Biggest Negatives of 2017

  • by Alex Lightman and David Lightman
  • February 10, 2018
  • 0

1) SCALING FAILURE – The Bitcoin scaling war was resolved – basically with a complete failure to scale Bitcoin at all – thus resulting in sky high fees. For example the recommended fee (for likely in the next block) for a normal transaction is as of Dec 15 “420 satoshis/byte. For the median transaction size of 226 bytes, this results in a fee of 94,920 satoshis.” At the current Bitcoin price of $17,561 this means the median transaction costs a whopping $16.62 cents!

The other day I sent someone $2 as a demonstration, now I’m afraid I spent $16 dollars to do so. No wonder Steam just dropped Bitcoin as a payment system.“At this point, it has become untenable to support Bitcoin as a payment option,” Valve said. “We may re-evaluate whether Bitcoin makes sense for us and for the Steam community at a later date.”It’s far cheaper, almost free, to use Litecoin or Bitcoin cash for payments now. This partly explains why Litecoin is skyrocketing at the moment.

Core’s incredible obstinance in refusing a blocksize increase has really handicapped Bitcoin. It is useless as a payment system now unless you are sending hundreds of dollars. Even for a hundred-dollar payment you are paying a 16% fee. You may as well use Western Union. and have not even adopted the Segwit code which activated way back in August and should result in significantly lower fees. You’d think they would want to help their customers in this way. But apparently not.Instead Bitcoin is simply adopting the role of digital gold.But Core should not be allowed to oppress Bitcoin like this. Why isn’t there a UASF to insist that Core increase the blocksize?

2) Ethereum is still fairly insecure. Unlike Bitcoin, which has quite simple functionality, Ethereum contains its own programming language called Solidity. It’s Turing complete which means that in theory an Ethereum smart contract can solve any problem that any other computer can. The price of this is that there are an infinity of bugs as well as malicious exploits and vulnerabilities resulting from this flexibility.“A bug in Parity, a popular wallet for the cryptocurrency and decentralized application platform Ethereum, may have resulted in more than $150 million worth of ether being permanently frozen.

The bug affects Parity multi-sig (multi signature) wallets, which require more than one owner to “sign” a transaction before it can go through. An unknown attacker (or a careless developer) has exploited it to effectively destroy a piece of Parity’s code, effectively rendering all multi-sig wallets that were created after July 20th completely unusable”
It’s hard to believe that hundreds of millions of dollars’ worth of tokens are routinely invested in a platform this buggy. The multi-million dollar DAO heist, which was actually a perfectly legal use of a bug in the code – was another example.

3) Ethereum’s great success with its ERC20 tokens turned out to be a double-edged sword. For one thing the massive number of transactions involved in the ICOs bogged down the Ethereum system regularly. Even worse – when thousands of ETH holders sent their coins to a single ICO address – it represented a centralization of the funds. If a company suddenly receives a hundred million US dollars’ worth of ETH, but will need to make most of it’s actual spending in dollars and euros then it is of course only prudent for them to convert a lot of the money into dollars – protecting them from the exchange risk should the price of ETH drop. They might also prudently consider converting some of the ETH into Bitcoin. While this makes sense from the point of view of the company – it means that a huge amount of ETH must be sold on the open market – thus depressing the price. If 3.5 billion ETH was given to ICOs this year – it’s not surprising at all that the coin price seemed depressed for months. Every time the price goes up – the ICO companies see a chance to cash out a bit more.So ETH was a victim of its own success.

4) Many ICOS are scams or at least non-serious attempts to cash in on the ICO craze. Tezos may have been the most obvious, and Brock Pierce, an entrepreneur and VC in the field claims that 19 out of 20 ICOs are bogus. This almost complete lack of standards and nearly blatant fraud may bring a tidal wave of regulation by the SEC and other bodies in 2018 against the ICO wild west.

5) Crypto currency is currently treated as property by the US tax code. This means that if you bought bitcoins at $1000, and now the price is $10,000 – if you buy a tube of toothpaste with your bitcoins, you technically have to pay capital gains taxes on 9/10s of the price of the toothpaste. Of course, the proper way for this to be taxes would be that if you bought bitcoins as an investment you would pay capital gains taxes, but if you use it as a currency there would be no tax. Some jurisdictions have adopted this common-sense approach but not the US yet.

One consequence of this law is that folks holding lots of crypto – who in general don’t like to change it back into
the ever-shrinking hot potato called the US dollar anyway, now have a very strong incentive not to use a reporting institution like Coinbase to cash out their crypto into dollars. Instead they will most likely sell their coins privately. This actually encourages an underground cash economy. It also is a huge incentive to simply not sell your coins, or ideally buy large items like property directly in bitcoins The IRS has complained that only 860 people reported capital gains from Bitcoin spending on their taxes. This gave them grounds to demand that Coinbase hand over records of everyone who purchased Bitcoins. A court battle ensued, and Coinbase lost, but there was a compromise that only customers who bought or sold more than $20,000 worth of Bitcoin in a year would be reported. Thus, it’s likely that there will be a standardized reporting limit for Coinbase, and customers may be wise not to exceed this limit.

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Alex Lightman is an MIT graduate ('83), attended graduate school at Harvard, and is the winner/recipient of four global technology awards, including the Economist magazine Reader's Award for the "innovation that will most radically change the world" for this decade 2010-2020. He is a co-founder of Token Communities Plc., a Gibraltar corporation that invests in tokens; the CEO of a publicly traded energy company; and advisor to seven ICO/token sales, including Propy, Science, and Academy for Blockchain Technology mentioned in this article. He is the author of the first book on 4G wireless, Brave New Unwired World and the co-author, with Brett King, of the bestseller, Augmented: Life In The Smart Lane, which was no. 1 in seven different categories in 2016.