If you are an investor, your goal is to make money. If you are an accounts payable specialist at a large corporation or just a guy on the street, you want to transfer money quickly and seamlessly. If you are an Asian billionaire, a South American drug cartel or a Russian hacker, you want to operate in anonymity.
On the other hand if you are Jamie Dimon Chairman of JPMorgan Chase in need of always staying on the forward edge of financial technology, than you simply must get involved with cryptocurrencies.
But what if you are just Eddie the everyday guy watching the news about Bitcoin and this other thing called Ethereum and all the wild price gyrations of these currencies, what does it mean to you?
Advocates for cryptocurrencies believe the world monetary system as we now know it is doomed. For financial, political and economic reasons, they argue, the 70-year long era of world dominance by the US dollar is ending. According to these folks, more and more global financial transactions will be done in electronic digital currencies.
Bitcoin is perhaps best known having been created way back in 2009. More recently Ethereum has quietly made an impressive splash becoming a bona fide rival to Bitcoin. And there are others as well.
If you are looking for parallels, think in terms of the early days of credit cards. Each represented an entirely new form of payment. As we learned there was room for more than just Visa or just MasterCard.
Cryptocurrency evangelists believe they offer an important advantage over currencies like the dollar. Bitcoin, for example, was design to consist of a precise number of units. The supply of the dollar is random and determined by the Federal Reserve. So evangelists believe the true value of currencies like Bitcoin is reflected in their publically quoted prices.
The mechanism for tracking price and volume is like a giant exchange or blockchain that instantly documents and electronically publishes every transaction.
Why All The Attention?
At the very least, cryptocurrencies represent a pathway for instant global money transfers. This represents a monumental improvement over the typical 1-3 day delay and the ridiculous 3%-6% fee.
Cryptocurrencies mimic cash in that the identity of currency owners is anonymous. This is magnet for drug dealers and cyber criminals of all shapes and sizes. The FBI is having fits trying to track down the source of the recent attacks of cyber extortionists because of the criminals’ use of cybercurrency.
The anonymity feature offers greater security than a Swiss Bank. A recent trade article point to 70% of Bitcoin transactions coming from Asia (a.k.a. China). There is no need to ponder what purpose these people would have.
Criminal activity tends to obscure the virtues of cryptocurrencies like Bitcoin and Ethereum. In fact, the increasing array of applications available on Ethereum is one of the compelling attractions of this crypto brand. A quick check of the Ethereum website will give you an appreciation.
So far, investing directly in Bitcoin and Ethereum is where the real money has been made in cryptocurrencies. This places you in the role of speculating on the future value and so far speculators have found a gold mine.
From an initial trading price of $0.06 on June 19, 2010 Bitcoin recently traded over $2000. As for Ethereum, the trading started on September 1, 2015 at $1.32 rising to more than $370 in recent days.
There is one thing that cryptocurrencies and the US dollar have in common. Neither are backed by any precious metal or collateralized in anyway. Both gain their stature through the full faith and confidence of the issuer.
Confidence in the dollar is bolstered by the production of goods and services whereas such services are only now beginning to emerge with cryptocurrencies. In the meantime speculators in Bitcoin and Ethereum have been jolted by an occasionally flash crash and general price volatility.
Price volatility can be brutal as we saw in mid June when the price of Ethereum dropped more than 50% and Bitcoin tumbled over 30%. The faint of heart should guard against temptation.