Cryptocurrencies, Bitcoin and Nanocrimes: 2021
James Carlini 02.07.21
Back in November 2018, I spoke at a Cloud Expo conference in New York City on cryptocurrencies, bitcoin, and nanocrimes. At the time many were just starting to buy into the “get rich quick” schemes of adding cryptocurrencies to their financial portfolios. Most investors did not know about the susceptibility of cryptocurrencies to scams, fraud, and other cybercrime. Now would be a good time to update that information and share the new findings with those who think jumping into cryptocurrencies is a “sure thing.”
Cryptocurrencies are not a store of value
What most people did not know back then and now was that none of the coins you could buy are considered a “store of value.” Today, we still have many first-time investors thinking that any cryptocurrency can compare with gold or silver, but they cannot. They are not recognized as a legitimate “store of value.”
There are seven major stores of value: real estate; bonds; fine art; precious metals; precious gems; currencies; and energy. In some third-world countries, livestock is also considered a store of value for trading.
All cryptocurrencies, as well as stocks, are not considered a store of value. They are considered speculative investments. Remember that, when you hear the sales pitch to “diversify your assets” and put your money into cryptocurrencies.
Remember, both are speculative and not defined as a “store of value.”
When it comes to initial coin offerings, over 50% of coins did not make it past the first six months of their introduction in 2018. This is something to consider if you are buying a cryptocoin that has been on the market for less than a year.
If we look back to 2017, there were 800 different types of cryptocoins. Going into 2018, there were more initial coin offerings and the market for cryptocurrency jumped to 2,000 coins, and then towards the end of 2018, there were almost 2,100 coins.
Last month, there were 8,176 different types of cryptocoins available. Now, there are 8,407 different types of cryptocoins available. How many are legit? How many will survive?
If you are going to invest in any of them, the safe bet would be to limit your choices to the top five: Bitcoins, Ethereum, Tether, XRP, and PolkaDot. The top five account for 83.36% of the total market. The other 8,402 coins? You might as well put your money in a slot machine for a more guaranteed return.
The vulnerabilities of cryptocurrencies are they are not recognized as “legal tender” by central banks and governments. In fact, China banned the use of any cryptocurrency back in 2017. The idea of having cryptocurrency as a hedge against a disaster is farfetched. The liquidity is not there like it would be for gold and silver or some currency that is backed by a government.
A country like China will entertain the idea of launching their own coin if it gives its Central Bank the complete oversight to retain power within their economy as well as the global economy. It will not recognize others’ coins and be very focused on retaining financial controls on people, transactions, and capital movements within China, as well as around the world.
China rethinking cryptocurrencies
From an article in Belt & Road News, dated October 20, 2020:
“China is well on its way to becoming a cashless society. More than 600 million Chinese already use Alibaba’s Alipay and Tencent’s WeChat Pay to pay for much of what they purchase.
Between them, the two companies control approximately 90% of China’s mobile payments market, which totaled some $17 trillion in 2019. A wide variety of sectors throughout China have since adopted blockchain to pay bills, settle disputes in court, and track shipments.
The Chinese government understands that, via blockchain, the issuance of its own cryptocurrency is an excellent way to track and record the movement of payments, goods, and people.”
The Chinese are looking at offering a DCEP coin. It will not afford anonymity in transactions. The reality will be, the Chinese Central Bank will still be able to monitor and track “who spent or received funds, when, where, and with whom.”
This is what may evolve with other major governments and central banks. All transactions and routing from payer to payee can be monitored and tracked. The idea of blockchain technology offering anonymity is canceled out by this new approach of what I refer to as BBB Coins, or “Big Brother Bucks.”
Nanocrimes – some on the rise
From Reuters last month, “Losses from cryptocurrency theft, hacks, and fraud fell 57% last year (2020) to $1.9 billion, as market participants boosted security systems, but crime in the ‘decentralized finance’ space continued to grow, a report from crypto intelligence company CipherTrace showed.”
The problem is in decentralized finance platforms, they are not as restricted and monitored by banking and other regulatory oversight. It is an easier playing field to commit fraud, ransomware, and theft on those who partake in those platforms.
Ransomware threats are common with some who will send malware to lock up your computer and then demand to be paid off in cryptocurrencies.
This is just one way to use cryptocurrency platforms to shakedown victims.
What needs to change?
Some are still arguing the case that buying a bitcoin is like buying “digital gold.” They go on to guarantee “It can be used as a long-term safe-haven asset.” Some say it is a potential “store of value.”
The reality is, it is still not a recognized “store of value.” In some disastrous time, you could go up to someone and “barter” with them to buy something with gold or silver, but see what you get when you whip out your bitcoin. You might be surprised that that $35,000 coin is not worth two gallons of milk or a box of shotgun shells. At that point, a cryptocoin may be the same value as a Beanie Baby.
What needs to change is the acceptance of cryptocurrencies by governments, central banks, and a much larger amount of the general public. As stated in one article which answers the question “Is Bitcoin a Store of Value?”
To many, the comparison between gold and bitcoin is absurd. The history of gold is, essentially, the history of civilization. The precious metal has been a critical part of societies for thousands of years. Admittedly, it has lost some of its dominance since the eradication of the gold standard but nonetheless remains the quintessential safe-haven asset.
Gold only has value because everyone agrees that it does. Bitcoin isn’t any different, but those that give it value are still a tiny group in the grand scheme.
Regulatory and compliance frameworks need to be further developed, agreed upon, and put in place. Even though you see some making money in the crypto market, I would be very hesitant in putting too much money into any of them until there is more clarification (and general acceptance) of how cryptocoins will be viewed as a legitimate “store of value.”
James Carlini is a strategist for mission critical networks, technology, and intelligent infrastructure. Since 1986, he has been president of Carlini and Associates. Besides being an author, keynote speaker, and strategic consultant on large mission critical networks including the planning and design for the Chicago 911 center, the Chicago Mercantile Exchange trading floor networks, and the international network for GLOBEX, he has served as an adjunct faculty member at Northwestern University.