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Author Topic: On the future of Cryptocurrencies  (Read 253 times)
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May 14, 2021, 02:57:11 PM
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 #1

Yesterday I watched some actors on a national media broadcast / stream who were interviewing some public attention-seekers about about the future of bitcoin. I consider it a woefully inadequate source of useful information, but there are clearly some people who utilize it. These attention seekers were quick to elevate themselves from simple experts in any field they study for a few hours to the position of divine oracles who can predict the future with absolute certainty. History has always provided a forum for such charlatans, and we continue to provide them today. If nothing else, it can provide some brief entertainment.

I make no claim to expertise, for no matter the degrees and certificates on a wall, a senile professor is no longer an expert on anything. Such is how fleeting the value of our opinions are. But having owned and been involved with cryptocurrencies for over 11 years, I think it is possible that some may benefit from my experience and insight.

I consider the most important question being asked today to be the one of what the future of cryptocurrencies will look like. The only real answer is that we do not know. We can't possibly know, and anyone who says they do is being either dishonest with you, or dishonest with themselves. But here I will provide my best guess.

When one considers gold, it has a tremendous number of uses, we can all easily identify several. It is used for jewelry, electronics, aerospace, dentistry, and many others. Of course, gold has historically been used as a store of value or a currency. To suggest that gold has only one use would be contrary to the truth. So it is with cryptocurrencies.

Cryptocurrencies provide a wider and wider range of uses each day. To argue whether or not it is a currency or a store of value ignores these other important uses, and in the end no different that trying to use shades of grey to define a rainbow. However, one must recognize that some things have a single use or purpose that completely overwhelm the other. The purpose of a cannon is to be fired. While it can be used as decorative lawn art, or as a museum exhibition, it was not intended for that purpose when created. Sometimes, the use that it finds is not the use for which it was created. So too do I expect bitcoin and other cryptocurrencies to evolve these uses.

I consider the evidence overwhelming that bitcoin was created as an alternate currency, a role that quickly shifted to a store of value, and is now shifting again to become a settlement instrument and an investment. Etherium provides a framework for smart contracts and much more, yet also is evolving into an investment instrument, especially with the staking paradigm being advanced. I would posit that these many uses we see in cryptocurrencies are like the uses in jewelry or electronic that gold fulfills. While important and valuable, they are not the final use these instruments will fulfill. I believe that the end-use that cryptocurrencies will attain is a use that few have yet considered.

Cryptocurrencies have been designed as almost the perfect collateral. I joking call this possible future the "Cryptocurrency Pawn" model. Banks may eventually realize that bitcoin is the best collateral identified to date. here is a simple example:

Joe wants to buy a new car. He has bitcoin, but of course, he does not want to give up his $50,000 bitcoins expecting them to be worth $100,000 next year. Spending deflationary currency comes with it's own expensive repercussions, as anyone who as ever spent cryptocurrencies can attest. So Joe pawns (gets a loan on) some bitcoins. The bitcoins are locked into a smart contract. The bank advances Joe $50,000 on two $50,000 bitcoins. Joe pays back $1000 a month worth of stablecoins, and when he pays back the $50,000 his bitcoins come back to him, probably worth $250,000 by then. If he fails to make a payment, the bank gets his coins.  There is a great incentive for Joe to pay, and essentially no risk to the bank. The bank can charge some nominal interest for an easy profit that in the end costs them essentially nothing.

There are some experiments along this line being used in Defi, but I tend to think that this is the major future use case. Not as a currency, not as a store of value, but as deflationary collateral. In this manner, cryptocurrencies do not replace fiat currencies. They do not even compete with them. They each coexist in an environment where they each perform those functions for which they are best suited. The banks won't go away, they will just evolve to become more like pawnshops, a a role they often try to fulfill with houses or cars as collateral. But cryptocurrencies can fulfill that role far more effectively and efficiently.

