Why Are There So Many Different Cryptocurrencies?

During my professional career we publishing software for graphic designers who wished to put barcodes in their graphics such as the barcode on the back of a paperback book or grocery box. In the process, we became experts at printing all of the various barcode types. Barcodes come in many different forms. Think of different barcode types the way you would think about different languages. If you print Code 39 and someone’s scanner reads Code 39 they understand each another. If you are shipping groceries in cartons you’ll need Interleaved 2 of 5. If you want to distribute coupons, you’ll need a GTIN number. The list goes on and on. There are hundreds of barcode types and they have all been optimized to do something well whether it be easily readable, large data content or small image. Each has been optimized to do something well. The same can be said for cryptocurrencies.

Each cryptocurrency has been optimized to do something well whether it be fast transactions, handling large values, being ultra-secure and so forth. As I read through the various schemes that have been designed in the cryptocurrency raison d’être some strategies are more compelling than others. At this early stage of development, it is difficult to see which problem being solved is the problem that makes the cryptocurrency that solves that problem famous. It’s worth taking a look at a few different strategies to see which resonate. For example, a couple of years ago a new crypto appeared called Electroneum.

Electroneum drew attention to the fact that cryptocurrency was a huge drain of energy. I read one statistic that said that all Bitcoin miners are now using the equivalent energy of the country of Denmark. In this day and age that’s not good. Electroneum was designed so that it could reside on a person’s smartphone, and, if there were enough smartphones with Electroneum, the app would use the smartphone in the background to mine Electroneum. By sharing the load with millions of smartphones the mining function could be done without an additional drain on precious resources. That sounded like a sensible approach to solving a real problem. Unfortunately, Electroneum, two years later, is still struggling to find a footing in the crypto space. Only one exchange that I know of actually trades Electroneum.

Facebook Coin (FBC) — Company Scrip

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Olga Coal Company scrip, West Virginia

Company scrip is a substitute for government-issued legal tender or currency issued by a company to pay its employees. It can only be exchanged in company stores owned by the employers. It was largely made illegal around 1950 in the U.S. .

Mining and logging camps were typically created, owned and operated by a single company.  Camp locations, some quite remote, were often cash poor.  Even in ones that were not, the workers were paid in scrip and had little choice but to purchase goods at the company store using scrip. The exchange into currency, if available, was usually done at an exorbitant exchange fee. With this economic monopoly, the employer could place large markups on goods, making workers dependent on the company, thus enforcing employee “loyalty”.” — paraphrased from Wikipedia.

It wouldn’t surprise me to hear that Facebook decides to issue Facebook branded cryptocurrency.  It would probably be called Facebook Coin, FBC for short.  Imagine at the outset, FBC is issued at a 1:1 equivalency with US dollars with the promise that a maximum of 1,000,000,000 (one billion) coins would be issued.  The coins would be used to purchase all things Facebook.

Everything you purchase from Facebook, and everything you purchase through Facebook would be paid for in FBC currency.  Since Facebook sells several billions in advertising quarterly, there would be an immediate crush on FBC as advertisers purchase enough to have on hand for the coming months.  When FBC goes to $2 per coin it would be seen as a good investment as well as a useful currency.  Facebook services, such as their newly announced exploration into dating, would be purchased with FBC.  Retailers who open Facebook page-based stores could use FBC, as well; another way for customers to differentiate and be differentiated in the marketplace.

Why would Facebook do this? There are many advantages to using a cryptocurrency. First, since advertisers would use FBC to pay for their ads, the demand on FBC would be a good leading indicator for Facebook’s marketing department.  Facebook could know months in advance their advertiser’s coming marketing intentions.  Second, Facebook gets the revenue long before the money is actually used.  In a sense, FBC would be like company stock expect that it would not be tied to any specific underlying commodity or service.  Third, FBC would be similar in use to gift cards in that they would be bought and set aside for the specific use of purchasing all things Facebook.   They might be used as gifts from one person to another, they might be a kind of savings account like a Christmas club account folks used to open at banks, or just strategic long-range planning. IF Facebook Coins are anywhere near as popular as gift cards, we should soon see them appear on a Facebook page near you.

