A Brief History of Blockchain: An Investor’s Perspective
Cameron McLain
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“Crypto-currencies” are supposed to work like currencies. One major characteristic of a currency is that its value is relatively stable. These things seem to be designed to generate speculative froth from the beginning. Why only 21 million bitcoin ever? Why such an arbitrarily small number for a “currency” expected to be used worldwide? If you’re a merchant, how do you deal with the extreme volatility? A bitcoin you receive in the morning could be worth 10% more or less after lunch, so holding them presents a continuous exchange risk. I presume merchants simply have them instantly converted to local currency, though. A currency must be able to “breathe” with the economy. Its value should be fairly well correlated to inflationary or deflationary macroeconomic forces. Currencies that rise or fall rapidly usually indicate an economic pathology.

The frenzy around bitcoin and etherium is kind of confusing when you consider that they are just two versions of an underlying technology. Cryptos aren’t like gold that has a finite supply and must be acquired through hard labor in remote places. Judging by the dozens and dozens of cryptos available, the hurdle to create a new one that’s functionally equivalent to any other doesn’t seem particularly high. This is the part of the story that just screams “TULIP BULBS!” to me. Sure, there will only be 21 million bitcoin, but so what? I can just get a different one. Once there’s a way for merchants to accept any crypto without hassle, which one you use will be irrelevant. Not one of them will be anything special.

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