Review of the book “Cryptoassets” by Chris Burniske and Jack Tatar


The Review

Bitcoins have been nudging my financial instincts, which I have kept dormant for a decade and a half, but beginning this year the gentle nudges turned into wild attacks loud enough to wake up any indolent mind from its slumber: even a whisper of 1200% return on investment in a single year is loud enough for a mind which has even remotely heard of terms like P/E ratio, NPV, Cashflows, Dividends, etc, to wake-up from deep sleep; I have rather completed a full-fledged regular MBA from a reputed business school with finance major. So, I searched for the books on bitcoins with investment focus and came across the GCD recommendation of three influential investment focus websites entitled Cryptoassets.

As the name suggest, the book has enlarged its canvas so as to not only present an investment opportunity in bitcoins but also to present a new realm of decentralized business financing and trading in contrast to the old-fashioned venture funding. Yes, old-fashioned venture funding — when I completed MBA in 2001, venture funding was an in-thing, but not anymore because now we have appcoins and ether.

The first part of the book entitled What introduces the readers to terms like cryptography, blockchain, mining, bitcoin, ether, dApps, appcoins, etc; it elucidates the technological aspects of these terms; and it also throws in juicy tit-bits from the exciting history of the growth of these terms. The authors have called bitcoin a cryptocurrency deriving its utility value from the blockchain architecture called Bitcoin (note the difference in capitalisation); they have called ether a cryptocommodity deriving it’s utility value from Etherium, a decentralized world computer following the blockchain architecture; and appcoin a cryptotoken deriving its utility value from the underlying dApp, i.e. the application running on either Etherium blockchain architecture or a standalone blockchain architecture duplicated from Bitcoin. I would say the first part of the book is perfect. Everything has been written succinctly yet articulately enough for a novice like me to understand it in the first reading.

However, my main interest focus was second part entitled Why and the first few chapters of the third part entitled How. In these parts, the authors have tried explaining the investment and financial aspects of cryptoassets: bitcoin, ether, and appcoin. They have derived new models for financial investments in cryptoassets by tweaking the existing models in the present day financial world, where we speak in terms of dollars, venture funding, equities, debts, and capital markets. But, but, but, I think they have floundered completely.

bitcoin, which is a currency, just can’t have any utility value unless it is also a commodity like gold. bitcoin’s unidentified founder deliberately precluded any such possibility by restricting its blockchain architecture from adding any additional value to the exchange of bitcoins. Presently, bitcoin miners are compensated by issuance of new bitcoins, which does attach some utility value to bitcoin, but that is only temporary till the time bitcoin ceases to be mined anymore and the miners convert into mere tellers earning transaction fees. Simply speaking, bitcoin shall turn into a currency like dollar on maturity, whereafter it shall have no utility value but would only be a store of value. In such circumstances, I wonder how can any model be developed akin to that developed for securities using fundamental analysis. Somewhere in the book, the authors have derived the utility value of bitcoins from the abundance of services like Coinbase, which rely on bitcoins. Coinbase is a wallet service for remotely holding bitcoins. It’s like a bank holding your cash in a current account instead of your pocket. I think it’s ridiculous to even attempt to derive utility value in this manner.

Ether, which is a commodity can definitely have a utility value, but my understanding is that ether is not merely a commodity but also a currency. It is also being mined at present and will cease to be so on reaching maturity like bitcoin. But it also derives its utility value from its blockchain architecture because its founder unlike bitcoin’s founder deliberately introduced the concept of attaching value to ether in addition to its mere exchange. This additional value is attached through the possibility of using the blockchain architecture to pass on extra information about the mere transaction of exchange like the nature and detail of transaction. It’s like saying every dollar whenever exchanged may also transmit information about the property exchanged in the transaction or the service rendered wrt the exchange or any other value. If such a value is attached, there is no need to prepare separate contracts for the sale of property, the rendering of service, etc, because the transaction is captured in the dollar exchange itself.

The above is obviously not happening in the real world, but it can indeed happen in the digital world thanks to the blockchain architecture, which appends value to the exchange in eternity not to be lost ever. These digital contracts created by the mere exchange of ether become smart contracts when they also add conditionality like if X happens, the exchange happens, else… When so added, the innovative programmers can build their apps around the exchange of ether and call them dApps. Ether then becomes a commodity deriving its utility from the use of its blockchain architecture Etherium as a decentralized world computer. This use as a world computer does give it an intrinsic worth, which shall keep increasing forever but would remain dependant upon the use of ether as a currency, i.e. a medium of exchange. The authors have lost this character of ether altogether. Ether is first a currency and then a world computer. So, no fundamental value can be attached even to ether unless it overtakes all currencies of the world and become a single store of value. And when it so does, the definition of currency itself changes: it then becomes not only a store of value but also a source of value. That would then be a new world altogether. Whether such a world would ever arise is in the realm of speculation and will so remain in at least in my lifetime.

