Why Bitcoin Is Not A 'Fraud' Or 'Bubble', But Something You Should Take Seriously

Unless you have been asleep for the last year, you cannot have failed to catch the buzz around bitcoin and other cryptocurrencies such as Litecoin, Ethereum’s Ether and Ripple’s XRP. There are even some coins that were created as a joke that are getting significant investments, such as Dogecoin. Dogecoin was created as a way to educate people about how cryptocurrencies work, but the creator never expected it to be used as a currency. Jackson Palmer, the founder of Dogecoin, says himself: “When I jokingly tweeted about ‘investing in Dogecoin’ in late 2013, I never imagined that the tongue-in-cheek cryptocurrency I had just brought into the world would still be around in the year 2018, let alone hit a $2 billion market cap like it just did” in early January 2018. Apparently, Asian investors like Dogecoin because they misread it as Dog ecoin, and investing in a dog-friendly cryptocurrency is very popular in some countries.

It is a little like the craze for cryptokitties that almost broke the Ethereum blockchain late last year. CryptoKitties is a game where users breed and trade digital kittens using Ethereum-based smart contracts, and it became wildly popular, so much so that some cats were being traded for $80,000, and the total value of the game reached $12 million in December 2017. Just for a game using cryptocurrencies to create digital cats.

What I am describing here is the mad world of cryptocurrencies that few understand, many are investing in and no one knows what will happen. Everyone predicts that this is a bubble and the whole market will come crashing down, and yet for each stumble the market takes, it just comes bouncing back. In fact, there is an excellent website called 99bitcoins.com that started charting the predictions that bitcoin would disappear back in 2014. So far, they have tracked 236 forecasts of bitcoin’s death, and yet it still keeps growing. I find this interesting as I have personally been tracking bitcoin since 2011, and have just heard over and over again from my financially experienced colleagues that it is a scam, will fail, is silly, undermines the system and will never work. Yet it does work. It enables people to trade online for low cost with no financial intermediaries involved. This is the real concern: that bitcoin and other cryptocurrencies could eradicate the need for financial institutions.

This is why banks keep rallying against cryptocurrencies whilst embracing the technologies that allow them to operate, namely the blockchain or, more correctly, distributed ledger technology (DLT). Most financial institutions are piloting Ripple, R3, Ethereum and more because they can see the cost savings of recording transactions on ledgers where no human involvement is needed. That can save the global markets billions and is an active area of development.

It brings me to the core point here, which is that we have a technology which could change the world and yet we dismiss the community that created it. DLT is described by The Wall Street Journal as “a foundational technology, like electricity and the internet, whose transformational impact takes much longer”, and I very much agree with this assessment. For those who have immersed themselves in DLT, we know that it can completely transform everything from creating digital identity schemes that will replace passports to operating digital land registries that will replace the paper-based land deeds register to allowing clearing and settlement to take place in a far more efficient structure. This last point is illustrated well by the Australian Stock Exchange who, in December 2017, became the first major bourse to publicly adopt DLT to manage the clearing and settlement of equity transactions. Equally, Dubai, which sees itself as the city of the future with flying taxis, robot cops and autonomous vehicles, made a firm commitment in 2016 to be the first city running on DLT by 2020. The state is well underway on that path, having signed up IBM to deliver this capability. The objective is to have all visa applications, bill payments and license renewals, which account for over 100 million documents a year, to be transacted digitally using blockchain within the next two years. That is impressive.

This is where it gets most interesting, in that you have two extremes here. On the one hand, the jokey world of the libertarians, who are playing with digital currencies and having fun; on the other, the serious world of business and government, who are committed to transform ledgers that need a lot of work to ones that can just run using DLT, based upon cryptocurrency blockchains.

The thing is you cannot have one without the other. You cannot make Ethereum work without ether, and you cannot use a bitcoin blockchain without a bitcoin. Therefore, the fatuous claims that bitcoin is a fraud and that cryptocurrencies are a bubble that’s going to burst is fundamentally inaccurate, when we are talking about a foundational technology that will transform planet Earth over the next decade. This is why I am holding my investments in cryptocurrencies for now, as I think there is a lot more action in this space before the bubble will burst if it ever will.

