Cryptocurrencies

Mysteries, Myths, and TRUTHS

BY JEFFREY WISE

ALL PHOTOS STOCK.ADOBE.COM

When I first heard about crypto in 2013, I was sitting in a physics class at Ohio State University. At first, it simply sounded like a novel way of approaching money, but too complicated for a regular guy like me to wrap my mind around. But I’m innately curious, so I dove deep into this murky topic, including supply charts and the method of issuance of Bitcoin. I didn’t understand exactly what it was that I was learning, but the concept, however vague, seemed likely to somehow, someday, affect my personal financial reality.

Here I am, nine years older, still a regular guy, with my mind and finances firmly wrapped around how cryptocurrencies work. The purpose of this article is not to go into those operational intricacies. I just want to share the basics of the technology for those regular people, like me, who are curious but have no idea why or how Bitcoin even exists, let alone how it gains and holds value.

Let’s first admit that cryptocurrencies seem kind of like unicorns – they probably don’t exist because you can’t see them. To begin, the whole idea of decentralized currencies and blockchain is rooted in the idea of “digital scarcity.” That concept never even existed before Bitcoin “turned on” in 2009. This concept is really hard to grasp because it’s so dissimilar to paper currency – you can’t stuff it in your wallet and the Federal Reserve can’t print more if we, aka the U.S. Government, runs out. That’s a different kind of scarcity, but if you look closely, it’s still “manufactured scarcity.” The fact that the Feds aren’t guaranteeing the value of cryptocurrencies makes the investment sound scary or frivolous, especially when you use hard-earned paper dollars to buy it. But think more deeply and you’ll discover one of the basic tenets of cryptocurrencies: If the Feds aren’t controlling issuance, that also means the Feds aren’t controlling the assigned value of this “digital” method of exchange. Hmmmm.

So who does control the value?

It’s a new and exciting evolution of the use of digital technology –and the human methodology of exchange.

To simplify, I’ll use an analogy with digital photos. A digital photo is a series of 1s and 0s encrypted and decrypted depending on if you’re taking the photo or looking at the photo on a digital device. Using current technology, it can be copied and sent an infinite number of times. This makes it very convenient to program and send using the internet in its current iteration, but once you share it, there is no way of preventing innumerable copies from being created and shared. It is also possible, although unlikely, that someone can hack into your accounts and steal this digital data, just by the nature of the data being centralized. Being centralized creates single points of failure in any digital system. Hence, cyber-security is considered one the greatest perils to national security. And what about all that Amazon shopping? Or typing your social security number on the IRS website?

Blockchain changes all of this. Imagine you take a photo using a digital camera and instead of saving it on your device or “in the cloud,” it’s minted as a “Non Fungible Token” or NFT and saved into your personal “digital wallet.” In this scenario, you own that photo and no other copies of it can exist without you explicitly creating them. Now let’s say you only create a single NFT of that photo. This makes it possible for you to send that photo securely to anyone on the planet, but once you send it, you no longer have it or even a copy of it. This example explains the fundamental principle of the idea of digital scarcity. Everything you create is a Mona Lisa, singular and priceless, or worthless, depending on demand. That’s how cryptocurrencies work. It’s a new and exciting evolution of the use of digital technology –and the human methodology of exchange. (Check out the History of Currency for relevance.)

Bitcoin takes advantage of this digital scarcity and is designed to increase scarcity over time by utilizing a diminishing issuing supply schedule. This allows for a digital account of supply that cannot be manipulated, can be predicted, and sets the stage for humanity to have its first monetary supply that is fair, transparent, and which cannot be inflated by way of new issuance.

How this is accomplished is beyond the scope of this article, but imagine an open source, global, decentralized network that has no central authority and the security of the network is ensured by physics and math, outside of the influence of any single government or corporate intervention. This revelation can be disturbing or delightful depending on how comfortable you are with anything to do with physics and higher math. In other words, Einstein would probably have bought Bitcoin on its first issuance. Elon Musk did not need Einstein’s example.

