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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Hand-made Jarrah Burl Watch Box

Hand-made Jarrah Burl Watch Box
Photo Credit: Yanni Wood Alchemy

Hand-made Jarrah Burl Watch Box

Asking Price: $141.82 (price as of 2019; item no longer available)

Pros:

-This marvelous Jarrah burl watch box has been hand-crafted from Australian Red River Gum and then capped with a gorgeous burled Jarrah wood lid.  It stores up to a total of three fine watches in separate compartments on black velvet cushions.

-This Jarrah burl watch box measures 20 cm (7.9 inches) long by 11 cm (4.3 inches) wide by 9 cm (3.5 inches) tall.

-Watch boxes are specially designed for the secure storage of fine modern or vintage wristwatches.  I would be perfectly happy keeping my prized Rolex, Patek Philippe or Vacheron Constantin in this superb Jarrah burl watch box.

–Jarrah wood comes from a species of Eucalyptus tree (Eucalyptus marginata) that is native to the southwestern corner of Australia.  It is a hard and dense wood that varies from light brown to dark burgundy in color.

-Burl is an unusual area of tightly interlocking grain found in trees that have been injured, insect damaged or otherwise stressed.  This forms highly figured, swirling patterns in lumber that are very beautiful and highly sought after by experienced woodworkers.

-Red River Gum is another type of Eucalyptus tree (Eucalyptus camaldulensis) that is widespread throughout Australia.  Its name is due to the fact that it only grows near rivers or floodplains.  Much like Jarrah, River Red Gum is a very hard, high density wood with light salmon pink to dark reddish brown tones.

-This Jarrah burl watch box is a one-of-a-kind heirloom quality piece that has been hand-made by Yanni Rigos, the founder of Yanni Wood Alchemy and a gifted Australian woodworking artist.

-Unlike many exotic hardwoods, Australian Jarrah and Red River Gum are not endangered species.  In addition, Yanni Wood Alchemy exclusively uses salvaged woods acquired from licensed lumber dealers, further reducing their environmental impact.

-Given the level of workmanship evident in this unique Jarrah burl watch box made completely from native Australian woods, I would not hesitate to pay the $142 asking price.  It is obvious to me that this item will eventually become a coveted future antique.

 

Hand-made Hardwood Watch Boxes for Sale on Etsy

(These are affiliate links for which I may be compensated)

 

Cons:

-The only thing that gives me pause about this wonderful watch box is the shipping cost, which clocks in at just over $50 from Australia to the U.S.  Of course, that may be an acceptable price to transport such a treasure halfway around the world!

 

Read more fascinating Antique Sage fine hardwood item posts here.

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Information Asymmetry and Antique Investing

Information Asymmetry and Antique Investing
Photo Credit: Eric Golub

I recently looked up a stock quote for Tesla, the luxury electric car manufacturer that everyone either loves or hates.  I happen to hate it.  In any case, its stock was trading for around $300 a share, which really got me thinking.

When Tesla finally files for bankruptcy, I was curious as to how much wealth will be destroyed.  Now I use the term “wealth” very loosely here because the value of Tesla’s physical and intellectual property will not be extinguished in a bankruptcy, just transferred to different owners.  But the value of that property will be far lower than the current market value of all of Tesla’s outstanding securities.

In order to calculate this, I needed a number called enterprise value, or EV for short.  The enterprise value of a company is the sum of a firm’s stock, debt and preferred equity market cap minus its cash balance.  It is, more or less, the total net value that the market currently assigns to a company.

Tesla’s EV turned out to be a mind-blowing $59 billion.  I describe this number as mind-blowing because in the event of bankruptcy, Tesla’s tangible and intangible property will probably have a value of no more than $5 billion.  That number could be significantly lower, too, – perhaps just $1 or $2 billion – if we happen to be in a recession when the firm finally collapses.

All that “wealth” between Tesla’s current $59 billion EV and its theoretical $5 billion liquidation value is effectively imaginary, and will eventually disappear.

But as interesting as this might be, it isn’t the crux of my article.

You see, I looked up Tesla’s enterprise value by opening up my computer’s web browser and navigating to the EDGAR website.  EDGAR is the SEC’s electronic database of company filings.  It took me a grand total of 3 minutes to find the pertinent data from Tesla’s latest quarterly report.

This is actually quite remarkable if you stop to think about it.  Investors today have almost unlimited amounts of information at their fingertips.  Do you want to know the latest depreciation numbers for some obscure penny stock?  No problem.  It is available at zero cost, other than a couple minutes of your time.

Before electronic SEC filings became mandatory in 1998, important financial data was much harder to get.  In those days, if you wanted to know a specific tidbit of data, you actually had to visit the SEC and pull a paper filing from their archives.  In fact, back in the 1970s and 1980s some investment firms used to maintain satellite offices in Washington, D.C. just for the sake of being able to access corporate filings before anyone else.

The idea that some investors might know important facts about a security or investment that other investors don’t is called information asymmetry.  And it is almost universally considered a bad thing in both economics and investing.

In 1970, the economist George Akerlof wrote a famous paper about information asymmetry titled The Market for Lemons: Quality Uncertainty and the Market Mechanism.  This groundbreaking study examined a hypothetical used car market where only the sellers know if the vehicles they are offering are “bad” lemons or “good” peaches.

