Cryptocurrency Outlook

Coins

What is store for the cryptocurrency near-future? More ICO’s (Initial Coin Offerings) or a slow realization that public blockchains are risky?

In the realm of the digital, cryptography is definitely a contender for your money. Not unlike your retirement plans, savings accounts and the cash hoard under your mattress. You might also be surprised that cryptography is changing more than finance, however.

Cryptocurrency is creating its own financial vortex. An ever growing singularity threatening to unravel, not only the monetary systems in place today, but the social systems upon which they rely.

What would happen if the state money you have in your bank went the way of the Dodo Bird? Would you use gold, silver or a cryptocurrency to get you through the bad times? Perhaps a lesson is unfolding right before our eyes.

The average Venezuelan could tell you about bad times. Their economy continues to nose dive as their monetary system crashes. Social services, food, water, medicine? All hard to come by. And it is a result of policies that made their money evaporate. They simply “printed” too much and it — their entire social system — is dying as a result.

…cryptocurrency can be hidden much easier than silver coins.

Is bitcoin  propping up the average Venezuelan citizen today? Certainly, it is helping. Government agents cannot reach into the Bitcoin Bank and take your money. They can, however, force you to give up your passwords and make you transfer your funds to them. Unless you use a third party service. One in another country that refuses to release your funds.

In short, cryptocurrency can be hidden much easier than silver coins.

More specifically, it is in cryptocurrency that many of us place our hopes and dreams. But are our hopes misplaced? Is this new fin-tech space a mere blip in the larger scale of the Information Age?

If bitcoin cannot be “over-printed,” by design, what is it really? A steadily valuing asset, so long as we keep using and buying and trusting it? Trusting a digitized currency?

Many of us already know the risks involved with Bitcoin or any cryptocurrency. You can stand to gain, maintain, or lose your proverbial behind. Billions of dollars of real money have been made during this ongoing; and certainly speculative run up. Values continue to climb, then retreat, and most unfortunately, the system itself, especially the most popular cryptocurrency of all, bitcoin, is showing signs of strain.

We can make comparisons all day. The Dot.com bubble. Tulip Mania. Speculation. A craze. Decentralized money. Be your own bank. Smart contracts. The World computer(s) galore.

Every Tom, Dick and Harry has a new idea…

Every Tom, Dick and Harry has a new idea for a new cryptocurrency. Just as every new company has new stock. Whole countries are “testing” the waters, allowing the new non-state monies freer reign.

And choices are great. Eventually, however, the most efficient tech will surpass the rest. Just as large home computers gave way to tablets then smart phones, the fastest and most secure systems — the most trusted — will win.

Reliability is also key. You can fix it if it breaks, but you might lose your customer if it breaks for long. For example, I really liked Peercoin when it first came out. An unknown  developer (Sunny King) who sort of kept his or her distance. An energy efficient system. It seemed more decentralized, even if it was not private — meaning others could see my balances and purchases. All the same, when Peercoin broke — forked — I was ticked off. Never again did I invest. Well, maybe once or twice, but I steered clear of the software. Just traded it.

Central Control…

Central control is another concern. Central authorities like our various governments often step in to assert that money must be controlled. To protect us. Bitcoin itself was the antitheses to centralized control. Today, to state that Bitcoin is decentralized would be stretching it.

Large computational warehouses churn out Bitcoin’s life blood. Many are in China. The sheer amount of electricity used to continue this process is staggering. And China is by no means a free country, but are any countries truly free these days?

Power consumption. If we use the United States as an example it is estimated that Bitcoin miners worldwide use nearly the same amount of electricity as nearly 300,000 homes. An argument for Bitcoin’s value to be sure. Even so, this very fact makes the giant Chinese Mining warehouses targets.

Is Bitcoin money? Does it have a real value? Why does it continue to thrive? These are all great questions and many have chimed in — attempted to answer them. In truth, there is no simple answer.

So what happens next?

Will whole regions compete with their favored cryptocurrencies? Will the public blockchains rule or will private ones begin to take market share? Will governments give certain companies special rights to sell their wares, so long as they are complaint with all of the reporting requirements? Does this latter situation not break all the rules of cryptocurrency?

