A currency is defined as an accepted means of payment. To put it in another way, it is a medium for exchange for goods and services.
I like the latter definition best, because “medium for exchange” is actually very descriptive.
Consider the below scenario, which is basically the simplest form of currency requirement:
I grow more potatoes than I need. I want some carrots to complement my potato meal. The carrot grower doesn’t like potatoes, so we can’t do a straight swap (a barter). Currency solves this issue – we accept it as a medium of exchange, because the carrot guy can then go and use the currency I gave him to buy whatever he prefers over potatoes.
So in the above example, the currency doesn’t have “value” in itself – it’s the work that went into potato and carrot growing that created value and the currency is utilised to handily transfer that value from one guy to the next.
The trouble is – if you use something that’s common and easy to find / create more of, it doesn’t work very well as currency. If you used pebbles as currency, anyone a few pebbles short can just walk over to the nearest beach and top up the purse. Hence, smart people from long time ago figured out that you need rarity to mitigate the issue. First they used metal ingots, with weight and purity being the determining factors for value, then they moved on to early coins and bimetallic monetary systems (silver and gold).
Eventually they figured out that hauling all that coin around was a bit cumbersome and they came up with banknotes – the rarity was still there because the banknotes were issued by the state and were difficult for the laymen of the time to reproduce with sufficient accuracy.
In the most simplified terms, that’s still where we are with traditional currency: the issuance of currency is controlled by the state and there is rarity because you can’t personally introduce more units of currency into the system.
Now, cryptocurrency doesn’t introduce anything truly new to the above. It is a medium for exchange and the creation process introduces the rarity necessary for the medium to be usable.
The difference is that in the early stages of any cryptocurrency, you can personally create more units and the effort required is reasonable (no longer the case with Bitcoin, I believe)…and there’s no limit to introducing more currencies, so there’s always the allure of being among the first speculators and making exponential returns. I assume that’s why it’s so popular…that, and the fact that there’s no governance, which seems to attract people, in particularly young people with less interest in traditional money markets / economics, and potentially an anti-establishment attitude.
The thing is, though, there are very, very valid reasons why financial markets authorities exist in the world. They pursue to prevent practices and procedures that are unfair and allow for powerful market players to manipulate things in their favour (I know…they are not perfect, there’s still massive unfairness in the system and I’m all for taking a hard look at how to fix the system…but that’s a separate conversation).
In simple terms, we’ve had a few hundred years to work out what you definitely shouldn’t be allowed to do in currency market, because back in the day some cunning tulip traders got away with it and it wasn’t a good thing. We basically implemented a rule book based on those lessons.
Crypto has none of those safeguards in place. It’s like driving a fast, really unreliable car with no seatbelts or airbags. It’s great until you crash and ruin your spine, then it’s not great. I’m not saying that playing with the stock market or FX has particularly good seatbelts or airbags, but at least there’s road rules in place so a random huge truck can’t come and drive right over you at will.
Now, I don’t particularly personally care about the volatility piece – you want to bet on dog races, go right ahead…but unless you’re actually a trained professional markets dealer, if you are winning at crypto, consider yourself lucky, not good. Sorry if that’s hurtful but it is true.
The pieces I do care about are the environment and organised crime.
As noted previously in this thread, crypto is basically terrible for the environment by design. Whether we like it or not, the reality is that the world is burning and the last thing we need is spending energy in alternative currency creation when we already have working mediums of exchange in place. It’s basically no different to buying oil company stock in hopes of short term returns and disregarding the environmental cost.
Even if you don’t care about the environmental impact, consider that organised crime absolutely loves crypto. An alternative accepted means of payment that isn’t controlled by government? That’s like manna from heaven if you are in the business of doing business on the other side of the law…and organised crime fuels things like methamphetamine distribution which is truly, unequivocally a really bad drug.
People playing with crypto are in it for a profit, and I can’t blame a guy for wanting to get ahead…but there’s absolutely a price to pay and that’s a) the energy bill and b) supporting a medium for financial transactions for bad people.
