In the world of cryptocurrencies, everything you hear or read is “Not financial advice” (NFA), even when it sounds, looks, and seems like financial advice. This blog entry is no exception. Instead, this blog briefly speaks to considerations for the curious mind, interested in exploring and learning a little more about cryptocurrencies.
Cryptocurrencies were originally founded as the alternative to state sponsored fiat, the most common example of these being the U.S. dollar. The original founder of the original cryptocurrency, bitcoin, is commonly known as Satoshi Nakamoto. Satoshi is a pseudonym, as the actual Satoshi remains unknown though plenty of persons claim to be or know who Satoshi truly is. In Satoshi’s love letter (whitepaper) to the world, Satoshi explained that the reason for creating bitcoin was a rejection to the centralized control of economies and markets by centralized authorities, countries. The purpose of bitcoin was to place control in the hands of the general populace. Anyone willing to spend the time and a little bit of money could help to run the network and keep it secure from bad faith actors or large, controlling institutions. Further, anyone working in/through the network could not protected from “censorship.”
Satoshi’s dreams and aspirations originated in 2008, the year when bitcoin was released to the world, and, since then, the environment of cryptocurrencies has changed dramatically. Nowadays there are thousands and thousands of cryptocurrencies. Many cryptocurrencies are nothing like bitcoin. Some coins are very centralized and are highly controlled by a handful of people. Cryptocurrencies collectively are worth nearly a trillion dollars, and at one point were worth more than $1.5 trillion dollars collectively. So, if you intent to invest, you need to give your coin investment a lot of consideration.
When you invest in a cryptocurrency, you need to ask:
- What is this coin attempting to solve/resolve?
- Although bitcoin was innovative when it was released, it has been copied over a thousand times, and many people have lost their funds buying into a coin that had little to no improvements from bitcoin’s original code.
- Who is developing or working on the coin and improving its use?
- Most people may not be aware, although Bitcoin was released in 2008, people have never stopped working on its code. Bitcoin has been updated multiple times and has had multiple coins/applications released in conjunction with Bitcoin’s continued use. Usually, a coin’s longevity correlates with the number of active developers developing the coin; the more developers working on a coin, the longer a coin’s lifespan will be.
- How old is the coin?
- While it is not always true, the longer a coin has been around, the more stable an investment it is likely to be. Most of the top cryptocurrencies have been around for years.
- Who is promoting the coin?
- There are hundreds of people promoting cryptocurrencies with no knowledge of the underlying coin they are promoting. We have likely seen this dozens of times with celebrities who have promoted coins for a fee and are now facing lawsuits for false advertising. There are hundreds of promotions out there and as a consumer/investor you will need to stay vigilant and question the reliability of the promoter.
These are only a few considerations that the smart investor needs to think about when diving into the world of cryptocurrencies. Do you not give into the FOMO (“fear of missing out”) and buy into a coin, because it has become popular. DYOR (“do your own research”) and invest in what you are most familiar and comfortable with.