What Makes A Coin?

By David Roh Pina

LEBOWSKI: Funny – I can look back on a life of achievement, on challenges met, competitors bested, obstacles overcome. I’ve accomplished more than most men, and without the use of my legs. What? What makes a man, Mr.Lebowski?
DUDE: Dude.
LEBOWSKI: Huh?
DUDE: Uh, I, I don’t know, sir.
LEBOWSKI: Is it being prepared to do the right thing? Whatever the cost? Isn’t that what makes a man?
DUDE: Ummm..sure. That and a pair of testicles.
The Big Lebowski by the Coen Brothers, 1998

After reaching over 19k last year, Bitcoin is traveling at an incredible speed, set to hit 4k before the end of 2018.

On Twitter, Reddit, and all the outlets where truth goes to die, evangelists of the new economy will spin the numbers more than a Barry White record in a Hawaiian honeymoon, but what is happening has an explanation that does not involve knives, forks, Black Fridays, or Brexits.

The point of creating hype with price peaks and lows is to get the investor to lose track of the big picture. Volatility in the cryptocurrency markets is not an accident but a designed inevitability. As long as cryptocurrencies are bought and sold as a security, their price will be way more volatile than a normal security and any fiat currency, including the Venezuelan bolívar soberano.

Cryptocurrencies are given erroneous names like “coin” and “token” so they fit in with Satoshi Nakamoto’s original vision of a “decentralized," "cryptographically proofed," "means of exchange,” when in truth they are not decentralized, nor trusted, and, more importantly, they are not a means of exchange. That is to say: crypto coins are not coins. For cryptocurrencies to be coins, they need everyday utility.

Unlike what most people think, the problem is not decentralization. Like Jackson Palmer shows in his study of the 25 largest coins, decentralization is a scale, not an absolute.

The problem remains the "gas" and other intermediary fees that do not allow cryptocurrencies to be used as an effective means of exchange capable of fighting the monopoly of banks. On the one hand, Satoshi's white paper added the fees that make Bitcoin more of a security than a currency, but at the same time determined that its raison d'être is to challenge a banking system that has similar fees. It’s possible to transfer large amounts of money with Bitcoin for low fees but those low fees are not available for small amounts used by starting-out investors. This designed inequity has made Bitcoin attractive to the institutions it aims to disrupt – banks, hedge funds, and financial service companies. To be disruptive and have everyday utility, Bitcoin must have more than “coin” in its name, it should also have lower fees and scale to a level that anyone can use it.