interpret this

A basket of crypto currencies

It is the middle of march 2014. As of today there are 173 different crypto currencies listed on coinmarketcap.com. Their combined market cap, right now, is USD$10 billion.

I think it is fair to say that crypto currencies have already succeeded in becoming a medium of exchange. But I think it is also fair to say that the individual units of crypto currency are never going to be scarce.

It is ridiculously easy to create your own version of the litecoin or bitcoin client. Some guy called Matt will even do it for you for 0.10 BTC (USD$64). And then it is up to you and your community to distribute it, mine (AKA process transactions) with it, and exchange its output for things that you value.

Crypto currency market cap excluding litecoin and bitcoin

(Graph taken from the Coin Stat blog, data from January 2014)

Every individual currency is incredibly volatile. And no reasonable human could be expected to maintain 20, let alone 500 or 1000 individual wallets. It has already turned into a maintenance nightmare.

So what I think will become popular is an aggregrated basket of crypto currencies. Think the S&P 500 but instead of the top 500 US companies by market capitalization it would be the top 500 (or 100, or a 1000, whatever) crypto currencies by total market value.

Let us call the imaginary creator of this aggregrate fund Index Corp. Now Index Corp, if it was smart, would let people trade between their individual Index Corp accounts for free and charge a small amount on deposits and withdrawals.

In theory the CREDITS (yes, intergalactic or otherwise) you have in these accounts could be exchanged for credits in other companies that held the same basket of currencies. And that unit. That standardised credit (The full name might be something like Standardised Crypto Currency Credit Top 1000 aggregrate by market cap) would become the popular unit of exchange.

This satisfies everyone but the libertarian idealogues. The underlying technology makes transactions extremely cheap and most transfers free. Governments get accounts, with names attached that they can levy taxes upon. And real users do not need to manage their own security and currency volatility risk. And really, when you do need to make an illegal purchase, off the grid, then you just have to transact directly in one of the underlying crypto currencies.

Now, some would argue that this destroys the whole point of crypto currencies in the first place! That by doing this you have just given control to a couple of large companies. And yes. That is exactly what I think will happen. But the underlying currencies will still exist. You will still be able trade them and use them direcly. But for the majority of people and businesses, using them directly will be akin to using telnet to browse the internet.

And that is what I see these crypto currencies eventually becoming. The building blocks of a new financial infrastructure. The TC/IP of value exchange. Not something that most people will know or care about. But something that everyone will use.

Hansel - 16/03/2014