The Case for the Crypto Crash

The Case for the Crypto Crash

Anyone who knows me knows that I am a big supporter of, and believer in distributed ledger technology, or DLT.
It has the potential to revolutionize the way we build certain types of solutions, and the way certain systems, software, and institutions, even people, interact.
That being said, I also believe a strong argument can be made that crypto currencies, at least in their current incarnation, are destined to fail.
Full disclosure: I own no crypto currencies.
There is a foundational flaw in the use case of cryptocurrency. It is NOT easily transacted; often having lengthy or ungainly settlement times, requiring in almost all cases, conversion to fiat currency, and it’s generally ill suited to the very task it was designed to perform: storing value for transacting business.

It’s hard for people to use crypto currencies.

I have heard first hand, countless stories of transactions intended to be conducted using crypto currencies, where the parties wouldn’t agree to them without one or the other agreeing to guarantee value to some fiat currency.
If this continues and people aren’t able to use cryptocurrency as a currency, what then? Normal market rules would dictate a crash to zero.
But is this a market that follows normal market rules? What exactly is normal?

Fiat Currency, or Fiat Money:

Let’s back up and look at fiat currency. Take the US dollar.
Early on, the United States dollar was tied to the gold standard. The United States Bullion Depository, more commonly known as Fort Knox, was established as a store in the US for gold that backed the dollar.
In 1933, the US effectively abandoned this standard, and in 1971, all ties to gold were severed.
So what happened? Effectively nothing. Yet the US backs the dollar.
Why? The US dollar is intimately tied to our financial system by the Federal Reserve, which, as demonstrated for better or worse in the financial crisis of 10 years ago, will do everything in its power to shore up the currency when needed.
So we operate today with the shared belief, some might call it a shared delusion, that there is value in the money we carry in our wallets and in the bank statements we see online.

Is cryptocurrency approaching this level of shared belief?

Who will step in if crypto crashes? In short, no one. There is no governing body, by design, behind any cryptocurrency.
As I write this, all crypto currencies are down over 10%, some are down over 20%. Nothing will prop it back up other than buyers: speculators hoping to buy on the downswing, hoping to hold until it rises again.
So, is this a normal market? I say no, it is not. I see no ultimate destination on this journey, other than disappointment.
If you have risk capital to play with, go ahead, risk some on crypto if you wish.
Personally, I would rather invest my money in companies I can understand, with business models that make sense. That being said, in my case, this also means investing in my company’s work to build solutions on the technology underlying crypto currency, or distributed ledger technology.

You may be asking yourself, how can he support distributed ledger technology and not have faith in cryptocurrency?

The answer here is simple. The technology is solid, the use case of crypto is flawed. Java is solid, but not all java applications are good applications. Crytpo currency is just another application running on distributed ledger, and as I have posited herein, a bad one.

Chuck Fried is the President and CEO of TxMQ, a systems integrator and software development company focused on building technical solutions for their customers across the US and Canada.
Follow him at, or @chuckfried on Twitter, or here on the TxMQ blog.

Economic Theory and Cryptocurrency

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Economic Theory and Cryptocurrency

In a rational market, there are basic principles, which apply to the pricing and availability of goods and services. At the same time, these forces affect the value of currency. Currency is any commodity or item whose principle use is as a store of value.
Once upon a time, precious metals and gems were the principle value store used. Precious jewels, gold, and silver were used as currency to acquire goods and services. Over time, as nations industrialized, trading required proxy value stores, and paper money was introduced, which was tied to what became the gold standard. This system lasted into the 20th century.
As nations moved off the gold standard, Keynesian economics became a much-touted model. Introduced by John Maynard Keynes, a British economic theorist in his seminal, depression era work “The General Theory of Employment, Interest and Money”, it introduced a demand side model whereby nations were shown to have the ability to influence macro economics by modifying taxes and government spending.
Recently, crypto currency has thrown a curveball into our economic models, with the introduction of virtual currencies. Bitcoin is the most widely known, but there are multiple other virtual currencies or crypto currencies as they are now called because of the underlying mathematical formulas and crypto graphic algorithms which govern the network these are built on.

Whether these are currencies or not is itself an interesting rabbit hole to climb down, and a bit of a semantic trap.

They are not stores of value, nor proxies for precious goods, but if party a perceives a value in a bitcoin, and will take it in trade for something, does that not make it a currency?
Webster’s defines currency as circulation as a medium of exchange, and general use, acceptance or prevalence. Bitcoin seems to fit this definition.
Thus the next question…

What is going on with the price of bitcoin?

