Bitcoin competitor Ripple value climbs, almost beating Facebook's Mark Zuckerberg

Bitcoin competitor Ripple value climbs, almost beating Facebook's Mark Zuckerberg....

The virtual currency boom has gotten so heated that it is throwing the list of the world's richest people into disarray.

Consider what has happened to the founders of an upstart virtual currency known as Ripple, which has seen its value skyrocket in recent weeks.

At one point on Thursday, Chris Larsen, a Ripple co-founder who is also the largest holder of Ripple tokens, was worth more than $US59 billion ($75 billion), according to Forbes. That would have briefly vaulted Mr Larsen ahead of Facebook chief executive Mark Zuckerberg into fifth place on the Forbes list of the world's richest people.

Other top Ripple holders would have also zoomed up that list as the value of their tokens soared more than 100 per cent during the last week - and more than 30,000 per cent in the last year. The boom has turned Ripple into the second largest virtual currency, within striking distance of the original behemoth, Bitcoin.

The explosion in Ripple's value over the past month is the starkest illustration yet of how the mania around Bitcoin has spilled over into a broader universe of virtual currencies. These coins - with names like Cardano, Stellar, and Iota - are generally new twists on the Bitcoin technology, which uses a decentralised network of volunteer computers to keep a record, known as a blockchain, of all transactions.

The creation of billionaires

While most of these currencies were worth nearly nothing a year ago, many are now responsible for creating billionaires — albeit with rapidly fluctuating fortunes. If this is a tulip fever, the fever has spread to chrysanthemums and poppies.

Mr Larsen's soaring wealth sparked a few congratulatory messages on Twitter, even if the value of Ripple — and his Forbes ranking - dropped later in the day. But his net worth, and the ballooning value of Ripple tokens, mostly drew comments about the irrationality of the virtual currency markets, which appear to be largely driven these days by the fear of missing out, or FOMO.

"This is beyond insane," said Jeremy Gardner, an investor who previously worked at the virtual currency hedge fund Blockchain Capital, which invested in Ripple. "There's absolutely nothing driving this rally except rampant FOMO, misinformation, and speculation."

Chris Larsen, a Ripple co-founder, is the largest holder of Ripple tokens worth more than $US59 billion last week. LinkedIn

Ripple, whose tokens are known as XRP, is far from the only virtual currency being fuelled by the hysteria. In 2017, there were 29 tokens - including Einsteinium and Byteball - that rose more than Bitcoin's remarkable 1,600 per cent jump, according to OnChainFx, a data provider.

Nearly 40 virtual currencies are worth more than $US1 billion - when all the outstanding tokens are counted at their current value - despite many of them not having been used in any sort of transaction other than speculative trading.

Ripple was invented in 2012 by Jed McCaleb, a programmer who had created Mt. Gox, a Bitcoin exchange that later dissolved in disgrace. Mr. McCaleb designed Ripple as a faster and more efficient version of Bitcoin, without the mining process that Bitcoin uses to distribute new coins and secure the network.

$US140 billion worth

Ripple's rise would have briefly vaulted Larsen ahead of Facebook chief executive Mark Zuckerberg into fifth place on the Forbes list of the world's richest people on Thursday. Manu Fernandez

Mr Larsen joined Mr McCaleb early on to create a company, also known as Ripple. The company helped develop an open source Ripple software that makes it possible to move money between digital wallets. The Ripple token is one of the currencies that can be transferred with the software.

MrMcCaleb later left Ripple in an acrimonious divorce, though he retained a sizeable number of Ripple tokens. His holdings were worth around $US20 billion at Thursday's prices, putting him close to 40th on the Forbes list. (The actual list is only published once a year, and no big virtual currency holders have been officially added.)

MrMcCaleb has since created a competitor to Ripple, known as Stellar. Stellar has risen even faster than Ripple in recent weeks, with all outstanding Stellar tokens - known as Lumens - worth around $US14 billion on Thursday, making it the seventh largest virtual currency.

In contrast, all the outstanding Ripple tokens were worth $US140 billion on Thursday, while all Bitcoin were worth $US250 billion.