Because car buyers don’t know if any specific used car is good or bad, they will only be willing to bid lower, “lemon” prices.  As a result, higher quality, “peach” cars will be withdrawn from the market as they cannot command a fair price.  Bad used cars will drive good used cars out of the market.

But is information asymmetry really universally bad?  Today, all investors have access to just about every piece of information available about any conventional asset.  Nobody has a definitive information edge (unless you have your nation’s central banker on speed-dial).

However, instead of ushering in an investing golden age, the lack of modern information asymmetry has contributed to indiscriminate speculation and serial asset bubbles.  The reason for this is because mountains of quickly and easily available data give investors a false sense of security about their investment decisions.

Investors in high-flying stocks implicitly believe that the companies they hold must be worth their current market value.  After all, don’t all these firms file timely and accurate financial statements that are instantaneously available?  If any of these public filings revealed embarrassing or damaging information, wouldn’t the market instantly react to these revelations by immediately punishing the company’s stock price?

In a word, no.  Currently, investors are supremely confident that they are making all the right moves.  A lack of information asymmetry only emboldens them.  They do not stop to think that maybe somebody knows something they don’t.  The absence of information asymmetry breeds investor complacency.

Luckily, I believe there a simple solution to this problem – diversify into markets that still retain a degree of information asymmetry.  This will help ensure that you purchase assets at a reasonable price.

And right now no market has more information asymmetry than the antiques market.

Let me just give you an example.  The British Royal Mint has struck proof versions of their gold Britannia bullion coins from 1987 until the present.  These beautiful coins feature the shield and trident wielding goddess Britannia (the personification of Great Britain) on their reverse and the bust of Queen Elizabeth II on their obverse.

But there is a little-known fact about proof gold Britannias.  Even though they are modern coins struck by a first-class national mint, it is almost impossible to find their mintage numbers.  This example of information asymmetry is interesting because most modern bullion coins are struck in large numbers, rendering them less than ideal for collectors.

But British proof gold Britannias are a little known exception to this rule.  Although you can’t pin down the exact mintages, in most instances the series is incredibly rare.  Most proof gold Britannia coins have mintages of just a few thousand specimens.  Some have mintages that are even lower – in the hundreds!  This is a shocking level of scarcity in a world where commemorative coins are often struck by the millions.

And yet these masterpieces of modern coinage generally sell for no more money than generic gold bullion coins.  The market completely disregards their proof quality, great design and extreme rarity.  And I attribute this pricing anomaly solely to information asymmetry.  Gold proof Britannias are simply so rare that people don’t know they are rare!

Although I’ve used gold proof Britannias as an illustration, there are many other areas in the antiques market where information asymmetry – rightly or wrongly – suppresses the prices of items.  Savvy investors are aware of this phenomenon and take full advantage of it.  You should too.

 

Read more thought-provoking Antique Sage investing articles here.

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NGC Certified Silver Roman Republic Denarius

NGC Certified Silver Roman Republic Denarius
Photo Credit: ModernCoinMart

NGC Certified Silver Roman Republic Denarius

Buy It Now Price: $229 (per coin) (price as of 2019; item no longer available)

Pros:

-Each ancient Roman Republic denarius is a random example dating between the 3rd and 1st centuries BC.  They are all certified in Choice VF condition by the third-party coin grading service NGC, which also guarantees the coins’ authenticity.

-The Roman Republic denarius weighed approximately 4.5 grams (0.1447 troy ounces) of 96% to 99% fine silver, which was as pure as Roman refining technology could functionally achieve.  Therefore each denarius contains slightly less silver than a pre-1965 U.S. 90% silver quarter, which has 5.6 grams (0.1808 troy ounces) of pure silver.

-The Roman Republic denarius was first struck in 211 BC and continued to be minted until Augustus ascended to the Imperial purple in 30 BC after defeating Marc Antony and Cleopatra at the battle of Actium.  The denarius was still retained as a denomination in the Roman Empire and continued to be struck until the mid 3rd century AD, when it finally succumbed to rampant inflation.

-The obverse of a Roman Republic denarius usually features a Roman god or goddesses, typically either Apollo or Roma.  The reverse often portrays a quadriga (chariot drawn by four horses) or the Dioscuri – the twin demi-gods Castor and Pollux – on horseback.  However, it should be noted that a great variety of subjects could be emblazoned on these ancient numismatic masterpieces.

-It was during the Roman Republic that Roman power expanded widely in the Mediterranean basin.  This was the period when Rome defeated Carthage in the Punic Wars, annexed Gaul (modern day France) and subjugated the Greek city-states.

-Roman Republic denarii are one of the classic coins of the ancient world and are far rarer than later Roman Imperial denarii coins.  However, because Roman Republic denarii were struck in significant quantities they are still widely available to discerning collectors and investors alike.

-The denarius was the most important denomination in both the Roman Republic and the Roman Empire.  It was the workhorse coin of the Roman world, commonly used in daily transactions from Syria in the east to Spain in the west.

-The Roman Republic denarius is one of the more undervalued ancient coin series, which is quite surprising considering how historically important the Roman Empire was to Western civilization.  As a result, I find the buy-it-now price of $229 for an NGC certified Choice VF example to be quite a bargain.

 

Cons:

-This is not really a con per se, but it is possible to purchase slightly lower grade VF examples for $209 or higher quality XF specimens for $259.  All of these conditions and price points are acceptable, so I will leave the ultimate choice up to the buyer.

 

Read more fascinating Antique Sage numismatic spotlight posts here.

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