Cryptocurrency, Bitcoin and Siri

Hello French Fries!

I hope you all had a pleasant weekend. I spent half of it in bed coughing, so I ended up watching a season and a half of the Crown on Netflix. Not to be ethnocentric, but my main observation from that show is that British culture and society as it is portrayed is very rigidly stratified. I don’t understand why a modern, advanced economy and society would still accept an organization based upon what is essentially a caste system. Maybe it’s the experience of being a product of the American Republic, but I believe in every individual being judged equally and based on their own accomplishments, instead of who parented them. I realize the Crown is a work of fiction, and is set 60 years ago, and in no way do I bear any ill will or malcontent feelings towards our former colonial overlords. I just don’t understand how class systems are still accepted in the modern (post-World War) era; the concept in general baffles me.

Onto my (official) rant of the day: A quick cover-my-bum disclaimer before I begin, my topic today is going to be rooted in the world of financial investments; in no way should you consider me an expert or rely your investment strategy solely based on my article. I am here to spark debates and conversations. If you want financial advise, please consult with a licensed financial consultant or advisor. In mid October, I had a very fascinating and interesting discussion with my uncle. He’s a veteran investment banker on Wall Street in New York, and has been researching the concept of cryptocurrencies. Cryptocurrencies are a relatively new phenomenon. Essentially, cryptocurrencies are digital encrypted currencies that are unregulated by any financial institution. The most famous, and original, cryptocurrency is Bitcoin.

Bitcoin was founded in 2009 by the mysterious Satoshi Nakamoto. The name Satoshi Nakamoto is almost certainly a pseudonym, and nobody knows who he, she, or they really is/are. The currency aspect of Bitcoin was a byproduct of an experiment Satoshi Nakamoto was conducting on peer-to-peer transactions, which Satoshi outlined in an academic paper. One of the defining characteristics of Bitcoin is it’s database structure. Instead of being located in a single location on a single table series, Bitcoin utilizes a hash based data structure called a Merkle Tree. In a Merkle Tree, each leaf node is a hash (block of data) and each branch is a hash of it’s offspring (the data that is based on the leaf’s hash). This decentralized structure allows verification of all transactions without the need to store all the data detailing each transaction. Since bitcoin is not backed by a central government or bank, it is self-regulated through a process called Mining.

Bitcoin mining is a time and energy intensive process where the transaction data, stored in an encrypted hash, called a block, is decrypted for verification. The way blocks are encrypted ensure that the only way you could figure out the hash value is by simply and blindly guessing, seeking a working hash value shorter than the length of the encrypted hash. To this regard, miners use large amounts of computer processing power, time, and energy to keep their machines running in order to guess the value of each block. The first person who does find the correct hash is rewarded with 12.5 bitcoin, providing incentive for miners to verify transaction blocks. However, the cost of energy required to keep this system afloat is prohibitive.

Due to the success of Bitcoin as a cryptocurrency, several competing cryptocurrencies have emerged such as Litecoin, Ethereum and Zcash, amongst others. The exploding popularity of cryptocurrencies is partly rooted in the libertarian ideal of no regulatory intervention. However, this very ideal that attracts people to cryptocurrencies could also be their Achilles’ heel. They are extremely volatile, and unlike traditional currencies, there is no regulatory bank who can use policy to maintain their value. Furthermore, they are purely faith-based with absolutely nothing backing up their value. After my conversation with my uncle two months ago, I purchased 50$ worth of bitcoin (which was around 1% of one actual bitcoin) on Coinbase. That was on the 13th of October when bitcoin valuation was about $5,000 to one bitcoin. Proving the volatility of the bitcoin market, since then, bitcoin’s value has skyrocketed. Last Friday, December 12th, bitcoin was valued at over $20,000. In a short 2 months, I had a 400% rate of return, (I sold $100 of my $200 worth of bitcoin on Friday in order to keep my principle investment and then some, while still tracking the value of the rest). In no way would any sane person consider this rapid and explosive growth to be sustainable.

When it comes to cryptocurrencies, especially Bitcoin, my perception would be that we are in the midst of a modern day Tulip Mania. For those of you unversed in economic history, Tulip Mania was a bubble during the golden age of the Dutch Empire (early to mid 1600s). The Dutch were the world’s economic powerhouse and the value of tulip bulbs began to grow outrageously. When the market finally corrected itself, and prices of Tulip bulbs suddenly collapsed in February of 1637, the economy of the Dutch Empire tanked and the effects were felt for years, leaving the Dutch unable to pay for the defense of their vast colonial empire. Consequently, this is why the US financial markets are centered upon New York and not Nieuw Amsterdam.

Now, any financial advisor worth their weight in salt will tell you to spread your investments and not put your money all in one basket. You will notice, my $50 is a minor investment This is because I have most of my finances spread amongst various mutual funds which, by their very nature, are spread amongst various stocks, bonds etc. I had a coworker at a previous employer who was a true rare native Coloradoan, with the libertarian politics that native Coloradoans are known for. He wouldn’t trust any investment that he couldn’t tangibly hold in his hands, hence he was a big proponent of gold. Like me, he has pursued his career in the tech industry, so he is aware that every microchip, computer chip, and motherboard is composed of, amongst other metals, gold. If you are reading this article, congratulations, you are a gold investor. Your device on which you are reading this article has a chip in it somewhere that contains gold in it. With the rise of the wealth of the middle class in China, ASEAN, the Middle East and other formerly impoverished regions of the globe, there is a growing demand for smart phones, laptops, etc. which require computer chips, which require gold. So my former coworker, who despite his libertarianism, distrusted cryptocurrencies, was an adamant preacher of gold investments. In his view, the growing demand and limited supply in theory would increase the value. I listened to him a few years back and bought $200 worth of gold which, knowing my tendency to be a space cadet, I have stored in my bank vault. This investment has grown in value over the past 3 years at a much more moderate rate of about 10%, which I feel is a much more secure and safe rate. In contrast, while cryptocurrencies are a very interesting theory and concept, it is my firm belief that they are a bubble, waiting to pop.

Now for my tech tip of the day: This one is just a fun, but unnecessary tip for owners of iPhones. Like many of you, I ask Siri a lot of questions or requests. It’s easier to hold the button and say what you need then type it in. Did you know, you can change the language and/or accent of Siri? For instance, my iPhone’s Siri speaks with a female Australian accent (in English). To do this, go to Settings -> Siri & Search. In that menu will be, amongst others, two settings: Language and Siri Voice. The Language setting set’s which language Siri will speak in, while the Siri voice will set the accent and gender of Siri’s voice. Fun stuff!

As I mentioned above, I am not a financial advisor, nor am I a financial expert in any way. I’m merely trying to start a debate and discussion about cryptocurrencies. If you have differing opinions or tidbits you’d like to share, please please please comment! I’d love to hear what you have to say. Otherwise, until next time…

…the ketchup is in the sauce.