Part 1: Is Crypto for Me?

If you are crypto / blockchain expert, please provide feedback and suggest corrections

What is cryptocurrency?

As a relative newbie in this space; only been at it for the past year or so; it’s the digital version of cash & assets in the simplest terms. It has similar properties, except it’s extremely portable, easily swappable, and privately transferable. It gives the owner a lot of power and control of their privacy and financial life without relying on centralized corporations, monopolies, and oligopolies.

Unlike USD, backed by the US Government, a trusted authority, most crypto is not backed by any government authority (except government-issued cryptocurrency).

Heads up: Government regulation on stable coins is coming fast along with investigations

Cryptocurrency is built on an underlying technology, called Blockchain (a type of distributed database), that allows for all transactions to be conducted in public without having to give up your privacy. It uses this technology along with consensus (democratic) mechanisms and incentive mechanics to keep users honest. It’s not without its challenges.

Deep Dive: To learn more about how blockchain works, see SEC Chairman Gary Gensler’s course at MIT

The terms in crypto come from the security, finance, governance, and distributed systems.

Valuing crypto tokens

How do you know if the token has value?

You can ask the same question of that dollar bill in your physical wallet. Why do you believe that piece of paper is worth the value printed on it?

It’s a belief system with trust built over time. We can see that in the history of money.

Should you get into crypto?

If you intend to get into this space, you have to ask yourself why?

“No one’s standing in the way. There’s no bank. There’s no credit score. There’s no redlining. That’s transformative and very powerful.” — Protocol

The Benefits

• Having control over your own money — aka digital cash
• You want to get in early on investment opportunities and are willing to overcome the growing pains. We are at Internet 1995 for crypto — we all know how the Internet turned out, don’t we?
• Paying little to no fees for financial transactions
• Don’t like central banks and the high fees that they nickel and dime you with — you can be your own bank
• Fundraising — alternative to traditional VC or IPO route for startups
• You believe there is monopolistic corporate power, and you want to take it back and also be a part of giving it to your friends and colleagues
• You value privacy — not sharing your personally identifiable information (PII)
• You have been historically blocked or discriminated from acquiring assets

“The loss of PII can result in substantial harm to individuals, including identity theft or other fraudulent use of the information.” — Department of Labor

It is not, IMHO, about circumventing democratic governments.

The Risks

Before you start, make sure you understand the ownership practices of creating, owning, managing, and protecting your own accounts.

• Account and password management
• Hacking
• Who (human) do you hold responsible when things go wrong?

There are other risks like the volatility of crypto prices. Similar to but not as volatile as stocks and mutual funds. You have to look at the underlying company on which the token is valued. You have to act like you are an angel investor when trying to decide what Token to buy or turn that decision making over to someone else.

Account and password management

The great benefit is ultimate power and control over your financial life. Remember, with great power comes great responsibility. You own your financial life.

Don’t get into it if you don’t want to take on this responsibility.

If you lose your password or passphrase, you are done! There is no one you can call to reset your password. I will write a separate blog post on how I secure my passphrase with the right balance of privacy, security, and ease of use.

Hacking

Hacking is a big problem, particularly with CEX (Centralized Exchanges), less so with DEX. We’ll get into differences between CEX and DEX in the next post.

“It is built this way so that taking part in the network is far more economically incentivized than attacking it.” — Investopedia

Human accountability

This is one of the thorniest issues. Theoretically, when it comes to large monopolies and oligopolies, you have someone to call and hold responsible. In practice, you, as an individual, have very little negotiating power to get disputes resolved or haggle on pricing. You can use social media as one means to hold crypto companies accountable too.

I don’t believe crypto is a way to bypass democratic governments because, unlike authoritarian governments and corporations, democratic governments are ultimately accountable to their voters as real humans. Democratic governments are highly decentralized (Federal, State, County, City, etc.) and have independent executive, judiciary, and legislative branches within each.

Is it for you?

Only if you want control over your financial life instead of beholding to the large banks (Chase, BofA, Wells Fargo, et al.), payment processors (Visa, Mastercard), and credit data brokers (Transunion, Equifax, Experian).

These three control the bulk of your financial life. They are the biggest gatekeepers for people to acquire assets as a way to accumulate wealth.

Deep dive: Banks vs. Bitcoin, Investopedia

If you are comfortable with the benefits and risks, then crypto is an opportunity you can’t pass up. If not, you can stop here and skip the rest.

Congratulations! You have decided to get into crypto, don’t buy anything yet. Continue to Part 2: Creating your crypto wallet (coming next)