Digital & Cryptocurrency Basics

Bitcoin is a crypto/digital currency, its money much like paper currency and it fluctuates against other currencies, both paper and digital.  It’s a method of legal tender to whoever agrees to accept it, no different than any other currency.  There are over 7,800 crypto currencies, with Bitcoin being the most recognizable because it was the first, and in many ways, acts as the unofficial world reserve digital currency.    

Most governments have concerns about cryptocurrencies because they can’t effectively control, track or tax them, but many people consider that to be one of cryptocurrency’s most attractive features.  Peer to peer crypto transactions enable people to anonymously purchase things with no paper trail, a feature that applies to cash as well.  Crypto currency transactions made on digital exchanges which group companies, purchasers and sellers together on platforms can be regulated or banned.  Some nations such as China, Algeria, Bolivia, Morocco, Nepal, Pakistan and Vietnam have banned crypto currency exchanges, but cannot control individual/private peer to peer transactions.  In 2017, the IRS ordered Coinbase, the largest crypto currency depository\electronic wallet, to report to them the names and amounts of Bitcoin purchases over $20K.

Initially, crypto currencies were not intended to be an investment, but that is widely how the public and markets are treating them today.  When you purchase/exchange your currency into cryptocurrencies, you are getting a digital representation of a currency that has a specific value at that moment.  Digital currencies go up and down against other digital currencies, like the USD goes up and down against other paper currencies. 

Many people are interested in purchasing crypto currencies, but are uncertain about how to do it and how these currencies really work.  There are many companies and crypto brokers who hire themselves out for a fee to instruct people in how to do it.  When Bitcoin goes up it really goes up and when it goes down it really goes down.  Some people have made a lot of money purchasing it, but most have lost a lot, because, like stocks & bonds, most people have no idea what they’re doing.  A prudent investor ought not to buy what they don’t understand, because they won’t know what to buy or when to buy or sell it, may be taken advantage of or simply make a poor decisions.  Unfortunately, too many only look at the rapid gains and jump on the band wagon. 

Regardless of the volatility, crypto currencies are here to stay and corporations, the markets, the regulators, the IRS and even the banks know it.  Physical cash will eventually be replaced by digital currencies and this could happen within as little as two years.  China has said they are going digital Jan 1, 2022. The European Central Bank said they have been preparing a digital currency and will be ready to make the change at the right time. The Federal Reserve has one ready to go as well.  

There are many pros and cons to going digital for companies, global markets, banks, governments and individuals.  In a nutshell, the positive side for corporations and governments is the convenience, control and cost effectiveness, as well as making it very difficult for criminal operations like money laundering, drug and human trafficking to transact business. On the negative side, your personal anonymity would be all but eliminated, and if there was a banking and\or economic crisis, you can’t withdraw your money and bring it home. The greatest change would be that governments would now be in complete control of everyone’s money with no checks & balances or oversight; anyone could be labeled a threat at any time and have their ability to transact instantly blocked.  One way to prepare for this change could be to open your own crypto currency account, while there are few regulations.  After the change from paper to digital currency occurs, the three main ways to hold cash and transact outside your digital bank account would be gold & silver, bartering goods & services and having an alternative crypto currency account.

How do you get crypto currency?

The process of opening a crypto currency account, converting your cash into digital currency, purchasing specific cryptos and then storing them, can be somewhat complicated and cumbersome.  You have to methodically complete every step to protect your transaction.  If you’re not technically inclined, the learning curve is steep.  This is why people are willing to pay for someone to do it for them.  The first step in opening a cryptocurrency account is establishing an electronic wallet which becomes your digital depository. There are many options, but Coinbase is the largest and most widely accepted.  I am not advising anyone to buy/convert to cryptocurrency, but I have listed the basics steps below for information’s sake.

  • Go to coinbase.com click “Get Started” and complete account opening process
  • Once account is open, complete test deposit from your bank account, debit card or credit card (confirmation of this transaction will vary depending on your financial institution)
  • Once transaction is confirmed, repeat the process to complete your actual transfer
  • Then choose one of the digital currency options your electronic wallet offers (i.e., Bitcoin, Ethereum, Litecoin)
  • Once transfer is complete and confirmation is received, it is possible to transfer into other digital currencies or currency platforms
  • After completing your first purchase, you must place it in a “digital wallet,” which is usually a part of the digital platform company you chose
  • Only one currency may be purchased at a time, so a majority of the process must be completed each time you purchase a different crypto

You must have a smart phone or computer or you cannot complete the process.  Anyone who is not proficient on the computer and smart phone should think twice before attempting to purchase crypto currency. 

Most crypto currencies are even more fiat than paper currency, because they are not even backed by the “good faith” of a government (whatever that’s worth).  The question is: who is really in control of it?  Billions have been lost when various Bitcoin exchanges have been hacked, and because transactions are difficult to track, there was no recourse.  The exchanges claim they have fixed the problem, but that begs the question: who fixed it and how did they fix it?  It is claimed that peer to peer transactions can’t be hacked, which so far seems to be true, but there is still much uncertainty surrounding this new market.

Cryptocurrencies that have a greater technological functionality in transaction and exchange of goods and services have a greater chance of success.  The most widely used digital currencies in the U.S. to transact business are Ripple and Ethereum.

My greatest concern in regard to digital currency is how easy it makes it to shift into a national, and, ultimately, a one world currency.  Everyone would be forced to participate in this new system, but could also be blocked from it with the click of a button.  Once in place, this kind of system could destroy people’s ability to buy things privately and anonymously, as well as block individuals from transacting with others in the system.  While there are many benefits to digital currency, there are also potential dangers and unanswered questions, anyone considering participating in crypto should proceed with caution and be very well informed about what they are doing and the potential risks.    

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