How helpful is Bitcoin?

First, note there are various types of cryptocurrencies, and for the purposes of this piece, I’ll focus on easily the most mentioned and used: Bitcoin (BTC) and Ether (ETH).

Bitcoin was the very first blockchain – a financial one – created by an individual (or group, who knows) called Satoshi Nakamoto in 2008. Its value has exponentially increased to a ridiculous level: you may have seen pieces swirling around the Internet such as “if I had brought $100 of bitcoin back in 2010, I’d have over US$100 million now” or about Bitcoin’s first billionaires. An increasing number of retailers and internet sellers are beginning to accept Bitcoin as a method of payment.

Without going into too much detail, while Ethereum is very similar to Bitcoin, its uses extend beyond the mere financial side of things such as mining, into the provision of services on its own particular blockchain. Ethereum provides built-in software programming languages that can be used to write, for example, smart contracts that can be used for many purposes, including the transfer and mining of its own tradeable digital token, Ether (which is even more complex than Bitcoin).

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Prior to Christmas 2017, the cryptocurrency space went through a process called “mooning”1. That is to say, their prices went utterly and completely ridiculously sky high. It became the absolutely wrong time to buy crypto. Because just before Christmas, the entire market utterly crashed, losing approximately 20% of its entire global market cap.

It then bounced up. And then in mid-January, crypto exchanges again crashed, with prices in Ethereum for instance falling approximately 25%.

So, the headlines. Regulators issuing “buyer beware” notices (certainly needed, but also because many central regulators struggle with the notion of regulating a decentralized technology). Investing in initial coin offerings (ICO’s) and in cryptocurrencies is highly speculative and basically, you can lose all your money.

And you can indeed. Of course, you can say the public shareholders of Lehman Brothers also did, but unquestionably cryptocurrency exchanges are far more volatile than the stock markets.

But cryptocurrency is important and it is not going away, or be limited to 100 years as others may speculate: transactions are fast, digital, secure, and worldwide, which in essence allow the maintenance of records without risk of data being pirated. Fraud is, actually, minimized.

Also, as an aside, digital currency such as Bitcoin should not result in inflation. The total number of bitcoins that can ever be mined is limited to approximately 21 million, so there is no way the total amount of cash in the system can be increased by any central bank. Bitcoin itself is, by its nature, scarce… though one can certainly argue that cryptocurrencies themselves, are infinite as they can be generated by anyone.

Should I really care?

Many large banks are now spending money either collaborating with existing crypto clients (JPMorgan with Zcash) or developing their own cryptocurrency (such as Bank of America).

Whenever I get asked, “Should I think about buying any cryptocurrency such as Bitcoin or Ethereum?”, I tend to answer along the following lines [and note, I’m by no way an investment advisor, nor in any position to give any investment advice, so none of this should be considered any]. Basically, do you have any spare money? Do you like to speculate in a fairly volatile investment (and I use the word “fairly” being polite)? Have you ever been to Las Vegas? If so, welcome to the Crypto Casino.