Cryptocurrency—Real money? Santa Claus? Jack the Ripper?

By Rick Ehrlich

We hear more and more about Cryptocurrency, including Bitcoin, Blockchain, Altcoin, Stablecoins, Memecoins, and more related names. Generally, “Cryptocurrency” or a particular Crypto company’s “money” is part of a system maintained by consensus, not requiring any 3rd party authority, which keeps track of the sold units and their ownership, or… who owns what. System rules set out when new units can be offered in the market, for how much, etc. Ownership of the units can be shown only “cryptographically.” Started a bit earlier, the word Cryptocurrency was added to the Webster and Oxford dictionaries only in 2018. But by 2020, there were already over 5,000 Crypto companies one could invest in. Cryptocurrencies now exist with many combinations of features, different angles, etc., but the common threads are:

  • Each one exists because some originator declares that it exists; there is no 3rd party “authority” or regulator, and they have no collateral or provable assets.
  • A buyer takes it on faith that the sponsor’s cryptographic confirmation
    truly represents his ownership,
  • Each unit is worth what another buyer is willing to pay, similar to a stock in the stock market,
  • The buyer understands it is possible to lose his money or to make a profit,
  • The cryptocurrency share owner does not need to disclose their ownership of it to anybody,
  • There is no tax implication unless/ until one makes a profit, and receives actual traditional currency for it, in which case (in the USA) the profit amount is declarable on your tax return.

There have been bankruptcies of crypto companies. Cryptos named Mt. Gox, also Yapian, also Youbit for example, with losses in the high millions. Big losses without bankruptcies include Tether, Nicehash, Bitcoin Gold, ZenMiner, GAW Miners, Coincheck, Coinrail, Bancor. American crypto operator Sam Bankman-Fried was jailed for a 25-year term for fraud at his crypto company FTX. And there have also been many examples of money laundering by using cryptos, prosecuted in the USA in recent years. Losses generally have been from fraud or “hackers,” but provable data is sketchy. At least one company, Kraken, was prosecuted by the U.S. SEC as an illegal offeror of Securities. Crypto values are much more volatile than regulated tradable assets (hilarious understatement). Advertising by Cryptos on social media has been somewhat banned, although Facebook, Google, and Bing ended their crypto ad bans. One positive feature, cryptos do not discriminate.

Around 50 countries have outlawed cryptocurrencies, including most of the Middle East, China, Vietnam, many African countries, a few ex-Soviet republics, and several South American countries. But this leaves about 150 countries that roll the dice and allow them.

Different theories are offered as to what motivates people to invest in crypto. A way to separate one’s money from the state, a desire based on paranoid fantasies of government power, anti-Federal Reserve rhetoric, strong libertarianism, disruptive populism, taking control back from central authorities, etc. Sketchy as it seems, thousands of Crypto names operate today, and still, many people invest in cryptos. There are even a few ATMs set aside for only cryptocurrencies, or one crypto company. So what is the bottom line? Opinions differ from person to person. This writer’s opinion is negative, as follows: Trust in God, but tie your camel… and crypto is a camel you can never tie. Bet on the weather, trust your fellow man… but not too much with your own cash. Let the buyer beware!

Sources: Forbes, Reuters, Internet Policy Review, Yahoo Finance, BBC News, Bloomberg.com, Schwab Brokerage, Advances In Cryptology, American Law Review, Weidai.com, Washington Post

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