And the “next” is already occurring. The herd is moving in the fields, but the fields are fenced-in. Slowly, the acreage will be sectioned off. A divide and conquer strategy.

Will it be bad? Not initially. Not until the authorities begin to demand changes to the code to allow several things. Easier snooping and taxation. Eventually, not unlike Peercoin, the social engineers will ask the ultimate sacrifice: faster inflation. That will spell the end of it.

There are no places to hide. Yes, companies can hock their wares — sell their crypto-goods — with governmental permission. They can report all account holders and take names. They can play the game.

Many of us will use these trusted public blockchains. Many of us will unknowingly use the current banking systems, unaware that they will soon be using Ripple or maybe Stellar Lumens or some other well researched, official and “approved” system.

There are a few cryptocurrencies remaining that, as of yet, have refused to comply with authorities — completely. They also have better reputations that most. Monero and Aeon. Their developers remain, mostly, anonymous. A good and bad thing. As a result, there are fewer markets. Fewer places to purchase these relatively private cryptocurrencies. But they are far more secure and private than most other competitors.

It reminds me of Prohibition in the United States beginning in the 1920’s and even the current laws against drugs today. What happens when people are told that they cannot buy and use something they want? In the end the price goes way up. A sort of “valuation wave.”

Is this what is in store for Monero and Aeon?


Image: Flickr

 

 

 

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Bitcoin, Litecoin, Monero, DASH or Aeon. | hubpages

The battle for supremacy. But be wary of the Pumps of Paradise. (Crypto-Commentary)

Source: Bitcoin, Litecoin, Monero, DASH or Aeon. | hubpages

The Great Bitcoin Pump and Dump from China

If you’ve been wondering why bitcoin prices have climbed over the past months weeks…months, look no farther, it’s the Chinese — again. Okay. maybe India and a little Venezuela.

According to HolyTransaction, a premier cryptocurrency multi-wallet service, the Chinese connection exists. In fact, the service warned us in the past to watch out for bitcoin ‘shorts.’

I thought it might be a good idea to remind ourselves to watch  — again.


China, in fact, has $30 trillion in deposits – which concerns about devaluations will make very “flighty” while the market cap of bitcoin is under $8 billion. 

— HolyTransaction / May 31, 2016

Source: Bitcoin rise driven by Chinese domain | HolyTransaction


Are the Chinese attempting to rescue their wallets, due to capital controls imposed by their government? That is the suggestion here — that it is a great way to move money out of the country.

The “Great Firewall of China” is essentially useless if a Chinese citizen knows how to avoid it with the many options Bitcoin has to ‘send’ and ‘receive.’

Another theory is the old ‘supply and demand’ scenario. There are fewer Bitcoins mined in now, because of a programmed mining halving and this supply reduction might continue to trigger higher prices, if demand remains constant.

Or is it the Ethereum issue? The fact that this relative newcomer to the crypto scene, courted by banks and investors, has stirred interest in Bitcoin? Maybe.

But as HolyTransaction indicated, China is probably the culprit.

How else can one explain it? If the Chinese account for more that 90% of the world’s Bitcoin trade they can certainly influence global prices.


…a Chinese investor effect, but also raise the possibility that the effect won’t last.

— Jeff John Roberts / Fortune / May 31,2016

Source: 3 Reasons Bitcoin Is Booming Again – Fortune


And now the warnings sink in. When will the Chinese pull the plug?


The price of bitcoin in China has been roughly $50 or higher than in other countries. So why is China buying so much cryptocurrency, and why now?

–Jamie Redmond /news.bitcoin.com/May 31, 2016

Source: Bitcoin Price Rally: ‘Hot Money in China Has to Go Somewhere’


Pulling the plug might not be in the cards any time soon. But remember the warning. The Chinese like to gamble.

As the Chinese government continues to devalue the Yuan, investors are signing up at the exchanges to beat the devaluations. Will Beijing move to further restrict bitcoin trade?

