Skip to main content

What Comes After the Cryptocurrency Bubble?

                                         
ADVERTISEMENT
Joe Pindar is the director of strategy in the office of the chief technology officer at security firm Gemalto.
In this opinion piece, Pindar argues that the recent token craze is a blip, and that blockchain technology remains more important in the long term than any currency.

If you attend investment conferences or talk to long-time industry analysts, it's clear that that the general cryptocurrency market bubble is unsustainable.
There were 30 initial coin offerings (ICOs) in July, each launching new cryptocurrencies. Then, in August, there were more than 50, with marketing and investors ranging from Floyd Mayweather to Paris Hilton.

Now, part of this mania is based on speculation. But it's also clear that we’re departing from the fundamental assumption of what a cryptocurrency originally is – a scarce digital commodity where the value derives from that scarcity.

Select winners

Simply put, if more than 100 new sources of this digital commodity have been launched since the summer, then the entire concept of scarcity, and therefore value, begins to erode. In fact, many of these new cryptocurrencies will need to fail in order to maintain the viability of the best-known currencies, bitcoin and ether.
Ether, the second-largest cryptocurrency by market cap, has been around for two years, so it's a relatively known quantity. Most of the recent ICOs are based on the ERC-20 ethereum token, and the primary purchasing mechanism for new cryptocurrencies has been ether, the currency of the ethereum network.
Therefore, an investor often needs to buy ether in order to buy into any of the new ICOs.
But the crypto bubble of lesser-known currencies will pop at some point, leaving some people in a bad spot. Even so, the core technology behind it, blockchain, will provide value as a hidden infrastructure underlying future applications.
A small number of currencies – likely bitcoin and ethereum – and utility tokens where genuine value is created, will remain viable over the long term – although not necessarily at the current prices.
The fundamental premise of cryptocurrency, if it's not a scarce digital commodity, is that it is a token that allows access to a utility service. One of the few valid tokens that have been launched recently is IOTA, which is targeted at the Internet of Things market.
However, it's hard to justify building an IoT application using IOTA when surging token prices mean the cost of doing blockchain transactions doubles in seven days or increases by 500 percent over the course of a month, as it has recently done.
While IOTA has a strong long-term future, the ability to use it for IoT applications depends upon removal of the speculation-driven volatility. This shows the disconnect between the value proposition of utility tokens and the trading prices.

Tokenless blockchains

This is also a reminder that it's essential to separate blockchain technology from cryptocurrencies.
It is entirely possible to run a blockchain without a cryptocurrency, as demonstrated by Metrognomo, which predates and takes a similar approach to IOTA, but uses a subscription payment for nodes publishing to the network.
Another example is Quorum, JPMorgan Chase's permissioned, minimally-forked ethereum network, designed to promote private transactions for the enterprise.
So, even though a blockchain can be very useful for securing distributed systems and businesses, it does not justify the fundamentals of any cryptocurrency.
Blockchain's future is bright, just maybe a little less glamorous without the get-rich-quick investment aspect.

Link:https://www.coindesk.com/comes-cryptocurrency-bubble/

Comments

Popular posts from this blog

Duncan Logan just tweeted that he's on board Electroneum

I have been a buyer and holder of bitcoin and Etherreum for a long time but this will be the first ICO I buy into--Duncan Logan.

What is Electroneum?

Electroneum (ETN) is a cryptocurrency that can be mined with a smartphone, requiring almost no technical knowledge or prior experience. This sets it apart from other cryptocurrencies (like Bitcoin) which require expensive hardware and technical know-how to mine.
Electroneum’s unique mobile mining experience allows anyone with a smartphone to earn ETN coins by letting the miner app run in the background.
It was designed specifically with mobile users in mind, thereby appealing to a potential market of 2.2 billion smartphone users around the world. Unlike other cryptocurrencies, Electroneum has a user-friendly, beginner-oriented interface that allows users to seamlessly transfer ETN coins between one another, check their balances, and mine coins.
Being a cryptocurrency, Electroneum is created, held, and spent electronically, and has no phy…

Is Bitcoin Legal?

Bitcoin is of interest to law enforcement agencies, tax authorities, and legal regulators, all of which are trying to understand how the cryptocurrency fits into existing frameworks. The legality of your bitcoin activities will depend on who you are, where you live, and what you are doing with it. Bitcoin has proven to be a contentious issue for regulators and law enforcers, both of which have targeted the digital currency in an attempt to control its use. We are still early on in the game, and many legal authorities are still struggling to understand the cryptocurrency, let alone make laws around it. Amid all this uncertainty, one question stands out: is bitcoin legal? The answer is, yes, depending on what you’re doing with it. Read on for our guide to the complex legal landscape surrounding bitcoin. Most of the discussion concerns the US, where many of the legal dramas are currently playing out. Alternatively, you can access our comprehensive Regulation Report for worldwide expert …

Bitcoin Futures: Make Way for a New Kind of Whale

For bitcoin traders, all eyes should be on Dec. 10 and Dec. 18.
That's when former self-styled bitcoin whales will be swallowed up like plankton as the CBOE and CME Group launch bitcoin futures contracts for the first time in history.
Over the next few days, I will be providing information on trading in the bitcoin futures market. My goal is to shed some light on its peculiarities and hopefully help people avoid mistakes. To start, it won't just be the whales that will be devoured, but any other smaller crustaceans that choose to ignore the potential impact a derivatives market can have on an underlying commodity.
You see, in bitcoin's cash market, where these whales exist, they swim amongst other bitcoin marine lives without necessarily attacking their co-habitants. The reason is simple. Everyone in bitcoin's cash market is financially incentivized to keep the price of bitcoin high.
Sure, the market sometimes takes a dip, but that’s because some bitcoin ho…