Don't Blame Elon: 5 technical warning signs of a crypto bubble

Don't Blame Elon: 5 technical warning signs of a crypto bubble

Many people are blaming Elon Musk's tweets for the latest crypto crash!  While he surely was a catalyst there are deeper signs to look for that are more about the underlying technology than one person's influence.  In fact, the notion that one person could cause a crash should be concerning because you should ask yourself, "Why is this technology so sensitive to one person's opinion?"

Of course, this is all reminiscent of the year 2000 comments by Alan Greenspan about the Internet Bubble where he said that investors suffered from "Irrational Exuberance".  That Internet bubble burst shortly after in response to several interest rate hikes by the fed.  Was the crash due to the fed raising interest rates or was it due to companies being extremely overvalued because they could spell the word "Internet"?

Now, let's get back to the crypto-bubble and 5 warning signs of irrational crypto exuberance: 

  • Dogecoin is still a joke.  From a technical perspective, Dogecoin is just a bitcoin copycat that adds no value to the crypto-universe.  The same can be said for all the follow-on crypto copy-cats like Shibu Inu and others.  The rising frenzy of pure speculation and Fear-Of-Missing-Out (FOMO) is palpable.
  • Proof-of-Work is wasteful.  From a technical perspective, it could be argued that a consensus algorithm based on exponential work and a CPU "power competition" between honest nodes and bad actors is a bad idea.  The movie War Games taught us that by stating, "The only winning move is not to play"  Enter, Proof-of-Stake.   Again, from a technical perspective, the crypto-community should consider proof-of-work as an Achilles heel which is typical of 1.0 technology implementations.  Thus, it is a fair comparison to think of Bitcoin as "Blockchain 1.0".  You should always tread carefully with 1.0 technologies because it usually takes us at least 3 tries to get it right.
  • Dapps are not Web3.  On the Ethereum road map pages, they make the bold claim that "Web3, in the context of Ethereum, refers to decentralized apps that run on the blockchain."  Frankly, this is ridiculous.  Decentralized apps are orthogonal from the evolution of the Web.  The web has nothing to do with a block chain so to imply otherwise is disingenuous.  Here is a more accurate representation of how the web evolves distinctly from block chain.
    Web versus Crypto
  • There are too many currencies.  The flurry of copy-cat technology is a clear sign that exuberance and not technical excellence is ruling the roost.  This has been seen many times over in every gold rush since Sutter's Mill
    pot of gold
  • The empire will strike back.  When an existing established technology works fairly well, what does it take to topple it?  Claiming something is the future does not make it so.  In this case, the empire is the government and it will scrutinize this new technology and make it play by the same rules as the old technology.  Get ready, because the Government is now scrutinizing the crypto-verse and they have many banker friends that are whispering in their ears that these "ragamuffin rebels" should be "put in their place"!  

So, what are you to do in this situation? First, go in with your eyes wide open - the technologies behind crypto-currencies are both not perfect and not finished.  Lead with logic and a technology mindset because this is a technology-based solution.  Understand which technologies are truly innovative versus which are merely copy-cats that don't add any new value.  After all, value to the end-user is the only thing that matters for the long-term success of a technology!

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Michael Daconta is a well-known technology author of 13 technical books, 1 non-fiction book, and thousands of articles and blog posts. He has authored and co-authored books on Java, XML, C, C++, info management, and cloud computing.

Good Crypto Bad Crypto
Good Crypto Bad Crypto

In this blog, we will evaluate cryptocurrencies through the lens of the disruptive power of the underlying technologies. Not all technologies are equal. The smart investor of cryptocurrency must distinguish between things that are truly revolutionary, things that are evolutionary, and things that are merely exploiting the hype to make a quick buck through copycatting and buzzwords.

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