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Comments

Nathan Feifel 6 years ago Contributor's comment

This article reads much better as an endorsement for DLT and blockchain than it does for Bitcoin. The author's statement "you cannot use a bitcoin blockchain without a bitcoin" is true, but actually seems like a tangent from the primary substance of the article (which, for the record, is very well written). Bitcoin is what brought the DLT and blockchain to the forefront, but now that we have exposed the underlying technologies and learned how to use them independently from Bitcoin, Bitcoin's current value doesn't appear to stem from the technology that it's running on.

Carol Klein 6 years ago Member's comment

This stuff is so technical it makes my head spin. #Crypto? #DLT Distributed ledger technology? #Blockchain? I think I need to throw in the towel. Give me good ol' gold any day.

Nathan Feifel 6 years ago Contributor's comment

Very reasonable!

Tom Ellis 6 years ago Member's comment

Just wanted to quickly add one more tidbit. The definition of a bubble is an overpriced, in market talk, equity or entity. The dot com bubble, for the most part was not a true bubble as, much like Bitcoin, the new 'start-ups' had nothing behind them. Not an asset, not a sound business plan not even a solid management team behind them.

My forte in the 90's/2000 was telecommunication start-ups. By a very high percentage rate most start-ups would draft a 'business plan' walk into a VC and receive both funding and a valuation based on that funding. The VC for the most part knew exactly what was going on. Seed the company, retain office space, burn as much as the seed money as you could to show the trade rags that you were building something. Create a buzz. Go for second round of funding thus increasing your valuation. The end game. An IPO with nothing or next to nothing tangible behind it. Does anyone remember Pet.com? I do, they had 4 employees and they were http coders to enhance their web site to induce the public to "oh's and ah's". I' be willing to bet that 99.9% of Bitcoin traders/investors of date have not yet once used the crypto in a transaction. Watch. It's going to get very ugly. I only wish there was a way to short it once it arrives at 15K again.

Dick Kaplan 6 years ago Member's comment

Really interesting comments @[Tom Ellis](user:61521). Personally, I'd like to hear what the author, @[Chris Skinner](user:54359), has to say in response.

Carol Klein 6 years ago Member's comment

I'm amazed that there are so many experts who discuss this and yet there is no clear concensus. Some of us are desperate to know if bitcoin and the rest are the next big thing, or a sucker's trap.

Tom Ellis 6 years ago Member's comment

And yet we've not yet seen $BTC-X ($BITCOMP) used for anything except trading, the very definition of a bubble. However $XRP-X has clients, keeps a reserve of 55 Billion XRP in reserve to build out their infrastructure and bolster their portfolio. What does Bitcoin do? Trades with no tangible assets. How many P2B transactions do we see for bitcoin? ATM's? IMO Bitcoin is one of the most robust Ponzis I've seen in my life and I lived through and worked in the dot com bubble whereas all you had to do is walk into a VC's office to get $20MM in seeding.

David P. Goldsmith 6 years ago Member's comment

Nice comments Tom. You might like an interesting article I just read by @[Nathan Feifel](user:56139) on whether #Bitcoin was a #ponzi scheme or not: www.talkmarkets.com/.../an-objective-look-at-bitcoin-what-no-one-is-giving

Nathan Feifel 6 years ago Contributor's comment

Thanks for the mention @[David P. Goldsmith](user:22566). There are MANY issues with Bitcoin, but being a Ponzi scheme is simply not one of them. Look up the definition of Ponzi scheme and try to factually articulate that Bitcoin is one.

Also, comparing BTC and XRP in such a manner is not particularly effective as they have different goals. As a side note, BTC is a completely decentralized ecosystem and XRP is quite centralized at the top.

David P. Goldsmith 6 years ago Member's comment

Good additional points worth noting.

Currency Trader 6 years ago Member's comment

Yes, tons of good cryptocurrecy content here. You can see it all in one place: www.talkmarkets.com/.../cryptocurrencies

Cynthia Decker 6 years ago Member's comment

Good points Tom.