cryptocurrencies in 2023

I have been asked a few times recently for guidance regarding handling cryptocurrency in the post-plague crypto economy - these are my thoughts with a bit of background for newcomers.

Bitcoin's vision was as a decentralised currency, used to facilitate the exchange of goods and services without the involvement of banks or payment processors. The distributed ledger (the blockchain) as a method for keeping transaction records is a very clever way of maintaining an immutable record of stuff, but as an actual currency Bitcoin is quite bad. The proof-of-work (mining) method for generating coins and verifying new transactions is very time consuming and cumbersome, thus transactions are slow and fees are high. It only ever found widespread use as a means of purchasing contraband on the internet where the risk, inconvenience, and high transaction fees are compensated for by having class-A substances arrive in the post the next day. Now though, even illicit online vendors use Monero instead because of the greater anonymity, faster transactions, lower fees, and more stable value.

Bitcoin's actual main function is as a speculative investment vehicle; an asset which has no purpose other than being (potentially) saleable at a higher price than what was paid. This for a long time was the case with Bitcoin - those who purchased it in 2010, 2012, 2014, 2016, 2018 each saw the value of the coins they bought rise a lot. This trend relies on a steady supply of new buyers to buy coins at higher and higher prices though, and I would contend that we ran out of those some time in 2021. Since then, people who bought Bitcoin at ~$60,000 have been looking for ways to make their purchase feel more valuable, so lots (and lots and lots) of investment advisors, De-Fi evangelists, NFT and altcoin 'projects' and so on have sprung up in a bid to tie Bitcoin (and others following the same trajectory like Ethereum, and a million altcoins with funny names) to some kind of tangible product or service based economy. These new coins often purport to exist in order to facilitate the functioning of some kind of trading platform, decentralised financial intitution, DAO, fund etc.

The whole crypto economy as it now exists is almost entirely (in my view) created to lure in new high-price buyers with non-products like the above, so that the previous cohort of high-price buyers can cash out. For this reason I feel that buying coins for speculation purposes is no longer a good idea. The altcoins and NFT based collection and/or art projects exist in an attempt to bolster the crypto economy as a whole, and the whole thing rises or falls with the price of Ethereum and Bitcoin.

With all of that having been said though:

Bitcoin, Ethereum, Monero and the myriad altcoins (if stored properly!) can be a way to hold assets away from government seizure and various other kinds of beaurocratic interception. This has been invaluable recently for some Ukrainians seeking to quickly store funds in an internationally portable, physically safe (non-cash), and bank-free way. Downsides here are the difficulty of properly storing crypto assets, and the wildly fluctuating price of many of these assets due to the above speculation shenanigans. Because the relative utility of these coins is so low compared with the speculative hype, it's extra important as time goes on to identify specifically what your need is and how storing money as crypto is helpful to addressing that need. Almost all - maybe 99.5% - of crypto evangelists, advisors, brokers, investors have motives totally counter to their clients' best interests and no legal obligation to act ethically, but cryptocurrencies themselves may still have practical utility for some purposes.

I strongly recommend Dan Olson's excellent documentary Line Goes Up - The Problem With NFTs in which they make these points and many others far more competently than I ever could.