From the Greek root "kryptos"
It seems each day there is a story about cryptocurrencies. Bitcoin, dogecoin, stablecoin, polkadot. And the list goes on. There are currently nearly 6,000 in existence. The origin of the word “crypto” goes back to the Greek root “kryptos” meaning “hidden” or “secret”.
Ironically, cryptocurrencies are being used by bad actors who would like to keep their activities secret, financing terrorism, buying and selling drugs and weapons, deploying ransomware among other criminal activities. And yet, people see a huge future for crypo in the world we all participate in, to help us finance our everyday lives.
Let’s first talk about what cryptocurrency is, using bitcoin as an example. Each “coin” is a computer file. And there are a limited number of these files or coins. These files can be sent from one person to another as a payment. Every transaction is logged in a list called the blockchain. In theory, then, bitcoins get their value because they are scarce and because people are willing to exchange them for real goods and services, or for cash. At one time gold was used in such a fashion. The Aztecs used cocoa beans as money. There is precedence for using something other than a piece of paper.
In addition, innovators love that crypto doesn’t require an intermediary (e.g. a bank) for the transaction to occur since the file can be exchanged and the transaction logged in the blockchain without a bank’s involvement. Theoretically this lowers costs for individuals and enables transactions that don’t require paperwork hassles and approvals from those bank intermediaries.
Finally, innovators love the idea of unregulated currency alternatives. But, and this is the biggest issue we see…. governments control money around the world. So how does bitcoin, or any crypo, represent a currency when it isn’t controlled by a government? We like to say, until there is an army behind it, we don’t think it has value. The lack of regulation has led to 6,000 variations. The only scenario we can imagine is that governments eventually bring some order to this 2021 version of the wild, wild west.
You might have guessed that, since we see it as highly speculative with the risks outweighing the rewards, we don’t own any for our clients. Until the use cases are more clear and the regulatory environment takes better shape, we view it as a speculative bubble similar to the 1999-2000 tech bubble. A better place to invest at the moment is the underlying blockchain technology which banks are already testing to replace paper-based and manual transaction processing. That said, the blockchain world is another area of great speculation and worth investing only money you can afford to lose.
Jared
Brian Kellett, brian@kellettschaffner.com. Phone 513-312-6067
Dave Bodnar, david@kellettschaffner.com. Phone 513-258-6973
Jared Kline, jared@kellettschaffner.com. Phone 513-768-2238
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