Wednesday, August 16, 2017 / Perth Australia / By Niekie Jooste
In this edition of "The WelderDestiny Compass":
When Bitcoin was launched, the idea was to create an alternative system of money that allowed peer to peer payments that was immune from central control. It took quite a while to gain traction, but now that it has, it looks like every man and his dog wants in on the action.
In the last year or so, we have seen a cryptocurrency explosion. Currently there are over 900 different cryptocurrencies available in the market. On any given day, there seems to be another one or two crypto's being launched. Does this make sense? Does it make sense that anybody can just create their own currency and make millions, or even billions of dollars out of thin air?
While we have discussed the role of the blockchain technology in our vision of the future, we also need to ask ourselves how the cryptocurrencies fit into this picture. Today we take up this challenge.
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Now let's get stuck into this week’s topics...
A lot of people will have nothing to do with cryptocurrencies. They do not believe that crypto's are real money and insist that they have no value. How can zero's and one's on a computer drive somewhere be construed as having value, they ask?
To explore this, we need to ask ourselves what gives any money its value? If we look at it, a 50 dollar note is nothing other than paper or plastic, (depending on the country) and therefore has very little inherent value. Its value is derived from the fact that society has agreed that it is a representation of value, and can therefore be used as a method of exchange.
It is important to note that ANY money has no inherent value. Many people would argue that gold, which has been used for centuries as money, has inherent value. Actually, if you think about it, this is not so. While it has value as a pretty trinket, it has no ability to provide for any of the basic human needs of shelter, food, water or air. Even gold only has high value because society has decided that it has such a value.
Within this argument, we again raise the point that money was never meant to be a "store of value". It is a means of exchange. It helps us to keep score about who is playing the economic game the best.
We also need to raise the point that most "mainstream" money in the world is in any case just entries on a computer somewhere. Mostly in the computers of the banks. Only a very small percentage of money in the world is represented by actual, physical banknotes and coins.
Another way to think about cryptocurrencies is to think of them like you would think of your frequent flyer points. I am a member of the Qantas frequent flyer rewards scheme. I am sure that many of the readers are members of a frequent flyer scheme. The frequent flyer points that are "earned" can be used to purchase all manner of products and services. In this way, the frequent flyer points are actually a currency. We believe they have value, because Qantas has made us believe that we can exchange them for a flight, some wine or even a watch.
So, the answer to the question is simply this: Cryptocurrencies are money for as long as society agrees that they are money.
Presently there is rampant speculation in cryptocurrencies. As in any speculative environment, there will be many winners and losers. Many of the cryptocurrencies that have been launched have failed miserably. Some have just fizzled right from the word go, while some have exploded in value only to crash and burn.
If you are going to speculate in cryptocurrencies now, then expect the wild west! Your money may multiply beyond your wildest dreams, or you may lose it all.
That said, I believe there will eventually be a number of cryptocurrencies that will survive and eventually provide a stable means of international exchange. Exactly what that final outcome will be is anybody's guess, but I expect there to be government imposed crypto's in that mix. The governments of the world will surely not want to lose control of the money printing golden goose!
Many people are losing faith in the whole cryptocurrency movement because they just can't see how there is any value in having more than a single cryptocurrency. The explosion of different crypto's is proof to them that this is just a speculative frenzy without any basis in reality.
I agree with that way of thinking to some degree. In fact, most of the cryptocurrencies created have had no other reason for existence than to enrich the creators of the crypto. These are doomed, and anybody speculating in them will lose it all.
There is however an argument for having more than one cryptocurrency if you think about what their basic function is. In the case of bitcoin, it was created primarily as a means of exchange. Having another crypto with only that purpose is a bit senseless. Why not just use bitcoin?
The reality is that the underlying technology that enables the "distributed ledger" function of crypto's, has been seen as a way to solve a huge number of problems in this world where people need to deal with strangers in a trust relationship. This underlying technology is "blockchain" technology.
The issue is that no single blockchain can give everybody what they want to achieve. Having different blockchains therefore makes sense. One blockchain is really good at allowing distributed computing. Another blockchain is really good at providing a platform for "smart contracts" with a legal basis. There is even a new blockchain being established to serve as a means of sharing data in a secure way, so that the party analysing the data can't actually see the raw data. This could form the basis for future data rich platforms (e.g. medical records) to share their data for specific research reasons without divulging the underlying raw information. Each of these useful blockchains then creates its own medium of exchange to use in its echo system. In other words, it creates its own cryptocurrency.
We can think of this by again referring to the frequent flyer program example. There are numerous frequent flyer rewards programs around the world. Each has its own advantages and shortcomings. While we may think that it would be best to only have a single frequent flyer program, there is also value in having more than one. But is there value in having 900? I don't think so!
We have discussed the potential for welding based data aggregation platforms in a number of issues of The WelderDestiny Compass. It is very possible that such platforms could be based on applications that leverage off blockchain based systems. On the logistics front, this has already started happening.
As I have previously mentioned, I believe that one of the best applications for such blockchain technology would be material certification and control, including welding consumable control. This future is racing towards us like an express train. It will arrive at a station near you whether you are ready or not!
Sooner or later we will be dealing directly with blockchain backed systems. The probability is good that a number of those systems will be running on their own cryptocurrencies as a medium of exchange.
Ready or not, the Welder of tomorrow is going to have to deal with cryptocurrencies in their professional lives and their private lives. Between now and then there is going to be a wild frenzy as everyone tries to make their fortune.
This will be interesting!
Yours in welding
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