Though Technically Brilliant, XYO Also Has Its Flaws

Before we set off on the wrong foot, I want to acknowledge that the technologies undergirding XYO Network (CCC:XYO-USD) are nothing short of brilliant. Essentially, the geospatial data validating network represents the next evolution of the blockchain, from directed personal transactions (peer-to-peer or P2P) to practical applications, such as frictionless, “trust-less” smart contracts.

A concept image of the XYO cryptocurrency logo displayed over a map of the Earth.
Source: karnoff / Shutterstock

If you ask my InvestorPlace colleagues about their thoughts on the innovative prowess behind XYO specifically, chances are you’ll find nothing but praise. In short, the network validates data that’s connected to a geographical location, thus having significant implications for security-related protocols.

Additionally, the decentralized nature of XYO facilitates cooperative incentives to keep the network running.

Therefore, the XYO narrative features two main points: it provides a service and it allows anyone with an internet connection to participate in the journey. It’s like your favorite telecom provider compensating you financially for lending it your unused data. My colleague Chris Markoch provided a succinct explanation:

I believe that, in theory, XYO has a business model that could make a case for owning the XYO token. The business premise is that “Industries and the customers they serve need trusted, tamper-proof data about location.” The XYO network uses “a network of devices that anonymously collects and validates geospatial data…The validation of this data is a key part of this network protocol…”

“More to the point, the XYO network ‘provides resources … to create secure location-data ledgers.’ And the company provides many potential case studies that define how industries and their customers would need trusted, tamper-proof data about location,” Markoch added.

On paper, XYO-USD sounds like a win-win, a token underlining a network that’s helping to bring security protocols under a pure immutable system. But is such a transition appropriate?

The Decentralization of XYO is Not Always Desirable

In his analysis, Markoch brought up an excellent point that I’m afraid tends to go over too many people’s head:

Some potential applications such as those regarding hospitals and national security resonate with me more than others. For example, it’s a convenience to know that my luggage can be independently tracked on the blockchain. But it wouldn’t prevent my luggage from getting misplaced to begin with. And does the benefit of being able to precisely track my luggage outweigh the concern about having a permanent and immutable record of my travel? I’m not as sure.

Thank you. That’s probably the best point I’ve read about cryptocurrencies this year. Folks, the blockchain is a ledger. It gets a lot of attention (rightly) because it’s the first of its kind that doesn’t utilize centralized authority to run but a consensus-driven one. And that consensus is governed under a standard protocol, depending on whether the blockchain runs on proof of work or stake or whatever.

Still, it’s a ledger. Therefore, having mystical thinking about the blockchain could lead you down the wrong path with XYO or any other fundamentals-driven digital assets. More importantly, mystical thinking sidesteps the obvious question: is blockchain-ing even the right step to take?

Let’s take Markoch’s example of lost luggage to the extreme. If an airport utilized a purely decentralized system to track missing luggage, it might open itself up to new unforeseen liabilities. Let’s say that the consensus driving the airport’s system decided it wanted to send a political message. Chaos could quickly ensue, leaving the traveler’s luggage held hostage.

Under a centralized protocol, an authorized administrator would override all technical objections to find the luggage. That’s the advantage of centralized protocols: you can override consensus when the consensus is wrong.

The Electoral College Strikes Again

Over the years, I’ve debated the virtues of the Electoral College. However, as I look at our sad political state and the events of world history, I arrive at one incontrovertible truth: the masses are not always right.

Indeed, I would like to theorize that the masses are always wrong. I mean, isn’t the classic sign of a bubble about to implode that the masses are rushing in under the delusion that the underlying market will only rise higher in perpetuity? Heck, even Jesus stated that, to paraphrase, wide is the path that leads to destruction.

The crazy thing about the blockchain that few want to acknowledge is that it’s amoral: either the masses and their groupthink delusions win, or a psychopath emerges victorious. That’s part of the reason why the Electoral College exists, to save us from ourselves.

In contrast, XYO and its ilk have a different message: let there be no centralized oversight. But if you truly think about it, such a directive could lead to the greatest tyranny of them all.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the 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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