Wall Street veteran and Bitcoin enthusiast Tone Vays shared his insights with Bitcoinist on SegWit, Coinbase and the IRS, Ethereum, and Donald Trump.
Interview with Tone Vays
Bitcoinist: You’ve mentioned on your blog that we need SegWit to pass “for Bitcoin’s future.” Why is SegWit activation so important right now?
Tone Vays (TV): I feel that SegWit is very important. It was put together by some of the smartest financial engineers in the world that truly understand the global need for an asset like Bitcoin. Things like privacy, censorship resistance and fungibility are very important to them. They are also not forcing it onto the community and making sure that 95% of users actually want it (but yes the remaining 5% will either have to join the consensus, fork and continue on a different chain or stay on an inferior version of the protocol).
If SegWit does not pass, it is likely that nothing else will either[.]
I would even go as far as to say that the transaction malleability fixes that SegWit brings are even more important than raising the block size for more throughput. The problem is that since with every passing day it becomes harder and harder to make changes because there are now so many people invested and actually use bitcoin, every change, no matter how minor, becomes controversial. If SegWit does not pass, it is likely that nothing else will either and we already have a true immutable protocol.
Bitcoinist: Is this a do or die moment for Bitcoin?
TV: While I feel that SegWit needs to get approved and will get approved, it is not a do or die moment because Bitcoin will remain an unstoppable force if not a single change is made to the protocol going forward. There will be people that will gladly pay a $100 transaction fee and then wait a week for confirmation as long as they have confidence that they can make a censorship resistant payment across borders. It does not even have to be all that anonymous. By preventing SegWit those that have been convinced that Bitcoin transactions need to be cheaper and faster are literally causing the movement to go the other way. I’m at peace with that.
Bitcoinist: What are your concerns with Bitcoin Unlimited (BU)? Can and should the community implement both solutions moving forward? Does the order matter?
TV: My biggest concern with BU is the confidence, or a complete lack their of, in their developers. Not only from the technical skill level (though there plenty of great devs out there working real jobs for good fiat money), but from the mental/philosophical side of things. I do not buy into the conspiracy theories that Roger Ver has been compromised by ‘Powers That Be,’ but it has already been proven that developers like Mike Hearn & Gavin Andresen do not see privacy and censorship resistance the way the Core Team does. And I would guess that is the biggest reason they are no longer on that team.
I would guess the Core Team’s biggest job is to review hundreds of code changes and make sure nothing malicious would even be implemented. Over the last 5 years, this current team (especially their quasi-leader Adam Back) have earned my trust. We are not dealing with just technology like automated cars were we will be entrusting Google with out lives. We are dealing with a peer to peer, trustless currency where ironically, trust and confidence matters as much as the technology or a financial panic will set in.
I do not believe implementing both solution is a good idea and neither did Satoshi, consensus needs to be hard. Otherwise go create an alt-coin like Ethereum for which I’m getting my popcorn ready to watch an even more contentious fork as it moves from PoW to PoS.
Bitcoinist: Though you’ve been warning about this for years, the current Coinbase/IRS situation was a revelation for many US Bitcoin users. What advice would you give to those who bought their bitcoin via bank from a US-regulated exchange?
TV: Yes, I have articles about this going all the way back to March of 2014 along with quotes in other publications plus unrecorded public appearances. What’s done is done and while many were making fun of me for not saving 15-20% from Purse.io while paying up to 10% to purchase bitcoin through LocalBitcons, they now know why. I would say that unless you are a serious mover of bitcoins you probably do not have much to worry about.
My best advice would be to compile a spreadsheet (ask Coinbase support staff to help you) of all the amounts that moved in and out of their system so you know what your tax liability is according to them (remember they treat all bitcoins transferred out of their wallets to your won private wallets as sales).
Then try to have an explanation for what happened to that bitcoin after it left Coinbase or even before it went into Coinbase. Have this document ready with full explanation as if talking to a 5th grader. If you are a US/EU/AU citizen that plans to continue to use KYC’d means to move bitcions, continue adding to this spreadsheet until there is IRS approved software or they provide you with a bitcoin wallet add on.
Then you wait for the IRS call to confront you directly. If they do, then you take action with your evidence and if needed, declare the gains with a small penalty. The point is to be ready to comply or fight. The worst thing you can do is scramble to put all this together last minute because I promise you that if they do flag you, it will be at the most inconvenient time and the last thing you need is to get caught lying to the federal Government as they will have at least some evidence from their side before you get contacted.
“The word ‘Blockchain’ falls somewhere between a PoW revolutionary consensus that gave us Bitcoin and Excel Spreadsheets uploaded to the cloud as a Sharable Google Doc.”
