The Bear Case for Bitcoin
Inspired by a recent conversation, I decided to find yet another way to split up cryptocurrencies into categories: those that represent a “real world” asset and those that are backed but nothing:
Let’s look at electric fiat first: BTC, LTC, XMR, XRP, and all forks. Each of these ledgers are useful in their ability to transact value trustlessly over the internet; however, they are not backed by anything tangible that can be siezed by the users. Each works only as much as people believe they have value.
This doesn’t mean they are worthless, but it is worth considering what one unit of each means when buying or using them. I have bought LTC purely to send value to an exchange in the past, because BTC was too slow and ETH was clogged. LTC acted as a means of communicating an amount of money in a relatively quick fashion. While I don’t hold any LTC as speculation, it was useful as a short term currency. I think other cryptocurrencies, especially the anonymous ones like XMR and ZEC, are much better suited in the near to mid (5 years) term to be used as such, providing privacy as a service (PraaS?) to cryptocurrency users.
But again, XMR and ZEC are not backed by anything. The ability to transact anonymously, which is automatic in XMR and opt-in for ZEC, is a value proposition that makes them useful to use, but if they cease to be used, they’ll cease to have value.
I read this as the value of a token is related to its usability. If a token is used a lot, it will probably go up in value. If it is used less, it will go down in value.
Non fiat Tokens
Let’s contrast these tokens to those that are backed by something more tangible: ETH, DGX, MANA, DAI, Steem. ETH allows one the ability to access the Ethereum blockchain, which hosts a large (and growing) amount of tokens that represent everything from one gram of gold (DGX), to digital real estate (MANA/LAND), to actual real estate (Link here). Owning ETH is a bit like owning a little bit of the internet, especially back when paying for internet access was measured in minutes.
DAI is valuable because it is backed by collateralized ETH. In this sense, ETH acts a bit like oil and DAI like an oil backed dollar, although the next upgrade of DAI will have a wider basket of underlying property such as DGX deposited in its smart contracts.
Steem is valuable because it drives attention. Steem can be powered up into Steem Power (SP), which allows one greater influence on the Steem blockchain, as witnessed on steemit.com. Steem is ultimately backed by attention, which makes its value variable based on users.
Of all these listed cryptocurrencies, the most tangible is DGX. If cryptocurrencies dropped in adoption overnight (perhaps a government backed 51% attack on Bitcoin accompanied by draconian regulations), DGX would remain unfazed, and the price would continue to match one gram of gold. DGX may even rise in a panic.
All of this is a prologue to my bear case for Bitcoin: it’s not too useful, and it’s original value proposition is superseded by other decentralized cryptocurrencies that work better than Bitcoin. Bitcoin remains a great open beta and the one that started the whole blockchain revolution, but the store of value argument used by current maximalists seems far off of Satoshi’s original peer to peer currency vision.
There are responses to this argument, especially with the recent 51% attacks that have taken place on smaller blockchains, that Bitcoin could be the last man standing, although I think that is a remote possibility.
But all of this is guesswork-what do you think? I look forward to your comments below.
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