asset that is limited

10- An efficient, environment friendly asset that retains value in a disaster scenario

11- They help build a stronger society through solid governance

12- Blockchains and cryptocurrencies are one and the same

13- Transparent for tax purposes / Completely trustworthy

14- Deniers are wrong / Experts and the great masses are right!

15- People are getting rich FAST - Impossible is nothing!

ANALYSIS OF EACH PREMISE:

1- One cryptocurrency to replace all currencies / Forex hedging will become obsolete

• Fun fact: there are more cryptocurrencies active today than all traditional currencies that ever existed throughout human history. Bitcoin, Ethereum, Litecoin, Dogecoin are only but a few. There are over 2300 cryptocurrencies with circulating supply, all created within the last decade (see: https://coinmarketcap.com/all/views/all/). If you are truly excited about cryptocurrencies, you should consider creating one yourself. There is no reason to follow the herd if you can be leading a pack. Basically, you could make a fortune by convincing others to buy your cryptocurrency.

• Businesses perform Forex hedging as a practice to secure the value of contracts in foreign currencies. While businesses pay obligations in one currency (salaries, electricity and other costs), any future inflows in a different currency may create a dynamic shortfall due to adverse fluctuations. Given that costs are not paid in any of the thousands of cryptocurrencies available today, hedging would still be necessary. The cost of hedging cryptocurrencies is far too onerous, due to their volatility.

2- Secure & safe / Hack-proof / Flawless technology / Unregulated means freedom

• There are legitimate scenarios that could compromise the contents of your e-wallet, leading to the complete loss of your holdings in cryptocurrencies (e.g., password loss, phishing, digital surveillance, etc.).

• Password hacking through decryption is also a possibility, given sufficient processing power and advanced algorithms (e.g., military grade decoding/decryption, etc.). It may seem impossible today, but just think of the German Enigma machine. Quantum computers could even destroy the notion of digital passwords.

• Contrary to popular belief, some public ledger technologies have flaws. Edward Snowden identified some linked to Bitcoin during the Berlin Blockstack event in 2018. He also leaked that intelligence agencies actively spied on Bitcoin users.
• Current cryptocurrencies are subject to regulation. As an example, China currently bans financial institutions from Bitcoin transactions. More jurisdictions are expected to regulate current cryptocurrencies in the near future. Just wait for the next crash, as hundreds of legislative bodies pass urgent laws in the wake of the carnage.

3- Cryptocurrencies have guaranteed value and legal tender

• Contrary to bank deposits, which are insured up to a certain amount (e.g., FDIC insurance of up to $250.000 per depositor) current cryptocurrencies are not guaranteed by any nation nor government agency. Sovereign countries have governance over their own currency, allowing them to make good on the promise to insure deposits in their jurisdiction. The same cannot be said about current cryptocurrencies.
• Cryptocurrencies can drop in value at least as fast as they have risen, if not faster. Market dynamics tend to crash faster than they boom, thanks to primal emotions, such as panic and fear.
• Current cryptocurrencies have no legal tender capacity, meaning they are not a legally binding instruments to cancel financial obligations under any law or jurisdiction. Doing so would create difficulties to fulfill any credit or debt obligation, due to their volatility. Governments could issue their own cryptocurrencies, convertible directly to their traditional currency, which could address this issue. Government backed cryptocurrencies would be a far better idea than trusting an insolvent private and anonymous initiative.

4- Built by smart people, with reputable backgrounds and honest intentions

• The individuals behind most cryptocurrencies are unknown. As an example, the creators of Bitcoin (today’s largest cryptocurrency) have made a concerted effort to keep their identities secret. It could be a person, an organization or even an agency with obscure intentions. The public has no clue who is behind it. What we do know for sure are 3 things: #1- the creator’s identity is intentionally concealed. #2- the instrument was designed to serve as many gullible people as possible. #3- the creators have a material portion of bitcoins, with a volume large enough to crash the market at any given moment. There is no lock-up period nor public disclosures. Essentially, this grants the creators a self-destruct mechanism. The perfect setup for disaster.
• The true intentions behind current cryptocurrencies are unknown. They are currently driven by greed, speculation and bragging rights. Their future is highly uncertain, due to lack of governance. In any case, nothing good ever came from greed, speculation and a braggadocious attitude, just look at Donald Trump. Even after multiple bankruptcies, he will face legal battles until the end of days.
• The volatility of cryptocurrencies reflects the stability of their value. So far, there are 2300, but many more will continue being created. The boom will continue until a huge crash occurs.
• Some companies have manifested their intent to create their own cryptocurrencies. Facebook has made public its desire to create “Diem”. Starbucks already has an app for store purchases. Many more companies are expected to follow. Their scenario is different, as they can back their coins with goods or services. They could also design referral arrangements through blockchain ledger technology, whereby additional information is gathered from each transaction. Trust and adoption would be driven by demand from their current products and the fundamentals of their underlying business. Current cryptocurrencies cannot do this.

