What the heck is cryptocurrency?
I know the word, and I’ve heard of Bitcoin and Coinbase recently, but that’s all. HELP!!!
Let’s start with money. We all know what that is. Printed bills and coins that we can use to buy things. Increasingly, we hardly use money anymore, we just tap or transfer it electronically.
Cryptocurrency is digital, not physical. Known commonly as “crypto”, you can’t get your hands on it, but you can own it and buy things with it. Not everyone accepts it (yet), though.
No one knows who invented Bitcoin, but someone who uses the pseudonym Satoshi Nakamoto has been floated around as The Man, but no one really knows. Let’s call it an unsolved mystery.
This anonymity has led many to call cryptocurrency a Ponzi Scheme. There is definitely a lack of trust from traditional financial experts.
“Stay away from it. It’s a mirage, basically. In terms of cryptocurrencies, generally, I can say almost with certainty that they will come to a bad ending.” (Warren Buffett)
More tech-savvy entrepreneurs have greater faith, or, at least, are more willing to accept the risks associated with crypto.
“I do think Bitcoin is the first (encrypted money) that has the potential to do something like change the world.” (Peter Thiel, co-founder of PayPal)
Elon Musk recently got into trouble with the SEC (Securities Exchange Commission) for tweeting that Tesla bought $1.5 billion in Bitcoin. I say, everyone has the right to share what they choose to do with their money. This is America, after all.
Another important thing to remember, is that cryptocurrency is not regulated, nor is it considered to be legal tender in any jurisdiction. That means there may be a degree of risk involved in owning it. On the other hand, it is not subject to interference from governments. By the way, it is not illegal to own cryptocurrency.
So if crypto is legal and not physical, how do you get some?
Just like you have a physical wallet for your physical money, you need a cryptocurrency wallet for your digital crypto. There are 2 main types of wallets: hot and cold. A hot crypto wallet is one that connects to the Internet. It is easy to use, but subject to more security concerns than a cold wallet, which resides offline and is harder for the average person to use.
The next step is to find a place where you can purchase cryptocurrency. There are different trading platforms (also known as crypto exchanges) for that – think of them as retailers. The big news is that, for the first time in history, a cryptocurrency exchange is going public - Coinbase is being listed on the NASDAQ on April 14th (other exchanges include Binance, Kraken, Gemini and eToro – to name just a few). The listing of Coinbase simply means that anyone can now invest in the Company; users of the exchange will continue to buy/sell cryptocurrency from Coinbase as they have in the past.
The price you pay for cryptocurrency depends on demand and supply. And these exchanges charge a nominal fee to buy/sell crypto, kind of like a credit card makes fees on transactions. Once you register with an exchange, you then must decide whose cryptocurrency you want to buy (e.g. Bitcoin, Ethereum, Litecoin, etc.), how much you want to pay for it and then simply wait for the exchange to match you with a cryptocurrency seller. Then you pay for the crypto (by debit or credit card) and transfer the funds to your crypto wallet. It is as simple as that. You can use your cryptocurrency anywhere it is accepted.
At any time, you can see how much crypto you have by using a public key (code). There is also a private key to secure your password and allow you to access/spend your cryptocurrency.
This is the scary part for me, if you lose your password YOU CAN NEVER RESET IT. This literally means that you could be sitting on a massive amount of money that you are completely unable to access, and will never be able to access; however, think about it for a minute – if you had a bunch of money in a paper bag and left it on a park bench, it would likely be gone forever, too. James Howells, an IT guy (who probably should know better, and must be kicking himself HARD) lost 7,500 Bitcoin back in 2013 … not sure what he paid for it, but if only he could find the hard drive he tossed, it would now be worth about $456,000,000– ouch!!! Well, as of March 15, 2021, a single Bitcoin was worth $55,620.
For some perspective on the incredible growth of Bitcoin, the first known Bitcoin purchase was for two pizzas from Papa John’s. The pizzas were about $41 USD and the customers paid with 10,000 Bitcoin. 10,000 Bitcoin today would be worth about $600,000,000 USD. I hope they enjoyed the pizza!!!
Oh yeah, did you know that Bitcoin supply is finite? That’s on purpose. Anything that is finite usually has a much larger value than something that is available on any street corner.
One last thing we need to cover: Blockchain. You’re probably wondering: “What is that?”. I know you’ve heard about it, but that’s probably all you know. You don’t need to know much more than blockchain is just a crypto database, like an accounting ledger (all financial institutions have ledgers or “books”). Once an entry has been made, it is recorded, funds are distributed, and the information becomes part of the permanent, traceable crypto record.
Ready to take the plunge? Just make sure you have the ability to tolerate risk. It could be an interesting ride.