Bitcoin peaked about a month ago, on December 17, at a
high of nearly $20,000. As I write, the cryptocurrency is under $11,000... a
loss of about 45%. That's more than $150 billion in lost market cap.
Cue much hand-wringing and gnashing of teeth in the crypto-commentariat.
It's neck-and-neck, but I think the "I-told-you-so" crowd has the
edge over the "excuse-makers."
Here's the thing: Unless you just lost your shirt on
bitcoin, this doesn't matter at all. And chances are, the "experts"
you may see in the press aren't telling you why.
In fact, bitcoin's crash is wonderful... because it
means we can all just stop thinking about cryptocurrencies altogether.
The Death of Bitcoin...
In a year or so, people won't be talking about bitcoin
in the line at the grocery store or on the bus, as they are now. Here's why.
Bitcoin is the product of justified frustration. Its
designer explicitly said the cryptocurrency was a reaction to government abuse
of fiat currencies like the dollar or euro. It was supposed to provide an
independent, peer-to-peer payment system based on a virtual currency that
couldn't be debased, since there was a finite number of them.
That dream has long since been jettisoned in favor of
raw speculation. Ironically, most people care about bitcoin because it seems
like an easy way to get more fiat currency! They don't own it because they want
to buy pizzas or gas with it.
Besides being a terrible way to transact
electronically - it's agonizingly slow - bitcoin's success as a speculative
play has made it useless as a currency. Why would anyone spend it if it's
appreciating so fast? Who would accept one when it's depreciating rapidly?
Bitcoin is also a major source of pollution. It takes
351 kilowatt-hours of electricity just to process one transaction - which also
releases 172 kilograms of carbon dioxide into the atmosphere. That's enough to
power one U.S. household for a year. The energy consumed by all bitcoin mining
to date could power almost 4 million U.S. households for a year.
Paradoxically, bitcoin's success as an old-fashioned
speculative play - not its envisaged libertarian uses - has attracted
government crackdown.
China, South Korea, Germany, Switzerland and France
have implemented, or are considering, bans or limitations on bitcoin trading.
Several intergovernmental organizations have called for concerted action to
rein in the obvious bubble. The U.S. Securities and Exchange Commission, which
once seemed likely to approve bitcoin-based financial derivatives, now seems
hesitant.
And according to Investing.com: "The European
Union is implementing stricter rules to prevent money laundering and terrorism
financing on virtual currency platforms. It's also looking into limits on
cryptocurrency trading."
We may see a functional, widely accepted
cryptocurrency someday, but it won't be bitcoin.
... But a Boost for Crypto Assets
Good. Getting over bitcoin allows us to see where the
real value of crypto assets lies. Here's how.
To use the New York subway system, you need tokens.
You can't use them to buy anything else... although you could sell them to
someone who wanted to use the subway more than you.
In fact, if subway tokens were in limited supply, a
lively market for them might spring up. They might even trade for a lot more
than they originally cost. It all depends on how much people want to use the
subway.
That, in a nutshell, is the scenario for the most
promising "cryptocurrencies" other than bitcoin. They're not money,
they're tokens - "crypto-tokens," if you will. They aren't used as
general currency. They are only good within the platform for which they were
designed.
If those platforms deliver valuable services, people
will want those crypto-tokens, and that will determine their price. In other
words, crypto-tokens will have value to the extent that people value the things
you can get for them from their associated platform.
That will make them real assets, with intrinsic value
- because they can be used to obtain something that people value. That means
you can reliably expect a stream of revenue or services from owning such
crypto-tokens. Critically, you can measure that stream of future returns
against the price of the crypto-token, just as we do when we calculate the
price/earnings ratio (P/E) of a stock.
Bitcoin, by contrast, has no intrinsic value. It only
has a price - the price set by supply and demand. It can't produce future
streams of revenue, and you can't measure anything like a P/E ratio for it.
One day it will be worthless because it doesn't get
you anything real.
Ether and Other Crypto Assets Are the Future
The crypto-token ether sure seems like a currency.
It's traded on cryptocurrency exchanges under the code ETH. Its symbol is the
Greek uppercase Xi character. It's mined in a similar (but less
energy-intensive) process to bitcoin.
But ether isn't a currency. Its designers describe it
as "a fuel for operating the distributed application platform Ethereum. It
is a form of payment made by the clients of the platform to the machines
executing the requested operations."
Ether tokens get you access to one of the world's most
sophisticated distributed computational networks. It's so promising that big
companies are falling all over each other to develop practical, real-world uses
for it.
Because most people who trade it don't really
understand or care about its true purpose, the price of ether has bubbled and
frothed like bitcoin in recent weeks.
But eventually, ether will revert to a stable price
based on the demand for the computational services it can "buy" for
people. That price will represent real value that can be priced into the
future. There'll be a futures market for it, and exchange-traded funds (ETFs),
because everyone will have a way to assess its underlying value over time. Just
as we do with stocks.
What will that value be? I have no idea. But I know it
will be a lot more than bitcoin.
My advice: Get rid of your bitcoin, and buy ether at
the next dip.
Article Source: http://EzineArticles.com/9871792
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