This is the future I see, a million problems solved and a million applications created by cryptocurrencies and blockchain technology. But one with a single major use case: The cryptocurrency Pawn model. A world where selling cryptocurrency would be a last resort, like selling grandma's gold watch.
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May 14, 2021, 04:04:12 PM
 #2

What is the guarantee that it will continue to remain a store of value without the likelihood of a more advanced cryptocurrency completely taken over its role in the future?
I actually prefer to see Bitcoin focus more on its strengths and continue to improve, than abandoning its responsibilities to less secure cryptocurrencies that will likely never stick to Satoshi Bitcoin standards.
If you could replicate lots of the things the centralized financial world offers in Bitcoin in decentralized & unique manner, you'll have something important to bargain with as autonomous network and wouldn't have to worry too much about getting treated as a dependent child by centralized entities in the future.
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May 14, 2021, 04:25:04 PM
 #3

Cryptocurrencies have been designed as almost the perfect collateral. I joking call this possible future the "Cryptocurrency Pawn" model. Banks may eventually realize that bitcoin is the best collateral identified to date. here is a simple example:

Joe wants to buy a new car. He has bitcoin, but of course, he does not want to give up his $50,000 bitcoins expecting them to be worth $100,000 next year. Spending deflationary currency comes with it's own expensive repercussions, as anyone who as ever spent cryptocurrencies can attest. So Joe pawns (gets a loan on) some bitcoins. The bitcoins are locked into a smart contract. The bank advances Joe $50,000 on two $50,000 bitcoins. Joe pays back $1000 a month worth of stablecoins, and when he pays back the $50,000 his bitcoins come back to him, probably worth $250,000 by then. If he fails to make a payment, the bank gets his coins.  There is a great incentive for Joe to pay, and essentially no risk to the bank. The bank can charge some nominal interest for an easy profit that in the end costs them essentially nothing.

Those collateral loans are highly overrated when it comes to a large purchase, most people who seek a loan from a bank don't have that amount in collateral in the first place, if they would do so they could take a mortgage. Collateralized loans in cryptos are done mainly between altcoins and BTC because you think the value will grow in a short period but this will also come to an end. You envision BTC doing an x5 in 5 years, will it do again a x5 in the next 5 years? And so and on all this century?

Second, there is the risk factor, bitcoin dropped to 4k last April, if you would have taken a loan at 10k your collateral would have been sold to pay up your debt.
Look at your scenario from a different point of view, you take 50k, you deposit 2 BTC, the price drops by 50% overnight, your collateral is liquidated and after 1 month the price of BTC goes back to 50k. If you would have sold one BTC you would have one car and one BTC, you took a collateralized loan and you ended up with just the car.

There is no such thing as a bulletproof money-making scheme in which there is no chance of losing.
Let's not even mentioning the fact that you're entrusting your coins to a bank, in a Cyprus-style crisis this would be a thing to avoid.

I don't doubt that there are people taking loans not just for trading even as we speak but I don't think it will go anywhere to the scale of traditional loans.

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May 14, 2021, 04:53:02 PM
 #4

I do not second this, cause imo this idea or methodology hampers Bitcoins mainstream adoption and it's value as a currency, Bitcoin users enjoy the news of one Institutional investor/cooperation adopting/investing or accepting payments in Bitcoin, just like when Tesla announced they'll be accepting Bitcoin payments, such information is great for mainstream adoption and causes price appreciation. But only if Bitcoin remains popular as a currency will more companies/organizations start to allow payments in the currency, and that's great for it's long term sustainability.

Having said that, if there's basically just an option to use your Bitcoin as a collateral to receive Fiat, more people could fancy such option, and thereby causing a depreciation in Bitcoin being valuable as a currency, it feels good to buy 'stuff' with Bitcoin, and more Bitcoiners should be encouraged to do so. And then again, Banks will start to function as a somewhat third party service, and the government could use that opportunity to introduce one sort of regulation or the other, and that makes it somewhat counterproductive for Bitcoiners.

