Chapter 2: Cryptocurrency.

Let's be clear. Cryptocurrency, in all its colorful manifestations, will not be replacing the dollar any time soon. So don't be looking to trade in all your cash for code. The issues of scale in becoming the world's reserve currency are daunting. But is the emerging competition between crypto and traditional money a zero sum game? Can both types of currencies co-exist? The answer is absolutely they can. 

Many of the crypto-culture stereotypes can make the whole movement seem somewhat frivolous, lacking in well-needed gravitas. I mean, we're talking about real money. But underestimate crypto at your own risk, for at its core is an emergent and thriving movement looking to reconfigure how we do business in the future.

But before we join the movement, let's get a clearer understanding of just what crypto is. 

Cryptocurrency (or crypto for short) is a digital currency which is created by a complex network of computers secured by cryptography (a secure communication technique that only allows the sender and recipient of a transaction to see its true content) which makes it near impossible to counterfeit or double spend. It exists only digitally (or virtually), which is the first hurdle for skeptics to overcome. When engaging with cryptocurrency, there is no physical money in the traditional sense. 

Just like our cash money has different serial numbers, cryptocurrency has its own unique encrypted code, making it quite difficult to counterfeit.

The best known (and original) cryptocurrency is Bitcoin of which the blockchain was invented. Another hurdle to overcome for newcomers trying to understand digital currency is there is no physical coin associated with Bitcoin. We envision the term coin as a shiny metal object of various denomination (nickle, dime, quarter, dollar), a physical piece of money we can hold in our hands and exchange for goods and services. But in the crypto-coin world, there are no physical coins  It is strictly a series of code resting on your server, secured safely within your wallet (more about the wallet later).

An artists rendition of what a Bitcoin looks like.

 

What Bitcoin actually looks like.

 

Bitcoins, like all other virtual assets, are lines of 1's and 0's. They are a purely digital product that doesn't exist outside the digital world. Bitcoin is similar to a file stored on your computer. When you buy Bitcoin, you are buying a rare, unique and valuable string of code that you can buy and sell among other bitcoin users.

How does a rare and unique string of code come to possess value? Better yet, how did Bitcoin attain value in the first place?

Any discussion about the value of Bitcoin must address the nature of currency. Gold was useful as currency due to its inherent physical attributes, but it was also cumbersome to possess and transport. Paper money was an improvement, but it requires manufacturing and storage and lacks the mobility of digital currencies. The digital evolution of money has moved away from physical attributes, and towards more functional characteristics. 

If you are a newcomer to crypto, feel good about the road paved before you, for the impossibly hard work has already been done. Crypto is now accepted as a form of currency by some of the world's most prominent and successful companies, like Microsoft, Tesla, and countless more, companies who are not in the business of losing money or being part of anything not above board

The migration of our current financial system to an entirely online ecosystem is near complete, with direct deposits and autopay and credit and debit cards used for nearly all point of sale purchases. With over 1 billion credit card transactions daily the world round, we literally can exist comfortable today without any use for cash at all. We simply don't use cash (or coins) anything like we used to, with the Covid pandemic accelerating the transformation dramatically. So existing economically without traditional cash in hand is an emerging reality we are all experiencing

As with any asset or currency, value is created by scarcity and utility. Early in the life of crypto, there were avid coins but few places to spend them. But that landscape has changed. With a plethora of new coins executing various functions, the race is on to see which of the crypto coins will have the best usage as well as be a reliable store of value. Again, we're very early in the digital currency revolution, as a variety of coins jockey for position in this exciting evolving digital landscape

One of the biggest issues is Bitcoin's status as a store of value. Over time, crypto's utility as a store of value depends on how well it works as a medium of exchange. If crypto does not achieve success as a medium of exchange, it will not be useful as a store of value. Throughout much of its history, speculative interest has been the primary driver of crypto's value, for the potential of blockchain technology has revolutionary consequences for society and our economy.

With all cryptocurrency, its the promise of the blockchain that allures. The blockchain is a relatively new kind of database that has become the solution of the moment for storing digital information. The first blockchain was the database of which every Bitcoin transaction was stored (still is). Most databases that keep financial records, like say Bank of America, are centralized, with B of A alone responsible for keeping track of our financial records. 

With the blockchain database, the ledger is decentralized and updated communally by all the computers on the network. By keeping the records communally, no one computer or institution is in charge. By having the records dispersed throughout the network, if a certain computer were to be hacked, the system can go on just fine without it without any alteration to the records of suspension of service. 

After the success of the Bitcoin blockchain, programmers wondered if the design of the Bitcoin blockchain might be replicated to create other kinds of secure ledgers, unrelated to Bitcoin. 

