The following is an open letter I wrote to my professor in response to his opinion piece. It was published in a leading newspaper that supported a ban on cryptocurrencies in India.
This open letter was first published in my Mirror blog back in December'21. Details of the addressee have been intentionally obfuscated.
Sir, congratulations again on the work anniversary! Privileged to have taken your course. You taught us to read more and explore with an open mind. Thank you.
Over the last few years, I have tried to do just that: explore with an open mind. It has led me to the wonderful world of Web3.
Hence, after reading your opinion piece about cryptocurrencies, I felt slightly troubled. Unfortunately, I cannot agree with some of the views stated there.
Full Disclosure: I am an advisor for several crypto projects. I also moderate/manage communities for many. Plus, I write for multiple projects as well. Currently, I am also looking at becoming a member in several DAOs (Decentralized Autonomous Organizations). Please bear with me as I share some counterarguments.
I have been curious about crypto since 2011 but had never delved too deeply into it until 2017. I passed on the opportunity to buy BTC (in 2011) and ETH (in 2014).
Finally, I dove headfirst into the world of crypto on Dec’17 during the ICO frenzy. To be fair, I started off in crypto hoping for a windfall from my meager investment.
Before putting in money, all I did was a casual reading about how prices were skyrocketing and how it was all "up-only" from there. I agree with your observation that the FOMO is played up. Most of the rational people in crypto hold a similar opinion:
Péter is a developer at Ethereum Foundation. "CT" means Crypto Twitter.
The media plays its fair share in hyping this up as well. You will see near-zero reporting on the Bitcoin Taproot upgrade or Ethereum's ERC-1155 standard or Stacks introducing microblocks.
Or how Chainalysis reads blockchain data to track criminal behavior (also, thanks to crypto this kind of tracking is now possible. Anyone can do it with some experience).
But there will be multitudes of reports on how a random memecoin is now 1732487263948% up or that some 17-year old is now a zillionaire from their crypto exploits.
Anyways, I am straying away from the topic. After I got in, the markets crashed in 2018. For a few days, I was despondent and considered taking the loss and moving on since crypto was nothing but a speculative asset for me thus far.
But then, I took a second glance. This was a boon in disguise since it allowed me an opportunity to dig deep and study what cryptos really entailed. For the first time, I peeked behind the price and trading curtains to research and dive into the rabbit hole for a couple of years.
I have turned from a skeptic to a cautious optimist ever since. And to be clear, I have never partaken in speculative trades since 2017 except for a couple of failed attempts back then; all of which resulted in losses.
What I have done since then is buy (not trade) small amounts from time to time. Sometimes, in order to test out a new DApp (Decentralized App) or a DeFi (Decentralized Finance) protocol or to set up an NFT (Non Fungible Token) gallery etc.
Most of my experimentations in crypto are around what are now commonly referred to as Web3 technologies. For example, here’s my NFT gallery:
Please visit https://www.cyber.xyz/abhijoysarkar for a walkthrough.
1. The government’s stance has actually changed from its original position very recently. If the latest reports are to be believed there will be no prohibition on "...holding, selling, or dealing" in crypto. What has stayed constant so far is the restriction of crypto's usage as a currency which most of the crypto ecosystem complies with anyways.
It is being reported that the Bill may be renamed to refer to cryptos as "cryptoassets" instead of "cryptocurrencies". This could be to avoid confusion arising from the semantics of “currency”. The Finance Minister has talked about how the Bill had to be "reworked". Some additional details apart from the FM’s address were also reported:
However, since some of the reporting is based on sources/hearsay, a few of the points seem to be incorrect:
Please note, as of the time of this repost, while there is no crypto Bill yet, proposals for a new tax regime on crypto in India have been passed.
Anyways, the final details of the Bill are yet to be made public. There are far too many instances of misreporting on crypto matters. This has resulted in confused understanding and literature:
We should hold our newsmakers to a higher standard. Here's an example of a person of influence from traditional finance media strongly arguing for blockchain-not-crypto (more on that below) and having the opinion that Ethereum is not a blockchain:
This was painful to watch for most of us in crypto.
2. As you have rightly pointed out, CBDC, which is effectively digital fiat, is not an alternative to crypto. Crypto is a settlement/incentive/security mechanism for public blockchains (i.e. Bitcoin, Ethereum, Stacks etc).
A public blockchain allows anyone (i.e. the public) to become a node/validator/miner to verify transactions and secure the chain through various commitments which could involve computation i.e. Proof-of-Work (PoW), time locking of funds i.e. Proof-of-Stake (PoS), sacrificing assets i.e. Proof-of-Transfer (PoX) etc.
In return for this service, the validators/node operators/miners/etc. get rewarded a token (i.e. the respective crypto of that chain - BTC/ETH/STX/etc). And all of this activity happens algorithmically outside of centralized control or singular point of governance.
The semantics of crypto being a "currency" arises more from this reward mechanism and less from the nature of their transactions or usage. The transactions on these chains can range anywhere from deploying a smart contract to playing a game to minting an NFT to storing files and so on.
Financial settlements form one part of this whole gamut of operations. CBDCs, on the other hand, will be run on private permissioned blockchains purely for fiat settlements.
Private chains have no incentives for public node participation. Hence, they are also referred to as centralized chains. CBDCs serve a completely different purpose than crypto. This also often segues into a misleading blockchain-good-crypto-bad argument. But cursory reading on this should clear doubts on why this is misleading:
Contrary to CBDC, major changes to public blockchains also happen through shared consensus.
The latest on display was the activation for Taproot on Bitcoin which saw developers in favor of the change publicly urging miners to signal support for the upgrade in the blocks they mined.
I watched as it happened in real-time as blocks with support signaling flags got mined one after the other by miners across the world over the course of several weeks:
3. Comparing Bitcoin's TPS (transactions per second) to Visa is a little unfair. The Bitcoin blockchain is the base layer or layer 1 of the protocol. This base layer settles transactions with finality in ~10 minutes (i.e. block confirmation time). A Visa transaction's actual money settlement (i.e. base layer) with finality takes days.
The instant merchant confirmation or Visa is like a layer 3, 4 or 5 of money. Consequently, Visa is comparable to Lightning Network (i.e. layer 2) which is one of the scaling solutions on Bitcoin. Like Visa, Lightning does near-instant confirmations. El Salvador's Bitcoin implementation is making use of Lightning. And, I am not even getting started with all the altcoins which claim higher/at-par TPS (with finality) with Visa such as Ripple, Harmony, Solana, Avalanche etc.
4. When it comes to transaction fees, Lightning transactions cost fractions of a cent. But even if we consider base layer transaction fees, an average Bitcoin transaction costs less than Visa's interchange fees even when the network is choc-a-bloc:
Click here to read more about it.
Interchange fees are percentage-based. Bitcoin's transaction fees are not. Hence, even many billions of dollars’ worth of funds can also be moved while costing <10 USD for fees. Exhibit:
Click here for more details on the transaction.
And once again, I am not even mentioning altcoins where base layer transactions can cost just cents.
5. There is definitely a lot of irrational exuberance as mentioned in your article. But the leader-follower example holds true for all speculative tradable instruments. So isolating crypto as a strawman when the same could apply to other asset classes seems unjust, volatility notwithstanding. Traders/investors speculate on the value of the token for the underlying chain/network and the applications/partnerships/utilities being built around them.
This value is backed up by real effort and resources being spent on securing these chains by nodes/validators/miners/etc. Polygon, for example, is an Indian project that is building scalability solutions for Ethereum. It is used by many applications for fast confirmations. Exhibit of activity on Polygon:
Someone who is bullish on Ethereum and also expecting the Polygon network to grow by this association will bet on MATIC (Polygon's native token). Speculative frenzy or not, people see value being created by these networks.
6. Multiple studies have shown that the role of crypto in crime is: a) decreasing, b) nowhere near fiat in terms of volume. It is a fraction of a fraction. Many of these reports are cited in the following pieces by:
Crimes of similar nature committed with fiat often require months of investigation, whistleblowing and cross-examination by auditing firms to get caught.
In crypto, it’s all on-chain. Suspicious transactions get noticed in real time. In fact, my thesis is, crypto crimes get so much focus only because they get flagged quickly and without fail.
Law enforcement agencies regularly use services of firms like Elliptic and Chainalysis to trace unlawful activity.
Recently, there were 2 major public hearings in the US focused on cryptos. One was largely pro-crypto:
And the other was largely anti-crypto:
I think we need to start having more nuanced conversations like these beyond the standard price volatility/currency criticism.
Yes, crypto looks confusing and doesn't fit into existing frames of reference. It is a new realm for many. I have tried to make sense of some of the buzzwords like “Web3” and “metaverses” in another HackerNoon piece (click here to read).
If policy-level discussions and hearings in the US are any indication on where we are heading, it seems to be towards level-headed pragmatic regulations.
This is what all rational crypto people are OK with and have been asking for years. So I feel there is a real opportunity here in India as well to engage in good faith with the crypto community and what better way than to have one of my favorite Profs along the journey.
PS. I am not sure how many people from my alma mater are still reading this, but if you want to chat more on this, I am @abhijoysarkar on Telegram and @sarkarabhijoy on Twitter.
Alternatively, we also have a dedicated crypto WhatsApp group for the Institute. Send me a DM on Telegram/Twitter and I'll add you there. It is only for the Institute’s students, alumni, teachers and associated personnel though. As a principle, we try to discourage speculative price discussions there as much as possible.
PPS. We have only scratched the surface of crypto critique above. There are even more talking points on energy usage, breaking encryption, ransomware, terrorism funding, dangers of immutability, political ideology, schools of economic thought (Austrian v/s Keynesian), whether blockchains are a solution looking for a problem, blocksize wars, risk of centralization and so much more. Each topic brings along its own set of discussions, history, solutions, counter arguments, retorts and so on. If anyone wants to go on that tangent and exchange thoughts, feel free to reach out on Twitter/Telegram.
PPPS. For anybody wondering why I have left out references to my Professor or the link to his opinion piece, crypto is sometimes adversarial and some folks get emotional because they have skin-in-the-game. I am showing my Professor an application of crypto (Arweave storage for Mirror blogposts) while trying to keep the crazies (if any) at bay.