Cryptocurrencies are a rising phenomenon...maybe? October 2, 2017By Patrick Reilly
Cryptocurrencies such as Bitcoin, Litecoin, Ethereum and others have been gaining popularity. While still not generally understood by the average person, these “currencies” have risen exponentially in value over recent years. This has attracted the attention of such notorious investors as self-described Floyd “Crypto” Mayweather, Barcelona soccer player Luis Suarez and famous person Paris Hilton.
So what exactly is cryptocurrency and what is it you used for? According to Investopedia, cryptocurrency is “a digital or virtual currency that uses cryptography for security...is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.” So cryptocurrencies such as bitcoin are completely digital and aren’t owned by anyone. There is no sort of “internet federal reserve” out there controlling bitcoin as a currency, this lack of control amazingly works and provides one of the benefits of bitcoin: nearly non existent transaction fees. Whenever you buy something with your credit card from Visa or Mastercard there’s nearly a 3% fee that is deducted. There is also no way to tax purchases done through bitcoin because there’s no one overseeing the currency and tracking every purchase. Many of the other advantages of bitcoin mostly apply to those who work outside of the law. There is no enforcement mechanisms that can freeze a bitcoin account like they could freeze a standard bank account. Also since there is no one tracking bitcoins--they can be used safely for illegal activities on the internet, such as drug trafficking and money laundering.
Now why are cryptocurrencies gaining popularity and why on Earth is Paris Hilton involved? This is most likely because of the exponential rise in the price of a single bitcoin and the success of other online currencies. Everyone who thinks that Bitcoin is the way of the future is looking back at the price of one bitcoin around 2010 and they don’t want to make the same mistake again. One Norwegian man was lucky enough that he wrote a thesis on encryption and just decided to buy about $25 of bitcoin in 2009. He forgot about it for 4 years until he saw bitcoin on the news, that $25 today would be worth about $18,500,000. While that’s great for that guy, in my opinion, speculation is the main reason that bitcoin has had such an incredible rise. People buy bitcoin, wait for the price to rise and then sell it to the next fool who wants to do the same thing. I see bitcoin as a game of musical chairs between speculators and once the music stops there will be a steep decline in the already volatile currency.
Jamie Dimon, CEO of JPMorgan, recently said that “cryptocurrencies are creating something out of nothing that to me is worth nothing”.
While I will not be an investor in bitcoin I do see the potential that others see. The potential for internet payments that aren’t government tracked, taxed or come with ridiculous fees. On the other hand paying thousands of United States dollars for one unit of an internet currency with no tangible value or hard assets behind it seems like the definition of a bubble.
______ References Kessler, Andy. (2017, August 27) The Bitcoin Valuation Bubble. Retrieved fromhttps://www.wsj.com/articles/the-bitcoin-valuation-bubble-1503868225Investopedia. Cryptocurrency. Retrieved fromhttp://www.investopedia.com/terms/c/cryptocurrency.aspInvestopedia. What are the advantages of paying with Bitcoin? Retrieved fromhttp://www.investopedia.com/ask/answers/100314/what-are-advantages-paying-bitcoin.aspGraham, Luke. (2017, September 22) Governments will close down bitcoin and cryptocurrencies if they get too big, warns Jamie Dimon. Retrieved fromhttps://www.cnbc.com/2017/09/22/bitcoin-jpmorgans-jamie-dimon-lays-into-bitcoin-again.html Author: Patrick ReillyNote: This Volume was previously published on September 26, 2017. The online upload date does not reflect the original publication date.