Noob question... What is the "product" that underlies the value of cryptocurrency that is so much more valuable than what underlies an ICO? What is the value of a machine churning hashes? It seems like the value is underlied by securing a transaction ledger + an arbitrarily difficult math problem. So is the value the security of the ledger?

That is a very good question. I didn’t do a good job making an argument for why I think the value of a currency like Bitcoin could be so much higher than an altcoin that did an ICO.

In my opinion, Bitcoin has the first mover advantage in this space. It was the first real use of the blockchain, is still the gateway to pretty much every other crypto currency, there is a maximum supply of coins, and is one of the only coins that can be purchased/exchanged for US dollars (or other fiat currency). In order to purchase an altcoin such as BAT (the token behind the brave browser the article refers to), you have to first purchase Bitcoin. If you want to sell your BAT tokens, you will receive Bitcoin.

Also Bitcoins do cost real money to actually mine (electricity costs).

Other tokens such as Ethereum are gaining popularity as well and have some advantages over Bitcoin, but I don’t see Bitcoin being displaced anytime soon.

In the case of Ethereum, the value is that the token is used as “gas” on the Ethereum network. Any action you want to take or data you want to store will require that you send a certain amount of Ether in order to perform that task. Since Ethereum is a platform that many of these ICO companies are building apps on top of, it stands to reason that the value of the platform should be greater than the value of the company building on top of it.

Question:

Bitcoin is a global cryptocurrency. Sure it has a first-mover advantage but so does Google. Today someone searches with google, tomorrow they may switch to Bing. Can't the same be said of Bitcoin and say Litecoin / Dogecoin / whatever? So why is Bitcoin worth more than Litecoin let's say? Both are accepted by Coinbase etc.

Bitcoin has brand positioning. It might not be technically the best, but brand positioning is really important if you are in a market. It occupies a clear position in people's mind.

Does the common man think of "cryptocurrency", or does he think of "bitcoin"? If in that persons head, "bitcoin" is the same as "cryptocurrency", then it will be really hard for a competitor.

Google is a nice example. "I will google it for you". Nobody says "I will bing that", or, sadly for other search engines, "I will search the web". We say "I will google it". In our head, google is the search engine, and the search engine is google. So if bitcoin is in that same ballpark, good luck to the competitors.

But I'm not saying other cryptocurrencies can't bring anything new to the table, such as Ethereum or Monero. But bitcoin definitely has the brand positioning advantage.

Currencies have network effects - everyone who will transact in a specific currency increase the value of that currency for everyone else.

So one reason BTC is worth more (speaking of entire market cap here) than, say, LTC, is because it is accepted more places.

Another reason is that BTC is perceived (rightly or wrongly) as more stable than other crypto currencies.

But all those legitimate reasons are amplified dramatically right now by speculation.

Distribution of new coins that are "mined" are dependent on the price of electricity and popularity. Being first means it was the most popular by default, so it had the most diverse group of "miners", all of them. I could make CrapCoinV37 today, with only myself "mining" it, it would be a worthless expense of electricity if it wasn't popular. The price of Bitcoin stays reasonably in equilibrium with the cost of electricity required to "mine", which is substantial.

Most importantly, the Coin that has the highest expense to "mine" is the most secure. To attack Bitcoin by out pacing the current miners, it would require millions of dollars in hardware which could just as easily be used to legitimately acquire Bitcoin by mining.

However second place is easily attacked, as the case with BCH, the bitcoin attempted fork. Miners are using their hardware to primarily mine Bitcoin, paying for the hardware, then occasionally attacking BCH, to break it's adjustment algorithm.

That's interesting. I have so many follow-up questions but I gotta head out to dinner. Time for just one... if you're saying ICO company coins are worth sand - and the value of Etherium is as a platform for ICO companies. That seems like the definition of a bubble. No?

Well, you could certainly draw that conclusion and make that argument, but I like to think of it as investing in the internet vs. investing in pets.com during the dot-com bubble.

As of right now, you are right. The entire crypto market is speculative. I think a platform like Ethereum has a better chance of being valuable than a random token that someone with no blockchain experience put together a whitepaper for in a few days and then launched an ICO for.

While the value of the average token may decline as a result of investors sobering up, I suspect the number of token sales will increase exponentially, at a rate that exceeds the per token decline in value, resulting in a net increase in the aggregate value of the token market, and with it, Ethereum.

>>In order to purchase an altcoin such as BAT (the token behind the brave browser the article refers to), you have to first purchase Bitcoin. If you want to sell your BAT tokens, you will receive Bitcoin.

BAT is an ERC20 token on Ethereum. In order to purchase it you buy Ether, and then go to a decentralized Ethereum exchange like 0x and purchase it. When you sell BAT, you receive Ether.

Yeah BAT was not the best example. I was just trying to illustrate that ANY altcoin can be purchased using BTC. Only some can be purchased with ETH

My point is that a token is not an altcoin, as it does not have its own independent blockchain. Almost all tokens are issued on Ethereum, and thus almost all can be purchased without any centralized intermediary using Ether. It's much easier to get into/out-of tokens using ETH than using BTC.

