Defining Cryptocurrencies

November 4, 2017

Cryptocurrencies are a new asset class that enable decentralized applications.

This article is one of the best explanations I’ve received on what cryptocurrencies are, how they function, and why there is a market hype today around it (and whether that hype is justified). Though I definitely see that there are many ways that decentralized applications could be used (especially in the context of securitization with private documents, such as in the case of medical records), the author makes a compelling argument about how many investors of these cryptocurrencies are making investments out of FOMO (and not judgement calls).

And as just a side note, the way the Ethereum is explained is crystal clear – replacing the word “currency” with “assets” was crucial in getting closer to understanding the new technology that supports this framework. It’s getting me thinking about a lot of psychology concepts: the concept of “tokenizing” (this new cryptocurrency serving as the new medium of exchange as a type of dissociation – kind of like how you buy tickets at the carnival that can only be used AT the carnival in exchange for rides), of risk-reward analysis, of prospect theory: basically all of the concepts that Thaler wrote in his paper that won the Nobel Prize.

Being stuck overnight in Macau (don’t miss the last ferry!) gave me a chance to people-watch at casinos at 4am in the morning – when most people not addicted to gambling had already went home. As stakes rose, people either become more elated or devastated, emotions diverging further into the night. It makes me wonder: this phenomenon on “irrational” risk-taking, on “rational” investing, and even general decision-making is something largely based in CONTEXT (comprised of a variety of factors: if you’re lost/won earlier that day, what situation you’re in, who you’re with, and even general mood). It makes me realize that as humans, we are naturally inclined to have these hedonic pursuits, but usually, it’s the circumstance that catalyzes the chase.