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May 14, 2021, 04:56:18 PM
 #5

Those collateral loans are highly overrated when it comes to a large purchase...

That's one thing that Saylor is popularizing and I think it can lead to problems because he has become very popular and keeps repeating it over and over again. He gives the example of what the very rich do, which is not to sell and use their first-class assets as collateral. The thing is, and he's said this once, but it's not emphasized nearly as much, they borrow on a very small percentage of their assets.

To give a practical example, what a Rockefeller who has Bitcoin and wants cash would do, assuming he has 1,000 Bitcoin, is to ask for $250k in cash and give 10 Bitcoin as collateral. When the market goes up, he keeps refinancing the 10 Bitcoin and getting more cash. If the market goes down, he can give 10 or 20 more Bitcoin as collateral and not even bat an eyelid.

The problem with popularizing this idea is that it seems to me that we are going to have legions of people only keeping the first part of the idea, and going into excessive debt. That is, someone who has 0.1 or 1 Bitcoin, borrowing and leaving as collateral everything they have. And when there is a market downturn there will be thousands of little fish that will be devoured.
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May 14, 2021, 09:21:07 PM
 #6

What is the guarantee that it will continue to remain a store of value without the likelihood of a more advanced cryptocurrency completely taken over its role in the future?
Have you used Amazon? Think of it. A new company can anytime come and take over amazon because like you said more advanced technology is coming every day and it should be easy to take over Amazon. But, that doesn't happen. Similarly, do you know why that's not possible for a new coin to take over Bitcoin? because the trust and originality that bitcoin brings cannot be matched by any other coin. There have been problems with almost every coin at some point but Bitcoin hasn't faced a scare yet which speaks for the robusteness.

I actually prefer to see Bitcoin focus more on its strengths and continue to improve, than abandoning its responsibilities to less secure cryptocurrencies that will likely never stick to Satoshi Bitcoin standards.
Changes can't be made in decentralized projects, that's always a problem. I think the future of Bitcoins is always safe no matter how many new coins and blockchains are created because all these coins are on one side while Bitcoin alone carries the market cap for crypto. Ethereum is the only real threat though but again it is so popular because, like Bitcoins, it was the first of its kind in the altcoin market.

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May 14, 2021, 11:04:05 PM
 #7

In my opinion the Banks will not disappear, they will prevail because they are Institutions that back the currencies we spend.
Banks are losing the interest of investors and savers. Every day we see how more people prefer to invest in bitcoin and cryptocurrencies.
Visa and Master Card are joining forces with the development of their technology to offer the service to the holders of cryptocurrencies.

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May 15, 2021, 02:59:59 AM
 #8

Banks usually make a profit through customer transactions and other services. That is the bank sets a price for the service that customers will receive from the bank to manage financial matters the banks themselves benefit from the money that comes from there banks will not be needed once cryptocurrency is introduced but I think the future of cryptocurrencies will be better and the reason banks don't disappear is because banks will start circulating cryptocurrencies. Many countries are legalizing cryptocurrencies to increase the value of cryptocurrencies and blockchain technology is making transactions easier.
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May 15, 2021, 03:10:33 AM
 #9

I have no problem agreeing with you that banks won't disappear. Bitcoin may make you your own bank, but it doesn't mean a banking institution is rendered fully worthless because of it. A bank is not just a custodian of somebody else's money. There will be a banking evolution, though.

However, I don't agree that the single major use case of Bitcoin is going to be as a collateral or a cryptocurrency pawn as you call it. It may be possible, of course; we'll never know. But if Bitcoin's volatility will remain high in the future, I'm afraid it is less likely to become the best collateral of choice. Bitcoin collateral will be more of a headache if its current level of price fluctuations won't change in the future.

