Crypto – Are These Currencies Real?

Are Cryptocurrencies like Bitcoin, Ethereum, Bitcoin Cash, and Litecoin real?  Some say they are and some say they are not.  What makes a currency real?  Take a $20 US Bill for example:

20 dollars

What makes this real currency?  The fact that right under the words “This Note Is Legal Tender for all Debts, Public and Private” it is signed by the Treasurer of the United States and to the right signed by the Secretary of the Treasury … dose that make it real?  No!  What makes it real currency is a group of people (primarily for this one, people in the US Government) and other groups of people agreed that it was currency (including foreign governments).

But really, all it is, is special paper with a special ink printed in a special way.  There is nothing backing up this other than the Promise of the US Government to make it good.  Now I happen to believe in that “Promise.”  We have no choice … yet … we lost the gold backing of our currency in 1933.

What was the gold standard?

It was a monetary system that directly linked a currency’s value to that of gold.  A country on the gold standard could not increase the amount of money in circulation without increasing its gold reserves (which is a very slow process).  Theoretically this would hold a government’s overspending and inflation in check.  No country currently backs its currency with gold, but many have in the past, including the U.S.; for half a century beginning in 1879, Americans could trade in $20.67 for an ounce of gold. The country effectively abandoned the gold standard in 1933, and completely severed the link between the dollar and gold in 1971.  The U.S. now has a fiat money system, meaning the dollar’s value is not linked to any specific asset.

Why did the U.S. abandon the gold standard?

To help combat the Great Depression. Faced with mounting unemployment and spiraling deflation in the early 1930s, the U.S. government found it could do little to stimulate the economy. To deter people from cashing in deposits and depleting the gold supply, the U.S. and other governments had to keep interest rates high, but that made it too expensive for people and businesses to borrow. So in 1933, President Franklin D. Roosevelt cut the dollar’s ties with gold, allowing the government to pump money into the economy and lower interest rates. “Most economists now agree 90 percent of the reason why the U.S. got out of the Great Depression was the break with gold,” said Liaquat Ahamed, author of the book Lords of Finance. The U.S. continued to allow foreign governments to exchange dollars for gold until 1971, when President Richard Nixon abruptly ended the practice to stop dollar-flush foreigners from sapping U.S. gold reserves. To read this whole article on the Gold Standard … please visit this website.

Let’s remember that currency as we know it today was not always around.  In the early days of civilization, before gold, there was bartering.  Caveman Smith would trade so many apples to Caveman Jones for so many oranges.  The problem with this is that Caveman Jones may not have had any need or want for Caveman Smith’s apples and so Caveman Smith would have to travel far and wide to find someone who did want his apples and hope they had the Oranges he wanted.

Currency developed overtime from bartering of labor or commodities, to exchange of rocks and metals for goods and services to actual coins, then to paper, then to plastic (charge cards and debit cards) then to electronic wallets such as Paypal, Apple pay and Android pay, etc.

So, Cryptocurrency just could be the next chapter of real currency.  You can read all about the beginnings of Bitcoin by going here.   Just know that it actually was began in 2008. It became a reality on the internet in 2009 and actually started being used in commercial transactions in 2010 when programmer Laszlo Hanyecz bought two Papa John’s pizzas for 10,000 bitcoin.  At today’s bitcoin price that would be about $31,700,000 per pizza since bitcoin as of this writing is $6,340 per coin.

Why is the price going so high?  It has gone from next to nothing $0.0008 per coin to a current price of $6,340 per coin – and at one time was as high as $19,343.04 per coin on December 16, 2017.  Boy those pizzas on that day would have cost $96,715,200 each.  However, at $0.0008 per coin in 2010 those pizzas probably cost about $4.00 each.  So why does the price go up (and down)?

For the same reason gold goes up and down … Supply and Demand.  There is only so much gold that has been mined.  There is a limited supply.  As demand for this commodity goes up … the price goes up.  Well, there is only 21 million bitcoins in existence – and they say there will never be anymore (Bitcoins that is).  So with a limited supply … as demand goes up … price follows.  It should be noted that some coins can be mined and some can be purchased with “fiat” money (e.g. traditional currency).

