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My View: Dash’s Instamine Is Not A Problem

Posted in Cryptos

The following article covers a token or element in the cryptosphere. The cryptosphere is new and exciting, but changes rapidly and often in ways that do not benefit users. By the time this article is published, changes may have already occurred. Most tokens in the cryptosphere are complete scams that are get-rich-quick-schemes for insiders. Often, we cannot know this beforehand and only later discover this. A person should only trade with money that they’re willing to lose because losses are guaranteed. If you choose to participate in purchasing a token in the cryptosphere, you should do so with the full expectation of a loss and you should also expect it to change in a manner that does not benefit you. There are very few good ideas in the cryptosphere. Finally, by reading this post, you agree that you’ve read our disclosure.

Introduction

In my book, The Decentralized Retirement Plan, I assert that Dash is the greatest cryptocurrency and I still think that as of now, as I haven’t seen competition even come close to it yet. One argument brought up against Dash is its instamine – a suppposed event where one person gained a lof of Dash through mining. You can search for various estimates of this instamine and the estimates will tend to range anywhere from 5-20% of the total supply. Is this instamine a problem for Dash? I don’t think so and in this article, I look at why this doesn’t disturb my view that Dash is the greatest cryptocurrency.

Let’s Suppose That The Supply Is Dumped

At the end of World War II, the United States owned over 22,000 metric tonnes of gold and over the next thirty years engaged in one of the largest spending sprees from a country in the history of the world. When leadership of the United States realized that it would lose all its gold at its rapid spending pace, it tried dumping 2,000 metric tonnes of gold on the market to repress the price of gold to buy it at a much lower price, along with exiting the gold standard. What some Americans don’t realize about the gold standard exit was that leaders intended it to be short. Over forty-five years later, we’re still on the fiat money system, and the price of gold has never been lower than $35 an ounce. In other words, the dump failed.

Let’s suppose that a person owns over 10% of the supply of Dash and begins dumping this entire supply. If this action pushed the price of Dash down, it would make Dash cheaper to use and set up a masternode. As more masternodes come online, the dump loses its affect. If we take this worry a step further and imagine that a developer in Dash is the one doing it and this developer intends to leave, this action still doesn’t affect the other developers. In general, a single developer of a cryptocurrency is a single point of failure: what would happen if the person was seriously injured in a car accident? Similar to bitcoin, Dash has many primary developers, so one developer dumping all the Dash and running away from the community is unlikely to have an affect. In addition, if Dash continues to build infrastructure that simplify use for the Dash community, in the long run, those investments will have the opposite effect of the dump.

Finally, if a person holds 10% of the Dash, wouldn’t it be more logical to use all those Dash to set up a bunch of masternodes and earn a 1000%+ return? Remember, that this instamine happened when the price of Dash was low and the mining cost was low, so any Dash this person would be receiving from masternodes would almost come with an initial principal investment of $0, making the return much better than any government bond at the moment can offer. Why dump when each of these masternodes would be earning approximately 100 Dash a year and this person could easily have 1000+ masternodes (meaning he would be making over 100,000 Dash a year). Again, his initial principal cost would have been probably less than $100 and yet now he would be making over $1 million a year. Can you find another investment right now with that return? Remember that this return only increases as the price of Dash rises.

Best Ideas Often Have Big Winners

John D. Rockefeller’s ownership of Standard Oil helped contribute to its success, not the opposite. Rockefeller didn’t pump shares of Standard Oil, only to sell them; rather, he recommended that people take the shares when he purchased competitors and he continued to dominate the oil market. His company paid some of the highest dividends of an American company for decades, helping thousands of people retire and even being a great investment that didn’t crash and burn like many did during the Great Depression.

Every idea has a big winner, or set of big winners. This is a reality and this will never change. Even bitcoinaires claim that Satoshi owns 4-5% of the supply of bitcoins. In addition, when you look at the gold ownership distribution, most gold is in the hands of a select few (governments and very wealthy individuals). This does not automatically make an idea good or bad since owning a large portion of the supply ultimately won’t convince people to buy or sell the idea. What made Standard Oil, bitcoin, gold and other ideas with large owners good ideas is their use: petroleum has many uses, bitcoin has many uses, and gold has many uses. None of those would be valuable if they didn’t.

If Dash achieves infrastructure that comes easy for its users in the long run, whether someone owns a lot of the supply or not, it will succeed, unless competition is able to beat Dash at what it’s doing – and in my opinion this is unlikely (Monero, as an example, while addressing privacy is very one-dimensional while Dash has expanded on its features in addition to privacy).