Yet the fortunes of MrMcCaleb and Mr Larsen are not nearly as durable as those of other people on the Forbes list given that the value of virtual currencies fluctuates wildly. If Mr Larsen wanted to access his wealth by selling Ripple tokens for dollars, it would likely drive down the value of Ripple tokens — and his riches.

Mr McCaleb and Mr Larsen did not respond to questions about the recent price increases.

Mr Larsen was Ripple's chief executive from 2012 until he stepped down last year to become the company's executive chairman. During his tenure, Ripple focused on helping banks use its software to shift money between different foreign currencies, something that most banks currently do through a cumbersome process involving separate accounts in every country where they operate.

Ripple has said it has signed up more than 100 banks to use the company's technology, including American Express and Banco Santander.

South Korea is key

But banks do not need to use Ripple tokens for Ripple's software to transfer dollars, euros and yen. That point appears to be lost on many small time investors who are buying Ripple tokens.

Most of the buying and selling of Ripple tokens is happening in South Korea, according to data providers that track virtual currency exchanges, where ordinary investors have thrown money at a wide array of virtual currencies.

Several virtual currency hedge fund investors said that they have talked to banks and heard about interest in Ripple's software, but not its tokens.

"I'm not aware of banks using or planning to use the XRP token at the scale of tens of billions of dollars necessary to support XRP's valuation," said Ari Paul, a co-founder of the hedge fund BlockTower Capital.

Ripple has so far announced that one company, a Mexican money-transfer business, is planning to use the Ripple token.

Brad Garlinghouse, who took over as Ripple's chief executive last year, said in an interview this week that other institutions are also using - or looking at using - XRP, but the company could not name them because of confidentiality agreements.

Mr Garlinghouse said he thought the rising value of Ripple tokens was justified, given the company's growth and the size of the foreign currency markets that Ripple wants to tackle.

"It's clear that people increasingly understand that we are solving a very large problem," he said.

Ripple has attracted the ire of Bitcoin fans because Ripple has a greater degree of centralised authority in Mr Garlinghouse's company, even though the Ripple software is open source. Bitcoin and other virtual currencies were designed to operate without companies or governments in charge.

But the company Ripple, if not the XRP token, has won a following among top figures in government and finance who are interested in bringing the ideas introduced by Bitcoin into the traditional financial system. The company's board includes the former top financial regulator in New York state, Benjamin M. Lawsky, and Gene Sperling, who was the director of the National Economic Council under Presidents Barack Obama and Bill Clinton.

Still, even virtual currency analysts who believe in Ripple's software have said there is a big difference between Ripple the company being successful, and Ripple the token gaining enough traction to justify current prices.

"An impossibly long list of things already needs to go right for XRP to become a reserve currency for banks," Ryan Selkis, a virtual currency analyst, wrote in a post on Thursday.

But, Mr Selkis added, that doesn't mean Ripple's price won't keep ascending. Why? "Because this is crypto, and everyone in the industry is now slinging crack crypto cocaine to retail addicts," he wrote.

Bitcoin payment for Trade Me purchases....

It is becoming increasingly common to see some online sellers accepting cryptocurrency Bitcoin as a method of payment on sites such as Trade Me - but this comes with a warning.

Jon Duffy, Head of Trust and Safety at Trade Me, said while the site did not allow the sale of Bitcoin or any other digital currency, sellers could still choose to accept it as payment, although it was "not without risk or controversy".

"We don't endorse it as a payment option for transactions made on Trade Me, however, some members may choose to transact via Bitcoin when they're wheeling and dealing, [for example] a transaction for a car advertised via a classified listing," Duffy said.

"People doing this should make sure they understand the risks involved."

The digital currency, founded in 2009, is unregulated and has its fair share of sceptics.

Under Trade Me's safety section, it says the restriction on the sale of digital currency was due to concerns about people getting a fair deal and until these currencies matured, they could not be listed.

"We're keeping an eye on how cryptocurrencies evolve," Duffy said.

"There are a few out there in the market, including Bitcoin, but they're all a little early in their development cycles for us to take the plunge and enable them as payment methods on Trade Me.

We'll review our position down the track, especially if one of the available cryptocurrencies gets wider uptake in New Zealand and some of the volatility we have seen in the underlying value of these types of currencies eases the risk to our community around these potential payment methods."

Current auctions listed as accepting Bitcoin payment included a number of services, phones, technology and a Porsche 911 for $155,000 - or payment by Bitcoin.

