The whole cryptocurrency thing … I just don’t get it.
I consider myself a reasonably savvy guy when it comes to technology and its use in our culture. I pay attention to trends and listen to tech news regularly. But I have yet to get my mind around this stuff, no matter how much I read and hear about it.
I especially do not understand the concept of investing in the various, highly volatile cryptocurrency exchanges as any sort of viable strategy to increase or maintain wealth. I call it “funny money.”
Let me digress.
Cryptocurrency, in case you aren’t aware, is essentially money (currency) that is NOT backed or endorsed by a government. All kinds of it exist, virtually anyway. The most famous example you’ve probably heard of is called Bitcoin. It has a “market cap,” — which is rich, business guy lingo for the value of a company — of $161 billion, which is ridiculous. There are many others out there with cool sounding, or whimsical, names like: Ripple, Ethereum, Stellar, Tether, Dash, Verge, and on and on and on. Believe it or not, there’re more than 1,600 cryptocurrencies.
Unlike a good old American dollar bill, which you can at least hold in your hand, these cryptocurrencies are “digital assets.” So, even if you have a lot of it, you don’t really HAVE anything. It’s like owning a word.
Now, and this part gets tricky, you may be asking: How does this all work? Why do people want this?
This is where I always get lost in the weeds.
What makes cryptocurrency desirable to people is the fact that its not controlled by “centralized” banking systems, and uses pretty impressive cryptography so that transactions are secure, and so that it is extraordinarily difficult to replicate (counterfeit). The whole thing is held together by “distributed ledger” technology and “blockchain” which I won’t even begin to try to explain. There are companies that have sunk tons of money into even more esoteric practices where they buy huge banks of computer processors to “mine” cryptocurrency. I don’t even know where to begin on that.
A year or so ago, I was talking to a much more savvy friend of mine about this cryptocurrency thing. He was telling me about Ripple, which was a particularly hot cryptocurrency at the time. He said he was going to buy some. It was a few dollars, if I remember, for a single Ripple coin or token or whatever. I told him I wanted some too, just for the heck of it.
Today, it’s worth 43 cents.
Not so good.
I decided quickly that dabbling in the cryptocurrency market was not my thing. But really, when you think about it, the whole concept of money is sort of weird. I mean, what gives it value? It only really has any value at all because we, as a larger society, have decided that it does. Our government tells us, “this money is good,” and we all agree and go along with it. So maybe cryptocurrency just hasn’t had time to mature yet and gain acceptance.
I’ve asked a few financial advisors if they would consider cryptocurrency as a valid part of an investment profile. Mostly, I’ve gotten a lot of scorn heaped on the idea. Some say it’s OK to dabble a bit in sort of the same way you may “invest” in blackjack or horseracing. It’s entertaining, but too wild, crazy and unpredictable to really think of it as serious investing.
I saw it described by one person like this: “Cryptos are PRIVATE fiat currencies with no intrinsic value. They make their founders instant billionaires and their buyers poor. It is a wealth transfer mechanism. People only buy them in the hope of selling them at a higher price to a greater fool.” Put another way, “There’s a sucker born every minute.”