Occasionally, Jabberwockracy will share submissions from guest contributors who want to join the conversation. Today’s contributor, Jason Hamilton, is a cryptocurrency enthusiast. Anyone looking to submit a letter to the editor for consideration is welcome to do so here.
In March 2013, the world was watching the Mediterranean island of Cyprus, anxiously, to witness a major banking crisis unfold. The economy was on the verge of collapse during EU and IMF negotiations and the trust of the people had been broken. To prevent a national bank-run, the Cyprus government froze all internal assets. It was during this brief, yet chaotic, period that the market price of a single Bitcoin began to skyrocket.
On March 15, shortly before the banks began freezing customer accounts, BTC was selling at approximately $46.95 per coin. On March 28, the day the banks reopened, BTC was selling at approximately $86.18 per coin. In just 12 days, the price of Bitcoin doubled and continued rising until April 9, when the price reached approximately $223.10, before the market began correcting itself. But those who had been dealing in Bitcoin realized during this event that people were willing to pay more for a single Bitcoin than they ever had previously, so the price naturally went up overall. The interesting thing to note here is that from May 15 to Sept. 15, the price pretty much stayed the same. These dates and numbers are important for acknowledging two facts:
1. Cryptocurrency is an ephemeral concept of money with a value that is subject to people’s hopes and fears.
2. The Bitcoin network can be a stable, liquid economy.
Because Bitcoin has gained in value and popularity to such a large degree, many people have tried to establish alternative cryptocurrencies as major players in the economic arena. We call them “altcoins.” The most successful altcoiso far has been Litecoin, which was created in response to “mining” worries associated with Bitcoin in 2011 just two years after Bitcoin debuted. Litecoin was the only competitor and the prospect of starting anew drove a ton of positive press to the project. In fact, if you take a look at this ranking of altcoin market values, you’ll find that the highest valued coins are those that began with the most press. Dogecoin, for example, provides absolutely zero benefits over using Bitcoin, but as this article on Vice.com explains, Dogecoin is doing much better than Bitcoin, comparatively speaking. Why? Because Dogecoin has incorporated itself into the virality of the Internet meme and has therefore become mainstream in a much shorter breadth of time. If you clicked on that ranking link, you may be asking, “Well, if there are so many new altcoins, why has Litecoin continued to grow?” The answer is both intuitive and saddening. The price of all cryptocurrencies are tied to the value of Bitcoin. If someone is willing to put money into a new, experimental cryptocurrency, they are already willing to put money into the oldest and most reliable cryptocurrency.
Investors have been paying attention to this ability to create value out of thin air by means of marketing and have been rather bullish on rising altcoins. I subscribed to the /r/Bitcoin subreddit a few months ago and stumbled upon /r/Jobs4Bitcoins. If you have a marketable skill, you can be paid in BTC. Having my own listing on the subreddit has given me the opportunity to work with numerous people who have needed some programming or web design work for their projects. Some of these people have come to me for exchange automation or value tracking for some altcoin I have never heard of. My last job was to track the last five trades between Mintcoin and Litecoin on the MintPal exchange. I was warned by my client to avoid Mintcoin altogether, ensuring me that, “There is money to be made in altcoins, but no value to be earned.” The ultimate aim of an altcoin investor, and most often the creator of an altcoin, is to profit off of the sensationalism that follows the release of some new cryptocurrency that promises some “new” feature. The reality of the situation is that most of these “new” features are already on the table to be added to Bitcoin or are terrible implementations of cryptography. Because Bitcoin is software that can be easily updated (version 0.9 was just released), there are no quantifiable reasons for any other cryptocurrency to exist.
Bitcoin is here to stay as a means of transferring wealth. It is much cheaper and quicker to buy BTC with fiat currency, like U.S. dollars or Euros, and send the BTC across the globe than it is to use services like Western Union. What remains to be seen is whether or not Bitcoin will prosper as a bona fide currency. If a decentralized monetary system is doomed to fail, there are no replacements. Altcoins will lose most, if not all, value if Bitcoin disappears and cannot by nature produce better results than Bitcoin. Bitcoin can always be updated to meet the demands of the network and for this reason altcoins are not only inherently worthless in an economy where Bitcoin is already king, but they are also entirely unnecessary. Bitcoin cannot be viewed as “digital money beta testing” by digital money advocates because Bitcoin is the last hope for anyone with the dream. If Bitcoin fails, cryptocurrency fails.