Whenever the topic of cryptocurrencies—where Bitcoin and Ethereum are the most known—come up in conversations they’re almost always misunderstood or dismissed.
If you’re a cryptocurrency skeptic I honestly can’t blame you. All you ever hear about it on the news is how Bitcoin rallies and then how Cryptocurrencies are about to become worthless. Maybe you’ll see claims that it’s an environmental disaster or only used for illegal purposes.
Curiously enough they don’t explain what cryptocurrencies are or what they can be useful for. But it’s to be expected as news today focuses on eye-catching stories, It’s interesting when the news handles something you have a good understanding of—they’re often completely wrong. Makes you wonder, how wrong are they about things you’re not familiar with? it’s why unsettling events like murder gets a disproportional amount of focus.
Maybe this is why most people—even cryptocurrency fans—only see cryptocurrencies as a form of investment? After all there are few things as exciting as the possibility of becoming rich very quickly.
What hope does average Joe have when even the famous security technologist Bruce Schneier concludes that:
Honestly, cryptocurrencies are useless Schneier brings an interesting perspective and he’s right about one very important aspect: contrary to popular belief cryptocurrencies don’t remove all trust.To counter his point that “cryptocurrencies are useless” all you have to do is provide one counterexample where they’re useful. I will give several.
It’s almost a universal phenomena. I’ve heard these arguments from students, co-workers, friends, family and in highly technical online communities:
- It’s a scam.
It’s just a speculative bubble and cryptocurrencies are really worthless.
Here many draw parallels to Beanie BabiesBeanie Babies is a type of toys which people used to speculate with. It become a mania where people would sell—and buy—these toys at 10x, 100x or even 1000x their original price. The mania managed to make the creator, Ty Warner, one of the richest men in the world before it crashed (he’s still insanely rich though).If you’re looking for the digital version of Beanie Babies then look no further than CryptoKitties, a blockchain game running on Ethereum. There someone spent $114,000 on a virtual kitten. or the Tulip maniaTulip mania is one of the first recorded speculative bubbles which occurred 1636–1637 in Netherlands. There people speculated on tulip bulbs which reached spectacular prices before crashing down abruptly.. And to be fair cryptocurrencies have displayed bubble behavior—several times.
- They don’t do anything better than other payment systems like PayPal or VISA.
- There’s no legal use case.
- They don’t do anything valuable.
It seems everyone has an opinion but few are capable of explaining what they are or what they do differently. Of course most aren’t dismissive but simply don’t understand what it’s all about. Many are curious and want to learn more.
With this book I hope to show how cryptocurrencies can be useful, what use cases exist and how they can help people. I’ll briefly go over how they work in a more conceptual level and I might throw in some historical notes here and there. I’m not trying to make anyone a cryptocurrency fan, I just hope to bring some nuance and to help answer some common questions.
And I must admit I’m also being selfish—writing a book is on my bucket list.
What this book is
This book tries to describe what value cryptocurrencies have using several examples. In particular I will argue that:
- Cryptocurrencies aren’t just scams.But please take care and do your research, there are many scams out there.
- It’s more than just a speculative asset.
- They do many things better than any alternative.
- There are legal use cases.
- They have valuable use cases.
Of course everything new brings positive and negative aspects with it. It’s up to you to decide where on the global spectrum of good and bad cryptocurrencies lie.
What this book isn’t
There are many problems with cryptocurrencies as they exist today. This isn’t an attempt to explain them away or to look at work being done to address them. For completeness here are some of the biggest problems as I see it:
- How can a cryptocurrency scale globally?
- How can payments be made secure enough for retail, in a couple of seconds?
- Bitcoin uses a public ledger where all payments are visible, what about privacy? Bitcoin, like almost all cryptocurrencies, use a public ledger where you can lookup how many coins any address has and you can also trace all coins to the beginning of time.There are cryptocurrencies like Monero which hides inputs, outputs and amounts for all transactions making this impossible.
- User experience is far from the level of VISA or Apple Pay.
A problem centric view is excellent for an engineer or a problem solver but it also limit foresight. For example the computer had many problems and drawbacks when first introduced but today we ridicule statements like:
I think there is a world market for maybe five computers
There is no reason anyone would want a computer in their home
Instead of putting on blinders and getting stuck at these problems, which I believe can be addressed, we’ll focus on the potential cryptocurrencies have. Only with this vantage point can we see if the problems are worth working on, or if we instead should scrap the whole idea.
This is not a deep dive on a technical level. Neither will we focus on a single implementation—Bitcoin is the first cryptocurrency but there are hundreds more.Although there are hundreds and perhaps thousands most are just copies or outright scams.