Dear Joseph,
Thank you once again for reading my work and thank you for taking the time and effort to share your thoughts on the subject.
In Lady Windemere’s Fan, Oscar Wilde had Lord Darlington quip that a cynic was “a man who knows the price of everything and the value of nothing.
As firm which trades (and profits) from the volatility inherent in cryptocurrencies, I bear only a weak claim to being an ideologue.
That our discourse has allowed you to consider cryptocurrencies from a different perspective is more a testimony to the strictures of your mind, than to the quality of my advocacy.
That having been said, not all cryptocurrencies aim to achieve the qualities which you have listed:
1. Transaction Speed
This is likely to be an intractable problem in the foreseeable future. From sharding to offchain-onchain transactions, there as yet has been no entirely satisfactory solution to the speed and volume of transactions that a network such as Bitcoin can handle.
Part of the strength of Bitcoin is the immutable nature of its underlying decentralized ledger architecture and as yet, there hasn’t been a satisfactory way to address the need to maintain this decentralized structure while increasing the speed of transactions.
To be sure, some of the brightest minds are working on the issue now, with almost no remuneration I might add. That there are some of the best and brightest in the world working on this suggests that at some stage this issue will eventually be solved or solvable.
That they are doing so without remuneration gives me hope for a better world.
The same way Linux, an open source operating system was created with no remuneration, perhaps Bitcoin may one day pay its developers back in a way that Linux developers never were.
2. Can Be Used to Pay for Everyday Goods & Services
Many crypto-advocates hail the day when cryptocurrencies can completely replace fiat currencies and be used in everyday transactions.
To that end, I am somewhat circumspect.
For starters, taxes are still paid in fiat currencies and even the most uneducated and ill-informed politician will know that the ability to collect taxes in the money which you print is not something that a government should give up at any price.
On a higher ideological plain of course, the only way that cryptocurrencies could effectively displace fiat currencies is in the collapse of the nation state.
And while this may sound ludicrous, let’s not forget that the concept of a nation state is a relatively modern invention — not that the previous alternative was much better, but the devolution of nation states would likely require some level of global catastrophe that I dare not contemplate.
So while the crypto-advocates may push for cryptocurrencies to one day be as widely accepted as fiat currencies, until such time that nation states no longer print their own money, or devalue their currencies to such an extent that they no longer have the confidence of the people, that supposed eventuality lies in a future that at this point at least, seems far too speculative.
3. Volatility & Appreciation of Value
As I have written about before, being an unconstrained asset, Bitcoin will always be volatile.
Because its value is inherent in its organization, depending on how one values the organization of its underlying structure, one will price it differently.
And because value is such an intimately subjective determination, Bitcoin will always manifest itself in a different price among different people.
Assets have different value over time as well.
Just look at the price and perceived value of spices in the 15th to 18th century.
To that end, given the deflationary nature of Bitcoin (only 21 million will ever be created and we’re around 16 million now), a case could reasonably be made for its long term “value.”
Price on the other hand is an entirely different animal.
On that matter, predicting the price of Bitcoin one week, one month and one year out is a fool’s game.
While it may make for a good soundbite on CNBC, it is hardly an intellectual endeavor worthy of note simply because it’s an unconstrained asset.
So whilst I would suggest that in the long run, Bitcoin has the potential to be a long term store of value, the price of that value then becomes slightly more indeterminate.
Beyond Bitcoin
But beyond Bitcoin, there are a plethora of other cryptocurrencies, each attempting to solve a different problem, some perhaps more worthwhile than others.
And whilst there are simply too many to discuss at great length in this forum, Ethereum for one, has never claimed any aspirations to be replacement for fiat currencies.
Quite the contrary, Ethereum has been touted as a means to “purchase”computing power and capability.
Although strictly speaking a proof-of-work cryptocurrency, Ethereum has long since toyed with the concept of proof-of-stake, a far less energy-intensive effort and serves as the only cryptocurrency which has genuine real world applications — smart contracts.
Granted smart contracts were much used and abused during the ICO rush of 2017–2018, it has to date also been the only actual application of a cryptocurrency.
Ethereum’s worldview is where the use of computing capability can one day become decentralized and “rented” — powered by the Ether token.
So while the attention has always been on Bitcoin, this is in large part because of its lofty ambitions to undermine and ultimately replace the fiat currency system.
To be certain, there will always be elements of society drawn to the pseudonymous nature (it’s not entirely anonymous) of Bitcoin for whatever reasons, not all of them criminal or nefarious.
Yet at this point at least, until perhaps the devolution of nation states, I would find it difficult to conceive of any cryptocurrency ultimately replacing fiat currencies.
Thank you for being so gracious and generous with your praise and taking a genuine interest to learn about cryptocurrencies and blockchain technology.
I always look forward to your responses and appreciate how it helps to sharpen the quality of my discourse.
Thank you.
Yours,
Patrick
