CRYPTOCURRENCY: THE PAST VS. THE FUTURE
July28,2023
Over the past two decades, cryptocurrency has emerged as a revolutionary
force that is changing not only the traditional financial systems around the
world but has also transformed the way that business and everyday
transactions are conducted as well. The most well-known cryptocurrency is,
of course, Bitcoin. It is considered to be the grandfather of all cryptocurrencies
and has attracted the attention of millions of people all over the globe.
BITCOIN AND THE MINING PROCESS
Bitcoin is a virtual currency designed to act as money and a form of payment,
independent of the existing financial system. Bitcoin was created by a
mysterious figure, only known as Satoshi Nakamoto, and was released in 2008.
It is known as a decentralized currency, which is a currency not
controlled by one central authority such as a central bank. It was also created
to function on a relatively new technology, known as blockchain. Unlike the
fiat currencies that we use today, which are governed by central banks such
as the Federal Reserve, Bitcoin operates on what is known as a distributed
ledger system. This means that transactions involving Bitcoin are recorded in
a public ledger known as the blockchain, which is maintained by a group of
computers around the world.
As opposed to traditional currency, which is printed and distributed by a
central bank, Bitcoin is created through a process known as mining. It is not
mining in the traditional sense. Bitcoin mining involves verifying and adding
transactions onto the blockchain, which is the main method of creating, or
“minting” new bitcoin tokens. Bitcoin mining is a very complicated process,
which requires many resources, a large amount of energy, and very powerful
hardware with the ability to perform complicated computations. Bitcoin
mining involves the process known as proof of work, which is solving
complicated mathematical puzzles, in order to validate and confirm
transactions done on the network.
So the Bitcoin mining process is comprised of:
Transaction verification-when a user initiates a transaction, it is broadcasted
to the network of miners, whose job is to collect the transactions, validate
them, and put them into a block.
Hashing-in order to create this block, the miners compete with each other to
be the first to solve a cryptographic puzzle with a hash function. That involves
taking the information from the block and converting it into a string of
characters of a fixed length.
Proof of Work(PoW)-the new hash that was created has to meet certain
criteria already set up, such as starting with a certain number of zeros at the
beginning. Finding the correct hash can only be done by trial and error, which
requires significant computational resources.
Difficulty Adjustment– in order to keep block creation at a consistent rate,
the network adjusts the difficulty of the puzzles. The adjustment makes sure
that new blocks are created roughly every 10 minutes, regardless of the
number of computers in the network.
Block Addition-The miner who solves the puzzle first gets to add the new
block onto the blockchain. As a reward, they get new Bitcoins, and are paid
transaction fees by the users whose transactions were in the block.
Bitcoin mining is important not only for the creation of new coins, but also
for security purposes and decentralization. By using this competition process,
it ensures that no one person or entity can control the blockchain. To do that
would require someone to control 51% of the mining, which would require a
tremendous number of resources. This keeps the network free from being
manipulated. Also, since it costs so much money to purchase what is
necessary to participate in mining, it incentivizes the miners to work in the
best interest of the network. They all work together to maintain stability and
the integrity of the network, which gives users the confidence to use Bitcoin
as a currency to complete transactions.
BITCOIN AND CRIMINALITY
As innovative as Bitcoin was, in terms of speed and ease, its creation also
caused new and very significant problems to emerge. Because bitcoin is
pseudo-anonymous, which means that the user’s identity is hidden, it has
unfortunately become a valuable tool for committing crimes and illicit activity
without leaving any traces. Most of these crimes occur on the dark web,
which is a hidden part of the internet, for which a user has to have specialized
software to access. In the dark web, criminals can buy and sell drugs, guns,
stolen data, and stolen goods using bitcoin to pay for the transactions. Since
Bitcoin is not regulated, it makes it difficult to almost impossible to track the
people involved in the crimes.
Also, Bitcoin has helped to increase the number of ransomware attacks,
which is when a hacker uses malware to lock up a victim’s data, and
blackmails them in order to get it back. Hackers demand to be paid with
Bitcoin, because they know they can receive payment without revealing their
identity. This incentivizes them to keep doing it. Another wide use for Bitcoin
has been money laundering. Since Bitcoin is used all over the world and is
user anonymous, criminals can convert money from illicit activity into Bitcoin,
and then transfer the Bitcoin to many different wallets, which hides the
money trail! Then they can convert the Bitcoin back into fiat currency, without
any suspicion from the authorities.
The number of Ponzi schemes has increased dramatically through the use of
Bitcoin. The scammers promise fantastic returns on their money to investors.