Will the government step in to halt the bitcoin trade in that country entirely?

If so, watch for bitcoin a tail spin.

Now think about where the Chinese will next invest? Will it be in Monero? For its privacy?

Think about that for a moment. The Chinese have the mining power. Would it be all that difficult to move in? Run Monero like they run bitcoin? Is Monero really that resistant to ASIC Mining? Bot driven miners?

A recent Come to Jesus incident happened with Monero recently. One Mining Pool — dwarfpol.com — actually surged past 51%. At that point, Monero could have been theoretically rewritten or simply owned by one party. We have been assured by the anonymous developers and one who remains public, that all is well.

If not Monero, with its anonymous developers, who we do not know if we can trust, what cryptocurrency is next best? Litecoin has seen new action of late. But Monero is bugging me.

 


Featured Image by Daderot (Own work) [Public domain], via Wikimedia Commons

Will Coinbase Survive?

(Updated)

This seems to be the burning question…

Will Coinbase Inc. survive one of the most unprecedented moves by the Internal Revenue Service (IRS) in recent years — its overreaching and unreasonable attempt to search and seize millions of private financial records and kill bitcoin — our digital gold?

It’s nothing new. They’ve done it before. The IRS has gone after deep pockets. And they are doing it again.

Deep pocket in question: Coinbase. But not all that deep.

Coinbase – according to their website:

 

  • Founded in June of 2012
  • Digital currency wallet and platform
  • Merchants and consumers can transact with digital currencies
  • Currently offers bitcoin and ethereum
  • Based in San Francisco, California       

No doubt the IRS has been investigating cryptocurrency exchanges for some time. The Coinbase investigation is just another domino, in a long line of dominoes, from the United States to China, from Russia to Australia and beyond. The very public Coinbase investigation is meant to strike a very real financial fear into the hearts of the American cryptocurrency enthusiast.

According to the Coinbase website, they have about 5,000,000 users on their platform. These users have 11,000,000 electronic wallets, which may or may not actually contain bitcoin or ethereum cryptocurrencies. Add to that mix, 45,000 merchants utilizing their platform and thousands of software applications from developers.

Again, according to their website, over $5,000,000,000 in cryptocurrency has been exchanged on Coinbase. The number is high, but are we talking about fours years of exchanges?

Coinbase is also in over 30 countries worldwide. Which means that only portion of profits and losses were had by Americans. Which means that foreigners probably owe the IRS money for doing business with an American Company. Foreigners who will now likely ignore the IRS, but whose banks and financial houses will likely not.

Why? Just ask UBS Bank in Switzerland. No longer are Swiss banks the go to gurus for wealth management and privacy. The IRS went after those who failed to report their foreign bank accounts at UBS, cited them for filing false tax returns. The result? Millions of dollars in fines, federal probation and prison sentences.

And the list goes on. We’ve all heard of the Panama Papers, where another two trillion dollars sought a tax haven, but a data leak exposed the process.

But why did the IRS investigate such a small company? Coinbase Inc. and UBS are like the proverbial elephant and mouse. With over two trillion in assets, UBS had far deeper pockets. Look at the larger picture.

UBS took years to accumulate the wealth it managed. Bitcoin transactions or sent bitcoins in 24 hours, approaches about 1.5 million  — in bitcoin. In today’s dollars, it would take over two years, at that rate, to send a trillion dollars worth. Not even Panama Paper worthy.

What about the world’s biggest holder of bitcoin? It’s probably still the million bitcoin owned by Satoshi Nakamoto. Current dollar value? It fluctuates, but as of January 1, 2017 it approaches a cool billion dollars.

Eliminating the non-U.S. based cryptocurrency exchanges would certainly help plug the fund hole many banks are no doubt reporting. How many wealthy citizens are moving their money, not to foreign lands, not under the mattress, but on a ledger kept by millions of people the world over. Then going abroad to trade that cryptocurrency for local currency or other property? Maybe.

Another hint that things are not what thy seem? Constant dribbles of news about how companies like Circle are jettisoning bitcoin sales, but are also continuing to investigate the technology behind bitcoin. Whose on their side? Goldman Sachs Group Inc.

