Bet on Hedera if You Must, But Beware the Blockchain Paradox

Cryptocurrencies are hot and the rising Bitcoin (CCC:BTC-USD) is just one of many indicators. Indeed, as the number of available cryptos to trade gets closer to 13,000 – an utterly remarkable tally – there are bound to be speculative opportunities that provide a higher reward potential than BTC. Many are pointing to Hedera (CCC:HBAR-USD) as a potential candidate.

Concept tokens for Hedera Hashgraph (HBAR) on a black keyboard.
Source: Shutterstock

What exactly is Hedera? Per Coinmarketcap, HBAR is “the most used, sustainable, enterprise-grade public network for the decentralized economy that allows individuals and businesses to create powerful decentralized applications” or DApps for short. DApps form the basis of a new era of investing, with one of its capabilities being the democratization of rarified activities, such as market making for digital-asset pairings.

Further, the crypto resource states that Hedera is “designed to be a fairer, more efficient system that eliminates some of the limitations that older blockchain-based platforms face, such as slow performance and instability.” Put another way, it’s a better mousetrap.

Of course, many proponents of will object to that characterization because it sounds like a pejorative. Hedera fosters multiple activities, such as virtual currency transactions, file sharing services and smart contracts. It may eventually undergird the next wave of blockchain-based developments.

While the implementation of relevant buzzwords certainly entices the investment thesis for Hedera, it’s fair to wonder if the initial wave of blockchain applications has even occurred. Yes, I understand that there are several DApps floating around in cyberspace. But arguably none of them have reached the point of significance.

For instance, Hedera isn’t the first platform to facilitate file-storage solutions. But to my knowledge, large-scale enterprises are not forming lines to decentralize a significant portion of their cloud-computing needs.

As Harvard Business Review pointed out a few years back, “it will take decades for blockchain to seep into our economic and social infrastructure.”

Hedera and Others Will Likely Advance Centralization

One of the easiest ways we can heal the current political divide is if everybody agrees to debate various issues under a defined consistent framework. For instance, if the U.S. wants to pursue aggressive foreign policies against China, American consumers must not then complain about higher prices at their local big-box retailer. This is one of the costs of such policies.

That’s why geopolitics is never easy. For every action, there is a reaction. And it’s the same situation with blockchain.

When you consider whether you want to dive into a risky opportunity like Hedera, you should look beyond the buzzwords – decentralization, frictionless, borderless, equitable, democratization – and assess the bigger picture. In other words, will the implementation of buzzy concepts actually promote the greater good?

My opinion is that applications from groundbreaking technologies like Hedera will only serve to promote the antithesis of what they initially set out to achieve. Everyone loves talking about smart contracts and getting rid of the middleman as if that was a noble goal. But is it though?

Remember, you can’t have your cake and eat it too. If you want a purely decentralized economy, then you must accept decentralization in its every component. Consider the smart contract that everybody’s in love with. Let’s say you start a smart contract with another random person on the internet. Under a decentralized economy, it’s your responsibility to make sure that the smart contract is coded correctly.

As Medium contributor Kai Stinchcombe mentioned in his excellent write-up, it’s possible that the other smart contracting party could have written a recursion bug to suck all your digital savings.

What are you going to do? You agreed to a decentralized transaction, meaning that the basis of your moral outrage is also decentralized.

The Light Bulb Turns On

It only takes one mishap for most intelligent individuals to recognize the fallacy of decentralization. Yes, transactions occur across a distributed (as in spread out) network but so is the power of enforcement.

If you defraud people across state lines, the federal government of the U.S. will come after you. In part, that’s because law enforcement capacities are consolidated under centralized authorities. But if something goes wrong in a pure decentralized ecosystem, guess what? You’re responsible for enforcing whatever it is you want to enforce.

Remember, you’re in a decentralized (and borderless) reality so you cannot appeal to a centralized authority to redress wrongs. What’s wrong to you may not be wrong to the other party’s decentralized set of ethos.

Now, for some people, such a decentralized paradigm is their version of heaven. In that case, maybe Hedera is a worthwhile investment.

For arguably most others, we prefer the stability and confidence of a powerful governing authority. How many times have we had our credit card number ripped off? Or had a dispute with a merchant or any number of other conflicts? We could appeal to a higher authority and be made whole again.

But that security costs money and it’s usually a price people are willing to pay after they’ve had their first substantially bad experience with decentralized activities. As a result, I can see the point about speculating on Hedera but investing in it is a different matter.

On the date of publication, Josh Enomoto held a LONG position in BTC. 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.


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