What the hell is up with cryptocurrency?

Cryptocurrency has been a joke for a really long time. As unsettling as it is, this joke is turning into a reality that will, someday soon, affect every one of our daily lives.

Frequent Internet users, particularly Redditors, will be familiar with this "magical Internet money" from at least some form of exposure, even if it's from some dude who plays Minecraft on Youtube making jokes about it. I've taken part in the fun, too - I've ripped on longboarding vape-happy crypto bros a time or two. We all have.

The scary thing is that cryptocurrency, like bitcoin, isn't as much of a joke anymore. People got laughed at in 2010 for investing $100 in bitcoin, which at the time was worth fractions of a penny. Now they're laughing in between haughty swallows of Bowmore 25-year because that shitty investment has made them rich - I'm not talking about millions. I'm talking about fucking billions.

Bitcoin is currently selling for $8000 per coin. You can buy smaller increments, of course. For a long time, bitcoin was functionally worthless. There were a few booms, but then came mid-December of 2018, when it reached almost $20,000 per coin.

Cryptocurrency is currently suffering from what finance experts are calling an "adolescent stage." Much like adolescents, it's impossible to predict whether cryptocurrency will be washing your car today or taking a golf club to your windshield. And it changes every day.

For work-related reasons, I've become quite familiar with bitcoin and cryptocurrencies lately. I thought I'd give my readers a basic rundown - nothing too detailed, but here's what I think everyone should know.

The Basics

First of all, no, cryptocurrency isn't going away anytime soon. Since the beginning of 2018, thousands of ICO's - Initial Coin Offerings, the cryptocurrency equivalent of an IPO - have been initiated. Though most of them have already failed, more spring up every day. Each one has a unique quirk that attempts to fulfill an unfulfilled niche in the cryptocurrency market. There's a lot of those - cryptocurrency is a brand new space in finance, and there's a lot of money to be made for the ones who are smart, not to mention lucky. Millions of people, rich and poor, from both the private and state sectors, are flocking to it.

Besides that, the cryptocurrency market has caught the attention of nearly every sovereign nation on Earth, every corner of the tech industry, and most of all, everyone in the financial industry.

Here's what you need to know about how it works: it's super complicated and hard to comprehend unless you're fluent in basic cryptography and at least 3 different coding languages.

Bitcoin was the first. It was created by a team of programmers who thought it would be a cool idea to create a viable currency that didn't rely on a centralized power to verify transactions. In particular, its inventor was Satoshi Nakamoto, which is probably a pseudonym because literally nobody has ever been able to definitively prove whether Satoshi is a 'he', or actually Japanese, or even one person. Satoshi wrote a white paper, which is like a crypto manifesto, in which he argued that centralized financial systems like banks and the FDIC are bullshit and we deserve something better.

How a bank works:

STEP 1: Person A: $$  ----> BANK ----> Person B: $$
STEP 2: Person A: $  ----> $BANK ----> Person B: $$
STEP 3: Person A: $  ----> BANK ----> Person B: $$$

That model is fine, as long as you trust the bank. Which is fine, as long as you don't live in Cyprus, or another country whose shitty banking system stole money from its people to do whatever.

Cryptocurrency cuts out the bank and replaces it with computers and math. Instead of trusting a person in a nice suit who works in a bank with a vault full of money, you trust the blockchain network. The blockchain network is a huge network of computers constantly cranking out potential solutions cryptographic puzzles so complicated, the only way to find the solution is to guess. As soon as 51% of the network confirms that Person A did indeed have crypto to give to Person B, and indeed, did send them a specific amount of that crypto to them, the transaction is confirmed.

Did I mention the first person in the network whose computer comes up with the first viable solution sometimes wins a free bitcoin? This is why that practice is called mining bitcoin. Bitcoins aren't actually coins, at least they weren't at first. They're software programs that initially had an arbitrary value assigned to them that are now worth significant amounts of fiat, or "real" currency.

Anyway...once a transaction is confirmed, it gets added to the blockchain, which is a chunk of data about all transactions that have ever taken place using bitcoin. You need a cryptographic hash/passcode/random jumble of numbers and letters from the previous blockchain before you can create a new block, like a chain needs to be hooked on to another link before it can be added to the chain. That's what makes the blockchain ludicrously hard to hack. You'd have to start at the most recent end of the blockchain, and hack/"un-link" each block one by one. Even if you did that, everyone in the network can see what you're doing - everyone in the network has access to the record, because it's based on consensus. If something doesn't add up, everyone immediately knows.

Even if you're still skeptical about cryptocurrency (you should be), the concept of the blockchain is solid. It has applications to a ton of things, from real estate registry to ride sharing. Tons of companies all over the world are making use of it. Even if crypto dies, the blockchain is a solid and useful enough invention that it's going to stay, and it'll likely help shape whatever future we one day find ourselves in.