Bitcoinist: The OCC recently announced that limited bank charters will be available for fintech companies, which could “level the playing field” in terms of regulatory compliance in the US. Would blanket regulations boost Bitcoin in the US for companies (and users) or will it just set up more barriers to entry, i.e. a nation-wide NY BitLicense?
TV: It is really hard to say, I have been dealing with a few regulators myself lately and I pretty much just spend all my time explaining what a Blockchain is. I’m trying to get the point across that today the word ‘Blockchain’ falls somewhere between a PoW revolutionary consensus that gave us Bitcoin and Excel Spreadsheets uploaded to the cloud as a Sharable Google Doc.
Until all regulators fully understand the difference and where each project falls in between the two, it will be hard to make any meaningful regulation. Also as what we have just seen in the Coinbase/IRS case, having permission to move bitcoin around like money still needs an enormous amount of regulatory clarity to keep your customer base from enforcement divisions.
“The only reason to have this [Ethereum] token is to speculate that the platform will succeed[.]”
Bitcoinist: You’ve been a vocal critic of Ethereum following The DAO debacle. As the price just hit a 9-month low, could this the beginning of the end? Will a Bitcoin-blockchain smart contract platform steal Ethereum’s thunder or someone else?
TV: – To be fair, I have been a critic of Ethereum long before The DAO and it even goes back to them selling 60 Million ETH tokens that were not going to exist for at least a year with an additional 11 Million token pre-mine to be distributed to the insiders. To me that was a violation of any and all securities laws plus major consumer protection violations as there was no way to guarantee they would not just walk away with the bitcoins collected and leave their ‘unqualified’ investors high and dry.
I have also been critical of the need for ETH tokens and it will probably be their downfall as the price continues to fall. The only reason to have this token is to speculate that the platform will succeed, but now the problem becomes who do you develop for? The speculators or the users of the Gas to run contracts? The decisions made after The DAO hack made this clear for some of us. But in general, just imagine if during the Dotcom boom, an average person had to buy Amazon stock to then use this stock as the currency to buy books from Amazon. Then go out and speculate on Ebay stock in order to buy/sell Ebay. Or go and buy E*Trade stock to then convert it to buy stocks of other companies because E*Trade only accepts the currency of E*Trade stock. Same for Netfilx and all other companies. That is the world Ethereum and most ICO supporters are advocating for and it’s ridiculous.
Having said that, I am also skeptical that ‘Decentralized’ Smart Contracts are needed in today’s world. So even ignoring the Turing Complete aspect, which caused the downfall of TheDAO, let’s assume that you can just pay a fee in bitcoin (or even USD) to set a Smart Contract into motion where the fee goes to the developers of the Smart Contract system of choice as a reward for the system’s stability. I need someone to explain to me why this contract needs to be ‘decentralized’ vs simply encrypted for privacy?
Decentralization is very inefficient, just look at Bitcoin and how much electricity is needed to secure it. But we need it to prevent censorship. The same can be said for Pirate Bay and file sharing through Tor in terms of effort needed to share a file. I just do not understand why a contract who’s end result is a perfectly legal outcome needs the inefficiency of decentralization. Now if you want to convince me that things like assassination contracts are needed, I will listen, but it’s a discussion for another day.
Bitcoinist: You’ve also criticized Initial Coin Offerings (ICOs) as a way to fund cryptocurrency related projects. Should startups avoid ICOs or must they just approach them in a better way?
TV: I do not see how ICOs are legal. I understand that there are different jurisdictions and the view of many people is that we should not discriminate against investors. Hence a 16 year old kid working at McDonald’s should have the same investment opportunities as a 50 year old Billionaire (other then size of investment of course). But I’m not sure that the world is ready for that right now. It just seems like the only reason to ICO is because you are not able to get investment from a legitimate source that understands risk. Your ICO-raised funds also come with zero strings attached so the founders and insiders of the ICO can immediately exit the project as rich men and move on to do it again as the prior venture collapses.
The laws are starting to make it easier to invest as a low net worth individual. So if you are an honest company looking for funding from unqualified investors, please look to Airbitz who are one of the first companies to utilize this Tittle III model. I understand the burden of regulation is annoying and expensive but for every legit project that considers ICO, I would say there are 20 that are complete scams, like OneCoin. So how is the ‘unqualified’ investor protected or even informed of risks? I’m not saying we need more laws on paper, the ones we already have are burdening enough, but unless we have some more technological way of quantifying risk starting with founder exits, I do not see ICOs as the way to go. I also expect the regulators to come down hard on many of them in 2017.
“The idea that [ZCash] will be trusted over Bitcoin is just ridiculous.”
Bitcoinist: Does the market need another “anonymous” cryptocurrency like Zcash? What are your thoughts on its release and price so far?
