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Full Disclosure: The Author [Richard Ronc] has no cryptocurrency holdings.
With Bitcoin [BTC] recently surpassing the $1 Trillion dollar market cap, it’s pretty safe to say that Crypto is here to stay. I mean if cryptocurrencies were truly worth nothing then surely the whole idea of a decentralized currency, that no one owns, controls, or backs would have fizzled out by now … right?
Well … apparently not. It’s not just alive and well, but cryptocurrencies have passed their first acid tests and now with institutions taking them much more seriously, crypto isn’t just about an idea or the technologies that make them possible, we’re now starting to look at the next major step of adoption into society as part of our financial landscape.
So, when the time comes, which currency will be left standing after the shake out? If there is a genuine competitor to the currency in your bank account, which one is it going to be?
This topic is insanely complicated, and make no mistake – by the time you get to the end of this piece there won’t be a hard or fast answer, except for this … [me] my feeling is, it won’t be anything we’ve seen yet.
A Bit of a Recap
Before this gets interpreted as a crypto bashing session, please understand this isn’t the intent. My views can be seen further here. Bitcoin itself was genesis in this space. Back in 2008 when the concept was first created, launched and then used in 2010, it might have been fair to say that no one really anticipated what would take place in the crypto currency sphere over the next decade.
This is where things start to get complicated. In 2010 after the proof of concept, Satoshi Nakamoto left the project, handing control over to ‘their’ successor, at which time the open source project underpinning the development of bitcoin became truly open to individuals interpretation.
On its own this isn’t a bad thing – but considering that Bitcoin was and has been developed with a vision, and open source software code, that anyone can contribute to or modify for themselves – the flood gates for new visions was now well and truly open.
And just as developer do – when they see a problem in one place, they naturally create solutions even if that means needing to create a brand new product. After all, Blockchain blocks cannot be changed once they are mined, so new solutions demand … new products.
Here we welcome ‘competing’ currencies or ‘Altcoins’. Bitcoin Cash emerged in 2009, Litecoin came in 2011, Ethereum in 2015, Ripple in 2012 … not to mention the hundreds or thousands of currencies that emerged at the tail end of 2017 during the first crypto boom and ICO bubble.
It has to be noted here that many of the early currencies each had a specific objective, faster payments, bigger blocks, more currency in circulation … the early Altcoins had an objective whilst the 2017 bubble, saw currencies emerging every other day to suck in investors, pump the value before selling off and keeping the money for themselves.
But getting back on point – when it comes to the ‘real’ projects out there, why ‘won’t’ they work?
Idealism v Realism
Okay … as mentioned this is an insanely complicated topic, one much better suited for open minds over many beers. So when you say to yourself I’m over simplifying … you’re right I am.
One of the biggest reasons why crypto currencies or a single crypto currency won’t take centre stage as the preferred legal tender comes to down to an overly simplified idealism within its vision, a vision that challenges the very ideas and realities of what money actually is … an article I may choose to explore in future.
Aside from the idea of replacing money itself, each core project ultimately professes itself as the ‘best’ currency, whilst poking holes in the financial systems surrounding it to offer evidence of its benefits. But because the projects that create and govern them are open source … hypothetically anyone can create ‘the best’ currency. This decentralisation and freedom of development, in my view [today] is one of the most fundamental reasons why cryptocurrencies cannot become the main medium of transaction. It’s just incoherent. The social evidence is clear to see.
If Bitcoin is / was so good, why are there so many other projects?
Because Bitcoin itself is imperfect. Other examples of losses of control or extreme customisation can be seen in the computer operating system space. How many Linux distributions are there? Despite many operating systems being customised for Televisions, watches, phones, IoT devices … etc, Linux operating systems come in all shapes and sizes but they are fit for niche specific purposes. Creating a new application … create your own tailored operating system.
Microsoft Windows on the other hand is still the dominating force in the laptop / desktop market, because it caters to needs across the users spectrum, developed over decades of research and feedback.
Creating your own religion is another parallel. Don’t like what one church preaches, go somewhere else. Don’t like ‘them’ … hell create your own!
Although the financial system [in your country] has problems, middlemen, redundant processes, it’s still the system we all use, while the main crypto projects are still trying to prove who is best. The Euro [EUR], is the best example to date of a currency that has been adopted by multiple nations, but as we also saw, Great Britain chose not to adopt it in order to have more control over its own economy.
Fundamentals & Bubbles
Alright … I’m really not trying to bash Crypto, But why are we paying attention to it?
