Fools and their money | Seattle weather
If cryptocurrency is a mystery to you, as it is to most people, here’s a way to think about it.
Money is just an agreement between people to value a particular symbolic tool of exchange so that we can all exchange goods and services without resorting to barter. Instead of saying “I’ll give you a bag of potatoes if you give me a chicken,” the chicken seller can be given pieces of paper printed with the faces of deceased presidents and the seller will feel properly compensated.
A dollar bill is really just a federally guaranteed promissory note. You cannot hand it over to a bank and get a gold or silver coin; the value of the dollar lies solely in the social pact between all of us that says it is worth something. In truth, even gold and silver have only limited intrinsic value. The value of these “precious metals” lies primarily in the age-old perception of them as shiny, beautiful, and hard to find and, therefore, valuable.
If we as a society decided that metal coat hangers would be our main tool of trade, we could do it (and some of us with cluttered closets would be instantly rich). In the emerging metaverse, some smart people have said that cryptocurrencies that only exist in the digital world are a new type of legitimate currency, and because a large number of greedy investors have agreed to instill value, cryptocurrencies have become the newest medium. get rich quick without having to do anything as difficult as building a factory, a railroad, or a donut shop.
Cryptocurrencies have become so established that some of the companies trading them, including Coinbase Global, FTX Trading and Crypto.com, ran ads during Sunday’s Super Bowl game. Apparently, however, the ad didn’t generate much online traffic. Potential customers may still be confused about how cryptocurrencies work, or they may know just enough to understand the risks.
These risks include hackers, cyberthieves, and scammers who devise clever methods to separate you from your money. There is the risk of volatility; the rising value of a cryptocurrency can fall as fast as it can rise. And there’s the liquidity issue if too many people decide that the cryptocurrency you’ve invested in isn’t really worth exchanging for real-world dollars.
These are the risks for people who want to try their luck in the cryptocurrency market. Perhaps the most frightening risk, however, is for all of us operating in the old economic world where the US Treasury and Federal Reserve can step in when the schemes of financial geniuses go wrong. We barely escaped another Great Depression in 2008 when the subprime mortgage market imploded. Now imagine the completely unregulated cryptocurrency economy, built from scratch, growing bigger and bigger until it became a massive repository of global wealth. And imagine what will happen when it inevitably takes a big slide without any mechanism in place to cushion the fall.
Cryptocurrency may only exist inside a computer, but the crash will be as real as a hurricane hitting the shore.
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