I started hearing about it several years ago. Didn't make any sense to me then, still doesn't now. Someone help?
It's in the news again because that FTX company went under, and people lost a lot of money, and the 20-something CEO is babbling about it in interviews.
It's "virtual money" that exists in a complex system of algorithms (somewhere in a "virtual world") and when someone tries to explain it, it will never make sense.
As an investment, "just say no"...LOL
IMO, it's sorta like musical chairs and the smart person sits down in a chair while the music is still playing...in short, bail while the bailing is good.
Quote from: Jolly Blue Giant on December 04, 2022, 07:34:35 AMIt's "virtual money" that exists in a complex system of algorithms (somewhere in a "virtual world") and when someone tries to explain it, it will never make sense.
As an investment, "just say no"...LOL
IMO, it's sorta like musical chairs and the smart person sits down in a chair while the music is still playing...in short, bail while the bailing is good.
Apt description.
Cryptocurrency is a complex topic. First, you need to appreciate the concept of currency. Prior to Crypto, money was issued by and regulated by governments, usually via a central bank. Of course, currency can be anything that a group of people designates to have value; it could be coconuts, for example.
Now there is a technology called blockchain. The simplest explanation is that it's a networked decentralized (not sitting in any given computer) database. This database encrypts (basically scrambles the files stored on the network and requires a key to unscramble. There are a variety of cryptocurrencies out there, with bitcoin being the most popular. The new currency is created via a process called "mining," which has specialty computers solving complex mathematical problems (with the first one to get the answer getting the new coins). This mining serves a functional purpose as the calculations are done also ensure that when files are transferred (especially a bitcoin is spent by giving it to another), it ensures that it's a unique transaction and that a person doesn't spend their bitcoin file more than once. You don't have to mine cryptocurrency it's available for sale (for "real" money) via brokers.
As a side note, fungible tokens are like one-off cryptocurrencies where the scrambled files are usually pictures of something, and they can be traded for funds as well.
The appealing aspect of this currency is that it's not regulated by any sort of government entity. It's also easily transferred. It was the creation of cryptocurrency that allowed hackers around the world to take computers hostage by encrypting all their files and demanding ransom via cryptocurrency. Of course, there was also a lot of speculation on crypto that helped drive up the price (plus, some felt it might be a safe haven from inflation and fluctuations of stock markets).
Since it's not regulated and it's not a traditional currency, it's essentially an asset class that has zero intrinsic value (like investing in fine art or comic books), and much of the value has been driven by speculation, the currency's values have fluctuated wildly (which sort of negates one of the main purposes of currency which is to have the means to transfer monetary value on a relatively stable platform). It also turns out that all that financial regulation wasn't just evil government over-reach but was, in reality, hard-earned lessons in terms of keeping a momentary system stable and relatively safe.
So it is that lack of regulation that has led to the bankruptcies and the huge losses we have been witnessing. On a personal note, I have and will continue to steer well clear of cryptocurrency because it's not really a sound or safe investment. "Investing" in crypto, at its heart, is like investing in dollar bills. I prefer investing in companies, bonds, real estate (via REITS), ETFs, and mutual funds. I have learned that financially I am an investor (invest in something and ride with it) rather than a trader (someone who essentially gambles on the rising and falling of various asset classes)
It's a way to own fake money with real money.
You can't see it and touch it, but it's their!
It can be worth a lot but then not!
It's modern fools gold in my opinion!
A way for you to lose money and someone else make money off our foolishness.
Sent from my iPhone using Tapatalk
If you're going to invest in Cryptocurrency my suggestion would be to buy a protective Put option to cover any crash. Especially if it's a volatile market as you can make money on Calls and Puts.
Quote from: Ed Vette on December 04, 2022, 10:00:13 AMIf you're going to invest in Cryptocurrency my suggestion would be to buy a protective Put option to cover any crash. Especially if it's a volatile market as you can make money on Calls and Puts.
