As an owner of the Algorand (CCC:ALGO-USD) cryptocurrency, it’s difficult not to let my own bias seep into its discussion. So I’m disclosing this fact up front. But unlike those who have a stake in a particular asset, I’m not necessarily bullish. Indeed, you might even call me bearish because I’m beginning to view ALGO as a mistake.
At the time that I purchased Algorand coins, it was actually a darn good deal. Sure, it’s a wild beast, as are most alternative cryptocurrencies or altcoins. And admittedly, ALGO does not have the same provenance as other digital assets. However, it had the five attributes that I look for in virtual currencies:
Why I Bought Into Algorand
Of course, I’m being facetious. When I bit the bullet and acquired some Algorand coins with my speculation funds, I was doing exactly that — speculating. As well, I bought into crypto fever, which is both troubling and revealing. Troubling because I fell victim to the very speculation that I warned people against. Revealing because even when you know you shouldn’t gamble with cryptos, this sector is incredibly alluring.
My only excuse? According to various studies, researchers have long known that stress and excessive emotional stimuli can negatively impact one’s intelligence. In 2011, Psychology Today revealed that emotionally pressured individuals can expect to operate at a loss 10 to 15 IQ points.
But seriously, this raises an important topic about every cryptocurrency. With decentralization and 24/7 access, it’s just too easy to get ensnared in this potentially treacherous market.
Algorand and Flawed Economics
Of course, the above represents the psychological dynamics of Algorand and cryptos in general. Let’s talk about the specifics. According to Coinmarketcap.com:
Algorand is a self-sustaining, decentralized, blockchain-based network that supports a wide range of applications. These systems are secure, scalable and efficient, all critical properties for effective applications in the real world. Algorand will support computations that require reliable performance guarantees to create new forms of trust.
It’s the last sentence that raises an eyebrow for me. Like other advanced burgeoning blockchain platforms, Algorand utilizes a proof-of-stake (POS) protocol and a pure permissionless one at that. One of the key benefits of POS is that miners don’t necessarily need the latest and greatest computing power. Instead, POS, as the name suggests, advantages those who have a greater stake in the underlying community.
Obviously, this is exactly what you want to see in a decentralized monetary or economic platform. Rather than the trust mechanism consolidated under entities of authority, trust is instead distributed across several network contributors. And anyone can be a network contributor, hence decentralization.
That’s all well and good for the end consumer. But it’s the other side of the aisle that I would argue blockchain advocates have not quite addressed. You see, contributing to a blockchain network isn’t free. Yes, POS protocols are much more environmentally friendly than proof-of-work protocols. But it’s still not free. At minimum, computers use electricity, and somebody has to pay the bill.
Thus, there has to be something in it for blockchain contributors to participate in a particular community. That’s where I think fundamentally, Algorand and other cryptos have a long way to go before achieving mainstream integration.
Look at it this way: while crypto transaction volume has increased over the years, they’re not close to what major credit cards are delivering every single day across the globe.
Be Careful What You Wish For
Initially, the promise of cryptocurrencies like Algorand was incredibly appealing. Be your own bank. Launch a sustainable digital economy. Disconnect from the tentacles of mainstream institutions.
Here’s the problem. I think we’re beginning to realize that centralized authorities, no matter how imperfect they are, provide benefits that you don’t get from decentralized blockchain platforms.
Key among them is the question, what the heck do you do when something goes wrong? And please don’t give me this crap that nothing can go wrong in the blockchain. Have you heard of the 51% attack? Humans are fallible and therefore anything we create is necessarily fallible.
In a centralized environment — basically, our current paradigm — you have customer service to reach out to. Or on a higher level, you have laws and government enforcement agencies where you can seek redress. But in a decentralized platform, you don’t have that ability.
Heck, in a decentralized world, you don’t even have the luxury of knowing that you’re indirectly helping hardworking people earn a living. On the one hand, I don’t like the millions of dollars that some folks earn for seemingly nothing. But look — those big banks employ occupations that fill almost every tranche of the income spectrum.
On the other hand, it’s impossible to know who’s profiting from a decentralized network. Maybe your participation is helping fund attackers who wish to disrupt society. That’s what decentralized means: pure fiscal amorality.
Personally, I think folks are getting a wake-up call regarding cryptocurrencies. Therefore, I’d be very careful about Algorand or any digital asset, irrespective of my ownership.
On the date of publication, Josh Enomoto held a LONG position in ALGO. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.