crypto tips and alistair
T’other day a squash pal of mine announced after our sweaty tussle that he’d become a cryptocurrency day trader. Wow. Way to go. I kinda wish him well though suspect he’ll end up outta pocket. What it did clearly highlight though was that more and more of us are getting-into, or at least exploring, the murky world of cryptos: over two and a half million within the UK alone are now invested, up from a mere four hundred thousand a year ago. Some jumped in for fun, the majority as a moon-shot for making money and others as true believers. But the real divide is between them and us. Coiners vs Non-Coiners. And I’m an unabashed Coiner.
Cryptocurrencies have been intrinsically volatile. In 2011, a year after it gained monetary value, bitcoin collapsed from $32 to less than two bucks. Fast forward ten years and it’s ‘value’ soared from $9000 to $35,000. WTF. And it may come as some surprise that, even with over two thousand having gone to the wall in recent years, there remains more than four thousand different crypto coins to choose from. Good luck with that my forehand-favouring friend.
In choosing to buy-into any crypto the most important aspect is its potential use. One quality stands head-and-shoulders above all: utility. What is it going to be used for, what’s its point? This is not as stupid as it first may sound as cryptos are not envisaged to take-over the whole transactional world but find specific commercial niches and use-cases where they can act as both a store of value and a means of exchange, a potential catalyst for change. Here are a couple of examples:
- Bitcoin can improve financial inclusion and enable borderless, and hence, inexpensive payments. 2019 saw the combined profits of Visa and Mastercard number $22bn so there’s an opportunity there for sure!
- Ethereum is the preferred platform for building crypto projects and developing key applications, which in turn boost the value of itself and other associated coins.
- Filecoin allows its users to access its decentralised data storage network.
- Vechain helps companies securely track their products through the supply chain process.
- XRP/Ripple is attempting to become the world’s global settlement mechanism.
- Built by scientists and engineers, Cardano is a technology settlements platform attempting to be way more energy efficient than that of bitcoin.
- Algorand is capable of hosting decentralized application development whilst providing simultaneous security and scalability, at speed.
- Non Fungible Tokens (NFTs) or nifty’s as they are increasing known, allow the purchase/ownership of pieces of digital information such as images, tweets or memes.
- Polkadot is building a stable network that can support several different and distinct blockchains whilst enabling them to interact with one another.
- Nano is a crypto which does not rely on mining, printing or minting.
- Internet Computer is seeking to disrupt t’internet by developing a web platform that runs on a blockchain.
- By contrast, dogecoin was created as a crypto in-joke, possesses no inherent value and acts purely as a punt in the dark. Similarly, shiba inu was created as a satirical homage to dogecoin.
The most visible, and the most successful cryptos are addressing or solving specific problems. Imagine the anticipated impact when Netflix or Spotify adopt crypto-enabled micropayments for smaller chucks of content? Meme coins and cryptos without a specific use are the antithesis of utility and, whilst they may currently have speculation on their side, are unlikely to survive in the long term. Attempt to identify any hidden gems at your peril. So, whilst everyone now appears to be talking about cryptos it’s important to realise that they are still very much in their infancy and, though there are several thousand in existence (and growing), the top-twenty or so account for about 99% of the whole market by volume.
However, cryptos have long had a dirty secret: the energy needed to mine them, to effectively bring them into existence. It’s a shocker and it needs to be sorted. Bitcoin is a victim of its own success as the larger its market value becomes the more energy it consumes. This is due to its ‘proof-of-work’ (PoW) mining protocol that forces miners to expend effort solving an arbitrary complex mathematical puzzle. Work ie energy is king. The other worst offenders – Ethereum, dogecoin, bitcoin cash and Litecoin – all us the same PoW protocol, whereas the likes of cardano, polkadot and algorand use the so-called proof-of-stake (PoS) which takes considerably less energy than PoW. In this context, stake is another word for ownership and size is all-important. Charles Hoskinson, co-founder of ethereum (which is in the process of moving to PoS) and the driving force behind cardano, estimates the latter can be up to four thousand times more energy efficient than bitcoin.
Modern life and all it entails is undeniably energy intensive but it’s important to not measure apples with oranges. When comparing a card transaction with a crypto one it usually fails to accept that the former relies upon the whole world banking system being in place to process it. Tally-up the people involved, the physical infrastructure necessary, the power utilised, the minting and transportation of physical money and maybe the two aren’t that out of kilter? Less energy-intensive production mechanisms may well offer a more environmentally sympathetic payment system.
To quote the similarly vertically challenged, Davy Jones, lead singer of The Monkees, “Cheer up, sleepy Jean, oh, what can it mean to a daydream crypto believer”!
