In his brilliant new column in the Evening Standard, Jay talks us through the technicolour range of different crypto currencies and – most importantly – predicts which will thrive and which will die.
Jimmy Song and the Maximalists may sound like a Fifties rock ‘n’ roll band, but they’re actually a highly influential group of blockchain experts.
Their view – if you believe them – will make you sell every cryptocurrency you own bar Bitcoin.
You see, Song believes there is no point investing in anything but Bitcoin, the granddaddy of cryptos, because it will be the only one to survive.
He and many other so-called “Bitcoin maximalists” say that, rather than waste money developing rivals, we may as well just invest in making Bitcoin faster and better, with more services built on top. Even the big cryptos like Litecoin and Ethereum are inevitably doomed, according to them.
Bitcoin vs Blockchain
Song is a smart dude – he’s made a fortune in Bitcoin and when he talks, people listen.
He’s also wrong.
Last week, he got star billing at the New York Consensus 2018 conference – a sort of crypto Davos.
He was joined on stage by Joe Lubin, a man who has built a 500-employee tech powerhouse building apps entirely based on Song’s arch-enemy,Ethereum.
Cue some feisty verbal MMA.
Bitcoin vs Blockchain, the battle was dubbed.
Song declared that in five years Bitcoin would be the sole crypto survivor, to which Lubin retorted: “I’ll bet you any amount of Bitcoin that you’re wrong.”
Lubin will win that bet, and here’s why:
Cryptocurrencies are no longer just currencies. In fact, one of my favourite brainiacs – Chris Burniske – prefers to call them “Crypto Assets” (he also wrote a pretty good book about them).
It’s a far more fitting name.
Over the past couple of years there has been an explosion in different types of Crypto Assets.
Another smart guy by the name of Don Tapscott took the stage early at Consensus to outline the seven main crypto categories.
The Seven Types of Crypto:
This is the plain vanilla: designed to be a currency like the dollar or the pound, but both digital and global. Weekend in Prague? Pay for everything with Bitcoin and you’ve got no currency commission. Got a friend on the other side of the planet who needs some money? Do it instantly and cheaply rather than wait a week for an expensive bank transfer.
These currencies are money for the internet age and are widely accepted online by major companies such as Microsoft, Expedia and Wikipedia.
Some have even found their way onto our high-streets. CEX and Lush were two of the earliest to begin accepting Bitcoin in the UK. In Canada, KFC released a “Bitcoin Bucket” meal across the nation, inviting people to trade their bitcoin for chicken! These cryptos are all fighting each other to be the fastest, safest, most widely accepted and easiest to use replacement for money.
These cryptos are all essentially an operating system; a programmable blockchain on which you can make your own apps. They allow complex computer code to run on a blockchain rather than just simple transactions, the code that tells an app to buy you a song, play a video or download a file all stored on a decentralised network. No easy task. See my Evening Standard post from last week on EOS for an example.
Some of these projects, such as Ark and Polkadot, are on a grand scale, attempting to build a system to connect all other blockchains with one standard. They are extremely complex.
These are blockchains where you need the crypto’s token to use the application.
Take Augur, the potential Betfair killer, for example. It’s a totally revolutionary way of betting but the system requires Augur’s tokens to work.
Siacoin is another. It’s a decentralised dropbox whereby you can rent out your spare hard-drive space, or rent some for yourself for 80% less than Google’s newly reduced drive space! The token has “utility” because only that token is accepted as payment for the service, usually exclusively.
These get their name from “securities” – City language for shares, CFDs, bonds and the like. They can be divided into smaller units and are easy to own and transfer. That’s a significant advantage over your indivisible, expensive to trade, not-really-owned-by-you-personally, $1574, Amazon share.
Unfortunately this token type has been responsible for many scams and ponzi schemes. This is almost certainly where the term “shitcoin” gained popularity.
The projects are not usually building anything blockchain related.
In fact, the suspicion among investors is often that businesses opt for a security token initial coin offering rather than a stock market flotation because they’re trying to raise money while avoiding regulation or legal repercussions if they fail.
They’re not all bad though, BitFinex is a crypto exchange that got hacked to the tune of $70M a few years ago. Instead of closing shop and declaring bankruptcy it created shares as a token called RRT and distributed them to the victims. Fast forward a few years and those victims are pretty happy and have now all been paid back in full. US furniture and homewares giant Overstock’s CEO Patrick Byrne has just launched tZERO, a self-described security token registered with the SEC.
These are really cool for those of us who get excited about crypto making the world a far better place.
They come in two categories – Asset Backed, and Asset Bound Tokens.
You create tokens to represent real natural resources – forestry, diamonds, uranium or iron ore, for example. With asset bound tokens, each tree, precious stone or nugget would be bound to a token which stays with that material every time it gets traded or processed. That gives you a clear map of its history and provenance. You can see how that might work to stamp out illegal logging, blood diamonds and the like. Because they’re digital, you could use them as a basis for carbon credit systems too.
