BTC #8: ETH 2.0 VALUE CAN BE UNDERSTOOD BY UNDERSTANDING 'MONOPOLY'
Added 2020-12-26 17:11:27 +0000 UTCTo fully understand the relationship between BTC and ETH 2.0 I think you need to understand the construction of the game Monopoly. How should you think about it now at the end of 2020? BTC is the bank in Monopoly. That allows cash to flow throughout the game.
Interestingly enough cash is important at the beginning and closer to the end of the game. It is not as critical in the middle of the game. In the middle of the game the distinct property locations on the board matter more. This means that the board of Monopoly has an inherit axis of action as the picture below shows.
It turns out in Monopoly the most important space on the board is "Jail."
ETH 2.0 simulates the cardboard that sits below the printed property locations you see above. What simulates them in the crypto board being built today? The DeFi apps that are being built right now will best simulate the locations of the properties in monopoly. Because these apps are being built we have no way to determine what the axis of the crypto-board will be in the future to determine its intrinsic Cantilion effect. The axis of the Monopoly board is below. It flows through go to Jail. How you exit jail also matters to your success. If your opponent owns a ton of property with three houses on them, staying in jail might be the wisest move you could make. This is a counterintuitive move an expert player might make to win.
I will bet, once we know that axis of the crypto board of DeFi apps, those properties might be worth more than anything has ever been worth on Earth. For example, Chance and community chest spots skew the axis of the board. Understanding this effect changes the game theory for success. What will do this for ETH 2.0?
If you understand my "Monopoly analogy" for the cryptospace well enough, you will see that I currently believe BTC is the most important "property" to own early and in the later states in the developing crypto space game of value. Monopoly is a game of chance because a roll of the dice is what allows us to move around the board. It turns out that the orange and red properties have the most value on the Monopoly board because of how the axis of the board was set.
ETH 2.0 or the BTC chain might be the mover of people around the transaction chain of future money. Today, BTC is the best property to own since we do not know the rules yet. The axis of the board should control our actions. ETH major value in the crypto world was in 2014 because that is when the cardboard of the game was built. At that time if you bought one coin of BTC, you could have had 2000 ETH coins. One BTC today is worth 25K and the 2000 ETH are worth 1.3 million now.
Since that time in 2014, ETH has not been as valuable as BTC has been. On a relative basis right now ETH looks cheap to BTC and is a value play compared to BTC. Understanding why that is the case is important because buying it right now might act as sinkhole for your crypto assets, much like the "jail space" does on the Monopoly board. In Monopoly, mathematically we fully understand the effect of the jail space. Right now no one understands how ETH 2.0 will skew the value axis locked within the BTC blockchain. With game theory we can understand how the monopoly board axis operates to become better Monopoly players. Do we know this about ETH 2.0 yet?
Right now we cannot tell what the axis of the crypto board is because the board is still being built. One thing that is clear, is that the bank of value, BTC, is a must have already. The macroeconomic game of life is simulated by the collection of all properties on top of the cardboard. ETH 1.0 was the idea of cardboard. ETH 2.0 will solidify the cardboard foundation to allow the DeFi game pieces and the properties on the board above to function well.
Right now we have no idea where those properties will be or how they will work in the large macroeconomic picture. We do know that these crypto properties will be built and needed. We do not know how they will effect the value of ETH, but we do know that the BTC blockchain will always act like the bank of value in the board game of Monopoly. This is why in 2020 and 2021 it is easy to make the call that new people to crypto need to have at least one coin to play the economic game of life that will be rebuilt over the next decade. The point of this blog is to get you to understand where ETHER fits into your current investment life, and how you should think about it going forward. ETH is certain to be valuable down the road, but how long will one have to wait until the world unlocks that value for you to use?
The cost of capital buying BTC and ETH, for most of us is still a major impediment, so making the decision of where to put that capital to use today, before the system is fully built becomes an opportunity cost. The goal is to maximize your value, and to do so, you have to understand how the crypto world and the board it will be played on will be built and evolve.