Breaking Bitcoin With a Quantum Computer

Alex Beath, a Toronto-based physicist and pension fund analyst, is skeptical about Bitcoin but sees one useful purpose for the crypto-currency: It may detect when someone creates a working quantum computer.

“The second someone creates a viable quantum computer, the NP-complete math problems at the heart of Bitcoin mining tech become instantly solvable,” Beath notes. “In other words, one answer to the question ‘what’s the first thing you’d do with a quantum computer?’ is ‘mine all of the remaining Bitcoin instantly.’ Until that happens, nobody has a quantum computer.”

Beath’s off-the-cuff observation, which he made in response to a Fortune query about the security of bitcoin, is amusing. But it also underscores a serious problem: Namely, a new era of computing is fast-approaching and when it arrives, the system that gave rise to many crypto-currency fortunes will collapse.

This threat to Bitcoin and other software systems that use the same underlying encryption technique—a technique likely to crumble in the face of a quantum-based attack—is not new. Indeed, it was predicted decades ago, and Ethereum founder (and former journalist) Vitalik Buterin wrote about how to defend it in 2013.

The difference today, though, is that companies like Microsoft, Google and IBM are making rapid breakthroughs that could make quantum computing viable in less than 10 years.

Right now, engineers are stymied over how to deploy enough “qubits” (a quantum version of the binary bit system used in traditional computers that lets a unit be a 0 and 1 simultaneously) in a stable fashion.

According to CEO Louis Parks of SecureRF, which is developing quantum-resistant security systems, the number of qubits in a machine has recently soared from 16 to 50. This is far from the 4,000 to 10,000 that would likely be needed to crack Bitcoin’s cryptography but, at this point, Parks says quantum computing is now at stage akin to when the Wright brothers began showing airplanes were viable.

In other words, it’s not too soon for crypto-currency “hodlers” to worry about the security of their fortune. The good news is that both Beath and Buterin think it will be possible to modify digital wallets to defend against quantum attacks, though doing the same for mining will be a bigger task.

The bigger issue in all this, however, is Bitcoin’s future vulnerability is just a microcosm of what the entire world will face when quantum computing arrives. That’s because the same vulnerabilities are present in our online banking and shopping systems, and in many of the computers all around us. As chip maven and Fortune alum Stacey Higginbotham put it when I asked about the threat to digital currency:

“As for the end of Bitcoin, I’d worry more about the end of cryptography and AES [Advanced Encryption Standard] encryption itself.”

MARK-TO-MARKET: 2018: Bitcoin: Hackers remain part of digital currencies.....

By now, holders of Bitcoin and other cryptocurrencies are accustomed to their massive price swings. In December, a two-week 81 percent surge in the price of a single Bitcoin was immediately followed by a five-day decline of 36 percent. Bitcoin’s meteoric rise in price, from a few cents a unit at its inception in 2009 to more than $19,000 in December 2017, has made its share of millionaires and billionaires.

But the realm of cryptocurrencies, digital forms of currency that exist only in electronic form, continues to face a significant threat – theft by hackers.

Of the 1,324 cryptocurrencies in existence, none are owned or regulated by any single government. Each is truly a global currency. The industry is largely unregulated, as governments, law makers, financial institutions and legal systems struggle to keep pace. Often, the structure and integrity of the marketplace is dependent on the individual exchanges where the cryptocurrencies are traded.

With more than 150 cryptocurrency exchanges across 48 countries, exchanges serve a number of key roles. First, they broker the transactions between buyer and seller, ensuring payment and receipt is made to each client account. Second, they often serve as custodian for client cash and cryptocurrency assets, maintaining holdings on their own infrastructure and servers. Finally, they seek to provide security and integrity to the marketplace and the encrypted identification used to safeguard client assets.

But the security of these exchanges has been called into serious question. Constantly besieged by hackers, thieves and fraud, the industry’s lack of common regulations or standards for cybersecurity has its repercussions. It is estimated that more than 980,000 Bitcoins, with a current value of more than $13 billion, have been stolen from cryptocurrency exchanges, primarily from hackers. Little of this has been recovered.