No, seriously...what the hell is up with cryptocurrency?

Any longtime crypto enthusiast will tell you there have been many "booms" in crypto, but none compare to the one in December of 2017. It's not just bitcoin, just about every cryptocurrency, at least the big ones - Ethereum (ETH), Ripple(XRP), Litecoin (LTC) - all of them exploded in value. This has a lot of former skeptics intrigued, and it's bringing cryptocurrency into the mainstream.

Currently, cryptocurrency is weathering a huge shit-storm caused primarily by two things: number one, the crypto exchange Coinbase/GDAX is getting sued because they did shady shit with their user's crypto. It's one of the biggest exchanges there is, currently - if they get found guilty, it'll be a huge hit for cryptocurrency, but not unlike one they've weathered before; the former "Magic: The Gathering" trading site-turned cryptocurrency exchange Mt. Gox screwed up about as badly as you possibly can, and that was before the boom that took bitcoin past $18000 in price.

Number two, in addition to Facebook, now Google is jumping on the "to hell with this cryptocurrency witchcraft" train...they just announced they're banning advertisements for cryptocurrency and ICO's (literally, yesterday). It's not unreasonable, considering how many people have been made saps by fake ICO's, especially lately. That's probably even worse, but time will tell; they could very well reverse this policy a few years down the road once the crypto market matures.

Is it legal?

Depends on where you live. If you're in the U.S., Canada, or Russia, then sure. If you live in China or South Korea, not so much.

In 2014 the U.S. government officially recognized bitcoin as a legit source of income. They don't call it a "currency", though - they refer to it as a "digital asset." It's classified as a commodity. For tax purposes, it's treated like property. Confused yet?

The U.K. has been experimenting with crypto, but not on the scale Vladimir Putin plans on doing. He not only wants crypto to be totally legal in Russia and west Asian countries that he "totally doesn't" control, he wants mining cryptocurrency and running a blockchain to be totally state-controlled.

China had a cute relationship with cryptocurrency for awhile...they held hands, shared milkshakes with those 1950's-era red and white straws, and occasionally, cryptocurrency could be seen kissing China on the cheek while China demurely blushed.

...then cryptocurrency started doing weird shit...bringing a bunch of friends over late at night with no explanation, showing up on dates looking glassy-eyed and smelling of ammonia, having huge sums equating to millions of U.S. dollars disappearing without a trace, things like that. China firmly put its foot down that cryptocurrency had to clean up its act, and when crypto tried to deflect, China, tears in its eyes as much from regret as defiance, turned away from cryptocurrency.

The saddest part of the story is, everybody knows China secretly still pines for him, and they'll probably be back together again within 18 months or so.

So Matt, are you a fan of crypto, or...?

The fact is, cryptocurrency is designed to be unregulated and anonymous...which means very low accountability for everybody involved. The University of Sydney released a study in January of 2018 saying an estimated 25% of all bitcoin-related activity is tied to criminal activity in some way. That sounds cool and exciting in an edgelord, Dread Pirate Roberts kind of way...until you realize that "criminal activity" can mean, in addition to drugs and selling bootleg MP4 files of "The Avengers", gun running and human trafficking.

Oh, right...fuck.

Cryptocurrency isn't just a joke anymore. It's turning into something real, something huge.

So, the question remains...and I know you're thinking it...should you invest in cryptocurrency?

Honestly, I don't know. I can't necessarily recommend it. Like I said, it's in an "adolescent" stage, so things are very volatile. You're just as likely to profit as you are to lose all your cryptocurrency and possibly become the victim of a hacking attack.

But, I've always said that moderation, not abstinence, is the key to managing things with this much risk. If you're curious, do research. Like, a lot of research. Find out how to buy it, how to pick out a cryptocurrency wallet, which exchanges to use and which to avoid. Spend at least, like, a month researching it.

If you're still dead-set on doing this, pick a cryptocurrency that isn't bitcoin. It's the big one, the most valuable one, the OG - I'm aware. Right now, if any of the big ones are gonna go, it's bitcoin. More likely the safe bet is with Ethereum, which has been described as "Bitcoin 2.0", or Ripple, or an as-of-yet unknown cryptocurrency that will, through some fluke of dumb luck, be worth $4 million per coin tomorrow morning. That's how these things generally go.

Very important - if you must invest in crypto, don't invest more than you can absolutely afford to lose...like, what you would be okay with blowing in a weekend at the bar. 

Also, for legal purposes: I'm not a cryptocurrency expert. I'm not sure there is such a thing, cryptocurrency is so volatile and unpredictable at this point - but if there is at least one, it isn't me. I simply know more than most, because most people know literally nothing about this topic. Still, don't consider this bona fide financial advice. Consider this article a leaping-off point on your own path of discovering this weird, psychotic nerd currency.