Our CEO explains Cryptocurrencies – Part Three
In this third and final segment on Cryptocurrencies, I will look at a couple of noteworthy Cryptos, other than Bitcoin which, in my opinion, are worth looking at. I have excluded XRP (Ripple) for the reasons highlighted in the previous segment, in particular, that I don’t believe it to be a Crypto, just a solid alternative to the traditional widely used payment settlement systems such as SWIFT.
Some Cryptos that are noteworthy that address some of the issues raised in the previous segment are described briefly below. I have focused on the two that I talk about rather than Bitcoin, as I see these as potential revenue earners as they provide processing capability through the implementation of smart contracts, rather than acting purely as pseudo “stores of value”. Similar to how you would view Gold relative to say Apple. The former is a store of value that generates no earnings so cannot pay dividends, while the latter generates revenue and pays dividends. Principally, Cryptos that can perform multiple functions that are valuable in global financial markets have the potential to generate revenue for
Cardano is a Proof of Stake (“PoS”) Crypto founded by one of the co-founders of Ethereum with the aim of addressing the shortcomings of traditional Cryptos. The particular objectives of Cardano are scalability, low cost of mining, security, and quality of technology. When I talk about “quality of technology” in this context, I refer to the Crypto living up to the theoretical underpinnings of its white paper claims. The numerous hacks experienced by a multitude of other Cryptos, including Ethereum, demonstrate the need for this robust approach. In essence, Cardano releases code following a rigorous peer-reviewed research process developed through evidence-based methods. The challenge faced by any Crypto
claiming to be performant, secure and power-efficient, is that these factors are generally at odds. In the previous segment, I described the mining process for Bitcoin which is expensive and not particularly fast, however, other than through large holding manipulation it has proven to be secure. The hacks you typically read about relate to off-chain activities like wallet holding companies being hacked.
So what are the key pros and cons of Cardano:
- A team with an unrivaled track record
- Low, almost zero, cost of mining: to participate in the PoS mining process you simply need to keep your wallet online, the cost of which is a small amount of data and the power required to keep your computer powered on
- Peer-reviewed technology which is scalable
- So far it has demonstrated that its technical claims live up to the hype
- Current throughout its 257 transactions per second which are expected to increase to 1million tps with the planned introduction in 2022 of a secondary processing layer called Hydra (for reference sake 5,000 credit card transactions are processed per second globally so current blockchain technology cannot match this yet).
The peer-review process creates a substantial lag in the release of features:
- many of the hyped about capabilities have yet to be released which is further exacerbated by a massively ambitious scope of work
- Not necessarily unique enough to overcome its late arrival onto the scene
- – Ethereum 2.0 promises many of the same features and is far more entrenched.
So what’s the call? To buy or not to buy? That I will leave up to you to decide when you have done your own research. The problem still remains that valuing a Crypto like Cardano is impossible. As of writing this segment its market value is $45billion. What underpins the value of a stock is the current and potential future earnings of such a stock. Using such methods to value the likes of Cardano and other PoS Cryptos is the pure theory at the moment not unlike the early days of Google and Facebook before they started to generate meaningful revenue. To underpin a value like this will ultimately require earnings that can
be valued using traditional methods. The technical plan and consequent service offering aim to achieve this. It remains to be seen what will materialize.
Ethereum 2.0 aims to address the major shortcomings of Ethereum, in particular:
The high cost of mining of its PoW mining system by shifting to a PoS system the introduction of “sharding”. The current transaction validation process requires all participating network nodes to confirm a transaction – the processing speed is then governed by the slowest node (the lowest common denominator principle). Sharding splits the verification process into groups that sub-nodes confirm – parallel processing of sorts. The expected gains in processing speed from sharding are from approximately 15-45 transactions per second to over 100,000 transactions per second. Ethereum 2.0 was initially slated for release in November 2020, but has shifted to the end of 2021, but is unlikely to only be fully implemented in 2022.
In essence, while Cardano shows promise it is behind the curve in terms of implementation which is similar to Ethereum 2.0 except Ethereum is underpinned by substantially larger adoption. It is a race to completion which will determine the ultimate winner, which perhaps will be neither of these. So where does all of this leave us as individuals and ICE Tech as a business as it relates to Cryptos?
As an individual, I would only invest in Cryptos using funds you can afford to lose. While we have all seen people make tons of money investing in this domain recently, the same held true during the initial .com bubble which eventually burst to leave only a small fraction of companies left standing. The same will hold true for this space. I would also be extremely careful with the investment channel as the lack of regulation has left this market open to the numerous Ponzi schemes that have caught many. If you plan to invest, be in control of the process directly and always think of the principle ” if it is too good to be true it is likely not true”.
As for ICE Tech, we need to incorporate the technology more formally into our roadmap in a manner that is as modular as possible so we can gain the marketing and potential technical benefits of the technology, without being fully invested in any single technology (which may be an ultimate loser). The use of smart contracts combined with the potential security and performance advantages of employing a distributed ledger is something we cannot afford to ignore.