Crypto-currency was born after the financial crisis of 2008. With hindsight, it may have been inevitable. With the rise of the internet and emails, there could soon be tokens of money exchange you could ping back and forth between buyers, sellers or for loans, aid and charity. The genius behind Satoshi Nakamoto created a means to avoid double spend (the redeployment or recycling, copying and pasting of crypto files that stood for money) by creating blockchain — a ledger and a history of transactions that recorded something about where the money started and where it would end. It was a way of tracing valid addresses from a designated pool of wealth.
People had been using money for years since its evolution out of bartering (animals had been bartering long before people) using cowrie shells, pigs tusks, or bird feathers — eventually leading to pieces of rare and precious metals or jewels that were hard to accumulate. Some of the women fleeing to the West from Russia after the Communist revolution, transported wealth in the form of their precious jewellery that they could sell later. When in the past, women collected jewellery, they were more than love tokens — they were security.
In the beginning it was an experiment. Bitcoin was worth practically nothing. I only heard about it about 2010 from the London Review of Books. As with any money, it started getting collected and the quantity of bitcoin was limited. As real money swapped hands for scarce bitcoin — it started rising and rising in value. In 2017 it had exploded enough to hit the news. FOMO (fear of missing out) caused a buying frenzy before prices collapsed after the hype was over. Bitcoin fell from about £11,000 to less than £3000 within practically one year.
Etherium launched in 2015 was not just a digital coin. It was programmable money — money that could have built in conditions so that when paid out, it could execute contracts. Programmable money meant a new layer for the internet. Almost an information superhighway that could be built off a tokenised value chain.
Overall, cryptos represented money you could send to others that they could swap for real money, or vice versa, bypassing banks and middlemen. But realistically, cryptos were not regulated and largely remain so. During the trade, exchange, and storage of crypto — it could so easily be lost compared to real money or gold.
Real money or fiat has been experiencing its own problems. Unmoored from the Gold standard since about 1971, its value has arisen from defensive measures and policies by state governments such as the USA Federal Reserve — but with no intrinsic peg on value except guns, laws and the way other currencies were pegged off of one another. Every time there was a crisis, governments have printed more money leading to a steady erosion of wealth. You’d be better off holding your money in stocks, bonds, property, collectibles or similar instead of in the bank, if you wanted it to be inflation proof.
But now there is crypto — so here’s a simple guide. Dangerous wealth warning — Do your own research (DYOR), this is not financial advice.
You now have the option to hold your money as cryptos so that cryptos become your money of choice. Fiat is fighting back against this tendency. Here are four basic classes of digital currency that now exist or will get stronger with time.
Types of money
1. Very secure cryptos where the owner may not be especially invisible. Mainly thought of as stores of wealth — digital gold. Bitcoin is the first and remains the most valuable. Monera (I have heard) is a more untraceable kind of crypto.
2. Cryptos that will be part of an information superhighway to execute smart contracts or used for complex metaverse transactions (such as the digital worlds created in computer games, or for digital artwork also called non-fungible-tokens (NFTs)). Etherium leads the pack but there are many others such as Cardano (ADA). Many smart coins have been built off Etherium proving to be even faster and more efficient. We hear about Polygon (Matic) and others.
3. Cryptos that effectively create networks for the exchange of money and have no intention of substituting fiat currencies (my understanding is still a bit limited, but I do use these systems to pay people for example in Russia or South Asia from the UK) They generate their own blockchain networks are represented by tokens, representing the crypto. Such cryptos can be swapped into real money with the minimum of fuss and form blockchain networks along which huge amounts of international money can be exchanged. In many ways, this could be the most useful crypto of all. They rely in part on stablecoins—a named token associated with the blockchain could represent or act as the stable coin. In brief, here is how it works. You want to send US dollars as pounds to the UK. Your money is converted into stable coins, virtual crypto money that retains its value according to an agreed exchange rate, the stablecoins flow along a blockchain network that belongs to that crypto, it is transformed into pounds at the other end. Using such cryptos, it is now possible to send money from A to B from bank account to bank account, or from a credit or debit card to another bank account or card, almost instantly. Until now, there was Moneygram or Western Union to do this, but cryptos now handle such transactions cheaper, faster and more securely. Never before has it been easier to send money around without any interference by third parties. You have a relative that’s struggling in Timbuktu? Just zap them some money using your phone. Hopefully, they may be able to get it out of a local ATM. Cryptos that do this are represented by Stellar XLM or Ripple XRP. In a way, some of these cryptos will be like companies that help move money around, represented not by stocks, but by crypto tokens that could fluctuate in value and rise in price depending on their use and scarcity.
