Cryptocurrencies or cryptocommodities?

“Who needs Bitcoin?” say most people. “My credit card works just fine, thank you.”

“What problems do cryptocurrencies actually solve?” complain many so-called experts. “It seems like a solution waiting for a problem.”

Or the best one I’ve hear so far: “Governments will never allow any other currency to compete with their established fiat money. So why bother owning them?”

Each of these comments may sound logical at first blush. But they all reflect a fundamental misunderstanding of what modern cryptocurrencies are … and what they’re not.

Yes, Bitcoin was created to be digital, peer-to-peer money with no central authority. And yes, the concept of a currency outside of government control has strong appeal, especially in countries like Uruguay, Argentina, Brazil, Venezuela, Zimbabwe and others where the population has experienced hyperinflation or confiscation.

Intriguing? Yes. Broadly disruptive? No. Why not? Precisely for the reasons cited at the outset: Credit cards work just fine. Governments don’t want the competition. And few people have an incentive to use them. But …

Bitcoin Represents Merely the Paleolithic of Cryptocurrencies

Bitcoin fulfills just the single, relatively narrow purpose of transferring money from point A to point B.

So it wasn’t until Ethereum came along that the space really got interesting.

And this is where most crypto newbies often miss the big picture. They think Ethereum and Bitcoin are simply two breeds of the same animal. Even many crypto veterans misunderstand the radical differences between them. The fact is …

If Bitcoin is Like Digital Money, Ethereum is Like Digital Petroleum

Money is a medium for exchanging goods.

Commodities are goods themselves.

And among them, petroleum is the most widely traded on Earth. It has greater total value than gold, silver and all other metals combined.

It’s valuable because it has such a broad variety of use-cases: Essential fuel for the 200 million combustion engines produced yearly. The prime material for 300 million tons of plastic created every year. Plus countless other use-cases you’ve probably never heard of.

The global economy is fueled by this essential commodity. Without it, the entire world would come to a screeching halt.

That’s why it’s so valuable. And that’s why Ethereum and its cousins could also be very valuable. They are the fundamental component needed to power the internet of the future.

They are like digital oil. They will support virtually anything you can dream of: mobile apps, social media sites, stock markets, videogames, land registries, Fortune 500 companies, even governments.

The global digital network of the future will be fueled by these digital commodities. Without them, the economies of the future will stop dead in their tracks.

That’s because every time an application is created on the Ethereum network, Ether is required. This isn’t arbitrary; it’s what allows the whole thing to function. Without Ether, the Ethereum network runs out of gas.

(One word of explanation before I proceed: Although sometimes interchangeable, the term “Ethereum” is often used to represent the network, while the term “Ether” is reserved for the cryptocurrency itself, the “native token.”)

Ethereum and other networks that emulate its design are global, distributed computers. Think of them as your personal computer chopped up into tiny pieces and scattered across tens of thousands of PCs across the globe: A global supercomputer that anyone can access.

But it’s not free. Whenever I use this supercomputer to perform any kind of task — from writing a few lines of text to signing a contract with my name or buying a piece of property — I need to pay the network.

This latter part is key, because without a native token, what incentive is there for anyone to perform these tasks for me?

Why would someone let anyone else use his or her computer for the benefit of others on the Ethereum network, if he or she has no incentive to do so?

On the Ethereum network, the Ether token is the gas that’s so essential to power the network — to make it run. Thus …

Ether is more akin to a digital commodity with intrinsic
value than a greenback or any kind of paper money.

Fiat money has value by decree, based on trust in the issuer.

Digital assets like Ethereum’s Ether have value because they are the essential component that makes the network operational.

If Ethereum is Like Digital Petroleum, Then EOS is Like Digital Real Estate

EOS not only provides the fuel and the platform. It also provides the equivalent of real estate.

Each EOS token is, in effect, a piece of property you will buy in the virtual nation of the future. The more tokens you hold, the more stuff you can build on the network.

Want to buy a small house? Maybe 400 square meters will be enough. Want to invest in mall construction? You may need a whole block for that. Or perhaps you prefer to lease.

That’s precisely how EOS works. Unlike Ether, EOS isn’t used to paying fees. Instead, each EOS token represents a portion of bandwidth and memory that you quite literally own or rent in the global digital nation that EOS hopes to be.

That digital land is yours and you can build whatever you want on it: A website, a company, a digital community or even a videogame like Space Invaders!

Here’s the Key That Brings us Back To the Questions of Crypto Skeptics …

Whether used as gas or as property, the fact of the matter is tokens like EOS or Ether aren’t meant to be cryptocurrencies. That’s merely a secondary side benefit.

Their primary function — and where they’ll derive most of their value — is as the digital oil and real estate of the digital economy of the future.

How much will these tokens be worth when most of the world starts moving to these global decentralized networks?

Well, according to Cisco, the “Internet of Everything” is worth $19 trillion. The digital oil and real estate of the future will be worth many times more.

Bottom line: Whenever you find yourself puzzled as to why cryptocurrencies are worth so much, just remember: Most are not currencies at all. They’re virtual commodities, an entirely new asset class that didn’t exist just 9 years ago.

And they will revolutionize the world.



About the Editor

When econometrician and pro trader Juan M. Villaverde first applied his algorithms to Bitcoin years ago, he discovered a regular cyclical pattern. And he has since used it to build the world’s first crypto timing model based on cycles. Thanks to his analysis, the Weiss Ratings team has accurately picked the top and bottom of major crypto booms and busts.

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