Through most of 2015, the price of one bitcoin started a slow climb from the high 200s to the mid 400s in US dollars; that in itself is a near meteoric climb. The run ended at around $423, for reasons outside the scope of this paper, actual pricing is dependent on the exchange one references for this data.
2016 saw an acceleration of this climb, with a final tally just shy of $900.
It was in 2017 where the wheels really came off, with a feverish, near euphoric climb in the past weeks to almost $20,000, before settling recently to a trading range of $15-$16,000 per bitcoin.
So what is going on here? What economic theory describes this phenomenon?
Sadly, we don’t have a good answer, but there are some data points we should review.
First, let’s recognize that for many readers, awareness of bitcoin happened only recently. It bears pointing out that one won’t buy a thing if one is unaware of that thing. Thus, the awareness of bitcoin has played a somewhat significant role in driving up it’s value.
To what extent this affected the price is a mystery, but if we accept this as given, clearly as more and more people learn about bitcoin, more and more people will buy bitcoin.

So what is bitcoin?

I won’t go deep here since it’s likely if you are reading this, you have this foundational knowledge, but bitcoin was created by a person, persons, or group using the pseudonym Satoshi Nakomoto in 2009. It was created to eliminate the need for banks, or third parties in transactions; it also allows for complete anonymity of the holder of the coin.
There is a finite upper limit of the maximum number of bitcoins that can ever be created. There is a mathematical formula described in detail in various online sources, including Wikipedia, so I won’t delve into that here. This cap, set at 21 million coins, will be reached when the last coin is mined (again, see Wikipedia). This is variously estimated to likely occur in the year 2140.

What makes Bitcoin Valuable?

So this ‘capped’ reality also adds to value, since like most stores of value, there is a rarity to bitcoin, a fixed number in existence today, and a maximum number that will ever exist.
In addition, more and more organizations are accepting bitcoin as a payment method. This increase in utility, and subsequent liquidity (it’s not always easy to sell units of bitcoin less than full coins) has also increased the perceived value of the coin.
Contributing to this climb in value recently has been the CryptoKitties phenomenon; a gaming application that rose to popularity far more rapidly than its creators could have foreseen. The subsequent media exposure thrust blockchain, and correspondingly bitcoin, further into the limelight, and the value continued to spike.
Lastly, the CBOE Options Exchange announced that on Monday, December 11th, they will begin trading bitcoin futures. Once again, this action broadcast to a widening audience that bitcoin was real, viable, and worth looking at as a part of some portfolios.; adding both legitimacy, as well as ease of trade to the mix.
The number of prognosticators calling bitcoin a farce seems near equal to the number calling for a coin to hit a $1 million valuation in 4 years. Who will be right remains to be seen.
For the moment, this author sees this as a bit like Vegas gambling. It’s fun, it’s legal, but you can also lose every penny you gamble; so bet (invest) only what you can afford to lose, and enjoy the ride.

How much do you know about Blockchain and is it just hype?

Blockchain Basics: a Primer

Every short while, a technology comes along that promises to turn everything upside down.

Sometimes this happens, sometimes it’s hype.

Think of Yahoo’s search in it’s early days, later overturned by Google’s better algorithms and business model (they did, after all, download the entire internet at one time). There was peer-to-peer networking, popularized by Napster, Application (App) stores, and now, Blockchain has the valley, and startups buzzing away.

But is this hype or reality? Perhaps some of both.

Let’s start by defining Blockchain & Bitcoin

So what is Blockchain?

Blockchain is, at it’s a core, a new way to code, somewhat specific to assets, and primary as things relate to chain of custody.

It started with Bitcoin; but what is Bitcoin?

Bitcoin is one of many (though perhaps the most well known) of a new type of currency called crypto currency (aka digital currency).

The crypto references the highly secure nature of it. It is a virtual currency. There is no physical coin, bill, or other instrument. It’s computer code, plain and simply.

Bitcoin was first mentioned in a now infamous white paper authored by a person, or persons using the pseudonym Satoshi Nakamoto in 2008.

Though by no means the first reference to a digital currency, this paper detailed an innovative peer-to-peer electronic monetary system called Bitcoin that enabled online payments to be transferred directly, without an intermediary: person-to-person, or institution-to-institution.

It was built on what we now call Blockchain.

