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My 8 Requirements for the Perfect Crypto-Currency

My 8 Requirements for the Perfect Crypto-Currency

Although I don’t own any, I find crypto-currencies to be a really interesting concept.  The world desperately needs an alternative to the shortcomings of venal central bankers and their unstable fiat currencies.

Then a thought crossed my mind.  What would my personal requirements for the perfect crypto-currency be?  What would make a crypto-currency good enough to challenge and possibly displace traditional government-issued money?

According to the Antique Sage, the perfect crypto-currency must be:

 

1) SECURE

There must be every assurance that the blockchain cannot be corrupted or manipulated in order to steal, divert, destroy, double spend or counterfeit the crypto-currency.  This basic requirement for a successful digital currency has largely been solved, albeit not without a few growing pains along the way.

All the large cryptos, including Bitcoin (BTC), Ethereum (ETC) and Ripple (XRP), along with most of the smaller ones, are quite secure today.

 

2) NON-INFLATIONARY

The terminal growth rate of the crypto money supply must be under 1% per annum.  This is to avoid the situation that exists with fiat currencies today, where central banks are free to issue currency in unlimited quantities to their banking buddies and the politically-connected (as happened during the 2008 financial crisis).

This is another problem that the crypto-community has largely solved.  Bitcoin, for example, will famously cap-out with a total of 21 million tokens.  After 21 million Bitcoin have been mined (most likely sometime in the 22nd century), the terminal growth rate of the currency will drop to zero.  No more Bitcoin will ever be created after this point.

Most other crypto-currencies have followed their progenitor’s lead.  For instance, Litecoin (LTC) will top-out at 84 million coins, while Cardano (ADA) has a maximum potential supply of 45 billion.  However, a few have chosen to allow infinite (but controlled) monetary expansion, like Monero (XMR) and Ethereum.  I believe this option is completely acceptable, provided the terminal inflation rate remains below 1%.

 

3) PRIVATE

Transactions must be truly anonymous with no possibility of corporate big data or governments using the blockchain to infer holdings, transaction participants or buying patterns.  Absolute crypto-privacy is still a work in progress, but a few pioneering crypto-currencies have taken up the challenge.

Foremost among these is Monero, in which all transaction data is completely private.  A couple other crypto-currencies – Zcash (ZEC) and Dash (DASH) – share some privacy attributes, although not quite to the same extent as Monero.

 

4) INEXPENSIVE (TO TRANSACT)

It must cost less than 10 cents to process a transaction. This would allow micro-transactions of just a couple dollars to be viable – an absolute requirement for any crypto-currency that wants to become truly mainstream.  It would also help the crypto in question to displace credit card transactions, where the VISA/MasterCard duopoly often charges 2% to 4% in fees, plus additional fees if foreign currency exchange is involved.

Many different crypto-ecosystems have already achieved this precondition for a commercially-successful digital currency.  According to this March 2018 article by The Motley Fool, Tron (TRX), Ripple, EOS (EOS) and Bitcoin Cash (BCH) all had transaction fees of less than $0.01.

 

5) FAST (TO TRANSACT)

The perfect crypto-currency must be able to process substantially all transactions in 5 seconds or less.  This would allow it to be used with confidence for internet purchases or international commerce.  Right now Nano (NANO), Stellar (XLM) and Steem (STEEM) meet this stringent criteria, while Ripple gets close with a transaction time of around 10 seconds.

However, I do believe it is important to note that transaction speed (how long it takes to process a transaction) is a separate issue from scalability (the number of transactions a crypto-network can process at peak load).  It is absolutely possible for a crypto to be very fast when its network is lightly loaded, but slow to a snail’s pace when transaction volume picks up.  Of course, the perfect crypto-currency would complete every transaction very quickly, regardless of network loads.

 

6) SCALABLE

It must be able to process 50,000 to 100,000 transactions per second.  If any crypto-currency ever hopes to displace our antiquated 20th century payment system, it has to be capable of significantly beating VISA’s 24,000 transactions per second.