They then use new investor money to pay high returns to the older investors,
making it appear as if it’s really legitimate. When new investor money stops
coming in, the scammers close up shop and take off with investors’ money,
making it difficult for the funds to be recovered, due to of the pseudo
anonymous nature of bitcoin. Throughout the operation, the scammers remain
anonymous, so it becomes easy to just disappear and not be found. To make
matters worse, Bitcoin use has expanded to other criminal activity, such as
terrorism, human trafficking, trading illegal arms, etc. Also,because of the
success of Bitcoin, there has been a proliferation of new cryptocurrencies
which have been used for the same type of activity!
For example, there is the case of Sam Bankman-Fried, a 31-year-old
billionaire who was convicted for creating a cryptocurrency exchange and
token known as FTX, which subsequently was used to launder money that
was being given to other countries as humanitarian aid, as well as illegal
political donations. However, unfortunately, many high-profile cryptocurrency
figures have died mysteriously, or have been murdered recently, clearly due
to their involvement in criminal activity. Most recently, a crypto influencer by
the name of Fernando Perez Algaba, was murdered, and his severed remains
were found in a suitcase. So clearly, cryptocurrency criminal activity has its
drawbacks, but it has nonetheless continued to grow significantly, due to
easy access to many cryptocurrencies that are much less expensive to use,
and easy to acquire. All of these events have led to a plan to rid the world of
these unregulated cryptocurrencies, which have no intrinsic value, yet are
being used to commit trillions of dollars’ worth of criminal activity all over the
world.
The fiat money system, both Digital and physical, have been used to control
the economies and populations of countries worldwide. Since fiat currencies
hold no real value, they can easily be manipulated in order to create
enormous wealth for the powers that control them, as well as decrease the
value of the money that individuals earn, use, and save throughout their lives.
Since the central banks, which control the printing of currency as well as
monetary policy, are privately owned entities, their goal is to maximize
wealth for the owners, as well as prevent the general population from
becoming too wealthy, which would threaten the existing power structure.
So, the central banks have continued to print money indiscriminately, which
they lend to governments around the world with interest, while at the same
time creating inflation, which decreases the purchasing power for ordinary
citizens. In order to dismantle these corrupt financial systems on a worldwide
basis, a plan has been created and is being implemented, that has created a
totally new financial system which will eliminate the need for central
banking. It will create new currencies, both digital and physical, backed by
real assets that will create fairness and equality among international
currencies.
THE QUANTUM FINANCIAL SYSTEM
This new system is known as the Quantum Financial System, or QFS. It has
the ability, using Quantum and Blockchain technology, to track the movement
of all currencies.It will record transactions on the blockchain which can’t be
altered, and provide transparency. This will almost entirely eliminate the
ability to commit criminal activity. It will also stabilize and increase the
purchasing power of currencies by using real assets to back them, which will
create intrinsic value. It will also cause the elimination of all fiat currencies,
which have no value and are easily manipulated.
In order to achieve this major change, a system comprised of both digital and
physical currencies was necessary. They would be directly connected and
interchangeable, to allow ease of electronic transactions and transfers of
money worldwide, as well as the ability to conduct everyday activity with
either physical or digital money. In order to facilitate this, a significant new
infrastructure has been built to facilitate the changeover. This new ecosystem
will allow virtually all tangible assets, as well as all types of legal and
financial transactions, to be converted into Token form. This is known as
tokenization. This is necessary in order to provide transparency, ease of use,
and the implementation of blockchain technology to create a fast, inexpensive
immutable environment for all transactions. To deploy this new financial
system, all forms of fiat currency, and all areas used to hide criminality must
be eliminated or transformed into a new incorruptible version. This includes
financial markets, all existing currencies, all non-asset backed crypto, etc.. ,as
well as the existing internet structure. Several blockchains with
interoperability have been created to achieve this.
THE STELLAR BLOCKCHAIN
In my opinion, the most essential of these blockchains is Stellar. The Stellar
blockchain is the only one that has prepared a digital infrastructure for the
tokenization of financial markets, commodities, all currencies, all real assets,
and virtually everything that exists today that we use in our daily lives. It can
be used to send money anywhere in the world almost instantaneously, at a
minuscule cost. The protocol used requires very little energy and no
expensive mining, like Bitcoin and some of the other cryptocurrencies. It
provides an easy way to create and issue digital tokens representing real
assets, fiat currencies, and even other forms of cryptocurrency. It has been
implemented for use in purchasing goods and services. It allows the use of
anchors, which can be either organizations that hold and help with the
transfer of real assets, or simply the assets themselves that back the tokens.
