The Alpha and the Omega in the crypto space

Group-dynamic processes as an explanatory approach

Why is the FUD (Fear Uncertainty Doubt) against IOTA so big? Is it at all, or is the FUD against IOTA overrated by the IOTA supporters? Which psychological processes can be used as explanatory approaches to understand FUD in crypto space in general and against IOTA in particular?

I try to find some answers to these questions here. But before I can do that, I have to go back and explain something fundamental about human thinking.

Thinking in categories

The complexity of our environment is too high for us to deal with or talk to each other without a simplified mental image of it. That’s why people think in categories. Everything we know and talk about is divided into categories. We look in our environment for features that we can use to subdivide objects of perception. This categorization helps us to perceive things and circumstances efficiently and simply. The formation of categories is therefore essential for our daily interaction.

Fig. 1: When we are overwhelmed with categories (source)

Categorization of the crypto space

Many taxonomies have already been proposed to separate the crypto currencies from each other.

For example, the benefit can be used. What is a crypto currency good for?

Be a means of payment (actual currency)

Use for services in a specific network (network token)

As a unit certificate (investment or asset token)

Crypto currencies can also be divided into such

which allow access to a service

which allow you to actively participate in a network

which share the success of an idea (comparable to a dividend)

Of course, crypto currencies can also be distinguished in technical aspects. For example, how is the consensus algorithm defined?

Proof of Work PoW

Proof of Stake PoS

A combination of both

…

Or the type of supply:

Limited mineable currency

Unlimited mineable currency

Pre-mined limited currency

Non-mineable limited currency

But the easiest difference is:

Currency is based on the blockchain

Currency is based on a directed acyclic graph (DAG)

Below you find two classification schemes for cryptocurrencies:

Emergence of prejudices

Despite all the advantages: By creating categories, we simplify thinking, which in turn means that we may not use all available information to make decisions. This in turn forms the basis for the emergence of prejudices

“The human mind must think with the aid of categories….. Once formed, categories are the basis for normal prejudgment. We cannot possibly avoid this process. Orderly living depends upon it.” Gordon Allport 1954, p. 20

(Allport, G.W. (1954). The nature of prejudice. Cambridge/Reading, MA: AddisonWesley)

Another aspect of categorical thinking is that it can lead to a distorted perception. Differences within categories are minimized, those between categories are maximized. These assimilation and contrast effects have been proven several times in various experiments (for an overview see Macrae C.N. & Bodenhausen G.V. Social cognition: thinking categorically about others. Annu. Rev. Psychol. 2000. 51:93–120; and the inclusion/exlusion model here). Although differences between members within the same category are obviously and objectively measurably greater than between members of different categories, these differences are perceived differently.

“The human understanding when it has once adopted an opinion … draws all things else to support and agree with it” Francis Bacon (1561–1626)

Obvious, easily perceptible or salient differences are used for categorization when it is necessary to distinguish others from one’s own group. Add to this an overestimation of group characteristics and this leads to injustice, bullying, racism and other forms of exclusion in social systems.

Crypto space as a large group

According to Coinmarketcap there are currently 1637 crypto currencies available in the market. Others are still to enter the market. This is a huge group, and it’s not easy to characterize this large group. Nevertheless, I will try to expand my idea here. This attempt will not be complete and reflects in particular my opinion. It’s the way my mind has categorized the crypto world.

Although there is great competition for investors within the crypto space, most of the group members pursue very similar goals in principle. The distributed ledger technology (DLT) enables the creation of distributed systems within which all transactions are made transparent. The control over transactions of any kind by centrally organized systems (today in the financial sector, for example, banks and insurance companies) is thus given to decentralized or even distributed systems. Anyone can check all other participants. Since investments in the crypto space are still negligibly small compared to those in traditional markets and despite the competitive situation of the projects within the crypto space, the feeling of belonging together is great, since there is a common enemy, namely the centrally organized systems, which exercise great control over all possible transactions in the real world (Governments, Google, Facebook, Apple, Amazon, Microsoft, IBM, Goldman-Sachs, UBS, etc.).

Well, typical group dynamic processes can be described within the crypto space. For example, there is a clear leader: Bitcoin. A vice and a sort of deputy are also known: ETH and XRP. In addition, there are a large number of members who more or less make their own contribution to achieving the group’s goals. In psychology the following archetypes of group members are distinguished and characterized, whereby the roles are to be attached to the group and in contrast to the original meaning in the animal kingdom (see e.g.: Mech, L. David. (1999). “Alpha status, dominance, and division of labor in wolf packs. Canadian Journal of Zoology. 77 (8): 1196–1203. ), may not be regarded directly as a personal characteristic (Burnett, Dean (10 October 2016). “Do alpha males even exist?”. The Guardian. Guardian News and Media Limited.)

