The rise of alt-currencies in 2017

Bitcoin and other digital currencies have been exploding in 2017. On June 11th, Bitcoin crossed the $3,000 mark for the first time in history, according to the CoinDesk Bitcoin Price Index (BPI), before dropping 10 percent the following day.

Bitcoin (BTC) was the first cryptocurrency and digital payment system currency based on the blockchain distributed ledger created in 2009. Bitcoin is becoming more mainstream and is now traded for other currencies, products and services in legal markets. Today, more than 100,000 companies accept Bitcoin as payment, including Dell, Microsoft, Whole Foods, Expedia, and Subway.

The first time that Bitcoin was used to buy something was when a developer exchanged 10,000 Bitcoin for two pizzas in 2010. At a $3,000 valuation, those 10,000 Bitcoin would be worth $30 million.

A number of alternative currencies or ‘alt-currencies’ have also been spawned in the last few years. ICO — Initial Coin Offering — is a term used to describe the launch of these ‘coin’ clones. Since these alternative digital assets have been experiencing robust inflows lately, the new influx of ICOs is seen by some as a gold rush, and by others, as fool’s gold and a bubble carrying extreme risk.

The market cap for cryptocurrencies is now more than $100 billion, according to cryptocurrency tracker CoinMarketCap.com, five times the value since the beginning of 2017.

As of this writing, there are 876 alt-currencies listed on CoinMarketCap.

The attraction is that many have already profited handsomely on Bitcoin’s volatile rise. In March, Bitcoin was valued at around $1,000, hitting the $3,000 high on June 11th, before another downward trend.

Unregulated

Alt-currencies, including Bitcoin, are unregulated by the SEC, and the first alt-currency ETF is yet to be established. An ETF trades like a common stock on a stock exchange. The SEC recently rejected the application for the Winklevoss Bitcoin ETF: COIN, but may reconsider. Another ETF attempt may come from the Cryptocurrency Fund in Q4 2017.

Coins vs. tokens

Bitcoin produces ‘coins’. Ethereum generates ‘tokens’. “An ‘ICO’ is a Bitcoin/altcoin thing. A ‘Token Launch’ is an Ethereum thing,” according to Zach LeBeau, CEO of SingularDTV.

LeBeau explains, “Coins basically have one utility — to act as simple stores of value with limited-to-no other functionality. Tokens can store complex, multi-faceted levels of value. Ethereum tokens are generated by a Smart Contract System (SCS), are highly programmable and have multi-functionality because of it.”

Ethereum (ETH) has also exploded in 2017, starting at $8.29 at the beginning of the year and valued at around $324 on June 15th. This is a great video with more detail on how Ethereum works by its founder:

ICOs are a DIY method of raising capital for startups

ICOs and token launches are a growing method of blockchain financing. According to Roger Kim, legal editor for Bloomberg BNA, “Any small startup familiar with digital currencies can create a digital currency, and selling them in ICOs has become a do-it-yourself method of raising capital.”

Enter Patientory, the first alt-currency and token launch for healthcare.

Patientory launched its token sale, PTOY, on May 31, 2017, the terms of which can be found here, a copy of the announcement here, and a list of FAQs here. Patientory’s website says it is “making healthcare secure,” and is a “free and easy way to store and manage your health information and get the best answer to any healthcare question.”

The website provides the following roadmap and lists its partners, including StartUp Health and Kaiser Permanente.

My own concern with the token launch was the tokenmarket.net website promoted by Patientory to purchase PTOY tokens for the initial crowdsale. For any alt-currency transaction, personal financial data needs to be extremely accurate. Every number and letter you send to register and to make a transaction is critical.

The TokenMarket website carried a number of errors when I accessed it during the token crowdsale, including misspelling ‘calendar’ in the main navigation bar. Multiple misspellings on a financial site do not demonstrate attention to detail and do not provide me with a sense of security. How accurate will they be in transactions? It’s the little things when you have to provide a site with all of your personal information. Remember, this is an unregulated market.

Some of the errors have since been corrected, but it still made me personally uncomfortable, although others may be laughing all the way to the bank. Patientory recently announced that PTOY tokens can now be purchased on other exchanges.

On June 13th, Patientory tweeted concerns about a scam site that was impersonating Patientory and soliciting investment.

The apparent value of PTOY had risen sharply since launch, but as of this writing experienced a dip in this chart provided by CoinMarketCap.

It’s still the Wild West in cryptocurrencies, but an area to watch closely, especially with the promise of blockchain in healthcare. As these types of transactions become commonplace outside of healthcare, will the overly conservative healthcare industry – gripped by privacy and security concerns – remain on the sidelines without payor or government intervention? I think we can expect to see more startups begin testing the waters.

UPDATE, June 16th: Patientory just announced an issue with TokenMarket discovered during a security audit, and they say a fix is on the way.

This post is opinion and is not offered as investment advice. All investments carry risk. This post was written on June 15th, based on data available at the time, which may have changed.