Given just these brief snippets of information, can we assume that the IRS will also apply the foreign bank rules when American bitcoin users choose to hold their bitcoin in online wallets abroad?

In the end, if Coinbase continues to deny the IRS access to essentially all user records, expect a raid on the main offices in sort order and frozen accounts, as a result. It would be advisable for one to remove any cryptocurrencies stored at Coinbase. It would also be advisable that Coinbase encrypt all user account information and hand the keys over to their customers. At that point, only banks would have information as to who sent money to Coinbase.

Alas, the hope that Coinbase would keep customer accounts private and not allow the IRS access, is a mere pipe dream. People would need to go to jail or flee the country and be chased by the Feds for the rest of their lives. Not worth the sacrifice, unless these people have the backbone of Thomas Jefferson and pledge their freedoms — and fortunes.

If anyone thinks this is no big deal, think again. One of the largest cryptocurrency exchanges on earth is about to go down — in the land of the free and the home of the brave.

Next on the agenda? Bitstamp? Kraken? Poloniex? Just wait.

(Image compliments of flickr.)

Bitcoin: Intrinsically Speaking

To be Intrinsic or not to be intrinsic. Is that the question?

No. That is “noise.” It is another attempted “nail” from our friendly coffin maker. The one who wants to copy the “block-chain” and deny your private use thereof. The reference by Ayn Rand, perhaps one of the greatest thinkers of our time, is rather concise. It deserves to be explored, even in the face of her other definitions of money.

Why? Because it helps us to understand that cryptocurrency can function as money.


Why is it important, in Fintech, to understand “functional money”?

Because many economists imply or otherwise provide tortured explanations about how cryptocurrencies have or retain an intrinsic value.

Actually, they don’t have such a value. They cannot. But this is not a problem.

Cryptocurrencies do not require an intrinsic value. They are not gold in the rough.

Should one attempt to prove such a value, one often winds up in a trap of reasoning, logical, but unwinnable arguments or the proverbial blind alley. Frustrated. But the faithful preach the gospel. Bitcoin has intrinsic value, they say.

On the other side of that coin, the intrinsic value thinkers advise that there is only one true money—or maybe several. Gold, silver and perhaps copper.

Gold can be an “unconsumed” good. A hard currency. It can be jewelry and so on. Therefore, it is the only money. But we all know that other items can function as money.

Gold is not “backed” by anything. It is simply a sought-after material for its rarity, properties and uses. The old story that gold has been money for 5000 years rings true.


What does this mean as it relates to all cryptocurrencies? Do cryptocurrencies need to be artificially rare?

No. Their number can be infinite. Again, they have no intrinsic value.


 Would cryptocurrencies devalue, if the numbers kept rising?

Not if they were “backed” by “unconsumed goods.” This would not be unlike you having an unlimited number of blank checks. So long as the one you write is “backed,” the check is good.

Blank checks in your desk at home have no face value. Excessive numbers of cryptocurrency “blank checks” are unimportant.

What is important is that the cryptocurrency, like a check, is backed by an “unconsumed good” ; that at least one or more atomic cryptocurrency unit holds title to the “unconsumed good.”

Does this mean that a cryptocurrency cannot hold the title of “functional money?”

Not necessarily. It simply means that any cryptocurrency, is not an “unconsumed good” — in the physical sense. Given this definition, cryptocurrency, with few exceptions, is not functional money, yet. But neither are dollar bills or euros. Dollars, for example, are backed by nothing.

Trust value is transitory and can dissolve quickly, even if governments make their fiat currencies official money during economic disasters, such as what is occurring in Venezuela, where the money remains dysfunctional. It will act like what it is: paper — but be worth even less.

India is another example. Making higher fiat denominations unofficial in a thinly veiled attempt to confiscate the wealth from all of its citizens.


Are cryptocurrencies “goods” in any sense of the term?

Again, does it matter?

But they have no substance.

Litecoin, as an example, is for all intents and purposes, software. Yes, the codes that represent Litecoin can be stored on paper, and paper is a commodity, but the ledger or balances are transmitted electronically.


