In The Wake of the Crypto-Quake
As January closes, we all might want to do a bit of self-reflection on the idea of cryptocurrencies and the blockchain in light of the recent volatility of Bitcoin's price. The way I see it, we're at a crossroads right now with regards to the digitalization of currencies. We have genuine teams of people trying to better systems of payment for efficient mixed in with snake-oil salesman (i.e. the alleged Bitconnect ponzi scheme). What price do faster and more secure transactions come at? Is the world ready for such a revolution?
The Technology and The People
Nowadays, our lives are surrounded and run by technology to an extent that no one from two or three decades ago would have imagined. The adoption of technologies isn't anything new or surprising in the context of modern, developed nations which head innovation. Remember that just a few years back, Elon Musk was still fending off doubts that he could design an electric car that could be feasibly driven long distances along with almost bankrupting himself with his SpaceX efforts.
Now, he's arguably the symbol for innovation in the automobile and space industries, stealing the spotlight from a number of traditional car manufacturers. But what about technology as it applies to the Blockchain? Does the direction of the increased digitization of currency make sense?
If you think about it, people actually really have very few qualms about using technology that they don't understand as long as there's a bottom line. What I mean by that is that people don't care about the thinking, effort, and research put into a product as long as it reliably works and provides them with an intuitive and easy-to-understand convenience. Just ask the average Joe if he knows how a credit card or an ATM works, or if he understands the inner workings of his computer's operating system.
But regardless, people still use credit cards and computers. When it comes to technology, advancement does not have to coincide with 100% comprehension, and this is one of the reasons behind both the feasibility and the risk associated with cryptocurrencies.
The Barriers to Blockchain Technology
The actual algorithms that are executed when mining for coins usually fall far outside the expertise of most people that are participating in the Blockchain. The majority of people might be enthusiastic because they buy into the cool sounding idea of a decentralized, private currency that allows for nearly instantaneous payments, but if you ask them what the benefit of a ledger that records all transactions is, or the anatomy of that recording mechanism itself, they'd be hard pressed to come up with something coherent.
Here are some issues that are pretty relevant to blockchain tech that most people overlook completely.
What's the point of decentralization if you can't trust those who are doing the decentralizing. Again, I don't have to point out the numerous pump-and-dump ICO schemes that have popped out of nowhere in recent times. How does decentralization simplify the process instead of making it more haphazard overall? Who do you trust?
2. Lack of regulatory oversight
Nobody wants the government in their business, but the fact is that a lack of regulatory oversight will inevitably create bouts of speculation as well as a breeding ground for market manipulation and trading based on insider information. One research article claims that a single individual or group may have been responsible for driving the price of Bitcoin from an initial $150 to $1000 over two months in 2013. Can we trust the market to be fair to its participants?
Monero (XMR) has gained a lot of popularity in the past because of its innovative take on privacy. But if you think about it, doesn't privacy and untraceability of transactions defeat the purpose of a ledger that records all the transactions that have ever taken place to begin with? You'll end up with a system where you know which payments in what amounts have been sent at which times, but that information will be dissociated from individuals.
The Importance of Trust
At the end of the day, cryptocurrencies and Blockchain technology derive their value from the same foundation as any non-virtual currency: from trust. People should never forget that the basis of the dollar stands on the promise that the United States government will not default and is able to pay back all of its loans.
Similarly, Bitcoin, Ethereum, and other popular cryptocurrencies are bolstered by the fact that people are interested in decentralization and the digitization of assets. How long that trust and interest will last is tenuous, and we should keep thinking critically about it if we want to see a paradigm shift from the widespread adoption of the Blockchain.