In response to a comment on my previous article
What is Shitralization in Crypto?
a commenter wrote,
Bitcoin is turning into paper Bitcoin with all CeFi, GBTC (funds), BTCN (notes)… At least Ethereum is keeping it on the blockchain through DeFi and PoS. Stop being BTC cultist and look how to help the progress of BTC through layer 2, called Lighting Network.
Can you commenters please stop thinking you're educating me on this stuff? Also, this response is indicative of a really annoying trend in communication I see everywhere. People communicate in everyday life based on political talk show formats and think that's smart. Seriously, it's true. Because I critiqued something about Ethereum, this commenter automatically thought I'm a "BTC cultist." It's like the only way folks know how to communicate is 1. think in binary terms, 2. minimize and radicalize your opponent, and 3. use logical fallacies as logic. I'll write a post more on this, because it is truly a problem in humanity.
Anyway, about paper bitcoin. This is a direct effect of shitralization — the use of bitcoin as collateral to create Fractional Reserve Crypto. We have a version of this in protocols like Cream and Aave, but there's a difference. Those platforms don't give you any leeway if you mess up. If you go over your collateralization rate, there's some asshole waiting to liquidate you. No Fed bailouts here. Collateral value is also set in stone. There's no lying about assets on record to justify overleveraging.
The commenter was upset because bitcoin is being used as collateral to sell paper assets like Greyscale Trust. I don't like it either, but I use that on the fiat side as a sort of leverage in the bull market without having to take actual leverage. You can't stop it, so you might as well use it.
But that speaks to a problem that will shorten the life of bitcoin as a legitimate alternative to fiat. Even fiat, which wasn't backed by anything, could have been a legit form of currency and money if it wasn't leveraged so crazily. On the flipside, bitcoin, the hardest asset around, can be softened into a fiat through these paper derivatives. When the banks need a bailout, the Fed will either confiscate the bitcoin from centralized, highly regulated businesses that are collecting bitcoin right now like Paypal and Celsius, or they will just change the law to make fiat bitcoin the same as bitcoin.
These will be interesting times. Hopefully, I will have enough bitcoin to cash out for Fijian dollars and spend my life in a paradise with no extradition treaty.
I would love some feedback from commenters who don't think they can educate me on the philosophy or market value of bitcoin like the above commenter. I got that down, thanks. I would much rather have a conversation with someone who understands the tech. If you are familiar with Lightning Network, catch me up to speed on what's really happening, not just in the news.
