Should I Be Getting into Cryptocurrency? Covering the Basics
During June it dipped below US$30,000, sending investors in a tizzy. Bitcoin and its close cousin Ethereum lost 50% of its value. Dogecoin also plunged 70%.
If all this sounds like gobbledygook to you, you aren’t alone. These “coins” aren’t actual money like we can hold in our hand or withdraw from a bank but are known as cryptocurrency.
Cryptocurrencies are stores of value – much like dollars, pounds, or rupees – but are completely digital and decentralised forms of currency. You can’t hold Bitcoin or Ethereum in your hands and pass it to a shopkeeper to pay for things; you’ll need to have something called a crypto wallet. But more on that later.
You may be thinking that the root word of Crypto is taken from the Greek for “secret” or “hidden” and usually applies to spy craft and subterfuge – cryptography being the prime example. The crypto part does in fact relate to “cracking codes” – and it’s all done with computers.
The Crypto Part of Cryptocurrency
The crypto part of cryptocurrency refers to what’s known as a cryptographic hash. This hash, a long string of numbers, is recorded across a vast network of computers and systems that each maintain a decentralised ledger – a database of every transaction that’s ever been made with that currency. Bitcoins are created when a “miner” – someone with a very fast and specialised type of computer – works out what that encrypted hash is before it’s added to the network. The miner is rewarded with some new currency. This was easy in its infancy but is much harder now; the computing power and energy requirements outweigh the reward, so mining is less and less common.
For Bitcoin, the first ever cryptocurrency, this ledger dates back all the way to 2011 and has recorded billions of transactions. Every time a transaction is made, a block of information is formed. It’s added to a long chain of transactions. This is known as blockchain technology. Once a block is added to the chain, it stays there forever. Not even the creator of Bitcoin, Satoshi Nakamoto (who may or may not really exist) can edit it or modify it. That’s because it’s decentralised and encrypted. The network itself can validate transactions – not a bank or a centralised authority.
It’s partly why so many people – scrupulous or less than – use Bitcoin and its cousins to pay for dubious goods or services. It can be completely anonymous. As long as you have the address (An exceptionally long string of characters) of someone’s wallet, you can transact with them. You don’t need to know where they live, who they look like, or even know their real names. That’s the “covert” part of crypto that has its allure for some.
What Does Cryptocurrency Mean for Me?
Cryptocurrency was considered a fad a decade ago – now there are hundreds of different cryptocurrencies and trade volumes are in the hundreds of billions. Many leading retailers are beginning to accept Bitcoin and other derivatives around the world – KFC in Canada, Microsoft, Subway (in select locations), and even Starbucks accept some type of crypto.
In fact, El Salvador just made Bitcoin legal tender this year, with many other countries to follow. The Australian Tax Office also considers cryptocurrency transactions taxable under Capital Gains Tax. So, cryptocurrency is definitely here to stay – especially if the government wants its piece of the pie!
A survey conducted by Savvy showed that 18% of respondents in the 50+ age group are likely to buy cryptocurrency in 2021, while 3% were very likely, and 5% extremely likely.
This doesn’t sound like much, but it’s significant enough to merit discussion. In the same cohort, 27% said they’d like to hold cryptocurrencies in the future.
If you’re familiar with digital wallets – such as paying for things with your phone for example – that’s one way you can get into paying for goods and services using crypto.
“About 27% of people between the ages of 55-64 said it’s more likely than not that cryptocurrency will displace the current banking system. It won’t replace it entirely, but it will sit alongside it and become very hard to ignore,” says Savvy Managing Director Bill Tsouvalas. “When you start going to websites that accept Bitcoin and other cryptocurrencies, you know it’s gaining mainstream acceptance. A lot of people like the security and anonymity it affords us; others invest in crypto to become ‘Bitcoin millionaires.’ 35% of 55-64s invested in crypto for that reason. But 24% said they did so to diversify their investment portfolio, which can be a sound investment strategy.”
36% of 55-65+ said they’d think about investing in cryptocurrencies in the future as part of a long-term investment or retirement fund.
Using Cryptocurrency – You Don’t Need to be an Expert
26% of the older cohort said they understand how cryptocurrencies such as Bitcoin and Ethereum work to some extent. But you don’t need to become a cryptographic hash miner with CUDA cores out the wazoo to use and trade cryptocurrency. You can buy crypto using good old fashioned Australian dollars.
“Exchanges like Ludo, Coinbase, or Binance accept money and convert it into cryptocurrency of your choice,” Tsouvalas says. They also have wallets you can load onto your phone to make quick transactions to pay merchants or friends. If you know how to use a basic NetBank app, it’s likely you’ll get your head around using a cryptocurrency exchange or wallet.”
Despite regulation increasing around cryptocurrency, it’s very much a “wild west” out there. If you send Bitcoin to the wrong wallet or to someone dodgy, there’s almost zero chance of getting it back. “There is a risk, just like buying or selling any financial product,” Tsouvalas says. “You need to know what you’re doing. There are some great in-depth guides out there – so make sure you talk to someone who’s knowledgeable and trustworthy before dipping your toes into cryptocurrency.”