Monday, June 18, 2018

Bitcoin is not going to be your major currency anytime soon

Bitcoin is not going to be your major currency anytime soon

Don't bet on bitcoin ever replacing the dollar or other traditional currencies as everyday money.

Switzerland-based Bank for International Settlements (BIS) just released a negative report (pdf)on Bitcoin. The report's authors were unimpressed with many fundamental design aspect of the cryptocurrencies. He went on making a strong statement saying that processing cryptocurrencies payment can potentially "bring the internet to a halt".

I am very much in agreement with the report and have written a post "Crypto Currencies are not doing what they are supposed to do" earlier. Basically I believe the issue of crypto currencies are:

  • Unlimited supplies
  • Consume too much energy
  • Transaction too slow
  • Transaction cost too high
Most people that I know involved with crypto are attracts by the potential gain of the currencies. They mind it or trade it as investment or speculative commodities. I may be bias here but none of my friends in both investment world and high tech world are really using the crypto to buy stuff, at least not in a big way. 

As an investment asset, the fact that it's open source and there can be unlimited version of crypto in the market is enough to scare me to not touching the crypto. I have to be honest that I was tempted to mind some bitcoin for fun and for the greed of making some quick gain. Eventually I did not do anything simply because I did not want to spend time of a tiny holding of bitcoin in my portfolio even if I went ahead of mining it. If I were to spend time on the technology, Blockchain would have been much more worthy of my attention as I do believe that blockchain can help improve the speed and efficiency of processing of transaction across internet.

I am still very much concern about the structural issue, deeply embed in the DNA of blockchain technology, of high CPU and electricity power consumption. The very principle of blockchain is to have everybody checking everybody else for every single transaction. Obviously we are talking about a lot of resources to be used by every single machines.  Therefore the transaction must be more worthy then the cost. However, as the number of machines on the blockchain network grow, the cost will increase exponentially while the value of each of the transaction should stay the same overtime. This math does not work out for me. So if we are to use Blockchain as it is, I believe that there is a natural max number of machines to make business sense.

I am, however, positive on blockchain. It is basically software design. It is easy to change as we update our software for betterment. The key take away from today's blockchain is "a way to use Internet to cross check each other" as the ultimate authenticity of transactions and agreements. I am sure our smart developer will come up with a solution on the transaction cost. The future will be bright. 

As to investing crypto as it is today, I do not see it as a good investment for me as a conservative investor. Of course, big money can be made for those who are talented in trading crypto especially those new ICO crypto. I would much prefer to stay with my traditional equity investment.

As to using crypto as currency, I have absolutely no need and I have not used it before. Unless the world change and crypto seriously enter into mainstream, I do not see me using crypto as money.