Written by Steve Cannon for USSANews.com.
So, what are these cryptocurrencies?
In a nutshell, cryptocurrencies are nothing. They are no more real than the digital numbers you see when you log into your bank account to check your bank account balance. They are just numbers, encrypted, of course. The difference is that there is no middle-man needed to exchange the money.
For example: I need to pay you $20, I hand you a $20 dollar bill. The end, deal done. What if you’re 1,000 miles away? I can send it through my phone…which means we both need to log into our bank accounts for the exchange to occur. (Or send cash through the USPS or UPS.) This is the problem, the middle-man. Why are banks and governments involved in my personal transactions? They shouldn’t be, and this is the void cryptocurrency fills. It eliminates the need for banks and governments (or anyone else) to be involved in the exchanging of money.
Learn from History and Profit from it
- Me: I want that knife.
- You: I’ll trade it for that food.
- Me: Deal!
Above is a typical transaction: I want this, you want that, no one else involved. So, what is money? Before money, there was bartering, or trading: I give you this, you give me that, or you do that for me. At some point, people wanted stuff that other people didn’t have or want to give up.
- Me: I want that knife.
- You: I’ll trade it for this rag.
- Me: No deal.
The problem of this second example is that the barter fell through because Person A did not need or want a rag. The knife was more valuable than the rag and the deal fell through. Easy concept.
Money is Born
Money was initially gold. Everyone wanted gold, so exchanging goods or services for gold became popular.
- Me: I want that knife.
- You: I’ll trade it for this gold.
- Me: How much gold?
- You: This much.
- Me: Deal, I’ll sell that gold for blankets.
And a deal was struck. The gold gained could then be used to purchase (or traded for) anything. The only decision left to make was not what to trade, but how much gold was worth for the trade. Money was born.
The Dollar is Backed by Gold
Gold has been the monetary standard for eras. Gold is finite, meaning it cannot be produced or manipulated. There is a limited amount, so once it’s gone, it’s gone. This explains why it keeps up with inflation. The paper money issued (dollars) used to be such that you could trade it in at any point in time for real, physical gold. That changed in 1971 when Nixon took the US off of the gold standard.
You will never lose “money” with gold. (In 1950, a $50 ounce of gold could buy you a great suit. Can you say $50 will buy you a great suit today? Nope, but an ounce of gold will. Think about it.) Now, our money is backed by the “…full faith and credit of the United States government.” In other words, “I’ll pay you back if I don’t have it now.” In other words, nothing. My gold and silver are real, tangible assets, and in my safe. Cash is literally paper. Paper is worthless. Stocks, bonds, and bitcoins, are just computer-generated numbers given value by people who believe that value is real. Precious metals and real estate are tangible possessions that have real value.
Money and Time
Money is time. Paper money is a representation of that time…and the value of your labor. But what is paper money? Paper money used to be a reflection of your time, your labor. It was defended, or backed up by gold. All that useless paper in your wallet (cash) was defended by actual gold. That meant at any point in time that you could take your paper cash and bring it to the government and exchange it for physical, solid, gold. This was called the “gold standard.” Your time at work was represented by paper money. Your paper money was represented by physical gold. The end.
Literally, cryptocurrencies are worth less than cash. Cash at least has the value of the paper it was printed on, but that’s about it. So why buy Bitcoin? Because everyone else is buying it, among other things. Here’s the bottom line:
- Older people today still pay their bills with checks.
- Middle-aged people pay their bills online.
- Sooner or later, all will pay their bills digitally with a cryptocurrency. (Later IMHO.)
Why Should I Buy Cryptocurrencies?
See bullet point three, above. It’s just a matter of time before it gets fully adopted. Why? Because the banks and governments cannot control it! You should know this about fiat money:
- Paper money (cash) is not backed by anything (other than the government’s promise).
- Cash can be manipulated by the government by:
- Printing more money (QE1-4 – inflation).
- Manipulating interest rates.
- Keeping secrets.
Cryptocurrencies are finite (like gold) and cannot be manipulated by banks or governments. This is why people are buying it. No one has control of it except you, the owner. There is no middle-man, no government manipulating the interest rate or printing it. Nothing can control it except its owner. This is called, Freedom.
What about the Bubble?
The dot-com and real-estate bubbles were in fact, real bubbles. The cryptocurrency market is not a bubble. Bubbles are created through interest rate and price manipulation via the government or banks. The cryptocurrency market is a true supply and demand bartering system, with no middle-man. Will it pop or collapse?
My bet is yes, it will pop in the future, but not for a while. Why? 99.9% of the people today do not use a cryptocurrency to pay their bills or even know what it is, for that matter. Fear of missing out is what is driving the price to record levels with no end in sight. The more word spreads, the higher the price goes, simple as that.
This is a pyramid scheme, make no mistake, but it is early enough to profit from. The crash will come when your check-using mom invests in it hoping to make a quick buck. At that point, people will get skittish and sell at a rapid pace.
I see Bitcoin peaking at $1,000,000 per coin when word gets out and the craze goes global. It’s at that point you should sell, and most will, cashing out their profits causing a domino effect. Why $1,000,000? Quick math says that most people don’t know about it yet, so there’s a great deal of people who are willing to take a chance in the hopes of getting in early and making a profit. Additionally, companies like Amazon and other biggies are considering accepting cryptocurrency as a form of payment (thus creating a positive domino effect). Big news considering it has no real value. When word gets out about the potential profits, in addition to large companies accepting this new payment method, the value will skyrocket!
Pyramid schemes rely on people getting in early and cheap with the hopes of everyone else getting in, thus raising the cost and limiting the supply and raising the price. Things will settle and people will take their profits and run. Remember, cryptocurrencies were meant to be money, not a commodity. Right now it’s a hot commodity. Do just that, take the money and run.
Know What You’re Getting Into
Yup, it’s a Ponzi scheme. If you get in soon and get out quick, you can make some serious money, just don’t get greedy and don’t dawdle because you will lose.