I predicate this on the idea that a mainstream digital currency would have very strong worldwide demand, with a user base of anywhere from hundreds of millions to billions of individuals.  Murphy’s Law dictates that at some point in the future, everyone will try to buy their morning coffee with their crypto at exactly the same time.  Therefore, being able to outperform VISA’s current network throughput is a necessity.

Although no crypto-currency clears this significant technical hurdle yet, Ripple gets an honorable mention with its capacity to process approximately 1500 transactions per second.  I suspect new technological refinements will propel us past this benchmark in the next decade or two.

 

7) ENERGY EFFICIENT

The blockchain (or equivalent technology) used to process transactions must use as little energy as possible.  While it was initially an afterthought in the crypto-space, energy efficiency has gained increasing attention with the revelation that Bitcoin mining alone uses a staggering 73 TWh of energy per annum – the same amount of electricity used by the entire country of Austria.  As if that wasn’t enough, the British newspaper The Guardian recently released an article that claims Bitcoin mining consumes more energy than the copper, gold and platinum mining industries combined!

It stands to reason that it is unwise to waste electricity if we don’t need to, particularly on such a grand scale.  Therefore, having our perfect crypto-currency’s blockchain be as energy efficient as possible is a reasonable requirement.  In addition, I think it is vital to save our computing energy for the next item on the list.

 

8) A STORE OF VALUE

Processing the blockchain should not only tally up transactions, but also create computationally-expensive intellectual property that is of broad use to mankind. This could take the form of medical simulations, geologic mapping, astrophysics calculations or climate modeling, to name just a few possibilities. In addition, immediately after its creation via the blockchain mining process, this intellectual property must enter the public domain where it can be freely leveraged by any corporation, individual or non-profit group who wishes to use it.

This requirement is by far the most technically challenging of the 8 that I have listed.  However, cracking it will endow the winning crypto with the Holy Grail for all digital currencies – intrinsic value.  This would remove the last great disadvantage inherent in crypto-currencies – their ephemeral, purely-digital nature – and allow them to compete head-on with more traditional stores of value such as precious metals.

If you are interesting in reading more about this tantalizing possibility, I touched on it in an article titled “Blockchain 3.0 and the Problem with Bitcoin“.

 

Conclusion

So far I believe that the crypto-community has definitively solved my first two requirements (security and a low inflation rate).  I think the next three (privacy, low transaction cost and quick transactions) are in the process of being solved.  Scalability and energy efficiency, in contrast, are proving to be difficult hurdles.  And the final requirement for my perfect crypto-currency – that it be a store of value – is still just a fevered dream.

Perhaps even more importantly, all of these desirable attributes must be rolled up into a single crypto-currency before it can truly be competitive with existing fiat currencies.  In my opinion, we have a ways to go yet in crypto-land.

 

Read more thought-provoking Antique Sage crypto-currency articles here.

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Gold Versus Bitcoin as a Store of Energy

Gold Versus Bitcoin as a Store of Energy

Gold mining consumes a massive amount of energy.  So does Bitcoin mining, for that matter.  But rather than being a drawback, I see the high energy consumption of these alternative currencies as an overlooked benefit.

After all, a currency that can’t be arbitrarily created at the whim of 12 corrupt central bankers sitting in an oak-paneled conference room somewhere in the bowels of Washington D.C. is a bonus in my book.  If we had been using either a gold-backed currency or Bitcoin when the 2008 financial crisis struck, it would have been impossible for the Federal Reserve to unilaterally bail out Goldman Sachs, Citigroup and all the other too big to fail banks against the will of the American people.

The fact that real energy and resources have to be expended to acquire new supplies of either gold or Bitcoin is one of the very compelling features that both of these currencies share in common.  In fact, I would argue that is a vital attribute for any successful currency – it must represent a store of energy.

If we compare gold versus Bitcoin from a store of energy perspective, does one have a higher energy density than the other?  And if so, by how much?

