Cryptomania

Since Thanksgiving, the cryptocurrency madness has infiltrated nearly all minds of everyone around me. I thought it was crazy before but now it is complete insanity. It used to be just about Bitcoin (BTC), then everyone started talking about Litecoin (LTC) and Ether(ETH). Now it's about every alternative coin out there in the world. Everyone is talking about 5x and 10x returns. People literally laugh at 30% returns. It is madness. But it should be expected. We, human beings are insane.

I have always been following what has been going on not because of the potential returns and riches but because of what blockchain can do for the world and society. To be honest, I still like money and making money is nice. As a socially conditioned capitalist, I can appreciate a good opportunity when it hits you in the face. Blockchain technology theoretically can make the world a better place. It can remove banks and their useless fees, saving people billions of dollars. It can democratize investment and fundraising so that normal people can raise money without outdated laws and restrictive rules. It can lower lending cost and increase financial freedom for the unbanked and poor. It can create more transparency in a centralized system controlled by insiders and cronies. It can save companies millions of hours for record keeping and tracking thus saving money and eliminating errors. It can change finance, entertainment, healthcare, supply management and countless industries. It can change the world for the better while enriching everyone.

In it's current form, purely as a collection of crypto currencies, blockchain is far from it's potential. This mania is disappointing because people are interested for all the wrong reasons. The interest is driven by the possibility of becoming a crypto billionaire. Yes a lot of people have made many millions and millions of dollars. Some have become billionaires. But currently, this use of blockchain technology namely for currency and speculation is not making the world better. It is not adding any value what so ever. It is actually causing more problems and benefit to society at this moment. It may be exactly what needs to happen to move into the next phase but this phase is not good. I cannot deny that it is not fun at the moment because sometimes it literally feels like a video game watching the crypto coin tickers.

In trading, no new wealth is created, it only changes hands. The money that people are making are coming from other people. Trading cryptocurrency is a zero sum game. Actually it is a negative sum game if you consider that exchanges and intermediaries charge fees for any transfers and trades. No one is really saving any real money or becoming more efficient. We are not saving any fees by using the cyptocurrencies either. In fact, barely anyone is using it for any real purchases. All everyone is doing is just trading currency while some early supporters and a lot of insiders have been cashing out. The new people are throwing money into the crypto pool pushing the total value of currencies to over $800 billion in market cap at the time of writing this. It is causing people to spend their time on rent seeking behavior (mostly watching tickers and talking about which alt coin will explode next) instead of utilizing it adding real value right now. Yes there are a lot of people also building platforms that may change the world but most of us are just wasting our time on something that will become an historical financial asterisk and probably a really good documentary on Netflix.

Right now, almost all crypto currencies and platforms are not providing any real product or value except for perhaps Ripple (via their bank platform but it is not even decentralized), Ethereum (via cryptokitties and other DApps), Monero (dark currency for "private activities" aka drugs) and Bitcoin (as a store of value before you want to invest into another crypto currency). There is potential for some other ones as well. But as of right now, there isn't much value added in the world. In fact, Dogecoin which started as a joke has become an two billion dollar coin despite not being updated in more than two years. Most of these coins or projects become an after thought while a majority of them are scams and at best, terrible ideas. So in the end, like the Internet 1.0, there will be billions of dollars lost and a lot of Pet.com memes about how someone lost their homes or retirements betting on the future. It will be bloody. It might be worst than the Dot Com bubble. It might be the craziest bubble in history. Who knows but at least this would make Minsky proud.

Right now, what is happening is a transfer of wealth not real wealth creation. Of course in the future, it can add plenty of value and jobs that is not related to crypto trading but for now, most of the activity is related to the cash of crypto fortunes. Once it is all said and done, there will be a lot of new reports of people losing everything because they bet their fortunes on some altcoin or lost it on an exchanged that got hacked. There will also be a lot of newly minted millionaires and plenty of capitalist who took advantage of this incredible opportunity. Perhaps after we clean all the blood in the streets, blockchain technology will crown a few crypto currency survivors and some real value will be added to society.