This, or simply don't invest in crypto with an amount of money that you can't afford to lose 100% of. I don't own any crypto and don't plan on buying any in the foreseeable future, but if I did, it would be a very small percentage of my overall portfolio. Such that if it all went to zero it would be no more than an annoyance to me but life would go on as normal and no budgetary adjustments would need to be made. Obviously, you're not likely to make tons of money in crypto if that's your commitment level, but there are more than enough opportunities in stocks and other investments, even for the risk-hungriest and most aggressive of investors. Investing in crypto purely for FOMO reasons is kind of silly in my opinion. Plus the time for that has probably passed.
Quote from: DaveBrown74 on December 04, 2022, 10:45:49 AMThis, or simply don't invest in crypto with an amount of money that you can't afford to lose 100% of. I don't own any crypto and don't plan on buying any in the foreseeable future, but if I did, it would be a very small percentage of my overall portfolio. Such that if it all went to zero it would be no more than an annoyance to me but life would go on as normal and no budgetary adjustments would need to be made. Obviously, you're not likely to make tons of money in crypto if that's your commitment level, but there are more than enough opportunities in stocks and other investments, even for the risk-hungriest and most aggressive of investors. Investing in crypto purely for FOMO reasons is kind of silly in my opinion. Plus the time for that has probably passed.
Yup - it redefines risky business. I never owned crypto, but held stock in a couple of companies that mine crypto a couple of years or more ago. Made some money, but man...talk about volatility. It's off the charts. It will be interesting to see where crypto goes from here. I suspect it's a fading fad, but who the hell knows. I know I am staying far away from it #:-S
Quote from: DaveBrown74 on December 04, 2022, 10:45:49 AMThis, or simply don't invest in crypto with an amount of money that you can't afford to lose 100% of. I don't own any crypto and don't plan on buying any in the foreseeable future, but if I did, it would be a very small percentage of my overall portfolio. Such that if it all went to zero it would be no more than an annoyance to me but life would go on as normal and no budgetary adjustments would need to be made. Obviously, you're not likely to make tons of money in crypto if that's your commitment level, but there are more than enough opportunities in stocks and other investments, even for the risk-hungriest and most aggressive of investors. Investing in crypto purely for FOMO reasons is kind of silly in my opinion. Plus the time for that has probably passed.
I frequently have heard the story that when the man on the street starts talking about an investment it's a good time to get out (as the peak has come and may even be going). They usual tell that story about the stock market, but I think it applies to crypto as well
Quote from: MightyGiants on December 04, 2022, 12:53:12 PMI frequently have heard the story that when the man on the street starts talking about an investment it's a good time to get out (as the peak has come and may even be going). They usual tell that story about the stock market, but I think it applies to crypto as well
Maybe, although the good time to "get out" of crypto was one year ago. If you didn't, and just now thinking about getting out today, you kind of missed it.
Thanks, everyone, for the very informative replies! I got everything from common-sense explanations to a textbook-style description.
Any mention of the word "trading" is enough to make me distrust FTX and crypto in general. Also the fact that the whole company was run from the Bahamas. I'll stick with businesses that sell a real product and follow a real set of rules.
Crypto currency needs miners to provide the needed computing power for their crypto networks. So I found this article about a major Bit Coin minor on the verge of bankruptcy rather interesting (they provide Bit Coin with 10% of the needed processing power)
https://www.bnnbloomberg.ca/bitcoin-miner-core-scientific-has-lost-1-7-billion-this-year-1.1849853
Personally, I am no fan of Cryptos. I work in Market Conduct and since it's not regulated it has a massive potential of a) money laundring and b) market manipulation (less so for Insider Dealing in my view).
But it's part of the modern financial system and as such, there are facts which are undeniable.
1. Crypto is not correlating with anything. Wrong. When the market crashes, Crypto crashes with it.
2. Crypto cannot be used to diversify a portfolio. Wrong. If used in the right measure, there are possibilities to increase an RoA ratio, more specifically
Portfolio Allocation excl BTC
40% Bonds
35% Stocks
25% Real Estate
Performance since 2016
Return: 5.4%
Std. Deviation: 7.4%
Sharpe Ratio: 0.73
Portfolio Allocation incl BTC
39% Bonds
34% Stocks
24% Real Estate
3% Bitcoin
Performance since 2016
Return: 12.1%
Std. Deviation: 9.1
Sharpe Ratio: 1.33
If you play it conservative enough and use it appropriately there are ways on how to make money, as long as you're patient and don't overload (can't Blitz all the time, can you?! :laugh: ).
I thought this was spot on
=)) =))
I have a bit of a different take on the crypto than most here. I think some form of cryptocurrency will be widely accepted all over the world at some point, but I think we are a number of years from that. Even now you can purchase a wide variety of things using some forms of cryptocurrency. I don't think there will be more than a couple of crypto currencies worth much when this does happen.
There is a lot of issues with it being unregulated as well as the number of various crypto assets that are being created and sold. IT's very much a buyer beware area.
FTX was really a Bernie Madoff type of scam which really has nothing to do with what crypto is or isn't.
I do own some Ethereum but have not bought any in several years.
On the other, I think blockchain technology is really helping in a lot of industries and will continue to grow.
Quote from: uconnjack8 on December 16, 2022, 10:43:44 AMFTX was really a Bernie Madoff type of scam which really has nothing to do with what crypto is or isn't.
I beg your pardon, but I respectfully disagree; If the markets and the brokers would've been regulated to the right extent, this wouldn't have happened. Initially, everyone was happy because of the lack of Regulations, the independence from the normal financial system... but now this happened and most if not all are now screaming for Regulations of the Crypromarket.
Quote from: uconnjack8 on December 16, 2022, 10:43:44 AMOn the other, I think blockchain technology is really helping in a lot of industries and will continue to grow.
This I agree with. The blockchain technology can be used for many things outside of Crypto for sure.
Quote from: GordonGekko80 on December 16, 2022, 12:38:20 PMI beg your pardon, but I respectfully disagree; If the markets and the brokers would've been regulated to the right extent, this wouldn't have happened. Initially, everyone was happy because of the lack of Regulations, the independence from the normal financial system... but now this happened and most if not all are now screaming for Regulations of the Crypromarket.
You are free to disagree and it may have been harder to do but Bernie Madoff did what he did with regulation and people reporting suspicions. Further, things like Enron, Lucent, MCI/Worlcom have all happened in the 2nd half of my life while under regulations that are supposed to prevent it.
To say scams won't happen because of regulations is false.
I think crypto markets should be regulated but I don't think regulations are some 100% insurance against scams
Quote from: uconnjack8 on December 16, 2022, 01:00:11 PMYou are free to disagree and it may have been harder to do but Bernie Madoff did what he did with regulation and people reporting suspicions. Further, things like Enron, Lucent, MCI/Worlcom have all happened in the 2nd half of my life while under regulations that are supposed to prevent it.
To say scams won't happen because of regulations is false.
I think crypto markets should be regulated but I don't think regulations are some 100% insurance against scams
This I agree with though. ;)
Quote from: uconnjack8 on December 16, 2022, 01:00:11 PMYou are free to disagree and it may have been harder to do but Bernie Madoff did what he did with regulation and people reporting suspicions. Further, things like Enron, Lucent, MCI/Worlcom have all happened in the 2nd half of my life while under regulations that are supposed to prevent it.
To say scams won't happen because of regulations is false.
I think crypto markets should be regulated but I don't think regulations are some 100% insurance against scams
Financial regulation, at least to me, is akin to the regulations governing the airline industry. Each time there is a scam or some event that costs people all or most of their money, there are regulations put in place to either prevent such an event from happening again or at least help people avoid such events. This has been going on for nearly 100 years.
Along comes Crypto with zero regulations. FTX was essentially a bank for crypto-currency. This would never have happened with traditional currency because banks are heavily regulated to protect banking customers. That doesn't mean a new scam won't happen, but the chances of being scammed in the world of crypto are magnitudes greater than with traditional finance, in my opinion.
Quote from: MightyGiants on December 16, 2022, 01:10:16 PMFinancial regulation, at least to me, is akin to the regulations governing the airline industry. Each time there is a scam or some event that costs people all or most of their money, there are regulations put in place to either prevent such an event from happening again or at least help people avoid such events. This has been going on for nearly 100 years.
Along comes Crypto with zero regulations. FTX was essentially a bank for crypto-currency. This would never have happened with traditional currency because banks are heavily regulated to protect banking customers. That doesn't mean a new scam won't happen, but the chances of being scammed in the world of crypto are magnitudes greater than with traditional finance, in my opinion.
Wells Fargo did some very similar things to their customers. They are still in business and for some reason people still use them.
https://www.cnbc.com/2022/12/20/wells-fargo-agrees-to-3point7-billion-settlement-with-cfpb-over-consumer-abuses.html
(https://i.postimg.cc/sX6yfYLf/LWI7-VNBFTVCXLJEZGZ7-SJKMPMU.jpg) (https://postimages.org/)
Quote from: uconnjack8 on December 22, 2022, 09:51:45 AMWells Fargo did done very similar things to their customers. They are still in business and for some reason people still use them.
https://www.cnbc.com/2022/12/20/wells-fargo-agrees-to-3point7-billion-settlement-with-cfpb-over-consumer-abuses.html
Matt,
Wells Fargo engaged in some shady fee charges (from how I remember their issues). I am not sure that's the same as FTX who told people they were a crypto bank, give us your crypto for safekeeping like in a bank, only to spend the money they got. I think that's why Wells Fargo was fined and FTX had at least one arrest (that I am aware of).
In some ways, I would argue that the Well Fargo case shows that the safeguards that are put in place worked. Despite some questionable practices by Wells Fargo, the regulators protected the customer's interests.
Quote from: MightyGiants on December 22, 2022, 09:58:33 AMMatt,
Wells Fargo engaged in some shady fee charges (from how I remember their issues). I am not sure that's the same as FTX who told people they were a crypto bank, give us your crypto for safekeeping like in a bank, only to spend the money they got. I think that's why Wells Fargo was fined and FTX had at least one arrest (that I am aware of).
In some ways, I would argue that the Well Fargo case shows that the safeguards that are put in place worked. Despite some questionable practices by Wells Fargo, the regulators protected the customer's interests.
It was much more than just fees. They took money out of customer accounts and started new accounts to show they had increased the number of accounts. There was also some mortgage situation that I forgot the details.
Really it shows the safeguards were circumvented for a period of time until someone reported it.
One very fundamental and basic but (I think at least) important set of questions that needs to be considered regarding crypto is the following:
What practical purpose does cryptocurrency serve? Why does the world need it?
I think this is important because all legitimately great discoveries and inventions, and ones that have soared in value over multiple generations, have served a genuine purpose that has helped mankind in some way. They have been something that people either need or very badly want. I am trying to understand how crypto fits into that axiom.
Obviously, to be able to make payments digitally is not a reason why we need crypto. We do that all the time now with regular fiat currency, and there are all kinds of technologically advanced ways to do it. So that's a non-reason.
Clearly, cryptocurrency is of great use to any individual or group of individuals looking to engage in illicit, nefarious transactional activity. No doubt it helps serve that purpose, but that is obviously not an acceptable, legitimate purpose or need.
What most crypto people will give you as their response to this question is that crypto currency is finite, unlike fiat currency, which governments can print as much as they want of. I get that, but that's more a property of it than an actual use or something that people "need" or even "want."
I still have yet to hear anyone make a coherent argument of why the legitimate, law-abiding world needs crypto currency. If anyone here wants to take a stab at it, I'd love to hear your thoughts.
Quote from: DaveBrown74 on December 22, 2022, 10:09:40 AMOne very fundamental and basic but (I think at least) important set of questions that needs to be considered regarding crypto is the following:
What practical purpose does cryptocurrency serve? Why does the world need it?
I think this is important because all legitimately great discoveries and inventions, and ones that have soared in value over multiple generations, have served a genuine purpose that has helped mankind in some way. They have been something that people either need or very badly want. I am trying to understand how crypto fits into that axiom.
Obviously, to be able to make payments digitally is not a reason why we need crypto. We do that all the time now with regular fiat currency, and there are all kinds of technologically advanced ways to do it. So that's a non-reason.
Clearly, cryptocurrency is of great use to any individual or group of individuals looking to engage in illicit, nefarious transactional activity. No doubt it helps serve that purpose, but that is obviously not an acceptable, legitimate purpose or need.
What most crypto people will give you as their response to this question is that crypto currency is finite, unlike fiat currency, which governments can print as much as they want of. I get that, but that's more a property of it than an actual use or something that people "need" or even "want."