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May 15, 2021, 03:35:12 AM
 #10

In my opinion the Banks will not disappear, they will prevail because they are Institutions that back the currencies we spend.
Banks are losing the interest of investors and savers. Every day we see how more people prefer to invest in bitcoin and cryptocurrencies.
Visa and Master Card are joining forces with the development of their technology to offer the service to the holders of cryptocurrencies.
That's right, banks have their foundation in our countries trenched so deep that removing them might cause a collapse, it's like a beneficial parasitism where if you were to remove banks, they will take down the country with them so you have no choice but to let it live and have it their way not to mention that the owners of the country are the big banks so I don't think that they will go anytime soon even with cryptocurrency clearly the future of financial instruments.

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May 15, 2021, 06:27:53 AM
 #11

This is the future I see, a million problems solved and a million applications created by cryptocurrencies and blockchain technology. But one with a single major use case: The cryptocurrency Pawn model. A world where selling cryptocurrency would be a last resort, like selling grandma's gold watch.
People who have money will spend it and who doesn't have can't send it unless they sell something. Bitcoin is just a money which has its own intrinsic value but we can't compare the bitcoin with Gold since we never asked why fiat money does have value when it is just made of paper and no real case other than being a medium of exchange. Bitcoin is a peer to peer medium of exchange which eliminates the need of banks while making transactions.

Well, what we have today is kind of adoption which is for investment purpose but it may lead to the adoption of being used as currency when everyone have the bitcoin just like having fiat money nowadays.
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May 15, 2021, 08:30:31 AM
 #12

Banks usually make a profit through customer transactions and other services. That is the bank sets a price for the service that customers will receive from the bank to manage financial matters the banks themselves benefit from the money that comes from there banks will not be needed once cryptocurrency is introduced but I think the future of cryptocurrencies will be better and the reason banks don't disappear is because banks will start circulating cryptocurrencies. Many countries are legalizing cryptocurrencies to increase the value of cryptocurrencies and blockchain technology is making transactions easier.
It's everywhere because the method of Banks now is the same method cryptocurrency endorse now via their changes, i laughed when i heard that cryptocurrency fees is better than normal bank fees, see irrespective the amount of fiat you want to take from bank is not up to the charges of crypto, bank can not take up to one (1) dollars via their transaction while cryptocurrency transaction take three to six (3-6) dollars before confirmation. So the difference is clear.

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May 19, 2021, 05:55:13 PM
 #13

Second, there is the risk factor, bitcoin dropped to 4k last April, if you would have taken a loan at 10k your collateral would have been sold to pay up your debt.
Look at your scenario from a different point of view, you take 50k, you deposit 2 BTC, the price drops by 50% overnight, your collateral is liquidated and after 1 month the price of BTC goes back to 50k.


And surprise, look what happened now in the markets...
Let's assume you took that loan one month ago in April at 60k and you were sure the bull run will never end, a flash crash today bought the price under 30k on bitfinex, even with a 2x collateral you would get liquidated in a loan on USD.
The price spiked back to 40k but for the loan owner it wouldn't have mattered anymore, he basically deposited 120k worth of USD and ended up with 60k.
And the companies are asking you to increase your collateral, what are you going to do, cut losses or put more and more on the table like in a poker match?

Yeah for banks it might be pretty neat, they always have the value in $ at their disposal and they will not care anymore if you're out of work or your home value is going down or you die, but for the one taking the loan, this is one huge gamble I would never risk-taking. I rather have my bitcoins in my pocket and pay a USD loan at a few percentages higher interest rates and keep those coins safe in my wallet, sell only as much as I need to cover one monthly payment to all with one swipe.

~
To give a practical example, what a Rockefeller who has Bitcoin and wants cash would do, assuming he has 1,000 Bitcoin, is to ask for $250k in cash and give 10 Bitcoin as collateral. When the market goes up, he keeps refinancing the 10 Bitcoin and getting more cash. If the market goes down, he can give 10 or 20 more Bitcoin as collateral and not even bat an eyelid.

And exactly this is happening now, some companies are telling people to over collateralize their loans next time..
By how much? 1000%? If people would have that much in their pockets they wouldn't be looking for such a tiny loan anymore, they would simply sell 10% of their stake and be done with it. You have 3millions in BTC and you take a loan for a house worth 300k while depositing 50 BTC on a platform? Hell no!


