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Grab a cup of coffee and enjoy this week’s edition.
An intro to cryptocurrencies
Bitcoin. Bitcoin. Bitcoin.
I can’t open any news source without being bombarded by information about blockchain, crypto and Bitcoin. On the one hand, you have the zealots and the other, the naysayers. The naysayers seem to be diminishing gradually.
Crypto-mania hit a fever pitch last week as Tesla announced a $1.5 billion investment in Bitcoin and that the company may start accepting cryptocurrency as a form of payment. This, and other factors, have sent the price rocketing to an all-time high exceeding $50 000 for a single coin, giving it an overall market cap of over $950 billion! Considering that I have been teetering on the cusp of buying Bitcoin for a while, and didn’t (FFS!), this state of affairs has caused a fair bit of self-loathing.
But looking at this graph, one’s spidey sense tells you that, surely, this is a bubble waiting to burst? However, the crypto fanboys (and girls) tout cryptocurrencies as the new gold (amongst accolades). With the world’s gold reserves valued at over $11 trillion, a riveting journey awaits the crypto crowd if this prediction is accurate.
At this point, I must disclose that I’m still a novice when to comes to blockchain and crypto. But considering the significant developments and buzz in this space, I feel obliged to learn more. At a minimum, to the extent that I can partake in a conversation on the topic without sounding like a twat (Refer to last week’s article on talent stacking).
Let me share a few of the more interesting basics that I’ve learned.
Note: where I mark a word with #, it means the concept is slightly complicated and will be explained in a future post. The details are probably not needed for a basic understanding.
What is a cryptocurrency?
Normal (known as fiat) currencies (e.g. US dollar) are mediums of exchange issued by governments and regulated through central authorities such as central banks. Fiat money is not determined by an underlying commodity (e.g. gold), but by supply and demand and the issuing government's stability. Governments control the fiat money supply and can influence a currency's value through acts like printing money, which may lead to hyperinflation (e.g. Zimbabwe).
Conversely, think of cryptocurrency as money 2.0 - digital money born for internet use. Cryptocurrencies have no central authority like a central bank or government. They’re decentralized and secured through #blockchain and #cryptography technology. Because cryptocurrencies are digital, they are also a more dynamic transacting medium than physical commodities like gold. This essentially allows you to cut out the costs and time due to intermediaries (e.g. central banks, credit card companies) and securely transact with anyone, anywhere in the world at any time.
Despite these positives, the technology is still relatively nascent, and numerous problems need ironing out before mainstream adoption. These include its suitability for illegal activities and volatility, as pointed out in Nassim Taleb’s recent tweet (Taleb is one of the world’s leading experts on the topic of risk and author of the Black Swan, amongst others. He is also known for causing a stir on Twitter).
Different types of cryptocurrencies
Although Bitcoin was the first and has been stealing most of the limelight, there are 1000s of cryptocurrencies, with more than 100 each valued at over $1 billion. Each currency has different functions and specifications. The bigger ones have been having a great ride of late. Here they are:
The surprisingly detrimental environmental impact
Cryptocurrencies undergo a process of #mining which requires a massive amount of computing power. This requires copious electricity consumption, which in turn leads to CO2 emissions. For example, each Bitcoin transaction uses the same amount of power as 436,000 through the Visa payment system. According to the Financial Times, Bitcoin consumes more electricity than Pakistan (population =216 million).
The weird and wonderful people behind the cryptocurrencies
There are intriguing figures behind these cryptocurrencies. The creation of Bitcoin is attributed to a character called “Satoshi Nakamoto”, who published a whitepaper in 2008 that kickstarted cryptocurrencies. No one knows if Satoshi is an individual or a clandestine group of people. This anonymity couples well with Bitcoin’s appeal as a decentralised currency. The best guess is that it may be an American named Hal Finney, who received the first-ever Bitcoin transaction directly from Satoshi. But Finney passed away in 2014 and had his body cryopreserved - i.e. frozen for future revival. Bizarre. Whoever Satoshi is/was, it’s estimated that Satoshi controls ~5% of all bitcoins, making him/her one of the richest people on the planet.
The creator of Ethereum is Vitalik Buterin, a 27-year-old Russian-born Canadian. At face value, he is everything you’d expect from an “IT type” – skinny, socially awkward, etc. This pic summarises Vitalik’s vibe well:
But he is a rock star of the crypto world and interacts with some of the most powerful people on the planet, including Vladimir Putin. If you want to learn more, check out this interesting profile of him on Vice.
To conclude
Based on my reading of the trends, my guess is that crypto is here to stay and, despite severe volatility, will only increase in value in the long-run.
As my knowledge on the topic grows, I’ll be taking you on the journey along with me. Potentially even more exciting is the blockchain, the technological innovation on which cryptocurrencies are built. Some of the world’s brightest minds are trumpeting blockchain as “the biggest technological game-changer since the internet”.
Stay tuned for more on that.
*All prices quoted in this article are as of 18 Feb 2021
The Man in the Arena
The sidelines provide a cosy refuge, and commenting from the sidelines is one of the easiest things in the world. Before I criticize, I try to remember this classic excerpt from Theodore Roosevelt’s Citizenship in a Republic speech (Paris,1910):
"It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows, in the end, the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat."
Despite being tough, doing is all that really counts.
Fun related facts: Nelson Mandela shared a copy of this quote with Francois Pienaar before the 1995 RWC final, and Richard Nixon quoted it in both his victory (1968) and resignation (1974) speeches. LeBron James also writes “Man in the Arena” on his shoes before games.
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Happy Friday. Have a great weekend. See you next week.