SUMMARY
Anything deep down in the blockchain is mathematically, cryptographically, and just economically impossible to undo. This is why Central bankers fundamentally want no part of blockchain money. The landlords in history always wanted to control the banks to get the most leverage. This is why monopolists want to control fiat money. With BTC they are impotent to manipulate it, so this is why the adoption rate has been slow. That is why you should seek BTC right in 2020/2021 to store your value of every asset you own now. No government and no border can stop you from doing so now.
Politicians will soon seek to arrange the crypto property board that will be built upon BTC. This means they likely will affect ETH 2.0 with regulations more so than they can regulate BTC.
Realize, politicians actions will likely set the axis of the crypto board. This implies there is not just operational risks to the software being built out. There are many other things that might effect the price swings of ETH. This means understanding the macroeconomics of the "crypto-board" in the future will become critical in success of people who fail to buy and hold any BTC prior to 2020. For those of you who cannot secure your BTC coin now, this blog will give you a lot to think about in the future, when you consider how to use fiat money to allocate to ETHER.
Politicians won't help anyone. They always enrich themselves by enabling bankers free reign over the public's life. That is the basis of the Cantilon effect. Since politicians will not be able to affect BTC value they will really go after ETH 2.0 in my opinion to tilt the scales to their benefit. How money flows in the future will be directly linked to how the properties are built on top of the BTC and ETH 2.0 blockchain. I still believe the that BTC chains is worth far more than the ETH 2.0 chain today. Nothing I have thought about has made me critically think any differently. If you think I have missed something drop me a comment below. If we want help most of the public in the future, we need to limit the term of all politicians like we do with the president. Anyone who supports the old paradigm of banking needs to go during election day. This is why we need a BTC Standard to become a huge voter issue in the next elections in 2022. I think this will eventually happen.
The current one line pitch from crypto supporters for Ethereum is that it "will" act like the banking supercomputer of the world to become the financial internet of the world. This belief is only possible when ETH 2.0 is fully built out and operational. It also must be adopted as the standard for transactions on the BTC blockchain. There are a lot of assumptions with this statement. All come with risk to the value of ETHER over the next few years. For this reason I do not expect to see ETHER fully given its proper value. This makes ETHER investments speculative compared to BTC investments right now. It does not mean longer term it is not very valuable. With the promises and probabilities of ETH 2.0, the internet becomes very able to fully monetize DeFi apps because apps will and can send money back and forth to each other just like they can send information to and fro. This forms the backbone of the money transfer economy of the world.
Is this thinking pure "folly"?
What might be the result be?
I see something different than most, with respect to ETH 2.0.
Old logic: Cash used to a refuge from risk, but there has always been a price to pay. In the old days, the risk was low because fiat was backed by real value. Today this is no longer true. Would you sacrifice 98% of your opportunity to avoid the uncertainty of tomorrow? New Logic based on critical thinking: Volatility is Vitality due to an induced currency crisis of a lack of value. For these reasons, Bitcoin is now hope for humanity. What will ETH 2.0 do for BTC in the future?
BTC took "fiat money" and added a lot of value to it........ conceptually. It is time for you to think of ETH 2.0 as another concept.....It is built around the idea of what value is, and how it must constantly evolve.
If successful, ETH 2.0 will take something that already exists, namely BTC blockchain, and it will add something "Avante Garde" to it. This will make ETH 2.0 fashionable again, it becomes very valuable and its price will rise fast. When something becomes fashionable old can become new again. People will flow to it eventually because neither crypto coins follow established rules. As concepts, both coins can be thought of as "fearless sources of value" because they are removing the barriers to what is fashionable about value and money.
- Most define money in simple terms. Money is a medium of exchange; it allows people to obtain what they need to live. What does it mean to live for a person? Is that answer the same for all fiat holders? Does Jeff Bezos and you live the same way?
In 2021 the cloud will be everywhere. Next year will see more devices and more organizations powered by the cloud.
In 2024, ETH 2.0 will be laying next to the BTC blockchain to replace "the cloud". Right now the internet controls the BTC blockchain. In 2024, ETH 2.0 will be the cloud that controls the BTC blockchain.