4. Government backed cryptos. Pretty soon, most or many fiat currencies could soon be digital anyway by the issuance of CBDCs, Central Bank Digital Currencies. The USA and UK are already investigating the creation of their own CBDCs. Countries like Ukraine are beginning to deploy CBDCs and they often use existing blockchain and stable coin networks. Many crypto companies are staking huge investments to become the digital networks of choice along which vast amounts of money will flow and are flowing. Unfortunately, CBDCs could also be used to control people. China has created a digital Yuan and is trying to stamp out all rivals so they can control their whole population, the taxation system and welfare system by reliance on powerful CBDCs. Recently, international Cryptos have fallen in value thanks to China stamping on them and banning them.
We can now send money to anyone anywhere using our smartphones and laptops. You just need digital addresses or QR codes, but with great wealth comes great risks.
There are three types of place you can store your cryto 1. Hard wallets, 2. Encrypted digital wallets where only you hold the keys and 3. Exchanges. Hard wallets like specialised pen drives will work fine as long as they remain functional — remember — cryptos are just lines of code. They can’t make you any interest and represent places you could keep your crypto as long as you can still access them. Encrypted digital wallets will work fine as long as you keep all the passwords in a safe place, written down in a notebook or similar (yes, the security does get in the way). Your money will be theoretically less secure than hard wallets, but you could do more with it. Such wallets can allow you to trade your crypto, swap it between other cryptos and work like secure exchanges. You hold the keys, so no one else will normally have access to them. At least you don’t have to look after your pen drive and every time you get a new, phone, the information will be accessible on the new phone through the same wallet app. Exchanges are a bit like a bank. You don’t have the keys to your money and are passing on its control to the people who hold your account. You can earn interest from your crypto and change it almost instantly to fiat money. You can send fiat from your bank account to the exchange, swap it for crypto, sell it, and move it straight back into your bank account. Exchanges are susceptible to being hacked or robbed by third parties, or they could diddle your money from within.
A few exchanges are now emerging that are very powerful and becoming like internet Swiss bank accounts holding millions of crypto accounts and billions in assets. These include Coinbase, Kraken, BlockFi, CoinJar and Binance. Apart from this, there are now many investment houses that deal with cryptos such as Grayscale and even Arc investments. Thanks to retail or institutional speculation and hoarding of cryptos, their prices have soared as well as the companies that are specialising in crypto.
Everytime you swap or transfer money from fiat to crypto or vice versa it is at risk. It could be completely lost and you won’t be able to get it back quite so easily if ever as it is an unregulated system of finance at the time of writing. Fiat money is protected by government or fiat backed companies such as credit card companies. Fear of loss or loss aversion have kept most sensible people away from crypto.
However, you may be losing out on a rising asset class with functionality, both in the real world and emerging metaverses such as digital worlds (NFT, Gaming environments) that are growing in importance. Besides, you have to be open to being paid in crypto, given most companies will soon or are already facilitating this. Last but not least, interest rates are so low that you may as well park your money as another currency that either retains its value or returns more interest than your regular bank accounts.
This has already happened in the past. Most people in Burma only work with US dollars. The same has been/is true in many poorer countries as the local currency inflates in no time. Companies like transferwise (now Wise) allow citizens of certain countries to run several bank accounts, each with different fiat currencies such as US dollars, Australian dollars, UK pounds etc. You could swap between currencies and maintain and grow your wealth as happens in FOREX. But now there are also cryptos and they have been rising much faster than fiat currency. “Oh, but they could all go to nothing” — that’s possible. But El-Salvador has already legalised Bitcoin and other countries will follow.
