Understanding the Cryptocurrency Boom: A Ground-Level Assessment

I recently came across a December 1996 San Jose Mercury News article on tech pioneers’ attempts to carry the pre-browser Internet’s bulletin board community vibe over to the new-fangled World Wide Web.

In effect, the article is talking about social media a decade before MySpace and Facebook and 15 years before the maturation of social media.

(Apple was $25 per share in December 1996. Adjusted for splits, that’s about the cost of a cup of coffee.)

So what’s the point of digging up this ancient tech history?

  1. Technology changes in ways that are difficult to predict, even to visionaries who understand present-day technologies.
  2. The sources of great future fortunes are only visible in a rearview mirror.

Many of the tech and biotech companies listed in the financial pages of December 1996 no longer exist. Their industries changed, and they vanished or were bought up, often for pennies on the dollar of their heyday valuations.

Which brings us to cryptocurrencies, which entered the world with bitcoin in early 2009.

Now there are hundreds of cryptocurrencies, and a speculative boom has pushed bitcoin from around $600 a year ago to $2600 and Ethereum, another leading cryptocurrency, from around $10 last year to $370.

Where are cryptocurrencies in the evolution from new technology to speculative boom to maturation? Judging by valuation leaps from $10 to $370, the technology is clearly in the speculative boom phase.

If recent tech history is any guide, speculative boom phases are often poor guides to future valuations and the maturation trajectory of a new sector. 

Anyone remember “push” technologies circa 1997? This was the hottest thing going, and valuations of early companies went ballistic.  Then the fad passed and some new innovation became The Next Big Thing.

All of which is to say: nobody can predict the future course of cryptocurrencies, other than to say that speculative booms eventually end and technologies mature into forms that solve real business problems in uniquely cheap and robust ways no other technology can match.

So while we can’t predict the future forms of cryptocurrencies that will dominate the mature marketplace, we can predict that markets will sort the wheat from the chaff by a winnowing the entries down to those that solve real business problems (i.e. address scarcities) in ways that are cheap and robust and that cannot be solved by other technologies.

The 'Anything Goes' Speculative Boom

Technologies with potentially mass applications often spark speculative booms. The advent of radio generated a speculative boom just as heady as any recent tech frenzy.

Many people decry the current speculative frenzy in cryptocurrencies, and others warn the whole thing is a Ponzi scheme, a fad, and a bubble in which the gullible sheep are being led to slaughter.

Meanwhile, tribalism is running hot in the cryptocurrencies space, with promoters and detractors of the various cryptocurrencies doing battle in online forums: bitcoin is doomed by FUD (fear, uncertainty and doubt) about its warring camps, or it’s the gold standard; Ethereum is either fundamentally flawed or the platform destined to dominate, and so on.

The technological issues are thorny and obtuse to non-programmers, and the eventual utility of the many cryptocurrencies is still an open question/in development.

It’s difficult for non-experts to sort out all these claims. What’s steak and what’s sizzle?  We can’t be sure a new entrant is actually a blockchain or if its promoters are using blockchain as the selling buzzword.

Even more confusing are the debates over decentralization. One of the key advances of the bitcoin blockchain technology is its decentralized mode of operation: the blockchain is distributed on servers all over the planet, and those paying for the electricity to run those servers are paid for this service with bitcoin that is “mined” by the process of maintaining the blockchain.  No central committee organizes this process.

Critics have noted that the mining of bitcoin is now dominated by large companies in China, who act as an informal “central committee” in that they can block any changes to the protocols governing the blockchain.

Others claim that competing cryptocurrencies such as Ethereum are centrally managed, despite defenders’ claims to the contrary.

Meanwhile, fortunes are being made as speculators jump from one cryptocurrency to the next as ICOs (initial coin offerings) proliferate. Since the new coins must typically be purchased with existing cryptocurrencies, this demand has been one driver of soaring prices for Ethereum.

As if all this wasn’t confusing enough, the many differences between various cryptocurrencies are difficult to understand and assess.

While bitcoin was designed to be a currency, and nothing but a currency, other cryptocurrencies such as Ethereum are not just currencies, they are platforms for other uses of blockchain technologies, for example, the much-touted smart contracts.  This potential for applications beyond currencies is the reason why the big corporations have formed the Enterprise Ethereum Alliance (https://entethalliance.org/).

Despite the impressive credentials of the Alliance, real-world applications that are available to ordinary consumers and small enterprises using these blockchain technologies are still in development: there’s lots of sizzle but no steak yet.

Who Will The Winner(s) Be?