On Dec. 19, South Korea-based exchange Youbit was forced into bankruptcy after hackers stole nearly one-fifth of all client cryptocurrency holdings. This followed an April 22 attack, where hackers stole 3,831 Bitcoins, then valued at $5.3 million, representing 37 percent of all client assets.

In August, Hong Kong-based Bitfinex, then the world’s largest cryptocurrency exchange, had 119,756 Bitcoins stolen by hackers. This loss, representing 36 percent of all client cryptocurrency holdings, was valued at more than $72 million and was the second largest hack of all time. Bitfinex is still in operation.

The hacks of Youbit and Bitfinex serve to highlight the challenges customers face. In the world of cryptocurrencies, you’re on your own. Courts and rule of law over cryptocurrencies can be murky at best. For both Youbit and Bitfinex, the exchanges spread out the losses among all customers, regardless of whether their account was hacked or not. To cover customer losses, the exchanges provided IOUs, to be paid off from the exchange’s future revenues.

But the largest hack is the now infamous Mt. Gox incident. Based in Japan, Mt. Gox was the world’s largest Bitcoin exchange, handling more than 70 percent of all global Bitcoin transactions. In February 2014, Mt. Gox was forced into bankruptcy after roughly 850,000 Bitcoins went missing, presumably stolen by hackers, over a two-plus year period. At the time, the loss was valued at $450 million. At today’s prices, the stolen Bitcoins are worth more than $11.4 billion. The theft impacted more than 24,000 customers around the world.

To date, 650,000 of the Mt. Gox Bitcoins remain missing and unaccounted for. So far, customers have not recovered a single penny as the failed exchange remains mired in endless litigation from customers, creditors, business partners and its own bankruptcy proceedings.

Government regulation and oversight are typically reactionary, rather than proactive. Implementation of new laws tends to move at a glacial pace. In the U.S., the Securities and Exchange Commission, the Internal Revenue Service, the Department of Treasury, the Commodity Futures and Trading Commission and state and federal lawmakers are playing catch-up to the regulatory and legal challenges of cryptocurrencies.

Overseas, in light of the recent collapse of Seoul-based Youbit, South Korea is considering a ban on all cryptocurrency exchanges within its country. In September, China announced its ban on exchanges and made it illegal for citizens to engage in cryptocurrency transactions within its borders. In October, Russia banned all exchanges in its country and access to websites that offer them.

The world is still in the learning curve phase of cryptocurrency law. There are legitimate concerns: money laundering, terrorist financing, tax evasion, fraud and security, among others. Some users of cryptocurrencies may decry attempts to regulate this last bastion of unregulated currency, commerce and trade. But a lack of regulation has a cost, in theft, fraud and price manipulation. Despite efforts by some countries to ban them, cryptocurrencies are here to stay. And so too, is increased government oversight. The challenge, of course, is finding the right balance.

New York Stock Exchange Moves on Bitcoin ETFs....

ANALYSIS

The New York Stock Exchange has filed for permission to launch a number of Bitcoin-related exchange-traded funds (ETF) just one week into 2018.

As reported by BusinessInsider, a filing sent to the United States Securities and Exchange Commission shows that the exchange intends to launch five different ETFs offering ‘bull and bear’ futures contracts on the Arca stock exchange.

These EFTs will be linked to the price of Bitcoin futures listed on the CME and CBOE exchanges, which launched Bitcoin futures contracts in December 2017:

“The target benchmark’s value will be calculated as the last sale price published by the CME or the CBOE or any other US exchange that subsequently trades bitcoin futures contracts on or before 11 a.m. E.T.”

Bull Funds

The three ‘Bull Funds’ are categorized as 1.25X, 1.5X and 2X, offering 100 percent, 150 percent and 200 percent returns on the given contract.

As stated in the document sent to the SEC, the funds are not intended to be traded any longer than a day - and offer percentage returns based on the given contract entered into:

“According to the Registration Statement, the 1.25X Bull Fund, 1.5X Bull Fund and 2X Bull Fund seeks daily leveraged investment results (before fees and expenses) that correlate positively to either 125 percent, 150 percent or 200 percent the daily return of the target benchmark.”

However, investors stand to a chance of facing the same multipliers in loses, should the market move against their contracts:

“Conversely, its value on a given day (before fees and expenses) should lose approximately 1.25 times, 1.5 times or 2 times, as applicable, as much on a percentage basis as the level of the target benchmark when the benchmark declines.”

