The ONLY Bull Case for ShitCoins

TLDR: The vast majority of alternative crypto currencies are either misguided attempts to create an innovative technology or are financial schemes created to scam unknowing investors out of their fiat money. Nonetheless, the growth rate of the industry and the sheer amount of investment being put toward crypto projects is a signal that cryptography as an industry needs more practical time, more quality attention, and more efficiently deployed resources put toward it.

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If my use of the phrase “shitcoins” in the title and my opinion in the summary of this paper are not clues enough, let me make it clear here. I am not a fan of alternative currencies. Subjectively, I can not ignore the countless stories I have heard and keep hearing about individuals being tricked or scammed out of their fiat dollars by cryptocurrency “companies” and so called blockchain projects. Though I do fault the creators of alternative cryptocurrencies, I also understand that they are just responding to incentives. Given my opinion, it is important that I provide the many bear cases for shitcoins before I mention the only bull case.

The washing machine was invented in 1776 in an attempt to make the process of washing and wringing out clothes easier. It was a simple manual device with two main parts: a spinning bucket where you poured in hot water and a hand crank wringer for wringing out the clothes. It was not until the 1950s that washing machines began to look like what we use today. Today, we can wash shoes, blankets, hats, towels and clothes in our machines, but that would have been near impossible to do in the first washing machines because they were made to do only one thing well.

In 2008 Satoshi Nakamoto released Bitcoin. Bitcoin had multiple technological innovations in an attempt to solve the problem of trust in digital transactions. Put simply, they wanted to make sure that anytime you transacted with the digital currency you could trust that the money you sent would go exactly to where you directed it to go. Additionally, they wanted to ensure that you could trust the ledger of all transactions on the network at any given moment without having to rely on a bank or other central authority. Satoshi worked for years to build a technology that was good at one thing; being decentralized digital currency.

Ten years later, we see people attempting to use Satoshi’s technology for voting, for commodities trading, for art, for insurance, for healthcare, for real estate and a litany of other applications that it was not built for. A few of the applications will likely be successful and add some marginal amount of utility to their prospective industries, but most of these projects are attempts at washing dishes using a washing machine. Even worse, many of the projects are trying to sell you dirty washing machine water claiming it will increase in value and/or benefit the world.

Warren Buffet has famously quoted, ‘... never buy stock that you don’t understand. Another iconic investor, Peter Lynch, quotes, ‘... Although it is easy to forget sometimes, a share of stock is not a lottery ticket. It’s part ownership of a business.’ When you purchase a cryptocurrency, you are purchasing a piece of a network. It is important that you understand the network that you are buying into. It has been my experience that most investors in alternative cryptocurrencies do not understand the asset that they are purchasing, let alone the network that they are buying into. ‘Investing without research is like playing stud poker and never looking at the cards.’ The most bearish case you can make for alternative cryptocurrencies is to ask any crypto investor to explain the projects they have invested in. When dealing with investments of our hard earned capital, we can trust others who are more knowledgeable, but it is that much more important that we verify.

I have said that it is impossible for any one individual to have perfect knowledge, so price is vital in our decision making. The ONLY bull case for shitcoins is the signal that we are receiving from the market. Prices associated with cryptocurrencies have been exponentially increasing for years. As an investor it would be tantamount to malpractice to ignore an industry with the amount of simultaneous growth and volatility that the cryptocurrency space has seen.

It is not my opinion that the prices are a signal that these alternative cryptocurrencies individually are good investments that will add value to society. But, I do think that the price signals tell us that the industry as a whole needs people to spend more time, attention, and resources to understand how cryptography can bring real value to society.