An easy signal for being right about #bitcoin in 2021 is the institutional interest. Now let us ask another question? How much interest is there in Ethereum now? Based on the institutional exchanges, there is minimal interest. What does that imply.......a 2020/21 buy into ETH might be too early. As in everything in the world, time is relative. Timing matters in capital allocation.
In my opinion, the layer that sits upon and works best with the BTC blockchain is the most special layer. It simulates the cardboard of the monopoly board. It is just the cardboard without the famous map of real estate printed upon it. The things printed on that piece of cardboard are the DeFi apps that are being built right now by the DeFi community. BTC is the bank that is contained within the game of Monopoly. I hope this helps you understand the difference between the two most valuable crypto assets in December of 2020.
Dr. Jack Kruse and Kruse Longevity Center wishes you a happy and wealthy 2021.
Comments
Thank you again for the response. We'll agree to disagree (though not ever on blockchain, as the technology is fabulous). However, for those mitochondriacs who do want to explore the history of debasements and the antidotes during the past several hundred years, a must read is Nathan Lewis's "Gold: The Final Standard." Even if you don't buy into classical economic thinking (though it is the most predictive for the social science of economics and money), it is chock full of REAL DATA and charts. I don't ever deny that BTC won't have a place in this increasingly tyrannical world run by elitists, but BTC will not be a substitute for money as long as Wright's error remains uncorrected.
Stephen W. Shipman, CFA
2021-01-07 19:47:29 +0000 UTCIt appears that most are holding and not selling. Are the claims of hitting $40k or $100k self-fulfilling? Or will there be a drop back opportunity to buy?
Mark Wollin
2021-01-07 19:29:02 +0000 UTCThe proof-of-work chain is a solution to the Byzantine Generals' Problem.
Dr. Jack Kruse
2021-01-07 16:00:32 +0000 UTCWhat happened in the past is not relevant to where currency and block of value is headed now. Never in human history did we have a antidote to debasement. Now we do. That is what BTC fundamentally is.
Dr. Jack Kruse
2021-01-07 16:00:11 +0000 UTCThanks for the comments. I have read them and thoughtfully disagree with many of the premises. I also do not buy the arguments made by Kendall either.
Dr. Jack Kruse
2021-01-07 04:29:23 +0000 UTCIn addressing the second commentary, I'd like to assess just one aspect to start. You said: 'if the world is changing then prices should be changing, and one can only imperfectly compare one’s wealth at different times. Really, one can only compare different alternatives which would have taken place over the same time.' Here it is important to distinguish between what causes the change in price. There are really two types of price changes to examine: those caused by a change in the unit of account (the stability or debasement of account) or those prices that change because of production efficiencies or inefficiencies that are entirely unrelated to any monetary error. This insight is succinctly evaluated by my mentor, Jude Wanniski: http://polyconomics.com/ssu/ssu-971114.htm In terms of money, the unit of account characteristic is measurement. Measurement of price. For most of the past 300 years, currencies could be used as accurate measures of price because it was anchored to gold at a fixed price. Gold was used because it provided the feature of stability that no other element could (mostly because of its stock to flow characteristic). Just as blue light creates chaos in the mitochondrial world, money without a stable anchor does the same in the economic and financial world. The only historically valid anchor is gold. The unique characteristics of gold allow the quantity of money (currency and bank reserves) to facilitate economic transactions to grow without a corresponding increase in the amount of gold. This is where Wright commits error. He ties the value of his money, Bitcoin, to its quantity.
Stephen W. Shipman, CFA
2021-01-07 03:35:45 +0000 UTCAdded to above (before I accidentally hit the 'enter' key are two worthwhile articles by Kendall that evaluate, in detail, the shortcomings of Wrights design: https://manonthemargin.com/the-flawed-monetary-theory-of-craig-wright/ and https://manonthemargin.com/flawed-monetary-theory-craig-wright-part-ii/
Stephen W. Shipman, CFA
2021-01-07 03:09:40 +0000 UTCThank you for the response. Will address the first one first. Bitcoin was designed to substitute for the dollar and any other currency with with folks might make transactions. By definition, it was designed as a currency. Wright used gold as his model and thus limited the number of coins to reflect the limited number of ounces of gold that has mined over the millenia. His error is a fundamental misunderstanding of gold and money. It is not the scarcity of gold that makes it a great anchor for money, it is its abundance. But not abundance in terms of absolute QUANTITY. Rather, abundance in terms of its UTILITY. Unlike all other commodities, gold has a huge ratio of stock (inventory) to flow (demand). It is about 100 years. In contrast, if you look at a commodity like oil, it is only 153 DAYS of inventory to demand. By limiting the amount of Bitcoin available to the marketplace (even assuming the transaction platform is viable), Wright has introduced a deflationary bias into the system.