Okay I think we are actually arguing the same thing though. The original argument was why I thought currencies/platforms like BTC and ETH should be considered more valuable than random altcoins (independent of if they are ERC-20 or not).

I am not trying trying to argue about if BTC or ETH is better.

Oh okay, gotcha. Yeah I agree. Major currencies like ETH and BTC act as liquidity bridges for smaller cap digital assets. Tokens, which are digital assets issued on preexisting platforms, use ETH as their conduit, and altcoins, which are digital assets with their own native platform, mostly use BTC, and less commonly ETH, as theirs.

CryptoAssets (ICO, token, etc) vs CryptoCurrency

CryptoCurrency is the base primitive of the blockchain, that is consumed to store transactions permanently, as well as to reward the block creators. CryptoAssets are usually extra metadata in transactions that updates some state. The USDT token actually runs on the bitcoin blockchain, on an early 2nd layer network called OMNI. ICO takes the cryptoasset further and issues some 2nd layer token and then resell that for the underlying cryptocurrency. Its a magic bean sale, paid with gold coins.

An ICO on ethereum, for example, is simply a database entry that says your address holds some number of tokens in a contract. You do not own them, you are just tagged as having a certain number. Most contracts have a suicide clause. One authorized (we hope... ooops) method call could nuke that value instantly.

With a cryptocurrency, you control the value stored in unspent transactions. With this you own the private key. No external party can remove those funds with that private key.

The utility is a way to send value ~instantly, ~anonymously, relatively inexpensively, and irrevocably from one side of Earth to the other, without any intermediaries.

That hasn't existed before.

Shouldn't we consider telecom operators / internet service providers intermediaries?

Pedantically yes, but practically no. It's hard to impossible for ISPs to make use of that position. Much harder than, say, Visa.

It's interesting to think that the value of cryptocurrency as both the value derived from the platform's utility and the value ascribed to the coins based on consumer demand.

Because these are both embedded into the coin valuation it feels more like stock to me than currency. Specifically it might be like owning stock in eTrade, which has utility value as a platform for trading stock, and an arbitrary value based on consumer demand.

All currencies have that trait. USD has a value that is famously propped up because of its ubiquitous utility. Everyone wants/needs dollars (to trade w/ US, to pay US taxes, to use as a reserve currency, etc). This demand increases the cost of dollars relative to everything else.

The only reason it is harder to notice with crypto is because the size of the market you can use crypto in is so ridiculously small (relative to a national currency) that investment value and speculative effects dominate.

Small thing, but wasn't it JP Morgan's clients buying bitcoin through their brokerage service, not actually JP Morgan?

https://twitter.com/ToneVays/status/909032026455642113

Ah, good point. Well there is still some irony in that!

Not really, but it may make them hypocrites, as they act as enablers for something they see as fraud.

It's impossible to tell how many wallets there are with a certain amount in them. A wallet consists of multiple addresses and you can't tell which of them belong together. It is very common for money to be spread over multiple addresses, which are part of the same wallet. I probably have several hundred addresses in my wallet by now.

Ya, I am aware of that. I don’t think it really weakens his argument that much though. Your bitcoin is only redistributed to new addresses when you send and receive it so even looking at just people who have bought and held it will give you a piece of the puzzle.

You can also compare Bitcoin’s current market cap (~$60 billion) to that of gold ($7 trillion) and see that it still has a ways to go (if it is going to become widely adopted).

> It is worth nothing that JP Morgan bought up millions of dollars worth of Bitcoin after the price crashed following that statement

The crash was mostly independent of Dimon's statements.

Yeah I should have made that clear. The price had already started a correction, and the crashing was more associated with uncertainty related to Bitcoin exchanges in China shutting down, but his statement certainly didn’t help. It was picked up by pretty much every news outlet.

I guess that's true if learning that Jamie Dimon thought it was a bubble moved a lot of people to sell their bitcoin.

Of course blockchain technology is here to stay, regardless of what happens, the same way tulips stayed with us after the mania had ended.

> if it really does become the money of the future then the prices now are going to look like pennies in five or ten years time.

Yeah, that's literally exactly why it is a bubble. It's a big if, but that's how you rationalize entering the market.

I suppose that is true, but if the price does crash back down to $1,000 and then rises up to $6,000 then what does that mean? The bubble burst and the price crashed, but now we are in another bubble?

This article is an interesting read and seems to suggest something like that:

https://medium.com/@mcasey0827/speculative-bitcoin-adoption-...

> I think there is a difference between a cryptocurrency bubble and an ICO bubble, and this article fails to distinguish between the two.

Not only that, there's no such thing as a "cryptocurrency bubble". There are bubbles for particular cryptocurrencies. Just as there are bubbles for particular investments. But generalizing isn't meaningful.

And furthermore, a focus on cryptocurrency trading is the fundamental problem. People trade fiat currencies, but they don't (as far as I know) trade any fiat currencies that are primarily used for investment, rather than in commerce.

Me, I just want an electronic currency that can be used anonymously. To get paid, and buy stuff. Because actually, I can't convert with fiat currencies without risking anonymity loss. So it goes.