Posts for Tag: cryptocurrencies

Macro cryptoasset commentary (Q2 2017, v. 2) - Ethereum

Since the last commentary post, Ether units (ether) have appreciated in value from $40.15 to a high of $212.50 this week before correcting to around $145 where it sits currently. I expect it to further drop in price - the current social utility of ether have not grown at a pace that matches the increase in price we've seen over the last few months. The largest (read: most well-funded) distributed apps (dApps) built on Ethereum include Aragon, a distributed supercomputing project (a little like BOINC), Gnosis and Augur, two competing platforms that enable decentralized prediction markets, and the now-defunct TheDAO, which raised $150M before its core smart contract code was exploited, draining the investment vehicle of a third of its capital. This debacle led to one of several subsequent forks in the Ethereum blockchain, with two competing cryptoasset systems now in existence. 

I found it extremely amusing to wake up after the fork to find that Kraken had credited 375 ETC (Ethereum Classic tokens) to me without any action needed on my part because, well... its a separate asset after all! On a separately maintained divergent blockchain and everything! ... Its even funnier when you know the history of cryptocurrencies paraded as a solution to double-spending problems, which is true unless a group of renegades decide to fork your protocol and call their forked version of your cryptocurrency something else. All of this happened because some of the Ethereum core developers had a large stake in TheDAO, and so they were biased toward a solution that would "rewrite history" and re-credit the ether balances of users that had invested in TheDAO's initial fundraising round. I agree with what was done because of the technology's immaturity and because mistakes should be corrected as the technology moves toward true maturity. All that said, there is absolutely no chance that Ethereum truly merits a >$15B market cap at this time, from a pure investment value sense, or from a technology potential sense - there are serious unresolved issues with oracles (getting outside real-world data into the blockchain), and a very weird obsession with prediction markets, despite the observed failure of prediction markets to actually predict Brexit or the US presidential election of the king of carrots. The various development teams that are working on dApps should have the ability to exchange ether for dollars so they can buy servers and ramen/beer so they maintain their sanity while they work on new innovations (this is the whole point of secondary markets after all), but ICOs are now clearly being used as a mechanism to enrich opportunists that have, under most legal interpretations that I've heard (from securities lawyers who have handled offerings of new securities/new investment vehicles), violated various SEC statutes by selling instruments to the public with almost no real documentation of what the raise is for and what they intend to do with the funds once dispersed. On the back of the relatively new laws surrounding crowdsales, its encouraging to see how quickly this new technology enables any group of individuals to rapidly raise huge sums of money, but I urge potential investors that seek to get involved in ICOs to be very careful of what they are getting involved in, and to perform proper due diligence of these projects and to vet any developers working on projects of note prior to transmitting any money to these projects. Most are complete vaporware and I fear that many less informed investors and members of the public will lose huge sums of money in trying to get exposure to cryptocurrencies and crypto-assets. I think the idea that in 10 years every major tech company will be replaced by a dApp with its own unit of exchange is beyond stupid - no one wants to deal with all this mental overhead just to use your toy. There won't be thousands of decentralized applications all interacting in an autonomous, distributed way - fundamentally corporations serve the needs of people and are a vehicle to create value by transforming a person's time and skills into a well-defined product or service that another person can use or consume. This exchange happens because the buyer sees the good/service as more valuable than whatever they exchanged to acquire it. That's all - no magic. These digital assets have utility because I can transmit money without intermediaries, which has the potential to remove banks, brokerage houses, and other consumer financial service providers from the picture - but we're not there yet. I'm working on a consumer lending application on Ethereum because Solidity provides a relatively straightforward way of programmatically transmitting and storing value in a way that could automate the lending flow completely, but the interfacing of a dApp with real-life human service providers (checking accounts, investment accounts) is challenging and requires significant development to simplify to the point of making viable alternatives that people will really be able to use. It is much more likely that Google's secret artificial general intelligence DeeperMind* wakes from its slumber next year and enslaves humanity compared to a future where hundreds of competing cryptocurrencies are used in daily life by normal non-cryptofanatic people. To accumulate all this power so quickly in order to execute this magnificent coup, it'll very likely use bitcoin to transact with service providers and buy server time/storage... of course.

My friends and colleagues have indicated their interest in purchasing Bitcoin and Ether and this is exclusively because of the speculative appeal of its price volatility as opposed to being genuinely interested in the underlying technology's possibilities. This begs the question of whether the explosion in initial coin offerings (ICOs) should be considered as more of an innovation in fund-raising technology rather than true, organic growth in the global usage of cryptocurrencies as a mechanism to buy goods and services in the real world or on the Internet.

* this is not real