In the fantastic Steven Spielberg movie Ready Player One (2018), we are taken to a near-future world where everyone lives in relative squalor but can spend all their days living out their fantasies in an online world of hyper-reality. Other than the significant functions of eating, relieving oneself of waste, and sleeping, most people, live full-time in the alternate fantasy called the Oasis.
Within the Oasis, items and powers are purchased using currency/tokens earned in the games or by way of commerce within the ecosystem. This is essentially how cryptocurrency works. It accrues value in the digital realm.
Therefore, instead of throwing one’s hands up and saying you don’t understand it, or being an old curmudgeon and saying that crypto is worthless because it is not “real,” one must accept that our finances are shifting to online, decentralized systems. And no matter what one thinks about Mark Zuckerberg (which, in my case, is not much), the Metaverse is the next stage of the internet and our financial evolution. Businesses are already creating currency for the games and services that they offer within.
Blockchains
Blockchains sound complicated and mysterious and perhaps a bit scary. However, they are not that difficult to understand.
A blockchain is an electronic database that stores information into digital blocks [files] with a fixed storage capacity. As each block is filled, it is sealed with complex cryptography and linked to the previous block of data to create a chain. New data is put into the next chronological block, and when that block is filled, the process repeats. And so on.
The data entered onto a blockchain is permanent and cannot be destroyed. Furthermore, although the entire log of transactions on the blockchain is transparent and visible to everyone who knows where to look, each block is sealed and nobody can access them all to change the information.
The chain is decentralized across thousands of computers worldwide. Therefore, it’s impossible to hack and access the individuals’ private data behind the transactional records in order to determine the final ownership of assets.
This decentralization means that no person, bank, or government can ever control or access an individual’s cryptocurrencies nor any other digital assets stored on the blockchain.
Further, if one bad actor attempted to change the ledger of transactions, all the nodes within the chain would cross-reference in a Proof-of-Work. A process using the network nodes (individual computers) to provide evidence that the transaction was legitimate. This involves achieving a majority consensus with the other nodes that everything is correct.
Blockchains are global and very difficult for governments to control. And we shall soon see big banks and institutional money moving into Bitcoin in a very big way.
In the long term storing wealth on a blockchain is arguably safer than any bank, fiat money investment, or keeping gold buried in the garden.
How to Purchase Cryptocurrency?
There are many exchanges dedicated to purchasing cryptos, and several mainstream stock brokerages are also getting in on the game. Well-established online exchanges for crypto include Coinbase, Binance, and Mandala. It is important to note that there was hacking into some exchanges in the past, which means that an investor shouldn’t keep their assets sitting on a company’s exchange but rather keep it in their unique wallet on the blockchain—which I’ll also get to. Newer online social brokerages that allow the purchase of cryptos include, among others, WeBull and Public.
The exchanges will typically allow the funding of an account directly by bank deposit or debit card and then allow one to start trading immediately. In comparison, the stock brokerages will make you jump the hoops and wait several days for funds to clear before trading. I am not qualified to give financial advice, however, I think diversifying across multiple accounts gives one the best chances of making trades if there is a sudden run on the market.
Once your account/s are funded, buying currency is straightforward. I.E., choose which crypto you like and how much you would like to invest in it. However, as with trading in a new and volatile market, don’t invest money into anything if you can’t afford to lose it all.
There are, however, some notable exceptions of strong cryptos that are probably not going anywhere for a few years yet. The two most prominent are Bitcoin and Ethereum.
Bitcoin (BTC)
By now, everyone should have heard of Bitcoin. It is, after all, not exactly new—George W. Bush was still President of the United States (he had a week left in office) when the first Bitcoin transaction took place on January 12th, 2009. Therefore, at this stage, it is a well-established financial instrument that has proved its concept.
Bitcoin transactions usually take about ten minutes to be confirmed on the chain but can take as long as an hour to complete, which is hardly convenient as a currency at the drive-thru.
Being the first crypto to the market, Bitcoin has attained a status not so much for practical use when purchasing products but rather as a store of value, along with being an asset as a long-term hedge against inflation.
Bitcoin is easy to buy on any major exchange. If I were a financial advisor, which I am not, as this article is for educational purposes only, I would suggest buying some today. We are very near the end of the third four-year Bitcoin cycle. There has been a massive peak and then a significant correction at the end of the last two cycles, and it is looking like we will see another peak within the next four months—most likely before the end of the year. Many analysts expect the peak to be somewhere more than $100k. At the time of writing, BTC is trading at $67,553. And you don’t have to buy an entire Bitcoin. They divide up into Satoshi, which is 1/100,000,000 of a Bitcoin. Therefore, anyone can jump on board at a price they can afford.
Ethereum (ETH)
Ethereum was conceived in 2013 by the forward-thinking coder Vitalik Buterin and went live in 2015. Unlike BTC, Ethereum was created to have a lot of practical applications. This includes Decentralized Finance (DeFi) applications to replace the need for brokerages and banks. It also allows for a much faster and more practicable transaction speed when making purchases. Also, most fees for online transactions and services are paid in Ethereum—this is called “gas.”
However, as Ethereum has become more popular, transaction times can slow, and the system can become choked, making the cost of “gas” more expensive. To fix this issue, the developers have created Ethereum 2.0, which is currently being tested and should reduce the power consumed by Ethereum transactions by 99.9%.