TV: No, the market does not need it and never did. The market needs stable censorship resistant value transfer that is ‘good enough’ in the following categories: security, privacy, anonymity, and fungibility, which Bitcoin currently provides very well. Even without going into the technical details of ZCash where experts are calling it so anonymous you do not know if it is working under the hood, the idea that this coin will be trusted over Bitcoin is just ridiculous. I’m not even sure having full anonymity at the protocol level is needed because someone needs to make sure things are functioning.
A layer on top should be able to solve this problem and if SegWit is pushed out, I think it will get us one step closer. If anonymity is a layer on top, it becomes much easier to have a competing layer for full transparency, which would not be possible if your underlying layer is fully anonymous. Why would anyone want this fully transparent layer you may ask? Well, not everyone wants or needs an anonymous value transfer. Or perhaps one brave person might run for office wanting to show all tax revenue and Government spending using the platform.
As for the specifics of ZCash launch, I think it was a disaster as I explained in several videos before and after launch. Bitcoin’s supply and demand dynamic grew organically and it allowed 50% of the coins to spread around the world before the use cases started to be realized, creating a perfect balance. Even if a few people like Roger Ver were able to hold a large percentage, it’s ok because he took the risk and the economy benefited due to all his investments and evangelism in early days.
This balance just cannot be replicated, yet everyone keeps trying. In the case of ZCash, over a year was spent hyping it up, yet when the demand was waiting at the door like in the early 2013 bitcoin days, the ZEC tokens were trickling in 1 coin at a time which is crazy. It looks to me like it was only designed for two reasons: provide jobs for the ZCash dev team using VC money and then for the VC’s to profit from the 20% confiscation of the reward for the first 4 yeas. I do not see it even lasting that long and hope these VC’s do not realize profits on this silly investment. Wish they used the money more wisely on things like independent and secure wallets, which are badly needed in this space to avoid Mycelium doing an ICO or Airbitz struggling to get funded in attempts to be fully compliant.
Bitcoinist: Do you see the Trump presidency as a positive for Bitcoin especially with Bitcoin enthusiast Peter Thiel as an advisor? Will his protectionist policies be a boon for Bitcoin?
TV: I am not very familiar with Peter Thiel’s work in regards to Bitcoin/Blockchain. I have not read his book so I have no idea if he understands what it really is. We all know what happened to PayPal and that is the last thing I want to see in Bitcoin. As for Trump, his view on lowering taxes is great for the US economy but perhaps not all that great for Bitcoin. I do not think the protectionist policies (which will not be as extreme as the media makes it sound) are all that relevant for Bitcoin because it will not matter in the virtual world. And if goods are actually being delivered, Bitcoin will have nothing to do with it because they are in the physical realm not virtual. However, if Trump continues his crusade against drugs, that will only solidify the Bitcoin use case in that part of the economy.
“People underestimate the power that a bearer cash-like instrument on the internet can bring.”
Bitcoinist: Besides Bitcoin, are there any other crypto projects that you are most excited about? Why?
TV: As far as the ‘decentralized’ space is concerned, then no, I am only excited about Bitcoin and hope to see it scale through SegWit. People underestimate the power that a bearer cash-like instrument on the internet can bring. We just need to utilize it as a tool to build efficient, secure and private applications. Milton Friedman even saw it as a way to minimize Government power back in 1999.
Outside of the decentralized space I’m looking forward to more projects like Protonmail (what i’m using to type this) that allows me to have a very user-friendly, private and secure email. Also can’t wait to see the progress of Airbitz’s new initiative for edge security. Perhaps one day someone will build a user-friendly operating system to compete with virus prone spy machine known as Windows or the locked down spy machine known as MacOS. The continued spread of CryptoLocker might have people taking our privacy and security seriously.
Bitcoinist: Global economic uncertainty, demonetization in India, the war on cash, Brexit, Italeave, independence movements, record national debt among G20 nations…we can go on an on. What will be the major event that will attract people to a money they actually control like Bitcoin?
TV: The simple answer is all of the above. I have been predicting a complete breakdown of the Euro currency as being the biggest catalyst for bitcoin even before the Greek bank shutdown in the summer of 2015. The elimination of Cash like the $100 bill and the 500 Euro note will be another great catalyst. But even without a blatant cancellation of notes like in India, initiatives like FATCA and FBAR in the US along with a general war on money via AML laws is the reason we have Bitcoin in the first place and the more they fight against it, the stronger the Bitcoin movement gets…that’s why I love it!
Tone Vays of LibertyLifeTrail is a 10-yr Wall Street veteran who worked at Bear Stearns JP Morgan Chase. He is an now an independent content creator in the crypto space after previously contributing to publications to CoinTelegraph & BraveNewCoin. Tone holds a Masters Degree in Financial Engineering from Florida State University along with Bachelor Degrees in Mathematics and Geology.
Do you agree with Vays’ stance on the topics discussed above? Let us know in the comments below!
Images courtesy of LibertyLifeTrail
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