While obvious on the surface, there are dramatic limitations to physical transactions that are one-to-one. Person-to-person, entity-to-entity; both parties have to agree on value, typically both parties have to be present, and both parties have to bring along the matter and currency to be transacted.

In short, this doesn’t scale well.

This process led to the evolution from the barter systems of days gone by, to the establishment of monetary systems by the Romans and other societies to set published values for marks, coinage, and other instruments of currency (aka – a common currency).

Common currency led to the development of banks and other intermediary systems, like Federal Reserve banks, central banks, and other regulatory bodies, who set established value for mutually agreed upon instruments, whether they be coins, or paper money.

Yet these intermediaries have grown in power, can delay processing, and some feel, do not always add the value to the transaction that they charge to conduct it. These intermediaries do still provide valuable services; they track our funds, lend funds, and clear transactions for us when needed.

Imagine showing up to a house closing with a bag of gold.

No need, a cashier’s check from the bank, against a mortgage (another monetary instrument) is all you need (plus lots of contract paperwork).

So how might we move forward to a system both digital, yet trusted by all, whilst not compromising security?

Let’s track back to where we began: Bitcoin vs Blockchain

Bitcoin is a digital currency, built on a technology we call Blockchain. Blockchain is a distributed ledger technology; distributed, meaning, that multiple systems across the internet store identical information about an asset, or a data file.

Technically, these are redundant data files, kept in synchronization, that can be stored on the public internet, or in a closed, secured system, or both.

In the current, traditional banking system, our accounts are stored in a single centralized database. If a person transacts business (think of going to an ATM, or cashing a check) at a bank that they don’t hold an account at, the system we are accessing must link to and validate our information from said person’s home bank where the account records live.

When a digital transaction is carried out on a currency built on Blockchain (Bitcoin is but one of many digital currencies), it is grouped together in a cryptographically protected block with other transactions that have occurred in the last set amount minutes (typically ten minutes) and sent out to the entire network. From there, Miners (members in the network with high levels of computing power-basically powerful, specially constructed servers) then compete to validate the transactions by solving complex coded problems. The first miner to solve the problems and validate the block receives a reward. (In the Bitcoin Blockchain network, for example, a miner would receive Bitcoins).

The validated block of transactions is then timestamped and added to a chain in a linear, chronological order. New blocks of validated transactions are linked to older blocks, making a chain of blocks that show every transaction made in the history of that blockchain. The entire chain is continually synched with each instance so that every ledger in the network is the same, giving each member the ability to prove who owns what at any given time.

The Evolution of Blockchain

One example of the evolution and broad application of blockchain, beyond digital currency, is the development of the Ethereum public blockchain, which is providing a way to execute peer-to-peer contracts.

It is this decentralized, open and secure attribute, that allows for trust between parties, and eliminates the need for intermediaries. It’s also important to note that traditional hacking type attacks would struggle to crack this widespread system. You might be wondering why and/or how would hackers struggle to crack this widespread system? They would struggle since multiple systems and files would need to be accessed in order to execute a traditional hacking type attack, and almost simultaneously; meaning, the likelihood and feasibility of this happening hovers somewhere right around zero.

So is this hype or reality?

It is real enough that TxMQ has committed to building a Center of Excellence focused on building Blockchain solutions for our customers.

Already, use cases are being evaluated for industries as widespread as the airlines, global logistics, pharmaceuticals, banking and finance, and even personal health records, auto manufacturers, and real estate transactions. Imagine following the custody chain of drugs from point of manufacturer to ultimate consumption or destruction. Imagine the value to a car manufacturer if they knew the precise ownership and chain of custody of not just every vehicle manufactured, but of each and every after market part produced.

So our money is on reality more than hype.

Certainly, not all coding need be done using blockchain; yet the ability to digitize assets, and track the precise chain of custody, is game changing.

There are countless millions globally who are counted among the unbanked; whether they be people in areas too rural, or people who are just too distrustful of these systems. Yet, most of the population has a cell phone, and with that instrument, can have access to this newfound democratization of society. We’re already seeing companies like Apple hint at introducing peer to payment into their future operating systems.

For more information on Blockchain and Blockchain solutions, feel free to call or email us.

I’m always interested in hearing about new startup ventures, or talking with other cutting edge thinkers interested in Blockchain, digital currency mining, and other cutting edge ways of solving today’s challenges. Look me up at, my personal blog at, or find me on LinkedIn.