Crypto currency is a controversial commodity in this day and age. The late Charlie Munger consistently referred to it using the s-word, Buffet doesn’t invest in it because he doesn’t understand it, and if you go online there are tons of people who know for a fact that crypto currency is a worthless “Ponzi scheme.”
Here are a few quick facts about crypto currency so that you can come to your own conclusion about it:
- Bitcoin was the first crypto currency. It was created in 2008 in response to the financial crisis and a wide spread mistrust of banks that resulted.
- The founder of Bitcoin is unknown, and went by pseudonym “Satoshi Nakamoto”.
- One of the original purposes of crypto currencies was to take the place of banks. The idea was that banks act as middlemen and are not trustworthy enough to manage people’s most valuable assets.
- Crytpo currencies are built on blockchain technology. To put it very simply, blockchain is like a digital timeline that cannot be changed. Nobody can go onto Bitcoin’s blockchain and change a transaction in the past. Once it has been done, it is there forever.
- Most crypto currencies are decentralized. When Bitcoin was created, decentralization was one of its main draws. Nobody controls the supply of BTC – it is fixed at 21 million, and nobody can tell you if you can/can’t spend it and how to spend it.
- Decentralization provides protection against a central bank devaluing a currency by printing more of it.
- Crypto currency gets “mined”, but what does that mean?
- Basically, miners verify transactions on the blockchain using super computers and special algorithms. Once they complete a verification, they get rewarded with some of the crypto currency.
- There are different methods of verification with the main two being proof of work and proof of stake. Bitcoin runs on proof of work and its rival, Ethereum, is on proof of stake.
So, is this stuff even worth anything? This is opinion, but hear me out.
- Crypto currencies were meant to function as currencies, and some of them have that capability. If Bitcoin, for example, was used as a popular medium of exchange, it would skyrocket in value.
- Crypto currencies will play a role in the upcoming Metaverse. Digital currencies will be needed in a digital world, and why not use one that can’t be manipulated by the issuer?
- They have the potential to disrupt the banking industry. If crypto were used on a wide scale like it was created to be used, we wouldn’t have to ACH, write checks, or have bank accounts. You can even stake crypto currency to earn interest which would be similar to a savings account.
- The final and perhaps most important point is that sooner or later the US will not be able to pay the interest on our debt. When that will happen isn’t certain, but it will be wise to have investments in commodities in a time when the US dollar weakens. Holding Bitcoin can be a good way to defend against that.
Like it or not, crypto currencies are here to stay. Even if Bitcoin did go to zero, as the naysayers like to predict, there are millions of people out there who would snap up as much as they possible could for free, which would drive the price back up. We will see what the future has in store for both the value, and functionality of crypto currencies, but rest assured, those two things correlate strongly.
Grayson Shaw is an investment advisor at Christian Values Investing in Statesboro, Georgia. He graduated from Georgia Southern University with a Bachelor’s degree in Finance. With interests in foreign currency markets, macroeconomic trends, and cryptocurrencies, Grayson is a devoted student of elite money manager Stephen H. Hammond’s investment philosophies. He interned at Christian Values Investing during his junior and senior years in college before joining the firm full-time after passing his series 65 exam. He is a member of Trinity Presbyterian Church in Statesboro, and sits on the board of the Christian Liberty Network. He applies his faith and financial expertise to promote Biblically responsible investing at one of the nation’s leading faith-based investment firms.