As a note about ideas and winners: usually people early in ideas win the most, so someone who was an early adopter of Dash or bitcoin had the most to win. This is just as true for people in industries, such as the tech industry. When businesses demanded CAT5 wire, the people with those skills received the biggest payouts for those skills. This did not make CAT5 a ponzi scheme, but rather the early adopter of a successful idea will be the biggest winner. Again this is how reality works.

Other False Assumptions of the Instamine

In addition to the above points, there are many other problems with the arguments against Dash using the instamine as a problem:

  1. Even if someone owns a lot of the supply now, it’s just as possible that this person has lost a significant portion of Dash, as they still own it. This has happened with bitcoin too and estimates are that 1-2 million bitcoins are permanently lost.
  2. There’s a significant amount of evidence that this person who owns a lot of Dash dumped a huge portion of the instamine early in its history, given Dash’s history on exchanges early. If you look at the early selling, it’s unlikely that those big sells were from average users or miners. You can check out this post from Evan, Dash’s founder, which links to the original BitcoinTalk thread. Read the threads and come to your own conclusion.
  3. According to Evan Duffield, the Dash community voted on continuing Dash and not restarting it – though this was an option.
  4. Depending on when a person purchased Dash, even its failure would be a low cost loss. For a simple example of this: if I purchased 5000 Dash for $0.10 each, that would mean that I paid a total of $500 for 5000 Dash.
  5. Suppose that this person dumps all their Dash and walks away a multimillionaire. Now what? Their problems have only begun since the financial system is becoming more uncertain while the cryptocurrency community is offering an alternative that might be more stable – at least there have been no bail-outs or bail-ins. Getting rich quicky sounds great, but it creates an even more uncertain reality. Look no further than someone like Andrew Lahde who returned 1000% in the housing collapse and said he would quit the hedge fund industry – and did for a brief period – but ended up right back in the industry. Why? Because it’s easy to believe someone can just walk away from everything, but it’s hard to do since significant wealth always invites worry and a change in behavior.

What Concerns Me

Every idea – good or not – concerns me because cycles of behavior occur that can be counterproductive. People can think when times are good that they’ll never see bad times, and then bad times strike. No idea is immune from this, including Dash. My major concerns with Dash are:

  1. Does it continue to innovate? Does the innovation match the need?
  2. Will Dash begin to waste money on marketing? Remember Satoshi said don’t sell bitcoin because he knew solutions are the best selling point, not hype. Also, all marketing creates a pendulum swing in the opposite direction – skepticism.
  3. How does Dash prevent becoming a victim of its success – “prosperity destroys fools”?
  4. When problems occur, how does the Dash community address these and continue to do so?
  5. How is the Dash community careful about new people joining, as some new people may have bad intentions for Dash?
  6. Related to the above point, Dash has recently welcomed people who’ve been divisive and diva-like in other cryptosphere communities that have not moved them forward – this isn’t good for Dash at all.
  7. How does Dash address critics who highlight real problems with Dash and how does the community solve these?
  8. Does the governance spending go to productive ideas, or wasteful ideas? Are they actually needed, or are they clever ways of proposers to get free money. Keep in mind that wasteful governance spending is a sell signal on Dash – if Dash has a pattern of wasting its budget, I would be going short, not long.

All of what I wrote above this applies to every crypto-community. So far, I’ve been impressed with how Dash addresses these concerns, but this isn’t a one-time event.

We got you covered in Retire Early With Cryptocurrencies with concerns like these! Like other cryptocurrencies, we cover the trading, financial, and infrastructure side of Dash, as well as how to earn Dash without spending a dime in February of 2017. Don’t worry if you missed it; we cover new topics every month, so if you like opportunity, stay on top of the content.

Flip the Script

Thomas Sowell challenges people who debate him on economic topics with the simple question, “Compared to what?” because many ideas become invalidated when a standard of comparison is set. For an example, capitalism is an imperfect system, but when compared to communism, it looks like a brilliant system. In fact, when compared to every other economic system, capitalism is the best economic system by far. Is it perfect? No, but it’s better than all of the alternatives.

When someone criticizes Dash for its instamine, I like to ask them what cryptocurrency do they prefer and why? In almost every case, they’ll list something worse – such as an inflationary currency, one with an even bigger instamine or concentrated ownership, or one that is fully centralized. For a simple example of this, you and I may view Dash’s instamine as a flaw, like Ethereum’s DAO mess, but unlike Ethereum, Dash went ahead with the idea, as the community accepted the loss and moved on instead of an early bailout and restart. Viewed in that light, it makes a case that Dash follows through, even if failure is experienced – a massive contrast to some of the other ideas out there. In the same manner, most of the new crypto ideas have massive ownership stakes or pre-mines.

