Cryptocurrency - a Few Thoughts
There’s probably thousands of posts on the subject already on the internet – and nothing said in this post should be new thoughts or information, but I’ve found it to be helpful to write down my thoughts, forcing me to articulate my thinking on the subject. That being said – onto the post!
Cryptocurrency has taken the world by storm, and I, unfortunately, believe there will be a big crash in the future. Bitcoin, Ethereum, Ripple, etc. have grown in such high value, that it can’t be sustainable (until there is a killer use-case for them).
Overall, I strongly believe in the utility of cryptocurrency and how it can change multiple industries for the better…I just don’t believe we’re anywhere close to that yet with bitcoin (for the remainder of this post, I’ll use bitcoin to refer to all cryptocurrencies in the market today). I already had this thought for the past few months, but it was fully crystallized on a recent trip to NYC. There I met numerous people investing in bitcoin, not for the utility of it, but to try to make a profit in the growth in price. They were all hopeful in the utility and use-cases catching up to the currency in the future, but they had no intention of using their bitcoin’s for anything other than an investment. That sort of thought creates an easy environment to create a bubble. Everyone believes it’s valuable and will grow in price – but unsure of how exactly they would use the currency in their life.
I believe part of the thought process that is occurring around the world is FOMO. Warren Buffett has mentioned this reason as well – and to expand on that thought – I believe the recent successes of Google, Amazon, Facebook, Netflix, etc., and a majority of the financial benefits affecting a small group of individuals (early employees, VCs, and larger private growth investors) has left a lot of people feeling left out. The acknowledgment of missing that boat, and fear of potentially missing the “bitcoin” boat has led to a lot of investors flocking to the scene.
Another unsustainable part of the bitcoin process involves the energy consumption required to run the blockchain. The technology developed to run and maintain a blockchain is revolutionary. However, this initial iteration of processes required to maintain the 1st generation blockchain is way too high to be useful. The fact that it takes more energy to maintain the blockchain compared to 100s of countries is ridiculous. Perhaps a future iteration of the blockchain will be more energy-efficient, and the port over for all the current cryptocurrencies will be trivial…or a new cryptocurrency with an energy-efficient blockchain will be created and overtake the status quo. The fact that this possibility exists is enough to scare me away from bitcoin.
Regardless – there are too many unknowns for me to feel comfortable with the state of the market and hype around cryptocurrencies. I may miss the boat, but I think I’ll sleep a lot better this year because I won’t have to check coinbase on a daily basis.