It's Still Early Morning in Crypto
Juan Villaverde is an econometrician and mathematician devoted to the analysis of cryptocurrencies since 2012. He leads the Weiss Ratings team of analysts and computer programmers who created Weiss cryptocurrency ratings.
People unfamiliar with crypto often ask the most challenging questions:
"How come we rarely see cryptocurrencies in everyday life?"
"If crypto is so great, why isn't Amazon accepting it as payment?"
"My Apple and Google apps work just fine, thank you. Why do I need these mysterious and fuzzy crypto applications that say they'll do pretty much the same thing?"
I get it. People are barely beginning to reap the benefits of cryptocurrencies. Practical uses are still experimental. Very few know where to even find them.
But savvy investors are peering ahead into the future. They recognize that, by the time usage is widespread, cryptocurrencies could be worth tens or even hundreds of times more.
Like in 2004, when you could have bought Google for less than USD 50 per share. Or even like in the 1990s, when you could have invested privately in that company for just pennies a share.
Back then, just like crypto applications today, most people didn't know how to use the internet. They didn't even understand what it was or why we needed it.
"My Lotus and Microsoft programs work just fine on my computer, thank you," they said. "Why do I need this mysterious and fuzzy internet that promises to do essentially the same thing?"
This basic criticism is not invalid. It's based on the undeniable reality of the crypto world today:
Lots of plans. Lots of dreams. No products that actually work and are widely used.
That's what makes it easy for mainstream players to bash cryptocurrencies.
It's what gives organizations like the Bank for International Settlements (BIS) the ammunition to take potshots at the industry.
It's what prompts so-called experts to say "it's just a wild speculative frenzy" … "all fluff and no substance" … and "no intrinsic value."
What they don't understand is that almost all the good stuff is still in the lab or in testing — like a new cancer cure that has yet to receive FDA (The Food and Drug Administration) approval.
You can wait until the drug comes out. Or you can invest ahead of time. If it turns out to be a wonder drug, you can make money either way. But you could make many times more if you invest before it's launched in real time.
So here's the big challenge of the teams now working on Distributed Ledger Technology (DLT), the basis for all cryptocurrencies …
They're still trying to figure out what works and what doesn't.
Right now, we've seen a torrent of criticism revolving around its governance — the way it makes critical decisions.
Many people are upset that a group comprised of 21 "block producers" was given the power to freeze user accounts and "confiscate" funds from people suspected of running scams.
"This is an affront to everything Bitcoin stands for," they say. "True cryptocurrencies are supposed to be decentralized, permissionless and censorship-resistant. The core philosophy of Bitcoin is that there must be no central authority, no one empowered to judge right from wrong."
"Even the definition of 'theft' should be clearly enshrined in the code," they say. "Not up to any one person or group to determine on the fly!"
Now here's what lies at the core of this debate:
Should cryptocurrency transactions be absolutely impossible for anyone to stop ... which would also make it impossible to prevent and recover lost and stolen funds?
Or should a cryptocurrency include consensus rules that allow elected leaders to protect users from theft, loss and people seeking to harm them?
Some suggest developers should try a solution that's somewhere in the middle, sacrificing some degree of decentralization for some degree of control.
Others remind us that both kinds of projects can coexist in the space. I agree with this sentiment.
But let's look at how this has evolved in the real world …
Where Ethereum Fits In
Ethereum was launched with the promise to allow any person anywhere to write "unstoppable applications."
So far, though, we've only seen one mildly successful decentralized application (dApp). And it slowed the whole Ethereum network down to a snail's pace.
This is what prompted projects like TRON to move away from Ethereum's bottlenecks and declare "independence."
What happened to Ethereum's promise of unstoppable applications? It seems they were unstoppable only until they hogged the network's bandwidth and ground everyone else to a halt.
Could Ethereum developers come up with a solution? Eventually, yes. But right now, the solutions proposed are mostly theoretical with no assurance they're feasible, no ETA (Estimated Time Of Arrival) and no huge rush to get them done.
The USD 64 billon question is:
Why are investors putting up big bucks, when the lofty promises have yet to be fulfilled?
Are developers simply out there to separate people from their money by creating false hopes? No. The truth is much simpler.
It's still early in the morning of the crypto era.
We've never had systems like these before. So nearly every new project is a new gamble — new experimental ways to serve and govern society.
Bitcoin kicked off this spree of radical experimentation with the idea that no one should have authority over their peers. It created a decentralized, permissionless payment network that's virtually impossible to hack or censor.
Next, some smart people realized that cryptocurrencies could be much more than just money or a payment system. Blockchain could even be used create a global supercomputer.
That's the big idea that gave birth to Ethereum.
But then Ethereum was hacked. The hacker made off with millions of dollars' worth of Ether tokens. The entire community was robbed. And there was no fix, no way to recover the funds … other than one:
They had to turn back the clock, abandoning all work and upgrades since the Ethereum before the hack. They had to replace all new Ethereum coins with the older, pre-hack coins. They effectively declared that all the stolen currency was worthless.
"That's what happens when you don't keep things simple," argued Bitcoin fans.
They had a point. As soon as a cryptocurrency departs from tried-and-tested models to venture into new, unknown territory, unexpected pitfalls are to be expected.
Even more unexpected, however, was the fact that, despite a big hack, the Ethereum experiment turned out to be a massive success … which, in turn, created new problems to be solved, prompting new generations of cryptocurrencies.
At every step of the way, the debate rages. Theorists, developers or simply people who love crypto share their views on social media with great passion. They argue incessantly. They rave and rant about what's "right" and what's "wrong" … how things "should be run" … what the world of the future should be like.
Some stick it out with a single project to the bitter (or sweet) end. Some get disgusted and break away from their project's community to start their own projects, to pursue their own vision of Distributed Ledger Technology. Like creating a new denomination, even a new religion.
Where will this process end? Most will eventually find their way to the dustbin of history. But a few will advance the technology to new levels previously unimagined — creating new, higher standards for next-gen developers to beat.
Today, we're still in the third generation of distributed ledgers. There are still no clear winners. But before the next high noon, some leaders will have emerged. They will lead the space to new levels of public awareness and participation. And we will see new all-time highs for the crypto markets.
Just never forget what I told you at the outset: In the world of crypto, it's still early morning. They're still figuring out the basics.
There are no "right" answers, only experiments — some that will fail, some that will make history.
And it is our good fortune to be here to watch history get made, and even make money … potentially some pretty big money … along the way.