To my current knowledge, the only crypto-asset that I am aware of with a very democratic beginning is Counterparty – as they gave an equal opportunity to everyone who wanted to own it by only allowing one unique bitcoin address (this system could have still been manipulated, but it shows they tried to make it more democratic). Yet, most of us know that Counterparty is seldom discussed, even though it’s a smart contract system on top of bitcoin’s blockchain. This is an example of people praising democracy in words, but ignoring it in action.

Conclusion

Dash’s success will be predicated on whether its infrastructure can solve problems users experience and whether it can continue iterating on good ideas that users will appreciate in the long run. Competition could beat Dash, though Dash has a head start on a lot of its competition, including bitcoin. Outside of some internal errors, the upside-downside of Dash, considering its technology, is fair. If Dash never crosses $100, like I think it will eventually, but only hits $50, that’s still a good deal.

Finally, no one is forced to buy anything at any price – this is just retarded financial behavior. Everything that rises will fall at some point because nothing rises or falls in a straight line; therefore, opportunities to buy anything always exist when prices correct. This is healthy, as healthy markets experience corrections. In other words, people who want to get rich quick on rapid price increases will eventually be squeezed out of every market due to their incompetent impatience.

Further Notes and Updates

Remember that this is solely my view on Dash’s beginning and there is always a possibility that my view will be wrong. Still, in my view, there are many other great privacy cryptocurrencies, such as Monero, ShadowCash, Boolberry, etc. I think Dash has a strong model, but I could be wrong and it may not be the big winner in the long run of those. If it isn’t, more than likely, one of the others will be. In fact, timed-investments in Monero, ShadowCash and Boolberry have been spectacular. We are very early in the cryptocurrency world, so there’s a possibility of multiple private cryptocurrencies becoming winners.

As for CoinDesk’s recent criticism of Dash, keep in mind this was the same media publication that was hyping Zcash, which had a founder’s reward in excess by percent of the instamine they criticize. In fact, it was CoinDesk that promoted the view that one Zcash would equal one bitcoin by the end of 2016 (by quoting someone else – clever, but stupid). In addition, CoinDesk admitted that they have a financial interest in Zcash. Like Dash’s beginning, Zcash’s early founder rewards don’t disturb me because early founders often are rewarded; however, I’m not going to hear criticism from Zcash about Dash’s instamine.

Finally, if you’re going to trade anything, only trade with money that you’re willing to lose because losses are guaranteed.

If the Instamine Still Disturbs You …

Don’t get involved with Dash. If you own Dash, sell them and stay out of Dash. The end. No one is forcing or asking you to be a part of Dash. If you have a problem with it, get out and be done with it.

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We Don’t Live In An Echo Chamber

Since we’re not part of any echo chamber, we have no issue showing an alternate view by two individuals who criticize Dash:

Similar to what I wrote above this, if this disturbs you, you don’t have to get involved with Dash – no one is being forced into this project. I do agree with the two individuals in the video on two points about general trends in the cryptosphere: the competition in the cryptosphere will become intense after a while with people attacking competitive ideas and most of the cryptocurrencies will fail in the long run because of bad technical, economic and (or) financial fundamentals. I would also remind readers of above points I made about Dash, which are true for every cryptocurrency: if Dash can’t continue to innovate, build infrastructure that provides utility for its users, and doesn’t rise to new challenges, it won’t exist in the future. The same is true for every cryptocurrency that exists.

As for their point about Dash’s governance spending money on things which are wasteful, I completely agree with this point. These “vending machines” are complete wastes of money and so is a lot of the marketing hype. Masternodes should consider voting for ideas that build infrastructure and utility, not ideas that are wasteful. In addition, marketing hype is dangerous because it creates a pendulum situation where extreme skepticism balances the extreme hype (human behavior 101). The Dash community should take this critical feedback and stop funding both of these types of proposals: stick exclusively to ideas that extend the utility of Dash and let the utility be the selling point. On this last point, this was Satoshi’s argument about bitcoin and look at how well his argument worked for bitcoin.

Other than the critical feedback, which I always value, I don’t view their case as compelling for myself. They seem surprised that Dash has evolved, but this isn’t a surprise and I hope that it continues to do so – for an example, by addressing the above point about wasteful governance spending. As for it being more centralized, this is a debate of Ancient Greece vs. Ancient Rome; to a degree, Rome was more centralized that Greece and Rome lasted longer and was more successful. A meritocracy inherently means inequality; that’s reality and look no further than evolution itself. Overall, I like the video and I welcome the criticism; I think they have some good points and some weak points, but I always value hearing other people’s views. Great video.

Other Good Critiques

Another fascinating critique, looking at transactions. It does seem that traders seemed to be the ones driving this latest spike. If Dash makes it on a few more fiat exchanges, it will be interesting to see how much fiat goes into Dash, or whether it even does.


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