This is not financial advice. These are my own opinions. Do your own due diligence.
Crypto has no underlying value. It’s a terrible means of payment. It’s way too volatile. It’s only good for scams and criminals. It has scalability issues.
I’ve heard it all, but somehow, the pros still outweigh the cons. To spare you time and redundancy, I’m not going to explain what crypto is (crypto is not the same thing as cryptocurrency) and how it works. Everything you need to know can be found in this unbiased Bloomberg article, The Crypto Story by Matt Levine.
This nascent technology is a movement of decentralization, independence, democracy, and freedom. It’s an inherent system of trust without having to actually trust anyone. Crypto fundamentally invented digital scarcity, which supplements society’s digital renascence. And it has the potential to transform every industry in every country for the better.
The most obvious use cases for crypto are its store of value and cross-border payment interoperability. It is proving to be a lifesaver for citizens of nations dealing with hyperinflation and corruption. But it also has many other use cases.
Using blockchain, fractionalization can make expensive assets more affordable by sharing the cost and the risk between hundreds or thousands of different owners. This benefits not only the buyer but also the seller, who now has a much larger pool of investors who can afford to buy into the asset.
Arguably the most significant impact of crypto is decentralization and democracy. Crypto provides a new way for people to quickly and securely store and transfer value directly with each other in a peer-to-peer network without the need for a centralized authority. The transactions are transparent, decentralized, and distributed, so there’s no single point of failure or control. In terms of democracy, crypto provides greater access, leveling the playing field. It gives people more control over their ownership and decisions without any large councils with supreme authority.
The price of cryptocurrencies, mainly Bitcoin and Ether, loosely reflect the adoption and utility of crypto infrastructure in society. As more people and organizations start using the technology, and as it becomes more useful to society, the price of Bitcoin (BTC) and Ether (ETH) will increase in accordance. When exploring which altcoin to hold as an investment, consider what unique features its blockchain has, and how it can be used to create value in industry. Speculate not on the cryptocurrency itself, but rather on its underlying technology.
Bitcoin was the first blockchain ever created and hasn’t been modified or updated since its inception in 2009. Since then, many different blockchains have been created with distinctive features making them more efficient and useful than BTC’s infrastructure in a lot of ways. BTC’s value proposition is unique. It doesn’t necessarily come from its blockchain. Since it was the founding father of the now vast crypto world, it has become widely accepted as THE digital gold.
Today, gold is by far the most valuable asset by market cap; 5x larger than the second most valuable (Apple) and larger than the next ten combined! It’s been around for centuries and people trust it as a store of value. Keep in mind that gold weighs a lot, it’s hard to transport, it’s a poor use for currency, and it’s not even the rarest metal in the world. Despite this, it is still the world’s most valuable asset by a long shot.
Bitcoin is a modernized digital gold still in its rudimentary stages. It provides the same type of value as gold (a store of value) but in a more effective way. With society’s digitization of everything, Bitcoin is an inevitable progression of technology and serves a real need.
The second largest and most popular crypto platform is Ethereum. ETH doesn’t have the same luxury as BTC and instead derives its value from its underlying technology. When you buy ETH, you’re speculating on the future functionality of its blockchain, the utility of its technology, and its potential to be used by companies and governments to create value.
ETH was built as a platform to run smart contracts and applications using Ether. A smart contract is a computer program that automatically executes the terms of an agreement between two or more parties. It’s like a virtual middleman that ensures everyone involved in a transaction or exchange follows through on their commitments.
For example, you want to buy a house from someone, but you don’t really know them that well. So you want to make sure that they’ll give you the house once you’ve paid them, and that they won’t sell the house to someone else at the same time. The traditional way to do this is to hire a lawyer to create a legal contract that lays out all the terms and conditions of the sale. But this can be expensive and time-consuming.
With a smart contract, you can cut out the middleman and use code to create a digital contract that executes automatically once all the conditions are met. The code in the smart contract will ensure that this happens, without the need for a lawyer or other intermediaries. As you can imagine, this has various use cases and can remove tons of redundancy and drudgery by allowing trustless and decentralized transactions.
In addition to smart contracts, ETH’s platform allows for decentralized applications (DApps), nonfungible tokens (NFTs), and decentralized finance (DeFi).
DApps are smart contracts programmed for specific recurring use. These could be social networks, games, marketplaces, streaming platforms, etc. The market size was valued at $10 billion in 2019 and is anticipated to reach $368 billion by 2027.
NFTs are unique digital assets that represent ownership or proof of authenticity of a specific item. They revolutionize the concept of ownership in the digital world, allowing creators to profit from their unique works, and for collectors to own and trade valuable digital items. The global NFT market size reached $15 billion in 2021 and is expected to reach $215 billion by 2030.
The most promising of the three, DeFi, has the potential to recreate the entire financial system by digitizing and streamlining bank functions such as lending, borrowing, and saving. Smart contracts can lend money based on criteria written in code. They can also facilitate deposits and make interest payments without human intervention.
Stablecoins are cryptocurrencies whose value is pegged to another currency, commodity, or financial instrument so that investors can transact in crypto without using fiat currency. These coins offer all the benefits of cryptocurrency such as instant transfers and low fees, without the drawback of volatility. If DeFi proves to be viable, it can improve financial inclusion, increase liquidity in the markets, and reduce costs.
Ethereum-based applications will impact markets, governance, public services, and perhaps even how identity is managed. In the future, we may use the ETH platform to change the way mortgage transfers, securities trading, and many other fields work. This will happen on a network that can reach anyone, anywhere, who can connect to a public network.
ETH also has an active developer community that works to grow the network and improve its features. And if that’s not auspicious enough, it also has a disinflationary supply, its transaction speed is roughly 3,900% faster than BTC on average, and it’s more scalable and continues to upgrade.
Today there are over 20,000 cryptocurrencies in circulation, the vast majority of which are fundamentally worthless. As a crypto investor, your job is to investigate the underlying technology of each project. Other than BTC and ETH, the platforms I have my eyes on are Solana, Ripple, and Cardano. Each has unique unparalleled features and functionalities that can be used to create value in the market and replace antiquated mechanisms.
Lastly, much of the crypto environment is risky by nature. You can’t call yourself a true crypto investor without getting the full experience and sending it on at least one shitcoin predicated on a baseless thesis. My personal send is on $KITTY DINGER. I think there will be a competing cat version of Dogecoin, and Schrödinger will be that cat. The battle of the memes will prevail and cat lovers will multiply Dinger’s $700k market cap in an attempt to compete with dog lover Dogecoin’s $10 billion market cap.
Disclaimer: Please be a responsible degenerate. I purchased Dinger coin with the expectation that it has a >99% probability of going to zero. It will not affect me at all if I lose the entire amount because I treat it like a purchase of a consumable entertainment good, like a movie ticket or a videogame. If you buy any shitcoins, consider your money gone. It should be purely for entertainment as they have no value other than being a replica of Bitcoin for memes and hype.
These utopian crypto ideals are nowhere near maturation, and the tech is still in its early stages. The fact that the industry survived multiple large-scale crashes, bank failures, large frauds and scams, and massive bankrupt companies is an encouraging indication that crypto is here to stay. Every new technology will have hiccups and will go through some painful but necessary challenges on its road to maturity. Along the way, many people will lose a lot of money, and numerous crypto projects will fail. But in the end, the value will reveal itself and continue to improve each day. Crypto is passing the litmus test. The tech and all of its features will survive the choppy waters and transform society.
I experiment and learn about crypto through my Web3 art collective.