The Gold Coast Bulletin

Dummies guide to crypto

‘Don’t buy it unless you have a super computer for algorithms’


AN economist has revealed why he’d never invest in cryptocurr­ency and warns those interested in buying virtual currency to weigh up the risks.

Griffith University Professor of Economics Fabrizio Carmignani said the price of cryptocurr­ency was volatile and a risky investment.

He said people were attracted to cryptocurr­ency because they assumed it was an easy way to make money but warned it wasn’t without risk.

Prof Carmignani shared his thoughts on cryptocurr­ency and why he doesn’t invest in it.


It is a digital or a virtual currency. So it is a currency but it doesn’t exist in physical terms. It’s created through a network of computers and it’s traded online. They way in which this currency is created is technicall­y very complex. It’s a process based on very complex algorithms but the notion is quite simple.

It’s essentiall­y a virtual digital currency that is issued, not by a central bank or government, but through a network of computers based on an algorithm.


Everyone wants to get rich with cryptocurr­ency. Some people are very attracted to cryptocurr­ency for two reasons. The first one is because they do believe it’s relatively easy to make money.

They think, ‘OK, I’ll buy cryptocurr­ency, yes the price is volatile but it will eventually increase, in a sense it’s like an investment opportunit­y that will eventually pay off’.

The second reason why they’re attracted to it is probably because they think it’s an easy way to make payments.

Some who are psychologi­cally more aware might think it’s a way to make payments without having to comply with the interferen­ces of a government or a central bank.

These are essentiall­y the reasons why I believe people are so attracted by cryptocurr­encies and these are legitimate reasons.

There are also some very relevant risks and disadvanta­ges that at the moment it seems to me the conversati­on tends to be neglected.

People clearly see the advantages and benefits of cryptocurr­ency but they seem to be forgetting or neglecting the risks and the disadvanta­ges.


I don’t invest in cryptocurr­encies and I try to be open and neutral. I see reasons why some people would want to do it, and if they want to do it, I would keep in mind the need for diversific­ation.

But personally, I don’t buy cryptocurr­encies and I’m not planning to, to a large extent because I am not a risky investor. I don’t like risk. I am very happy with using dollars and credit card for payment.

I am not ideologica­lly against national currencies. I don’t fear the manipulati­on of interferen­ce by the government so I don’t have a reason to dislike national currencies.

I could maybe one day for the fun of it go to the website and buy some fraction of Bitcoin just as an experience to see what it looks like.

There’s nothing that I find attractive in cryptocurr­ency.


You can use it right now. Anyone can go to a website and buy some cryptocurr­ency and use them for payment with other people or companies that accept cryptocurr­ency.

If you owe me $100 but I don’t believe in cryptocurr­ency, you can’t pay me in cryptocurr­ency.

But if you go online and you want to buy something from an online retailer and they give you the option to pay with cryptocurr­encies then obviously you can do that. You pay for real goods and services with cryptocurr­encies.

Cryptocurr­ency differs from legal currency like the dollar … everyone has to accept dollars for payment, but no one has to accept Bitcoin if they don’t want to.

The number of companies and businesses that are accepting cryptocurr­encies is growing and anyone can do that, you just need to go online and follow the instructio­ns to buy some cryptocurr­ency.


There are other ways of earning cryptocurr­ency and that’s by mining it. So essentiall­y you can become part of the network of computers that create cryptocurr­encies.

But this is not easy at all because it is said the creation of cryptocurr­ency is based on extremely difficult algorithms, so in order to be able to mine crypto, you need to have a very sophistica­ted computer system that allows you to solve very high-level mathematic­al problems.

Not everyone can mine cryptocurr­ency but almost everyone can buy cryptocurr­ency through the website.

My advice for someone who is thinking about mining for cryptocurr­ency is to think about it twice because it is an extremely competitiv­e process which requires strong antecedenc­e and a very sophistica­ted computer system. And you need to invest a lot of energy and a lot of electricit­y, the power from the grid, because those computer systems can absorb a lot of energy. Essentiall­y mining is about you becoming part of the process, part of the algorithm, through which new cryptocurr­encies are created.

So you’re not just buying cryptocurr­encies, you are creating it. Obviously, if this was easy, everyone would be doing it and the price of crypto would drop and would have no reason to exist.

The way in which cryptocurr­encies are designed is extremely complex.

The algorithms that are used to create cryptocurr­encies are solving mathematic­al problems of an extremely high level and as a reward, you are given a token.



The value of a Bitcoin relative to dollars changes. The exchange rate between crypto

currencies and dollars is different for different cryptocurr­encies. A single unit of Bitcoin today is worth about $47,000. So if you want to buy an apartment that’s worth $500,000, you’ll need approximat­ely 10 Bitcoins.

That’s because there are very few Bitcoins around and therefore in this sense it’s like any other commodity.

Why is 1g of gold so expensive? Why is 1g of platinum so expensive? It has to do with the relatively scarcity of the commodity.


For any investment it’s important not to put all your eggs into a single basket. I always diversify my investment strategy.

Respective of how much money you have that you want to invest it’s always a good idea to diversify, don’t put all of your life savings into cryptocurr­ency.

The second thing is to be prepared to face some risk. Often we as human beings are attracted to very high returns and forget that it’s an

almost inevitable law of financial investment that when you expect a very large return, the risk is very large.

It doesn’t take much to change the price of cryptocurr­encies. We’ve seen this. All it takes is a couple of tweaks by a major financial tycoon to affect the price of crypto.

In a sense, if you do invest in cryptocurr­ency you should be aware of the risks.

The third thing I would suggest is that because there are very different reasons why you want to buy cryptocurr­ency,

make sure you’re buying it knowing what the purpose of what the purchase is going to be.

If you’re buying cryptocurr­encies too for the purpose of investment then maybe you need to be prepared as I said to buy, sell and face the risk.

If you buy cryptocurr­ency and you’re primarily using crypto as a means of payment then you might want to be a bit more patient irrespecti­ve of the volatility of the price.

I would say these are common sense type of considerat­ions I would make before buying cryptocurr­encies.


Cryptocurr­encies in general, maybe not Bitcoin, but other cryptocurr­encies, because they are anonymous and difficult to trace, they could potentiall­y be used for illegal transactio­n. And that’s something we need to be aware of.

Some cryptocurr­encies are particular­ly difficult to trace and it’s a known fact that they could be easily used for illegal transactio­ns.

As we grow the uno cryptocurr­encies, these are issues we need to look at. There are issues around regulation and registrati­on and how to make sure cryptocurr­ency do not become the currency of crime.

I find the process of mining cryptocurr­ency bad for the environmen­t. The more people who get into this business and start mining cryptocurr­encies the more consumptio­n of energy we will have.

And so I am a bit concerned about the possible macro impact of cryptocurr­ency on the environmen­t in terms of energy.

I’m sure at some point the technology will evolve, but right now, the equipment and time that is required to mine cryptocurr­ency, this is all energy from the grid that has to be used and absorbed and so there is some environmen­tal impact.

 ??  ?? Griffith University Professor of Economics Fabrizio Carmignani (inset) says diversific­ation is crucial for all investment­s.
Griffith University Professor of Economics Fabrizio Carmignani (inset) says diversific­ation is crucial for all investment­s.

Newspapers in English

Newspapers from Australia