How can non-experts sort out what sizzle will fizzle and what sizzle will become dominant?  The short answer is: we can’t. An experienced programmer who has actually worked on the bitcoin blockchain, Ethereum and Dash (to name three leading cryptocurrencies) would be well-placed to explain the trade-offs in each (and yes, there are always trade-offs), but precious few such qualified folks are available for unbiased commentary as tribalism has snared many developers into biases that are not always advertised upfront.

So what’s a non-expert to make of this swirl of speculation, skepticism, tribalism, confusing technological claims and counterclaims and the unavoidable uncertainties of the exhilarating but dangerously speculative boom phase?

There is no way to predict the course of specific cryptocurrencies, or the potential emergence of a new cryptocurrency that leaves all the existing versions in the dust, or governments’ future actions to endorse or criminalize cryptocurrencies.  But what we can do -- now, in the present -- is analyze present-day cryptocurrencies through the filters of scarcity and utility.

In Part 2: The Value Drivers Of Cryptocurrency, we analyze the necessary success requirements a cryptocurrency will need to excel on in order to become adopted at a mass, mainstream level. Once this happens (which increasingly looks like a matter of "when" not "if"), the resultant price increase of the winning coin(s) will highly likely be geometric and meteoric.

Sadly, the most probable catalyst for this will be a collapse of the current global fiat currency regime -- something that increasingly looks more and more inevitable. This will destroy a staggering amount of the (paper) wealth currently held by today's households. Which makes developing a fully-informed understanding of the cryptocurrency landscape now -- today -- an extremely important requirement for any prudent investor.

Click here to read the report (free executive summary, enrollment required for full access)

Editor's Note: The above is a guest post by Charles Hugh Smith with PeakProsperity.com.

In light of the national conversation surrounding the rights of free speech, religion and self-defense, Mercury One is thrilled to announce a brand new initiative launching this Father's Day weekend: a three-day museum exhibition in Dallas, Texas focused on the rights and responsibilities of American citizens.

This event seeks to answer three fundamental questions:

  1. As Americans, what responsibility do we shoulder when it comes to defending our rights?
  2. Do we as a nation still agree on the core principles and values laid out by our founding fathers?
  3. How can we move forward amidst uncertainty surrounding the intent of our founding ideals?

Attendees will be able to view historical artifacts and documents that reveal what has made America unique and the most innovative nation on earth. Here's a hint: it all goes back to the core principles and values this nation was founded on as laid out in the Declaration of Independence and the Bill of Rights.

Exhibits will show what the world was like before mankind had rights and how Americans realized there was a better way to govern. Throughout the weekend, Glenn Beck, David Barton, Stu Burguiere, Doc Thompson, Jeffy Fisher and Brad Staggs will lead private tours through the museum, each providing their own unique perspectives on our rights and responsibilities.

Schedule a private tour or purchase general admission ticket below:

Dates:
June 15-17

Location:

Mercury Studios

6301 Riverside Drive, Irving, TX 75039

Learn more about the event here.

About Mercury One: Mercury One is a 501(c)(3) charity founded in 2011 by Glenn Beck. Mercury One was built to inspire the world in the same way the United States space program shaped America's national destiny and the world. The organization seeks to restore the human spirit by helping individuals and communities help themselves through honor, faith, courage, hope and love. In the words of Glenn Beck:

We don't stand between government aid and people in need. We stand with people in need so they no longer need the government

Some of Mercury One's core initiatives include assisting our nation's veterans, providing aid to those in crisis and restoring the lives of Christians and other persecuted religious minorities. When evil prevails, the best way to overcome it is for regular people to do good. Mercury One is committed to helping sustain the good actions of regular people who want to make a difference through humanitarian aid and education initiatives. Mercury One will stand, speak and act when no one else will.

Support Mercury One's mission to restore the human spirit by making an online donation or calling 972-499-4747. Together, we can make a difference.

What happened?

A New York judge ruled Tuesday that a 30-year-old still living in his parents' home must move out, CNN reported.

Failure to launch …

Michael Rotondo, who had been living in a room in his parents' house for eight years, claims that he is owed a six-month notice even though they gave him five notices about moving out and offered to help him find a place and to help pay for repairs on his car.

RELATED: It's sad 'free-range parenting' has to be legislated, it used to be common sense

“I think the notice is sufficient," New York State Supreme Court Judge Donald Greenwood said.

What did the son say?

Rotondo “has never been expected to contribute to household expenses, or assisted with chores and the maintenance of the premises, and claims that this is simply a component of his living agreement," he claimed in court filings.

He told reporters that he plans to appeal the “ridiculous" ruling.

Reform Conservatism and Reaganomics: A middle road?

