The Need for Cryptocurrencies?
I encounter a lot of use cases for blockchain technology. Many of them are good use cases, many of them no so much. I've observed large companies embarking on blockchain initiatives that feel far to much like having a hammer and looking for a nail. I almost always ask: What problems does blockchain solve for your problems that a centralized system won't? It's a great first question to weed out reasonable use cases from use cases that should just stick with well know solutions or design patterns.
So why am I writing this article? Because I want to ask the greater community out there why they believe there is a need for cryptocurrencies to solve their use cases. I ask because most of what I've seen in the cryptocurrency space is speculation and outright fraud. Initial Coin Offerings are probably the best example where a white paper full of technical jargon possible written by a generator and a fancy website will get you tons of "investors", with little to no guarantee of any return. Sure, the same thing can be said about the market in general, but ICOs have a phenomenally high rate of near zero returns, whereas the market (equities, futures, etc.) at least historically since regulation have a much higher rate of returns.
From my understanding of recent SEC actions, is if your ICO is primary to raise working capital, then you are probably violating SEC regulations. Enforcement for these sorts of ICOs is ramping up significantly and will continue to do so as the fraud related to them continues. As well The Motley Fool reported in this article, 80% of ICOs are fraudulent and only 4% succeed.
So I have to ask, why does your business need a coin or cryptocurrency? The answer I hear most often is that they want something that is exchangeable for fiat currency. Well that can be done with almost anything whether it is exchangeable on an open market or not. Then the question becomes why does whatever it is of value have to be exchangeable in an open market? This appears to come down largely to a matter of trust in that someone may not trust organization X to continue to allow one to exchange something for fiat currency. So does trusting the 4 scammers out of 5 make sense? Does your business model really expect someone to trust you when 80% of your kind are scammers?
In answer to the question you pose to the community I would use tokens where there is a need to create a specific behavioural incentive scheme in a multi stakeholder environment. But certainly not needed for everyone and if your already relying contract law for the same output. Still though it does open up some interesting options to create "psuedo-programmable markets" that don't just default to $ increase as the single measure of value
Director of Site Reliability Engineering - Leader, Cloud Solutions Architect, AWS, Security, Platform Engineering, SRE and DevSecOps
6 年Separate the ideas of cryptocoin and blockchain. They are not one and the same. Blockchain can remove the idea of trusting a central authority to validate your data. Think instead of Deloitte auditing your books for business transactions vs millions of individuals using math to sign off on an audit with logic. You can also have a private blockchain that automates the audit and is only as good as the central authority behind it. Yes I agree ICOs seem like a fraud and a scam. They are popular because a lot of people do not understand how the systems work. Too much FOMO is leading prices vs people looking at a project, the leaders, activity and accomplishments.
Owner Operator, Consultant
6 年Great article Todd. Thanks for sharing.
Managing Director & Owner DEMETERIS - VP & Managing Director Red-X
6 年Crypto currencies were born and grew out of the need for fraud and unlawful activities financing. I see nothing new in this field and the image of a hammer looking for a nail is the right one
Head of IT Technology Strategy / CTO at Boehringer Ingelheim | ex-Oracle
6 年Soo True. Todd being our chief demystifier of Blockchain and this whole scam hype