Cryptonics: Bitcoin’s Limit to Growth?
A few years ago, it was kryptonite (an imaginary substance) that garnered all the headlines. Now it’s crypto-coins, i.e. computer-bits or something similar.
Whatever the crypto-coins may be (there are currently over eight hundred varieties of the kind), they certainly are finding a slew of followers, investors, and some folks who (at least on “crypto-paper”) have gotten immensely rich from such. There are even reports that major financial institutions and governments are looking to get involved.
The Crypto-Boom
Subscribing to a variety of electronic news and advisory services, the crypto-things were mentioned there already for quite some time. As of late, everything “crypto” is going into overdrive. The number of reports and opinions about anything crypto has exploded. My impression is that messages like “Can You Make 100x in Cryptocurrencies?“and ”… discover the ‘safe’ way to profit from the bitcoin bonanza …” are bombarding every email address known, day and night.
Undoubtedly, some early investors in the crypto-craze have done rather well, cryptonically speaking. One of the most talked about “coins”, the crypto-item Bitcoin (BC) has recently seen valuations of $ 18,000 per “coin”. Some pundits think that’s still way undervalued with articles titled “The Cryptocurrency Boom is an Once-in-a-lifetime Opportunity.” Others think it’s just a giant bubble, driven by hype and a fear of loss of purchasing power of your “electronic” dollars that reside in some equally mysterious computer code residing at a financial institution. To keep you up-to-date (to the second), the investors.com website now also has a crypto-tab that shows the current prices for eight different “crypto-coins.”
Among the latest news on BC, as the Forbes magazine reports, trading in BC-futures, a realm of finance where formerly only contracts for actual physical delivery of commodities, such as copper or soybeans for future settlement dates has begun. The CME Group (formerly Chicago Mercantile Exchange) seems to be the first out of the gate. If that move doesn’t stir up the last/lost investor/speculator, what else could help the cryptonicians—more blockchains?
The Blockchain Idea
The whole crypto-technology relies on something called “Blockchain.” The crypto-coin technology uses the blockchain idea as its backbone. In practice, it means that, instead of having a short circuit from a vendor to, say your credit/debit-card provider, it uses multiple links and connections, all around the world to ensure smooth transactions without any dedicated singular system. This way, transactions are being recorded in fractional details that are spread over many systems and, thus, makes them essentially untraceable and anonymous. Needless to say, governments (i.e., their tax authorities) aren’t very happy about that. From their point of view, such a system invites all kinds of circumventions to their accustomed-to taxing mechanisms. As Justin Spittler, editor, Casey Daily Dispatch phrased it “Why every government in the world is nervous about Bitcoin.” In essence, “Bitcoin is a direct threat to their monopoly on money…” and the European Central Bank (ECB) thinks Bitcoin is “a sort of tulip” (tulip as in Tulip-Mania).
So, what else could possibly stand against the potential widespread use of this crypto-technology? As surprising as it may appear, it is the old standby, named POWER, electric power to be precise. The crypto systems need a lot, not necessarily all in one place, but collectively at many locations.
Electricity Hogs
Entirely apart from any over- or undervaluation of any crypto-thing, there is another problem that appears to rise exponentially—even without any change in value. As claimed by Eric Holthaus at grist.org, it is the electricity consumption for (i) “mining” new coins using arrays of specialized computers, so called mining-bots and (ii) for the rapidly increasing aggregate computing power to facilitate and record the transactions via a decentralized system around the globe. The latter appears to be the real long-term conundrum.
For example, Holthaus states that “Today, each bitcoin transaction requires the same amount of energy used to power nine homes in the U.S. for one day” and “by July 2019, the bitcoin network will require more electricity than the entire United States currently uses. By February 2020, it will use as much electricity as the entire world does today.” While I cannot confirm the veracity of such claims, if true, they would eventually lead to a total collapse of the crypto system. However, what appears to be the case is that even the Starbucks Corp. was “hijacking” the laptops of their coffee-sipping customers via their “free” WiFi system to use the, so acquired, “free” computing power to mine a crypto-“currency.”
In a related vein, Patrick Watson in a column at Mauldin Economics on “Why Bitcoin can’t be money” concludes his analysis with “Bubbles get way bigger than anyone thinks possible, but at some point, they all pop. This one will too.” Meanwhile even the chairman of the U.S. Securities Exchange Commission (SEC) warned investors of the dangers of putting their money into crypto-currencies, saying trading and public offerings in the emerging asset class may be in violation of federal securities law.
So, dear reader, as you may surmise, opinions are divided, prospects for success uncertain, legal aspects to be determined, the “wild-west” trading going bonkers, some folks getting rich, others losing out, etc. In one simple word, the usual SNAFU.
SNAFU, but don’t Despair
No need to despair though; there is yet another investment craze sweeping the continent’s news wires as well. It has to do with another standby, commonly referred to as DRUGS, specifically marijuana, abbreviated as POT.
I’ll get you “up-to-speed” on POT with another post, later on. In the meantime, enjoy your ill-gotten gains from the blockchain, crypto-coin boom—it may not last much longer.
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