Cryptocurrency: Should you buy it? Consider it? Think about it? Disregard it?
The quote by Dan Ariely on Big Data comes to my mind when thinking about Cryptocurrencies ( or “Crypto” as they are commonly referred to), with a little twist. “Crypto is like teenage sex: everyone talks about it, nobody really knows how to do it, everyone thinks everyone else is doing it, so everyone claims they are doing it…” You will be hard- pressed to find a person within your groups who does not have a strong opinion on cryptocurrencies. While some of them are right, most of them are wrong. The one thing, which is certain, is that this very exciting technology is here to stay. However, no one can predict which form it may take or how it will affect our lives. If you are old enough (which thankfully I am not), I would imagine this could be compared to heated conversations you may have had during the proliferation of the Internet.
There is a wealth of information available online for interested parties to dive deeper into cryptocurrencies. The idea of this article is to cover some of the general basics on the subject.
What is a cryptocurrency?
Cryptocurrency is a form of digital money that is designed to be decentralized, secure and, in many cases, anonymous. The most famous cryptocurrency is Bitcoin. In early 2009, an anonymous programmer or a group of programmers, known as Satoshi Nakamoto introduced Bitcoin. Satoshi described it as a ‘peer-to-peer electronic cash system.’ It is completely decentralized, meaning there are no servers involved and no central controlling authority. The concept closely resembles peer-to-peer networks for file sharing. The fundamental foundation of most cryptocurrencies is blockchain technology, although not all cryptocurrencies use this technology which has both positive and negative aspects. It’s the blockchain that allows cryptocurrencies to be both decentralized and secure. In essence, a blockchain can be seen as a ledger, which keeps a record of all cryptocurrency transactions electronically. This ledger is essentially open to the public and not in any central location. It exists on the users’ network; the nodes in that network validate all transactions.
So what is the big fuss?
The notion of a digital currency is not new, since the 90’s there have been quite a number of failed attempts to achieve mass adoption. It was Satoshi Nakamoto who, through Bitcoin, broke through using blockchain to empower his digital currency. While there are many positives and negatives to cryptocurrencies, I have chosen to mention just a few that I think are pertinent.
1. The supply is typically not regulated by a central authority. Regulation through a central authority, such as a central bank, is not always positive if let’s say you live in Argentina or Venezuela, for example. Rapidly increasing the supply of these countries’ currency has led to hyperinflation, essentially wiping out massive amounts of individual wealth. Or even in better- managed economies such as India, where the government recently demonetized some of its currency overnight and more than 100 people died waiting to change money to get new cash. Let that sink in.
2. Cryptocurrencies are also a great way of moving money. Moving cash can be tremendously expensive and it can take a lot of time. While the cost of transactions of different types of crypto changes, it’s an alternative to send
and receive funds.
3. The most important value of a bitcoin and any other truly decentralized cryptocurrency is that it is an immutable, uncensorable medium of exchange.
Downside
1. Cryptocurrency technology is relatively new. While most new things are likely to disrupt, they are also quite volatile. The technology is changing from day to day ( its open source code) which means no one really can predict what it will look like in the future.
2. The price of bitcoin, in relation to traditional currencies, is extremely volatile at the moment. Thus, the value of what you hold can drastically change, sometimes for the better sometimes for the worse.
3. Governments like to regulate everything, including cryptocurrencies. While in the US most cryptocurrencies can be used as a medium of exchange, there have been moves by countries to try to block people from using them. Only time will tell if this will work or not.
So, Should you buy it? Consider it? Think about it? Or disregard it?
I think people should consider it. Cryptocurrencies are not for everyone.
This said I also believe that having some cryptocurrency may pay dividends in the longer term, for two main reasons. One, it may in fact, lead to serious value appreciation over time, and secondly and most importantly, an investment in cryptocurrencies is about being a part of something bigger and playing a small role in fashioning the future. The part of something much bigger and being on the forefront of technology adaptation is a strong call to action.
(The writer is the CEOco founder of Takas.lk, the opinions shared are his own and does not necessarily represent the
views of the organisation).