You’ve heard of bitcoin, right.
But what about namecoin? Or novacoin? Or even quarkcoin?
Get with the coins, guys! Cryptocurrencies are the new dotcom.
The wild world of cryptocurrencies
Namecoin was up 120% yesterday. Not last year, or last month, but yesterday.
Novacoin? That was up 185%. Quarkcoin? 230%.
But the big mover, well, that was craftcoin. That was up 1,557.8%. In one day.
I doubt even the bloke who discovered Ghawar (the world’s largest oil field) saw daily gains like that.
Yesterday I went to meet a private investor who makes his living speculating in cryptocurrencies. We had met virtually a few years ago, in 2010 (I think). He got in touch and gave me a couple of bitcoins – he was living with ‘one of the blokes who developed them’.
So I had plenty to thank him for when I met him again. “Oh, don’t worry about it”, he said. “You should take a look at worldcoin now.”
“Worldcoin?” Some fiddling on a computer and he gave me a thousand of them. “Thanks again!” I say.
“Oh, it’s all right. I want to get the word out. The more people I give them to, the more people’ll talk about them. I’ve got a million of them.”
“A million! A what price?”
“What’re they worth now?”
“About 5 or 6p. They could go to any number. Depends how they catch on. Or they could go to nothing. I like to take big risks.”
Worldcoin, by the way, was ‘only’ up 21% yesterday. Its market cap – the worth of the entire currency – is now $3.87m – with about 32.5 million of the coins in existence.
Bitcoin’s market cap is about $10.7bn – they’re trading near $900 a piece and there are 12 million of them. (Remember two weeks ago when I urged caution? It’s more than doubled since then).
“So why’s worldcoin better than bitcoin?”
“The transaction times are faster”, he replied.
“How do you buy them?”
“Well, you need bitcoins. You swap your fiat for bitcoin and then you go to a crypto-exchange and swap your bitcoins for some other cryptocoin”.
I loved the casual and rather dismissive way he said ‘fiat’, rather than any specific government currency.
This partly explains why bitcoin remains the dominant cryptocurrency – it’s the main portal between ‘fiat’ and ‘crypto’. It also has first-mover advantage. While it can take as little as three days to design and build a cryptocurrency (so my friend tells me), what takes longer is the construction of all the accompanying websites and services. For example, you can’t yet buy bitcoins with a credit card, as you would an item off Amazon. You have to deposit your money with an exchange, and wait for it to clear.
But there are bound to be better cryptocurrencies, ones that copy bitcoin’s strengths and improve on its shortcomings. How do we know which are the good ones that will thrive?
“Some have their own unique selling points,” said my friend. “Primecoin helps discover long chains of prime numbers as a by-product of its computing. Namecoin’s supposed to reduce internet censorship. Litecoin is the next biggest after bitcoin. Feathercoin’s had a lot of publicity.’
“Yeah, but what are the good ones?”
“I’ve told you. I put my money in worldcoin.”
Cryptocurrencies are exciting but extremely risky
So what are the risks? Governments are a potential problem. If cryptocurrencies start to present a real threat to fiat money, you can be sure governments will fight them through regulation and taxation.
“Yeah, but they’re slower than we are. They might win the odd battle, but they won’t win the war. If you want to corrupt a cryptocurrency and mess it up you need to control 51% of the mining power. Already it would apparently cost half a trillion in computer power to stage a 51% attack on bitcoin.”
A bigger issue is that while cryptocurrencies remain anonymous, there can be no customer protection. There is no deposit insurance. Just yesterday it was revealed that Denmark’s Bitcoin Internet Payment Services lost $1m-worth of bitcoins in a raid that took place over the course of the past several days.
My friend lost 90 bitcoins in a raid a year ago. I do a quick sum in my head. “That’s 80-odd grand!”
“Yeah, I’m not happy about it.”
Another worry is the old-fashioned pump and dump. There are more than 90 different cryptocurrencies in existence. Anyone can start a currency. Once it exists, users promote and promote it. My friend is quite open about the fact that this is what he is doing with worldcoin.
“You often don’t know who’s behind a coin,” he says. “It could just be some dude with a computer in Timbuktu. If he decides to pull the plug and turn the website off, there’s not a lot you can do about it”.
So it really is the Wild West out there.
Meanwhile, in the comments section of one of my other articles on bitcoin, one poster wrote that he was having trouble getting his money out of Mt Gox (the world’s largest bitcoin exchange). He is not alone. Indeed, it seems a lot of money is going into crypto, fortunes are being made, but not a lot is coming out.
But the more widespread cryptocurrencies become, the more people will come up with ways to deal with these problems. For example, my friend is importing a bitcoin ATM. “I’m going to be the first. You’ll be able to swap bitcoins for cash, or cash for bitcoins.” It’s not unlike the early days of the internet – moving from a wild badlands populated by a few hardcore pioneers, to the more user-friendly mainstream.
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Bubbles are usually built on some revolutionary new technology. Whether it’s railroads or automobiles or dotcom. This bubble has the potential to be bigger than all of them. Money is involved in every transaction we make. I watched a talk by Conservative MP Douglas Carswell at the Russian Embassy on Monday night. Carswell too is convinced that, just as happened with music and books, with retailing and information, digital technology will revolutionise money. Banks and governments will lose their monopoly.
And as the Atlas Pulse newsletter observes, whether it was gold in the ‘70s, Japan in the ‘80s or dotcom in the ‘90s, each bubble grew to a value equivalent to the entire S&P. You ask how big cryptocurrencies can go? The S&P is worth about $21 trillion. Cryptocurrencies are worth a total of about $11bn or $12bn – there’s a lot of upside.
But the problem cryptocurrencies must overcome is that, like the mining boom of the last decade, pump-and-dump is rife. Cryptocurrencies have become speculative assets. They’re supposed to be mediums of exchange.
Despite the bubble in automobiles, just three major car companies remain in the US. Companies like Google and Facebook came after the dotcom bust. AOL was the leader before. How influential is AOL now? Is bitcoin the next AOL? Does the Google of cryptocurrencies even exist yet?
“What are you going to do with your cryptocurrency profits?” I ask my friend.
And he wasn’t joking. Funny how these things come full circle.
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