Ethereum powers the (ERC-20) world

I've been a firm HODLer believer since I got started with crypto (which is only a few months), but with the quick rise in BAT, I feel it's time for me to temporarily unload my holdings. This is my first time transferring an ERC-20 token to Gemini so I had to spend gas on the Ethereum network. A few takeaways:

  • Gas is used to fuel all ERC-20 transfers
  • You pay Gas in ETH, despite transferring ERC-20 tokens
  • Gas prices fluctuate every single minute, so what you saw as "normal gas prices" when sending your transfer may change by the time it reaches the Ethereum network
  • Failed transfers consume gas, but you still get to keep your ERC-20 (those don't leave your wallet)

Some helpful resources to find out how much gas to spend based on real world tracking:

https://etherscan.io/gastracker

https://www.ethgasstation.info/index.php

Cryptocurrencies are unlikely to replace credit cards

With taxes due soon, it occurred to me that the grand vision of cryptocurrencies one day replacing credit card payments is probably unlikely to happen in the near future. Each time someone pays using crypto, a taxable event is triggered (assuming the value of the crypto exceeds its cost basis). Why would someone want to incur an additional expense and headache just to pay for a coffee?

The IRS has setup a really simple to understand FAQ:

Q14.  Will I recognize a gain or loss if I pay someone with virtual currency for providing me with a service?

 A14.  Yes.  If you pay for a service using virtual currency that you hold as a capital asset, then you have exchanged a capital asset for that service and will have a capital gain or loss.  For more information on capital gains and capital losses, see Publication 544, Sales and Other Dispositions of Assets.

Maker token: The ultimate in DeFi? What the heck is it

I recently came across the Maker token because of a donation made by Vitalik, co-founder of Ethereum. In his donation, he transferred 100 ETH and 100 MKR to a fund setup to help with the COVID-19 situation in India. I think it's amazing that we have the ability to transfer vast amounts of wealth simply (and quickly) by the click of a button. 

I've been trying to understand more of what Maker (MKR) is and why it is so important. There's a lot of jargon tossed around and it can sound very confusing when you start hearing about governance, burning and collaterals. I think Coinbase does the best job in summarizing what Maker is and can be through a series of three short videos.

The token itself is very nascent (only a few years old). But I think it has a lot of room to grow as more users from all over the world, especially for users living in developing countries or countries with high inflation, begin to use the token. 

My simple takeaway is that Maker allows users to:

  • Put up cryptocurrencies as collateral and receive DAI, which is pegged 1:1 to the USD, in return
  • Repay the loan in DAI after a period of time
  • Once repaid, the DAI is "burned" or removed from the system
  • MKR creates DAI to ensure the 1:1 peg is maintained; or in some cases, MKR is burned to maintain the peg

The above is my understanding from watching a few learning videos, and I welcome any comments if I misunderstand or misstated anything. I am certain MKR today will look nothing like MKR in 5 years, and that is why I am excited about it. Holders of MKR can vote on its future as part of its governance protocol. 


PayPal CEO discusses cryptocurrency

Several highlights for me from the interview with Dan Schulman:


And how are we going to pay for things?

There are probably going to be six to 10 superapps that evolve. You won’t have 50 apps on your phone, because you can’t remember 50 usernames and passwords; you don’t want to put in your financial information into every single one of them; you can’t remember the nav system on all of them. These superapps that will basically intermediate other apps, so you log in once, you have a common password, you have all of your data and information in one place that can be used to feed products and services on that platform. It will make it simpler and easier for the consumer.

So cash is no longer king?

Ten years from now, you will see a tremendous decline in the use of cash. All form factors of payment will collapse into the mobile phone. Credit cards as a form factor will go away, and you will use your phone because a phone can add much more value than just tapping your credit card. And so when all of those things start to happen, then central banks need to rethink monetary policy as well, because you can’t just issue more paper money into the system because people aren’t using paper money. And so this is the advent of digital currencies.

What does this pending shift to digital currencies mean for the financial system as we know it?

