The Original Sins of Cryptocurrencies

The extent of the crypto revolution is total, disruptive, world-wide and irreversible. But its final destination is pretty neat: a screenshot of an average day on planet Earth by 2050 shows clearly showing human beings using a financial commodity called “cryptocurrency” through physical wallets residing on their smartphones and connecting everyone directly through a solid and shared ecosystem that is backed by traditional financial institutions (i.e., banks).

The output will cast aside the old, centralized and controlled fiat system for a new, cheaper, decentralized, easier and faster structure, able to potentially connect everyone.

The crypto industry is on its way from the epic early days, when it was a technological phenomenon exclusive to a limited group of techs, scientists and enthusiasts, to its final destination: a financial commodity intended for use by everyone. Of course, the journey has just begun, and it is riddled with potholes, traps and a high level of resistance.

Try to remember how socializing was before the arrival of Facebook and other social networks, and you will have a fresh feeling of crypto’s potential reach. The world as we know it will never be the same.

The speculative sin

A few frictions are lagging crypto’s mass adoption process. The first one is certainly the financial speculation rooted to the early days and still thriving to this day. Financial speculation is an ideal way to make a large quantity of money in a short period of time, but in a high-risk environment and at the expense of somebody else. It remains an attractive option for speculative large traders, who will do anything in their power to maintain the crypto market’s current conditions, with major coins able to rise or fall by 1,800% in less than one year, as they did in 2017 when the leading cryptocurrency’s price hit record highs at around $20,000 per coin.

But speculation is not the reason for which crypto was created. As perfectly outlined by Marc Andreessen, co-creator of two of the internet’s first browsers, Mosaic and Netscape, who outlined: “This is the distributed trust network that the Internet always needed and never had.” Or, to say it like Don and Alex Tapscott in their brilliant book, “Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World”, cryptocurrencies are based on a new technology – blockchain – that is a “protocol that enables mere mortals to manufacture trust through clever code.”

Don and Alex write:

“They have been created to ensure trusted transactions directly between two or more parties, authenticated by mass collaboration and powered by collective self-interests, rather than by large corporations motivated by profit.”

In other words, crypto is intended to make currency transactions easy, cheap, sure, fast and available for everyone – and not to speculate on! And, most importantly, to be used and not merely stored somewhere.

Traditional and crypto financial markets

The inclination is progressively torn by traditional financial institutions like banks. From one side, they are fiercely struggling against the crypto world, but from the other side, and under the deepest silence, they are fighting key positions. They are painfully following the era of crypto, aware that sooner or later it will become massive, yet slowing it down while occupying as much space in the industry as possible in preparation for the moment when large adoption comes about.

The market is becoming increasingly regulated, with the launch of derivative instruments by some of the more well-known and reliable exchanges, indexes and cryptocurrency lenders, while from the other end, institutional investors, financial public bodies and traditional investment funds are coming out of the woodwork.

Unfortunately, my analysis shows that the speculative phase is hard to die, as it is a fantastic opportunity for specialized traders to make a huge quantity of money in a very short time. That means a very dense resistance to changes, pulling in the opposite direction to where the crypto area is moving.

The role of the traditional banking system

The relationship between the bank system and the crypto environment is vague and heavy with conflict. The crypto ecosystem is potentially in a position to snap a good chunk from the bank. But from another perspective, the bank system is sitting on an astronomic market cap, is managing a breathtakingly high stockpile of financial assets, and is used by billions and backed by almost all governments. It’s a David and Goliath story.

As the recent history of Bitcoin invention has clearly taught us, all digital revolutions coming from the people are unstoppable. Bottom line: the powers that be can slow it down but they cannot stop it. And the strategy of the banking system is coming out: Make things hard for crypto during daylight, but work under the surface at night to grab as many positions as possible in the crypto area in order to control and occupy the space.

The final destination

From financial speculation to a stabilized financial market to finally becoming a financial commodity used by all. The point of arrival is probably the secret dream of the founders of the first cryptocurrency ever: to democratize and provide humanity access to a smarter, cheaper, decentralized and not-controlled means to exchange value between individuals, corporations and public bodies.

As a recent survey shows, the average person at present doesn’t have any idea how to buy, sell or use cryptocurrencies. The majority of people don’t have the necessary skills to understand what an exchange is, how an external wallet works, or how to figure out all the needed technicalities to trade and store the most common cryptocurrencies. To them, the crypto area is still an unknown and scary world to be suspicious about.

Whoever will guide, hand-in-hand, billions of people through all of this – contributing to create the necessary environment and making the needed technology and hardware accessible – will not only make a true mark in human history, but will also develop the most profitable business in the world of all time.

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