Standards

 

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A sea of red taillights on Sunset Blvd at night.

One of the finest examples of a stated and enforced standard is the specifications written for the automobile.  Every aspect of the automobile is specified so that every manufacturer is required to provide the same features and quality.  Every consumer can expect those same features and quality.  It is a tribute to our society for having created and enforced these standards. Most people do not appreciate what this body of work does or why it is so important.  The automobile industry is over 125 years old and it’s taken much of that time to sort out these standards.

 

Picture yourself driving down a busy highway at night.  Before you are several hundred cars going in the same direction.  What you see are rows and rows of red tail lights.  That’s is to say not just any tail light but the red color specified under Title 49: Transportation, PART 571—FEDERAL MOTOR VEHICLE SAFETY STANDARDS, Subpart B.  Looking down the highway you see each and every red tail light lens’ color matches every other precisely.  Wow.  When we glance down the road we can see in an instant that everyone is headed the same way.  If one of those 100 cars were coming at us, we would spot that in an instant.

Imagine what we would see if there were no standards; if every automobile’s owner decided for his or herself what he wanted for a tail light color.  Looking down the highway we would see something more like a Christmas tree then a column of red.  Is the car ahead of you slowing or stopping?  No one would know. Chaos would ensue.

New technologies take decades before manufacturers and consumers can agree on and set standards and rightly so. To set standards too quickly in the life cycle of a new technology means quashing inventiveness and creativity.  To wait too long before setting standards allows the biggest players in the space monopolistic control over the marketplace which drives up prices and further limits choice and ultimately hurts consumers.  Until standards are set and enforced that new space might behave like the wild West where anything goes.  The law is slow to catch up to the reality of the times, too.  Price gouging, failure to supply the promised value of a new product, and lack of truth in advertising are rampant. Misalignment of consumer expectations with manufacturer’s deliverables is common.  The resultant feeling is one of mistrust and disappointment.

With cryptocurrencies, we’re experiencing the early days of a new technology, characterized by much of the same.  There is a general feeling of mistrust and disappointment with software that doesn’t work as expressed or expected, and developers (the manufacturers, in this case) who are too quick to make promises and not experienced enough to understand why they should not cut corners or speed production in a trade-off with quality assurance and testing. Unfortunately, until standards are set and maintained, we can expect more of the same.  Furthermore, standards take a long time before they are written and ratified.  Until then, expect cryptocurrencies to feel like part of the wild, wild, West.

(?) To Be or Not To Be

Bitcoiin.jpgAt the core of the crypto- controversy “scam or new asset class?”, is a personal belief from which all else flows.  If you think that Bitcoin is a Ponzi scheme, everything which is generated from that essential belief only serves to confirm a negative opinion of cryptocurrencies. No amount of ‘evidence’ is going to dissuade one of these thinkers from believing bad things will ultimately updo Bitcoin.  The only problem for them is how to prove that the value of bitcoin will go to zero, even though Bitcoin hovers around the $10,000 mark.  If they wanted to profit by the misfortune of others, they might even purchase a Bitcoin short position.

On the other hand, if you believe Bitcoin is only the beginning of a new asset class, that hundreds, if not thousands of other cryptocurrencies will follow, that many of them will be widely traded and prove to be a very lucrative investment for those who bought in early, your problem is two-fold.  First, you have to prove that the value of bitcoin will go as high as one million dollars per coin, even though bitcoin presently hovers around the $10,000 mark.  Second, to take advantage of this glorious insight you have to choose in which cryptocurrencies to invest.

Ultimately, a sufficient number of use cases will prove the value of cryptocurrencies, or not. Be on the lookout for those.  Uses cases are the best argument you can make about in which cryptocurrencies to invest or if to invest in Bitcoin at all.

