Forecasts of the collapse of Bitcoin and other cryptocurrencies usually face against broader arguments in defense of the technology of blockchain underlying them.
Yes, its advocates agree that more than half of all ICO’s (initial coin offerings, that is, the initial placement of cryptocurrency among investors) proved to be a failure, and most of the currently existing 1500 something cryptocurrencies are also waiting for collapse, however, blockchain will still make a revolution in the relationship of finances and people.
However, as noted in his article on Prokect Syndicate, the famous American economist Nouriel Roubini states that blockchain is one of the most unjustifiably advertised technologies in the history of mankind.
To begin with, blockchain technology is less efficient than existing databases. When someone says that their project is working on blockchain, in reality, as a rule, the operation of a program reproduced on a variety of other devices is implied.
In this case, the storage space requirements and processing power are much higher, and the transaction speed is much lower than when using a centralized program. Blockchain with the technologies of proof-of-stake or zero-knowledge require that all transactions be verified cryptographically, and this slows down their work. A blockchain with the technologies of proof-of-work, used in many popular cryptocurrencies, raises another problem as they require huge amounts of energy to ensure their work. That is why operations for the mining of Bitcoins in Iceland this year already can begin to consume more electricity than all Icelandic households put together.
Blockchain can make sense only in cases where the exchange of speed for the quality of verification is really needed, but this technology is rarely promoted in this capacity. Investment proposals related to blockchain are constantly accompanied by wild promises to plunge entire industries, for example, the cloud computing industry, while the obvious limitations of this technology are hushed up.
Look at the many projects that come from the conviction that the blockchain system is a distributed, universal “world computer”. According to these statements, banks that already use effective systems to process millions of transactions on a daily basis have reasons for switching to a slower and less efficient single cryptocurrency. This is contrary to everything that we know about the use of software in the financial industry. Financial institutions, and especially those that deal with algorithmic trading, need fast and efficient processing of transactions. For their tasks, a single, globally distributed blockchain, such as Ethereum, will never work.
Another false claim is that the blockchain is supposedly something like a new universal protocol, the same as for the Internet TCP-IP or HTML. Such statements imply that in one form or another blockchain will become the basis for most transactions and communications in the world of the future. Again, this is completely pointless, if you remember how the blockchains work. First of all, they themselves rely on protocols such as TCP-IP, so it is unclear how they, in principle, will be able to replace them.
Moreover, unlike basic-level protocols, blockchain systems are stateful, that is, they store all information about approved communications that they have ever committed. As a result, a well-engineered blockchain system must take into account the limitations at the level of the hardware of its users and be protected from spam. This explains why Bitcoin Core, the Bitcoin software client, processes only 5-7 transactions per second. For comparison, Visa reliably processes 25 thousand transactions per second.
We cannot record all transactions of the world in one centralized database, and in the same way we do not have to write them into a single distributed database. The problem of “scaling blockchain” is still largely unresolved, and it will remain so, apparently for a long time.
Although we can be quite sure that the blockchain system does not replace TCP-IP, some components of the blockchain system, such as Tezos or the language of smart contracts in Ethereum, may eventually become the standard for specific programs, just as Enterprise Linux and Windows become the standard for operating systems of personal computers. Nevertheless, the rates of specific “coins” that are now being made by many investors are not the same as bets on the emergence of new “protocols” with widespread application. Given our knowledge of the principles of the operation of open source programs, there is little reason to expect that the business value of specific forms of blockchain applications will be directly capitalized in only one or several cryptocurrencies.
The third false statement is connected with the utopia of trustless (the commission of transactions without mutual trust between the parties), which the blockchain will allegedly create, eliminating the need for financial and other intermediaries that give rise to trust. This is absurd for one simple reason – any existing financial contracts can be either modified or deliberately violated by its parties. It is impossible to automatically get rid of these threats with the help of strict trustless conditions, including, because it will require 100% cash support for all financial contracts, and this is insane in terms of capital costs.
In addition, as it turns out, many well-justified methods of using blockchain in finance (for example, in securitization or monitoring of production chains) will still require the participation of intermediaries, because inevitably there will be unforeseen circumstances when it is necessary to show flexibility. The most important thing that will ensure the blockchain in this situation is the guarantee of the consent of all parties involved in the transaction, about its status and its obligations.
It’s time to end this empty fad. Bitcoin is a slow, energetically inefficient dinosaur that will never be able to process transactions as quickly and inexpensively as, for example, tables in Excel. Ethereum plans associated with an unsafe proof-of-stake authentication system will increase its vulnerability to the manipulation of influential insiders. Ripple technology for international interbank money transfers will soon swallow the dust behind SWIFT, a consortium that does not use blockchain, but whose services have long been used by all the world’s leading financial institutions. As well as the services of centralized electronic payment systems, which have virtually no transaction costs (Faster Payments, AliPay, WeChat Pay, Venmo, Paypal, Square), billions of people around the world already use it.
Today’s “Coinomania” is somewhat similar to the railway fever at the dawn of the industrial revolution in the middle of the 19th century. In itself, blockchain technology is hardly revolutionary. But in combination with secure, remote automation of financial and computer processes, it can have potentially far-reaching significance.
Ultimately, the use of the blockchain will be limited to specific, well-defined and complex tasks that require transparency and protection from hacking more than speed. For example, it can be communication with unmanned vehicles or drones. As for the majority of the cryptocurrencies, they do not differ much from the railway stocks of the 1840s. They collapsed when this “bubble”, like many other “bubbles,” burst.”
Though the crypto market is still relatively new and lacks many of the traditional institutions of a civilized market, there are projects on the market that seek to indemnify or mitigate the associated risks that investors take when deciding to invest in projects. Cryptics is one such project that seeks to offer the necessary instruments for alleviating the situation with uncertainty. The concept behind it is to support market participants by providing liquidity on exchanges and a safety cushion for retail investors by creating a platform that connects market players and develops algorithms to predict changes in the value of cryptocurrencies. Such instruments based on highly advanced scoring models involving machine learning and AI are incomparable with human intuition that even the luckiest and most prudent investors could ever be endowed with. The multitude of factors involved in predicting a cryptocurrency’s rise or fall are all taken into account by the algorithms that Cryptics employs. Investors should consult such projects as the expense is well worth the ensured profit and peace of mind.