Crypto Bust Debunked Apr 2018

Released: 9th April 2018

In December 2017, I bought $10,000 AUD of Bitcoin and quickly transferred it into alt coins.  I rode the wave of growth and my holdings in mid January were at $38,000 AUD.  Impressive mouth watering growth.  You can guess my exuberance when I saw the big gains in my crypto wallet.  Should I sell?  No. My game was to buy and hold for a year as I wanted to see and learn how the space works.

During that time, media article after another made predictions of rapid growth for 2018.  Not so yet. Bitcoin has been pummelled falling a whopping 60% since it peaked at $26,000 AUD in early January.  The meteoric fall was felt among all cryptos and now my stash is worth $12,000 AUD.  All in one month.

So what triggered the fall?  The simple answer is that reality kicked in.  Cryptos are not immune to the risks that most think they are.  Actually, that's not entirely accurate.  The networks that wrap around the crypto blockchain technology are not immune from disasters.  Governments and banks have been quietly watching and taking note.

Whilst the bitcoin blockchain was receiving a hammering as the world jumped on board in December, the distributed ledger held up.  Just.  The 10 minute block delay caused tremendous congestion whilst punters flocked into the game.  Just transferring bitcoin between wallets took 3 days to process for me.

There are two things that kill confidence in financial transactions than anything else.  The first is knowing your money is real and the second is knowing you can get it when you want to cash out.  Both of these points failed when hackers broke into a Japanese crypto exchange and ran off with $500m USD of crypto assets. (see https://www.cnbc.com/2018/01/27/hacked-japanese-cryptocurrency-exchange-to-repay-owners-425-million.html)

The market has been a little hoodwinked into thinking that cryptos are truly decentralised.  What is not mentioned or discussed is that whilst the crypto ledger is distributed, the exchanges and bookmakers live on their own private networks.  They rake in fiat capital and convert it into digital capital for their customers.  In return, the customer holds private certificates in their digital wallets that acts as the note underwriting the value stored on the ledger.  What better place to hold cryptos than in an exchange wallet to easily trade them.

Leaving crypto money in the exchanges makes them a target for hackers.  It's an easy premise for a rouge coder.  Hack your way into the exchange databases and gain access to peoples wallets, then suck out their digital notes from right under their noses.  The ledger is fine, the digital notes are in tact, but after a few minutes, you no longer hold them.

The Japenese hack wasn't a failure of the block chain protocol but more a failure of trust.  Users of the exchange found out the hard way that their wallets are indeed not as secure as they would like to believe.

A core value of cryptos was that trust could be decentralised.  Well, unfortunately this is not entirely the case.  Fundamentally, you must trust some organisation or person to hold your stuff whether it is physical or digital.  Crypto exchanges do not disclose how their systems are designed and how their databases work.  Based on the speed that the market has grown, it's not unlikely that exchange developers have cut corners to get in on the action.  Why? because their fortune relies on charging fees for large volumes of customers jumping in.

When you walk into a bank with a $50k bar of gold and you want a safety deposit box, you will scrutinise their service, check the quality of their keys, make sure their safe really exists in the basement and that security guards are monitoring 24/7.  We do no such thing with crypto exchanges.  The lure of massive returns has us forget to do the due diligence necessary to keep our money safe.

Therefore, whilst the design of the block chain software remains decentralised and tamper proof, exchanges and dealers take on the central role of being the trusted authority.  
These companies reveal very little about their technologies and how they protect their customers.  Governments and Banks are waking up to this.  The $500m disappearing act is a massive wake up call to all who hold cryptos.

Does that mean cryptos are dead in the water?  Not by a long shot.  Other technologies will emerge that build secure contexts of trust that cause them to become digital authorities.  Governments and banks will catch on as a whole new generation of technologies emerge in this space.

One such technology that looks set to gain enormous ground is SQUIZZ.com.  Upon initial inspection, it looks and feels like another social networking platform but the kicker lies buried behind the scenes through the novel concept of the Internet Of Relationships (IoR).  Using cryptographic vaults only accessible to their owners, the IoR creates a secure mesh of relationships between people and organisations.  The mesh serves as a foundation for millions of different trusted marketplace contexts.  Bundled with cryptos
and smart contracts, SQUIZZ.com will indeed become a powerful tool to combat digital fraud and cause money to safely flow.

So how do I know SQUIZZ.com is truly next generation? In 2005 we set out to solve a key problem that is still prevalent in systems such as crypto exchanges today.  We want our digital world to be accessible, yet protected from hackers, easy to navigate and not cluttered with SPAM and junk ads that distract us from what we need to get done.  Now we have a new opportunity to solve this.  

Protecting our crypto wealth and allowing us to legally spend it as we see fit.  If it works for us, it will work for you and any organisation wanting to do things smarter. This reality is on our doorstep and cryptos will thrive on it.