Bitcoin: Bubble Made of Mylar Not Soap

Soap-Bubble.jpgBitcoin stands at $8697 and has hovered around $8550 for the last twelve hours.  This has been the softest the cryptocurrency market has been since last summer.  Prices are still higher than they were at Thanksgiving time last year, yet coming down from highs around $19,500 the market doesn’t feel optimistic.  Broadly speaking the market has been plagued with bad news of late.  Governments are cracking down on cryptocurrency ICO’s, exchanges with bad trading practices are in the news and Facebook has put a ban on all crypto ads. The billions pouring into cryptocurrencies in hopes of making a fast buck have exited.  The entire cryptocurrency marketplace has fallen in lockstep with Bitcoin.

Yet, I can’t help but think what the naysayers that appear daily on Bloomberg and other financial talk shows speaking of Bitcoin going to zero and the “biggest bubble in human history,” are going to say when Bitcoin emerges from this episode in fine fiddle and goes on to bigger things. It is easy to see who understands what Bitcoin offers and who is clueless.

Bitcoin’s a bubble made of mylar, not soap.

#Bitcoin #BTC #ETH #LTC #XRP #crypto

Bitcoin (Smartmoney) Is Here To Stay

Screen Shot 2018-01-08 at 1.36.16 AMCryptocurrencies are not a bubble, not a Ponzi scheme, and not a flash-in-the-pan, here-today-gone-tomorrow phenomenon.  Cryptocurrencies (think Bitcoin) are here to stay.  They are the next generation of money.  As fiat currency (paper money) disappears, we use checks less and less, we use debit and credit cards more and more, and we send and receive money via all sorts of electronic methodologies, it is quite apparent to me that we are moving towards virtual currencies.  In fact, we’re moving not just to replace dollars with virtual dollars but we’re moving towards a state where we have many different currencies to handle many different situations, many different circumstances that we will use throughout the day, throughout our lives (think Airmiles).

Have you ever wondered why we bother to purchase Metrocards to use in the subway?  Why don’t we swipe our credit or debit cards through the turnstiles directly just as we swipe our Metrocards?  The answer is because the Metrocard is doing something a Mastercard or Visa card can’t do.  The Metrocard has an ID number embedded in the magnetic strip that tells the system who is using the card or under what conditions the card is to be used.  If you purchased a monthly MetroCard, the card might look the same as any other MetroCard but the ID number lets the system know that you have paid for the right to travel in the system for a period of one month.  You are free to use the system as much as you want during that time.  Your debit or Visa card doesn’t have that kind of ID number nor can it hold that kind of information.  The ‘contract’ you have with the system is unknown by the transit system.

In a future world, that sort of unintelligent ‘money’ is unacceptable.  We are living in a world that is and will continue to be more and more dependent on ‘intelligent’ interactions between the systems we use. The transit systems, including buses, subways, taxis, airlines, water taxies, highways, tunnels, and bridges, will be smart systems which will allow us to establish ‘contracts’ with them.  These ‘contracts’ will be like the Metrocard ‘contracts’ for different rates at different times, for different periods of time, for different numbers of people, at different rates depending on the age of the user, to what use it is being put, and for what duration it is to be used.  The money will have to keep pace with these types of contracts.

We have EZPASS in the Northeastern United States for paying highway, bridge and tunnel tolls.  The system automatically replenishes our accounts without our direct involvement.  When our automobile passes through one of the EZPASS readers, the system knows what our ID number is and what ‘contract’ we have with the system.  Similar systems will appear in the coming years for other systems that we use.  There might be one for parking your car, buying and delivering food, taking taxis, using music, downloading information, buying online, vacationing, renting hotels, renting sporting equipment, online gaming, online gambling, education, going to the movies, renting furniture, renting art to hang on the wall, taking singing lessons, learning to skydive, and ordering a babysitter.  The list is endless.  Are you getting the idea?  The way we will conduct our lives in the future will be systematic, without currency, by a computer, online and by a ‘contract’ which is a set of guidelines agreed upon by both the party ordering the goods or service and the system or party delivering the goods or services.  To facilitate those transactions will be virtual currencies.

