More Than Just a Cryptocurrency
The Internet and the technologies that go along with it have changed life in innumerable ways, many of them welcome.
The ‘Net has put a vast array of information at our fingertips, made shopping a breeze, and let us stream movies or shows at any hour.
Businesses can communicate instantaneously with suppliers, subsidiaries, and customers anywhere in the world, and IT technologies can help businesses operate more efficiently.
Not All Roses
But there are many downsides as well, from the excesses of social media to the risks of being hacked.
One particular downside has led to a potentially enormous opportunity for investors: the way that modern technology has vastly increased the government’s ability to gather reams of information about the activities, whereabouts, and contacts of private citizens.
Even if you accept these intrusions as necessary for national security, it still leaves many with a queasy feeling that their privacy has been invaded.
Crypto Gives Us Alternatives
Which brings us to cryptocurrencies. Crypto’s appeal reflects the urge to protect the freedoms and privacy compromised by our highly connected society.
Cryptocurrencies have no government or central bank involvement. Rather, via blockchain, a technologically sophisticated form of distributed digital record-keeping that keeps track of every transaction, they allow users to conduct transactions on a decentralized peer-to-peer basis.
Cryptocurrencies, while digital, are distinct from digital currencies issued by governments as digital versions of the sovereign currencies that now exist in paper form.
Governments that issue digital currencies will be able to follow the paths of virtually all monetary transactions, gaining enormous information about what individuals are up to.
The age of digital currencies is fast approaching. China has been in the lead and introduced its digital currency during this year’s Winter Olympics. As digital currencies emerge, they are likely to give further impetus to the already growing use of cryptocurrencies. This opens up a potentially enormous opportunity for investors.
Not a Fan of Bitcoin
But not all cryptocurrencies are created equal. I am not a big fan of the best known, Bitcoin (BTC), because it has a major drawback, to wit: enormous energy consumption.
One study estimates that Bitcoin mining currently uses more energy in one year than Argentina, which has a population of about 45 million. Although the recent fall in crypto prices has lowered mining activity and energy usage, if Bitcoin were to become more mainstream, the energy usage would surely rise steeply.
By contrast, Ethereum (ETH) uses only about 1/10 as much energy. Moreover, Ethereum is planning to change how its coins are created in a way that will cut their energy consumption by about 99%. Adding to the Ethereum blockchain will require just 1/1000 the energy needed to add to the Bitcoin blockchain.
Decentralized Finance Potential
Additionally, Ethereum is more than just a cryptocurrency. It’s more like a crypto ecosystem. For example, Ethereum’s blockchain gives users the ability to transfer encrypted documents including contracts and computer programs. So it’s far more versatile than Bitcoin, which is only a cryptocurrency. This sets up Ethereum as a centerpiece in decentralized finance (DeFi).
In DeFi, which utilizes blockchain technology, the key idea is that you eliminate the middleman in financial transactions (as well as any fees they may charge). Banks are altogether unnecessary. You hold your money in a digital wallet and you can directly do transactions with the counterparty. All you need is a secure Internet connection and you can make transactions anytime.
Currently, DeFi is still an emerging field and there are many unknowns. For one, there are questions about regulation and accountability. There’s still a long way to go before DeFi could become mainstream, but it is an area that carries enough intrigue and potential that could make cryptocurrency more than just a speculative investment.
P.S. Many investors are sitting on the sidelines, waiting for the next shoe to drop. However, despite current market turmoil, you don’t have to be a passive investor right now.
Cryptocurrency offerings can be risky and many coins have endured a rough patch lately. But you can still make money from crypto; the key is finding the right plays. Our colleague Jimmy Butts has done the homework for you.
As chief investment strategist of Capital Wealth Letter, Jimmy has pinpointed the three best ways for investors to cash in on crypto’s coming resurgence. Click here to learn more.