In a novel written only four years ago*, one of the protagonists had amassed 10,000 early-mined Bitcoins. These she mined, as one of the early participants, after redeploying her employer’s computer network when it was idle at night.
She must be kicking herself. In the novel she sold them for around US$4M and thought she was clever. She was wrong.
If she had kept them, though she had external justifications to sell, those Bitcoins would be worth over US$40M today. If only she had sat tight for four years. Such are the pleasures of investing.
This mechanism to illustrate the uncertainties surrounding cryptocurrencies may be fictional, but the point is serious:
- the price of Bitcoins has soared to over US$4000 each
- there dozens if not hundreds of ICO (Initial Coin Offerings) coming to market
- on August 11, Coindesk reported the cumulative value of the cyptocurrencies at US$127B and on August 23rd as over US$150B
- the Managing Director of the Estonian e-Residency program speculates about an ‘estcoin’ for e-Residency users.
The apparent value of cryptocurrencies zooms
In The Merchant of Venice, Portia argues that “All that glisters is not gold…” By conventional this has now become “All that glitters is not gold.”
This is an apt summary of the cryptocurrency world which has become a deceptive arena. Protecting yourself is now as important as trying to make a quick buck (or thousand bucks). Or, as an ageing 20th Century Oxford don is rumoured to have said, albeit in quite different circumstances “All that jitters is not guilt”.
A fundamental building block of the dependability of the blockchain underpinning Bitcoin is that mass participation in mining ensures that no individual (person or enterprise) can take over Bitcoin. The inverse of this is that, if anyone can control 50.1% of the ‘voting’ power when adding blocks to the blockchain, then theoretically that owner could alter blocks.
It has not happened. The resulting chaos would be enormous. But it is conceptually possible.
The days when this might occur could be closer than most realise. Digiconomist estimated, on Monday August 21st, Bitcoin mining had already consumed a shade over 16TWh in 2017. That is a prodigious amount of energy. For comparison, Ethereum has consumed around 5TWh this year. These are quantities to light and heat towns if not cities or small countries.
There is worse to come
Worse the number of bitcoin miners continues to reduce, though not the electrical power required. Bitmain spends an estimated US$39000/day for the electricity to power c 25000 optimised mining servers located in vast sheds in Inner Mongolia. There cannot be many who can afford such industrial scale plants, plus the people to keep the systems running.
Ergo, the processing power which backs Bitcoin is gradually concentrating in fewer hands. As an CNBC headline put it: “Bitcoin ‘mining’ goes from enthusiasts to giant enterprises as digital currencies surge”.
And worse again: Bitcoin is the most reputable (or least disreputable) of cryptocurrencies. Ethereum follows behind. But then there are hundreds of new ICOs. Analysis of those listed on ico-list.com shows:
- 13 ongoing ICO fund raisers
- 27 scheduled
- 95 which have completed.
Just inspecting the details, or in many cases, lack of details, should convince most that the ICO world is not transparent. It is definitely a world of caveat emptor.
ET has written before about Estonian e-Residency and the ability to use e-Residency to open banking arrangements as well as set up business. By a quirk of coincidence, though in different circumstances a forthcoming novel (‘Resurrection’**) conceptualises a GreekCoin. The design envisages a Greek national e-currency (the Greekcoin). This would supplant both the Euro and the dreaded IMF, ECB and IMF Troika.
The Managing Director of e-Residency, Kaspar Korjus, speculates in a blog post about an ‘estcoin’. In his words: “Just like e-Residency, cryptocurrencies have evolved from a niche idea into an increasingly normal part of modern life for people everywhere in the world because they offer real solutions to real problems.
“Several countries have begun experimenting with the introduction of their own digital currencies and China has even developed a prototype cryptocurrency that could one day be put into circulation.
“However, Estonia has a clear advantage in this area due to its advanced digital infrastructure and its e-Residency programme. No other country has come close to developing both the technology and the legal frameworks that would enable them to introduce and securely manage tradable crypto assets globally. …
“A government-supported ICO would give more people a bigger stake in the future of our country and provide not just investment, but also more expertise and ideas to help us grow exponentially.”
An Ethereum founder’s view
Mr Korjus has also persuaded Ethereum founder Vitalik Buterin to comment: “An ICO within the e-Residency ecosystem would create a strong incentive alignment between e-residents and this fund, and beyond the economic aspect makes the e-residents feel like more of a community since there are more things they can do together. Additionally if these estcoins are issued on top of a blockchain (they could possibly be issued in multiple formats at the same time, nothing wrong with this) then it would become easy and convenient to use them inside of smart contracts and other applications.”
For an example of how any additional money might work for and on behalf of the Estonian people, Mr Korjus cites the Norwegian state pension fund (more commonly known as ‘the oil fund’). Many regard this one of the smartest national investment vehicles around. Overall it has maintained impressive growth, though not so much recently. Mr Korjus aspires for a similar result.
A contrary view
Bloomberg has published an analysis entitled “Cryptocurrency Cyber Crime Has Costs Victims Millions This Year”. It argues that more than 10% of ether holding for ICOs are missing and intimates that some 30,000 people have lost an average US$7500 via ‘crypto crime’.
It goes on to suggest that the losses incurred now approach the cost of US robberies in 2015, which stood at nearly US$400M. In crypto crime scams, “… investors are tricked into sending money to internet addresses pretending to be funding sites for digital token offerings related to the ethereum blockchain technology”.
The cryptocurrency/ICO investments arena is a dangerous place.
What does it mean
ET deliberately separates blockchain from Bitcoin/ICOs/cryptocurrencies. This occurs for two underlying reasons:
- we believe that blockchain technologies have profound potential, even if as yet unproven, for enterprises
- we regard the cryptocurrency/ICO investments arena as changing too fast as well as being beyond our competence.
This may have to change. But, for the moment, it explains why we spend so little time on cryptocurrencies.
Multiple full disclosures: the author of the above: