What is cryptocurrency, the blockchain, and NFTs
First, here’s a breakdown of what cryptocurrency, the blockchain, and NFTs are. Cryptocurrency is an electronic currency whose value is not regulated so it is worth whatever people are willing to pay for it. You can buy a crypto “coin” or, depending on the type of cryptocurrency you are using, you can “mine” one – which basically consists of allowing your computer to be used to complete blockchain equations in exchange for “coins”. There are multiple types of cryptocurrencies, the most well-known of course being bitcoin, and they range widely in both popularity and legitimacy. In fact, some cryptocurrencies have turned out to be complete scams. A recent one you may have heard about on the news was the cryptocurrency based on the popular show Squid Games. The “developers” never in fact created any sort of “coin” and instead everyone who had invested in it had their money stolen.
The blockchain is how cryptocurrency is tracked. Since there is never any physical money, every time the “coins” are bought or exchanged an electronic record must be made of the transaction. Since this is a peer-to-peer system, it also allows for transactions to remain anonymous. This of course, has been used for nefarious purposes by criminals all over the world. However, there have been multiple cases of both law enforcement being able to track down these “anonymous” transactions and hackers being able to steal various cryptocurrencies. So, this added level of security is hardly foolproof. Another thing to keep in mind is once you are using any sort of trading platform to make transactions with cryptocurrency there is no anonymity. Also, these transactions are now often taxable just like an investment account.
NFTs (non-fungible tokens) are receipts of ownership for digital art. These are also typically tracked using blockchain equations. While cryptocurrency values tend to be quite volatile, NFT values are even more so. They hold no intrinsic value and can easily become completely worthless even after having been bought for a great deal of money. They are also even more susceptible to hacking and scams.
Now, we would of course be remiss if we did not also discuss cryptocurrency’s environmental impact. In the case of both crypto and NFTs a great deal of computing power is required to keep the blockchain record up to date. In fact, every time an NFT is purchased it is estimated to have 14 times the carbon footprint of buying and mailing a physical piece of art [https://qz.com/1987590/the-carbon-footprint-of-creating-and-selling-an-nft-artwork/]. It’s also estimated that a single Ethereum (another popular type of cryptocurrency) transaction is roughly equivalent to 74,000 VISA transactions [https://digiconomist.net/ethereum-energy-consumption]. This is hardly sustainable. While there has been discussion of improving the environmental impact of using the blockchain system, no measures have been taken so far.
Should you Investing in Cryptocurrency
Finally, to answer the question of whether you should be investing in cryptocurrency: this depends on you as an individual. You must consider what your timeline for the investment would be, how comfortable you are with volatility, and of course, your stance on crypto’s environmental impact. If you are interested in investing, there are many ways to do so, ranging from buying actual “coins” to buying ETF and mutual funds that track the crypto market.
We generally do not recommend cryptocurrency as a long term investment for the following reasons. There are 2 types of investments
1. investments that earn a profit (like stock in a business or even a loan that pays interest)
2. The other is based just on supply and demand – just as gold/silver or cryptocurrency
The price of supply and demand investment depends on the how much is available. Bitcoin is pretty clever and has a limited amount of supply so it’s the demand that will fluctuate and change the price. However there are about 100 new cryptocurrencies introduced each day. Cryptocurrency really has an infinite and ever growing supply.
Unless demand can keep up with this growing supply – the price should go down.
If you ever wish to discuss any questions you have about investing, you can schedule a meeting with one of our advisors.
There are more and more places to invest in cryptocurrency. Some include:
• Coinbase – CoinbasePro
It’s free to open an account. Link it to a bank account or you can fund it with a credit card.
You can use Wallets for security
CoinTracker is an app to track taxes and put it in a format for your tax preparer.
Why is cryptocurrency bad for the environment?
It is the level of computer processing power required to mine cryptocurrency that is worrying environmentalists.
The mining process uses:
High-powered computers which compete to verify transactions in return for coins
Vast amounts of electricity to power complex algorithms
Non-renewable energy sources such as coal, the dirtiest fossil fuel
Dogecoin used 0.12kilowatts of energy per hour (kWh) per transaction, well ahead of bitcoin, which was at the bottom of the table, using 707kWh.
However, critics claim its true environmental impact is difficult to assess because of the complexity of its mining system.
According to TRG Datacenter
Currency Kilowatt hour (KWh) consumed per transaction*
IOTA 0.00011 KWh
XRP 0.0079 KWh
Chia 0.023 KWh
Dogecoin 0.12 KWh
Cardano 0.5479 KWh
Litecoin 18.522 KWh
Bitcoin Cash 18.957 KWh
Ethereum 62.56 KWh
Bitcoin 707 KWh
This podcast is for informational use only. We are not making investment recommendations. This is not an appropriate investment for everyone. As with any investment, please read the prospectus and discuss it with your financial planner.