Let’s examine the energy density of gold first.

Because it is impossible to get good information on aggregate energy usage in the gold mining industry, I’m going to use a single major gold producer, Goldcorp, as a proxy for industry-wide energy consumption.  Goldcorp, a Canadian-based miner, is one of the world’s largest gold producers, with a 2017 production total of 2.57 million troy ounces.

According to its February 2018 corporate presentation, Goldcorp attributes 14% of its production costs to either fuel (generally diesel or fuel oil) or power (mostly electricity).  But Goldcorp also has other energy intensive costs that fall outside of this narrow definition of energy.

For example, tires (2%), explosives (3%), site costs (5%), maintenance parts (9%) and consumables (15%) are all energy sinks.

The massive tires used on mining vehicles are composed almost entirely of oil derivatives.  A tire for the massive Caterpillar 797B dump truck weighs 11,860 pounds (5,380 kilos) and contains almost 2,000 pounds (907 kilos) of steel, which is itself a very energy intensive metal to mine and refine.  It is estimated that each one of these mammoth tires consumes 100 barrels of oil to fabricate.

Explosives are another energy cost in disguise.  Although it is generally accounted for as a material on a mining company’s ledger, explosives are actually highly concentrated chemical energy.

Two of the most commonly used explosives in mining today are ANFO and TNT.  ANFO is composed of 94% ammonium nitrate and 6% fuel oil (another hidden energy expenditure).  Ammonium nitrate, in turn, is created by reacting gaseous ammonia with nitric acid.  However, ammonia is not found free in nature and must instead be synthesized via the Haber process.

The Haber process is extremely energy intensive because it requires high pressures (between 150 and 250 atmospheres) and temperatures (750 to 930 °F or 400 to 500 °C) in order to work.  In fact, it is estimated that ammonia synthesis via the Haber process devours more than 1% of total global energy output.

TNT, or trinitrotoluene, is hardly less energy intensive.  The base chemical used to create TNT is toluene, a light hydrocarbon fractionate.  Although it occurs naturally in crude oil in limited quantities, most toluene is a byproduct of gasoline production via either hydrocarbon cracking or catalytic reforming.

Gold mining site costs are another secret energy cost center.  While these can vary widely from mine to mine, they include exploration drilling, mine ventilation, waste water disposal, waste rock removal and site reclamation.   These activities consume large quantities of energy, only a portion of which are accounted for in raw electricity and fuel costs.

All of the equipment and replacement parts used to keep a gold mine running smoothly also cost a great deal in energy terms.  Parts and machinery must be fabricated in a factory and then transported to the mine site, which is often geographically remote.  Even common raw materials used in gold mining, like lime and sodium-cyanide, require tremendous amounts of energy to synthesize or extract.

And, of course, we can’t ignore the fuel costs attributable to commuting mine workers and contractors, which only show up as an indirect, payroll cost.

Overall, it wouldn’t be an exaggeration to guess that anywhere from 1/4 to 1/3 of the cost of gold extraction is directly attributable to energy, either in the form of electricity or fossil fuels.

According to an estimate by industry consultant CPM Group in its 2018 Gold Yearbook, the All-In-Sustaining-Cost (AISC) to mine an ounce of gold averaged $949 across the entire gold mining industry in Q3 of 2017.

This means that there is between $237 and $316 worth of energy embedded in every ounce of gold pulled from the ground.  With WTI crude currently trading at $51 a barrel and using the midpoint of the above energy consumption estimate, there is the equivalent of just over 5.4 barrels of oil used in the extraction of each ounce of gold.  That is equivalent to 31.6 gigajoules (GJs) of energy per ounce!

We can calculate gold’s electrical energy equivalence at around 8,800 KHW per troy ounce.  This represents about 10 months’ worth of electrical usage for the average American household.

So gold represents an excellent store of energy, being incredibly energy dense.  But how does the energy consumption of crypto-currencies compare?  Is Bitcoin far behind?

