Digital Currencies: Pros and Cons

Introduction

Digital Currencies are all the rage these days. It has enticed numerous thoughts about the future of technology, economics and the internet. It has always been a controversial agenda.

Pros: Some people are getting rich.

Cons: You probably won't be one of them.

• Benefits of investing in Bitcoin
• Could increase in value a lot.
• Could be a hyperinflation hedge.
• Can hide assets from someone you are divorcing, regulators, etc. (I am against these types of activities. It hurts Bitcoin's mainstream acceptance and is - at best - ethically questionable).
• Can call yourself an early adopter.
• Can lend it out via BTCJam, etc., thereby mitigating some of the illiquidity risks.
• Drawbacks of investing in Bitcoin
• Illiquid with wide bid-ask spread.
• Unregulated.

Few reputable third parties can be trusted to hold your Bitcoin as safely as Bank of America.

• Insider trading and shennanigans.
• Highly volatile currency.
• Could lose all value. There's nothing backing it.
• There's no hyperinflation in any big country. Argentina, Cyprus have small GDPs.
• Lack of security. Multi-sig, two factor, etc. removes a lot of the convenience to invest in and use Bitcoin.

Benefits of using Bitcoin

• Lower transaction fees and other friction.
• Better rewards when paying in Bitcoin vs. cash or credit card on sites like Ripple.
• Can call yourself an early adopter.
• Can be used for international remittance.
• Drawbacks of using Bitcoin
• Lack of security as mentioned above.
• Very limited use case. A small fraction of the companies, government agencies and nonprofits that take cash or credit card take Bitcoin.

For ICO Founders

Entrepreneurs Raise capital efficiently ICOs are much cheaper than IPOs ICOs require much less documentation than IPOs Branding and marketing opportunity to get exposure for an Altcoin Community building Create skin in the game with early adopters; this will make them part of the marketing mechanism of the project. Entrepreneurs share both the risks and the benefits of their efforts with the investors Founders / Developers have a method which can help them finance a project which can make the best use of their skills to the maximum possible extent Well respected crypto-experts have a channel to cash in on the skills and credibility they built over the years.

Proof of stake Altcoins resolve the problem of fair distribution through ICOs, and in PoS the coins come to fruition immediately. VC funding is much more intrusive on the founder’s vision An alternative to an ICO is borrowing, this has many implications on the project cash flow which is not always possible to manage in altcoin/crypto projects.

For ICO Investors

Some transparency for example, an escrow can be used to verify how the funds are being spent after the ICO Early Investors will have more liquidity in early stage companies Early access to a token which has the potential for capital growth Not regulated or registered with any government organisation and there are usually no investor protections other than what is built into the platform itself. Investors can be part of a community An innovative way to deploy capital.

An ICO which uses existing networks such as Stratis, Ardor and Ethereum, are tapping into the network capital of an existing ecosystem Divest from main cryptocurrencies into altcoins Investors are usually the first users of the altcoin – thus unlike holding a stock of a company whose products an investor never used, ironically altcoins can be a more tangible than other investments The returns from investing in ICOs can be in the 1000% and also complete losses Diversification into other assets. A high risk, high reward investment which is (to some extent) disconnected from the stock market and the economy Own an alternative asset not based on FIAT currency

For the Cryptocurrency community

Altcoins will fuel the race to build Web 3.0. A decentralised web. The internet stack becomes full independent from any central entity. Altcoins are at the cutting edge of fintech, even if an altcoin project tech fails. There will be lessons learnt regarding the technology and business model being proposed which will benefit the whole community.

More competition in the crypto space makes the competitors leaner. Meaning the “invisible hand” of the market frets much faster in terms creative destruction and survival of the fittest the more altcoin projects are launched. Intra Altcoin competition is healthy as it prepares the altcoins for the real competition, the crypto-based decentralised projects vs traditional firms. There are two schools of thought, Bitcoin Maximalists who consider Bitcoin as the one and only true cryptocurrency and Altcoins are experiments. Others think that Altcoins will eventually replace bitcoin. Just like the video tape was replaced by the CD and myspace by Facebook and old cameras with digital ones.

What are the risks of investing ICOs?

Scammers take advantage of an unregulated industry Amateurs using ICO to launch projects which are doomed to failure Long project delivery timelines, increase the risk that competitive products will be launched before Exchanges need to accept the altcoin for there to be a market for the altcoin. An ICO can be surrounded by hype, and “pumping” to mask the cons of the ICOs and make investors invest emotionally. Later finding out it was all hot air.

This is done by piggybacking on the success of Bitcoin, Ethereum and Dash without offering anything real back in return Regulators can change rules and make coins with certain functionality illegal in the future Altcoin technology is extremely new, and basic issues such as agreement on protocols are not yet established. Many altcoins will be born, and others will dissipate in the past until we eventually see the Google, Facebook and Youtube of crypto coins. Certain tokens can be copied (forked) and made better. The clone can eventually get more value than the original. This happens especially when the token is not an intrinsic part of the network.