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

Case-By-Case or Cease-and-Desist? In Search Of a New Approach to ICOs

That rumble you hear is the sound of regulators around the world mobilizing resources to tackle the pressing matter of token sales. Yet, in spite of the spectacular growth of blockchain token-based funding, no one seems to have a clear idea of what type of rules to introduce. The resulting uncertainty (not to mention ridicule) is left hindering progress as money flows to unviable projects and investors are left vulnerable to foul play – exactly what regulation is supposed to prevent. Perhaps a new approach is needed. But to see where this could go, it's worth stepping back and asking what we expect the regulation to do. Safety belt First, why do we need regulation, not just of finance, but of anything at all? To protect us. At its roots, that is the main role of government – to protect its citizens from avoidable harm and extreme loss brought about by others or from our own lack of common sense. When it comes to securities, that usually means stopping us from making poor decisions…

Frequently asked questions about Bitcoin

What is Bitcoin? Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is pretty much like cash for the Internet. Bitcoin can also be seen as the most prominent triple entry bookkeeping systemin existence. Who created Bitcoin? Bitcoin is the first implementation of a concept called crypto-currency", which was first described in 1998 by Wei Dai on the cypherpunks mailing list, suggesting the idea of a new form of money that uses cryptography to control its creation and transactions, rather than a central authority. The first Bitcoin specification and proof of concept was published in 2009 in a cryptography mailing list by Satoshi Nakamoto. Satoshi left the project in late 2010 without revealing much about himself. The community has since grown exponentially with many developers w…

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 …