If you go on the internet and search for bitcoin images you may see something like this:

bitcoin

 

Whether or not you actually would receive any of this kind of currency is beyond me … I mean after all it is supposed to be a “digital currency” only.  So for now, I consider this just a graphic representation of Bitcoin.

 

Remember, I said there were only 21 Million of Bitcoin available.  PLEASE DON’T CONFUSE THIS WITH only 21 million cryptocurrency coins available.  Just like gold is mined … cryptocurrency is also mined (but instead of using picks and shovels one would use math and algorithms) .  There are approximately 45 Gold Mining companies in the world that you can buy stock in.  That’s a reasonably large number of shovels digging for gold.

But, did you know there are currently 2,093 Cryptocurrency companies that you can purchase cryptocurrency from (the largest being Bitcoin)?  Now that is a huge number of companies offering this “new kind of digital currency.”  You don’t believe me?  Go here!

Now when you are on this page you can sort based on column name:

Cryptocurrency

Select the column %1h, or %24h or %7d and it will show the percentage return a person would have made in the past 1 hour, 24 hours or 7 days.  In this case as of this writing … the company X12 Coin would have made a person 96.06% in the past 1 hour but would have lost them 32.62% in the past 24 hours or 24.27% in the past 7 days – had they invested in the X12 Coin 7 days ago.

When I click on the %24h column and sort from largest to smallest … InflationCoin comes to the top with a return over 24 hours of 284.76% – also up 7.21% in the past 1 hour and up 314.33% in the past 7 days.

And, when I click on the %7d column I see that Tronclassic provided a total return of 1,805.80% in the past 7 days, a return of 229.84% in the past 24 hours and a loss of 0.08% in the past 1 hour.

The other column to draw your attention to is the Circulating Supply Column.  If your list is sorted in the # column from 1 to 2093 you will notice that Bitcoin has 17,367,600 coins in circulation at a price (shown now) at $6,393.69 whereas XRP has over 40 billion coins in circulation at a price of a little more than 50 cents per coin.  The * next to the 40.2 billion also signifies that you cannot mine for these coins … you have to buy them if you want them.

Well I have given you a lot … but have yet to answer the question … is Bitcoin or other cryptocurrency actually currency?

To me, at this stage it is simply and investment.  A very volatile investment that can make a lot of money or lose a lot of money in a very short period of time.  However, to those who have the cryptocurrency and those who are willing to accept cryptocurrency it is actual currency … and at this time very UNREGULATED currency (unregulated does not mean non taxable).

There is currently a rumor going around the internet that Amazon is expected to make the announcement on February 1, 2019 that it is going to start accepting Bitcoin and potentially other cryptocurrencies for payment of goods.  Whether it is true or not … I don’t know.  I do know that whatever Amazon decides to do it usually (to use a figment of speech) “turns to gold.”  This means you could see several of these cryptocurrency companies going up in price.  However, you could also see some actually go bust.  So, the question is should you invest and in which ones?

This is all new … so I really don’t have an answer for you.  I would probably stay away from Bitcoin at the present time – but  I would also stay away from Bit20 that has a price of $113,553 per coin with only 1 coin in circulation at the present time.  In addition … You should never invest more into this kind of investment than you can afford to lose.

BELOW I AM PROVIDING SOME LINKS

I have gone out to find some information for you … but there is so much more out there.  At the end of these links … read my closing comment.

https://blockgeeks.com/guides/what-is-cryptocurrency/

https://www.today.com/video/what-is-cryptocurrency-and-should-you-risk-your-money-with-it-1176396355663?v=railb&

 

https://www.thestreet.com/video/what-is-cryptoc-14686081

 

Closing Comment:

Whether you are buying cryptocurrency as a currency or as an investment … remember just like other forms of non-paper currency … you will need electricity to use it.  It takes electricity to make an ATM give you money on your debit card.  It takes electricity to use a credit card at the store.  It takes electricity to run a cell tower so that you can use phones to make purchases.  It takes electricity to operate a computer after your batteries have died.  It does not take electricity to be able to pull cash out of your wallet or purse to make a purchase of goods or services.  So, regardless of the investments you make … make sure you have plenty of US Dollars lying around so that you can survive a few months if the electrical grid in this great country or some other disaster yielded you no electricity for awhile.

Good Investing and Make Some Waves!

Jerry Nix

 

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