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Crypto seems like nonsense. But lots of people keep getting rich from it. So am I the dumb one?

It's a Monday. You should be catching up on work email and organizing your week. Instead, you meander over to Reddit.

There are five more days in the workweek. You've got time to spare. The site brings an air of familiarity and comfort to your morning — until you see it.

It's all anyone can talk about. Again.


You've seen stories about teenage bitcoin millionaires. There's that one guy who became a millionaire off a meme coin that started as a joke. Even movie-theater enthusiasts are raving about it.


And what's with the obsession with Shiba Inus anyway?


You've avoided the topic for long enough, and now your fear of missing out has finally trumped your reluctance to find out more.


You've come to the right place to get your burning questions answered.


What the heck is going on?


It does have a "frenzy" feeling to it, doesn't it?


This is partly because many people strongly believe crypto will revolutionize the financial system and other parts of society, kind of like how the internet changed the way we live. Many of the same people have also gotten very rich thanks to crypto. That can do a lot for someone's belief in the technology.


To go back to the beginning, cryptocurrencies started with bitcoin in 2009. It was created as an alternative to so-called fiat currencies, like the US dollar or the euro, which are controlled by powerful, centralized institutions like governments, central banks, and big banks.


If you think back to 2009, the world was still in the throes of the financial crisis. The system had screwed up. Since then, a massive amount of new money has been pumped into the economy.


Bitcoin and some other cryptocurrencies were created to offer a decentralized currency with a fixed supply. The number of bitcoins that will ever be created, for example, is capped at 21 million.


All cryptocurrencies operate on something called a blockchain network, where a "chain" comprising "blocks" of data verifies new data in order to add more blocks.

The concept has gained popularity in recent years, and now many of the Wall Street banks that had a hand in the financial crisis are getting involved. This has lured even more investors, some of whom may just want to speculate.


That's what has led to an environment that feels so outlandish at the moment.


OK. But what does a Shiba Inu have to do with any of that?

Good question! In 2011, alternatives to bitcoin — aka altcoins — entered the scene, hoping to reinvent the rules. Now there are thousands of them, including a coin called shiba inu, which went nuclear last week after Tesla CEO Elon Musk tweeted a photo of his new pup.


If you think bitcoin is volatile, altcoins are even more so, considering memes and social media can add to the volatility.


Got it. I think. So is a cryptocurrency a medium of exchange? A speculative investment?

Both.

"It certainly could be an investment given where things are going, but, of course, you could lose your shirt," said Steve Sanders, an executive vice president for marketing and product development at Interactive Brokers.


"It's certainly a currency that's meant to sit alongside the currencies that governments issue. It's certainly speculative — who knows what's behind it or what's going to happen?"

So I could actually buy stuff with my crypto?


Right now, cryptocurrencies are mainly being used as financial assets, like gold. But there are emerging ways to use it in everyday life. A town in El Salvador dubbed "Bitcoin Beach" used the digital asset like you and I use the US dollar.

More broadly, apps are emerging that allow people to put their cryptocurrencies to use. BitPay, for example, has partnered with Verifone, which makes the card readers you use when making everyday purchases, to let people pay with digital assets. BitPay has also teamed up with Apple Pay to allow people to buy everyday goods — like a Snickers — and luxury items.


One record label has even offered to pay artists in the cryptocurrency of their choosing, thanks to a new partnership with Coinbase.


Am I a dummy for not wanting to buy in?

Maybe! Bitcoin is surging toward its all-time high, and who's to say it can't rally further than that?


No one knows what it's going to do tomorrow. It could crash, as it did after hitting a record $65,000 in April, or it could continue to soar. Hence the speculative, high-risk-and-sometimes-high-reward nature of the asset class.

Sanders has this advice: Don't buy in because you have FOMO and everyone else is doing it. If you have an opportunity, like extra cash on hand to diversify your portfolio, then maybe investing in a high-risk asset like cryptocurrencies could be a reasonable option.


How are people deciding what these coins are worth?


¯\_(ツ)_/¯

There is clear speculation in projects that were meant to be jokes, like dogecoin and shiba inu. But price movements right now in projects that were founded with more serious intentions, like bitcoin and ethereum, are also at least partly a result of speculation.

Whereas in stocks you have many standardized ways to value companies, such as price-to-earnings ratios, the methods for cryptos aren't nearly as structured or widely known yet.


Bitcoin doubled this year. Ether quintupled. Many altcoins have scored even more ridiculous numbers. Surely that's going to stop at some point?

If you had put $100 into bitcoin on January 1, 2021, you'd now have $202.28.

If you'd done the same thing on January 1, 2018, you'd have $444.38.

2015? It would be $18,907.81.

Yes, there's lots of speculation in areas of the crypto market. Yes, it's likely that at least some of the cryptocurrencies hitting wild highs will crash back to earth at some point. But no one knows for sure if that will happen.


Some say crypto will end up like the dot-com bubble around 1999 and 2000. While the internet indeed changed society, and some companies were big winners, many of the firms that investors had put money into collapsed. Even the eventual winners suffered big losses when the bubble popped.

In crypto, certain protocols or projects seem to have more convincing use cases than others and could stick around. For example, many projects built on the ethereum blockchain seem to have more of a purpose — wificoin, for example, aims to make it easier to access public WiFi — than coins like shiba inu.


I can't imagine the feds are too happy about any of this.

Regulation scares some crypto investors at the moment. There's a school of thought that the government will flat-out ban cryptocurrencies — or at least some of them — because they hinder the US's ability to control its monetary policy. China has already taken this route.

Others believe regulation would be good because it would legitimize the assets and protect investors.

"I 100% believe that regulation is a great thing for the space," Aya Kantorovich, the head of institutional coverage at the crypto exchange FalconX, told Insider earlier this year.

"It's not going to deter from any growth in the space, I should hope, and what we've seen in the new administration in the past is that there's been a lot more communication between the industry and the regulators back and forth, which I think is a really great sign."


OK. My last question. Crypto fanatics tend to act cultlike and be universally bullish. Do I have to start hanging out with them and change my profile pic to laser eyes?


Spend a few minutes on crypto Twitter and you'll see a barrage of phrases like "To the moon!" and "Diamond hands!" and most likely some nastier messages to those expressing doubt or skepticism about the digital assets.

One reason for this is that many people involved or invested in crypto believe in blockchain technology's potential. But many also probably have a direct financial interest in the assets doing well. Regardless, this pervasive, over-the-top bullishness certainly doesn't lend itself to robust discussion and can turn outsiders off.


Kathleen Breitman, a cofounder of the cryptocurrency tezos, told Insider that the crypto community was made up of some of the world's "sorest winners" and that it was one of its biggest problems.


Source: https://www.businessinsider.com/



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