Business: cryptocurrencies, part 0: philosophy and confusion

Self-tutoring about business: the tutor begins about cryptocurrencies.

What follows is my opinion.

Cryptocurrencies are in the news and very popularly talked about. Similarly with body building, weight loss, and other pursuits, there’s a strong “bro science” narrative about cryptocurrencies. Most (not all) of what I read or see on videos isn’t helpful. Yet, some articles are: they are usually text-dominant.

I can’t speak to any particular cryptocurrency, but I can speak to what I’ve come to believe is the philosophy behind them. Cryptocurrencies, philosophically, have the purpose of enabling transactions – hence the label “currency.”

It’s true, in the first bitcoin transaction I know of – done as an academic exercise as much as any other reason – 10000 bitcoins were accepted as payment for two pizzas (hopefully larges with lots of toppings). That was back in 2010. Therefore, 10000 bitcoin, in that transaction, might have been valued at $40, or 4000 cents. In that case, a bitcoin was worth 0.4 cents.

That pizza vendor might have done well to keep those bitcoins, because on November 1, 2021, bitcoin peaked at $61K. Since then it’s retreated to $27K.

Investors see the rise from 0.4 cents to $61K and, naturally enough, wonder if they can get in on that. Yet, bitcoin is not meant to be an investment; it’s meant to be a currency. Yes, it did skyrocket in value from 2010 to 2021, but that’s because it was a totally new idea. Today, there are hundreds of cryptocurrencies. In fact, I’ve read there are thousands, but I can’t quite believe that.

Anticipating a currency might go up in value is a risky business, since there’s not necessarily a fundamental reason it should. By contrast, a business that’s well run, and performing well, seems likely to gain value because of its productive power.

Source:

in2013dollars.com

ndtv.com