Having read Jill Carlson’s Coindesk opinion piece, “Stop Treating Bitcoin as Risky. It’s a Safer Asset Than Most,” I was dumbstruck. I agreed with almost everything she had to say, but something felt off. So I read it again. And again.

Jill evaluates Bitcoin as an investment.

But the most compelling arguments Jill makes are as follows:

“This perception misses bitcoin’s most important properties. Bitcoin is, in many ways, the ultimate safe haven asset. It can be self-custodied, so even when systems of trust and rule of law breaks down, it can be held. It is open and borderless, with relatively liquid markets in every country in the world. It is censorship-resistant, meaning no government nor institution can, practically speaking, prevent investment or transaction in bitcoin. Bitcoin has a fixed supply, much like gold. Bitcoin is digital, which makes it practical to hoard, hold and transport. For doomsday preppers, dystopian sci-fi fans and apocalypse predictors, there is a lot to like about bitcoin.”

For doomsday preppers, dystopian sci-fi fans and apocalypse predictors.

Jill didn’t say, “For pension fund managers, tax accountants and retirees.”

The appeals Jill describes call to bear a social movement where one can opt-out of the legacy financial system and take direct sovereignty, without reliance upon trusted third parties or the permission of nation-state governments. Jill is talking about the original cypherpunks from bitcointalk - not the newcomers seeking alpha.

I’m not in crypto because I want my investment to pay off, though that would be nice. I’m in crypto because I want to live another way and help re-create a new financial system that’s fairer and empowers individuals. This is a social movement, and when people participate in social movements, they do things independent of, or even counter to, their personal financial interests.

Jill evaluates whether crypto acts like a risk-on or risk-off asset, whether the market treats it as risky or as a safe haven.

For me personally, I don’t care, and it doesn’t matter, particularly at this early stage. People can create any memes they want, but they won’t necessarily reflect reality or make “number go up.” If you want to evaluate the riskiness of crypto, do a regression and find the beta — it’s a simple exercise, albeit with a lot of noise.

Crypto is insular, and its high time for some open and honest self-reflection. Jill correctly compares Bitcoin to an early stage startup and claims:

“Bitcoin appears to be hovering between the trough of disillusionment and the slope of enlightenment. This means that most people continue to view cryptocurrency as kind of crazy. It’s a gamble.”

I very much agree. However, I believe the crypto world lives within a bubble, full of biases, groupthink, and cognitive dissonance. When struggling to gain traction running for Governor of California, Upton Sinclair claimed,

“It is difficult to get a man to understand something when his salary depends upon his not understanding it.”

While this quote applies to the heavy bags of crypto investors, it applies equally to those who participate, and are incentivized by the legacy financial system. Bankers aren’t lining up to be replaced by crypto. Many technology firms set out to disrupt legacy institutions, armed with do-good slogans like, “Don’t be evil,” but ended up selling out, invading your privacy and extracting the rents for themselves.

Let their failures be a warning to crypto not to do the same.

The next wave of adopters is what matters, and while we all live in our bubbles, it is their perspective that must be explored. So, as they look at crypto, what do they see?

If newcomers are evaluating crypto as they would a new technology startup, a standard structure asks three questions, per James Schrager:

Does the technology work? Does the customer care? Can the idea be protected?

It couldn’t be more simple, but it’s really all that matters.

1. Does it work?

I had friends trying to pull me in to crypto as early as 2011, but I’m not a developer and don’t consider myself to be technically astute. When information and skills are so asymmetric, the opportunity for scams is rampant. Unfortunately, crypto has seen a lot of those, ranging from exit scams to exchange theft and pump and dumps to flat out theft of ICO funds.

After the initial hesitation, I remained on the sidelines because mainstream media defined crypto via two events: Mt. Gox and The Silk Road. Many people lost a lot of Bitcoin from Mt. Gox, a case in which the crypto ecosystem did not work. The Silk Road was a stark example of crypto working extremely well to facilitate illicit activity. It’s not a good look.

Of course, development has persisted and user interfaces have made participating easier than before, but many fundamental questions still exist on whether or not crypto works. As Jill points out, crypto is now a decade old. The Lindy effect strengthens with time, and crypto’s roots grow deeper and stronger.

However, 2019 was supposed to be the year of Lightning, and the universal chorus remains, “Don’t put anything in a channel you aren’t ok losing.” The same holds true from a macro “investment perspective.” Many friends and family ask me regularly about buying Decred, and I tell them not to invest anything they don’t feel comfortable losing. That sounds risky to me.

Do Monero and Zcash work? If the supply cannot be audited, how do we know there haven’t been exploits to create silent inflation? And what about the complexity of tens of thousands of lines of privacy code that very few people worldwide can even understand or audit? How long does it have to “not break” before we’re confident it works? And what happens when the discrete logarithm problem (DLP) is broken or someone breaks SHA-256?

