Crypto Thoughts - Investment
According to dictionary. com, an investment means "... investing of money or capital in order to gain profitable returns..." or "...devoting, using or giving of time, talent, emotional energy, etc., as for a purpose or to achieve something." At WA, we are doing both. We invest a bit of money for WA tools, training and webhosting. We invest our time in creating, and maintaining our business.
Investing goes back to 16th century Europe. Scrooge, of Christmas Carol fame, was an investor.. lending money for profit. Most company retirement funds are built on investments. Investing is pretty simple. We let people use our money to create a product, build a business or develop a service hoping that they make money for us.
People are investing in cryptocurrency. They are buying, exchanging and selling dozens of different cryptocurrencies. I bought $10 worth of an alt coin (Alt coins are any cryptocurrency that is not Bitcoin.) when its value was at $.001. That's a lot of coins. Today the value is at $.014. At its high point, it was at $. 023. My wife and I are having fun watching the rise and fall of our small investment.
An investment of time and energy in a project, has a great chance of producing results because the investor is directly responsible, to some degree, for the outcome. Investing in stocks and bonds can be risky because gain and loss are outside of the investors control. But, stocks and bonds are based on goods and services that can be identified by the investor. On the other hand, investing in cryptocurrency can be extremely risky because it is a newly developed system of currency with value based strictly on perception. As governments, institutions and businesses accept cryptocurrency, it becomes more legitimate. Cryptocurrency is not based on any valuable object, good or service. its value rises and falls with world wide perception. In my next post, I want to talk about the value indicators for cryptocurrency. It is a very risky investment particularly in the short term. We've all heard the advice, "Buy low and sell high." That's the only way to keep on fishin'."
Recent Comments
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Wall Street Journal reports new cyberattack on cryptocurrency investors came from North Korea.
The value of what you have and wish to sell, ends up in being what the buyer will pay for it!
The crypto currency market is so volatile at the moment, it only takes one person to say something negative and the crypto currency goes into a decline.
Manipulation ? Well who's to know. Then it is a scramble to sell or to buy.
Yes this can happen in the share market as well but there we have trading regulations regarding eg. insider trading, selling/buying, etc.
Michele
Hey,
I like to invest in cryptocurrency but don’t know which company should I invest. Would you recommend any.
Regards
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When you value a stock, you have the company's earnings and book value to back the value. If a company runs into financial difficulties, it could theoretically sell its factories or other assets to weather the storm. This gives investors a sense of what a company is worth.
When a farmer has a parcel of land, he or she can use the land for produce. This too, gives future investors a sense for the value of that land and the assets of the farm, etc.
As a coin, there isn't a value associated with Bitcoin or Altcoins. However, one could argue that the blockchain gives the cryptocurrency that value-add. For instance, people have to pay for use of its blockchain.
People are using cryptocurrencies in a speculative way. Whether that is good or bad depends on their perspectives. If they are making good money, they will see it as good. If they lose money, they will call it a scam.
When the dust finally settles and people realize that the blockchain is the central mechanism of a cryptocurrency platform and is capable of much more that just currency platform, they will realize that is what holds the value of the network.
Best Regards,
Jim
I'm still struggling to fully grasp the way that blockchain works to support cyptocurrencies. It appears to me that blockchain is the mechanism that allows the tracking of cryptocurrency transactions and assurance that a 'coin' is unique, and not possible to duplicate in a simple manner. Is this correct?
If my perception of the purpose and value of blockchain is on-target, then the idea of blockchain allowing unique tokens to be exchanged, bought/sold etc. seems clear enough. The idea of token value is another matter. If a token is 50 grams of gold, then there is an initial understood value based on the utility and desirability of that metal. That token value is subject to demand and limited supply. If blockchain supports limiting the supply of cryptocurrency coins, then that can provide half of what is needed to support value, but it doesn't deal with the perceived utility of the token for non-currency purposes.
If the power of blockchain as a distributed, secure database resource has great utility for negotiation, secure storage or other non-currency applications, I can imagine it being a basis for value of a cryptocoin. That only makes sense if that blockchain access is an alternative use of the coin, just as gold is when one melts down a gold coin for use in jewelry or circuit contacts. Is it possible to harvest blockchain resources from a bitcoin for other use?
It seems to me that the best approach to a cryptocurrency is one that relates the coin to a fixed amount of a commodity, but allows it to be easily exchanged in digital form. So long as it can be exchanged for nothing but other forms of digital currency, it seems like vaporware to me, and thus has value tied to blind speculation.
I believe paper currency and metal coins are obsolete, but the concept of money is still critical; the best approach at transfer and storage of funds digitally is the future IMHO. So long as cryptocurrencies have no guarantor or exchange value, they seem destined to be overly volatile, so they seem more a phase than an answer or long term change. If I'm wrong, please explain why; I'd love to understand.
Hey Steve, you bring up some excellent points. Bitcoin can be exchanged for fiat currencies. I know somebody who bought both bitcoin and ether with his credit card. In fact, the value of bitcoin is quoted in relation to fiat currencies such as the dollar. The dollar still holds the title of reserve currency (for now) so most people will use it to quote other cryptocurrencies.
I also agree with you that the traditional concept of money is still important. If you were to wipe the slate clean and only use cryptocurrencies for all your transactions (assuming it could be done immediately) you would effectively wipe out all governments' access to money. Central banks would become obsolete. How would governments function? How could they protect their citizens?
From what I am learning, when the founders of Bitcoin created the concept, they intended it to be used more as a proof-of-concept. bitcoin the coin, does not scale well. The more people who jump on board, the slower the transactions become.
To your point, if the cryptocurrencies aspect of the blockchain are the only part people are focusing on, then it is pure speculation as they are driving the value up solely based on hope and prayers that it will continue to go up, just like any other bubble. The trouble with bubbles (haha!) is that they tend to last much longer than everyones' pocketbooks. In fact, the last report I read is that only 1% of the world population has involvement in cryptocurrency right now. This means there is likely much upside before they can be considered bubbles.
If, on the other hand, people use the blockchain and transact based on that, this is the intended purpose and one could argue that is the asset backing the currency. Of course, this does have its own set of problems in that the blockchains are only as good as the developers who code them.
Blockchains can be though of as ledgers. While most people may consider it a replacement for central bank ledgers (again, assuming that could even happen), they (blockchains) already have wider use in software apps, smart contracts, etc. These all use transactions with their respective cryptocurrencies as the means to pay for the infrastructure and reward those who maintain it.
Best Regards,
Jim