5- Immediate payment / No need to wait

• For a few decades now, you can make immediate payments for all your purchases. Since the last century, you can already buy things without cash. With a debit card, credit card, check, voucher or any other similar instrument, you are able to immediately purchase just about anything. Some means of payment even allow for membership reward points, identity fraud protection, etc.
• Amazon deliveries will not take less time if they are paid with cryptocurrencies. The notion that payments are not immediate today is an absolute fallacy. Amazon could also come up with their own cryptocurrency, given their IT infrastructure. Deliveries would take the same time as paying with any other method.

6- No need to disclose the government any data / It will “democratize” finance

• Most governments already have the majority your data. Your tax statements, details on registered assets (house/car/yacht/aircraft), financial assets (securities, bank accounts), your ID and social security number. Through a court order, governments can listen to your phone-calls, emails and also detain you permanently, hopefully after due process. Governments are entrusted by their people to protect them from fraud, theft, crime and oppression. Keeping your government in the dark can materially hinder its ability to protect you. It is a cruel world out there, having the government on your side has always been a huge plus. When disasters occur (e.g., COVID-19, floods, etc.) societies must rely on their governments to find a solution.
• If you do not trust your government, cryptocurrencies are not a substitute for a functioning democracy. Wealth “democratization” can only occur through taxes and decent public administration. Creating over 2300 private cryptocurrencies does absolutely nothing for democracy.
• Wealthy individuals may cry that they hate their government, but what they truly hate are taxes. Governments have the responsibility to maintain highways, hospitals, schools, police departments, the military, as well as the Executive, Legislative and Judiciary branches. Rich people may not use highways frequently, but they do need the police, while enjoying their influence over all branches of government. Certain strategic activities are key for society, which is why they are entrusted in governments. Current cryptocurrencies have no governance structures, while being opaque and anonymous. Governments must disclose information publicly and are accountable through independent oversight. Public officials can be impeached and removed from power by popular demand. This is what democracy is all about. Private corporate individuals cannot be removed from their positions through elections, while remaining anonymous and having no accountability to the public.

7- Compliant with financial regulation (e.g., AML/CFT, sanctions, tax, etc.).

• Current cryptocurrencies barely help address money laundering concerns (AML legislation). Money laundering occurs as a result of criminal activities, such as drugs, weapons and human trafficking, as well as bribery, terrorism financing, sanctions violations, tax evasion and other illegal activities. In fact, current cryptocurrencies help bypass essential controls, facilitating illegal activities that are a direct threat to society.

8- Easy to use and transfer / Preserves wealth for future generations

• Quite the contrary, if the password of an e-wallet is lost or not disclosed to family members, your e-wallet may never be accessed again. An e-wallet has the potential of locking your cryptocurrencies from you and your loved ones. Even transferring cryptocurrencies is a nightmare, given the keys needed. If you make a mistake with a transfer, you may need a miracle to get your coins back. Many thousands of coins in current cryptocurrencies have already been lost.

9- Value preservation in a “rare” asset that is limited

• Cryptocurrencies are digital assets, with customized design. Over 2300 exist today, making them anything but rare. Rarity is an attribute that involves something scarce, unusual, or that cannot be reproduced easily. Currencies are fungible by design and thousands will be created within the next year. As a perfect example: Leonardo da Vinci’s Mona Lisa is rare and priceless, but a digital picture of the painting is not.

• Thanks to being a virtual concept, there is no limit to how many cryptocurrencies can be created beyond the over 2300 available today. The only rare thing about cryptocurrencies are their ridiculous names. Some examples are: Concoin, PonziCoin, Cabbage, Paparazzi, Fuzzballs, Dynamite, MalwareChain, HollyWoodCoin, DopeCoin, BetterBetting, Beer Money, Small Love Potion, Conceal, Pizza, Parachute, Cheesecoin, CasinoCoin, Fatcoin, Wagerr, etc. These are all real cryptocurrencies with circulating supply. ScamCoin, TheftCoin and FraudCoin could also get minted soon.

10- An efficient, environment friendly asset that retains value in a disaster scenario

• In case of a disaster scenario, involving a major power outage or loss of internet communications, you can easily be restricted from accessing all current cryptocurrencies. Participants could be one Texas winter storm away from being restricted from their holdings, at a time when they may need them most.

• Just recently, the BBC reported that Bitcoin consumes more electricity than Argentina, a country in the G-20. Massive mining farms with the sole purpose of using electricity and dissipating heat. There should be no doubt, climate change is here to stay. Texas winter storms will be the new normal, as many cryptocurrencies are making their contribution.

• Elon Musk showed his true colors when “investing” in Bitcoin. His actions promote superfluous electricity consumption for a very good reason. A 300 IQ move to create a temporary spike in electricity demand. Once cryptocurrencies crash, electricity will become incredibly cheap. While the crash is delayed, many may consider solar roofs to power their mining farms as well.