In the next five to 10 years, you’re going to see more change in the financial system than you have over the past 10 to 20 years. How do we think about modernizing the existing financial infrastructure? It needs modernization, because it’s inefficient today. If you cash a check, it can take three days for you to get your money. If you do an international remittance, it can take seven days to get your money. And it’s too expensive. The “take rate” across the financial system throughout the world is about 2.8%. For the last 10 years, which, by the way, you’d expect with volume and technological improvements that would drop, but the worst part about the 2.8% is that if you have less income, or are outside of the system, and you’re not affluent, then that take rate is like 1,000 basis points; it’s not 280 basis points. And if you’re really affluent, the take rate is 25 basis points. And so, when you think about it being expensive, exclusionary and efficient, we really need to start to think about, How do you modernize that system? Is there a way that you can do things more efficiently, with less cost, more inclusively, and add more utility into the system?

What is the difference between Bitcoin and other cryptocurrencies from central bank–issued digital currencies?

Central bank–issued digital currencies can also take advantage of distributed ledger technology [DLT] or other modern technologies, but they’re basically digitizing a fiat currency like the U.S. dollar. A digital dollar would be fully backed by the U.S. government, but done in a digital fashion, and that might allow the government to open up Fed funding to other institutions besides banks, potentially companies like PayPal, where you could fund straight from the Fed right into a digital wallet. You wouldn’t have to send out stimulus checks in the mail—just go directly into their digital wallet through a digital currency, instantaneous access, no cost and friction.





A real life example of how Bitcoin can solve the problem of transferring funds

I had a recent conversation with my parents about sending money to help pay for my sister's wedding, which they agreed to split evenly with the groom's parents. The issue was that my parents don't live in the U.S., so transferring funds from a local bank to an American bank is quite troublesome; e.g., filling out wire forms, or even sending a USD denominated check to my sister who then needs to go to a physical branch to deposit, etc.

Then it suddenly clicked to me that if my parents and sister had access to Bitcoin (or a similar cryptocurrency) they could easily complete the transfer. I explained to my parents that Bitcoin's concept is very similar to that of say, gold or diamonds, in which one could purchase these assets, then physically transfer them to the recipient who then sells it to an exchange like one of these shops in NYC:

Bitcoin simply removes the burdensome layers and allows the two parties to quickly and efficiently transfer an asset. I couldn't believe that there was a real world use case right in front of me. For all this time, I had considered Bitcoin, at best, a risky investment asset with high risk and (hopefully) high returns. For this reason, I think with clearer regulation the crypto industry has plenty of room for growth. With more regulation, it will bring more investors, who will provide more liquidity, ultimately leading to greater price stability. The biggest obstacle that I see is price volatility. Look no further than this chart showing Bitcoin's price in the past 24 hours:

I don't think there is a future for Bitcoin until the issue of price stability / volatility is addressed. According to Kitco.com, gold's performance has been relatively uneventful when compared to the stock market return for the same period:

Gold's market cap is $11 trillion versus Bitcoin's $1 trillion. There is a lot of room for Bitcoin to grow but we need stronger regulation to help improve investor confidence.


Bitcoin Cash is lightning fast and super cheap

I just sent my first Bitcoin Cash (BCH) transaction from Gemini to my hardware wallet. It cost only $0.05 to transfer one whole BCH (currently worth ~$1,000). I'm very impressed by how quickly the transaction took to confirm (under 1 min) and how cheap the transfer cost. I don't know much about the Bitcoin Cash protocol until now but I would like to learn more.

I had originally purchased Bitcoin Cash because it was one of four coins offered by PayPal so I figured it must be a good enough altcoin if PayPal is willing to invest developer resources to adopt it into their network. I am bullish on Bitcoin Cash because of my experience so far. 

Edit (2:38pm): Venmo, which is owned by PayPal, announced that it will now allow users to buy/sell the same four cryptocurrencies that I mentioned above. Not surprising given the relationship with PayPal but this is exciting as -- based on my anecdotal research -- there are many more young people who use Venmo over PayPal, whose demographics tend to skew towards the older crowd. 


Intro to How Ethereum Works

I am going to start a new series where I post a short video (approx 10 mins or shorter) each Sunday about cryptocurrencies. Today's video is about how Ethereum works. Even for a newbie like me, I understood what a Merkle Tree is and how it relates to blockchains. Hope you enjoy this short video.