27 November 2017

Great Wall of Numbers: “Eight Things Cryptocurrency Enthusiasts probably won’t tell You”

Simultaneously, despite the hundreds of millions of dollars raised by VCs and over a couple billion dollars raised through ICOs in the past year or so, not one entity has been created by the community with the power or moral authority to rid the space of bad apples and criminals. Where is the regulatory equivalent of FINRA for cryptocurrencies?2

Part of this is because some elements in the community tacitly enable bad actors. This is done, in some cases, by providing the getaway cars (coin mixers) but also, in other cases, with a wink and a nod as much of the original Bitcoin infrastructure was set-up and co-opted by Bitcoiners themselves, some of whom were bad actors from day one3.

Tim Swanson

Not a week goes by without a new story about some Bitcoin-related scam, theft or hack – not to mention, if you end up on the losing side of these fraudulent transactions, there’s no guarantee you’ll ever recover your investment. Everything I’ve read in the article above goes to confirm my initial reaction that Bitcoin is better suited as a tool for black market economy, not for open and legal exchange.

More interesting conclusions about why the prices of cryptocurrencies keep increasing, the actual number of people and regular transactions, and the perpetual question if they can be classified as currency:

The surge in popularity of ICOs as a way to quickly exploit and raise funds (coins) and liquidate them on secondary markets has transitively led to a rise in demand of bitcoin, ether, and several other cryptocurrencies. Because the supply of most of the cryptocurrencies is perfectly inelastic, any significant increase (or decrease) in demand can only be reflected via volatility in prices.

Hence, ICOs are one of the major contributing factors as to why we have seen record high prices of many different cryptocurrencies that are used as gateway coins into ICOs themselves.

Founded in May 2012, the only known unicorn to-date is Coinbase. Historically it has kept traction stats close to the chest but we got a small glimpse at what Coinbase’s user base was from an on-going lawsuit with the IRS. According to one filing, between 2013-2015 (the most recent publicly available data) Coinbase had around 500,000 users, of which approximately 14,355 accounts conducted at least $20,000 in business60. This is a far cry from the millions of wallets we saw as a vanity statistic prominently displayed on its homepage during that same time period61.

What did most users typically do? They created an account, bought a little bitcoin, and then hoarded it – very few spent it as if it were actual money which is one of the reasons why they removed a publicly viewable transaction chart over a year ago62.

Tangentially, the continual high percentage of hoarding done by cryptocurrency enthusiasts suggests that this still remains a virtual commodity and continues to fail the medium of exchange test needed to be defined as a transactional currency.

Post a Comment