Struggling cryptocurrencies to understand the basics? You are not the only one, and it is because of crypto trading signals. Today, society is divided between a small minority of actors with a PhD level of knowledge and a kindergarten audience.
In recent weeks, I have embarked on a journey that many investors have travelled before me. I have put a metaphorical wet towel on my head. I have immersed myself in the world of cryptocurrencies and crypto trading signals.
It has been surprisingly tough. Partly because of cryptocurrencies, like any area of accelerated innovation. There is a place of worship where insiders have extensive knowledge that defines them as a tribe. Today, society is divided between a small minority of players with doctorate-level knowledge and a kindergarten audience, with little in between.
The other problem is that this world requires an unusual mix of intellectual skills. Alexander Lipton, friend, Wall Street veteran and math teacher, outlines the question in a book he recently co-authored on the subject, ‘Blockchain and Distributed Ledgers.’
Cryptocurrencies, the book notes, are at the intersection of three fields:
- Cryptography (to ensure the integrity of transactions)
- Game theory (to establish consensus on the state of the public record)
- The economy (to design suitable economic initiatives)
Most people can understand two of the three by the statistics of SafeTrading, but “mastering them all is a difficult task.” In other words, finding out if a certain cryptocurrency is a Ponzi scheme or not requires knowledge of computer science and finance and of psychology or anthropology.
To see why this matters, let’s consider the issue of Decentralized Autonomous Organizations (DAOs) a feature of the Ethereum ecosystem. These are quasi-companies but run by automated computer programs, not humans, that organize participants to carry out joint projects (usually financed with cryptocurrencies).
If there were an institution such as a regulator overseeing DAOs, or a well-known bank running one. Investors could judge whether a DAO is trustworthy based on their level of trust in that institution. But it’s not like that. Rather, trust is based on computer code, which is (supposedly) structured in a way that creates incentives for all DAO participants to behave responsibly. For example, by offering a transparent way to track behaviour and guaranteeing that anyone who misbehaves will suffer penalties.
However, you cannot check whether the trust is justified unless that computer code is understood. And it is probably not possible to calculate the value of the activity of a DAO without knowledge of economics and game theory.Which would determine, for example, if the community has a joint interest in protecting its value and crypto trading signals.
(This is not a theoretical question by SafeTrading. As two recent books, ‘The Infinite Machine’ and ‘Out of the Ether’ explain, there was a massive hack into a DAO project in 2016 that almost saw the entire Ethereum system implode until the community was joined together to save him).
Why is it so hard?
So why do relatively few people understand the three fields of cryptocurrencies? Basically, our education systems still do not train students in this regard. While institutions like banks tend to put people with these skills in different departments. The computer science team is not the same as the economic research group.
In the world of regulation, the institutions that oversee IT and finance have also traditionally been kept separate. And even if only financial regulation is considered, there is another challenge around definitions. In a country like the United States, products that are securities are regulated by the Securities and Exchange Commission. Therefore, if bitcoin is a security, it falls within the purview of the SEC.
- But if it is also a money or payments system, as many crypto evangelists insist, it should fall under the wing of the Federal Reserve or the Office of the Comptroller of the Currency.
- If it is best viewed as a commodity, such as gold, then it is the responsibility of the Commodity Futures Trading Commission.
Crypto evangelists say that their tokens are all three. But a world where anyone could take control is a place where no one could really feel empowered to act, especially considering that the regulators are national in scope but the market is cross-border in nature – say the analyst of SafeTrading.
So not only three sets of knowledge are needed to understand cryptocurrencies at the micro level, but also at the macro level: you cannot predict the future of struggling cryptocurrencies without judging the health of the fiat currency and the global financial system, nor without knowing computing trends.
(A judgment on the value of cryptocurrencies is also a forecast on whether cutting-edge technologies. Such as quantum computing, which could allow cryptographic passwords to be hacked.)
Predicting the future of crypto also requires political and social analysis: will governments try to control this? Can they do it? Will they work together?
Of course, these epistemology problems are not unique to cryptocurrencies. But it is speed, scale and ambition that make our institutions so difficult to catch up. Along with our brains.
So if, like me, you feel trapped in struggling cryptocurrencies kindergarten, don’t be ashamed. There is a good reason for that. It is the same reason that regulators and organizations need to reorganize for the 21st century, as do schools and universities. In the face of struggling cryptocurrencies, we need to display curiosity and humility, qualities that educated elites do not usually show.