Cryptocurrencies and Blockchains by Quinn DuPont

Author:Quinn DuPont
Language: eng
Format: epub
ISBN: 9781509520275
Publisher: Wiley
Published: 2019-01-30T00:00:00+00:00

Speculative investment

Although cryptocurrencies and blockchain technologies are rarely used for commerce today, they do hold considerable economic value, and so they are actively traded. There is a vibrant and growing market for “crypto assets,” which includes traditional (money-like) cryptocurrencies such as Bitcoin, Litecoin, and Neo, and (software-like) blockchain technologies such as Ethereum, Ripple, and NEM, as well as innumerable software startups launching through “Initial Coin Offerings” (ICOs) that sometimes blur the line. Either way, investors treat cryptocurrencies and blockchain technologies like speculative financial assets irrespective of their stated goals (it does not matter if they are cryptocurrencies or blockchains). Market participants tend to refer to their assets as simply “crypto.” (Despite the fact that the largely unrelated field of cryptography has long used this nomenclature, I’ll adopt the term for this chapter.) In recent years, the market for crypto has expanded considerably, with total market capitalization surpassing US $600 billion in 2017 (this is, however, an entirely fictional and unrealistic number, as I describe in Chapter 1). Because of this hype, it is not uncommon to hear finance professionals and lay people alike discussing the wild and weird world of investing in crypto. I’ve heard this myself, more than once. Sitting in a café, a (young, white, male) individual sells his interlocutor on this new investment opportunity, with nary a clue about the technology or investment risks, dreaming and expectant that his investment will go “to the moon” so that he can buy a “Lambo,” as insiders say.

If it is true that high-flying financial instruments were, to borrow a phrase, the “new exotic” of the first decade of the millennium (Maurer 2006), then surely cryptocurrencies and blockchains must be the new exotic for the second decade. Cryptocurrencies and blockchain technologies are part of a larger “fintech moment,” and an important part, as they are increasing the already ongoing algorithmization and obfuscation of financial activities (see Pasquale 2015), exemplifying the virtual and performative nature of financial instruments (see MacKenzie 2006, 2009), and increasing social, physical, and moral distance (see Coeckelbergh 2015 and Chapter 1). Financial technologies may have unintended effects when they stand in for or mediate between humans, allowing us to delegate responsibility and abnegate ethics, even in some cases to the point of full automation (see my analysis of The DAO in Chapter 8 for an extreme case of automation and its risks). That is, the real risks of speculative investing in crypto reach far beyond the individual (perhaps clueless) investor. Neither inherently bad or good (but certainly not neutral), crypto is a powerful new financial engine for a broader financial technology sector, with still largely unknown social and political characteristics and implications.

Speculative investing in crypto does pose serious individual financial risk, and sane financial advice would be to caution against it for all but the most risk-tolerant investors. Practically, there are huge risks in every part of the investment: exchanges and wallets are frequently hacked or mismanaged (many exchanges have disappeared due to ineptitude or outright criminality, often

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