For Bitcoin’s energy usage estimates, I’m going to rely heavily on the work of Alex de Vries, who is widely regarded as the world’s leading authority on Bitcoin energy consumption, as well as being a prominent blockchain expert.

According to Mr. Vries latest estimates, Bitcoin’s blockchain calculations consume about 67 terawatt-hours (TWH) annually, which is about the same amount of electricity that the South American country of Chile uses in a year.  As of 2018, the average time between each successfully mined Bitcoin block is about 9 and 1/3 minutes.  And each of these new blocks rewards miners with 12.5 new Bitcoins.

So we can extrapolate that somewhere around 704,000 new Bitcoins are created every year via mining.

This means that each freshly mined Bitcoin represents just over 95,000 KWH of electrical energy.  This is equivalent to about 110 months of electrical usage for the average American household.

Although not directly comparable because Bitcoin is mined using electricity and not oil, each unit of the premier crypto-currency is equivalent to over 58 barrels of oil.  This represents 342 GJ of energy per Bitcoin.

But what about the energy density of gold versus Bitcoin on a dollar for dollar basis?

With Bitcoin currently trading at $3,500, each dollar’s worth of Bitcoin stores about 27.1 KWH of energy.  With gold going for around $1,240 a troy ounce, every dollar of the precious metal symbolizes around 7.1 KWH.

An energy assessment of gold versus Bitcoin from an oil perspective gives us similar values.  Each dollar of Bitcoin equals 0.0167 barrels of oil, while every dollar of gold is 0.0033 barrels of oil.

So Bitcoin has a clear advantage in energy density versus gold, with a ratio of 3.8 to 1 in Bitcoin’s favor.

Of course, it is wise to keep in mind that this energy density ratio is somewhat arbitrary.  It will fluctuate markedly with changes in the relative market value of gold versus Bitcoin.  In fact, as the price of Bitcoin has dropped over the past several months, the preeminent crypto-currency has become more “energy rich” on a per dollar basis relative to gold.

Another factor to keep in mind is that both Bitcoin and gold are only energy storage vehicles in a very abstract way.  It is not possible to pull electricity or oil back out of either of these alternative currencies once it has been consumed in their production.

Instead, both gold and Bitcoin provide their users with very different sets of energy-derived benefits.  Gold is a physical commodity that possesses excellent corrosion resistance, malleability and ductility, as well as superb electrical and thermal conductivity.  Some people bizarrely conclude that this means the yellow metal has no intrinsic value.  I strongly disagree, as I argued in a recent article I wrote on the intrinsic value of gold and gemstones.

On the other hand, Bitcoin provides its users with a fully digital currency secured by an incorruptible, publicly-verifiable blockchain.

Personally, I feel that gold has the edge here, although you might reasonably reach a different conclusion.  Bitcoin’s blockchain technology is certainly innovative and definitely has value, but this value is completely self-referential.

For example, do we really need to know how much someone’s Starbucks latte cost 5 years ago?  As it is currently structured, Bitcoin will retain this (and other equally superfluous) transactional data in perpetuity.

I believe that earth’s scarce energy resources could be better utilized.  For instance, the electrical energy consumed in crypto-currency calculations could instead be used to tackle computationally-intensive math problems that would broadly benefit humanity.  For those who are interested, this is a topic I addressed in greater detail in an article titled “Blockchain 3.0 and the Problem with Bitcoin“.

 

Read more thought-provoking Antique Sage crypto-currency articles here.

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Beware the Crypto-Currency Carnage

Beware the Crypto-Currency Carnage
Photo Credit: Cryptocurrency Market Capitalizations

The crypto-currency complex had a magnificent 2017. Bitcoin jumped in value by a factor of 14 over that period. Ethereum skyrocketed 92 times in price in the same timeframe. Litecoin multiplied in value by 51 times. Ripple soared to 361 times its value at the beginning of the year.

