Wednesday, November 10, 2021

The Crypto Conundrum - Part One

 I am most certainly not a cryptocurrency expert. This series of posts puts forth some thoughts, musings, opinions and questions. Please feel free to add comments below, they will be very helpful.


First off, let’s be clear about something: the term “cryptocurrencies” is IMHO a mis-nomer. They are neither crypto nor currencies, at least not yet.

  1. Digital network creations can never be entirely anonymous, untraceable or unhackable. Yes, it is very difficult to break into encrypted distributed systems but it is certainly not impossible, as the US Federal law enforcement activities have proven time and again (the same is true of other nations’ actions, state or maybe even privately controlled). Hacking has routinely resulted in stolen tokens, while US  agencies rapidly recovered ransom delivered in crypto. 
  2. The most basic attribute of a currency is stability. Given the wild prices swings of cryptos is is obvious that they are not currencies, at least not now. Imagine showing up at the gas pump for a fill-up and having to pay 100 Woofers today instead of 50 last week.
  3. Another attribute of a currency is wide public distribution. Crypto ownership is (obviously) not public, but it is estimated to be highly concentrated. This is also made quite obvious by the wide daily price swings.  
Crypto champions and devotees counter these arguments by claiming that it is still early days, every new technology has to go through the early adoption phase. But they miss a huge point: cryptos are not a technology. They are certainly enabled and produced by novel blockchain tech, but they are not a technology in and by themselves. 

So, what are they?

At the moment they are ultra speculative trading sardines, with an added value as criminal money laundering instruments. There is also an element of discounted NPV (net present value) of the prospect that they will eventually become widely adopted as distributed (not centrally controlled) currencies. Again IMHO, this accounts for 90-95% of the present “value” (price) of cryptos.  That’s a huge premium to pay today for a completely uncertain tomorrow.

So, the determining question is this: Will cryptos become real currencies sometime in the foreseeable future? Will they be adopted as a means of universal exchange and a storehouse of value/wealth?

I will examine this in my next post.


  1. I'm with you on this one; cyptos are the new tulips...

  2. Let me write this in terms of my philosophy; the escape velocity for cyrptos (as for tulips), is infinite.