Having studied all aspects of crypto now for a few years, I still have yet to find a definitive use case for it. I don't believe I'm biased - I'm actually trying to find a cool, and unique use case where it actually does something better than in the real world. Here's a brief summary of what I've found so far:
- Store of Value. Not working too well for Bitcoin with all of the volatility and the 50%+ decline from it's six months' high. Gold has been fairly stable during this period.
- Inflation hedge. An inflation hedge is supposed to appreciate at the rate of inflation at the very minimum. None of the crypto coins are doing that.
- Ease of use for transactions. Nearly everyone I speak with indicates it's really difficult to do anything reasonable (like buy a pizza) with any type of crypto. In fact, the whole point of the rise of these "stablecoins" is that they exist only because it's so difficult to move crypto in and out of the dollar. So these "stablecoins" exist as this temporary patch, with no real purpose except to account for this shortcoming. In addition, the transactions are slow, and sometimes have huge "gas" or expenses associated with each transaction. These rates and speeds vary with network congestion, but can be as little as a few cents to hundreds of dollars per transaction. There's some wide volatility there.
- Cross-border payments. This is one I hear a lot. So, I used to make a lot of wire transfers when I was buying European car parts from Europe. Yes, the banks charge large exchange rate spreads, but if you do a lot of volume, you can "move to the next tier" and get these lowered way below the "retail rate". However, if you're in the US, and you're buying something from Europe, you would have to 1) convert USD to crypto, 2) send the crypto, 3) the receiver would have to then convert the crypto back into Euro - all of which tack on transaction fees and are a multistep process. I agree, five years ago, sending a wire to the UK took three days or so. Banks don't do that any more - maybe crypto has put the spotlight on them. When I send a wire to Europe, it's receieved pretty much the same day, or the next day (depending upon the time zones, etc.). The delay just isn't there any more.
- NFTs. There might be a case to be made for the registration and sale of digital assets. Ignoring the ridiculous sums of money (real and fake) paid for some recent NFT offerings, the concept of a digital registry for ownership is not a terrible idea. Trouble is, that one can use a central clearing house (like Sotheby's or a Swiss bank) to accomplish the same thing. Having centralized management in this case may be a net positive, as the authorities can help prevent fraud and "errors"
- Terra / Luna. Genius ponzi scheme here. Start a coin, accept dollars and euros for the coin, use a small portion of those proceeds to pay 20% returns on "new" investors, and then run off to Singapore with the proceeds. It really is as simple as that. I fail to see how people didn't see the obvious? My friends who are a bit smarter in this area than I were talking about shorting Terra about a month ago. That was a no brainer - Terra will never go above a buck, and it has a likelihood to crash. Not possible to lose! (yes, you'd have to borrow in Terra and then pay interest on that, but that's the same as a regular loan). It's like borrowing from the bank, and then betting that the currency you borrowed in would go to zero, so you can pay them back in pennies. Super genius to take advantage of the ponzi!
- Tether. Nearly every person I speak with thinks this stablecoin is a scam and is not backed by enough reserves. I still fail to understand why a single human being on the planet would hold it any more? It seems like a high risk asset with no upside? This post here seems to hint that at least some people agree with my sentiment:
https://www.reddit.com/r/CryptoCurrency/comments/upuach/discussion_about_usdt_crashing_behind_the_scenes/?utm_source=share&utm_medium=ios_app&utm_name=ioss mf The post claims that $6.6B of Tehter has been redeemed in the past week or so. That is still a long way from the $80B market cap, but it’s a start. The same shorting strategy that worked with Terra will work with Tether. And to top it off, none of these "stablecoins" should exist because the only reason they exist is because the crypto "universe" is fairly walled off from the fiat currency system!
- Sale of virtual "land" in meta lands. This is another one that just seems unwise. First of all, has anyone spent any large amount of time in one of these places with an Oculous headset on? I have, and it's just a place to go play video games. Unless you're a hardcore gamer, you're not going to like any incarnation of any of these any time soon. On top of that, the winner of this battle for eyeballs is undetermined. No one knows who is going to be the next Facebook or Google in this arena. I would frankly bet on Facebook, as they currently have all of the eyeballs and can introduce people into a platform like this. Instead of buying "virtual land", if you are firm believer, I would bet with Zuckerberg and buy Facebook (Meta) stock.
- Distributed finance. Everyone keeps talking about this one as well. Borrowing money electronically with electronic contracts. This is a cool concept, but in it's current implementation, it's really only useful for one thing - borrowing on margin to bet on more crypto. See, you go and get some crypto (which is not that easy), say $100 worth (translated into fiat of course because that's a measure everyone understands). Then you use that crypto as collateral to borrow more crypto. At a margin loan of 50%, that means you can borrow $50 more crypto. This is nearly identical to margin loans at stock brokerages. Nothing new really invented here, and margin loans at brokerage houses are electronic, instant, and easy. The problem with the crypto loans (which is also a problem with stock margin loans) is that you need to have cypto as collateral - you can't use anything else. So, you have to have a currency as collaterol for a loan that you will borrow in that currency. Yes, it's that confusing - it's as if the bank will tell you, "we'll loan you $50, but you need to deposit $100 in our bank first and keep it there". Almost no one in their right mind would do that - the only reason why the crypto world does it is because crypto is not a currency, but a *speculative* asset that sometimes goes up in value. DeFi is an interesting concept, but it has no practical purpose in today's world (except for speculators).
Add to all of this the problems with fraud, hacks, energy usage, and
Which leads me to the two areas where I think crypto is "useful":
- Illegal activities. The semi-anonymous nature of crypto means that funds could be send without any intermediary. But, the fact that the whole blockchain is public means that the coins can be tracked - unless they go into an exchange, where they are comingled, but once they go into the exchange, the exchange itself should have the user's information (know your customer). Crypto is great for criminal payments. Bitcoin will never go away because it has utility in this manner.
- Speculative "ponzi" schemes. Terra / Luna are *exactly* like what happened in 1920 with Charles Ponzi:
https://en.wikipedia.org/wiki/Charles_Ponzi He paid his investors outsized returns, attracting more investors whose money he used to pay everyone else. It's 100% the same thing that happened. Shocking that people didn't see this coming a mile away. Tether may be the next shoe to drop - there has been so much warning about it that anyone who has a dollar in Tether pretty much shouldn't complain if it finally breaks its peg. However, if you're on the front end of one of these "waves", then it's a good place to be. Spot the wave, ride it until it's real close to shore, and then break off. One needs to understand that they are on a "wave" and not redefining the ocean - understand it for what it is, and there is probably some money to be made.
Well, there you have it. The results of my watching the market over the past year or so. Crypto evangelists will surely flame me, but I'm fairly certain my viewpoint is fairly unbiased. I really want to find a really good use case for crypto and the blockchain, but there just isn't really a "groundbreaking" use case that would / could qualify as a killer app (except for the two nefarious ones I posted above).
Thoughts?
-Wayne