Bear Funds

As the name suggests, the ‘Bears Funds’ allow investors the chance to leverage against a decline in the value of Bitcoin. The two funds offered are 1X and 2X, offering 100 percent and 200 percent gains should the contract meet its target on the given day of trading.

Once again, should the benchmark rise in value, Bear Fund investors stand to suffer loses compounded by the multiplier (1X or 2X) they’ve agreed to, as per the description of the 2X Bear Fund:

“If the 2X Bear Fund is successful in meeting its investment objective, its value on a given day should gain approximately two times as much on a percentage basis as the level of the target benchmark when the target benchmark declines. Conversely, its value on a given day should lose approximately two times as much on a percentage basis as the level of the target benchmark when the target benchmark rises.” 

Keeping up with the game

Should the NYSE be permitted to launch these ETFs, they will be the third American exchange to offer Bitcoin futures contracts. CME and CBOE have been trading futures since December.

Wasting no time in sending their application to the SEC, this move shows that there is plenty of interest in Bitcoin by Wall Street money.

While the likes of Merrill Lynch have denied its financial advisors from offering clients Bitcoin-related investments, exchanges are looking to set up of various offerings.

Once a number of ETFs and trading options have been available for a while, there will be more information on how well these options are trading. Given that knowledge, could we see a change in sentiment by financial institutions whose clients are looking to enter the cryptocurrency market?

The Five Stages Of Not Owning Bitcoin Grief...

Where Are You In Terms of Bitcoin Grief? (Shutterstock)

As we enter into 2018 it is clearly impossible to ignore Bitcoin or any cryptocurrency for that matter.  They have broken into everyday discussions on financial markets.  Not only does Bitcoin now regularly flash across your TV screen on financial media but there are two Bitcoin futures contracts and a large number of ETF applications.  There are clearly true believers in cryptocurrencies and they were incredibly well rewarded last year.  There are those who shout bubble, but have been shouting bubble since Bitcoin was below $100 and are becoming reminiscent of people walking the streets with 'the end is nigh' placards.  In between are those who are merely dabbling, those who are reluctant but feel compelled to be involved, to those who quite frankly seem to like the adrenaline rush.

As I have been trying to think about where people are in terms of adoption of Bitcoin, I thought of the Kubler-Ross model (link).

Denial.  There are still some who just ignore Bitcoin.  They don't hate it, they just don't see it as relevant.  Anything else that has a total market cap this large would resonate for them, but they continue to believe that they can function perfectly well, while ignoring cryptocurrencies, despite them having an ever more obvious influence on markets.

Anger.  Anyone still starting bitcoin articles with Tulips in the title is just angry.  The person carefully crafting charts plotting other historical bubbles against Bitcoin is angry.  Googling Sir Isaac Newton to see how much he lost in the South Sea Bubble is just anger.  Talking about how 'its only paper' money or forwarding articles detailing how you might be worth $X million on paper but that you can't spend a bitcoin is just stuck in anger and not helping themselves.

Bargaining.  Grudgingly admitting that 'blockchain' the technology might be useful but that doesn't mean Bitcoin will be. Arguing that Bitcoin is the MySpace of digital currencies and when the Facebook is created, you will buy that.  Deciding that if Bitcoin goes back below $1,000 you will buy - just in case.

Seven More Lies Bitcoin (And Altcoin) Fans Tell Themselves.......

A month ago, my article Seven Lies Bitcoin Fans Tell Themselves (And Anyone Else Who Will Listen) clearly struck a nerve, as almost half a million people read it.

Each of those readers will take heart in the fact that there are plenty more such lies to go around – especially if we include all of the alternative cybercurrency coinage springing forth like tulips in the snow, what aficionados refer to as altcoins.

Here, then, is the sequel.

Alan Levine

Cybercurrency: tulips in the snow

Lie #1: The ‘Black and White’ Fallacy

In the previous article, I pointed out that Bitcoin wasn’t sufficiently similar to other things to draw comparisons. A common response: I fell into my own trap by making comparisons between, say, the Bitcoin bubble and other speculative bubbles or between Bitcoin and ‘real’ money.

