Yesterday, I spent a good three hours trying to purchase the latest hyped cryptocurrency: IOTA. Here’s what I was surprised to find out.
- Purchasing Bitcoin and other cryptocurrencies is still a super complicated process, with poor UX. One of the big promises of virtual currencies is that they’re programmatic. Yet the UX of purchasing Bitcoin is often worse than exchanging fiat currencies (i.e. the USD or EUR we’re familiar with). To buy IOTA, I had to top up my Bitcoin or Ethereum via an exchange like Coinbase; then go through a lengthy sign-up process with Binance (an exchange that no one knows where is actually based, probably China) including taking a selfie with my driving license for verification purposes; downloading an IOTA wallet and more. It reminded me of the complexities of using torrents or any super-early stage internet technology, and mostly felt super dodgy.
- The fees are extortionate everywhere. I bought $100 worth of BTC through Coinbase. The fees included $3 by Coinbase for credit card top-up, or $10 for a wire (why so much?), which exclude the high fees of wiring via a US bank ($30 to Bank of America). Then to purchase BTC, Coinbase charges a whopping 1.5% which I was mostly able to avoid when I exhanged USD to BTC via their trading platform, GDAX. When I transferred it to Binance to trade for IOTA I had paid the usual ‘miner’ tax of an extra $3; then Binance charges 0.1% from each trade. So from a world of getting ripped-off by high-street banks, we’re moving into a world of getting ripped-off by either well-funded start-ups or by dodgy exchanges. Either way, the promise of purchasing virtual currencies seamlessly and on cheap is certainly far from becoming a reality.
- There’s very limited liquidity and velocity: it took me 2 hours to send the BTC to Binance. This is a known problem of Bitcoin: the more popular it gets, the slower it gets. Then Binance blocks at the moment any withdrawals of IOTA. It’s slow and illiquid, both of which are huge reasons for concern.
- More than ever, the valuations make no sense: as of today (2017-Dec-05) IOTA has a market cap of $8bn, but given that it has fewer than 1m users (it could be even fewer than 100k, no one really knows as people create multiple wallets), it feels like it could be a traditional pyramid scheme with a silly bubble valuation. Obviously the same criticism stands for Bitcoin, with fewer than 5m coin holders and $300bn market cap.
- Too vague, no transparency: take IOTA for example. It’s impossible to know anything about the credentials of its founders or other execs. Their partnership announcement seems to be somewhere on the spectrum between an exaggerated press release, to fake news, given that none of the partners acknowledged it on their websites. The Microsoft participation was the main thing mentioned in the coverage of their announcement, but I can’t find anything about it in Microsoft’s own channels and looking up the LinkedIn profile of the Microsoft employee who provided the quote makes one wonder how real this ‘partnership’ really is.
- This is all heaven for tax avoidance: If my $100 will turn into $1,000 in BTC and I then purchase something in BTC, it’ll be very hard for the government to tax me on my capital gain. I wonder if this is when of the main drivers for the money flowing in: avoiding any taxation on the gains.
- And given the point above — wouldn’t most of these currencies collapse when governments realize people just avoid paying tax on their investments?
So, would I purchase now another $1,000 worth of IOTA? Probably not yet. Something just doesn’t feel right. Putting it all on red would probably be more fun and less stressful an adventure. At least until I will find it in a few years I could have 100X-ed my money by investing in the right time.