103 - Ecosystems and Cryptocurrencies

Today, Mr Philosopher Black, Mrs Newby Blue and Mr Sceptic red meet in the Pub and start talking about "Ecosystems"...

- Ecosystem, that sounds to me like frogs eating flies and squirrels gathering nuts.

- Yeh, well that´s kind of my idea of cryptocurrencies anyway.

- It kind of makes sense to call ecosystem to what normally would be the stakeholders. You see, cryptocurrency, like Bitcoin, do need a "habitat" to survive and thrieve.

- You mean, they need computers to live in?

- Not exactly. They definetly need infrastructure, such as networks, computers, etc. But, do you remember waht we spoke about here regarding what is value in criptocurrencies?

- Yeah, well it did not make any sense... you are giving value to things that do not have it! Bitcoin is tulip-mania.

- I guess we could say the same about printed paper: nothing but colored stamps. For the moment, I would like to know more about ecosystems.

- Well.. as I was saying, there are a few things that provide value to any criptocurrency, and that is linked to the concept of value. First of all, is the trust of the users. There are many types of uses and all of them provide value.

- Oh, anyway, most people are just speculators...

- Even speculating is a value. Some currencies are a vehicle to invest. Lately, ethereum and the ERC20 tokens allow easy investmenting for the masses.

- And many scams!

- Surely, that too. But you see, these people, entrepeneurs and investors are part of the ecosystem. They provide value to everyone by using the cryptocurrency.

- Oh, yep, I think I can see your point there, just like normal money is used to invest.

- Correct. Also, you have the exchanges. Having the support of large exchanges, or at least one, makes a lot of difference. The easier it is to trade, the greater the network effect we spoke about in the value of cryptocurrencies. Also, they are very powerfull actors when forks occur, but that is a different story.

-  Oh, I have seen the exchanges list almos anything nowdays... just look at Etherdelta and the ERC20s. It just does not make sense to have so many tokens listed!

- Mmm... it does make sense, just as it makes sense to list millions of items in eBay or Amazon. But anyway, there are many other actors in the ecosystem, such as the miners.

- Everybody is talking about mining and how people go crazy about it.

- Is just a waste of time I heard, to much work for little profit.

- We should speak about mining some day, but regarding the ecosystem, the miners play a significant role when deciding where a criptocurrency is going to go when updating and deciding which chain are they are participating in. Have you seen the typical windows service packs and updates?

- For sure, and also the Android Apps upgrades. Sometimes they are good and sometimes bad.

- Well, in the cryptocurrency space the software upgrades can be quite controversial, because they inevitably favour some people and damage others. Miners support the version (they call it fork) that is best for their interest.

- I think that miners do nothing I should be removed from the ecosystem.

- At the end of the day, you need to have a distributed network, that is the essecence of a public ledger technology, and , for that, you will need to provide an incentive for the nodes and the validators. They are rewarded in several ways that we could talk about some other time, like Proof of Work, Proof of Stake, Proof of Importance,...

- And who else is there?

- We still have to list the users of the currency, the development teams and, in some cases, the hardware manufacturers.

- This seems like a jungle where everybody runs arround in circles without knowing where all this is going.

- Oh, it is quite the opposite. The ecosystem is highly "political" in the sense that there are  new initiatives continously and all the actors try to act in their best interest. Typically, the users want ease of use and security. Investor want high returns. Hardware manufacturers want to jump into the business, but some of them are unsure as of using their powerfull brands in projects that they do not control nor understand fully.

- Well, this is leading us nowhere...

- The conclusion is that when you consider how "good" is a Cryptocurrency you need to evaluate what actors are influencing it and how. Right now Bitcoin is heavily influenced by large miners, wereas Ethereum has a strong development team and leaders influence.

- But, is this not an endless fight?

- You see, that is precisely why this is an ecosystem. Not everyone in there agrees nor wants the same thing, but surely they all depend on each other to make bitcoin and other currencies strong.

Bitconomics 102 - Where is the value AKA "We have been here before"

Value is something difficult to see. When  Mrs Newby Blue, Mr Sceptic Red and Mr OldEntrepeneur Brown meet the conversation jumps from "grandpa´s tales" to a late friday pub night brawl .Using a women character as a new-by is random, no intention behind. Also, if you are not British replace pub with any other meeting place.

- I am telling you, Bitcoin and all the Alts are just nothing, a cheap piece of software that are going nowhere!

- Well maybe, I have aready spoken with Mr Philosopher Black here and I am still doubtfull about all this thing. 

- Oh... you see this white beird I have, well, I was here when there was no internet at all and I have seen a few things before the Cryptocurrencies boom.

- But this is surely different... everyone says is revolutionary.

- All? Nah.. just a bunch of carpetbadgers and cybercriminals!

- The problem is that, once more, we are in a territory where we do not yet know what is value and what is not.

- How is that? Value is always something clear.

- Oh, no no my young friend... I still remember when nobody could really put a price on Yahoo, Altavista and others.

- Alta-what??

- A thousand years ago, in the 90´s, there were more that one search engine out there. They all had funny names like Altavista, Terra and Yahoo. This was a bit after the formation of the oceans and right before Google and when there was no e-commerce.

- Wooow, no ecommerce, really??

- And... listen because this is true as isnumeric("abc")=FALSE... listen I say, TELEPHONES DID NOT HAVE INTERNET AT ALL.

- Ooooohhhh

- Yeah yeah, very interesting, but what does it have to do with Cryptocurrencies??

