Cryptocurrencies: A bubble that doesn’t burst, a volcano that didn’t disrupt anything, and a coin that can make few rich but can’t buy vegetables

Article by Kalpesh Popat, Thought Leader for Technology, Nature and Relations, Director @ SARAS ennovations

When It All Started

Bitcoin, the flag bearer of Cryptos, launched in Jan-2009, but my story unfolds several centuries ago.

Let’s take a quick look back into our young carefree days when collecting coins of various countries was a passion. What interested me particularly were the coins of various Kings of India. Our country so rich in its culture was also rich in Kings and their century old coins made for a great collectible, each had their own version imprinted on some form of metal.

Before the coins were introduced, barter system was the only means for a transaction. Since barter system was rigid as it forced us to have a transaction only when both parties had something useful for each other, coins (currency) became a great engine to fill the gaps in the barter system,  giving birth to a much flexible economy that was also easy to save, account and tax.

Currencies, however also gave rise to an issue, as it is essentially a printed resource and there are various forms of pressure in economic politics that leads to more currency being printed leading to devaluation of the currency and hence Inflation – “In which few reap benefit but at the cost of future generation experiencing the value of the savings of their parents money going down” See Printing Currency & Inflation

Grand Launch Of Bitcoin

This is when Bitcoin came into picture, claiming Cryptocurrency as a single tool to fight against inflation.

A great launch in 2009 for Bitcoin came with many promises. It was impressive to know:

1. That Bitcoin will have a logical cap to become a finite resource like Gold and bring stability in trade.
2. That it is safe and can be rapidly transferred with no extra fee, and it will disrupt corrupt Banking.
3. That this is the new way the countries (eg: Zimbabwe) that are drowning in inflation can fight back and get a stable economy running again.

These claims were enough for me to get started and favour cryptocurrency. However as my understanding got better, following became clearer:

1. I have to start calling it "cryptocurrencies" - a plural, and we are being taken back to the era of the Kings, with the difference that anyone can become the king and create a new crypto coin and flood it in the market.
2. Promoters of Bitcoin single-mindedly focused on highlighting flaws of banking system and completely ignored to address the design flaws in cryptocurrencies itself.
3. As per them a regulated bank is more corrupted than an unregulated world of cryptocurrencies.

Such is the power of the West over the World 

that they can sell a coin that doesn’t even exist

Let’s Test Their Key Promises

We will ignore the trade market benefits and focus whether Cryptos can fulfil their key promises or not.

Promise 1: I am Finite

Entire cryptocurrency market has erupted on the ground that it is finite like Gold and its logic controls the number of coins that will ever circulate in the eco-system.

Test 1: Bitcoin has a cap of 21 million, and its smallest value nick named Satoshi  is 100 millionth of a BTC. Not only is this playground already larger than any other currency, this is not even “mathematically finite” because the value keeps dividing therefore enlarging its purchasing capacity. The key point here is no one can even foretell that the cap will not be revised in the future, after all it is just a logical cap and far more simpler to revise compared to printing a currency.

Test 2: Bitcoin is not the only cryptocurrency in the market, anyone can launch a new cryptocurrency. It is therefore safe to say that there is no CAP – vertical or horizontal.

Test Results: CLAIM FAILED. Cryptos are not FINITE and therefore cannot stop inflation.

Promise 2: I am Safe and will disrupt corrupt Banking

In every video of Bitcoin promotion, they claim banks are corrupt and cryptos are here to address that. And if we switch to cryptos we can also safely transfer money with no additional fee.

Test 1: Let’s put this system through the test of time. It is 2030, the traditional currencies are gone, and cryptocurrencies are mainstream. Who is providing the security of my transaction then?

Will Miners be in charge instead of Banks?

Test 2: When I buy from Flipkart, Lazada, or Amazon they act as a middle entity and ensure the success of the transaction. Internally these online businesses and their suppliers rely on banks, law and its ecosystem to safeguard contracts and handle disputes.

Governance & Banking system is a “service” and cannot be disrupted by currencies, as they play important role in the eco-system. If services are not going anywhere, fees are not going anywhere either.

Test Results: CLAIM FAILED. Transaction Security comes from an ecosystem of law and services and not from a Currency - crypto or regular.

Bitcoin, a child of a decentralized database processing engine, is Promising a future without Banks & corruption; 

Well…. I would rather follow Nithyananda and achieve Nirvana!

Other Challenges That Require Attention

1. The crypto architecture is not energy efficient as it maintains 1000s of copies of its database to keep the system difficult to hack. This puts tremendous energy burden on the whole system.
2. If you loose the private key you loose your crypto wallet, which is basically sitting on a mobile that is easy to loose too. Who will you call to get your crypto money back?
3. An entire underground market can flourish with Crypto coin specially made for corruption, making it easier to purchase illegal resources that will be harder for authorities to trace.
4. Cyber criminals and hackers are more inclined to ask Crypto coin as a preferred currency for ransom payments since it is difficult to trace it back to its owner.
5. It is not hack proof either, it has been hacked before and there is no guarantee of a hack proof future.

Future of Cryptos

In short term, trade markets for crypto going up and down based on actions of a few popular personalities may benefit investors, as money change hands in trade and rich become richer.

I don’t see cryptos disappearing as a bubble since investors will want to keep it alive. Neither can crypto disrupt anything by going solo because it cannot fulfil its key promises.

Crypto’s dilemma is like Covid Controversies,

many takers but can’t accept it fully nor deny it openly

Looks like Cryptos will either remain as a popular trade or if given the right direction it can simply replace the regular currency of each nation and take that currency’s existing trade value. Leading to 100 % digitization and reduction in printing cost, thereby whenever Government wants to print more, Reserve bank can mine more coins, this way mining will also not be a continuous process and save further energy. Of course Inflation remains to be solved, which in any case was never in the hand of Cryptos.

The future of Cryptos therefore remains unclear, its promoters need to stop the hate drive against the banks and economy, they need to accept that merely writing a block chain software and creating an encrypted wallet cannot solve economic crisis, they should rather address the hardcore challenges that is blocking this system from being used mainstream.