Such responses are examples of the black and white fallacy: assuming that for a given argument, only the two most extreme positions are under consideration. Such extremist thinking pervades the cryptocurrency world.

A common argument that succumbs to this fallacy: there are problems with putting governments in charge of the money supply, so we need a money supply independent of any government. Perhaps working within the system to improve how government operates would be more efficacious, hmm?

Lie #2: Bitcoin’s Market Cap is Relevant

The formula for market capitalization is simple, but deceiving: multiply the number of Bitcoin (or any altcoin) in existence by the market value of such a coin, and voila! A number that represents…what, exactly?

As I write this, Bitcoin’s market cap is over a quarter of a trillion dollars. That doesn’t mean, however, that there’s a bucket with that much cash in it under a rainbow somewhere, ready to be divvied up amongst all the lucky leprechaun-seekers holding Bitcoin.

In reality, when the bubble is about to pop and everyone seeks to cash in, the total amount to be divvied up can never be more than the amount people invested in Bitcoin over time – and that number is far, far smaller than its current market cap.

Lie #3: Decentralized Transaction Processing is a Good Idea

As with any blockchain-based technology, every cybercurrency’s transaction infrastructure depends upon a number of decentralized transaction processors.

In the case of Bitcoin, we call these processors ‘miners,’ because the Bitcoin infrastructure rewards such miners with new Bitcoin.

For cybercurrencies that follow this model (and not all of them do), there are a number of problems. Mining becomes increasingly expensive and consumes massive quantities of electricity – but those aren’t even the biggest problems.

The ticking time bomb behind Bitcoin and all similar currencies: if the market value of the reward for mining drops below the cost of mining, then miners will stop mining. Which means that nobody will process transactions. Which means the entire Bitcoin infrastructure grinds to a halt. For good.

For altcoins that don’t reward transaction processors with new coins, there’s even less reason to continue to participate once the hype dies down.

The solution? Centralize transaction processing, like Visa V +2.39%, Mastercard MA +2.07%, and all the banks do. Which, of course, makes cybercurrency pointless.

Lie #4: ‘HODL’ is a Rational Strategy

Some cryptocurrency speculators are all too happy to sell on the upswings and buy on the downswings, a surefire way to make money – as long as you can time your transactions properly, of course.

But other speculators are HODLers – HODL standing for ‘hold on for dear life.’ The HODL strategy assumes that the value of Bitcoin or altcoin in question will multiply many times in the future, and thus a HODLer won’t sell no matter how volatile the price.

In reality, the sheer quantity of HODLers are simply propping up the speculative value of the cryptocurrency, giving the more active traders a better chance of getting out with some profit.

Remember, the only people who make money in a speculative bubble are the ones that get out in time. Everyone else is a loser. Which is essentially what HODLers are.

Lie #5: Cybercurrencies Can Be a Viable Medium of Exchange and also Artificially Scarce

Bitcoin’s most important innovation is perhaps its artificial scarcity. There is a maximum number of possible Bitcoin, creating more is increasingly difficult, and the blockchain infrastructure prevents double-spending any of it.

Such artificial scarcity is essential to Bitcoin’s speculative value, but operates at cross purposes with any effort to make it a viable medium of exchange. After all, who would want to buy – or sell – a cup of coffee with Bitcoin if one day that cup cost $5, the next $50, and the day after that $10?

In fact, if I were to invent a cryptocurrency that could serve as a viable medium of exchange, it would make far more sense to base the value of one of my coins on, say, an average of the top ten fiat currencies (aka ‘real money’).

Such a cryptocurrency wouldn’t have artificial scarcity, however, and thus wouldn’t be particularly useful as a speculative vehicle. And where’s the fun in that?

Lie #6: Innovation in Altcoins Will Fix the Issues with Bitcoin

There are hundreds of altcoins out there, with more appearing out of nowhere every day. Now that even die-hard Bitcoin aficionados are realizing that Bitcoin itself has a number of technical issues, they are rapidly jumping ship to various altcoins that purport to solve the problems with Bitcoin.

The problem with this argument is that by far the primary motivation for this shift are Bitcoin’s shortcomings as a medium for criminal enterprise. It’s not anonymous enough for child pornographers and too volatile for money launderers, in particular.

