Bitcoin, Etherereum, Ripple, Iota, Neo. To some these are meaningless buzzwords, but to others they represent the dawn of a new type of thinking. The truth, as always, is in a grey area between these two perspectives.
2017 will forever go down as the year where cryptocurrencies started becoming mainstream, resulting in an explosion in total market cap as well as an emergent type of investment scheme known as the initial coin offering (ICO). This has created an almost unhealthy amount of hype in the eco-system, attracting the attention of governments, businesses, investment funds, but also hackers, scammers and people looking to just make lots of money.
As John Mcaffee explained in a recent interview, blockchain technology is perhaps the most important invention since the dawn of agriculture, which will result in a global depreciation in fiat currency as the world’s wealth gradually shifts digitally. Although he’s perhaps a little optimistic, the trend is quite clear that cryptocurrencies and the blockchain are here to stay. They solve some core problems which lead to several interesting paradigm shifts in the thinking behind what money is:
- The blockchain and cryptocurrencies are not owned by anyone in particular, they are merely algorithms for achieving group consensus so that transactions and programming can be executed in a trustless, programmatic manner.
- Cryptocurrencies are the first asset in human existence that cannot be physically seized or forcibly depreciated. Fiat currencies used to be backed by gold reserves, but now are backed by little less than a promise from the federal reserve, which can print more dollars at any time they choose. Bitcoin, in contrast, takes an incredible amount of electricity investment to generate and cannot simply be printed due to its algorithm, thus tethering its value to a proof of work required in generating more coins by miners.
- Global trade and investment has now become 100% frictionless, borderless, trustless, and is facilitated at very low costs and high speeds. For a teenager in China to be able to invest in a community project in Kenya with the few clicks of a mouse is an incredible development, which will result in orders of magnitude increases in global market participation and efficiency.
- The trustless programmatic flow of funds that Ethereum has created will result in global shifts that we can’t even yet imagine. At this moment, there are companies that have launched that are looking to decentralize every industry imaginable from insurance, supply chain management, advertising, gambling, identity management, and global energy markets. Utilizing blockchain allows their business models to be executed in a more efficient manner, reducing costs, increasing transparency and allowing for easy global participation.
- There is very little barrier to entry to utilizing blockchain and investing in cryptocurrencies, you don’t need much more than a mobile phone or PC with an internet connection to participate in this new eco-system. This is especially important in developing markets where there barriers to participation in the new economy, and I believe countries and governments that adopt these technologies and empower their populations to use them will prosper significantly in the coming years and decades.
- A new class of cryptocurrencies is emerging, known as “stable coins”. These are digital coins backed in a 1:1 manner with real world assets, such as currencies, gold, oil or even minerals. These produce a level of stabillity and allow hedging against the rapid swings that most cryptocurrencies have.
Just like the Internet in the early 90s, there is plenty of hope and an equal measure of danger. Millions have been made by speculators, and millions have also been lost to scammers and hackers. This is just the nature of new technology, and I believe that as time progresses and the system matures it will become far easier and safer to use, as much of the technicalities will be abstracted by software. We are at the equivalent of the early stage of sending e-mails, which means the future is incredibly bright.
This article was originally published on the website: http://www.mikewronski.co.za/