- Well, back in those days, nobody could put a price on those search engines, nor for that matter, to any of the web pages. And that was because they almost had no income and nobody knew which one would win the race nor how would they ever make money. It still happens nowdays with UBER and others.

- I see.. so .. how did they solve that problem?

- Several things were tried.. for example valuing the pages for the number of pageviews, since that would eventually be used for advertising, then only by unique visitors, then by engangement,... Many of this metrics are still used nowdays.

- But none of those are alive today right? So they were bluffs.

- Well that is a different story really, but my point is that WE STILL HAVEN´T FOUND THE WAY OF VALUATING CRYPTOCURRENCIES.

- That is because they have NO VALUE. It is impossible that something is 25% more in value in just a week or vice-versa.

- Hold on... so why can´t we agree on a price for these?

- For starters, the ownership is unclear. Many of them have consensus governance. Also, we still do not know what will survive the test of time. As I told you Astalavista was the Bitcoin of its time, but the Google guys invented a far superior system that ate them alive.

- So playing cryptos is just for fools... they will all dissapear eventually...

- I would rather say that we still don´t know which ones will survive, because a consensus on what is value and waht is not is starting to become more clear. Also, the users are forming communities that will lead the future developments.

- So, the cryptocurrencies of the future are not here yet?

-  We don´t know, but it is going to be interesting times again.

Making Sense of Cryptocurrencies - Bitcoin and Tulips - Bitconomics 101

Have you notice that when someone tries to explain what a Cryptocurrency is starts by speaking of blockchain, distributed ledgers, Merkle trees (which sounds too much like certain German leader) and other concepts that are unknown to the average human?


Further more, even some influential and experienced leaders conclude that all of them (starting with Bitcoin) are "the fools gold" or Tulip bulbs just because they are trying to compare with what they know.


To really make sense of CC (Cryptocurrencies) we should start by ignoring completely the underlying technology an think in much more simple terms. Curiously, that will give us a hint for a correct economic model of Cryptocurrency and to understand all the fuss created last year.


The conversation between Mrs Newby Blue, Mr Sceptic Red and Mr Philosopher Black goes as follows (using a women character as a new-by is random, no intention behind).


- What is that thing I've heard 'bout...Cryptocurrency?
- It is SOFTWARE.


- Just that?? Seriously??
- Well, yes and no, it is software just in the same manner as PayPal is just software or the Java Virtual Machine is just software or Wassap is just software.
- I told you, all this is just nuts and "tulip mania" you will loose all your money if you buy crypto.


- But then it must be a very complex and sophisticated software with exclusive technologies?
- Nope, most of it is open source and not very complex as per todays standards.
- See? Nonsense and speculation.


- Then... why do cryptocurrencies have huge market value (market capitalization or market cap if you preffer)? Are people crazy by throwing their money in a simple software.
- Exactly
- Well, time will tell, but people are not buying software. They are buying UTILITY.


- What do you mean by UTILITY?
- Different cryptocurrencies offer different use cases.
- Yeah... the main one is being scammed and robbed.


- So if I buy Bitcoin for example, what do I buy?
- You are buying the ability to transfer value within a NETWORK of users.
-  Oh, comm'on we all know that is just for pot sellers and fraudsters.

- Well, that is true, it does have the utility to hide your money and transfer it internationally with little restriction at the moment.
- But that's illegal!
- It is, but nonetheless, it is an utility.


- But if the software is simple, open source, anyone can create a new "coin"
- Yep! They are worth nothing!
- The key to understand the value lies in NETWORK and ACCEPTANCE. Bitcoin has a huge acceptance. Its value as a "branding name" is inmense because lots of people have at least heard about it. Bitcoin has a huge network of people that move it and accept it.


- So, If I create a different currency I would need to start from zero and build a brand and a reputation right?
- That would be right. In fact, most of the new tokens and "cryptos" out there understand this fairly well and create bounty and affiliate campaigns during their launch.
- Oh oh oh... this is clearly a Ponzi scheme in which people buy because others buy!!

- And also, I would need to run a network, right?
- You would need to involve a sufficient number of nodes and users. They value of a network is exponential to the number of users.


- Sorry?
- If two people use a network is not very useful because I can only interact with one other. If 10 people are on a network I can interact with 9 people, so it is x9 more useful, etc...


- I see, so Bitcoin is the best currency, right?
Bitcoin is not technically the best currency out there, the network consumes lost of electricity, it is not fully anonymous like Monero or Bytecoin, the miners have a huge control over the community and does not incorporate extra utilities like other cryptos such as Ethereum, XEM, etc... However, it does have the largest network of acceptance.
- Bitcoin will fall, it is just a matter of people realizing that it has no intrinsic value!!


- Fiat money is coloured paper (de facto, not even that, but an electronic note on a bank's ledger), in fact governments play with its value constantly by using inflation and printing at their will.


- So bitcoin will rise forever?
- Long term speculators hold bitcoin because they believe that the ACCEPTANCE and NETWORK effects will increase exponentially, thus the value will also increase exponentially.

- They are just fools!
- I do not think they are fools. It think they have made an educated guess of the future and made a bet on it. For the moment, it is a good bet.


- But there must be surely drawbacks....
- Oh, if you mean there is risk, of course there is! Technological risks, competing currencies, regulatory risks (laws), ... But if you think that the reward is greater than the risk, buying long term makes sense.


We will continue this conversation here