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31st December 2021 > > Cryptography (again).

Updated: Mar 30, 2022

tl;dr

More discussion of cryptography, and most reserve treasury protocols are scams.

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Today is options expiry day again. A key tenet of all financial markets is that they will cause the maximum amount of pain to the maximum number of people.


The maximum pain price today at expiry is … $47k. With $5.4bn notional at play, we are unlikely to see any price move until afterwards.


Curious Cryptos’ Definition of the Day – Cryptography (again)

I had feedback from several people that my brief explanation of cryptography yesterday was not as clear and concise as it should have been.


That is a bit of a failing for an aspiring crypto teacher.


I think the key concept I failed to explain is this.


Encryption of messages such as email is designed to prevent anyone but the recipient (who owns the private key) from being able to read the message. The message is encrypted with the public key derived from the private key and can only be decrypted with the private key. Anyone who doesn’t have the private key will simply see a random collection of letters and numbers.


For cryptos the objective is that the world (i.e. the blockchain) can read the message. This is achieved by encrypting with the private key allowing the world (i.e. the blockchain) to decrypt the message with the public key.


The public key is the wallet address and therefore available to everyone.


Why bother using encryption at all then, I hear someone ask.


The message transmitted to, and recorded on, the blockchain states the amount of BTC transferred from one wallet to another wallet i.e. from one public key to another public key. That is essentially the core essence of the BTC blockchain.


Without encryption anyone could send that message. If anyone can send that message, there would be no ownership of any BTC associated with any public key.


But the clever thing is this.


Because each public key can only be generated from one private key (there is never any duplication), by encrypting with the private key, ownership of BTC associated with any wallet (i.e. the public key) is certified in a trustless manner with no intermediaries.


Which is the whole point of cryptos.


Which is why cryptos can never be banned.


Which is why CBDCs can never be considered as cryptos.


I agree these seem complicated concepts when you first come across them. I struggle to understand them. And I may very well be wrong, or too simplistic, in my understanding of a topic that incorporates some extremely advanced maths, way beyond my ken.


I hope I have done a better communication job today.


Reserve Treasury Protocols (before they all go to zero)

Oh dear me.


The very first Reserve Treasury Protocol – Olympus – is not a scam.


The very first fork of Olympus – Wonderland – is not a scam.


Of the three Olympus forks the CCC invested, in my opinion two are definitively scams (XEUS and JADE) whilst FORT I am not sure about.


XEUS is a scam as the developer has gone AWOL and the treasury is being drained.


JADE is a scam as the developers have changed the code to make it totally CENTRALISED and not decentralised. To add insult to injury, they claim they are working to become decentralised.


FORT is an enigma, but I have lost confidence after my experience of XEUS and JADE.


All three positions are now closed with an average loss of 80% of notional.




To my credit, I did say at the time that these trades were at the very extreme end of the DeFi Wild West and the most probable outcome was zero. With a 20% return of notional, I have outperformed that expectation.


To spice things up, the remaining 20% has been put into the Wonderland Reserve Treasury protocol.


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