The Currency of the Future... Maybe

The Currency of the Future... Maybe

This past week has probably been one of the interesting weeks in a while in terms of investment chatter. Besides the Canadian dollar gaining against the US dollar for the 1st time in ages (yes ages!) and interest rates which finally may go up in this country. Yay! That means I can get 0.25% more on my savings which is great because every little bit counts. However, it was particularly exciting due to my many conversations regarding cryptocurrency which is essentially virtual currency or bitcoins - ethereum as we know them today.  

For those of you that are unaware (as I was) - cryptocurrency operates on a decentralized system as opposed to the one we have today where lending- buying - purchasing all occur on a peer-peer basis. The banking and money system as we know today operate on a centralized basis with the banks overlooking all transactions and a central bank tightly controlling the interest rates, money supply and inflation. The money we use today is also known as Fiat currency which means that it is legal tender (must be accepted for payment)  and backing by a central authority. Bitcoin and other crypto aficionados believe that cryptocurrency will be the future largely due to the fact that the Fiat system has failed us and their non-transparency has led to social injustice and a complete distortion of the money supply. Bitcoin transaction work through blockchain a public ledger accessible by all bitcoin users that tracks transactions in blocks. The blockchain confirms transactions by enforcing a chronological order in the chain, maintains neutrality in the network and allows different users to access the data at the same time. To prevent double usage of the currency each block must conform to strict rules which prevent modification of transactions.

Below are the rules of Money

  1. Means of Payment

  2. Store of Value

  3. Unit of Account

  4. Standard of Deferred Payments

The problem with bitcoin is complex - on one side of the coin the price per coin has appreciated tremendously since its creation in 2009 sitting at about 3200$ CAD per bitcoin. Yes 3k for an intangible coin!!! It does possess the capability to outshine the traditional banking system as we know which threatens the purchasing power of every dollar you own. In addition to that it operates on a revolutionary technology that has effects beyond finances. As an investments it looks quite promising but there is a downside as well.

The currency is not regulated and untraceable meaning anyone and any organization can use to perform illegal activities (which is one of the primary reasons why bitcoin is so well liked). The price is extremely volatile like a penny stock so it will be interesting to see how it is able to maintain its store of value over time.

Okay so what do I do?

The situation with bitcoin is quite interesting - it is not like a growth stock which you can just purchase and sit back and ride for the journey. Bitcoin can serve two purposes - not only can it be an investment as the price appreciates in value -- it is also used as a currency and may possibly be the currency of the future. That’s not to say cryptocurrency may crash back to lower values (their value dipped when the SEC did not list a bitcoin etf led by the Winklevoss twins - yes those guys!) Remember at the end of the day we are attributing a monetary value to a currency that is virtual. The price will keep rising as long as investors see more value in the currency.

Disclaimer: All of the above information is my own personal opinion. Figures listed are rough estimates. Although bitcoin was used many other cryptocurrencies exist. The market for cryptocurrencies is quite volatile and caution should be used when making a move. I do not own any cryptocurrencies.

Thumbnail Image: AdamSmith

 

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