I still have yet to hear anyone make a coherent argument of why the legitimate, law-abiding world needs crypto currency. If anyone here wants to take a stab at it, I'd love to hear your thoughts.
Superb post! Very well (and eloquently) stated =D>
Quote from: DaveBrown74 on December 22, 2022, 10:09:40 AMOne very fundamental and basic but (I think at least) important set of questions that needs to be considered regarding crypto is the following:
What practical purpose does cryptocurrency serve? Why does the world need it?
I think this is important because all legitimately great discoveries and inventions, and ones that have soared in value over multiple generations, have served a genuine purpose that has helped mankind in some way. They have been something that people either need or very badly want. I am trying to understand how crypto fits into that axiom.
Obviously, to be able to make payments digitally is not a reason why we need crypto. We do that all the time now with regular fiat currency, and there are all kinds of technologically advanced ways to do it. So that's a non-reason.
Clearly, cryptocurrency is of great use to any individual or group of individuals looking to engage in illicit, nefarious transactional activity. No doubt it helps serve that purpose, but that is obviously not an acceptable, legitimate purpose or need.
What most crypto people will give you as their response to this question is that crypto currency is finite, unlike fiat currency, which governments can print as much as they want of. I get that, but that's more a property of it than an actual use or something that people "need" or even "want."
I still have yet to hear anyone make a coherent argument of why the legitimate, law-abiding world needs crypto currency. If anyone here wants to take a stab at it, I'd love to hear your thoughts.
That Crypto currency is finite is true if you look at a given type of crypto currency. On the other hand, taken as a whole there is no limit on the number of crypto currencies that can enter that market
Quote from: MightyGiants on December 22, 2022, 10:36:04 AMThat Crypto currency is finite is true if you look at a given type of crypto currency. On the other hand, taken as a whole there is no limit on the number of crypto currencies that can enter that market
True, and that is a good point that I think often gets overlooked.
Quote from: DaveBrown74 on December 22, 2022, 10:09:40 AMOne very fundamental and basic but (I think at least) important set of questions that needs to be considered regarding crypto is the following:
What practical purpose does cryptocurrency serve? Why does the world need it?
I think this is important because all legitimately great discoveries and inventions, and ones that have soared in value over multiple generations, have served a genuine purpose that has helped mankind in some way. They have been something that people either need or very badly want. I am trying to understand how crypto fits into that axiom.
Obviously, to be able to make payments digitally is not a reason why we need crypto. We do that all the time now with regular fiat currency, and there are all kinds of technologically advanced ways to do it. So that's a non-reason.
Clearly, cryptocurrency is of great use to any individual or group of individuals looking to engage in illicit, nefarious transactional activity. No doubt it helps serve that purpose, but that is obviously not an acceptable, legitimate purpose or need.
What most crypto people will give you as their response to this question is that crypto currency is finite, unlike fiat currency, which governments can print as much as they want of. I get that, but that's more a property of it than an actual use or something that people "need" or even "want."
I still have yet to hear anyone make a coherent argument of why the legitimate, law-abiding world needs crypto currency. If anyone here wants to take a stab at it, I'd love to hear your thoughts.
That argument about illicit uses is the biggest crock of sh!t there is. Every transaction is recorded on a blockchain and therefore completely traceable. You know what the best payment for illicit activity is and always has been? Cash. Going to get rid of that?
If the addresses were regulated it would easily eliminate that issue.
People want a currency that is not dependent on central banks making decisions about interest rates or government heads like John Mugabe just printing the money into worthlessness. I get that not everyone wants it, but a universal currency is not a bad idea.
Personally, I love the idea of a currency that is not attached to any country or government. We have seen mulitple countries (albeit smaller ones) have currency crashes in the last few years. Bet a lot of those people wish they were not dependent on a government to maintain their worth.
Quote from: MightyGiants on December 22, 2022, 10:36:04 AMThat Crypto currency is finite is true if you look at a given type of crypto currency. On the other hand, taken as a whole there is no limit on the number of crypto currencies that can enter that market
There are dozens if not more traded cryptos. If there is to be one used more widely, many of those will disappear.
Quote from: uconnjack8 on December 22, 2022, 11:02:13 AMEvery transaction is recorded on a blockchain and therefore completely traceable.