When we bring up bitcoin in conversation we don’t all go soft and gooey and say ‘Oh God I can’t wait till I can send people money with no fee’s’ or ‘It’s so good, knowing the government can’t see what I’m spending my money on.’
We do talk about its seemingly astronomic value. ‘It’s up past $50,000 …’, ‘Musk just dumped 8% of tesla into it …’, ‘If I didn’t lose my password, I’d be a millionaire …’
You get the picture. At least they’re the conversations I hear. And when was the last time anyone talked about Ethereum or Ripple? Well … when? Waiting? … We don’t, at least I haven’t. They’re not on the radar, so it begs the question …
What are people really interested in?
I can’t remember the last time I heard someone complain about government backed money. With the exception of corporate fees, I’ve never heard anyone say the Australian Dollar is S***. But when someone say ‘crypto’ or ‘bitcoin’ everyone talks about how they missed the free ride to the moon! No one talks about the tech or where its value comes from.
Once again this leads to a more fundamental topic about money itself, but crypto, being decentralised has nothing and no one to back it. And when there is a problem someone or some other team simply create a new currency to solve it … creating value out of thin air … actually doing the same thing they bash governments for … printing money.
This is why I call crypto ‘Quantum Money’ because it has zero and non-zero value at the same time, depending on the view point taken. In 2017 during the first boom, crypto began to move, and once it got some media attention, the rocket engine was lit.
People bought in, and when demand surged with its limited supply, prices went through the roof. When fear of missing out (FOMO) spread, the price went stratospheric, then the early money cashed out, and some lost everything.
In 2021, the price is in orbit … because people want it.
Because … it must be worth something! I don’t think it’s a stretch to say that people don’t know what to do with it, or even know how to make a payment with it, but people want it! Its value comes purely from supply and demand and nothing else. So it has value … people have proved that, they are willing to spend big to get it, but there is nothing fundamentally under it … no national GDP report, no quarterly earnings, no business model, no government backed treasury bonds … nothing.
No one owns it, no one controls it … its worth nothing and yet something …at the same time
Related: How Much do you Need to Retire Early
The Current Reality & What Now?
Perhaps one of the biggest reasons holding cryptocurrencies back from becoming truly mainstream is the idea of finite supply. Using bitcoin as the example again, there will only be 21 million of them. So that means by the time last coin is mined, it will become far less of a currency and more of a commodity.
When we factor in supply and demand and couple this with a finite supply, bitcoin has the potential to have limitless value … hence the analogy of being digital gold. However just like dollars that can be spent down to the cent, crypto currencies can be traded to the 8th decimal place, so … virtually there is the ability to spread it thinly around …
But the real issue is that finite supply means that as a currency bitcoin is deflationary, so its value will only ever continue to rise. And when something only ever goes up in value, why would one ever want to sell? However the idea of its never ending rise only works when it is compared to another currency.
In order to achieve the ultimate goal or vision of becoming a decentralised currency with no central or singular point of control or regulation, it can’t continue to increase in value. When something continually appreciates in value, the natural tendency is to hold it rather than use it. That’s the type of thing that (on paper) can bring an economy to its knees.
Take a commodity that only ever increases in value, and remove the whole idea of taxation by being able to remain anonymous, and bypass the entire taxation model, and things start to get shaky to say the least. Without a governments ability to collect tax, then who pays for the roads, the rail, infrastructure projects, health care, government aid … who kick starts the economy when things slow down, and who slows it down when things start to speed up?
What happens when someone cons you out of your hard earned bitcoin? It’s happened! Oh Wait … no one owns or controls it, and the transaction is forever locked in the Blockchain. Too bad! There is no one to call, no way to find who ‘took it’, no way to remedy the situation …
Related: Why the Rich just get Richer
The End Result
As I have said previously, Crypto currencies aren’t bad, but there do seem to be many things that they haven’t addressed or factored in. The technology underpinning Blockchain definitely has real world applications, but when it comes to crypto currencies as currencies, I for one am far from being sold.
The reality is that increasing demand for tokens may simply push their further adoption into society, but that begs the question. Which currency will it be? We’ve seen the Euro set a precedent. But when it comes to open source projects where each team of developers profess they have the best solution, the mere fact that new currencies continue to emerge from hard and soft forks, rather than seeing closure of failed projects and a convergence on a small number of well established projects provides the final social evidence …
… it seems no one can agree what’s even needed in the first place.
Related: Why you have to be asset rich
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