If a cryptocurrency is not a good, then why are they considered intangible assets or goods?

The legal codes describing digitized music, by way of similarity, as an intangible good or asset, do not lend software music any real substance. These types of laws allegedly justify regulations and taxation. These laws should instead seek to clarify copyright.

But the test here is the consumed part. Let us get back to that.


Can any cryptocurrency, be consumed in the same sense that gold is consumed?

If we “use up” an item, we consume it. But, within economics, if we buy an item, we are also consuming. So yes, you can consume a cryptocurrency, in a sense.


Cryptocurrency as a service?

Some economists will differentiate between goods and services. Digitized music, for example, has no substance and is therefore classified as part service and part good.

Cryptocurrencies do not need to be goods or services. They merely need to function as a medium of exchange. And they do, to a point.


So why did Ayn Rand not simply advise that money had to actually be an “unconsumed good?”

As civilization advances, we no longer need to carry our commodities along with us. This entails risk. Gold coins in a purse attract unwanted attention. So we stored our unconsumed goods at home or in a bank, but again, there are risks involved. Burglary and confiscation, to name a few.

In any event, we used checks (functional money) to transfer title of our goods back and forth. Cryptocurrency can function as money, if it represents, holds title to or is backed by an unconsumed good. Preferably a good like gold, with a stable value.


What is the real issue?

The debate, then, is not the lack of intrinsic value of a cryptocurrency. The debate is how to accomplish and establish, voluntarily — the “backing.”


Why can’t you simply divide the number of atomic units into the total investment amount to arrive at the value of any particular cryptocurrency?

Like dollars or yen, the temporary, constantly fluctuating, value of any currency or good is also a function of supply and demand. In the cryptocurrency sphere, it is rather simple to calculate current base value using this method, and then trade when one sees that the formula indicates undervaluation or just the opposite.

Again, unlike real goods, such as apples, Bitcoin can change in “monetary” value very quickly.

In any case, the idea that monetary inflows lend cryptocurrencies intrinsic value is incorrect for a variety of reasons. These include the inherent price instabilities and potential lack of demand when the next best altcoin hits the market.


Can a cryptocurrency “back” itself?

Cryptocurrencies have many attributes, but in the scheme of ‘money’ they are quite new. A young project on the financial stage.

Untraceable or private cryptocurrencies may be best suited for cash-like use, so long as they are as secure as possible. Attributes, such as these, should increase the perceived value of the currency for now. But perception is not the “intrinsic.”

Bitcoin, on the other hand, is traceable and could decrease in value for this reason — even if it is “tweaked” to “repair” these shortcomings.

In any event, to state, at this stage of the game, that a cryptocurrency can somehow obtain an intrinsic value and all the necessary attributes of money, is unknown.


Which Cryptocurrency will Succeed?

Just which cryptocurrency is on the “Bleeding Edge?” AEON, Monero, Zcash? Will it be those that are currently backed by gold and silver? Will Bitcoin keep its position?

For all the research into Fintech, the ongoing debates about value, the idea of voluntary use and privacy, the search for security through anonymity and trust, we may be witnessing the next best cryptocurrencies to hit the markets since 2009.

But always remember: do your homework. Fintech is a work in progress. You may need to leap to the next best cryptocurrency as you watch this whole thing flower.

Perhaps it’s time to think outside of the box and beyond the blockchain. Perhaps, and until we live in a world were cryptocurrencies aren’t so heavily regulated as to make it nearly impossible to give them the title of “functional money,” we need, in addition to the current technology, something more.

But you have to ask yourself, even if Bitcoin is transparent, does that not make it stronger?

 

Thanks for reading.

 

Photo:Source

Trust-Mining

 

To Pre-Mine or not to Pre-Mine? That is the question.

Is it really?

No. It’s “Trust Mining.”

Pre-mining: To create or mine cryptocurrency in advance of public release.

One of the arguments against any cryptocurrency launch is the idea of a pre-mine. There has been a tremendous amount of discussion about the topic. But these discussions are scattered all over the net. This is an effort to place some of them in one place.

