Which crypto currencies do we need?
It’s easy to get swept up in the excitement around the crypto space and to imagine a world that looks different because of it. As I evaluate potential investments in the space one of the questions that has to be addressed is: Do we need this stuff and does it add value? While discussing this with a few people I’ve realized it isn’t always an easy question to answer. I’m going to focus on addressing this for Bitcoin, Ethereum, and Dash.
Bitcoin started it all and enjoys a first mover advantage because of it. A dedicated developer base, a hedge against fiat currency depreciation, and a very secure platform. Bitcoin absolutely has value for these reasons and potentially more as it gets scaled. Most token exchanges only trade the majority of products vs Bitcoin. It is the reserve currency of the crypto world. Bitcoin problems are problems for the entire space because of its wide user base we see the stresses happen there first. The best use case is still evolving but at very least it’s moving towards a legitimate alternative asset and store of value.
Ethereum is more controversial than Bitcoin. It’s a smart contract platform and wasn’t intended to be a currency or means of payment. It enables users to unleash creativity in a variety of ways they see fit. With this comes trouble and potential. Because it has such a large use case it’s prone to more security breaches. Anyone can create a token based on the infrastructure without a computer science degree. This is part of what shot ETH/USD from $8 to $400 after the ugly hard fork. Things got way ahead of themselves and now people are taking a step back and looking at the pros and cons of the technology. The tone went from euphoric to more downbeat. I don’t believe the security argument is strong enough to diminish the upside of the blank canvas this technology gives to users. I look at this from an investment standpoint and sometimes from a trading standpoint. I’m not intimately versed in the technical side but historically things that have given this kind of creative power to users have done very well. I do have sympathy for the argument that ETH/USD may not be the most stable store of value given the ICO pump and dump effect. I hope regulation will put some guardrails around that. A quick example: I create an Ethereum based token and do a great job marketing it. I attract a few million in short order from people who use USD to send me ETH for my new token. Then I quickly turn around and sell those ETH back into the market so I can get USD to run my business or I can pocket the money if I’m a real scumbag. I believe that was one factor responsible for the big run up and then 60% crash down in ETH/USD. All of that said I’m a believer in this platform and it’s my largest holding.
Dash is the most interesting and toughest for me to figure out. The reason it’s even in this post is because I noticed as Bitcoin came off to $1900 and ETH came down to $130, Dash stayed much stronger relatively. That got me interested.
Dash wants to be digital cash and I like that concept. I have seen many similar offerings but Dash seems to have the most uptake so far. They just released an aggressive expansion plan to scale and they have an Android/iOS app with solid reviews and a decent user interface. Another thing I like about Dash is the masternode structure. Essentially it’s a second layer of servers run by users who own more than (or equal to) 1000 Dash coins to process instant or private transactions. There is a lot of griping because the founding team owns a lot of these masternodes but that doesn’t bother me too much. What I like about it is the stability it provides to the price. If you run a masternode you get a roughly 10% dividend for doing so. This means those holders of 1000 Dash coins aren’t as interested in buying and selling, so the volatility goes down. If Dash is going to make it as a means of payment this stabilizing mechanism is going to be important.
I was getting more and more excited and then I had a conversation with a good friend who asked the question we started with: Do we need this? We talked about how we loved Venmo on our phones to send cash quickly and how none of the crypto interfaces are as easy to use at the moment. So what’s the value here? Being outside of the fiat currency world is the biggest value proposition but we can do that in Bitcoin. So why do we need Dash? Certainly it can add a layer of privacy vs a Venmo like service but how much do average folks care about privacy? I think privacy is overrated in terms of the economic decisions people make. I don’t care if a 3rd party sees my payments but I know some will disagree with me. Even so does that group want it bad enough to leave a safe and easy to use status quo system? If you make a mistake sending some Dash to the wrong address there isn’t a central authority to undo that mistake. The sword of decentralization cuts both ways. It sounds like I’m pretty negative on Dash but despite it all I do own some because: 1) The masternode structure incentivizes stability 2) you can get outside of the fiat system and use it for payments 3) the market is telling me that it’s getting traction vs competitive technologies.
I think we can ask these questions about many others but I’m starting with these three. I’d love to have readers challenge these opinions and add to the discussion.