They seem to work.

Did Ethereum become the world computer it set out to be? Have those thousands of decentralized applications disrupted centralized corporations by converting millions of users? How is plasma, sharding, and the navigation to Proof-of-Stake? Ethereum succeeded in enabling a bunch of scammers to raise ridiculous amounts of ICO money, but that didn’t positively contribute to crypto’s perception, either. Has ETH now graduated on to become money? That’s what Twitter meme boy is saying these days. Or it it Twitter moon boy?

Of course (some) crypto works, but its development hasn’t lived up to earlier promises and its usability challenges persist for those who are less technical.

What about various governance models? Crypto celebrities such as Vitalik Buterin and Justin Sun dominate some models, but what happens when they get hit by a bus? Isn’t decentralization part of this new money, anyway? As an aside, are Brock Pierce, Dan Larimer, or Craig Wright helping?

EOS and STEEM have proved that delegated proof-of-stake is REKT, easily co-opted by centralized actors and self-dealing. Decred is based on direct sovereignty, but that model has yet to be proven at scale. Will stakeholders really be interested in such active participation if the network were to grow significantly, or is Decred a test case that doesn’t scale?

And enough with the decentralization theatre. It’s cute to imagine these projects as T-1000 Androids, growing a new limb when one is lost, but it’s as much a fantasy today as it was in 1991. Bitcoin has five developers doing any substantive work, are any other projects better off? Enough with the Kabuki, already.

2. Does the customer care?

The early story of Bitcoin is amazing, a resounding validation that proves the concept. A group of cypherpunks cultivated the idea when it should have died many times over. They protected every aspect of the network when it was nascent and vulnerable, and helped build out the ecosystem. Before Bitcoin held any “value”, before it was considered a store of value and before you could buy a pizza with 10,000 BTC, people went to great lengths to keep the idea of a different kind of money alive.

At some point in time, the value of Bitcoin attracted speculators, venture capitalists, Twitter monetary theorists, and rent-seekers. Today, the ecosystem is littered with toxic maximalists and people who want to see “number go up.”

Greed isn’t necessarily a bad thing, but the toxicity and vitriol that exist provide a strong deterrent for new entrants to enter, ask questions, and participate. Perhaps these different cultures sort themselves out into various projects, but I’m not sure that bodes well for Bitcoin or crypto long-term.

It seems as though the next entrants will not care about custody, choosing to rely on trusted third parties such as exchanges, custodial services and so on. Is there a point to having them in crypto, other than number go up? Why build a new financial system to overlay the legacy version?

3. Can the idea be protected?

This is a funny question given the open-source nature of crypto. It should be noted that open-source software has proven resilient over decades, as passion, purpose, and the public benefit have prevailed over commercialization. Code is public, developers, creators and community are free to move from project to project at will.

How do we know which Bitcoin is the “real” Bitcoin? The hash wars and hard forks fracture communities, but they also represent a form of Nihilism that doesn’t welcome new entrants. There are solutions that solve this problem, such as formal governance systems, but as Jill quotes Keynes, “The markets can stay irrational longer than you can stay solvent.”

There is also protection from the threat of the state to consider. The United States has the most to lose if a new monetary era were to take hold that undermines its global reserve currency. Can Bitcoin and crypto be protected if the US were to launch crack down efforts? What if China puts an end to crypto mining and makes crypto illegal once the digital Yuan is released? These are just two countries — every nation has its own interests to protect.

From a technical perspective, there are many questions I cannot begin to answer regarding protection. What happens when quantum computing breaks DLP? Again, I’m not technical, and the asymmetry is a barrier to entry for many. New entrants have the same concerns.

So, Is Crypto A Risky Asset?

Jill says no, and I agree, for all the reasons she laid out in her opinion.

However, I believe crypto is a risky asset to those looking in from outside. Crypto is much like an early startup, even after ten years. It has proof of concept, customers, and is building, but it has a long way to go with many associated risks. Jill correctly calls upon the need for education to reduce the information asymmetry.

But I also think the crypto community needs a healthier dose of perspective and empathy, an examination of biases and a stronger commitment to honesty and transparency. If you’re working on decentralization, say as much. Let off the greed a little bit and drop the toxicity. Work to make owning and using crypto easier and introduce it to new people.

If we can make crypto more about being part of a movement and less about an investment class, everyone will be much better off and more newbies will become one of us. Let us reflect upon the work of the original cypherpunks, the early Bitcoiners, and carry that forward today — what they did and why they did it.

Consider what can be empowered by individual sovereignty, when middlemen and rent-seekers are removed, when content creators actually own their content and people can choose to opt-out of vapid consumerism and live in a more peaceful way. This is the path that steers us clear of the trough of disillusionment and keeps us on the path to enlightenment.

Under this prism, crypto becomes much less risky.