Cryptokitties

Screen Shot 2017-12-08 at 10.29.39 AMCryptokitties is an early demonstration of the ability of cryptocurrency, in this case, Ethereum, to allow two persons, completely unknown to one another, to trade valuable possessions without the fear of being ripped off.  Using cryptocurrency ensures that their trade is bona fide and that they actually receive what is promised to them.  Imagine meeting a complete stranger, and accepting $500 as payment for something of value which you then hand over to him, comfortable that the entire transaction is safe and sound?  Pretty good, huh? People are buying and selling Cryptokitties worth hundreds of dollars doing just that.  It’s terrific. Your opinion of Cryptokitties is not relevant here.  Granted, not everyone loves Cryptokitties or thinks they are worthwhile.

The Cryptokitties website allows participants to buy, sell, collect, trade, and breed Cryptokitties.  They are adorable and sure to be a huge sensation.  Even now the site has taken 4% of the Ethereum network and caused huge delays as interest is fierce and commerce brisk.  To economists and Crypto enthusiasts alike Cryptokitties shows us the power and promise of blockchain technology to transform the wild, wild west aspects of the world wide web into stable trade platforms in the future.

 

Bitcoin: Not Ready for Prime Time

 

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Not one in a hundred bitcoin users knows these are barcodes or what they do.

The bitcoin community is delusional. All of the features the bitcoin enthusiasts claim make bitcoin great do not yet exist.  Yet these bitcoin cowboys act as though they do and that defies explanation. Based on the blockchain technology, bitcoin is supposed to be the next generation of finance.  It is supposed to be secure, anonymous, and fast.  But having now purchased, traded, exchanged, spent, and gifted bitcoin, the reality is — bitcoin promises all of those features but delivers none.

 

The most well-known, well-used bitcoin exchange is Coinbase. It now boasts more customers than Charles Schwab with 100,000 new customers signing up daily.  It is extremely slow.  I went to bed last night, rather than wait beyond the 30 minutes Coinbase asked me to wait to see the confirmation of my transaction.  The program upon which the exchange is written is barebones.  The protocols customers have to follow to execute transactions are so poorly designed, so unstable and so unreliable that if it was a student computer science project it would get failing grades.  One customer in a hundred understands what the QR code does.  The Internet service provider, Spectrum, which I use to connect to the Internet goes down daily and is so unreliable that you would think I live in a third-world country not the Financial District in Manhattan.  That’s not bitcoin’s fault but it doesn’t help speeds or reliability.

I break out in a cold sweat whenever I have to copy and paste one of those nasty thirty-character addresses that may or may not be correct.  How would you know the difference? The only advice I get is “This had better be a BTC address or your crypto may be lost forever.” Or, what is going through my mind at that moment is the story about the scam which involves a dormant program which resides on your computer, waiting for you to make a bitcoin transaction.  At the moment the transaction is sent, the pirate program substitutes their address for yours so you never know what hit you. Bitcoin transactions might be instantaneous but you have to be so cautious and move so carefully that it rather feels like an awful lot of work.

The transit might be instantaneous but the mining, confirmations and blockchain building takes forever.  Transactions at the speed of light? An hour or more is not uncommon.

I’m sorry to say the whole Bitcoin environment will have to evolve into something that is much, much safer, faster and foolproof before it can ever go Mainstream.  Think of automobiles.  When you take the keys and go for a spin you barely have to give the act of driving or the car itself a second thought.  Bitcoin has to evolve into something just as safe and reliable.  Otherwise, there are going to be accidents, thefts, mislaid property, and unintended consequences.  And, we will never realize the promise of a blockchain based currency.

Cryptokitties.co

Screen Shot 2017-12-08 at 9.49.13 AMHearing a rumor that the Ethereum blockchain was getting overly congested by Cryptokitties.co I decided to check it out.  Cryptokitties! These guys are adorable.  I understand the attraction.  Cyber kitties for sale, ownership, and breeding, exclusively paid for by Ethereum, the second most popular cryptocurrency after Bitcoin.  Think virtual Beanie Babies. If someone says “Yeah, Bitcoin, but what are you going to do with it?” just point them in the direction of Cryptokitties.  I’m sure the demographic, ten-year-old girls are going to be playing with these for a long time to come.