See why I’m always on about crypto being a force for good?
The more common Asset-backed variety allows large mines to sell tokens in advance for whatever they’re going to mine over the next year or so. The token is backed by the produce, similar to how futures markets work.
Alternatively, someone could just keep a bunch of Gold in a safe and release tokens which are backed by it. Just as with to the gold standard on the Pound or Dollar a few decades ago, you can redeem your chunk of gold with your tokens.
These are collectable tokens that each have their own unique stamp. Like Natural Asset tokens, they track provenance, but they’re not usually linked to something of real value. Instead, they exist entirely on their own and are used as a mechanism to create scarcity.
The best example so far is Crypto Kitties. Experimenting whether this “scarcity tech” could work, some clever guys came up with the idea of collectable cat tokens. Each cat has its own traits – eye colour, markings – that can be passed on when they breed. They became so successful that one particularly rare cat sold for over $140,000!
You know they used to talk about crypto being Tulip Mania? Well, that moment there, the $140,000 digital cat – that was Tulip Mania.
Actually, Crypto Kitties collectables could be useful for attaching to the records of limited edition luxury goods like cars, where you could have an identification token with a unique model number.
But, as someone who used to make a living on the esports gaming circuit, the place I see collectables having the biggest impact is in video games. For years, gamers have been able to buy or win new “skins” for their characters; turn your panda into a polar bear, or make your M16 rifle pink instead of black.
Believe it or not, the market for these skins was estimated to be worth $50 billion last year.
Imagine if you could turn those skins into crypto tokens: you could make them inherently more rare, easier to trade and simple to trace. You could even swap them between different games. So, your hero character in the Fortnite game could play in Call of Duty or Overwatch.
Collection focused games like Magic the Gathering, Pokemon, Baseball Cards or even McDonalds Happy Meal toys would also make for a good fit.
7 – Stable coins (Tether)
These are cryptos where the units value is pegged to a currency and directly managed. The best example currently is Tether. Each Tether token is worth $1 and is backed by real dollars held in reserve bank accounts around the world.
They’re useful for electronic trading because they’re digital, obviously, and you can break the crypto down to whatever fraction of a dollar you want.
People also prefer them to holding straight cash because you can trade cryptos without big fees.
Stable is a relative term though, projects such as Telegram’s TON plans on utilising their vast funds to rebuy tokens whenever their value drops below a certain amount, and releasing more supply when it’s value increases too much.
That gives them the power to creates an artificial floor and ceiling on the price. Effectively making them a central bank. In recent months several nations such as Norway, Sweden and Switzerland have expressed interest in creating their own cryptocurrencies which would fit into this category.
Pretty messy, huh?
So you see, there’s a whole hotchpotch of cryptos, all designed to do different things and solve different problems. The more observant among you may have noticed something though. Many of the projects I’ve listed actually fit in several of these categories.
In fact, it’s hard to find a project that sits only in one of them.
Ethereum is a Currency, Platform, and Utility token. Its platform enables the creation of Stable tokens, Natural Asset tokens, Collectible tokens and Security tokens. Essentially, Ethereum is everything!
Why Jimmy Song is oh-so wrong
With so many different uses of cryptos already being developed and worked on, the idea that we can push everything back into just Bitcoin or just Ethereum is ludicrous. Yes people can build services on top of Bitcoin to enable everything that Ethereum and EOS enables, but it will not be specialised, and as a result will not be as efficient.
It’s similar to the way jobs in society evolved; back in the Stone Age your job would include hunting, security, building, cooking, cleaning, caring, politics, economics; you name it.
These days those are all specialised jobs, so the pros who are focused on them do the work better than ever before. Just as you wouldn’t ask a chef to design a building, you wouldn’t want to use Bitcoin (or a service built on it) to run the global supply chain IT for VW car engines. You’d find a specialist.
Perhaps Jimmy and Joe should place their bet on the Augur betting system so we could all join in their not-so-little wager.
I know who my money would be on.
So, which of these types of cryptos should you be investing in?
That’s the billion dollar question, and one every trader has a different view on.
For my money, though, logic tells you it has to be the platforms and the utility tokens.
We’re still at the very early stages of the platform market, meaning there is still some tremendous value yet to be realised. Personally, I wouldn’t be jumping into Ethereum because it has already grown exponentially and is now maturing – 2017 was its year.
This year, I’d be looking at those which are transitioning from planning to launch phase.
EOS and Cardano certainly fit into that bracket. It’s also a good time to be looking at early crypto-based apps. Augur, Golem, Status and a handful of others built on Ethereum are approaching readiness for early adopters.
As a final thought, don’t forget about the currencies, Jimmy has one very strong argument for Bitcoin: it’s tried, tested and works now. If you’re looking for something safer, Bitcoin remains the crypto king.