And yet, all is not well in crypto-currency land today. Since the beginning of 2018, a crypto-currency carnage has gripped the markets, sending nearly all crypto-coins plummeting in value. Bitcoin is down -61% since its peak near the start of 2018. Ethereum is off -71% over the same period. Litecoin plummeted -60% over a few short months. Ripple is the big loser among the top crypto-currencies, with a harrowing -85% decline since the beginning of the year.

Now, the true believers out there won’t be nonplussed by this crypto-currency carnage. They will (correctly) point out that crypto-currencies have always been subject to massive and abrupt swings in value. For these devotees, a 100% gain or 50% loss within a few days time is simply the price one pays for being at the cutting edge of money and technology.

But crypto-currency enthusiasts would do well to tread with caution here. I’ve have seen this story before, and the ending is never pretty. I’ve written about crypto-currencies before, but given the speed and magnitude of recent market developments there is an exigent need to reexamine the crypto-asset landscape.

For my first exhibit, I would like to direct your attention to the dot-com bubble of the late 1990s. This mania was driven by the realization that the internet could be used for commerce. Companies like Pets.com (now bankrupt), Yahoo, Kozmo.com (also bankrupt) and Juniper Networks all skyrocketed in value.

Hundreds of technology companies IPO’d with little more than an appropriately tech-oriented name and a vague business plan scribbled on the back of a napkin. Their stocks would often double (or more) on their first day of public trading.

The outcome was as predictable as it was sad. Yes, the internet had vast commercial potential, but precious few of the original dot-com companies lived to see it (Amazon being a notable exception). The tech heavy NASDAQ stock index peaked in March of 2000 and proceeded to plummet by almost 80% over the next 2 1/2 years. Many individual dot-com names went bankrupt, while others simply languished in price for more than a decade. Many surviving technology companies haven’t regained their price peak from those heady days.

In many ways, today’s situation with crypto-currencies is parallel to the dot-com bubble of 2000. Rather than IPOs (initial public offerings) we are seeing rampant ICOs (initial coin offerings) and their conceptual twin, the hard-fork. A hard-fork is when an existing crypto-currency is split into an original coin and a new variant that has slightly different technical aspects.

And, of course, you always see the most ICOs and hard-forks when the demand for new crypto-currencies is strongest (like during a bubble). Let’s use Bitcoin as an example because it is the best known and most liquid of the crypto-currencies.

In July 2017, Bitcoin Cash hard-forked from Bitcoin. In October 2017, Bitcoin Gold was spun off. In November 2017, it was Bitcoin Diamond’s turn. Super Bitcoin hit the virtual shelves in December 2017. And these are just a few of the major releases.

If you are noticing a trend here, you are not alone. Bitcoin hard-forks are being manufactured as fast as possible. And while the ostensible reason is to make needed technical changes to Bitcoin’s plumbing, the real reason is to cash in before the crypto-currency carnage escalates further.

Don’t believe me? Just take a look at this voluminous list of Bitcoin hard-forks and airdrops, almost all of which occurred in 2017 or later (after crypto-currency prices began skyrocketing).

Another way you can tell that the crypto-currency carnage is for real is by simply looking at almost any crypto-currency chart. They all look practically identical, with only minor variations.

The chart at the top of this article perfectly illustrates this point. It shows Bitcoin’s market cap from 2013 until March 30, 2018. There is a long, multi-year period of flat performance, followed by an exponential curve upward in 2017 and then the beginnings of a collapse in 2018.

Every time I have ever seen a chart like this in the stock market, commodities market, futures market or any other market, the outcome has always been the same – either bankruptcy or a return to the long-term trendline. And while crypto-currencies cannot technically go bankrupt, they can become defunct and cease to trade.

I am not so bold as to predict the end of major crypto-currencies such as Bitcoin, Ethereum, Litecoin or Ripple. But even so, a return to their long-term trendlines would be a devastating development for anybody holding them.

