The Technology behind Cryptos

Simon Black from Sovereign Man gives us this:

Hallelujah.

After almost a decade since Bitcoin was created, the SEC announced last week the creation of a new, senior position to coordinate the agency’s cryptocurrency and ICO efforts.

As usual, the government showed up late to the party. But at least they showed up.

The good news is that the person chosen by the SEC to fill that position is quite sharp.

She has an engineering background, obtained her law degree from Georgetown, and, most importantly, she understands crypto.

The bad news… or at least the expectation that a lot of die-hard crypto fanatics have… is that increased government oversight will be negative for crypto prices.

Over the weekend, for instance, almost every major cryptocurrency fell, in part because the government launched an investigation into cryptocurrency price manipulation.

But in all likellihood, reports of cryptocurrencies’ death have been greatly exaggerated.

Governments almost always regulate technology– automobiles, radio, television, the Internet.

And while regulations often create unnecessary costs and inconveniences, they haven’t stopped the overall rise of these important technologies.

Crypto will likely be the same. It’s too mainstream to kill off, and the SEC needs to show the world that it embraces innovation.

Plus, there are too many mega-corporations that have been investing heavily in their own blockchains and distributed ledger technology (DLT), and those companies have far too much political clout to be shut down by the SEC.

(DLT is the umbrella term to describe all the various technologies which distribute transaction information and records to various participants. Blockchain is one type of DLT.)

If anything, that’s the real threat to most of the tokens and cryptocurrencies that exist today– the rapid advancement of the technology itself.

Consider Bitcoin, which is still by far the most popular cryptocurrency.

Bitcoin was originally launched back in 2009 as an electronic form of cash to make secure payments across the Internet without having to go through a bank or financial institution.

Yet Bitcoin’s own software limits its throughput to just a handful of transactions per second.

By comparison, Visa and Mastercard can handle tens of thousands of transactions per second, and there are already emerging technologies in the crypto sector to compete at that level.

From a technological perspective, Bitcoin is in the Digital Dark Ages. And it’s hard to imagine that the least efficient technology in the sector will forever continue to be the most valuable.

This is almost always the case with technology. Back in the early 1990s when the consumer Internet was in its infancy, the “World Wide Web” didn’t really exist.

We used to use something called ‘gopher’, a text and menu-based version of the web.

Then a bunch of engineers perfected hypertext transfer protocol, ‘http’, and the World Wide Web as we know it today was born.

Given how much better the user experience was with http, it didn’t take long for gopher to almost completely disappear.

The same thing could happen in crypto.

And this is important, because as these new Distributed Ledger Technologies continue to develop, it’s possible that almost ALL of today’s tokens and cryptocurrencies could disappear.

Some of the newest Distributed Ledger Technologies don’t even have tokens.

Hyperledger, for instance, is a project run by the Linux Foundation in partnership with dozens of major companies like IBM, Accenture, Cisco, Deutsche Bank, Intel, and American Express.

They’ve already released a number of working DLTs. And not a single Hyperledger DLT comes with a native coin or token.

In other words, it’s like a really advanced blockchain without the Bitcoin.

The use cases for Hyperledger are far-reaching- document storage, financial transactions, property records, even voting.

In fact there’s a candidate for US Congress in the state of California who claims that he’ll use the technology to allow his constituents to vote directly on federal legislation.

Then there are the banks– many of whom are developing their own DLTs.

JP Morgan already launched one called Quorum, an open-source distributed ledger and smart contract platform that rapidly processes financial transactions among a closed network of participants.

They’ve essentially created a blockchain to modernize global banking infrastructure.

Outdated crypto technology doesn’t stand much of a chance when some of the largest firms in the world are putting a ton of resources into making it better.

And this brings me to where the real opportunity is.

Most of the talk about cryptocurrency these days seems focused on what’s going to be the next Bitcoin or Ether. People are trying to figure out what’s the next currency or heavily promoted ICO that can turn $1,000 into $1 million.