First, before we get into the weeds, we must answer the basic question…

Does a Creator of a Cryptocurrency have a Right to Pre-mine?

This is the first question many seem to overlook. They list numerous reasons against the practice, but gloss over the fact that the decision to pre-mine is the right of the creator of the cryptocurrency. Whether a software application is given away or sold, the creator — the developer — has the option to pre-mine or not to pre-mine.

Whether you agree with that statement or not is immaterial. Facts are stubborn things.

All the calls to make such a thing illegal demonstrates an underlying motive. That motive is to steal another’s idea. If you don’t like the Pre-Mine, change the channel. A developer can do anything he wants with a piece of code, absent making it reach into your bank account or similar.

Remember, cryptocurrencies are “voluntary.” You use them only if you so choose. So stop your whining.

Is it a Good Idea to Pre-Mine?

It depends if your application is open source or not and how it is updated or changed.

Ripple and Stellar are companies and therefore centralized — and Pre-Mined all of their cryptocurrencies. Both have had some reasonable success and have rights to their respective blockchains.

Ripple is integrated with the current financial world, whereas Stellar is attempting to appeal to the masses. Neither has come close to the success of Bitcoin.

Bitcoin was not Pre-Mined, but Satoshi Nakamoto did begin to mine first and then others became interested. This is not the official meaning of a Pre-Mine, however.

If Satoshi had set aside in apparent million “BTC,” before anyone knew what he was doing and then he attempted to release the application to the world, the success of Bitcoin would have been in doubt.

As it was, Satoshi launched a “cooperative” venture and asked anyone who was interested to download and begin mining. And we know the results. Whether Bitcoin will exist long term is another question.

When others began to copy the Bitcoin idea — literally or not — the idea of a Pre-Mine entered the Fintech vocabulary. It has been considered deceptive, if the launch of a cryptocurrency did not advise that a Pre-Mine existed.

If a Pre-Mine was publicized before launch, it was the decision of the people to mine or not.

The “Dump” Risk?

This is perhaps the best argument against Pre-Mining. The fact that at any moment, the creators can flood the market with their own coins — sell at a profit — and essentially crash their own coin. A few days later, they then announce a new coin and the process begins anew.

This scenario appears to diminish with time, however. It’s the early days, where pumps are in hyper mode, when a Pre-Mine Dump would be tempting.

For example, if there was a 10% Pre-Mine that would mean 10% of all the coins ever to be mined are now in someone’s wallet. No big deal right? What a minute. What if only 20% of the total coins have been mined? That would mean the Pre-Mine is currently 50% of the total. If a dump were to occur the ‘coin’ could crash, as the developers cash-in.

Those unlucky enough to be holding their ‘coin’ after a major dump of Pre-Mined coins, are in fact, fleeced. Many such comments litter the net about “Bag Holders” with “dead” coins after a big Pre-Mine dump. AuroraCoin anyone?

But if I Pre-Mine and do a Giveaway, won’t that help?

So far, the answer appears to be “no.”

Closed source coins like Stellar and open source ones like AuroraCoin have tried. Stellar has been trending lower for over a year. Again, their long term success is in doubt.

To give crypto-coins away, as effort mask the fact that you will dump in advance is also a deceptive practice.

Then there are the pure Proof-of-Work Coins. They are or can be 100% Pre-Mined. If you trust the developers fine. Sunny King of Peercoin fame may be onto something, but the old proof is in the pudding, right? Peercoin has been trending lower since the “Great Bitcoin Pump,” but so has Bitcoin.

 If the Developer does other Good Things with the Pre-Mine, won’t that Help?

Maybe.

Stellar uses the Non-Profit angle to assist the uneducated and the alleged, underbanked. If you want to pour your hard earned money down that potential black hole, be my guest. I gave at the office, thanks.

But many other cryptocurrencies use the Pre-Mine for upkeep and updates. The danger here, is that “they” are often in full control of their semi-centralized blockchains. I’m thinking about DASH here. (Not Dashcoin – DSH.)