For instance, if Bitcoin’s price declined to its long-term trendline, it would imply a value well below $1,000 per Bitcoin – perhaps as low as a few hundred dollars (from over $8,000 right now). Ethereum might trade for $20 or $30 an Ether (down from $500). Litecoin could possibly go for only $5 per coin (versus today’s $131). Ripple might go back to a penny or two each (from $0.67 currently).

I know it seems ludicrous now, but yes, the incipient crypto-currency carnage could absolutely get that bad.

If you are a holder of crypto-currencies, my intention isn’t to scare you. Instead it is to give you a little bit of historical perspective. Crypto-currencies are new and exciting, but they are also thoroughly untested. In fact, since the crypto-currency complex sprang up, the United States and most other developed nations haven’t experienced a significant recession.

In such a scenario, people will desperately need dollars, pounds, euros or yen to pay for their groceries, student loans, utility bills, mortgages and car payments. And with few exceptions, crypto-currencies won’t be acceptable for those debts and obligations.

This is why I advocate using financial diversification to help you avoid the imminent crypto-currency carnage. If you hold a lot of crypto-currencies today, please consider selling a bit and moving the proceeds into cash, high quality bonds, precious metals or other hard assets. You can always reallocate these investments back into Bitcoin, Ethereum, Litecoin or Ripple at a later date – and probably at a significantly lower price, as well.

 

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Blockchain 3.0 and the Problem with Bitcoin

Blockchain 3.0 and the Problem with Bitcoin

Almost every article on the internet about Bitcoin uses a photo avatar of the crypto-currency, including this one.  But this physical representation, while understandable, is rather misleading.  This is because Bitcoin is a crypto-currency that promises you the safe, reliable payment of…nothing.  As strange as it sounds, even though Bitcoin currently trades at more than $7,000 per unit, it is a completely virtual, purely conceptual, Veblen good.

Now, I’m sympathetic to many of the arguments put forth by crypto-currency enthusiasts.  The world desperately needs some form of stable currency that is free from the manipulation of self-serving central banks and rapacious politicians.  Crypto-currencies fulfill some of these needs, but not all of them.  Bitcoin, for example, is an excellent medium of exchange, but a poor store of value.

The origin of Bitcoin reads like a cyberpunk Tom Clancy novel.  The conceptual framework for the granddaddy of all crypto-currencies was laid down in a white paper posted online in November 2008 titled “Bitcoin: A Peer-to-Peer Electronic Cash System“.  The author was one Satoshi Nakamoto, a pseudonym for an unknown individual or group of like-minded individuals.  To this day no one knows who Satoshi Nakamoto, the pioneer of the world’s first practical crypto-currency, was.  And it is highly unlikely anyone will ever find out.

On January 3, 2009, the mysterious Satoshi Nakamoto mined the very first Bitcoin into existence.  This was in the form of 50 unspendable Bitcoins – the legendary initial Bitcoin block known as the Genesis Block.  On May 22, 2010, a famous transaction involving the delivery of two Papa John’s pizzas in exchange for 10,000 Bitcoin took place.  While the payment was only worth $41 at the time, right now, in the fall of 2017, these same 10,000 Bitcoin have a market value of more than $72.4 million.

Bitcoin is an almost perfect medium of exchange.  It can be used to securely make transactions around the globe in a matter of minutes without the fear of receiving counterfeit Bitcoins or having your identity stolen.  It achieves this via the impressive technology of the blockchain.  The blockchain is basically an unforgeable, publicly auditable, electronic ledger than is constantly verified by a distributed computing network.  The blockchain prevents the creation of any counterfeit Bitcoins, while simultaneously ensuring that only legitimate, authorized transactions are validated.

As Bitcoin has gained public exposure over the years and the price has risen, experts have come to laud the ingenious crypto-currency.  One major advantage enjoyed by all crypto-currencies, including Bitcoin, is that they are strictly limited in supply.  New Bitcoins are only created via mining, the name given to the process of verifying transactions in the blockchain.  Central banks can create dollars, euros or yen with impunity, but Bitcoin is beyond their reach.

