What are cryptocurrencies?

My focus on cryptocurrencies (aka “crypto” for short) has fluctuated over the years. As I start to refocus in this space, I often get asked how I view and think about crypto: the technology space, trends, and investment opportunities. Below are the common questions I get asked and how I view things today, in laymen’s terms.

How many cryptocurrencies are there?

As of the writing of this, CoinMarketCap states there are 13,706.

Will crypto replace fiat money?

This is the #1 question I get asked. In short, and with the US in mind, I don’t believe crypto will replace the US dollar anytime soon. But this question has many dimensions if you consider other parts of the world and factor in how money relates to human rights, democracy, and totalitarianism.

How should I think of crypto?

Cryptocurrencies and their underlying technologies are many things to many people. For newcomers to crypto, the analogy I use today: Fiat money is a government-issued currency. Think of crypto as a currency of the Internet, as if the Internet were a country. No one actually owns the Internet (as it is decentralized), and in many cases, no single entity maintains control of a given cryptocurrency (as cryptocurrencies most are decentralized networks based on blockchain technology). Going back to the last question: crypto provides citizens in dictatorships a method for exfiltrating their wealth as their currency is controlled by their governments.

How mature is crypto?

The analogy I like to use today is: crypto is pre-World Wide Web. Although most people became familiar with the World Wide Web (Internet) after its commercialization, the Internet existed back in the early 1970s. For people without a technology background, I probably should say the maturity of the crypto space today is pre-Google. The take away point: the crypto space is young, and growing, and we should expect to see future companies with longstanding value emerge as market leaders (e.g. The Google of crypto).

Will we see growth in crypto?

I believe absolutely yes, but I have mixed thoughts. It has become easier for people to buy and sell crypto. This has fostered a high-liquidity environment for retail investors. Part of me believes that irrespective of what problem a given cryptocurrency is attempting to solve, many early stage cryptocurrencies are highly speculative, from an investment standpoint. One could argue that certain cryptocurrencies are benefiting from this highly speculative market as many FOMO investors are trying to make a quick return. In conjunction to an unprecedented bull market, crypto growth is equivalent to a modern-day gold rush, attracting entrepreneurs, VC firms, and engineers hoping to sell picks & shovels.

From an investment standpoint, if you take a step back, the challenge and opportunity with crypto is: how does one distinguish what will have long term utility and longstanding value vs. moonshots and pump-and-dumps? Take away point: the crypto space is a massive ecosystem, intermingled with what might be the largest liquidity bubble of all time, and unprecedented speculative opportunities. But, I believe there are many parallels to the dot-com era, as many highly capitalized startups flooded the market, and many failed, but what remained standing were the companies that provided longstanding value.

Is the US dollar at risk from crypto?

Some believe the decentralized nature of cryptocurrencies poses risks to destabilize the US dollar. Bitcoin differs fundamentally from currencies issued by centralized authorities (central banks) since it is decentralized. Some more extreme views believe that Bitcoin was created to deliberately destabilize the US dollar.

It’s worth noting that on June 8th, El Salvador enacted its “Bitcoin Law”, making El Salvador the first country to adopt bitcoin as a legal currency, usable for all payments within the country. For those that believe “real” money is backed by your obligation to pay taxes in a given currency, this is now possible in El Salvador.

Summary

As I stated prior, cryptocurrencies and their underlying technologies are many things to many people. My interest in this space is similar to my interest in new technologies and disruptive innovation: try to follow and understand this space during its innovation phase, with hopes to identify trends and companies with longstanding value, before they become mainstream.