DID YOU MISS THE CRYPTOCURRENT BOAT?

You can still get in on the cryp­tocur­rency craze. But first, make sure you want to.

Popular Mechanics (South Africa) - - News - BY ALEXAN­DER GE­ORGE

FIRST, UN­DER­STAND THIS

There aren’t piles of bit­coin in vaults some­where. Cryp­tocur­ren­cies like bit­coin ex­ist en­tirely as data, ones and ze­roes pass­ing be­tween com­put­ers on the in­ter­net, prov­ing their ex­is­tence as num­bers on a phone or lap­top screen. In that sense, trad­ing rands for cryp­tocur­rency is like most forms of in­vest­ing. So buy­ing and hold­ing bit­coin is not as crazy as it sounds, ex­cept for one key dif­fer­ence: While typ­i­cal in­vest­ing is reg­u­lated by some cen­tral au­thor­ity who can bust cheaters and pro­vide an eco­nomic safety net when the bot­tom falls out, cryp­tocur­ren­cies reg­u­late them­selves. They use com­plex, nearly tam­per-proof soft­ware run­ning on hun­dreds of thou­sands of vol­un­teers’ com­put­ers around the world to en­sure that every­one plays by the rules no us­ing soft­ware to coun­ter­feit, no fudg­ing the num­bers on an ex­change. The whole thing seems kind of weird com­pared to in­vest­ing in corn fu­tures or, you know, putting your money in the bank. But big in­sti­tu­tions like Gold­man Sachs, which is open­ing a trad­ing desk for cryp­tocur­ren­cies this sum­mer, and Square, which now lets you buy and sell them within its cash app, are pay­ing at­ten­tion to th­ese cur­ren­cies and the tech­nol­ogy that pow­ers them. There are ways you can get in on it, too.

Un­til 2011, one bit­coin, which is still the most pop­u­lar cryp­tocur­rency, was worth less than a rand. As we write this, that same bit­coin is now worth around R95 000. But if you missed that first wave, or if you sus­pect that such ap­pre­ci­a­tion is un­sus­tain­able, there are more than a thou­sand other cryp­tocur­ren­cies to buy (see page 18). There may be fewer in­stances of bit­co­in­grade strato­spheric ap­pre­ci­a­tion, but there’s no ques­tion that there’s still earn­ing po­ten­tial. Just be pa­tient through the ups and downs. Brett Gib­son, a ven­ture cap­i­tal­ist and soft­ware en­gi­neer, bought bit­coin about five years ago, when each one was sell­ing for R230. He’s started check­ing the mar­kets daily, but gen­er­ally keeps still. “I’ve rid­den th­ese waves be­fore,” he says. “I saw bit­coin go from R12 00 down to R2 300, and I just didn’t do any­thing, Not do­ing any­thing to­day is as easy as not do­ing any­thing back then.”

To un­der­stand cryp­tocur­ren­cies, you need to un­der­stand the term blockchain. It refers to the col­lec­tive record (called a ledger) that stores cryp­tocur­rency trans­ac­tions. Think of it as a com­mu­nal Ex­cel spread­sheet. It’s the si­lent, bril­liant tech­nol­ogy that keeps every­one hon­est.

The col­lec­tive record is stored on vol­un­teers’ com­put­ers, not a cor­po­rate data cen­ter, and those com­put­ers run soft­ware that ver­i­fies trans­ac­tions, check­ing to make sure that both par­ties agreed to the change, and that the buyer has enough cur­rency to hon­our it. Th­ese vol­un­teers are called min­ers, and the re­ward for vol­un­teer­ing their hard­ware is

kick­backs in the form of more cryp­tocur­rency.

If enough of those com­put­ers con­clude that yes, this is a valid ex­change, that ver­i­fi­ca­tion joins the rest of the world’s re­cent trans­ac­tions as a “block.” To pre­vent peo­ple from gen­er­at­ing coun­ter­feit cur­rency, the math re­quired to ver­ify a trans­ac­tion takes so much com­put­ing power that no one user or group could do it.

Big com­pa­nies are in­ter­ested in blockchain be­cause it’s a se­cure, quick way to move in­for­ma­tion, like money, be­tween peo­ple with­out hav­ing to keep all that data in a sin­gle place. The soft­ware han­dles that on its own.

But be warned: buy­ing bit­coin is not the same as ex­chang­ing rands for euros be­fore your trip to Paris. Buy­ing cryp­tocur­rency re­ally means in­vest­ing in a com­mod­ity – a com­mod­ity that can fluc­tu­ate wildly, drop­ping and ris­ing by thou­sands of rands in a sin­gle day. And since there’s no govern­ing body to step in if the floor falls out, it’s help­ful to liken buy­ing bit­coin to gam­bling. Ac­tu­ally, it’s less re­li­able than gam­bling. One Sil­i­con Val­ley in­vestor put it to us this way: “In roulette, if you put R12 on ev­ery num­ber, you’ll spend R444 and be guar­an­teed to get ex­actly R420 in re­turn. You could buy R12 of ev­ery cryp­tocur­rency and they might all end up worth­less.” So, no, don’t put your re­tire­ment fund into bit­coin. But if you have cash that you won’t miss, in­vest­ing in cryp­tocur­ren­cies is a chance to be a beta tester for a rad­i­cal new money tech­nol­ogy. And you may even make some money while you’re at it.

Things have changed in con­struc­tion. Houses are more en­ergy ef­fi­cient than those we were build­ing when I was a teenage car­pen­ter’s helper wear­ing a can­vas nail apron bor­rowed from my boss in the morn­ing and re­turned to him at quit­ting time. Still, there are things I miss. When I was a kid, car­pen­ters built, didn’t buy, their tool­boxes and a lot of their day-to- day work aids. I ad­mit, it’s hard to beat the store-bought tool bags and parts or­gan­is­ers in wide use to­day. Wear-re­sis­tant fab­rics, plas­tics, and ex­truded alu­minum are all strong and light­weight. Score one for in­dus­trial de­sign­ers. On the other hand, when you make your own boxes, bins, jigs, and sawhorses, you get ex­actly what you want, not some­body else’s idea of ef­fi­ciency – with a free T-shirt thrown in. And be­lieve me, I’m no mas­ter crafts­man. The tools you see here are easy to build. As a man of hum­ble skills, I can build th­ese. They’re that sim­ple.

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