After the warm summer of 2017, cryptocurrencies finally got out of the obscurity with a thunderous bull run like the world has never seen before.
All of a sudden, friends and family began calling to ask all kinds of interesting questions.
“How do I get into that crypto-stuff you were telling me about two years ago?”
“Can you tell me which coin is going to be the next big thing?”
“If I invest in Bitconnect (BCC), when “Lambo?”, referring to a common term that became attached to a coin’s value skyrocketing, and comparing it to the car in question.
“How high can Bitcoin (BTC) go?”
The fact that cryptocurrency investments were easily accessible by anyone, a wide variety of characters were seductively lured into the game. A simple internet connection and a basic google search knowledge was everything one needed to acquire some coins.
As the price of Bitcoin rose towards $20,000, examples and legends of new cryptocurrency millionaires fueled the interest and greed of many who were hopping on the crypto-train. The fear of missing out (FOMO) was too hard to handle, so, day by day, the market capitalization pumped towards $800 billion, which could challenge Apple at the time.
Everything seemed like a fairytale when suddenly – POP!
The bubble burst for the fifth time earlier this year as the early adopters, more than satisfied with gigantic gains, started a massive sell-off and left the inexperienced traders at the train station with their bags full of plummeting coins connected to projects which may even completely disappear until the next possible bull run.
Just like that, FOMO was replaced by FUD (Fear, Uncertainty, and Doubt).
Where Did All That Sudden Distrust Come From?
Firstly, let’s dwell a bit more on the fact that the whole cryptocurrency market, at its peak, could barely compare with a single company like Apple by market capitalization.
That being said, people are going to ask the obvious question. Does that mean that cryptocurrencies are just beginning their rise to power?
Look at it this way; the success of Apple is closely connected to the value of their stock because stockholders are getting paid if the company generates profit.
On the other hand, if someone invests in the new, trending ICO (funds the development of the project which can make CEO, CTO and the rest of the team seriously rich), he gets a token which may or may not be listed on cryptocurrency exchanges.
Owning a token means that a person has helped the project to see the light of day, and in return, the investor (most frequently) gets only the ability to speculate on the cryptocurrency market.
That means that startups generate value out of thin air (yes, just like governments and central banks, only they are not governments and central banks), which isn’t connected to their company.
Because of that, cryptocurrencies (not blockchain) is being scrutinized by financial watchdogs all over the world, which is not helping the adoption.
But What About Investing in Established Cryptocurrencies?
That depends on the use case and the very nature of the specific coin/token. For example, if you are buying Bitcoin (BTC), as it is supposed to be decentralized peer-to-peer digital cash, basically you are exchanging one currency for another.
Even though its transactions are expensive and slow, Bitcoin can be spent in a wide variety of places and situations nowadays.
But what if you invest in Zcash (ZEC), which is envisioned as ASIC resistant Bitcoin (which means there is no ASIC machine or solution developed yet to mine the coin) counterpart with more privacy?
Where can you really spend Zcash?
Yes, almost nowhere.
Why would someone want to exchange their US Dollar, which can be used everywhere, for something that can’t be spent anywhere?
Yes, again – pure speculative greed!
Those Projects Don’t Have Companies Behind! What About Those Which Do?
After the starting period of decentralized, open source projects, came the era of “foundations” and “labs” as it is impossible to start a crowdfunding campaign without someone to conduct it.
Contrary to the CEO-less projects like Bitcoin, ICOs brought us hordes of CEOs, marketing experts, community managers and other officers who didn’t want or didn’t have enough to fund their projects, so they asked for the help of cryptocurrency enthusiasts.
In most cases, those ICOs were conducted without escrows, a guarantee of funds allocation, or, in fact, any other guarantee whatsoever.
The majority of those were pegged on the most famous of all blockchain-based foundations, Ethereum, which, by the pure brilliance of its founder, Vitalik Buterin, enabled much less brilliant entrepreneurs to publish ICOs with ERC-20 token standard, without having the needed technical knowledge to create their own cryptocurrency.
Consequently, there is no need to emphasize that the end product rarely even resembles the announced one.
“Ether is a product, NOT a security or investment offering. Ether is simply a token useful for paying transaction fees or building or purchasing decentralized application services on the Ethereum platform; it does not give you voting rights over anything, and we make no guarantees of its future value,” stated Vitalik himself in 2014, when his company started their coin offering.
Therefore, just the same as Ethereum Foundation doesn’t have to announce clear numbers to their coin holders at the end of the fiscal year, so doesn’t all those foundations, labs, and companies based in third world countries, who made use of Mr. Buterin’s excellence and regulator’s unpreparedness.
In short, those who funded the project have no or little right to the project’s success, which is worrying.
But Holders Have Rights
Yes, some do!
For example, when Bitcoin’s community disagreed beyond being able to reach any form of compromise, Bitcoin Cash (BCH) was born.
Therefore, in fully decentralized systems, anyone who disagrees with the basic idea can hard fork off the mother chain and carry on supporting a new project, provided that one knows how to fork.
In some slightly more centralized networks nowadays, token holders can vote for their representatives just like in the modern democracy. And just like in the modern democracy, those representatives reap hefty rewards while common folk is left to speculate with what they have in the highly volatile cryptocurrency market.
That voting right is always emphasized as something important, but, at the end of the day, when the blockchain technology is concerned, voting on the changes in the blockchain’s code is like conducting parliamentary elections only among high school dropouts.
What the Future Holds?
Some may say that Security Tokens are the right way for cryptocurrencies to go, but just by them being securities, governments and financial establishment would take control of new assets and squeeze all early adopters and enthusiasts out of the game.
There is no clear path that cryptocurrencies should take to stay above the surface, but one thing is sure; the technology behind cryptocurrencies (the blockchain) is well established and already used by many different industries.
Cryptocurrencies, however, struggle on the margins of legality because of widespread misuse, and get-rich-quickly state of mind.
Although these kinds of articles are mostly written during the dominion of market’s bears, everything that was said has to be seriously considered by everyone who wishes to enter the rollercoaster of cryptocurrency trading (and those more experienced, too).