400 Billion Dollars Down The Drain?

The hype around Bitcoin, cryptocurrencies, and ICOs remains at a fever pitch and investors are all in. As of April 30, 2018, the total marketcap of all cryptocurrencies was well above 400 billion dollars. While this phenomenon has been a euphoric playground for speculators, there remain significant issues underlying cryptocurrency and tokens that ultimately could sink the market.

There are five categories of concerning issues when looking at cryptocurrencies or tokens, and the resulting ICO phenomenon: 1) tokens as bearer instruments, 2) pricing, 3) settlement risks, 4) data leakage, and 5) regulatory issues.

Tokens as Bearer Instruments

Tokens represent bearer instruments using Public Key Infrastructure (PKI). Ownership of a secret key is the same as ownership of the asset. Bearer instruments are something that the financial industry has spent decades getting away from. There used to be bearer stocks and bonds with actual certificates that represented ownership of these assets. That means they could easily be stolen. The exact same thing is true with tokens. Because tokens are bearer instruments, if the secret key is compromised, they can be stolen. That is a fundamental flaw of using a tokenized system for transferring value.

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