Ok, it’s become completely unavoidable. You now have at least three people at work who’ve invested in cryptocurrencies like Bitcoin and you feel completely ill-prepared to discuss the topic with them. Don’t worry, I’m not far ahead of you but we do have a few people in Goos3D Tower who’ve sheepishly invested and now we’re going to try share what we now about cryptocurrencies with you.
The Problem With Generic Trademarks
Right, this is a gamble. This will either muddy the waters more or be a bit of an eye opener. Have you ever used the word “Jeep” to describe any 4×4? Or perhaps you’ve been wrapping presents with sticky tape and been calling it “Sellotape”? These are called generic trademarks and they are extremely common. While Bitcoin was never trademarked, it’s going through the same process right now. People are using the term Bitcoin interchangeably for cryptocurrency; cryptocurrency is what we’re really trying to understand in this article.
What are Cryptocurrencies?
Until recently, we required banks and governments to fully understand the value of money. Governments decide how much all those coins and notes in your pockets are worth. Banks keep track of how much you have and also play a big part in keeping track of transactions between you and either shops or other people.
In recent years, you may have noticed that a lot of technology has started to challenge norms. The local chipper now relies on JustEat for home delivery, taxi offices have been replaced by MyTaxi and hotels are under siege from Airbnb. Cryptocurrencies challenge the idea that governments and banks need to be involved in the management of our currency.
How do Cryptocurrencies Work?
Right, we’ll get there but first…
How do Currencies Work?
After World War II, the Bretton Woods System was introduced in the United States and with this system all dollars were now backed by gold. They had real value and this is perhaps the best way to explain why we have notes and coins in our pockets today. Because of the Bretton Woods system, dollars could be exchanged for gold. Yes, actual cash for gold without all the bullet proof glass and broken dreams.
In the 1970s, Richard Nixon’s regime effectively abolished the Bretton Woods system. This means all those notes and coins in your pocket are now valued based on a set of agreements between people and governments who say how much they are worth. Incredibly simplified, but that’s the long and the short of how currencies work. So, back to your question…
How do Cryptocurrencies Work?
Well, if you stop and think about how we value currencies right now, it’s terrifying. The value of money is completely controlled by just a few people who, if needed or not, can pump in some extra cash and completely change the value of a nation’s currency. These leaves traditional currency with value because governments, both at home and internationally, based on market conditions, have decided values for each currency. Effectively, the value of currency is based on a whole load of notions.
Cryptocurrency isn’t much different except it’s based on the notions of the public, rather than those of governments and international markets. They aren’t regulated, aren’t tied to a government and there’s no boardroom of people deciding when the market needs more. This is all supply and demand. My point here is that while cryptocurrencies aren’t perfect, they really are just as credible as any currency out there. Backed by notions.
No, not at all. There’s a lot more to it but that’s probably enough for one sitting. I will put forward one more thought though. Have you ever tried to understand how traditional currencies work to the level that you are now trying to understand cryptocurrencies? Probably not, which is our traditional distrust of new tech. I also used Airbnb for the first time recently and had a severe distrust of the service until that first experience was passed.
I made my first investment cryptocurrency investment, a modest €50 across Bitcoin and Litecoin (two different cryptocurrencies), without really understanding how it worked. I took a leap of faith, largely because the general consensus is that cryptocurrencies could become the norm. Whether it’s Bitcoin, Litecoin or some other coin, the idea of cryptocurrency is a realistic alternative to traditional currencies.
Further Reading and Commentary
If you are to invest in cryptocurrency here are a few tips and I implore you to learn from the mistakes of others here, not your own.
Don’t Use Cryptocurrency For Normal Transactions
Right now, cryptocurrencies are an investment opportunity and not really a practical means of transacting. Back in May 2010, a developer traded 10,000 Bitcoin for two pizzas. Right now, those Bitcoins are worth over €140 million.
Have You Really Banked a Fortune?
Don’t go around saying you’ve made a huge return on your investment if the money is still sitting in a cryptocurrency. My €25 Litecoin investment, at the time of writing, had increased by the equivalent of backing a 1/2 horse. The main difference between this and backing a horse is that when the race is over, the money is yours. If you’re investment is still going up, it can also still come down.
Dean’s Reddit Theory
Our resident cryptocurrency specialist is Dean. He was into Bitcoin a while before the rest of us just prior to getting out and investing in Litecoin. He’s been carefully monitoring Reddit and its Litecoin subreddits where he’s seen the followership increased by 70k alone in the past week. This signifies a huge public interest in the much younger coin which is displaying explosive growth, even out performing Bitcoin in many areas once you look beyond outright value.
Don’t underestimate just how big a deal Dean’s Reddit theory could be. A few minutes reading that thread and you’ll see currencies now have a followership and a sense of community driving them forward.
Don’t Lose Access to your Wallet
You wouldn’t believe the number of people who’ve simply lost access to their wallets and the funds that go with it. Actually, you might because there’s a website dedicated to stories of woe.
Pay Attention to the Mystery of Bitcoin
The theory behind how Bitcoin functions was released online by an anonymous author known as Satoshi Nakamoto. No one knows who this really is which, naturally, has lead to plenty of conspiracy theories. Of all the theories my personal favourite is that Satoshi Nakamoto is really a collection of companies: Samsung, Toshiba, Nakamichi, and Motorola.
Read and then Read Some More
Like I said earlier, this article just isn’t going to answer all your questions. You’ve either seen enough now and want to test the waters, or you want to do some more reading. If you want to invest right now, a premium Revolut membership which is €7.99 per month for 12 months is the fastest way to get on board. Most will recommend Coinbase too, but that’s currently suffering under the strain of a surge in demand right now.
If you’re going to invest, only invest what you can afford to lose. Playing in these markets is effectively high-risk gambling and you can lose everything very quickly.
If you’re leaning towards reading and watching, here are a few things to get you going.