There are many more features, too numerous to name, and all of these are
aided by the native cryptocurrency on Stellar, known as the Stellar Lumen.
One of the biggest reasons that the Stellar blockchain is a necessary part of
the QFS, is that it is compliant with all the upcoming mandatory protocols
and regulations. These include ISO 20022, Basel III, Bretton Woods 3, and
others which will mandate that all tokens must be backed by real assets or
be collateralized when used. All tokens wishing to remain on the Stellar
Blockchain must meet these requirements after the transition to the new
financial system. The Stellar Blockchain will also be used to house and
distribute assets seized from corporations and individuals involved in criminal
activity. So, there is no other Blockchain in existence that already contains
these essential components of the new financial system.
THE QUANTUM FINANCIAL TEAM
The new quantum financial system is being built and monitored by
worldwide militaries and leaders who have chosen certain developers and
organizations to assist with tokenization of essential components needed for
the operation and expansion of the QFS. They have also been given the
responsibility of creating the necessary educational tools and resources
needed to introduce this new financial system to the world’s population.
One such organization which has been integral in this process is the Quantum
Stellar Initiative, or QSI, founded by Emily Tang. This non-profit organization
is comprised of many individuals with varying expertise, who have selflessly
devoted their time to help introduce Stellar and the Quantum Financial
System to all individuals wishing to learn more about them. Emily Tang and
her team have created excellent educational courses for all levels of
investors, have produced video and audio aids to help understand the
transition taking place, the structure of the QFS, as well as more detailed
explanations on current and future projects on the Stellar blockchain.Not only
are the presentations and educational materials well done, but everything
that QSI offers is free of charge, for those who wish to learn more. Emily
herself is working directly with developers cleared by the military to help
tokenize humanitarian projects, emerging technologies, new organizations,
and much more. They have also created an easy and inexpensive way for
investors to participate in initial coin offerings, which are new tokens that are
being listed for the first time on the Stellar blockchain. This involves the use
of group funds, which helps investors, regardless of size, receive the same
incentives that are only offered to very substantial investors. Through QSI’s
efforts, thousands of investors have gained the knowledge necessary to be
able to navigate the new financial system and have been given the ability to
participate in Initial Coin Offerings at very inexpensive prices, which will no
longer be available to the public when the Quantum Financial System is
finally launched.
In conclusion, through the efforts of the world’s militaries, world leaders,
and associated organizations such as QSI, a new financial system will soon
be implemented worldwide which will eliminate criminality, remove the
power of the elite central banks to control us, and return sovereignty,
equality, and abundance to all the countries of the world and their citizens!
ANYTHING IS POSSIBLE
August 8,2023
One of the most important lessons i’ve learned in my 30+ years managing
money is that anything is possible. It may sound like a ridiculously obvious
statement. However,it has caused many of the most famous money managers
to be decimated and out of business. It is a psychological bias that has been
referred to as prediction bias. It is also one of the biggest obstacles an
investor or manager must overcome to be successful. When we need to make
a decision about investing,for example, we usually filter the information in our
brains quickly and emotionally to get to a decision. We also base our decision
on an amount of information that is statistically inadequate,yet more than
enough as far as our minds are concerned. What this does is that it gives us
an incorrect interpretation of the range of results that can occur. For example,
try to answer this question with a range of 90% certainty: The Dow Jones
Industrial Average in 1896 was 40,and in 2012 was 13,009. Dividends are
not included.where would the Dow Jones Industrial Average be in 2012 if the
dividends were reinvested each year? Pick a range that you’re 90% sure the
answer lies in.Sounds easy,right?Here’s the answer: if dividends were
reinvested, The Dow Jones Industrial Average would have been at 1,339,410
in 2012. Most people are surprised the answer! So what’s the point here? The
point is that most investors and managers have too narrow expectations as to
where the market can go. Therefore,the risk management methodology(if
they even use one!) will be flawed and unprepared to deal with major events
that can destroy their portfolios and wipe them out.
