Cryptocurrency: History and how I feel about it
Someone asked: How do you feel about cryptocurrency? Do you invest in it?
It’s a long post, so I wrote this instead.
What is cryptocurrency?
I am no expert, but this is what I have gleaned thus far. Feel free to add details / correct me.
It is a currency (like $CAD) based off the concept of blockchains
It means creating wide “chains” of blocks of code that are pretty much unable to be hacked as they are long strings that stack onto each other like blocks (think of legos), following a pattern. The computing power needed to find these various mathematical blocks of logic and code, is enormous.
They used to be able to find many bitcoins in a short amount of time when they started mining for the mathematical block chains, but now it is harder and harder to find the same combinations.
Think of it like multiplication. It is easy to think of all the values that can equal “4” such as: 2×2, 1×4, 4×1, …. but once you start getting into fractions, like 0.5 x 8, then things become more and more difficult as it becomes harder.
The technology (blockchain) itself is also now being used in other areas to help the environment.
It is meant to be untraceable… and untaxable
Hence its widespread usage in black markets, illegal transactions including pedophilia, prostitution, drugs, you name it. Untraceable also means not taxable.
How will the government know you bought and sold it at a profit and made a million? How will they tax you if they don’t have it reported through an institution that dutifully takes your SIN, matches it to your account and sends it along for them to check and levy tax?
It is meant to be a de-regulated currency that is open market
One that anyone can use where it doesn’t fluctuate and is has an ACCURATE worth determined by the people. Think of China and how they control the RMB there, choosing the inflation rate. It isn’t stable for that exact reason that it can change on a whim of a government. Hence why the $USD is still used as a stable worldwide currency amongst other reasons.
In theory, it’s a fabulous idea for those trying to not be under the rule of a government of any kind or a global monetary policy that ‘controls’ the markets. It’s meant to be like a free market currency.
Thoughts on it later.
Cryptocurrency can be created by anyone for any reason
Don’t ask me how. But lots of cryptocurrency is being created as we speak, from funny meme things like Dogecoin (based on a dog), to goodness knows what. As a result, it’s a highly fractured currency market, so to speak. The two biggest currencies are Ethereum and Bitcoin.
What is “fiat” money?
Fiat money is your actual dollars. $CAD, $USD. When people talk “fiat” they mean the cash you can hold in your hands, or is in the bank or invested in the market.
Cryptocurrency in Canada
- Cryptocurrency wasn’t as evolved in 2017 in Canada as it is today, where you can buy it via different financial institutions. I can tell you that even though I held cryptocurrency, I had no way of actually converting that money to use it to buy goods and services.
- Taxes are-a-coming. The CRA noted in their taxes this year a new box that asks if you held or sold cryptocurrency (you are legally supposed to report the capital gains). It didn’t seem to ask for details but clearly, if it is offered by banks and institutions now, it means it is something they are working on. I cannot see how the government would continue to let this happen without taking a piece of the pie
My short fling with cryptocurrency
Back in 2017 or so, I dabbled a bit into cryptocurrency, before it was cool. I bought some Bitcoin and Ethereum. Long story short, there was a scandal with the company I used to hold my Bitcoin, and everything was gone. From that day on, I gave it up. I decided it wasn’t worth the hassle. I had maybe $5000 invested at that time.
Fast forward to today, Bitcoin has gone through the roof. What I had in Bitcoin would have been in the tens of thousands today, I reckon. Maybe even in the hundreds of thousands. It doesn’t matter, it’s all moot at this point, literally virtual.
I’ve lost $5000 in my head, not more, not less. It was just a fling and I decided it wasn’t worth it for a number of concerning reasons.
A) It’s volatile AF
The whole point of a currency is to be stable. Think $USD, it’s like the gold standard (no pun intended) of currency that people rely on. You can go into other other countries, and if you only have $USD you can either use it directly in some countries’ stores, or at the very least, take it to a bank to be converted.
In contrast, other currencies that have fallen like the rupee from India, and devalued overnight, are not STABLE currencies. Why is it so volatile? Well a tweet from Elon Musk can send it crashing or skyrocketing. Would you call that stable? I wouldn’t. If people cannot trust the currency, then they cannot use it.
The whole reason why currencies like the $USD work even though it is no longer gold standard nor is it more than some numbers in a bank account and pieces of paper, is because it’s all based on TRUST. Global trust that people have in the American dollar.
B) It is not great for the environment
Imagine all the computers needed to mine for these mathematically-based blockchains. Now see the price of Bitcoin skyrocketing? Now people are SERIOUSLY mining for this stuff because of the price they can get for it. It’s basically a virtual gold rush with computers.
People are saying it actually IS great for the environment because the technology of blockchain is helping find solutions for our eco-problems.
Great, but it doesn’t excuse people mining this stuff for Bitcoin specifically. Use the blockchain technology for good, not greed then.
C) You can’t really use it to pay for things
You can’t use it without converting it to fiat. Sure, some places take Bitcoin, but generally speaking, I can’t go into a grocery store and pay with it. What’s the point?
D) People don’t understand it
Common, average people don’t get it. Heck, even I don’t get it sometimes. It feels like a soap bubble. I get it, and then it pops. Again, fiat, blockchain, all of this stuff is pretty far out there. So was I guess, at one point in time, cars versus horses and now electric cars versus gas ones. But I am of the cynical belief that people aren’t going to spend the time to learn it, nor want to know how to do it, or use it. It’s on a learning scale worse than trying to convince people to learn how to invest their money. Those are my random thoughts, learned from watching, reading, and speaking with people.
Would I / Am I interested in it?
Not any more, I am not. After my brief fling with it, after seeing people talk about it, it seems more like a risky fling. Throw in some money, see where it goes if you want, but don’t bet the farm on it. I liken it to any kind of penny stock (some of which I’ve profited from, some I’ve been heavily burned on). I’ll stick with my low returns and invest my money the way I know how.
If it works out, great. Some companies and banks, all of which I own shares in, will also benefit from it, and I will indirectly reap the rewards. I am not a billionaire like Musk who can throw $1B into Bitcoin and consider it chump change (0.57% of his net worth).
I’d rather not deal with any hassle, and it’s partly why I am also not a landlord. I want returns, yes, but I don’t want headaches, anxiety and rocky risk.
7 Comments
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Julia
This quick recap on cryptocurrency is helpful. As most references to it as crypto and think of it as a stock, your explanation explains how it’s like a currency and not as stable.
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Kelly
Thank you for explaining all this!
I understand a lithe more now about this whole fad & not planning on dabbling in this either…I’m not that big of a risk taker.
liteadventurer
I think the blockchain technology may be far more useful than the speculation around specific coins. Similar to the Railway Mania in Britain in the 1840s where individual investors lost all their money, but it left behind convenient infrastructure for future generations.