Crypto Pros and Cons (with Sam Bankman-Fried)

Apr 29, 2021 1h 9m 18 insights Episode Page ↗
Spencer Greenberg and Sam Bankman-Fried discuss cryptocurrencies, exploring their strengths like trustless systems and composability, and weaknesses such as high fees and latency. They delve into Bitcoin, Ethereum, NFTs, and real-world applications, cautioning against scams and emphasizing genuine utility.
Actionable Insights

1. Assess Crypto Project Suitability

Before engaging with a crypto project, critically evaluate if it genuinely leverages blockchain’s strengths (trustlessness, composability) and if its weaknesses (latency, cost) are acceptable for its use case, rather than just being a normal startup disguised as crypto.

2. Prioritize Product Over Token

When developing a crypto venture, focus on building a valuable product or service first. Only introduce a token if it genuinely enhances the project’s functionality or ecosystem, rather than solely as a funding mechanism.

3. Evaluate Crypto Whitepapers

When considering crypto investments, read whitepapers of projects, especially those with high market caps, to assess if their technology and claims are coherent and make sense before investing.

4. Market Bubble Indicator

If even non-experts (like your barber) are asking for investment advice in a specific asset class, it’s a classic sign of a market bubble, suggesting it might be an opportune time to consider selling.

5. Scrutinize Crypto Projects

Be wary of crypto projects that appear to be mere copy-pastes of existing ones or lack a clear technological purpose, as many are not genuinely focused on innovation or provide convincing arguments for their existence.

6. Use Crypto for Currency Stability

In countries experiencing hyperinflation or unstable fiat currencies, consider using cryptocurrency as an alternative to store wealth. It offers an option independent of government-controlled banks and local currency volatility.

7. Diversify Wealth Storage

In politically unstable regions, avoid parking all wealth in traditional bank accounts, as governments might seize funds. Consider alternatives like crypto for safety and independence from centralized control.

8. Leverage Blockchain Verifiability

When building applications that require guaranteed execution and transparency, upload programs to a blockchain. This allows anyone to verify the code’s behavior, ensuring it will always perform as stated without relying on trust in a central party.

9. Build Trustless Systems on Blockchain

For applications like exchanges or financial services, consider coding them directly onto the blockchain to ensure transparency and prevent fraud. The code dictates actions and cannot be altered by a central party, fostering trust.

10. Decentralized Social Media Design

To create uncensorable social media, separate the core protocol (on-chain) from the graphical user interface (GUI). This allows users to post freely on the protocol while giving GUI developers the choice to display or filter content, promoting diversity and user power.

11. Smart Contract Oracle Use

To create smart contracts that react to real-world data (e.g., temperature), use a two-step process: first, have a trusted ‘oracle’ upload the external data to a specific blockchain address, then program the smart contract to reference that address.

12. Beware of Token-First Projects

Be cautious of crypto projects that prioritize selling tokens as a funding model without first demonstrating a real business or value proposition. This can be a sign of a scam or a poorly conceived project.

13. Long-Term Tech Investing Strategy

In nascent, high-growth tech sectors (like early internet or crypto), a strategy of broad, long-term investment might yield significant returns. This is because the outsized success of a few key players can compensate for the failure of many others.

14. Identify Valuable NFTs

When evaluating NFTs, look for those tethered to real-world utility, such as redeemable physical objects or in-game assets that grant actual usage rights. These provide tangible value beyond purely speculative belief.

15. Utilize Transparent Trading Strategies

For investment, consider on-chain algorithmic trading strategies that are tokenized, as their code is publicly verifiable. This ensures the strategy executes exactly as programmed without hidden manipulations.

16. Implement Scoped Control in Smart Contracts

When designing smart contracts with human input, define and limit the scope of control for specific addresses. This allows for human intervention in defined parameters while preventing unauthorized actions like fund theft.

17. Leverage DeFi for Custom Financial Products

Utilize decentralized finance (DeFi) protocols to quickly create custom financial products like ETFs. Once core components are established, individuals can easily construct and launch their own investment vehicles.

18. Ensure Redeemability for Asset Price Stability

For tokenized assets tied to real-world value, ensure a redemption mechanism exists, even if it’s clunky. This allows arbitrageurs to keep the token’s price aligned with its underlying asset, preventing significant deviations.