What I Learned Investing in ETH


Photo by Thought Catalog / Unsplash

I wrote about ETH a while ago and how I had felt it lost its way by hard-forking to "fix" a hack. I said at the time that they should have just let the hacker get the funds, even though it was $100M or more.

Why? Because distributed, trust-less systems need to remain so. If they're being coordinated by a central authority -- even the creator, with good intentions -- then they fail to do what they were designed to do.

Of course, since then, forking has become common. According to an exchange that I forgot I had crypto in, the small amount of Bitcoin and Ethereum I had parked there is now two different Bitcoins and two different Ethereums.

These forks were ostensibly about enabling new technology, or following a different set of principles, but it's hard to not see them as money grabs. Of course, they benefit everyone holding the split coins, so I can't see them as unfair, maybe just misguided.

They're also not a magical way to create value or attract more money. As of today, ETH is at ~$475 and ETC (Ethereum Classic) is at ~$17.25, hardly a doubling.

Hold?

Like a lot of people who invested in crypto and sold during the bull run of 2017, in hindsight, I sold too early. I did it for a variety of reasons and knew it could mean missing out. Of course, it could have also meant locking in profits that I would have lost by holding.

No one can see the future, but it was enough to make me pay attention to crypto with a new focus.

I've since invested in other emerging crypto, including one I'm really bullish on: Tezos. Tezos is doing so many things right, it really needs multiple posts of its own, which I'll be writing in the future.

So, the question is, should I be holding and for how long? Tezos is still in beta and is only trading on a couple of low-volume exchanges. But it's already up over 6x. (We're only launch plus a week or two at this point.)

I mean right now, I could go to an exchange and lock in a 6X ROI on an investment I made a year ago. That's huge!

Of course, anyone paying attention to crypto knows 6X is nothing. Ethereum broke 3000X at one point. (Need to check my math on that, I think it's correct.)

The father of one of my son's school friends, a successful business owner, asked me how any of this is possible. How can anything appreciate that much in value over such short timespans?

That's a really good question, and the answer to that is the same reason I'm bullish on (some) crypto, and think everyone else should be as well:

  1. Crypto is still a tiny fraction of the total money supply.
  2. Crypto is currently held by less than 1% of the population.
  3. Most importantly, crypto has yet to find its "killer app".

But that doesn't mean adoption will rise, that just says it's still low. So why will crypto, almost inevitably, rise from this point? Probably dramatically?

The Genie is out of the Bottle

Even without a killer app, people can make money investing in and trading crypto. The percentage of the population doing so is still tiny. Human greed dictates that investment will increase over time.

The technology is improving. Projects like Tezos represent the 3rd generation of crypto. The best of gen 3 have learned from the early mistakes of BTC and ETH (and others) and are determined to build a "better blockchain".

Killer apps is around the corner. Crypto is a revolutionary technology that allows hostile actors to coordinate without a central authority. If a new technology enables us to do something novel, applications tend to follow.

"Old money" interest is increasing day by day. Institutional investment is already in play and growing. Regulation is on the rise (which I see as good a thing moving towards broader adoption).

Better Tech

Like I touched on, the new generation of crypto is doing a lot of things right and learning from past mistakes. Tezos, which I personally invested in, already has the following "game changing" features:

  1. On chain governance. The protocol can adapt over time, lessening (or eliminating) the need for forks. The people holding Tezos have a say in its future.
  2. Baking. BTC and ETH have mining, which requires substantial CAPEX. Tezos has baking -- anyone holding Tezos can participate in the network and get paid for doing so.
  3. Proof of Stake. BTC and ETH work by a mechanism called Proof of Work. Not only is this capital intensive (expensive mining computers or "rigs") but it's very wasteful. Proof of Stake doesn't require significant silicon or electricity to function correctly.
  4. Formally verifiable. The first major ETH hack showed how expensive a typo or a bug can be. Tezos itself, as well as smart contracts written for it, can be formally verified for correctness.
  5. Following #4, Tezos is written in OCaml. Before Tezos, the main users of OCaml were Jane Street and Bloomberg. The finance industry already trusts OCaml.

I could keep going, but I didn't intend for this to be a Tezos-focused piece.

The main takeaway is yes, (some!) crypto is a great investment and worth hanging on to for the long term. And that's despite the 2017 bubble, failed ICOs and all of the other "wild west" stuff going on in the space.

We're still very early days with crypto.

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