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Thursday, May 13, 2021

Cryptocurrency, Blockchains and NFTs

 I first wrote about bitcoin in this blog ten years ago after I gave a lecture in a cryptography class I taught at Northwestern. Two years later I had a follow-up post, noting the price moved from $3 to $1000 with a market cap of about $11 Billion. My brother who thought they were a scam back then has since become a cryptocurrency convert. The bitcoin market cap is now over a trillion dollars and other cryptocurrencies are not far behind. No longer can we view cryptocurrencies as simply a neat exercise in applied cryptography now that it has serious value.

The main uses of cryptocurrencies are for speculation or illegal activities, such as drug sales, ransoms, money laundering and tax evasion. Sure you can buy a Tesla with bitcoins but that's more of a gimmick. Cryptocurrency spending is simply too slow, expensive and volatile right now to replace other methods of electronic payment. 

Non-fungible tokens (NFTs) truly puzzle me. They are just a digital certificate of authentication. What could you do with them you couldn't do with docusign? Collectibles of publicly available digital goods is a fad already fading.

I'm not a fan of a fiat currency governed by strict rules not under governmental control. Bad things could happen. However thinking of cryptocurrencies and the blockchain technology that underlies them have brought up real needs for our digital world.

  • An easy way to pay online without significant fees, expenses or energy consumption.
  • An easy and cheap way to transfer money between different countries.
  • A distributed database to allow tracking of supply chains, credentials and financial transactions for example. I see less a need to make these databases decentralized.
  • A need, for some, to have a digital replacement for the anonymity of cash.
  • People need something to believe in once they have given up believing in religion and a functioning democracy. 
Don't change your investing habits based on anything I write in this post. Speculation and illegal activities are powerful forces. Or it could all collapse. Make your bets, or don't.

Note: Since I wrote this post yesterday, Elon Musk tweeted that Tesla will no longer accept bitcoins, and the bitcoin market cap has dropped below a trillion.

2 comments:

  1. Lance, good post. You are touching on
    points that each deserve their own posts :)
    That said, let's zoom in on this one...
    > Cryptocurrency spending is simply too slow
    Well, 'balance transfers' of crypto (even BTC)
    is much faster than a typical credit card balance
    transfer which typically takes 3-6 [business] days
    (don't quote me on this).
    So from a conceptual perspective, transferring wealth,
    it's almost 'instantaneous' compared to traditional CC
    transactions. (Of course nothing [but inflation] beats cash.)

    ReplyDelete
  2. Bad things can happen also for a currency under governmental control. For one thing, the government can decide to suddenly print lots and lots of it. Governance in a democracy is fickle.

    ReplyDelete