Stephen W. Shipman, CFA
2021-01-07 03:06:30 +0000 UTCi disagree with your friend after reading what he said. Why? Can Bitcoin be used as a unit of account? Yes, very much so. Unlike store of value, this is actually a really good term, but unfortunately people do not take it literally. When people say unit of account, they seem to want something that will reliably measure wealth somehow, or that things can be priced in without having to be constantly updated. But these are just other ways of chasing the siren song of stability. Here too, if the world is changing then prices should be changing, and one can only imperfectly compare one’s wealth at different times. Really, one can only compare different alternatives which would have taken place over the same time. Yet there is a worthwhile definition of ‘unit of account’ under these circumstances. It is very simple: a unit of account is something such that to gain it is considered to be profit and to lose it is considered to be loss. Anything can serve this function, but the reason we would especially want to use liquid goods as a unit of account is that when we are liquid we don’t have to think too far into the future. Thus, acquiring a liquid good serves as a reasonable end point to any venture. When you’re sitting on a huge pile of cash, you know that you’ll be fine for some time no matter what happens. Whereas if we were on a barter system with no highly liquid goods around, then one would have to think much further ahead in order to assess the success of a venture. Thus, thinking of profits and losses in terms gaining or losing a liquid good is essential to being able to divide the entire future into manageable tasks—as long as one is gaining that liquid good, one is doing things correctly. Of course, when things are changing so much that the money good itself might shift, then one has to pick which medium of account to use. So once again, Bitcoin is a great unit of account—if it’s going to win. In that case everyone should be trying to get as much as possible of it right now, with the expectation of it being very liquid in the future.
Dr. Jack Kruse
2021-01-07 00:12:45 +0000 UTCThanks for your input. The unit of account is not a flaw. BTC was designed as a pristine source of value. That value is accounted for in scarcity and in the blockchain technology. Nothing on Earth record transactions better. But people need to understand BTC was not really built to be a currency. It is a source of pristine value to support . The payment rails will come on both the BTC and ETHER blockchains.
Dr. Jack Kruse
2021-01-07 00:11:34 +0000 UTCI despise the fiat currency as much as most do. But I also really understand money. The three characteristics of money are as 1) a medium of exchange, 2) a store of value, and, most importantly, 3) a UNIT OF ACCOUNT. Bitcoin has a huge flaw in its design, even apart from the absence of a transaction platform that Jack mentions. My friend, Mike Kendall, is as good as it gets in understanding Bitcoin (and money): https://manonthemargin.com/bitcoin-through-30000/
Stephen W. Shipman, CFA
2021-01-06 16:39:03 +0000 UTCETH is an infant now
Dr. Jack Kruse
2021-01-01 17:46:03 +0000 UTCHave you look at Zilliqa? https://www.reddit.com/r/zilliqa/comments/k9oxp4/new_to_zilliqa_go_through_these_posts/ They are like ETH 2.0 but designed from the beginning. Already supporting sharding and maybe more decentralized Is ETH's network effect too big already?
Eric Dahl
2020-12-31 18:46:17 +0000 UTCThis is crazy! Over $5k in growth in 1 week. Is there any reason to expect a drop in price creating a buying opportunity?
Mark Wollin
2020-12-31 04:00:15 +0000 UTC1. no 2. no
Dr. Jack Kruse
2020-12-29 23:19:24 +0000 UTCwhere do you have an answer to my questions please?
Thomas Haentjens
2020-12-28 07:24:54 +0000 UTCit is over 28K.
Dr. Jack Kruse
2020-12-27 22:36:07 +0000 UTCYou don't understand BTC if you think scarcity is relative.
