If you didn’t know the price of your favorite cryptocurrency and had to assign a value to it based on the claims of it’s proponents, what value could you rationally assign? What criteria would you even use? From Bill Bonner at rogueeconomics.com:
YOUGHAL, IRELAND – Dear Reader, we are working on a shocking new insight.
It came to us yesterday as we were wondering about bitcoin, cryptos, and (a term new to us) “microcurrencies.”
The crypto sector has lost about $1.3 trillion since the beginning of May. Bitcoin itself has been cut in half.
But both colleagues and dear readers insist that the crypto class still has value.
“These are not just money substitutes,” said a colleague. “There are many microcurrencies that make business easier and less costly.”
But when we tried to pin him down on how they work, it was slow going.
“You see, they’re based on smart contracts that are registered on the blockchain and then bypass the middlemen.”
All the foam was there; but where was the beer?
Perhaps we are just slow-witted. But the more he explained, the less we understood.
A smart contract, we discovered, is no different from a dumb contract. It can be a 200-page document… or a handshake… with as many “if X when Y, then Z” clauses as you care to put in.
If there is a dispute, it needs to be resolved. How the “smartness” part helps, we don’t know.
“You don’t understand,” an old friend added. “This is a whole new asset class. It is like the beginning of the auto industry. Most of the car manufacturers that started out failed. But those that remained were great successes.”
We still made no headway.
The auto industry produced millions of cars and trucks. It made huge profits. Its U.S. “headquarters” – Detroit… Motown – was once the richest city in America.
But crypto? What is the “asset?” Why is it an asset at all?
As far as we can tell, it is like Artificial Intelligence – one part new technology and nine parts old claptrap.