So where is the innovation focusing? On altcoins that better meet the needs of such criminals – not on priorities that align with bona fide, legal business drivers. From the perspective of legal commerce, today’s innovation is creating more issues, not fewer.

Lie #7: Coins from ICOs will Have Value

Perhaps the craziest corner of an already insane cryptocurrency circus is the world of initial coin offerings (ICOs). Vaguely similar to initial public offerings (IPOs), ICOs are a way for startups to raise money from investors.

That, however, is where the similarities end. In essence, to implement an ICO, a startup creates a large number of some brand-new kind of altcoin out of thin air and sells many of them to speculators.

There are a number of variations on the specifics, including how many of the altcoins the founders retain and what can be done with extra ones left over after the ICO.

The startup then supposedly uses the real money they get from selling the fake Monopoly money they just printed up to get a blockchain-related business off the ground (unless they’re complete scammers, of course, which many are).

Then something magical happens, and everyone who bought the altcoins at the ICO sells them for a profit. Just what magical occurrence imbues such worthless bits of, well, bits, depends upon the business model of the startup – but one thing the investors don’t get is an ownership stake in the company.

At least you can play Monopoly with real Monopoly money. However, with ICO-generated coinage, there is rarely even a speculative market, because there are simply too many ICOs with too many new altcoins.

Want to put a hotel on Park Place? You’re out of luck. All that new altcoin isn’t worth the paper it’s printed on – if there were paper, which there isn’t.

Welcome to the world of cybercurrency.

Economics Professors Predict Bitcoin Will Drop in Value....

Some Harvard Economics professors say the current high valuation of bitcoin—the founding coin of the international virtual currency boom—is unsustainable and will eventually drop, thanks in part to government regulation.

Bitcoin is an electronic, or “crypto” currency, started in 2009, which operates independently of a central bank and exists only as a series of transactions on its server, “blockchain.”

In the early years, bitcoin was worth comparatively little, ranging in value from five to 20 dollars. But in the past two years, the price of a single bitcoin has spiked to more than $20,000 before falling back to around $16,000.

Economics professor Kenneth S. Rogoff, a cryptocurrency expert, said the currency’s present high valuation depends on its “near-anonymity.” This anonymity has permitted various criminal or illicit activities through bitcoin markets since the currency’s inception in 2009, including drug dealing, unlicensed gun sales, and donations to hate groups, he said.

But that anonymity may soon end—Rogoff said he thinks governments will probably want to identify bitcoin users in the future. “Small anonymous transactions with virtual currencies…would be desirable,” Rogoff said, but “large-scale anonymous payments would make it extremely difficult to collect taxes or counter criminal activity.”

He pointed to China as an example of a nation that has already banned bitcoin exchanges. On the opposite end of the spectrum, Rogoff warned that Japan, which “has enshrined bitcoin as legal tender,” could risk “becoming a Switzerland-like tax haven—with bank-secrecy laws baked into the technology.”

Economics professor Jeffrey A. Miron, a libertarian economist, said he disagreed with the suggestion that bitcoin technology’s lack of a footprint makes it riskier than traditional paper currency.

“We’ve seen the transformation of all sorts of industries from being on paper or in some physical unit to being all electronic, and nothing bad has happened. Indeed, a lot of good stuff has happened,” he said.

“There’s no reason the government should be concerned about means of payment that are not regulated by the government,” he added.

Miron also disputed the notion that bitcoin is too-often used for illegal transactions. He particularly mentioned the drug trade, noting those selling illegal drugs were able to use government-backed currencies "for centuries" before the invention of bitcoin.

Nonetheless, he said he is not optimistic that cryptocurrencies like bitcoin will remain unregulated.

“It [government] could let cryptocurrencies peacefully exist, and not accept them as a means of payment, and that’s what I think it should do,” Miron said. “But my guess is that sooner or later governments are going to regulate cryptocurrencies out of existence.”

Even if governments do not regulate bitcoin out of existence, Rogoff said he thinks the currency—as well as its competitors like Ethereum, Ripple, and Monero—will eventually fall in value thanks to government interference.

“What the private sector innovates, the state eventually regulates and appropriates,” Rogoff said. He predicted that, ultimately, central banks will create their own currencies and “use regulation to tilt the playing field until they win.”