Let’s consider the story of the infamous hedge fund Long Term Capital
Management.The partners included the legendary bond trader,John
Meriwether, a former Vice Chairman at the Federal Reserve,David Mullins,
and two Noble Prize winners ,Myron Scholes and Robert Merton. Certainly a
fountain of knowledge! There were 24 Ph.D.s working at the firm. They
started trading in 1994 and had superb results for a few years. Their strategy
initially was artibtraging in the bond market.These arbitrage strategies were
considered low risk but also low return strategies. To compensate for
this,they leveraged their assets by almost 30 to 1 so that the low returns on
the larger amount would equate to higher returns on their original equity. By
1998, LTCM had about 4 Billion dollars in assets.However,by 1998,the
arbitrage strategy they used was being duplicated to some degree by other
traders. So LTCM started trading in other,more risky arbitrages in many
different financial markets where they had analyzed the normal range of
prices and relationships between different financial instruments and tried to
capture abnormalities in price that would eventually go back to normal.So
they thought. In the fall of 1998,Russia defaulted on some of its debt,and
devalued its currency, this caused a chain reaction around the world that
caused stock and bond markets to plummet, currencies around the world
devalued as well, U.S. treasuries skyrocketed as investors rushed to safe
investments. All the normal price relationships LTCM had relied upon
disappeared. LTCM’s portfolio equity dropped from 4 billion to 600 million in
a month. The Federal Reserve worried that a margin call at LTCM could
destroy the financial system,so they arranged a secret meeting with the major
banks and got them to inject 3.5 billion of equity for 90% of the company so
that they could wind down the portfolio when times were calmer. Now the
question is how can this group of financial geniuses lose 90% of their equity
in 1 month? Simple. They never anticipated that so many things could go
wrong at once,nor did they anticipate how wildly prices could
fluctuate.Obviously their model was flawed. I bring this story up because if
these legendary traders could wipe themselves out by not realizing that
“anything is possible” how can we succeed? The answer is by having a rigid
risk management methodology that assumes the worst and sticking to it.
That is my primary focus in my investment strategy. I assume anything can
happen and protect accordingly.If we don’t do this, we will forever be
subjected to the Prediction Bias and react emotionally (usually very bad!) on
our investment decisions or open ourselves unknowingly to risks that we
never even dreamed were possible which could bankrupt us.What you don’t
know can definitely hurt you!
CUT YOUR WINNERS AND LET YOUR LOSSES RUN?
August 8,2023
Doesn’t sound like a good strategy, does it? Yet, unfortunately, it is one of the
biggest obstacles that an investor faces when managing their portfolios. In
fact, it it this particular problem that is the primary cause for the discouraging
statistic that over 85% of investors lose money in the market or make less
than they would in a money market account over the long term. Loss aversion
is the unwillingness to take a loss in an investment that has gone sour. Yet,
many of the most successful traders in the world have stated publicly that
they lose on over 66% of their trades! So why is this such an issue? Well, it
has been well documented that the pain of losing is 3 times as great as the
pleasure of winning. You also have the emotional investment and time spent
on researching a company before investing in it as an additional obstacle. We
also have the media and the so called experts encouraging investors to “stay
the course” and “don’t time the market”. We are encouraged to be winners
and to not be losers. All of these factors contribute to the problem of Loss
aversion.
When I first started investing in the markets and also managing clients
portfolios, I was taught to “buy and hold” and “average down”. Basically
what this equated to was to add good money into a bad position that was
losing money and to make a long term bet that my portfolio would be higher
at a specified date in the future from its current value.Needless to say, this
has not turned out to be a profitable strategy over the long term! After many
painful trades, I finally became aware of the fact that the most important
factor in a successful trading strategy was to be sure to minimize losses.
There is a mathematical phenomenon known as “Siegel’s paradox” that
states that returns are assymmetrical,meaning that a certain percentage loss
requires a greater percentage gain to get to break even. So, for example, a
10% loss requires an 11.4% gain to get back to even. The problem is that as
a loss gets greater, you need a much larger percentage gain to get even. So if
you lose 50%, you need 100% to get even. This is why it’s so important to
limit your losses. If a loss becomes large, it becomes difficult, if not
impossible to recover from. So if there’s one thing to be learned from this
discussion it is that you MUST LIMIT YOUR LOSSES!
The other issue an investor faces is to allow winners to grow. The problem
we face there is that when an investor has a winner,particularly if it happens
quickly, the fear of the position dropping back down again causes the investor
to lock in the gain prematurely. This again is an issue for the majority of
individual investors. It is due to the lack of a defined methodology that
defines when to take a profit a well as a loss. So it then becomes an
emotional decision,and of course we know when our emotions are in charge,
we usually make the wrong decision! In order for an investor to be
successful,you need gains that are multiples larger than losses incurred over
time.
So when we look at these two issues together, we see that gains are being
cut short and losses are being allowed to run, potentially creating larger
losses. This is the exact opposite of what is needed to create successful
investment results. the solution to both of these issues is to have a
predetermined plan on where you will exit a position if it’s down as well as
where you will exit a winning position. Doing this beforehand will hopefully
eliminate the emotional issues usually encountered when trading,and give an
investor the best probability of achieving successful results over the long
term.