William Essex: What are the distinct use cases for altcoins? Doesn’t Bitcoin have the advantages of other coins, plus a measure of - for want of a better term - first-innovator advantage? I wonder whether “This Coin Is Not Bitcoin” is an advantage in itself?
Maksim Balashevich: No, Bitcoin doesn’t have the advantages of other coins. Smart contracts aren’t working there, to give the easiest example. Changes are impossible to introduce to the protocol directly. They need third-party solutions. Some of these solutions introduce conflicts of interest into the “miners-users-holders-business” relationship, so they do not get wide usage. For instance, a seemingly simple change like introducing 2mb block size can’t be implemented for more than an year even after everyone agreed to do it and the parties signed the agreement.
WE: Acceptance of crypto-currencies, at scale, seems to be driven by an acceptance that digital-ledger and related blockchain solutions require a moving part. This is akin to inventing the automobile and then agreeing that we might need oil.
What seems to be happening is that the use case is discovered – smart contracts, for example – and then the coin is fitted to that purpose. Is this how alt coins come into existence – as expressions of a use case – and if so, what does that tell us about the future market for altcoins?
MB: We see the rise of blockchain projects this year, which have as their only purpose - to connect different blockchains. If that approach will be proved to be viable, than we might see more and more differentiations between the coins. After oil will come tyres, Recaro seats – to continue with your analogy.
WE: You talk about areas where Bitcoin has failed to innovate – specifically, smart contracts and anonymity. What are the innovative coins in these areas?
MB: Smart contracts. ETH is the leader here de-facto. Some believe that RChain might become technologically more advanced. Besides there are two or three other projects in development where I personally do not hold any opinion at the moment. Anonymity. Monero (XMR), Dash and - recently moved from Shadow Cash (SDC) - Particl are the most visible at the moment. With ZCash, considering a move into ETH, my list is more or less full.
WE: You say that Santiment uses machine learning and the wisdom of crowds. What is the role of machine learning? Given that there are distinct crowds in this space – developers of altcoins and bankers who remember Bitcoin’s past, for example – which crowds, and what is their wisdom?
MB: Machine learning helps to do the boring work at first. Identifying the peaks of unusually high (or low) crowd sentiment. “Wisdom of the crowd” generally does not work in finance. It is exactly the irrational behaviour of the crowd at the tops and bottoms which make sentiment analyses so valuable. The crowd is, however, right one time per trend. When the transition from one extreme to another is finally accepted by the majority and the crowd joins the move, be it on the way up or down. This happens over a relatively short period of time, especially in crypto. Most of the time, the crowd is either wrong or its behaviour is not optimal.
WE: Cryptocurrencies have been around for a while now. If they were a straightforwardly good idea, we’d all be using them already. What are the remaining obstacles and when will they be overcome?
MB: It is not about technology. It is about us, humans, our psychology and three main drivers: greed, fear and ignorance. They make the crypto space the way it is. The amount of people joining the crypto space is growing rapidly, mainly because it is becoming more and more well-known how profitable it can be here. After we reach the next bubble top, we might learn and adjust well enough to be ready for a wide adoption.
WE: Straight question. Why should an FX trader, a reader of eForex, take an interest in crypto-currencies?
MB: More chances to apply your trading and analytical skills, with a much higher ROI on spent time. Be aware of risks, however, and start with small amounts. The first experience of buying the top will be painful.
WE: Maksim Balashevich, thank you very much.