My Large Cryptocurrency Pyramid Scheme

I wish to say “I’m not a bitcoin maxi—I’m a bitcoin largely.” 

That’s as a result of cryptocurrencies are a part of an evolving ecosystem. The person applied sciences evolve, and the whole ecosystem adjustments, with new properties coming on-line day by day. 

So, despite the fact that bitcoin maximalists make actually vital factors, they generally assume different applied sciences, even bitcoin, will stay static and that folks shouldn’t worth the properties of different so-called “shitcoins.”

However it is a dialog amongst crypto fanatics.

For the crypto-curious or utterly uninitiated, I wish to flip the script on all of the concern, uncertainty, and doubt (FUD) that they’ve most likely heard. I say my investments are only a massive pyramid scheme.

Lemme clarify. However first, let’s discuss what the “crypto” business shouldn’t be: a pyramid scheme.

Positive, some founders and VCs mint tokens and/or get first dibs on an enormous stash. It is a type of seigniorage. I don’t love this method as a result of really decentralized cryptocurrencies create totally different and arguably higher dynamics that incentivize first movers with out creating outsized market energy for founders and VCs. Anyway, given the tokenomics of minting, sure tokens are perceived as going towards a Decentralist ethos. Subsequently, you need to resolve how vital decentralization is to you as a system property and whether or not you care that some founders may get wealthy in some measure by way of seigniorage.

Now, let’s discuss my funding pyramid scheme.

Take into consideration a typical diversified threat portfolio—which is, and just about all the time has been, investor fundamentals. As I see it, you need your crypto portfolio to be arrange slightly like a pyramid. The less-risky belongings lie on the base, with more and more dangerous or untested applied sciences going as much as the pyramid’s apex. As all the time, you need to do your homework, consider threat, and use your greatest Bayesian reasoning to make this allocation.

For simplicity, divide your pyramid into three sections: base, center, and apex. As a result of bitcoin is the primary, most time-tested, and most resilient censorship-resistant token, it carries the least threat. Positive, its shortage makes it risky at instances, however that volatility has gone down over time with elevated adoption. As HODLers (those that maintain on to their tokens in instances of volatility), we now have seen bitcoin rebound and stabilize on a couple of event.

Within the instance graphic above, you possibly can see how I prepare my cryptocurrency funding pyramid.

  • I begin with bitcoin as a result of the tech is time-tested, decentralized, and censorship-resistant. It represents decrease threat from my perspective. (I’d put second-layer bitcoin options such because the Lightning Community within the subsequent degree, nevertheless, as a result of it’s a extra speculative side of the BTC ecosystem.)
  • As I transfer up, I spend money on tokens with totally different properties, similar to good contracts, non-fungible tokens, or different capabilities that may commerce threat for versatility. I used Ethereum and Cardano as examples that may go into the center tier of the pyramid.
  • Lastly, on the high, there are applied sciences that, whereas enormously promising, are extra speculative. Holochain (HOT), for instance, consists of mind-blowing laptop science that guarantees the safety and decentralization of a blockchain however is constructed on a totally totally different species of know-how.

Keep in mind, although, that is only a snapshot. Because the applied sciences evolve and get extra market testing, you may decide this must be reshuffled. Certainly, your calculation of threat–or maybe your deeper information of every know-how–may make your pyramid look totally different from mine. In any other case, you should utilize this nice funding pyramid scheme, too, as a basic heuristic on your funding portfolio. 

Along with threat and market testing, you may embody different dimensions, similar to a know-how’s potential for subversion. Certainly, I wish to discover improvements that promise not violent overthrow however slightly methods to undermine or circumvent unjust authorities or corrupt incumbents. 

That’s subversive investing, however that may be a dialog that should wait for an additional day.

Max Borders

Max Borders

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