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Cryptocurrencies: Dialogues In Perspective

11 Oct 2020 | Uncategorized

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Approaches to the debate over the future of cryptocurrencies find representation in the famous “shifting image” by William Hill entitled “My Wife and Mother-in-law”. The picture (shown above) markedly flips between viewing a young lady and an old woman — depending on the viewer’s chosen paradigm. In a similar fashion, the conversation over cryptocurrencies tends to represent two entirely different perspectives, caricatured as firebrand believers on one side, and ardent skeptics on the other. This article suggests that both opinions contain valid points, and that perhaps the most important deductions about the future of cryptocurrencies lie in juxtaposing opposing interpretations. We then allow the resulting dialectic to inform our considerations.

As this happens a number of observations arise. The first references the degree of human passion involved in the dialogue. So much so, that factual considerations all to often yield to merely personal opinions. This is further reflected in the presence of blanket claims and the overuse of hyperbole, suggesting unfounded zeal on the one part, and too little critical engagement on the other. While this can make for an enjoyable style of writing, the feelings it exudes are poor foundations for sound conclusions. (And certainly long-term investment decisions).

Our second observation is that all too many approach the conversation on cryptocurrencies as a competitive sport — thinking every discussion needs a winner. These are not only poor interlocutors, but compromised thinkers. They have lost sight of what makes the dialogue inherently valid is the pursuit of verifiable hypotheses. Thus, the intent should not be point-scoring, but collective advancement in the pursuit of understanding.

Thirdly, the dialectic points increasingly to the adoption of values-based, moral considerations on both sides of the debate. After decades of boomer dominance, where virtue was sidelined to relativism, the now ascendant Millennials find these objective touchstones central to their worldview. While more obviously represented in championing ecology, economic sustainability, social justice and fairness, this morality, is in fact, equally integral — indeed foundational — in driving both sides of the crypto debate. Both sides agree that traditional banks’ interests are now hostile to consumer financial well-being, that Central Banks are no longer protectors of fiat currency, but exploiters and that the entire payments system and commercial infrastructure is hostile to individualism. Finally, the processing of personal, social and financial data has become both intrusive and increasingly misused a vehicle of control. Add in the rapid evolution of AI and these amber warnings become red lights.

Nowhere is this more evident than in the increasing number of security checks, regulation requirements, and data collection activities involved in online activities. What appears innocuous customer protection, is anything but. Facial recognition access for a smartphone may seem an effective mode of security, until it is realised that one well-known company has harvested 3 billion facial images from the internet. Equally, that the data-oligopoly employ the world’s top neurologists to map-out further paths of manipulation. What is the result? On the one part is the face of harrowing capitalism bullying you to spend “here” or “there”, and on the other, the forces of authoritarian statism analysing how you think.

Finally, we must reference the core point of contention, commercial integrity. Adversaries cite investors as either ideologues or get-rich speculators, relegating coins to reanimations of pyramid and Ponzi schemes, or worse, the resort of fallen dictators, tax-dodgers and criminals. What is missing in this analysis is that these criticisms are common to all investments; stocks, shares, options, futures, longs, shorts … and certainly tax avoiders and shady characters seeking to keep their wealth from moral scrutiny. Like humanity itself, where money is involved the habitat is always an admixture of good and bad, opportunity and exploitation. Certainly, there is always some desire to cut corners in wealth creation. In the end, however, cryptocurrencies are commercially a-moral; what shapes and validates the market for them is the ethos of the collective investor.

Like all emerging markets, cryptocurrency transactions face all the issues cited above, but they are normative and natural. What will lead to commercial maturity are sound investors, identifying sound opportunities allowing commercial evolution to ensure the survival of the ones most adapted to facilitating real-world commercial needs. Good money will drive out the bad.

Advocates and adversaries are also agreed that the current dynamics of financial infrastructures are moving in a negative and increasingly unstable direction. To say that fiat is in danger of becoming devalued or worthless is not polemic, but a statement of contemporary fact as Venezuela and Zimbabwe demonstrate. Equally, as digital intrudes more and more deeply into every facet of life, both sides of the debate recoil at the dangers of security failures, hacking, invasion of privacy and resultant consumer manipulation.

Responding to these threats, crypto adversaries and advocates merge to strongly affirm the value, future, indeed, the imperative represented by blockchain technologies. The speed and depth of the threats noted above have produced a common reaction condemning traditional forms of data processing — together with the ever-growing tide of regulation — to near extinction by the end of the decade. It will not be commercial pressures, but the irresistible will of the people that will finally force ubiquitous blockchain adoption.

Of course, blockchain dominance does not equal crypto replacing fiat or supplanting existing payment structures. Indeed, crypto adversaries argue that traditional mediums are so entrenched and possess such an “obvious” coherence, convenience and de-risked assurance, that they are difficult to match. Beyond this is the fact of entrenchment; artificially enhanced barriers to entry and fierce (borderline corrupt) defense of monopolistic interests. Together with statism, increased political control and government fear of criminals/terrorism, the status quo is simply too big for crypto to dislodge it. Or so we are told.

Yet, as the proverb reminds us, “The higher they rise, the harder they fall” and fall they do once fundamentals shift — and sometimes well before. The current, multi-layered, global crises are not so much driving people to think outside the box, but discover the box is Schrödinger’s. As a consequence, the bounds of what is considered doable have dramatically expanded; the unthinkable has suddenly become obvious; timeframes have rapidly shortened; old orthodoxies have been replaced by radically different new ones. In summary, a highly defined and rigid view of the world is being replaced with the fluidity of innumerable and unexpected possibilities.

What many crypto adversaries fail to grasp is the scale of this unleashing; it cannot be constrained in such a way as to preserve (as they argue) the extant system of global commerce. One has only to add together the following: the huge cultural shifts brought about by COVID management; the unprecedented debasement of fiat currencies (spearheaded by the dollar); the rapid and marked global geo-political and commercial realignments; the move towards the “technological singularity”. Most critical of all is that these events merge into Millennials’ collective abandonment of the compartmentalised thinking of the boomer generation, together with rejecting the latter’s sclerotic and prescriptive world-view. As a result, Millennials perceive trends with much greater clarity and tackle problems with far more aggression and ambition.

Trends such as the “sticking plaster” or “band aid” approach to government policy. Calm has been maintained, stock markets appear buoyant, but at what economic cost? What happens when the money runs out? Macroeconomic orthodoxies have been torn up, what will take their place? The US Federal Reserve’s recent decision is to allow inflation to run, but how long will overseas nations tolerate this export of debt? Or the people at home? Especially, as seems likely, the next step is to pump even more money into the American economy. All of a sudden crypto skepticism yields to the onslaught of the patently unsustainable. The foundations of traditional finance are cracking and the sound is ringing in the collective eardrum.

This is one indicator that coin investors are in the process of being vindicated. Another is that the crypto collective is exponentially developing coherent, tactical strategies for further commercialisation. Thirdly, there are concomitant advances in technology and infrastructure. While we are a long way from crypto replacing the fiat hegemony, were these trends not real, we would not be having this conversation. A year ago the idea of fiat’s demise would have raised many more eyebrows than it does today. Twelve months down the road it may well raise many less.