Right, because obviously sophisticated criminals and terrorists always use their exact, true identities when engaging in these unregulated transactions and never falsify anything or seek to cover their tracks in any way. My bad.
Quote from: uconnjack8 on December 22, 2022, 11:02:13 AMYou know what the best payment for illicit activity is and always has been? Cash. Going to get rid of that?
No, but cash isn't as easy to use as a payment method for large transactions. For starters, it requires a physical transfer, and very large amounts take up space. Large cash withdrawals from banks also set off flags. I'm not saying large cash transactions don't happen or can't happen, but pressing a button and having it all happen in cyberspace is a hell of a lot easier. Especially if the transaction is between two parties who are far away from each other (think international terrorist funding).
I get all the points about the appeal of a currency that is finite and not tied to a government or central bank, and that is fine, but I firmly disagree with your statement that the argument that cryptocurrency is useful to criminals is "the biggest crock of sh1t there is." I do however agree that regulation would help with this issue.
QuoteNo, but cash isn't as easy to use as a payment method for large transactions. For starters, it requires a physical transfer, and very large amounts take up space.
Ever read stories about Pablo Escobar? He lost 2.1 billion dollars a year from his cash pile rotting in his warehouse or getting eaten by rats. He spent 2,500 dollars per month on rubber bands alone that were used to bundle the cash. Nice to have a lot of cash, but not easy to hoard tons of it or move it to a place where you can purchase big items
https://www.businessinsider.com/pablo-escobar-and-rubber-bands-2015-9
Quote from: Jolly Blue Giant on December 22, 2022, 12:09:07 PMEver read stories about Pablo Escobar? He lost 2.1 billion dollars a year from his cash pile rotting in his warehouse or getting eaten by rats. He spent 2,500 dollars per month on rubber bands alone that were used to bundle the cash. Nice to have a lot of cash, but not easy to hoard tons of it or move it to a place where you can purchase big items
https://www.businessinsider.com/pablo-escobar-and-rubber-bands-2015-9
Exactly.
Cash is an easy way to do illegal business if it's less sophisticated crime, not massive sums, and done at a local level. Mafia type activity and drug dealing within a specific local area is perfect for cash transactions. Much tougher when you're talking about higher level, more sophisticated, and more global type crime or terrorism. Crypto is perfect for that.
From what I could gather from a bit of research, it appears that crypto can be traced, but it's not easy. So small crimes will still fly under the radar, but if it's big enough for the feds to try, you can be found.
Quote from: DaveBrown74 on December 22, 2022, 12:21:57 PMExactly.
Cash is an easy way to do illegal business if it's less sophisticated crime, not massive sums, and done at a local level. Mafia type activity and drug dealing within a specific local area is perfect for cash transactions. Much tougher when you're talking about higher level, more sophisticated, and more global type crime or terrorism. Crypto is perfect for that.
Yeah, nobody could get these things done before crypto, big cash transfers didn't exist. :ok:
Again, if regulated, addresses could be only to registered people who had to prove identity, which is basically how the bank monitors things.
As for the global crime type and terrorism, what exactly are you talking about? Did 9/11 happen because of crypto? What about the Oklahoma City bombing?
Quote from: uconnjack8 on December 22, 2022, 01:11:16 PMYeah, nobody could get these things done before crypto, big cash transfers didn't exist. :ok:
Again, if regulated, addresses could be only to registered people who had to prove identity, which is basically how the bank monitors things.
As for the global crime type and terrorism, what exactly are you talking about? Did 9/11 happen because of crypto? What about the Oklahoma City bombing?
Of course not. Never once did I say or imply that large scale crime and terrorism cannot happen without crypto. That's pretty blatantly putting words in my mouth, building a straw man, or whatever else you want to call that.
All I said, which I am still saying, is that crypto has clear appeal to a criminal element and definitely can help facilitate transactions between nefarious actors. If you don't think that's the case then we can agree to disagree.
By the way, despite our back-and-forth on this one aspect of the discussion, it was never the main point of my original post, which was simply to pose the fundamental question of why crypto is needed in the first place at a mass level for legitimate purposes (other than pure speculation).
Ransomware hacking wouldn't happen if not for crypto, it's the hackers only accepted payment method