Is cryptocurrency just a craze?

Cryptocurrency was born in 2008, the invention of an unidentified computer scientist going by the name Satoshi Nakamoto. Satoshi invented Bitcoin, and described it as a “digital cash”, with the explicit aim of reducing trust on financial intermediaries, i.e. banks. However, over the past 15 years the most tangible produce of bitcoin and it’s cryptocurrency cousins, has simply been the facilitation of gambling. I my self have fallen prey. I was enthralled by the hype that surrounded the great increases in price, and whilst I convinced myself the technology was interesting; in honesty, what actually caught my attention was the prospect of making quick money – greed was the main motivator. In my forays into cryptocurrency, I was most certainly caught in the craze.

Nonetheless, the technology is interesting. In inventing bitcoin, Satoshi also invented blockchain. Blockchains are simply distributed databases (the blocks), where the authenticity of the information on the database is maintained through a consensus algorithm (the chain). Because everyone can see the authentication process of the database, everybody trusts that the content of the databases are accurate. When these databases store transactions, a currency is created because everyone is able to see the value of a token since it’s historical movements are so transparent. Whilst this is ingenious, applications in the real world have been slim. Blockchains are extremely energy intensive: replicating databases takes up a lot of compute. For use cases like supply chain verification and digital identification – blockchains have turned out to be an overkill. Only in the field of money have blockchains found success. Thus far, the only real utility of cryptocurrencies has been the facilitation of trade.

Satoshi's great invention has brought trading to the internet. But what exactly is being traded? It is digital coins, i.e. token information held in distributed databases. But what is the value of these digital coins? Michael Gleeson, in the law of money, discusses how the value of items are rooted in their ability to be accepted for the extinguishment of a debt. That is why fiat (government) currencies have value; because the government, the most powerful entity of all, have made a promise to extinguish tax obligations in return for receiving fiat. So, what debt do digital coins extinguish? The answer here is difficult to comprehend, but my theory is that cryptocurrencies extinguish the debt of human boredom.

The actual value of cryptocurrencies resides in frictionless trading. Because the way trading currently works is through the approval of intermediaries, with the necessity of revealing one’s identity and, often, the requirement of being a member of an oppressive government system. On the other hand, crypto introduces a new domain, a domain much more hyperactive and much more wild, a domain much more unconstrained. In the cryptosphere, anyone with an internet connection and access to an exchange can play. And play people do. The several crypto booms have been evidence of this. And here lies the real value: it is fun to trade. It is fun to hope of making great gains. And the fact that blockchains enable digital coins with verified value, lets stories get made – stories which allow people to participate; stories like finding the next bitcoin or the next ethereum. And people just cannot resist the allure of being part of these stories. People are in constant search for the next craze. And cryptocurrencies provide that in spades.

In sum, cryptocurrencies are really and truly facilitating gambling. But gambling is not an insignificant component of the human race. In fact, it is arguably the largest industry: embodied by banking and finance itself. Yet, finance does offer two more services: it serves as a means to transport money across the globe and to match maturity of risk through loans (letting people who need money in advance access the money of those who want to save). Now, if cryptocurrenceis are to have application beyond gambling, to become the future of finance, then the question arises as to whether cryptocurrencies can replace these two functions. Do they make it easier to move money around the world? Certainly so, that is why we see blockchain technology being adopted by SWIFT, the Society for Worldwide Interbank Financial Telecommunications, and indeed when trades are made in cryptocurrency exchanges, people see the coins appear in their wallets (and can view the confirmations on the blockchain) and thus agree that the financial instrument has indeed moved. On the second function, to match peoples desire to save with peoples need for more, a more interesting question arises. Because what underlies the whole ability of banks to give out loans is trust. People trust that the banks will keep their money safe, thus they make their funds available to them and it is those funds that banks are able to loan out to facilitate business ventures or help people through hardship. And here lies a paradox: for cryptocurrency to be the future of finance, people must trust blockchain based financial instruments, but blockchain is supposedly trustless technology. Herein lies the great escapade of bitcoin, Satoshi Nakamoto never eliminated trust, the seat of trust simply shifted: from banks to exchanges, from brokers to miners, from regulators to coders.

Cryptocurrency does not eliminate trust, simply shifts where trust sits: cryptocurrency is finance in the digital world where power shifts away from legal writing into code – computer writing. And it is this notion that is the root of the craze that surrounds crypto, because people see the world digitising around them and the concept of digital money makes intuitive sense – yet, incumbent financial systems have remained firmly entrenched. Beyond the extinguishment of human boredom, do we have any need to accept promises in a cryptocurrency? Even if blockchain technology is useful for money, that only spurs the creation of Central Bank Digital Currencies, which is fiat using cryptographic technology. The decentralized cryptocurrencies appear to be sidelined to nefarious applications: hiding money from the government, buying drugs online and gambling.

So, the constant fluctuating value of cryptocurrency is most certainly rooted in craze. But crypto is also something more. It is a system of information that produces very real emotions. Cryptocurrencies convey information through something very fundamental: the price. And the existence of this price enthralls people and makes them engage in this great gambling game; that game of fear and greed. And since Satoshi’s technology is truly a breakthrough, this game will always be there for people to play. But to play, one needs a source of income that is reliable. For playing requires a sense of detachment. That detachment is what allows for objective observation, observation capable of returning great gains. And the better way to make money, before riding the waves of people’s emotions; it to participate in real-world service-based business. Before databases that track digital coins, one should create databases that track inventory, fulfillment and reliable recurring revenue. Databases that track real value.