Nevertheless, dApps, which are nothing but businesses, also issue appcoins. The name appcoins is suggestive of some kind of currency but that’s misleading. Appcoins are actually akin to securities issued by a business to its owners. The dApps entrepreneurs, instead of funding their ventures from venture capitalists or banks, do it directly from small investors through crowd-funding. The catch is that crowd-funding is done in ether instead of dollar and dApps are run on Etherium instead of servers or clouds. So, of course, this is a new world which does away with the need for maintaining capital markets altogether unless capital markets adopt ether and appcoins soon enough before the two of them grow into adults outwitting the capital markets. Presently, appcoins are aliens. Even the consummate investors in cryptoassets are wary of investing in appcoins. Appcoins can obviously be introduced as and have been introduced as Ponzi schemes. Theoretically, fundamental analysis that applies to securities can as well apply to appcoins, but I wonder which equity analyst would be willing to brave into this arena. The authors didn’t venture into it either, but they did present a fundamental analysis model for bitcoin, which I found utter rubbish. I would have rather liked them to do a fundamental analysis for one of these dApps.

However, the remaining portion of third part entitled How was once again highly informative. The technical analysis part was also good as the said concepts can indeed be applied for making buying and selling timing decisions in cryptoassets. The remaining part dealt with wallets, cryptoassets exchanges, Cryptoassets ETFs, taxation aspects, legal aspects, ICOs (initial coin offerings), etc. The information provided in these chapters is highly valuable for a novice in cryptoassets. This part was also perfect.

I have already given five-star rating to the book on Google Play, where I bought this book, and I retain the rating here. The book is slightly expensive at 2000 INR. I got it with a 75% discount on Google Play, else I won’t have bought it. I think it is retailing for 1200 INR on Amazon, but I don’t buy books on Amazon, so…


My Perspective

As I said the bitcoins woke my financial instincts from its slumber, but I am not certain if I want to venture into this arena. In fact, I have discovered a fundamental problem with bitcoins. As per the blockchain algorithum, bitcoins would reach a maximum circulation of 21 million by 2140, whereafter they shall not be mined any further.  It’s far away. I will not live to see that day. However, 87.7% of that 21 million would have been minted by 2020. Already 76.6% have been minted. In other words, bitcoin is becoming a scarce resource. The 1200% jump in bitcoin value seems to be reflective of this scarcity. I have not done any analysis, so I don’t know what amount of bitcoins have been bought by big banks and sovereigns, who would obviously like to sabotage bitcoin. As of 2016, ninety percent of mining of bitcoin takes place in China. In late 2013 when China introduced regulations wrt bitcoins, its value fell 85% from 1000. However, I have a conspiracy theory that China has otherwise provided a salutary environment for bitcoin mining as a strategic option.

Nevertheless, two indications are evident: no fundamental value can be attached to bitcoin or ether, and big banks and sovereigns are deemed to have bought heavily or will soon buy heavily in bitcoins. bitcoin is highly vulnerable to real world players in dollars. It is a natural competitor to dollar and will fail badly against it if it won’t find a solution to its scarcity problem. Big banks and sovereigns can very easily manipulate bitcoin prices by first cornering substantial percentage of outstanding bitcoins and then squeezing and releasing bitcoins supply as per their strategy with final objective of annihilating bitcoins. If one has an appetite for big losses and deep understanding of global politics, one should definitely enter this market and make huge profits out of it. What is the right time to enter or exit is difficult to say. At 12,000 units to dollar, bitcoin may still show high potential for growth if the big banks and sovereigns would like to buy more. I don’t think they will sell as of now (in case they have already bought a lot). So, the price of bitcoin shouldn’t fall if there are no newly introduced regulatory controls. I would suggest if you have money to spare for wagering, pour some in bitcoins.

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About the Author

Ankur Mutreja
Ankur Mutreja is an advocate-cum-writer, and his blogs are amongst his modes of expression. He has also authored number of books, which can be downloaded from the links on the top menu.

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