Thoughts on the state of cryptocurrencies

This post is a reaction to this article.

I have serious misgivings about how cryptocurrencies are being traded right now. Bitcoin was invented as a monetary system, whereby people would trade bread and beer over Bitcoins and the decentralized infrastructure would ensure that transactions were all accounted for. Ethereum too was invented for its potential as a tokenized platform for smart contracts. 

Instead what I observe is mindless speculation and hoarding of these coins, with each trade bumping up the value thus making the speculation juicier. There is no economy behind these transactions, no bread or beer is being traded, it is treated like cyberpunk horse-betting. 

It's quite disappointing IMO, and when the bubble inevitably bursts (because nothing is propping it up except one-directional expectations), not only would a whole lot of computing time and energy have been spent for "empty" transactions, the regulators will likely step in and remove these freedoms that are so highly prized right now. That's the logic. The irony is when Satoshi Nakomoto invented the technology, he might have had at least some contempt for the current financial market, of which trades with no skin in the game are easily identified as a big part of the problem. But it seems that his invention has become just that... part of the problem. 

Pity. This is why we can't have nice things.

Funnily, I think the solution is to dive in and just start using the currency. Stop worrying about its value and just use it. For example, USD is more valuable than INR, but if I just convert money and keep it in my account never using it, and everyone else does the same, then USD effectively becomes a shiny paperweight.

How I prefer to look at Ethereum and cryptotokens in general

The way I see it, cryptotokens and related infrastructure have 3 separate capabilities:
- anonymity
- distributed
- historical ledger as proof

IMO it should be possible to pick and choose which of these is necessary for your usecase. Doing so has benefits in terms of easing infrastructure requirements and scalability. 

For example, IoT/smart energy transactions may require speed but historical memory beyond a few days seems irrelevant. In this case, the ledger part can be tuned to dump entries older than X days so that transaction processing becomes much faster because your blocks stay small. 

Interestingly, although the anonymity of crypto-transactions has been a much-loved feature for some parties, I think banks and credit institutions are well-positioned to operate a bulk of the infrastructure for payments, for usecases where anonymity is not so important. IMO, such transactions are the vast majority of legal transactions, and the potential benefits of a 24/7 available, regulated, optimisable and decentralised (as opposed to truly distributed) systems are quite high.

As for Ethereum + smart contracts, it should not be seen as a currency but as a system of systems. Let's say your neighborhood has a local economy A and my university has a local economy B where we share and trade resources and Ethereum tokens are used to represent the transactions independently. If and when I leave my university to visit you, the Ethereum tokens remain common so I can use my tokens in your economy as well. 

Taking this further, the tokens can represent anything from tax rebates for charitable donations, volunteer hours at the local library, repair costs for sinkholes on Main St, gamification rewards from your Fitbit for exercising to traffic lights prioritizing when to turn red/green at intersections. Bringing in the Internet of Everything and tokenizing human/machine actions with a common currency, and automating repetitive or conditional transactions, is in my view, a holistic way to think of Ethereum.