That’s probably not the right way to look at this sector anymore.

Certainly there are a handful of specific tokens or coins that have real utility (like some of the privacy coins).

But again, aside from those select few, it’s possible that today’s most popular cryptocurrencies and tokens might follow in the footsteps of gopher.

It’s not going to happen tomorrow. But over the next 5-10 years, inferior, pointless coins and tokens could easily be replaced by superior technology.

So rather than trying to speculate on the next hot ICO, or divining whether going YOLO in Shitcoin, TrumpCoin, or Fuzzballs will make you a crypto millionaire, the real fortunes to be made are in the application of these technologies.

Manufacturing. Real estate. Insurance. Global shipping. Retail. Healthcare.

There are litereally thousands upon thousands of compelling, lucrative ways to apply these Distributed Ledger Technologies across various industries around the world.

This is what happened with the Internet. Once the technology was developed, the real money wasn’t made by the people who developed TCP/IP and HTTP.

It was made by the entrepreneurs who applied the technology in ways that fundamentally changed how we do business… and by the investors who backed them.

Right now those opportunities with DLT are wide open.

To your freedom

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1 Comment

  1. Helper Bot

    Simon Black is absolutely right. There is a tremendous amount of mania and FOMO (fear of missing out) around cryptos, the block chain and distributed applications. The mainstream kept insisting that cryptos were a bubble, doomed to fail, etc. initially and then, while still bad mouthing cryptos they started investing on the sly and manipulating the market (which they seem to want to do with all financial markets). At the same time they have been developing proprietary applications that they think they can control, monopolize and manipulate.

    Unfortunately for them, there are many truly distributed applications using the blockchain that are trustless (do not require centralized control or intermediation) and truly distributed across the internet and totally transparent using open source development and collaborative processes which, by design, cannot be centrally controlled. If these applications have a well identified business case, a well defined business plan, and conservative financial plan, and a well constructed project plan they have a 1 in 10 chance of success – just like any other new business venture. 90% of ALL new business ventures will not survive past their first two years of business. So – wait for it – 90% of the ICO’s last year and this year will be out of business in the next year. Not very good odds.

    So if you are risk adverse, don’t invest in cryptos. But if you do your homework there is good money to be made in the Crypto space. Apply basic business due diligence and make an educated decision on which ico or business or coin to invest in.

    For example – one of my favorite cryptocoins is SandCoin (SND). The business case is the projected shortage of high quality construction sand in Moscow. The coin is backed by a physical asset – sand. One sand coin represents and can be exchanged for a cubic meter of sand. At the moment, the coin is on the market for average $.30 to $.50 when the going price for high quality sand is over $5.00 per cubic meter. The SandCoin quarry will go into production very soon and soon will be delivering sand paid for in SND coins. When that happens, the coin price should shoot.

    This is not financial advice in any form – I just think SandCoin is really cool. The quarry is in Russia outside Moscow. It is within 10 km of a new ring road being developed around Moscow (part of the new silk road project – OBOR). The building industry is booming in Moscow and the demand for sand is rising. And there has been a lot of press lately about the world shortage of building sand Also, the blockchain mania has caught on in Russia as well. The SND team has signed agreements with two other quarries in Moscow to join the SND eco-system. The project is actually ahead of schedule.

    So here is a perfect example to make my point about business case and due diligence. And what a great example of the removal of barriers in the global financial system. Her we sit in North America where we can buy a few sand coins on the internet at a good price (and not for a lot of money – no minimum). The coins are backed by sand, on a project in Russia: the new silk road. The demand for sand should explode in time and will probably result in a gain of anywhere between 5x and 10x within a year or two if you buy and sell your SandCoins carefully. Cool, hey! I’m a hodl’er (crypto term for “hold for the long term”)(google it – hodl 🙂 So I’m hodling. 🙂

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