Like with BTC, Ethereum is moving toward the end of a cycle. Today ETH is trading at $4,804, but analysts have it reaching more than $10K by early next year before seeing a downward correction. Therefore, a financial advisor may suggest getting in on the play, but I couldn’t possibly comment.
AltCoins
There are many different coins on blockchains. Many of which are ERC-20 Tokens, which piggyback on the Ethereum chain. This has allowed for fast exchanges and the creation of smart contracts, which are automatically executed with legal documentation and stored on the blockchain. Smart contracts further reduce the need for working through banks or putting trust in intermediaries who take a significant cut of the transaction.
All altcoins, however, are very speculative at the moment and should be treated as such—perhaps like penny stocks? They very rarely have robust data on their fundamentals to make informed decisions, and technical analysis is often too new to show reliable patterns. So, never buy any if you are unwilling to lose your entire investment.
Memecoins
So-called meme coins are those not driven by practical use, but rather by allowing the organic generation of their application by a community of investors, who are also users and will develop their own uses and ecosystem for the currency. Examples of memecoins are Dogecoin and Shiba Inu coin.
Doge was famously started as a joke, however that all changed when Elon Musk said he was holding a large number of the coins, sending the price skyrocketing.
In August 2020 the Shiba Inu coin was released and nicknamed the dogekiller. Long-term investors, along with believers that a crowd of incentivized people could move the market in their favor, grew into the #SHIBARMY and they’ve been successful at being a powerful market force, with the SHIB/USD being up 791% in the past twelve months.
The memeworlds mostly cross each other with friendly competition. But, they live separate lives as their online communities are always pushing their own financial agenda and many see it as a zero-sum game.
They are, however, fascinating experiments. Will large numbers of people successfully work together for a significant period of time, e.g., five years, connected only by the internet or metaverse, for a chance to become very comfortable?
After seeing the success of both the woke and the cult45 at creating and maintaining their organizations online by living in protective bubbles and only listening to those that confirm their bias, I am quite sure this can be done.*
*To be honest, I am not sure this can be done as I am not a financial advisor.
What’s in Your Wallet?
So, you’ve purchased a string of numbers that is attached to a long string of letters and numbers that represents your investment on a blockchain, be it BTC or ETH or something more exotic, now what?
To ensure that you are entirely in control of your finances, you will need to store your digital assets in a wallet. The wallet, of course, is digital, and it is essentially a place to keep the keys that allow others to send you currency or a place from which to make your purchases and give you access to your completed transactions, i.e., your cash on the blockchain.
It is literally a wallet. So, open it (connect it via the internet to the exchange or whatever you want), take out your cash (create a link between the wallet and the other end) and hand it over (confirm and execute the purchase), then close your wallet (disconnect) and go about your day. Two well-supported and safe digital wallets include Metamask and Coinbase Wallet. There are, however, others, so do the due diligence.
Alternatively, if you don’t wish to store your digital assets in an online wallet, you can purchase a hard wallet and put them on there and then keep it somewhere very safe in your house or perhaps in a safety deposit box. A reliable brand for this purpose is Ledger, although, of course, you must do your research before choosing.
The only ‘problem’ with storing crypto and digital assets
Using either a soft wallet or a hard wallet is excellent, and both have their uses. However, unlike putting your money in a bank or storing it with a regulated brokerage, everything to do with digital assets is decentralized. This means you are entirely responsible for maintaining your digital security.
Typically, you will have either a 12 or 24-word passphrase that gives access to your wallet. You need to learn it, store it, do something to keep it safe. But, the one thing you cannot ever do is lose it.
If you lose access to your digital assets, then you have lost them forever. The nature of the blockchain means that no person nor institution has your passphrase. There is no sending an email to reset it. When it is gone, it’s gone. It is the digital equivalent of being set on fire—or burned. Which also means the currency is permanently out of circulation.
NFTs [Non-Fungible Tokens]
NFTs are the latest item to be monetized and stored on blockchains. They can be bought and sold, swapped, and collected. Imagine trading cards or pieces of digital art that are uniquely coded, and one’s proof of ownership is locked into place on a blockchain.
Relatively new, the first and most famous being CryptoPunks which were minted in 2017, is a collection of 10,000 poorly rendered digital characters that make up five of the top ten most expensive NFTs of all time, each selling for between $4,370,000 and $11,750,000. Here is an example, but I don’t know its current value:
For those not in the market for multi-million-dollar digital art pieces, there are plenty of opportunities to pick up inexpensive and new works from artists in this new medium who are making big names for themselves. A great place to check out and explore NFT’s with no pressure is the website, Opensea.io
When it comes to investing or even speculating on finances, everyone has their risk acceptance and comfort level. If getting into crypto is not for you, then that is your decision, and you must do what is best for you and your family. However, according to financial experts, this is a great time to make some money before the cycle starts again. So, as fortune favors the brave, how brave do you want to be? BTC or ETH brave? A couple of NFTs brave? Or, how about some Shiba Inu coin brave?
Whatever you decide, ask your professional financial advisor (who truly knows the crypto market) for some help and take a ride to the moon. Molloy