So it’s time for some name dropping of wallets, brokers and exchanges. I’m not being paid for any of this, and this mainly applies for people in the English-speaking world. In the UK I use Bittylicious to buy bitcoin and etherium. I have succeeded in selling bitcoin on this platform and the money came straight into my bank account. I use an encrypted digital wallet Blockchain.info for storing some of the crypto. I found that they use two types of subwallets for each currency — the trading wallet and the private key wallet. Each time you buy currency, it enters the trading wallet. They can charge to move it to the private key wallet. You can buy and sell in “blockchain.info” but each transaction can involve a cost and even transfers can involve a cost. If you want to take any fiat currency into your linked bank account, again, there may be a “small charge”.
CoinJar operating from Melbourne in Australia is an exchange and not as secure. But you can trade cryptos more easily using it. You can transfer money from your bank account to CoinJar, buy crypto, sell it and then take the fiat money back into your bank account. This liquidity may be better than buying and selling stocks because the money could hit your bank account less than 15 minutes after a trade—more or less instantly. They only charge for buying or selling crypto and not for transfers. If you keep your money on an exchange like BlockFi, you can earn more interest than in a bank account. It only works for certain types of coin. You can transfer cryptos from a crypto wallet to Blockfi (mostly say bitcoin or etherium) quite easily and have the chance to sell it or move it. Blockfi works in dollars and it may not be easy to transfer fiat money into a bank account of a non-US dollar designation.
Here’s a summary: Bittylicious — a secure broker to buy and sell certain cryptos. You can’t hold money at a brokers. Linked to a bank account to verified customers. Brokers are often real people and companies — even a friend could be a broker. Small commissions charged.
Blockchain.info — an encrypted digital wallet. Only works for supported currencies. Can buy, sell and transfer cryptos and fiat money of your choice. Strong security. Quite a few charges. Other encrypted private key wallets exist.
BlockFi — a place to stake Bitcoin and Etherium and earn interest in crypto. Theoretically better than dumber crypto wallets. May not be so good for fiat and money transfers. Other places you can earn interest exist.
CoinJar — for British and Australians among others. An exchange using which you can make easy transfers of fiat currency without charge from bank account to exchange and vice versa. You can buy and sell crypto, store crypto. They don’t seem to give interest (they give you points that you can use instead of a fee) but at least it’s very user friendly. A recommended site to trade in coins like Stellar XLM.
Last but not least there are now apps like PaySend that allow you to transfer money almost instantly and seamlessly between countries, cards and bank accounts. Mosty fool proof. Try with small sums first. You could lose money in the transfer process. Emerging apps like PaySend employ cryptos and stablecoins and so save you the hassle of bank charges for money transfers. You are still going to be charged a small commission and the exchange rate may not be the best on offer.
You now have the means to store some of your wealth or savings as cryptos. There are too many to choose from and some, like penny stocks are toxic waste. DogeCoin comes to mind. Cryptos are often just pump and dump schemes that could disappear to nothing. But the stronger cryptos are fighting for dominance among each other and Bitcoin still appears leader of the pack. Coins that act as means of exchange will also begin to be used internationally. Already Stellar XLM is a “Sharia compliant” digital currency used for trading, especially in Africa — its blockchain will become the basis of several CBDCs. Etherium looks like the king of smart contracts, decentralised finance and NFT trading — but others like ADA are catching up. At a time that third world fiat currencies are crumbling to dust under tides of inflation, people are desperate to store their money in inflation busting systems and earn interest. Cryptos are certainly paving the way for both of these, for spending on the metaverse and to act as a means of international wealth sharing.
Of course they go hand in hand with smartphones, laptops etc — they will become the banks and wallets of the future. So Apple shares and device manufacturers will still carry on increasing in power. Hold on to the money rollercoaster and think about where to keep and grow your money.
Here is the case for crypto: They can be used 24/7 and are tradeable 24/7 unlike stocks and shares. They have huge potential to grow (and collapse). The whole world potentially — anyone with an internet connection has access to them unlike stocks and shares — bigger market cap potential. You can swap them for fiat instantly and send fiat or crypto instantly over globally established blockchain networks. They are a store of wealth, savings and transferrable to others. Remember that they are mostly not covered by regulations and rely on inbuilt security but the road ahead for small investors to dabble in cryptos is increasingly smoother.
Of the names above the author does not use CoinBase, Kraken, Binance, Grayscale, Arc investments, Polygon, XRP, ADA, DogeCoin, has no NFTs …