Monday, December 04, 2017

Cryptocurrencies, initial coin offerings (ICO's) and tokens: we remain puppets on someone else's strings !

Now that the bitcoin price is heading towards $10K and beyond, we see another wave of interest in the cryptocurrency domain. Regulators warn about the risk of Initial Coin Offerings and news bulletins keep on re-discussing what is happening in this space.

It's a matter of private currencies and tokens
What we are looking at in the cryptocurrency, blockchain and distributed ledger space is that seemingly public and democratic technologies are being put to work for specific groups of individuals/companies. While the technology may be sold as serving a public purpose, in the end it's just a variation of any medieval local Duke issuing his private currencies to the population: profits to the Duke and potential losses to the public.

What is happening now is a convolution of low interest rate regime, overhyped media and greed, leading to private individuals scrambling for profits in the area of cryptocurrencies. They can do this either by investing in the cryptocurrencies themselves or as an entrepreneur by sharing a mining pool, setting up exchange's or trade functions or developing new token types or blockchains. And as with the gold rush, it will be the sellers of shovels and buckets that will in the end really make the profit.

Beware: we remain puppets on a string
While in the initial stages of the bitcoin blockchain, we could see a whole lot of alt-coin scams, we are now seeing a range of ICO-scams, as people are exploiting the ethereum capabilities to venture out in the cryptocurrency world. Only a very few of those will survive and the rest will disappear just as the nonsense alt-coins did.

So, whoever participates in cryptocurrencies or ICOs deliberately hands in governance to an unknown constellation of companies and individuals. Or as I put it in this 2013-blog:
The redistribution of value that can occurs with these new currencies may look democratic, but that is a wolfe in sheep' s clothes. Effectively the new currencies are and will be the domain of private individuals trying to seek private gain rather than anything else. And there is no guarantee whatsoever that this constellation will have the interests at heart of all people in society. 
It will be Darwins' survival of the fittest all over again, which will exclude certain groups of citizens from participating fully in society. As democratic as a crowdbased currency looks: you will still be a puppet but on a different string, with unknown gains being made by unknown players in the value chain of this collective currency. 

To bubble or not to bubble? 
The question that is now on the public table: is the value of bitcoin a bubble as the tulipomania? Despite the tendency to say yes, I would argue that the answer could effectively be no.

First of all, the whole western money system is a bubble right now, as central banks have inflated our financial systems to an enormous degree with the Quantitative Easing. We should realize that neither bitcoin nor any other good in this society has its proper value right now. Thanks to these central banks, the amount of money that I get in my savings account has been too low for almost a decade now.

Second, within this skewed monetary world, market-forces do still apply. They will also apply to bitcoin-core so that with each fork (bcash) or new blockchain (ethereum, eos) a potential new competitor may turn out to become the winner. The word used for a shift in this momentum is: the flippening (as sentiment may flip to different assets or infrastructures in a very brief moment of time).

The interesting thing is of course, that in this digital world, anyone can monitor this real-time on sites such as Flippening Watch. It will be like watching the strings of the puppets move, without knowing who the real players are.