Some proponents of crypto-currency compare Bitcoin to gold.  Both take real effort to mine; Bitcoin in the form of electricity for blockchain verification and gold in the form of diesel, electricity, steel, concrete and skilled labor.  But Bitcoin isn’t perfect.

The premiere crypto-currency has two problems.  First, unlike precious metals, Bitcoin doesn’t have any intrinsic value, rendering it a poor store of value.  Apologists counter that this deficiency is offset by its usefulness as a medium of exchange.  And it is true that Bitcoin is perfectly adapted as a medium of exchange to the online cyber-world of the 21st century.

Others readily acknowledge Bitcoin’s shortcoming as a store of value, while simultaneously arguing that fiat currency is almost identical in this regard.  Although fiat currencies are still available as physical notes, they are also becoming increasingly virtual in the modern era.  Fiat currencies, much like Bitcoin, rely on their widespread acceptance by other members of society for their value.

But there is a problem with that comparison.  Fiat currencies are the official money of nation-states.  They are accepted as payment for both taxes and debts, thus generating fundamental demand for the currency.  This constitutes the underlying, intrinsic value of non-redeemable fiat currencies.  These advantages are not shared by Bitcoin, which cannot be used to pay taxes or debts directly.

Some crypto-currency fans believe that the widespread adoption of blockchain technology for other applications will confer some benefit on its original incarnation in Bitcoin.  While I readily agree that the blockchain may one day become widely used in a variety of different ways, this will not benefit Bitcoin investors in the least.  Bitcoin has no patent on the blockchain concept and will not receive any royalty payments or other remuneration from its use in other industries.

In the end, Bitcoin is completely virtual, without any tangible presence or value.  Even worse, the creation of new Bitcoins consumes real resources in the form of electricity, but provides no practical benefit outside of the Bitcoin ecosystem.  Bitcoin’s blockchain, by itself, is an insufficient reason to use the crypto-currency.  But these facts don’t mean that Bitcoin isn’t an important first step on the road to better, truly desirable crypto-currencies.

In my opinion, Bitcoin represents blockchain 1.0.  It has a self-verifying and manipulation-proof digital ledger, but is ultimately completely self-referential.  Ethereum, a newer crypto-currency, uses a different, more advanced blockchain implementation.  I call it blockchain 2.0 because it has the ability to execute complex, automated transactions or “smart contracts”.  But I suspect the real breakthrough will come with the future creation of blockchain 3.0.  I think that blockchain 3.0 will combine the best attributes of blockchain 1.0 (an incorruptible public digital ledger) and blockchain 2.0 (smart contracts) with a third element – the creation of valuable intellectual property via the verification of the blockchain.

This has already been pioneered with Primecoin, which relies on a prime-number driven blockchain verification system.  Prime numbers are the basis of modern cryptography and the discovery of new prime number chains can theoretically have useful computing and mathematical applications outside of the Primecoin ecosystem.  Unfortunately, Primecoin lacks the features of Ethereum’s blockchain 2.0.  While it is certainly a step in the right direction, I feel that Primecoin doesn’t quite fulfill the ultimate promise of blockchain 3.0.

Another example of computationally intensive computing that could possibly be adapted for blockchain 3.0 would be Folding@home.  Folding@home is a distributed computing network where average people donate their spare computer CPU cycles to simulate protein folding in order to advance medical research related to debilitating diseases such as Alzheimer’s, cancer and HIV.  An improvement in our understanding of diseases resulting from blockchain 3.0 calculations would be extraordinarily beneficial to society.

A crypto-currency incorporating blockchain 3.0 would effectively solve the store of value problem that has plagued the industry since its inception.  Such a crypto-currency would not only excel as a medium of exchange and facilitator of complex transactions, but would also provide tangible value to society outside of its own ecosystem.  Unlike the parade of less advanced crypto-currencies mined today, the electricity used to mine a theoretical blockchain 3.0 crypto-currency would provide useful benefits to humanity instead of simply vanishing into the atmosphere as waste heat.