There have been many times where my opinion of cryptocurrency and blockchain have been sought. My thoughts have always been – and continue to be – that blockchain holds promise while Bitcoin and most of the other cryptocurrency contenders have little merit. Point of fact being I did add to my blockchain centric investments last month while refusing to play in the pure cryptocurrency sandbox. With the current euphoria I decided this week to at least frame my position a little while noting I could be either wrong, premature or both.
Years ago I was involved with a project that in today’s terms could be classified as disruptive innovation. The work centered on using an advance in technology (HTML, with its derivatives) to marry mainframe data to a Data Warehouse (Data Marts, et.al.) via Client-Server methodology. The result being a significant cost reduction to my organization in throughput, efficiency and cost. (i.e., enough to impact quarterly results). Disruptive innovation? Hardly. In many quarters, Uber is considered disruptive innovation. Yet arguments can be made that it’s the reverse. My opinion being that Uber is basically a well-designed app.
In this sense, blockchain itself is not a disruptive innovation but rather an evolution from centralized data repositories to a distributed model that incorporates layers of enhancements. Possibly a better mousetrap yet it remains a work in progress. It has progressed to the point that applications are being designed within the blockchain foundation. Some of these are smart contracts, inventory, property deeds and yes, cryptocurrency.
Some consider cryptocurrency a store of value like precious metals. Other than in the loosest of all definitions could this be accurate as (similar to fiat currency) an organization declares a version of cryptocurrency as valid tender but in most cases it is not tied to a physical commodity. Sound eerily familiar to the US Dollar? One difference is that a government, rather than an organization oftentimes operating under a pseudonym, has made the declaration. Any value attributable to a cryptocoin is determined by a floating rate on a self-regulated (at best) exchange. Consider the case of BitConnect (BTC) which lost 90% of its’ value this past week. Some definitions include loyalty programs, such as the Dividend Diplomats favorite, Swagbucks. Obviously more work is required in this realm.
The issues BitConnect faced were primarily a result of token sales. Two states (Texas and North Carolina) declared them sales of unregistered securities. The SEC appears to be leaning this direction as well. Other jurisdictions (notably China, Algeria, Tunisia, India and South Korea) may apply restrictions – or ban outright – cryptocurrency. At the very least this casts some doubt on the feasibility of these instruments being ubiquitously accepted – which is a standard for all viable currencies. Worst case, crypto platforms may become untenable to US residents due to application of these rules.
There are some currencies that I feel would serve a definite function, such as Telcoin (TEL) the product of Telcoin Pte Ltd. However, there will be significant hurdles to overcome – namely the entrenched incumbent, Safaricom Ltd. (SCOMO.KE). Perhaps a JV or contract service would be mutually beneficial. Telcoin intends to address volatility through currency spot forward contracts for an additional fee. This concept will likely require additional regulatory compliance or licensing.
The highest barrier to is usability. With 1400+ coins, multiple wallets and high transactional wait times – the obvious tangible benefit is through trading. Steven Englander of Rafiki Capital writes, “There are no barriers to entry on the crypto space, other than a good story about the niche that your coin is filling.” Or as Fred Wilson, a founder of Union Square Ventures says, ”the hype cycles are so accelerated that billions of dollars are chasing a technology that almost no one outside the cryptocommunity understands, much less uses.” Which is why the space is cluttered with virtually daily ICO announcements and why one should be extremely be wary.
These reasons – and my background – are why I am enamored over the technology but not this current iteration. Also rumors abound of various governments circumventing sanctions through the use – and mining – of cryptocurrency. Case in point is Venezuela which announced a “Petro” backed by oil reserves with the stated intention of circumventing US sanctions. Imagine a US citizen’s wallet being seized or confiscated for a violation of law – even if only used as a pass-through. The term ‘money laundering’ comes to mind.
Finally it is difficult to determine the potentially legitimate from the scams, Ponzi schemes and “Pump and Dumpsters”. Many use this venue as a low-cost funding mechanism. Forget Angel Investors or Venture Capitalists when a ready supply of non-accredited investors are knocking at the door. One example (and I’m not saying this one is illegitimate) is the recent ICO for Primalbase (PBT) which raised the equivalent of about $4.5 million USD in one day. The use of this new found wealth? Establishing five shared workspaces in the following locations: Amsterdam, Berlin, London, New York and Singapore. Notable is the fact the locations selected being high-cost venues (money drain?). Best of luck in your venture. Oh by the way, their capital raise was on the Waves platform – which is looking to hire a few skilled individuals. Interested? Dust off your passport, visa and work permits as the jobs are in Moscow.
In short, it has been easy to make some change trading the coins and participating in ICOs. It has been equally easy (perhaps more so) to lose your shirt. So I choose blockchain – the technology – and collect a regular and steady dividend. Perhaps one day when and if these ‘currencies’ are ready for prime time I’ll change my opinion. Until then – to those less stodgy – I leave the quest for elusive riches through cryptocurrency in your hands and wish you luck in the endeavor. And that, my friends, is my rationale.