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May 19, 2021, 07:14:47 PM
 #14

I have no problem agreeing with you that banks won't disappear. Bitcoin may make you your own bank, but it doesn't mean a banking institution is rendered fully worthless because of it. A bank is not just a custodian of somebody else's money. There will be a banking evolution, though.

However, I don't agree that the single major use case of Bitcoin is going to be as a collateral or a cryptocurrency pawn as you call it. It may be possible, of course; we'll never know. But if Bitcoin's volatility will remain high in the future, I'm afraid it is less likely to become the best collateral of choice. Bitcoin collateral will be more of a headache if its current level of price fluctuations won't change in the future.

Unfortunately, it is not possible to predict what will happen in the distant future. but that way in my prediction. The current banking system will change, but to think that this system is completely eliminated; it causes 100 questions on my mind  Huh Huh

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May 19, 2021, 09:43:51 PM
 #15

I am positive that if bitcoin weren't to be successful now, at least it will spark a new generation of cryptocurrencies with better use-cases and economical applications besides just being a boring store of value. We can't really expect updates on the current bitcoin we have right now unless Satoshi finally gets his ass up and works on bitcoin's scalability, which is of course nigh-impossible. So at the very least, we can hope for a better future for cryptocurrencies.

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May 20, 2021, 11:01:28 AM
 #16

Joe wants to buy a new car. He has bitcoin, but of course, he does not want to give up his $50,000 bitcoins expecting them to be worth $100,000 next year. Spending deflationary currency comes with it's own expensive repercussions, as anyone who as ever spent cryptocurrencies can attest. So Joe pawns (gets a loan on) some bitcoins. The bitcoins are locked into a smart contract. The bank advances Joe $50,000 on two $50,000 bitcoins. Joe pays back $1000 a month worth of stablecoins, and when he pays back the $50,000 his bitcoins come back to him, probably worth $250,000 by then. If he fails to make a payment, the bank gets his coins.  There is a great incentive for Joe to pay, and essentially no risk to the bank. The bank can charge some nominal interest for an easy profit that in the end costs them essentially nothing.

Banks will not enter these deals, so what will happen if I locked my currencies in the bank and the price continues to drop, then the bank will lose.
Building on the assumption that the price will continue to rise is unrealistic.
Since we are talking about new technology, we will not go back to using traditional models such as banks. Rather, there may be portals that decentralize currencies and use smart contracts between different blockchains. Then the need for cash may be less than now.

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May 20, 2021, 07:20:03 PM
 #17

Banks will not enter these deals, so what will happen if I locked my currencies in the bank and the price continues to drop, then the bank will lose.
Building on the assumption that the price will continue to rise is unrealistic.
Since we are talking about new technology, we will not go back to using traditional models such as banks. Rather, there may be portals that decentralize currencies and use smart contracts between different blockchains. Then the need for cash may be less than now.
What the price of bitcoin does doesn't really matter in this regard. Why? Because bank is getting 50k but also getting stablecoins from Joe as payment, if he doesn't pay up then they will not only take his coins but also will be able to put a seizure on him as well, basically take his things, literally anything they find at his house suddenly becomes banks.

So that is why it is still valid, hell even without the bitcoins it is valid, because that is what they do, if he has 50k in bitcoins and can show that as proof of income or value, he could get a loan without giving that bitcoin. I can take a loan, I show nothing of worth now, and the only difference is I am doing it on fiat instead of crypto but as soon as I get that loan I can turn it to crypto if I want to. All of these are basically the reason why we can have this type of deal in the future.

