Cryptocurrencies just bollox?

Illustration by Angel Chen

You can be sure of two things in my experience. First, when someone tells you that something is the next best thing since sliced bread, it won’t be. The second, when someone tells you that you will make a ton of money on something, you won’t. The reason you won’t isn’t that they are lying, but the money has already been made by the people who knew about it before everybody else got in on the act.

Cryptocurrencies have been around since 2009. So what? And what are they anyway? Simply put, they are a type of money which only exists on the internet. Pretty much everyone has heard about Bitcoin and when it first arrived on the scene, probably most people, including me, were going “WTF is that?”. In a nutshell, Bitcoin was a way of manufacturing a currency in virtual reality which could then be used to buy things in virtual reality, and by extension in the real world too.

What needs to be understood before anything else is the myth that many people have about money. Despite common opinion, money isn’t a real thing; it’s a medium of exchange. Money was invented to allow people to go and buy stuff without having to exchange their eggs directly for bread, and so on. There have been many forms of money, including things like cowry shells, which were used in the past as money in both China and Africa.

Money became the significant thing it is today mainly because someone invented banking as a way for people to store their money and decided to use bits of paper instead of gold and silver. Some would say it all went downhill from there.

Once upon a time, and economists will give you this definition, money was said to be an idea backed by confidence. The confidence part was the idea that you can use it to buy something from someone else. Today that is still usually the case – you can walk into a shop with some money and pretty much be assured that you can pay for things you want. Crypto or virtual currency is the same thing as physical money, but in virtual reality. There is no Bitcoin that is an actual coin – it doesn’t exist, it just exists inside a set of computers. Around that then comes a lot of software that allows it to work. And in fact, there now are over 1,300 virtual currencies, and Bitcoin is just one of the biggest and well known.

You are probably wondering how on earth cryptocurrency works and how it is that people can’t just nick your money from the World Wide Web. The inventors of these currencies thought of that, obviously. They use something called ‘blockchain’. Most people will have heard of this by now, and it has become one of the latest buzzwords. A blockchain is simply a way of keeping transactions made in cryptocurrency secure. Every time you use your currency, add to it or sell it, the information is written in the computer transactions called ‘the blockchain’ and through some clever techniques it can never be erased. The blockchains are stored in various places on the internet and then some other people known as ‘miners’ use software to check and verify it. By doing it like this, the currency is not only in the public domain, but it’s being constantly checked by other people. The miners get paid when they can show that they’ve verified something fully. Sounds complicated, and it is, but because it’s all in the public domain it actually becomes a lot more secure and accessible than traditional banks.

If you own any currency, like Bitcoin, you keep it in something called a ‘digital wallet’. This is something only you can access, and it’s a bit like your own personal bank account. Nobody can trace cryptocurrency to you as an individual, as it’s all done through identification numbers and stuff like that. As long as you have your wallet, you can get access to all your transactions and your money. To buy and sell things on the web, you just access your wallet and bingo! The blockchain setup has been tried and tested for many years, and so it’s pretty safe overall.

“If this cryptocurrency stuff is so good, then why isn’t it taking over?” I hear you ask. A good question, but between the cryptocurrency and you is, of course, the banking system and all of the bankers. The financial systems of the world are already set up – there are lots of rules and regulations to be followed, and countries all have their own central banks, which is effectively the money that a country owns and circulates within its borders. The banking system is naturally suspicious of something it has no control over, and that has no proper regulations, such as Bitcoin. Nevertheless, the bankers are not stupid, either, and can see when there is money to be made. For example, in order to buy Bitcoin or any other virtual coin, you have to spend some of your actual real-world money. See how that works? You have to put some of your money into Bitcoin.

Crypto or virtual currency is the same thing as physical money, but in virtual reality. to get some Bitcoin. Then you can use your Bitcoins all you want until they run out. Or, if you keep them, then just like anything else the banks have a finger in, the value goes up and down compared to real-world money. That is why people have made, and also lost, a fortune in things like Bitcoin. They buy them, sit on them and then try to sell them when they have more value. It’s a bit like buying a house, except that houses generally go up in price and cryptocurrencies go up and down and up and down.

It’s kind of like going to a foreign country and buying some currency, then you come back to New Zealand and find that all the Malaysian Ringgits you have left in your wallet are now worth de nada. The difference is you never went anywhere, just a short trip to your computer and back.

You are probably thinking by now, ‘what on earth is the point of all this?’ And that’s also a very good question. The point is that what cryptocurrencies do, at the moment, is free you from the banking system. You can get your Bitcoins and go and play on the internet and buy what you want, as long as people will take them. You can even do jobs and get paid in Bitcoin. You can even pay for real-world things in Bitcoin or other virtual currencies. It’s just another way of doing business. The added bonus might be that your Bitcoin, or whatever it is, might be worth more than it was a few months ago, and so it might also be an investment. (But beware, the operative word in that sentence is ‘might’.) You can be sure that if there is money to made and a good thing to be had, the people who have made the most have already done it before anyone else knew about it. Once it’s hitting the headlines, then roll on the scammers and the con artists – the people who prey on the human nature of wanting to get something for nothing.

The saying that ‘there is no such thing as a free lunch’ remains as true as it ever was. There are people in the know and then there are people not in the know. The ‘in the know’ people are the ones who make the killing. The others usually come in too late to capitalise on whatever ‘get rich quick’ scheme is now being pedalled. Cryptocurrency, for use as a currency, is not bollox at all, but speculate in it at your peril, for