The key to making cryptocurrencies real lies in having real things to buy with them, as opposed to crypto-things.
Bet on a Rising Bitcoin Price Chart, Not on a Hardfork Freebie
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Bitcoin is a crypto-thing. It’s an encryption key. It doesn’t exist. While it is illustrated in the form of a coin, it isn’t a coin. It’s magnetic ink. It can easily disappear.
Initial coin offerings (ICOs) aren’t real things either. They’re crypto-stock. They’re a bet, usually a bad one, that someone will fulfill a pie-crust promise they make to build a business out of your cryptocurrency and make money for you.
The progress of cryptocurrency in helping you buy real goods and services should be a key story for 2018.
So far that progress can best be described as iffy.
Analyzing the Chain
Wells Fargo & Co (NYSE:WFC) made a fortune on the California gold rush by following the money. Chainalysis hopes to get rich tracking the cryptocurrency boom. Its pitch is that it’s anti-money-laundering software. The Internal Revenue Service has contracted with it to track bitcoin transactions for tax purposes. The company has contracts with a total of six federal agencies.
Along the way they’ve learned that $20 billion in bitcoin has simply disappeared, lost to the blockchain, that criminal gangs are now targeting cryptocurrency holders (and their families) for kidnapping, and that serious criminals are abandoning bitcoin for such coins as Monero, which promise greater anonymity.
But What Can You Buy?
When looking at what you can buy with cryptocurrency, it’s important to reiterate that the market is far more advanced in Asia than the U.S., because the big savings come from it being a global store of value. Koreans with crypto don’t have to buy yuan to buy from China if they can use cryptocurrency.
Cryptocurrency ATMs are already a thing, but their primary opportunity lies in developing countries without stable currencies and among people who already use many currencies. Moving among “fiat” currencies like the yuan and yen always means going from a bid price to an ask. Currency exchange services aren’t cheap. But an Ether is an Ether the whole world around.
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As to physical goods you can buy with bitcoin, media stories about it are slightly misleading. Most of these goods are outside the U.S., like Dubai real estate or college degrees in Cyprus. A small number of high-end merchants, like some Las Vegas casino hotels, are starting to take it, but these are individual deals with individual merchants. Cryptocurrency is not yet the same as cash in the U.S.
In Korea, where 14% of working people have experience with cryptocurrency, you can now use it for travel.
The recent volatility in Ripple, which was designed to trade at $1 per coin but has gone from $1.08 to 84 cents in just four trading days this week, came just after a South Korean bank announced it would stage a trial of international remittances using it.
The Bottom Line
The main real thing you can buy and sell with cryptocurrency is money.
If prices achieve stability — and Ripple is designed for just that — you could find it used heavily in international trade, because its value crosses borders intact.
But making that happen requires something like law and order. So long as it’s the medium of choice for violating international sanctions and for criminal finance, it’s hard to see peace breaking out between cryptocurrency and the nation-state.