Cryptic crypto?
Would crypto survive this winter?
This asset class has seen a number of winters in the past, is this one any different?
Bitcoin is at $17,096.60USD at the time of this writing - 6th Dec, 2022. On November 12, 2021 it touched $64,400 USD. On Jul 16, 2021 it was at $31,576 USD. On 12th Mar, 2021, it was at $61,263 USD. On 18th Dec, 2018 it was at $3,400 USD. On 15 Dec, 2017 it was at $19,650 USD. On 20th Nov, 2015 it was at $327 USD. And for all that matters it was at an effective price of $0 USD, back in the dark days of the GFC, the moment before it came to life. This has been the life journey of Bitcoin.
The life of Bitcoin is not important just for its own sake. Bitcoin was the point of genesis for a whole family of what eventually came to be known as “cryptographic assets” or more commonly “crypto coins”. This growing panoply of coins would eventually result in a ride that will not only be wild in nature but unforgettable in many ways. But the biggest question right now is - ten years from now, what last with us - just the memory of a wild ride or some actual coins that we’ll use to transact in our daily lives, and also save our earnings in?
Depending upon how familiar one is with this topic, you may have a number of questions. Here are a few key ones:
What is crypto?
Why is the world so polarized about it?
Why does it appear to be cryptic to some?
Why do some appear to be so much in favour of it?
What are the risks?
Will the cryptozens ever reach the promised land?
What should be the way forward?
Let me try my best to answer these from my perspective.
What is cryptocurrency?
Let’s look at some definitions we find around the web. Here’s how the State University of New York (https://www.oswego.edu/cts/basics-about-cryptocurrency) defines cryptocurrency as:
A cryptocurrency is a digital currency, which is an alternative form of payment created using encryption algorithms. The use of encryption technologies means that cryptocurrencies function both as a currency and as a virtual accounting system. To use cryptocurrencies, you need a cryptocurrency wallet.
On the other hand, investopedia.com (https://www.investopedia.com/terms/c/cryptocurrency.asp) defines cryptocurrency as:
A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.
Based on these definitions, you can see that the key points of a cryptocurrency are as follows:
It is a currency
Some are decentrally managed
Some are centrally managed
It is digitally implemented
It is cryptographically secured
Each of these points is an abstraction a distinct concept, and would lead you to a rabbit-hole where you can spend a whole lifetime learning about. T
Why is the world so polarized about it?
Why does it appear to be cryptic to some?
What are the risks?
There are many, but the biggest one interestingly is dilution within the system.
Will the cryptozens ever reach the promised land?
This is a difficult one. But, if I were to predict, this is what I would say -
Cryptozens one day will definitely reach the promised land - The feature-set and the systemic efficiency that cryptozens are looking for is a valid requirement. Eventually, the market will appreciate this requirement and will work to fulfil it. That’s what proper functioning markets do.
However that promised land may already be populated - Here’s the difficult one - in spite of so much of excitement amongst the cryptozens, the fact of the matter is there is already too much competition building, and the progress on the crypto front has been slow, and if that was not sufficient, massive frauds and scams and other trust-dilution events like Mt. Gox, Quadriga CX and FTX slow it down even further.
What should be the way forward?
My perspective is that the value of crypto will be more driven based on utility dynamics as compared to unit dynamics. In an ecosystem where almost anybody is able to start a new crypto-currency, the reason for a user to gravitate towards one currency vs. another will be base on how much of utility the currency has as compared to the other one.