Now imagine a world where the idea of having individual accounts for every online service is outdated. The new way of utilizing online services allows you, the user, to be in complete control of which companies have access to what information about you and that access can be revoked at any time at your discretion. This is accomplished by the use of a “digital wallet.” All of your personal information would be held in this digital wallet and only the information that is absolutely necessary would be shared with any companies to which you decide to grant access.

When you’re done using their service, you revoke access and they no longer have the ability to communicate with you or use your personal information. This equals digital efficiency, security, and freedom.

Please remember, I’m a regular guy. It’s not my intention nor profession to give financial advice. The purpose of this article is to help paint the picture of why these assets are being created, how they exist, and to share the opportunities cryptocurrencies present. I know these things to be true because in March of 2020, when the world markets crashed due to the emergence of the COVID-19 pandemic, I saw an opportunity in Bitcoin.

At the time, the likelihood of Bitcoin falling more than the $3,800 per Bitcoin price bottom was highly unlikely. This is because I understood that Bitcoin represents a market that is not controlled by any particular country or organization. I also understood that the next “halving” (a word used to describe the halving of new Bitcoin issuance every four years) was happening in May of 2020. That would predictably create a supply squeeze, driving the price up. That’s when I decided to put much of my last six years of hard-earned profit from flipping real estate into Bitcoin and a few select crypto projects. That choice, which some considered a risk, provided a more than 4,000% return with ongoing interest payments.

It’s important to point out that some crypto projects are like the Wild West, forging ahead without meticulous study, and some are being developed with a more methodical approach. Regardless, the crypto world continues to gain traction. Entire countries now utilize Bitcoin as their primary currency along with the USD. This progress towards legitimacy and acceptance holds the promise

of giving the power of money back to the people by removing the need for a third party to facilitate transactions and control of value. Shells, wampum, whiskey, or gold – currency has been around and changing since hominids began wandering this earth, deciding what money is and what it can do. Welcome to the crypto chapter in the history of currency. It is a reality. Unicorns remain debatable.

BRIEF HISTORY OF CURRENCY

2000 B.C. GOATS, PIGS AND WHATEVER WORKS

Before currency, there was barter-animals, food, goods- but imagine the disadvantages. Was a big goat that would age but provided milk worth more than 2 small ones?

1,200 B.C. COWRIE SHELLS

Once upon a time, humans traded the rare Cowrie shells of sea snails as currency.

The creatures, usually found in deep sea beds, required free diving expertise in ancient times. The hard, smooth shells, sans snails, varied in size and prevented forgery, but were not accessible to the landlocked.

1,000 B.C. METAL COINS

The Stone Age brought forth advancements in creating standard units of account for value with metals. China forged imitation Cowrie shells in copper and bronze. Other civilizations used copper, gold and silver to create the first medal coins, which were durable, small and divisible by weight. However, fakery was rampant, and transactions were made difficult across cultures, especially trading from Europe to Asia and Africa. Spices you can eat. Silks you can wear. But what good is a little round piece of metal when riding camels across the Gobi desert?

550BC GOLD

Gold, the lustrous, chemically- inert compound found in the earth was highly valued since prehistoric times and used predominantly for jewelry and worship for 2,000 years. In 1,500 BC the Egyptian Empire, rich with deposits in Nubia, established this mineral as the first official medium of exchange in international trade. Thank Tutankhamen and Cleopatra for the Gold Standard.

A.D. 618- 907 PAPER FIAT

Paper money, which must be backed by the issuing government, came about with the Tang Dynasty in China. This form of currency, the yen, euro or dollar have value because all societies agree that it does. Paper money is easy to carry, divide and trade without argument except at a flea market. Governments prefer it because they have central bank control and must compete for economic dominance. But- can you imagine there was some resistance to agreeing a lump of gold was worth a few pieces of paper? Think about this in relation to societal and governmental “crypto-resistance.”

A.D. 2000 -- DIGITAL BLOCKCHAIN ….REMEMBER:

This article is just an FYI history lesson about the future!