The members of a group

Alpha: He takes the lead, determines where it’s going. The leader is in most cases an individual, but the alpha position can produce up to three leaders. In most cases, this role falls to the strongest or wisest people in the group. Character or physical characteristics are the most respected in the group. These can be physical superiority, a high status or spiritual strength. Alphas have the most privileges in the group. If the alpha takes the floor, it is heard and confirmed without objection.

In the crypto space, Bitcoin is clearly the alpha. All other currencies more or less follow the bitcoin, whether in price or in differentiation from other members. If the bitcoin loses value, everyone else loses value. This goes so far that the market can be manipulated specifically via Bitcoin. One example is the pump and dump process from 8th to 10th July 2018 (see picture). Bitcoin’s market capitalization jumped from $113 Billion to $118 Billion within an hour on July 8th. Only two and a half days later bitcoin’s market capitalization dropped to $109.5 Billion, which is a loss of almost 10 Billion Dollars.

Fig. 2: Pump and Dump scheme of Bitcoin: Jumps in value without significant volume change.

The most important crypto currencies followed this trend without exception, as can be seen in the following chart.

Fig. 3: How Altcoins follow the Bitcoin

Gamma: Gammas make up the largest part of a group. The gammas are subordinate to the alpha. They are also called workers. In general, they assume no responsibility. Gammas that do nothing to achieve the group’s goals are also referred to as followers.

In the cryptospace I would call most Altcoins and Tokens except Ethereum, Ripple, and maybe Litecoin gammas. I would also exclude IOTA, because IOTA has a special role within the crypto space.

Beta: The specialists in a group are called beta. They have special characteristics that others, including the alpha, do not have. Therefore, a beta is very close to the alpha. He is advisor to the alpha and the whole group, perhaps even “sage”. Due to its special knowledge the beta has great power, because it is not easy to replace. The group depends on him and his abilities. However, the beta never fully identifies with the group or the alpha. This allows him to maintain a high degree of independence.

The abilities of the beta can be very different:

Knowledge, know-how and/or competence: The beta has special knowledge that he/she makes available to the alpha.

Values, ethics, morals: This beta looks through the group rules, remodels them appropriately and makes sure they are observed.

Emotions, mood: This beta is very empathic and absorbs the feelings and moods in the group particularly well. He recognizes problems very quickly and can thus promote good developments.

In any case, the beta has a lot of power. After all, the Alpha depends on him and his abilities. In many cases the beta supports the alpha as a wise advisor. But it also happens that he himself strives for power and pulls the strings in the background as the “grey eminence”. If the Alpha does not prove to be a good leader, it is often the Beta that overthrows or fights it. Then it can happen that a beta takes on the new alpha role.

In the crypto space, I would make four betas above the many others, and because a Beta is by definition an advisor, I point to four persons. There is Vitalik Buterin, who, as the inventor of Ethereum, is regarded as the father of smart contracts for software development in the Blockchain. Another is Charlie Lee, who has built up an alternative to Bitcoin with Litecoin. Roger Ver, who was the first to invest in Bitcoin startups and Brian Armstrong, who is co-founder and CEO of Coinbase. There would be many more to mention (Peter Todd, Charlie Shrem, Erik Voorhees,…) and you can make your own list (below you find two links claiming to list the most influential personen in crypto space). Sergej Ivancheglo, aka ‘come from beyond’, was also a beta in the crypto space when he was at the forefront of Next development, thinking through and implementing the PoS consensus algorithm. However, Ivancheglo’s move from Next to IOTA was not well received by all members and with the rise of the still young cryptocurrency IOTA in 2017, he was made a scapegoat by gammas and other betas in his role as co-founder and developer of IOTA.

Omega: The scapegoat in a group is not only the one at the bottom of the group order, but also the one who does not belong to the group properly. He does much more for the group than is often thought. The Omega ensures that the members of the group do not themselves become Omega members of the group. This function in a group is irreplaceable. If the Omega member leaves the group, another group member becomes the new scapegoat.

IOTA was clearly made the scapegoat in 2017. The new technology and the fast ascent scared many.

The most influential people in the crypto space, two different lists (note that Dominik Schiener only appeared in 2019 Ed. on the list of cryptoweekly and at the time of writing this article IOTA members were completely absent):

The role of IOTA

It is questionable whether IOTA can still be counted among the group of crypto currencies in the true sense. After IOTA was first publicly traded on Bitfinex in June 2017, it had to take on the role of scapegoat very quickly. Sergey Ivancheglo is considered a mastermind in IOTA’s crypto space. His contributions to the entire development of crypto currencies are enormous. Within the group of crypto currencies, he initially held a role as a consultant and developer (beta), who thought to the end the approach of the proof of stake (PoS) and led with NEXT the development of a cryptocurrency whose consensus algorithm is based solely on PoS. Together with David Sønstebø, Dominik Schiener and Serguei Popov, he finally laid the foundation for a completely new DLT technology with the development of IOTA, which eliminates the disadvantages of classic block chain technologies (see also the presentation of Deutsche Bank End of 2017). The basis of IOTA is a directed acyclic graph (DAG). Thus, IOTA goes its own way purely from a technological point of view. IOTA was also registered as a not-for-profit organization in Germany at the end of 2017 (IOTA Foundation IF). This enables IOTA to enter into partnerships with other companies and not-for-profit organizations. In the crypto space, XRP is criticized above all for its cooperation with banks. IOTA officially cooperates with BOSCH, Volkswagen, Fujitsu and many other smaller and larger companies. In addition, those responsible at IOTA have repeatedly stressed that cooperation with business in general and with banks in particular is necessary to make the new emerging technology ready for general use in everyone’s daily life.

