Cryptocurrencies

It is difficult to overstate the importance of controlling the money supply and the dangers and risks of mismanagement.

“Give me control of a nation’s money supply, and I care not who makes its laws.”

Said Mayer Amschel Rothschild, founder of the Rothschild banking dynasty.

Crypto is about creating a math-based monetary and finance system that eliminates the risks of centrally controlled money supplies.

Crypto is about offsetting the debasement of fiat money. Government mismanagement of currencies can create hyperinflation and the rapid devaluation of the currency. Even the traditional growth model of inflation at a target of 2% devalues money like a melting ice cube.

Cases of hyperinflation are extreme but have existed throughout history and in countries around the world. And inflation is everywhere, and people will increasingly look for alternatives to government money now that such things exist.

There are three categories of cryptocurrencies:

• Bitcoin
• Ethereum
• Altcoins

They are all called cryptocurrencies, but they differ in their functions and applications. They are all secured by cryptography on a blockchain.

Bitcoin is an asset; it is digital property. Ethereum is more generalized as its blockchain network is based on smart contracts. In addition, the Ethereum chain acts as a Turing complete distributed computer. Altcoins expand and refine both concepts.

Cryptocurrencies are digital tokens that use cryptography (where the Crypto comes from in the name) to secure transactions and control creation of new tokens. Each transaction is encrypted and added to a ledger held over a distributed network of computers (the blockchain).

Cryptocurrencies are decentralized, meaning they are not controlled by governments or financial institutions. For example, Fiat currencies are money issued by governments. Cryptocurrencies are math-based money. Calculations are required, and computers must crunch numbers to validate transactions and issue coins or tokens.

Cryptocurrencies use blockchain technology, a decentralized public ledger that records transactions.

Bitcoin (BTC) and Ethereum (ETH) are the most prominent. They are used for payments, investments, and as stores of value. However, applications can use cryptocurrencies and blockchain technology for various other applications such as smart contracts, decentralized finance (Defi), supply chain management, voting and governance, healthcare records, and lots more. A new generation of creative applications and tokens are making novel and valuable use cases every day.

In the developed world, banking systems function relatively well, and the value of cryptocurrency and DeFi is not as immediately apparent. But billions of people are not banked and don’t have access to the convenience and protection of their money that banks represent in doing transactions.

Also, countries suffer from high inflation where the local currency is eroding in value and hurting regular folks.

There is also value for businesses. Finance companies didn’t design credit cards for the internet. Crypto transactions cost less and cannot be reversed in the way credit-card transactions can be. This tamper-proof quality is vital for firms selling to customers in countries known for credit-card fraud.

Trading coins and tokens aren’t the important part. Look for projects that add real value and solve real problems in innovative ways. Look for utility and value-added by projects powered by tokens.

Tokens and blockchains that follow Ethereum’s idea of a Turing complete blockchain capable of developing and supporting smart contracts create valuable use cases and solve real problems. Rather than use blockchain tech to power the tokens, these applications use the tokens to power the blockchain by incentivizing the validators.

It’s not about just cryptocurrencies but projects built with cryptos. That’s where the sustainable investment returns are to be found. They also make more sense as investments and aren’t simply speculative objects.

Inflation hedge or tech stock?

Whether cryptos are an alternative to gold, an inflation-fighting store of value, or a risk asset that behaves more like an emerging tech stock is a hot topic among investors. This is a key question now since increasing interest rates are wreaking havoc for growth stocks.

Proponents of Bitcoin believe that because of its finite supply and decentralized structure, policymakers are unable create and depreciate it like fiat currencies. By this logic, cryptos should be able to withstand inflation and preserve their buying power.

Meanwhile, skeptics point to Bitcoin’s price activity, which suggests that this asset class is performing more like a tech stock than an inflation-fighting store of value, at least so far.

These competing forces and ideas will shake out over the next decade.

It is a good bet that Bitcoin, the founding cryptocurrency and largest by market value, is going to remain at the center of the crypto ecosystem.

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