Most of the early efforts to imitate the Bitcoin blockchain were done by programmers looking to create virtual currencies with slightly different characteristics from Bitcoin, and that needed their own databases to store all the transactions. Over time, some of these new virtual currencies added on significant new features that updated the blockchain concept so that it could handle more kinds of information.

The most valuable virtual currency other than Bitcoin is Ether, which runs on the Ethereum blockchain. In addition to recording virtual currency transactions, the Ethereum blockchain can record and execute other simple transactional programs.

More recently, many companies and governments have been interested in using blockchains to store data that has nothing to do with virtual currency transactions or transactions of any sort. While banks are building blockchains that can track payments between accounts, governments are experimenting with using blockchains to store property records, votes, medical records etc. Any and all record keeping that may have been dispersed among a variety of not always easily accessible databases throughout your life. (Good luck trying to find your dental records for that first cavity you got filled at age 7)

Its the decentralized aspect of the blockchain that a whole generation of crypto visionaries find so appealing.

Political philosophy aside, why else would an investor desire crypto? Right now, there is more crypto than uses for it. But the usefulness trend for crypto is trending upward as the virtual/digital marketplace grows globally, with business ventures throughout the web accepting crypto exclusively for payment as well as traditional online business accepting crypto as a means of payment (Microsoft, Overstock, Home Depot and of course Tesla). The world economy is undoubtedly heading toward an increasing digital marketplace. Where transactions are peer to peer, safe, secure and instantaneous with only the slightest of computational fees. That is the goal. That is the future. Buying into crypto now is buying into that vision. 

Cryptocurrency's rapid level of advancement and acceptability is unprecedented in financial history. As crypto investors, we are speculating on the future of digital financial transactions. Crypto and the blockchain are strongly positioned to be the key players in this emerging economy, with its continued improvement in its efficiency, improving and advancing all the necessary areas to facilitate even wider use and acceptance within all spheres of the economy.

No one knows yet whether crypto will or won’t work in the grandest sense. (Anyone who claims they do is selling something.) Tech innovations are real. But there is real money and energy in it, and many tech veterans say that today’s crypto scene feels to them like a decade ago, with technological innovations disrupting money this time instead of media. And those feelings are justified. Crypto is not just another  internet phenomenon. It’s an organized technological movement, armed with powerful tools and hordes of wealthy true believers, whose goals are to reshape how we do business (and pay for it) in the very near future to come.

But alas, one must ask.. Where does Bitcoin come from and who creates it? We are about to venture beyond my technical knowledge so I won't embarrass myself attempting to explain the highly sophisticated crypto mining system. As I like to say. I do all my work on my computer but please don't ask me how my computer works.

And the term crypto mining. The "mining" is not what you think. There are no picks, shovels, pans or boom towns of the wild west. Its actually quite sterile. Giant computing systems, doing slow grinding work. There are no great discoveries. Nobody is yelling Eureka!! 

Cryptocurrency in many ways is not that different than our current money. Qr codes, bar strips, chip readers. Its all code, just with middle men (banks, merchants, credit card companies) involved facilitating exchanges, all taking their cut or using your capital for their own benefits. (Ever ask a bank what they do with your deposits? Be sure to be sitting down) Cryptocurrency envisions a future economy without the middle men. You have an online product. You accept bitcoin. I pay you in bitcoin. Peer to peer. Nobody knows about it. Nobody is tracking our transactions and all our personal data.

Bitcoin mining has been active for over a decade now, cranking out a new bitcoin every 10 minutes. At the current rate of production, and with a hard cap set at 21 million bitcoins, as of January 2022, nearly 19 of the 21 million had been produced and released. The system slows its production by a system called halving, but at the current rate, the final bitcoin will be minted in 2040. But essentially the supply is near its maximum, with the hope a fixed amount of coin will stabilize crypto's value as a more reliable store of value as its utility increases.

Ultimately, crypto, like every other asset, will have its definitive value hinged to forces of supply and demand. We all live with supply and demand everyday (see current inflationary pressure. Too much money chasing too few goods). But lets play a hypothetical. Lets say Taylor Swift decided to play her last ever concert at the Ryman Auditorium, seating 2200. Tickets would be obscenely hard to come by. Those lucky enough to get their hands on one would be in possession of a scarce asset with intense demand. Now imagine if only DEIXA coins could be used to purchase said tickets. Just try to imagine how valuable those coins would become with such a feverish demand. This can and will be the future. It already is in select DAOs (more about DAOs later)

Crypto is not controlled by a bunch of oligarchs working for governments controlling the money supply. It is the most egalitarian of currencies. A money of the people, for the people, by the people. 

Within the growing digital currency ecosystem, several unique subcultures have emerged into the greater marketplace. One of those garnering much attention in 2021 are what as referred to as NFT's

Let us take a look at the exciting and ever expanding NFT market