“We realized that the potential of technology is simply too great to be limited by patents — this is a conflict of interest. That’s why this foundation idea makes so much sense, because of course the base layer, IOTA, should be freely usable and open source. It should be used as much as possible. In our opinion, the foundation is the best way to promote dissemination. That’s why I came up with this charitable idea. We want to bring the big companies, start-ups and governments together to form and invest in an ecosystem.” Dominik Schiener (11 January 2018) interview with Jannik Hüls, Codecentric (translated from german)

The high flight of IOTA in 2017 (4th place coin market cap on 5th of December 2017) was of course a thorn in the side of many supporters of classical blockchain cryptocurrencies. IOTA was massively attacked from September to December 2017 and turned into a scapegoat:

The above critiques have been and are still partly brought out by IOTA opponents, mostly when IOTA has once again landed a big fish, or while the crypto market goes bullish. Then usually the IF and especially the leaders are directly attacked with the criticism also with the goal to prevent the incoming money from flowing into IOTA.

On the other hand, negative headlines about Bitcoin and Ethereum are shared, but never so hotly served and not chewed again and again, or who can still remember today:

that the Bitcoin Conference in Florida in January 2018 no longer accepted Bitcoins as a means of payment due to the high transaction fees, which at that time amounted to $30 per transaction(see here)

that Bitcoin’s lightning network, nota bene co-developed by MIT DCI, (Alpha release on 10th January 2017) still fails real world adoption (see here, or here)

that several errors in the smart-contracts of some Ethereum tokens have already led to high losses (see here)

These and certainly many other examples show that IOTA has been and still is seen as a threat.

In the first half of 2018 many Proof of Concepts and Use Cases were presented and I only link a few here:

And IOTA actively participates in Smart City and Smart Mobility projects:

Additionally IOTA collaborates with UNOPS in order to bring transparency and efficiency to UN work (see here), is a founding member of the trusted IoT Alliance, and as mentioned before, IOTA was attested by Deutsche Bank as early as 2017 to have “solved the most important problems of the block chain”

But why is this not reflected in the price?

To do this, we have to remember that the crypto space is worth only $250 B at the moment. Bitcoin alone is worth $110 B. If you want to buy crypto currencies today, you can still do so mainly via Bitcoin or Ethereum. These two crypto currencies are still regarded as entry currencies into the crypto space. The crypto space today consists mainly of a few future enthusiasts. The vast majority of people still have no direct access to crypto currencies. Most of the FIAT money (currencies without intrinsic value that have been established as money, often by government regulations) still runs through the banks and there are still too many unanswered questions about crypto currencies. Many people still think that crypto currencies are digital money for illegal business. And the fact that every now and then a few tens of millions of digital dollars disappear does not make it any easier to strengthen public confidence in the crypto currencies.

But IOTA is going a different way now. IOTA explicitly enters into partnerships with large companies showing interest in the new technology. IOTA thus dares something for which many other currencies both envy and hate it: IOTA takes the step into the real world, where real financial transactions are processed via IOTA, where data is sent via the DAG with unprecedented eavesdropping security.

In principle, one could say:

IOTA is leaving the crypto space, but the others have not yet noticed.

FUD, envy and attacks will bounce off IOTA in the future, because IOTA will arrive in the real world and simplify the lives of many people.

Fig. 4: IOTA taking the step into real world adoption

No doubt, other crypto currencies and tokens will make it, too, but only if they are able to create added value for a significant group in the real world. However, most crypto currencies will disappear over time, just as providers have sprung up like mushrooms after the introduction of various new technologies and in the end only a few have survived in the saturated market. IOTA, on the other hand, is putting itself in an excellent strategic position for the future. IOTA’s DAG is an enabler on which many new technologies will run in the future (see for example qubic). IOTA has the vision to make life easier for all people, in a world that is worth living for all people.

Interested readers will find here a list with all interested parties from industry, the interested universities and the participants of the IOTA marketplace:

http://iotaarchive.com/

Disclosure

The Author declares that the content of this article is his own perspective on the topic. The author is member of IOTA Evangelist Network IEN and holds some investments in IOTA. The content of this article shall by no way be an investment guide. The author encourages the readers to do their own research (DYOR) especially when it comes to invest into cryptocurrencies.

IOTA donations are welcome (even tiny ones, which is possible with IOTA because there are no fees):

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