Dr. Jack Kruse
2020-12-27 22:35:28 +0000 UTCThanks Dr. Kruse for your posts and reminders about cryptos and their potential right now. I actually bought BTC and ETH about 3 years ago. I invested small amounts over a range of prices but got bitten as I bought a small amount close to the height back then and so after that I just sat on it and have not invested anymore since (much to my annoyance now!!). So your posts have prompted my interest in it again and my previous investment is worth a lot more now. But things have changed in the crypto space since then and so I have to invest some time in relearning. I saw you posted on Twitter about the LEDN bank which has a shockingly good interest rate for their savings account. Do you know what the commitment is on this type of account and how easy it is to extricate value from it at short notice? I've always liked the idea of crypto to cut out the middleman banks in financial transactions but seems like you still need to use banks to buy it and that always takes days. I'm also nervous about taking the leap again right now due to the current value - it is over $25k - and I am wondering if it will come back down again a bit. Once bitten, twice shy!
Jackeroo
2020-12-27 18:06:35 +0000 UTCHey Dr. Kruse I am considering long term investment in BTC as it is a decentralized alternative for fiat money (i) and it is scarce and therefor valuable (21M #). Yet have to sharpen insights: 1. Is BTC the new Nokia? The scarcity of BTC is relative, there are a lot of other alternative cryptos… why would BTC (or Ether) be the one(s) on a long term basis? BTC adopters might consider investments in other cryptos as their technologies further evolve throughout time 2. Has the success of cryptos within it the seeds of her own destruction? Governements will do everything to favorize their own public cryptos to the detriment of private cryptos (like BTC)
Thomas Haentjens
2020-12-27 12:11:01 +0000 UTCHere is how it works:https://hackernoon.com/grayscales-gbtc-pump-effect-means-2021-will-start-slow-0gu340l
Dr. Jack Kruse
2020-12-27 02:01:24 +0000 UTCit is a trust which holds BTC
Dr. Jack Kruse
2020-12-27 01:50:14 +0000 UTCSo, I have a dumb question - if I buy GBTC on schwab, do I actuallyl own BC or just a stock? It is interesting to me because I can roll over an IRA into BC IRA using schwab and not get taxed... thanks:-)
Penelope Pappas
2020-12-27 01:48:27 +0000 UTCmy pleasure.
Dr. Jack Kruse
2020-12-27 01:06:13 +0000 UTCThanks for everything you do Doc. You have changed my life, you have taught me something that I will carry forever. You have shown me how light sculpts our life and how without it in the equation of optimal health absolutely nothing makes sense. Thanks to your wisdom I have learned and made better decisions in my life. You are unique!
Martin duraes
2020-12-26 21:18:12 +0000 UTCI think this blog answers this
Dr. Jack Kruse
2020-12-26 20:51:45 +0000 UTCjack i bought a whole bitcoin. I am a student and I do not have a large amount of capital, better to continue allocating what I can save this year to BTC or start with ETH?
Martin duraes
2020-12-26 20:45:21 +0000 UTCNo way to answer this without a lot more data
Dr. Jack Kruse
2020-12-26 18:09:56 +0000 UTCThis depends on your capital position now. I own some ETH.....by my situation is not yours
Dr. Jack Kruse
2020-12-26 18:09:26 +0000 UTCAlso, would it be wise to take a loan from Blockfi to buy more BTC?
David Robinson
2020-12-26 18:04:43 +0000 UTCGreat post, so to clarify, you believe that we should not invest in ETH until we know more about this "game of monopoly" and for now just focus on buying more BTC/
David Robinson
2020-12-26 18:04:15 +0000 UTCmy pleasure
Dr. Jack Kruse
2020-12-26 17:40:47 +0000 UTCStarting to make more sense. Thanks for the lesson.
Mark Wollin
2020-12-26 17:34:17 +0000 UTCStrong opinions around ETH are fabulous if you accept new ideas in your church of BTC beliefs before you level an opinion on ETH value in relation to the value of BTC
Dr. Jack Kruse
2020-12-26 17:15:10 +0000 UTC