The idea is brilliant; the execution leaves something to be desired.  Perhaps the developers rushed to publish too soon.  We’ll see.  There isn’t much functionality there. I couldn’t find a Kitty that wasn’t already sold for the longest time.  I don’t know if that was because it was hugely popular or running too slowly.  I couldn’t see my balances, a feature they really avoided on purpose perhaps, and the Ethereum blockchain gobbledegook that appears now and then is only for true geeks. It really has no place in a well-designed playground.

Cryptokitties aren’t cheap, either.  The Screen Shot 2017-12-08 at 10.29.22 AMminimum entry fee is $50 worth of Ethereum in the marketplace.  But they use the old carny trick — sell coupons that customers use for rides instead of handling cash.  The form of currency here is strictly Ethereum.  Cryptokitties range in price from FREE to several hundred Ethereum each (which currently sell for $451.00/ea.).  Cryptokitty prices are .03 Ethereum ($14) on average.  Cryptokitties have DNA, genetic traits, parents, and children.  They are absolutely adorable. I can see how an entire culture can be spun around these little fella’s.  This site is going to be hugely popular if it isn’t already.

And that, my friends, is how Bitcoin and other cryptocurrencies will gain a toehold in our economy.  Cryptokitties, online gaming, gambling, to retail sales of all sorts.  As we transition from fiat currency to virtual currency, these examples will lead the way.

Screen Shot 2017-12-08 at 10.29.39 AMUsing ethereum as currency means that the money is tied to a contract which may be flexible instead of fixed.  Instead of paying X dollars for Y goods, X1 ether is being paid for Y Goods if such and such condition is present, X2 ether if another condition arises, and so forth.  The ether is conditional money.  As more and more computer programs in our environment start behaving in computerized ways, we will need this sort of currency more and more. For example, our EZPASS will charge different amounts at different times of day, different traffic conditions and for different numbers of people in the car or which toll-booth you happen to be driving through.  Welcome to the future.

 

171106 Bitcoin Valuation

For-sale-sign-home.jpgWhat is the intrinsic value of Bitcoin?  Intrinsic value? How can a virtual currency have any intrinsic value?  Let’s ask that question in a different way.  What should Bitcoin’s value be in order for it to represent value?

Putting a value on currency is tricky business.  What is the value of a U.S. dollar?  How does it compare to other currencies around the world?  That calculation has to do with the underlying value of the U.S., the U.S. economy, the money supply, the trade deficit, and a dozen other factors.  In the end, people get a sense of the value of a dollar by seeing what can be purchased with dollars.  That’s not possible, yet, with Bitcoin.  There aren’t enough things to buy or exchanges to use.

If something is very easy to manufacture, chances are it will not cost very much.  A producer should be able to buy raw materials, do the manufacturing, sell the finished product, and be able to keep some extra money generated in the process.  If too much money is generated, more people do manufacturing.  If not enough money is generated, the price goes up and there are scarcities.  You can’t buy a good, natural bristle painter’s brush today because they are difficult to make and not enough painters use them.

We are just at the beginning of cryptocurrencies being used to represent commerce online in a virtual world but their uses are varied and many.  However, we have hundreds of examples where cryptocurrency does a better job than fiat currency.  Countries are adopting Bitcoin where their own currency was not working well.  People are able to send money great distances, securely, by using Bitcoin and avoiding banks.

Let’s say Bitcoin is used for purchasing homes.  There are 5.5 million new and existing homes bought and sold each year in the United States.  The average price of a home is $188,900. In other words, one trillion dollars in homes are marketed each year.  If a person bought Bitcoin in preparation for purchasing a home and held it a year, there would have to be one trillion dollars in Bitcoin available just for home marketing.  A single Bitcoin would have a value of $62,587.35 because there is roughly 16,600,000 Bitcoin of the 21,000,000 that will ever be mined already out there.

Add to the one trillion in homes the value of  all cars, all jewelry, all food, all sporting equipment, all drugs, all hospital stays, all doctor visits, all tuition, all theatrical tickets, all salaries, all tips, all publications, all subscriptions, all art, all military equipment, all aircraft, and everything else you can buy with a credit card.