Vitalik Buterin recently tweeted that cryptocurrencies are still a new and hyper-volatile asset class, and could drop to near-zero at any time. Don’t put in more money than you can afford to lose. If you’re trying to figure out where to store your life savings, traditional assets are still your safest bet.
Reminder: cryptocurrencies are still a new and hyper-volatile asset class, and could drop to near-zero at any time. Don't put in more money than you can afford to lose. If you're trying to figure out where to store your life savings, traditional assets are still your safest bet.
— Vitalik Buterin (@VitalikButerin) February 17, 2018
Some of what Vitalik writes is genuine, but there is also quite a lot that is disingenuous.
Lets have a look at the genuine parts of what he is saying first.
Bitcoin is a new technology and fledgling form of money. Nothing new here as the future is always uncertain so there are obviously risks to investing in anything that is new and unproven
Like anything that is new, there may be unknown risks that hinder or prevent its success, but we are nearly ten years down the road and this young and anti-fragile thing we know as Bitcoin has shrugged off all threats and has positively flourished.
As we are talking about a ten year history, we can look back at some of the major risk events and assess the effect they had:
A mistake in the code (2009-2010): The risk that there was a serious flaw in the Bitcoin protocol that Satoshi Nakamoto had overlooked. By 2010 cryptographers had found all the errors and corrected the code. There is a tiny chance there is still a major flaw, but it is vanishingly small.
Risk from Regulators (2011-13): The risk that regulators would shutdown or stifle bitcoin through onerous regulations. By 2013 it was clear that in the Western Democracies this risk was gone.
Risk of an Exchange failing (2014-2016): After the spectacular failure of MtGox and stunning malfeasance of Mark Karpeles, exchanges got their act together. Liquidity and security at most Bitcoin exchanges rivals most major financial institutions in the world.
Community Infighting (2017): The Bitcoin community is still divided, but the vast majority overwhelmingly supports the vision of Bitcoin as as a store of value and the currency / payment side of things is being built as a second layer.
Let’s return to Vitalik’s post and apply his tweet to Ethereum rather then cryptocurrencies in general. When we do that, we find that he is unfortunately more correct. The risk of investing in Ethereum is very high indeed.
Charlie Lee tweeted in July of last year:
If the creator of Solidity, Gavin Wood, cannot write a secure multisig wallet in Solidity, pretty much confirms Ethereum is hacker paradise. https://t.co/WAR3eltfWl
— Charlie Lee [LTC] (@SatoshiLite) July 19, 2017
Ethereum is a Turing complete distributed computer with tens of billions of dollars waiting to be siphoned off. It is a hackers paradise and there are many attack vectors that can and are bing exploited.
Then we have the issue of governance. While it is a good idea to have governance in a blockchain system, it is NOT a good idea to have a SINGLE point of failure and Vitalik is a major single point of failure for the whole Ethereum project. If he goes, the whole system could go. Look what happened last year when there was rumors he had been killed in a car crash and he had to come on twitter to show he was still alive. Fake news of a fatal car crash wiped out $4 billion in ethereum’s market value.
Another day, another blockchain use case. pic.twitter.com/OyHzdhEeGR
— Vitalik Buterin (@VitalikButerin) June 26, 2017
So I would fully agree with Vitalik on this point: don’t put money into Ethereum that you can’t afford to lose.
Then there is the idea that traditional financial assets are safe when we’re on the brink of a major revolution that is going to turn the whole financial industry upside down! They may be safe for now, but there is no doubt that we are seeing a vast transfer of wealth from one financial system (Legacy) to another (Distributed) and it would be madness to miss out on being part of that.
Bitcoin and Ethereum are beautiful, brilliant ideas that have already changed the world. They won’t fail because they are in scams, or frauds, but because of their own hard coded rules, community in-fighting and lack of truly distributed governance. The best way to make sure they survives is to understand all the real reasons they could fail and design solutions to those problems.