Worthless, Questionable, and Great Ideas: A Guide to Cryptocurrencies

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Opinion: Cryptocurrencies have the promise, peril, stupidity, sparkle and excitement of the first dotcom era

My first job in finance was in 1999. It was during the dot-com bubble and it was a crazy time. New ideas arose daily and all were treated with respect.

I remember sitting down late at night learning web design to start a hapless website called teddyinabox.com selling, yes, teddy bears in a box. The bears came in large numbers from a warehouse on Naas Road and were painstakingly transported home on the bus. The company sold a lifetime total of one teddy bear; to a colleague who clearly felt sorry for me. But when I was on that bus back from the warehouse surrounded by teddy bears, I was looking at everyone thinking “I’ll send you a postcard when I get it done.”

This is the nature of great new ideas: they hold you tight, make you dream, and can sometimes prevent you from thinking clearly. Of course, not everything was dotcom teddyinabox. Most of the big stars in the tech world have their genesis in this initial hype. There was value in the whole, although almost all of the individual ideas were flawed.

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From The Business of RTÉ Radio 1, Anne Hayden of the Institute of Investing and Financial Trading on the roller coaster world of cryptocurrencies

I think this is the best way to look at cryptocurrencies. They have the promise, the peril, the stupidity, the glamor and the excitement of the first dotcom era. Some are literally teddyinabox companies (anyone can set up cryptocurrency overnight). Loads are scams, some are crazy ideas and most are weak copies of better ideas. Still, the global market is worth $ 1.3 trillion, as some of the ideas behind cryptos, if they work, will reshape the world.

I am looking for the investment side of crypto-currencies and new technologies in finance. Here I show one way to think of cryptocurrencies as an investment. It is certainly not investment advice; no sane person would give investment advice in a market that steadily rises and falls by 10% in one day.

Cryptocurrencies that will become completely worthless

Silver coins like Bitcoin, Dogecoin, and Ripple are worthless, throw them in the trash. These are “coins” (as cryptocurrencies are often called) that want to be the new currency. The promise is that they will replace national currencies. But why would you want to exchange your beautiful, stable euros for a currency that can change 20% in value in an instant? You wouldn’t. No one would. This is also not going to improve over time: Bitcoin is already the size of a large country’s currency, and still changes in value regularly by huge amounts.

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From RTÉ Radio 1’s Today with Claire Byrne, Sean Keyes from The Currency on Dogecoin

To this group, I will add stable coins, with a little caveat. Stable coins like Tether and USD Coin mimic the value of a real currency, like the US dollar in both of these cases. They are huge cryptocurrencies and incredibly useful for moving money around in the crypto world, but also ‘worthless’ from an investment standpoint as it is no different from simply investing in US dollars / cash.

Interesting but dubious cryptocurrencies

Confidentiality pieces like Monero and Dash allow you to hide your coin ownership, unlike a coin like Bitcoin. This is handy if you are a criminal, but there are a range of legitimate reasons why privacy can be sought. The reward is the cost of the huge pool of illegitimate money floating around the world. Leaving aside the obvious ethical issues, there’s a good chance the government will remove any successful piece of confidentiality.

I am a big fan of NFTs (non-fungible tokens), which are means of owning digital assets, such as assets in virtual worlds. There is great potential in these digital assets and a lot of NFT Parts like Mana, Axie Infinity, Alien Worlds have arisen. They are not themselves NFTs, but allow you to buy NFTs. These seem to me to be the modern day equivalent of a gift certificate, and just as unnecessary right now, although there might be some value in the future.

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From RTÉ Lyric FM’s Classic Drive cultural record, Aisling Kelliher from Virginia Tech, painter Hughie Donoghue, Rachel O’Dwyer from NCAD, and crypto art pioneer Ruth Catlow discuss whether NFTs are a wow or a WTF?

Cryptocurrencies with great business ideas

Infrastructure parts such as Ethereum, Polkadot, and Polygon are, in my opinion, the fundamental value proposition of the entire crypto movement. These coins allow applications to run on their blockchain networks in exchange for transaction fees. This means that anything can be recorded on a blockchain – property, art, products – creating strong trust benefits that are very valuable in commerce. Ethereum is the current winner, but not really designed to accommodate high volume of transactions.

Market currencies like Uniswap and Pancakeswap are issued by marketplaces that allow you to swap one coin for another, or gain value from the coins you own, sometimes referred to as decentralized finance (or DeFi). The value here comes from the commissions charged to coin holders.

The key question for any investment is whether the business model makes sense? Or, if you will, who will buy the teddy bears?

Chainlink and The Graph are examples of Dayour pieces that propose to be the data link that underlies the blockchain. Let’s say you have a contract saved on the blockchain that pays compensation if it rains on a particular day. The data pieces are responsible for providing verified data on whether it has rained and enabling automatic contract completion. There is a clear path to value here, as the financial markets seem, where reliable data is highly valued. It’s just hard to know which data provider will win.

For the sake of transparency, I am personally invested in Polkadot, Chainlink and The Graph, but they could easily lose their value tomorrow. My main point is that cryptos get interesting once we get past Bitcoin which is making all the headlines. However, the key question for any investment is: does the business model make sense? Or, if you will, who will buy the teddy bears?


The opinions expressed here are those of the author and do not represent or reflect the views of RTÉ



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