Simplified Crypto
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Simplified Crypto

Strength In Numbers, But Cash is King

After writing about blockchain, Ethereum and the ioT a while back it got me thinking about the long term potential of cryptocurrency such as Bitcoin and to a lesser extent, Ethereum as a form of currency.

I came to this conclusion, it’s likely not going to be a thing, let me explain…

Please Hold The Pitchforks

Back when Bitcoin was brought online it had the lofty goal of being the uncontrollable currency for the masses. Bitcoin is big, really big and I’m not trying to say that come tomorrow or the day after it will simply cease to exist. What I am trying to say is that as a currency it just doesn’t work.

Let’s start with the learning curve. If you own some Bitcoin you are in effect your own bank. This might bring a sense of security to some of the more paranoid among us, but I myself don’t like the idea of constantly having to ensure my private keys are locked away someplace safe and that I have made efficient backups. It’s a hassle to say the least.

Then there’s the usability. Let’s say I want a coffee and I want to pay in Bitcoin. First of all the shop has to accept it as payment, which is a rare find. Then I’ll have to hang around for 10 minutes while the transaction gets a confirmation. People always leave this part out for some reason… Even though the transaction itself is instant it needs to be confirmed to be considered valid, which can take upwards of 10 minutes to an hour.

Granted you can tack on a few extra satoshis (aka Bitcoin “cents”) to the transaction fee which will speed it up, but due to current network congestion this fee can add an extra $1 or more to your order! I’ll take a guess and say you probably don’t want to pay extra for a transaction that’s cheaper and faster via cash, credit, or debit.

See the problem? Sure sending money around the world is hella easier with Bitcoin if the fee is lower than Western Union and it can be completed within a few minutes to hours. However given the current state of the network, the reality is the magic internet money of the future is becoming harder and harder to be used as designed.

I should also throw in that there are banks and credit unions that offer no fee interact transactions which means more people can afford to use their debit card for a coffee than cash, credit, and Bitcoin.

So Ethereum! Ethereum Is The New Bitcoin!

Oh god no! Ethereum was built to use the same blockchain technology as Bitcoin and its vastly faster in terms of confirmation times (12 seconds per tx), but it was built to solve a completely different problem. To quote the official Ethereum FAQ

“Ether is to be treated as ‘crypto-fuel’, a token whose purpose is to pay for computation, and is not intended to be used as or considered a currency, asset, share or anything else.”

“That doesn’t make sense, why is it worth money then?” Well because nothing in this world is free and that includes computational power. To run Smart Contracts (unstoppable, decentralized programs) you need Ether, the token of value on the Ethereum network.

Ether’s value is determined via the mining which had to be performed in order to run the Smart Contracts that live on the network. If there was no token of value one could write looping code that would bring the network to a standstill. The miners are compensated as they are in Bitcoin for providing their computational power and contracts on the network that are spammy or badly written don’t slow down everyone else.

In short, Ethereum was never meant to be a currency, it just simply happens to be a side effect of having “real world” value. We could all trade Beanie Babies as currency if we came to a consensus about how much a tiger is compared to a zebra. Although other than providing a child with a small plushy friend, there’s really no other value to them; but I digress.

But, It’s The Future!

Is though? Yes transacting should be as easy as sending an email, and Bitcoin has shown us how it can be done using blockchain. However just because Bitcoin was first doesn’t mean it should be the end of traditional money, aka fiat. To parody a line often chanted by Bitcoin maximalists… There may be strength in numbers, but cash is king.

The Bitcoin community likes to imagine that the technology they helped bring to the people of the world is thiers and theirs alone without considering the fact that blockchain technology at its core is free for anyone to clone and use. Altcoins or alternative cryptocurrencies such as Dogecoin or Dash are some notable examples, but what if a bank were to adopt this tech and use it on their back end? What if they already have?

Quorum is good example of this. Developed by none other than JP Morgan. It’s their own instance of Ethereum developed specifically to run financial Smart Contracts on a private blockchain. Oh did I say it was like Ethereum and not Bitcoin? Wonder why… Insert previously mentioned transaction speed here.

The fact is, if Bitcoin was meant to disrupt the way we transact, mission accomplished. However as it turns out the financial institution are not as out of touch with technology as the maximalists may think. They’ve come back with their own protocols and pet projects that turn the blockchain into a viable financial tool. Sounds a little shady, but it works!

Closing Thoughts

The ultimate irony is that Bitcoin broke the chains of our current financial system, but it hasn’t freed us from it. The banks can and simply will just integrate the technology into the their architecture; and that’s not a bad thing either. We need faster and more efficient ways to transact, and blockchain is a great way to modernize the current systems for the years ahead.

I used to think we could overthrow the system and pay for various things with magical internet money, but as I looked into it and used it a few times in the real world it dawned on me that it’ll never fully be integrated with society, and the recent SEC decision confirms this. At the end of the day we rely too much on the current system to just throw it away for something like Bitcoin to use as a cash replacement.

Decentralized networks have their real value in automation, just take a look at LO3Energy. They used Ethereum smart contracts as a way to trade solar power between residents! There’s no need for human oversight, no central server or custom built software, its just code running on the Ethereum network. That’s the real power behind these systems, not currency.

So the next time you’re in a coffee shop and they tell you can pay with either cash, credit, or Bitcoin… pay cash.

PS: It should be obvious, but my opinions are my own and I respect any objections to the contrary. Please feel free to comment.

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A no nonsense, low hype cryptocurrency blog for those who want the basics.

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ThatOtherZach

ThatOtherZach

Writer, photographer, cryptocurrency enthusiast and Esperantist

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