• The term “Financial Weapons of Mass Destruction” is the best possible description for current cryptocurrencies. They are weapons-grade plutonium without the nuclear fallout. Just one EMP (electromagnetic pulse) away from extinction. In the case of Bitcoin, one hangover away from wipeout, should Satoshi Nakamoto have poor alcohol tolerance. Certainly, the most socially disruptive nonlethal weapon ever devised.

11- They help build a stronger society through solid governance

• Current cryptocurrencies have no authority nor governance. Regulatory aspects, such as security, transparency and accountability, are nothing but red flags that should be considered dealbreakers.
• Current cryptocurrencies help avoid AML & CFT controls. These controls involve regulations of anti-money laundering (AML) and counter the financing of terrorism (CFT). As a result, current cryptocurrencies facilitate illegal activity.

12- Blockchains and cryptocurrencies are one and the same

• Blockchains can indeed be useful, however, cryptocurrencies are a distant concept from decentralized ledger technologies. The notion that these concepts are intertwined is a fallacy. It is equivalent to suggesting that ink, salt, metals and paper are the same as currency. Today, most of the money supply is in demand deposits, which is already digital. What makes traditional currencies trustworthy is their backing by institutions and governments. Current cryptocurrencies have nobody’s backing.

13- Transparent for tax purposes / Completely trustworthy

• Current cryptocurrencies can be held by fake identities, with Satoshi Nakamoto probably being the most famous. Mr. Nakamoto may release his tax statements immediately after Donald Trump, though I doubt it, as he may not exist.
• There is no trust in the beneficiary or settlor of a transaction done with current cryptocurrencies. In fact, if you transfer coins to the wrong account and/or for the wrong amount (e.g., fat-finger error, human mistake, etc.), the coins could be considered gone.

14- Deniers are wrong / Experts and the great masses are right!

• Deniers generally have a burden of proof far too high for radicals. Valid arguments and scientific proof are never enough. Some people only learn from disasters, yet others never learn at all. Current cryptocurrencies have enjoyed an interesting bull run which will end just like the previous one. Isaac Newton said that what goes up must come down. This notion was coined as the Law of Gravity. There are grave consequences for attempting to break this law.
• Cryptocurrency crashes have occurred in the past. Since the last crash in 2018, absolutely nothing has changed. Albert Einstein said that insanity is doing the same thing over and over, expecting different results.
• Sadly, the world is full of gullible people. Millions believe the earth is flat and vaccines cause autism. Donald Trump, Mauricio Macri, Jair Bolsonaro and Rodrigo Duterte, were all recently elected presidents while promising to make their supporters rich. Nothing but a scam to make themselves even richer. Their fruits were greed, speculation, arrogance and corruption. Beware of false prophets.

• Over 74 million people voted to reelect Donald Trump, after hundreds of thousands had died to COVID-19, which he called a hoax. After making wild claims about the election being stolen, he encouraged his supporters to storm the US Capitol. People who claim to love their country can be conned into an insurrection without even knowing it.

• An infamous European once said: “The great masses of people will more easily fall victims to a big lie than to a small one”. Bitcoin has passed $1 trillion in market capitalization.
• Mark Twain was correct: “Truth is stranger than fiction, but it is because Fiction is obliged to stick to possibilities; Truth isn't”. George Carlin correctly stated that you should never underestimate the power of stupid people in large groups. Ricky Gervais jokingly suggested how to deal with this issue.

15- People are getting rich FAST - Impossible is nothing!

• Those who created the cryptocurrencies will get rich. Once this social experiment expires it will be time-consuming and difficult to prosecute the scammers. Current cryptocurrencies have all the ingredients of a perfect scam. Not much different from buying snake oil from an anonymous salesperson, except you don’t even get a flask.

• Get rich fast schemes are driven by greed, speculation and the desire to ignore common sense. Once the frenzy ends, many will realize they were blinded from rational thought. Similar schemes were recently exploited by Elizabeth Holmes, Ruja Ignatova, Bernard Madoff and Martin Shkreli. The fear of missing out (FOMO) plays an interesting role in the psyche of victims.
• There are no circuit breakers, no safety nets, no investor or consumer protection, making future crashes nothing but certain. When panic hits financial markets, they crash. Negative oil prices, triple A mortgage backed securities that become worthless, all in the blink of an eye. Casinos have been missed during COVID-19, there is no doubt. During this time of great crisis, it is no surprise to see the resurgence of cryptocurrencies.
• Muhammad Ali, the greatest fighter of all time, made a statement about nothing being impossible. He expressed the idea in the context of adversity, inspiring courage to address the struggles humanity must face to achieve greatness. Putting an end to poverty, famine, discrimination and inequality, are some of the things worth challenging.

It is said that there are two sides to every coin. Unsurprisingly, virtual coins have no side at all. If you are still excited about cryptocurrencies, you should consider tulips. They are environmentally friendly, consume less energy and are surprisingly cheap at the moment.

Gamble only what you are comfortable losing.

This paper was written thanks to the help of a certified professional with decades of experience in financial markets, sound knowledge of financial crime regulation and expertise in the field of information technology.