SAUL LOEB/AFP/Getty Images

Senator Marco Rubio broke Republican ranks recently when he criticized the Tax Cuts and Jobs Act by stating that “there's no evidence whatsoever that the money's been massively poured back into the American worker." Rubio is wrong on this point, as millions of workers have received major raises, while the corporate tax cuts have led to a spike in capital expenditure (investment on new projects) of 39 percent. However, the Florida senator is revisiting an idea that was front and center in the conservative movement before Donald Trump rode down an escalator in June of 2015: reform conservatism.

RELATED: The problem with asking what has conservatism conserved

The "reformicons," like Rubio, supported moving away from conservative or supply-side orthodoxy and toward policies such as the expansion of the child and earned income tax credits. On the other hand, longstanding conservative economic theory indicates that corporate tax cuts, by lowering disincentives on investment, will lead to long-run economic growth that will end up being much more beneficial to the middle class than tax credits.

But asking people to choose between free market economic orthodoxy and policies guided towards addressing inequality and the concerns of the middle class is a false dichotomy.

Instead of advocating policies that many conservatives might dismiss as redistributionist, reformicons should look at the ways government action hinders economic opportunity and exacerbates income inequality. Changing policies that worsen inequality satisfies limited government conservatives' desire for free markets and reformicons' quest for a more egalitarian America. Furthermore, pushing for market policies that reduce the unequal distribution of wealth would help attract left-leaning people and millennials to small government principles.

Criminal justice reform is an area that reformicons and free marketers should come together around. The drug war has been a disaster, and the burden of this misguided government approach have fallen on impoverished minority communities disproportionately, in the form of mass incarceration and lower social mobility. Not only has the drug war been terrible for these communities, it's proved costly to the taxpayer––well over a trillion dollars has gone into the drug war since its inception, and $80 billion dollars a year goes into mass incarceration.

Prioritizing retraining and rehabilitation instead of overcriminalization would help address inequality, fitting reformicons' goals, and promote a better-trained workforce and lower government spending, appealing to basic conservative preferences.

Government regulations tend to disproportionately hurt small businesses and new or would-be entrepreneurs. In no area is this more egregious than occupational licensing––the practice of requiring a government-issued license to perform a job. The percentage of jobs that require licenses has risen from five percent to 30 percent since 1950. Ostensibly justified by public health concerns, occupational licensing laws have, broadly, been shown to neither promote public health nor improve the quality of service. Instead, they serve to provide a 15 percent wage boost to licensed barbers and florists, while, thanks to the hundreds of hours and expensive fees required to attain the licenses, suppressing low-income entrepreneurship, and costing the economy $200 billion dollars annually.

Those economic losses tend to primarily hurt low-income people who both can't start businesses and have to pay more for essential services. Rolling back occupational licenses will satisfy the business wing's desire for deregulation and a more free market and the reformicons' support for addressing income inequality and increasing opportunity.

The favoritism at play in the complex tax code perpetuates inequality.

Tax expenditures form another opportunity for common ground between the Rubio types and the mainstream. Tax deductions and exclusions, both on the individual and corporate sides of the tax code, remain in place after the Tax Cuts and Jobs Act. Itemized deductions on the individual side disproportionately benefit the wealthy, while corporate tax expenditures help well-connected corporations and sectors, such as the fossil fuel industry.

The favoritism at play in the complex tax code perpetuates inequality. Additionally, a more complicated tax code is less conducive to economic growth than one with lower tax rates and fewer exemptions. Therefore, a simpler tax code with fewer deductions and exclusions would not only create a more level playing field, as the reformicons desire, but also additional economic growth.

A forward-thinking economic program for the Republican Party should marry the best ideas put forward by both supply-siders and reform conservatives. It's possible to take the issues of income inequality and lack of social mobility seriously, while also keeping mainstay conservative economic ideas about the importance of less cumbersome regulations and lower taxes.

Alex Muresianu is a Young Voices Advocate studying economics at Tufts University. He is a contributor for Lone Conservative, and his writing has appeared in Townhall and The Daily Caller. He can be found on Twitter @ahardtospell.

Is this what inclusivity and tolerance look like? Fox News host Tomi Lahren was at a weekend brunch with her mom in Minnesota when other patrons started yelling obscenities and harassing her. After a confrontation, someone threw a drink at her, the moment captured on video for social media.

RELATED: Glenn Addresses Tomi Lahren's Pro-Choice Stance on 'The View'

On today's show, Pat and Jeffy talked about this uncomfortable moment and why it shows that supposedly “tolerant" liberals have to resort to physical violence in response to ideas they don't like.