My friend, who is an electrician, asked me last night whether he should buy Bitcoin or Ethereum
I asked him jokingly if he wanted to invest in Blockchain or not. His reply was that he didn’t know what that was
In my opinion, the current rise in valuation of all Cryptocurrencies is due to influx of unsophisticated capital into the market. Often, and for the vast majority of these people, the do not understanding the underlying innovation which they are supporting.
Wider adoption is critical for it to ever achieve universal acceptance
Take last weekend for example. Coinbase rose to the top of the AppStore charts. I know correlation doesn’t equal causation but I would bet that Litecoins rise was contingent on it being the lowest coin available to purchase and people not understanding they can purchase fractions of BTC/ETH.
You could take the above as proof of why Cryptocurrency is a bubble
You’d be right but you also couldn’t be further from the truth, and it would cause you to miss out on the explosion of value we are currently experiencing. The reality is that at current prices — when compared to the current utility of what it can be used for — it is a bubble.
So what are the problems with Participating?
Most people take Bitcoins current value as being indicative of it being impossible to usurp. What it fails to recognise is that the valuations of coins are not dictated by the cost of a single coin. You need to look at the number of coins available and the Market Cap of the protocol. I listen to people recommend investing in a coin because it costs a fraction of a $. What they have failed to understand is that all the coins together are worth several Billion dollars.
1 Ripple coin currently costs $0.74 dollars to buy
Psychologically we are predisposed to imagine that this has far more of a runway to grow in comparison to bitcoin. What that fails to recognise is that for Ripple to be worth the same as Bitcoin one Pipple coin would have to equal only $7.40. Ripple is already 1/10th the size of Bitcoin so the upside of your investment in the protocol is probably contrained by that atleast in the short term.
So which coin will win?
I see it from the perspective of social networks or search. Before FB there was Friendster, Myspace etc. Before Google there was Yahoo. What if these initial cryptos are only a precursor to innovation? Personally, I think that is the most likely scenario. I think that Cryptocurrencies are going to be huge for the future.
They will proliferate through to everything we do and it is likely that they will alleviate the disruption of technology taking jobs by enabling micropayments for things where there is currently too much friction between people
Ultimately, I think the wider adoptance of the tech is great for the future. Unfortunately, what is going to happen is that unsophisticated investors are going to get burnt along the way. That’s the price of progress.
When you don’t know the underlying technology that underpins the investment you are making you are in trouble
But those people getting burnt will enable the future economy
Micropayments will offset the job losses brought forth by technology by enabling micropayments for services without the friction of making payment. This will be achieved through smart contracts which instantaneously deduct crypto from the wallets of consumers who use your products or consume your services.
That is why this bubble is critical. Mass exposure to crytocurrency provides an opportunity for a new paradigm to emerge. Whether this new form of frictionless exchange, where transactions and turnover of capital occurs at far higher frequency, occurs with Cryto as payment or a new form of Fiat curreny is unclear. What is clear is that Crypto is currently so far ahead of Fiat currency in terms of utility online it will be almost impossible for it to be caught.
This will eventually give way to electronic taxation
You won’t even have to permit payment from a wallet, you will merely forfeit CPU power which the platform will use to mine cryto and redistribute to the creators.
The same will be true across the entire internet, for publishers and artists, for developers and bankers. The payment system is likely to be the first means of payment which literally pays people what they are worth based on the utility, value or enjoyment of the things they provide.
Web 1.0 gave rise to internet
Web 2.0 gave rise to the giants who dominate it
Web 3.0 will give rise to distributed networks that take it back
To participate in this world you will require Crypto
Those purchasing now are speculators akin to individuals during the gold rush buying mining picks and rushing to the frontier. But those entrepreneurs paved the way to a brave new world. A lot of them lost fortunes in pursuit of riches, but they acquired the hope to dream while they searched for the means to control their destiny.
For me that distils the essence of Crypto’s purpose
It’s about a reclamation of control in the face of governments imposing economic controls which devalue our money. Quantitative easing following the 2008 financial collapse is the most startling example of this. Governments literally printed money, devaluing every penny we worked to earn while the bankers got away with any punitive punishments for the harm they caused.
Crypto gives an option to avoid that, but also to avoid inflationary endemics in countries like Venezuela. Right now Crypto might be synonymous with gamblers looking to make a quick buck, but if you look a little closer you will see the real revolution is in the technology which underpins the revolution.
The great cryptocurrency frenzy is just beginning