The Future of Bitcoin and Crypto Currencies

in #bitcoin7 years ago

I am intrigued by the amount of optimism for something that many people do not understand because it is outside of their knowledge base. The problem is from my perspective is a convergence of technology and economics that both were equally unprepared for. Compounding the problem is that in the field of economics, many people have very little to no knowledge of sound economic principles and how markets work. Even economists with post secondary education are trained in the very discipline that crypto currencies claim to be the antithesis of so where exactly do you get sound advice about bitcoin. All of the people pushing videos on youtube have an agenda wether they want to admit it or not. Following someone who has invested capital in any asset can be problematic because that person also will have an emotional investment as will which can lead to pump and dump schemes and the like.

So... What is a bitcoin really? This seems to be at the heart of my search for wether to invest in it or not. If you talk to the average investor the most common reply to that question is it is a store of value. The first time I heard this answer it really irritated me because for something to be a store of value it needs to have purpose in the real world. For a simple example we will talk about wheat. A farmer grows wheat because it has value in that it is used for nutrition. Because of this other people find that it has value and are willing to trade with me to acquire it. Even if at any point people do dont feel they need to get it from me because they have enough and are sustained, it still has value in that I can store what others do not want and sustain myself with it. Even gold, the most common comparison, you can't eat gold so why is it a store of value? You can't eat bitcoin either right? To be a "store of value", it must have some property that makes it valueable to someone when it seems like no one wants it. If the price of gold falls too much there will be jewelers around the world who will see that price signal and buy as much gold as they can so that they can increase their profit when making jewelery. People like to wear jewelery, therefore even at it's worst there is still demand and this does not even include the industrial applications that require gold in the process of manufacturing. Therefore, if bitcoin is a store of value or any other crypto-currencies for that matter, where it the real world demand that would require people to get a bitcoin if the price was falling other than speculation that someone else will take that asset off of your hands for a profit. The next answer I get from the average bitcoin fanatic is the Block Chain.

Welcome to the World of the Blockchain. The underlying technology behind the movement. The meat and potatoes of Crypto. So, why all the excitement for a ledger? This will be quite a short paragraph. It is just a ledger with a special function that it cannot be edited or altered. For a ledger, that is a good super power to have but it is still only a ledger. All banks have ledgers, the fact that a bank has one does not make a bank profitable and worthy of investment. It is what is written on the ledger that makes it important. The assets of a bank written on a ledger for the most part are in the real world. In terms of debt the asset becomes the person responsible for the repayment of the debt. People are real. Therefore the blockchain does not give a crypto currency value because the only thing on the blockchain are currencies that have no tie to the real world.

So where do we go from here, what is the future for crypto? The short answer is that most of the currencies you see being traded or created are worth about as much as the stocks that crashed during the Dotcom bubble in 2000. Once the first crypto is released that is backed by something tangible that you can hold onto then all other currencies will bow down to and then bow out of the way to usher in the digitized asset. It may start out as something as a copper minning company will use the blockchain to account for the copper it mines. because mining for cooper also produces silver another token could be created for that and the rue revolution begins and anyone holding Bitcoin and any other cypto not backed by anything can then say they were apart of the greatest wealth transfer in the history of mankind before they probably kill themselves in shame.

The truth is harsh but so is investing and only those who stay ahead of the game come out on top while the rest who follow the Pied Piper get raped on the stock exchange floor.