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May 21, 2021, 01:50:04 AM
 #18

Joe wants to buy a new car. He has bitcoin, but of course, he does not want to give up his $50,000 bitcoins expecting them to be worth $100,000 next year. Spending deflationary currency comes with it's own expensive repercussions, as anyone who as ever spent cryptocurrencies can attest. So Joe pawns (gets a loan on) some bitcoins. The bitcoins are locked into a smart contract. The bank advances Joe $50,000 on two $50,000 bitcoins. Joe pays back $1000 a month worth of stablecoins, and when he pays back the $50,000 his bitcoins come back to him, probably worth $250,000 by then. If he fails to make a payment, the bank gets his coins.  There is a great incentive for Joe to pay, and essentially no risk to the bank. The bank can charge some nominal interest for an easy profit that in the end costs them essentially nothing.

Banks will not enter these deals, so what will happen if I locked my currencies in the bank and the price continues to drop, then the bank will lose.
Building on the assumption that the price will continue to rise is unrealistic.

Banks will love to enter this deal and I guess you didn't get the point. Joe is putting his 2 BTC worth coins to get 1 BTC worth of coins and if the price of BTC drops by 50% or more, the bank will ask Joe to either submit more BTC under the bank as collateral or they will liquid his coins and cover his loan. If you have taken a loan ever in real life, you should know that is the basic rule of collateral.




So that is why it is still valid, hell even without the bitcoins it is valid, because that is what they do, if he has 50k in bitcoins and can show that as proof of income or value, he could get a loan without giving that bitcoin. I can take a loan, I show nothing of worth now, and the only difference is I am doing it on fiat instead of crypto but as soon as I get that loan I can turn it to crypto if I want to. All of these are basically the reason why we can have this type of deal in the future.

The difference between proof of income and assets is that the bank approves proof of income because they consider the individual has a steady income and is able to pay the loan. If you show them assets and ask for a loan then the assets need undertaking because if you just show them Bitcoins and get the loan without giving them the control of your coins, then you can easily sell Bitcoins while still taking the loan.

The banks cannot undertake jobs because they cannot work in your place hence they approve loan when they have the confirmation that the individual is able to repay the loan through his monthly salary.

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May 21, 2021, 03:05:00 AM
 #19

Joe wants to buy a new car. He has bitcoin, but of course, he does not want to give up his $50,000 bitcoins expecting them to be worth $100,000 next year. Spending deflationary currency comes with it's own expensive repercussions, as anyone who as ever spent cryptocurrencies can attest. So Joe pawns (gets a loan on) some bitcoins. The bitcoins are locked into a smart contract. The bank advances Joe $50,000 on two $50,000 bitcoins. Joe pays back $1000 a month worth of stablecoins, and when he pays back the $50,000 his bitcoins come back to him, probably worth $250,000 by then. If he fails to make a payment, the bank gets his coins.  There is a great incentive for Joe to pay, and essentially no risk to the bank. The bank can charge some nominal interest for an easy profit that in the end costs them essentially nothing.

Expecting this to be the case is unrealistic. For one, the volatility of bitcoin makes the risk of borrowing against it extremely high. If the price falls steeply, you'll be required to put up more collateral or your coins will be liquidated.  And we've all seen how frequently bitcoin undergoes steep drops.  Also, to compensate the risk, the interest rate you pay is likely not going to be competitive with fiat loans.  And lastly, expecting bitcoin to only go up in the long run enough to profit off borrowing against the value is a foolish expectation. There's never been an asset in the history of the world with such properties; it breaks the laws of economics.  In short, this scenario acts like there's no risk, and it couldn't be further from the case.

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May 21, 2021, 08:47:04 AM
 #20

I am positive that if bitcoin weren't to be successful now, at least it will spark a new generation of cryptocurrencies with better use-cases and economical applications besides just being a boring store of value. We can't really expect updates on the current bitcoin we have right now unless Satoshi finally gets his ass up and works on bitcoin's scalability, which is of course nigh-impossible. So at the very least, we can hope for a better future for cryptocurrencies.
There are bitcoin core developers so I don't think that we need to have satoshi to have the scalability of bitcoin plus, I think that satoshi has already covered that part before he vanished from the public eye.

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