Jumping into the deep end of crypto craze
Tquestion. o crypto or’not It s a to crypto: that is the personal question, and the answer is rooted in understanding (yours) and confidence (everybody else’s).
We’re all drawn to new fandangle concepts (as my mother would no doubt have described the crypto craze). We all overdo it, driven by a toxic mixture of greed, Fomo and “with-it-ness”. There is little more stupid than pretending to know what you don’t. Don’t do it, there’s no upside.
You understand blockchain? Sure I do — it’s that computer ledger mining thingie, right? Right! Well then, let’s buy some bitcoin already. Never, ever trade — or worse, invest in — something you don’t understand. Nowadays that rule might leave you wondering whether there’s anything out there to invest in. Market values are volatile (even for household name investments), and prices can move up or down by more than 5% in a day (don’t even try to annualise that).
But there’s a difference between understanding the economics of an asset and having to guess its value today. Fundamental value emerges over time, so just know what you’re getting into and you won’t have to worry about the exogenous variables of the day.
We moved on from bags of salt and bushels of wheat to metal coins (with intrinsic value), and semi-finally to paper money — as a medium of exchange more than a store of value. At one time backed by gold, fiat money is now just a promise, a promise by a government (not a bank) to give you a rand for a rand.
The circularity of that promise was soon enough exposed for its futility, and now even that is missing from the face of our banknotes. Samesame for bitcoin — a bitcoin is worth a bitcoin.
It surely follows that we’d move from paper to virtual money — spurred on towards global acceptance and efficiency, and away from government intervention.
Enter bitcoin, and its many crypto cousins. A product, it could be argued, of the whizz kids, the players of video games, the rulers of the universe. Our children. Better “educated” than most of us were, they scorn our old-fashioned ways and principles as they journey onward into the new way of things.
Who wouldn’t want a piece of that? Everyone, including some of the most considered pension funds, ventured in. The price rocketed so high that it began to look like a store of value, collateral for loans, a speculator’s paradise. And that’s when things started going awry. It’s a medium of exchange, dummy. Or is it?
If indeed only a limited number of these things will be mined, then such demand had to push up the price. But is it true? Some claim to know the answers. Others just believe, or don’t.
Does the recent spectacular collapse of FTX and BlockFi filing for bankruptcy mean the end of crypto currencies, and nonfungible tokens and stablecoins and, you know, the whole family of things we talk about at dinner parties? I don’t think so. I think this is just the Ctrl-Alt-Del wake-up call that was required to give us time to think, question, understand and move forward.
Regulation is not the solution, other than to safeguard us from the fraudsters, money launderers, seductive capital raisers and scams. In short, to contain the extent to which we fools can so readily be parted from our money by clever crooks. Authentication is what is required, not control.
It is inevitable that a faster, cheaper, universally acceptable currency will emerge to replace fiat, and it’ll live in the ether, where we ourselves and most other stuff we deal with already partially reside nowadays. Validation will be the new order of things.
But for now, you can’t make your own bitcoin, or earn it or store it in a safe place down the street. So watch out, watch out, watch out.