DASH does have a voting system when proposals are made to change the ‘coin,’ and the system reflects a business-like model. DASH also, allegedly, had a Pre-Mine. And they have been in an uptrend for over six months. Pre-Mining, which DASH developers have explained as a glitch in the early works, has not yet hurt the crypto. But their innovation may have overcome the bad taste of the early coin hoarders. Again, only time will tell if the ‘coin’ has staying power.

What is a Pre-Sale?

Some cryptocurrencies Pre-Mine millions of coins and then sell them off to investors to generate revenues, before the official launch. In other words, the coins are actually released to the public, beforehand. This is not as bad as withholding sale and should not be considered a “pure” Pre-Mine.

But let us not mince words. He who controls a Pre-Mine, even a sale thereof, controls the ‘coin.’ This may be why, among other reasons, that Ethereum now has a partner (okay competitor) called Ethereum Classic. It is also instructive that the original developers of ETH turned their clock backwards to ensure that a funds were not diverted inappropriately, due to a problem with some “code” as it were. If that’s not centralization of monetary power, I don’t know what is. Certainly Janet Yellen noticed.

No Pre-Mine

If you want to have others adopt your private currency, in some meaningful way, then you need cooperation. You need miners if you are going that route. Miners that support your blockchain. Stakeholders in your system. Producers of your coin. Users of your API’s. Investors in the wonderworks. Speculators to drive everyone else mad. And all the rest.

If others feel that you have the investment advantage, your level of cooperation may be diminished. Starting everyone at the same place — at square one — seems to be relatively ‘cooperative.’ It shows that you believe in your product enough to start right alongside everyone else. To get into the fray, for better or worse, with those who you wish to adopt your plan and support your network — your blockchain.

In this sense, the developer is the artist. Everyone is invited to make a copy of his/her/their work and use it. Occasionally, the developers make improvements upon their works. Or they work as a team and use some form of voting system to approve or disapprove changes. There are many variants.

The Pre-Mine with a Side Show

Perhaps a lesser explored reason for Pre-Mining is to show the actual cryptocurrency in operation. The “red herring” idea or “selling the sizzle, not the steak.”

The cryptocurrency enthusiast is curious about all of functions built into the newly designed ‘currency,’ such as faster transaction times, blockchain savings, secret messages, private markets and the like. But when you check the website and the hacker news, you find that there was a huge Pre-Mine. That should be a warning to you — unless you truest the developers.

The Fee-Mine Concept

One way developers avoid Pre-Mining, is to code in a fee based system using the native currency. Each time you send or mine the cryptocurrency the developer receives a small portion of the proceeds, which they can then divvy out among the miners.

Trust Mining

We all know that cryptocurrency has no intrinsic value. It is not necessarily durable. All the aspects of a sound money are certainly not imbedded within. But to come as close as we can to a sound money system might be the ticket.

After all, the dollar is a mere piece of paper. The United States has what many refer to as shadow gold standard. But like a cryptocurrency, if the dollar loses its trust, say when the printing presses shove out “QE4” forever, all bets are off.

Multi-Mining:

In a sense, Ethereum and now Ethereum Classic are attempting to provide an intrinsic-like value to their cryptocurrencies. The do this by having the native “primary” coin function or fuel many other side processes, colored coins, self-executing contracts and applications. The list goes on.

But these “primary” coins only function within their own ecosystems.

In contrast, one of most stable monies and currencies of all time, gold, has uses other than its monetary use and outside of a captive blockchain.

Utility Mining:

Perhaps one of the best ways to establish a cryptocurrency is to allow it more versatility…more utility. A ‘coin” that has more than one use. Like gold has more than one use. A coin that when mined, can be used “outside” of its blockchain for other utilitarian or even decorative purposes. Off blockchain uses that will allow for private transfers as well as public receipts.

Thus far, many seem to focus upon the many blockchain uses. Perhaps it is time to look at another facet. A cryptocurrency that can function off-blockchain or not require a blockchain at all.


Photo Source: By Jericho [CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)%5D, via Wikimedia Commons