What is cryptocurrency: Insight from the experts
Cryptocurrency. Bitcoin. Ethereum. The Blockchain.
What are these things, anyway?
If you find yourself asking this question – even silently, as you nod at a party and pretend to know what people are talking about when they throw around these words – then this article is for you. ABC10 talked with experts to put together a primer on the basics of cryptocurrency – and why, even if you have no interest in investing – it’s something you should care about.
ABC10 spoke with Charlene Fadirepo, founder of Guidefi, which helps women and people of color grow and protect wealth. She’s also the author of children’s books explaining cryptocurrency and co-author of a book for policy leaders about the importance of cryptocurrency.
Our third expert is Natalie Brunell, bitcoin educator and host of the podcast “Coin Stories.”
We asked all three of them to help us explain cryptocurrency in a way that will equip someone with a better basic, working knowledge.
Q: WHAT IS CRYPTOCURRENCY?
CHARLENE FADIREPO: Cryptocurrency is digital money that can be used as a secure form of payment. Nice and easy. In the financial world, we actually think of cryptocurrency as a new financial asset class. You might be familiar with other asset classes, like real estate, stocks, and bonds.
JOSEPH TAYLOR: So cryptocurrency is just a currency, like a dollar or a peso or a euro. The difference between cryptocurrency and the dollar that you have in your wallet is that it only exists digitally. They don't make any paper copies. And it's not issued by a government; it's issued by the currency. So if somebody's willing to accept it to trade and barter for goods, it works just like a dollar or a euro.
NATALIE BRUNELL: You're essentially purchasing something that is completely digital. And, honestly, today, most of us don't transact in cash anymore, right? We do have paper money that exists, but most of us use credit cards or we make transfers with our online bank accounts or something like Venmo.
Q: WHAT ABOUT ALL THE DIFFERENT KINDS, LIKE BITCOIN, ETHEREUM AND XRP?
CHARLENE FADIREPO: Think of crypto as the umbrella. There are lots of pieces under that umbrella. There's bitcoin, there's Ethereum, there's monero [and many more]. All of these cryptocurrencies are separate, and it's all technology-based.
JOSEPH TAYLOR: In the same way that there are sedans — Toyota makes Camrys, which is an example of a sedan, but sedans are also still motor vehicles. So bitcoin is a specific application, a specific coin type, whereas there are certainly other types of cryptocurrencies.
Q: HOW DO THESE CRYPTOCURRENCIES WORK?
JOSEPH TAYLOR: All of these — whether we're talking about bitcoin, Ethereum, Shiba coin, you might have heard about NFTs or non-fungible tokens — they all really use the same technology. We call it a distributed ledger. We're used to, like, a centralized ledger, where I can keep track of things. So if I were to ask you, ‘How much money do you have?’, you could probably answer the question. You’d have to call your bank and they would tell you, ‘This is what's in your account.’ With something like bitcoin, there is not one person who keeps track of what your balance is. There's a whole network of — we call them — ‘miners,’ who log transactions so you can keep track of your balance (so there's not one source that tracks it).
That broad family is called a blockchain. Distributed ledgers and blockchains, they're like motor vehicles. And then cryptocurrency is like sedans. And bitcoin is like a Camry, but it's all part of the same family of things that will absolutely change our world in the next 10 years.
Q: SO WHY SHOULD I CARE? HOW DOES THIS AFFECT ME?
JOSEPH TAYLOR: Why would somebody care? When we have these types of distributed ledgers, we can keep track of things that we don't currently keep track of. There's an interesting pilot that Alfa Romeo is rolling out with their new SUVs out of the UK to digitally keep track of all the maintenance records. So if you go to buy a used car, you wouldn't just take the other person's word for it that they've done all their maintenance; there would be an independently verified record for all of the upkeep and maintenance that Alfa Romeo had gone through. And so when you bought the used car, you would also buy the history.
There's a lot of other types of things that we don't really have big systems to keep track of the data, and something like a distributed ledger or a blockchain is an interesting technology that will allow us to do that in the future. We can independently verify driving records, house titles, places that you went based off your GPS coordinates. So there are many types of data that could be stored, collected and monetized — (by) companies like Google or Facebook that are selling advertising or insurance companies that are offering discounts, or employers that are tracking worker productivity.
Q: WHAT ABOUT THE ETHICS OF ALL THAT?
JOSEPH TAYLOR: There are some ethical questions around that. What we haven't decided yet as a society is how much data are we willing to allow to be collected and what type of decisions are okay to make based off of that data?
A lot of these data ethics-type questions, people will do something that they think is okay because nobody has told them no. We used facial recognition for a long time for many purposes, knowing full well that facial recognition is less accurate with different skin colors. And it was only after several years, people started to say, ‘That's not okay.’
What I hope we can do with distributed ledgers, with cryptocurrencies, all these things, in general — is that we can make sure we're thinking about the ethical implications before we cause problems.
WATCH MORE | Experts: Cryptocurrency basics & why you should care
Cryptocurrency risks: Insight from experts
Q: WHAT ARE THE RISKS OF INVESTING IN CRYPTOCURRENCY?
CHARLENE FADIREPO: Crypto is a speculative investment, which means the price goes up and down in value, which means you could lose some or maybe even all of your investment. It's important for people to kind of really acknowledge that. That's why you're not investing your rent money, you're not investing in mortgage money. You're investing your extra money.
JOSEPH TAYLOR: The key thing to remember is, (It's) not like investing in a stock; there's no dividend, the currency isn't going to grow, it won't be worth more unless more people want to use it. Because the supply doesn't change quickly, the price will go up. The drawback is that you're going to have a lot more volatility. So it's certainly something to consider. It might be part of a portfolio.
NATALIE BRUNELL: What I think is incredible about bitcoin is, it's really (a) powerful savings technology, where if you look at the performance over the last 10, 11 years-- yes, in the short term, it is volatile. And so I want to make that point: it is very, very volatile. But if you zoom out long-term, it is the best-performing asset of our last decade. It's appreciated about 1,000,000% in the last 10 years. [Note: In early July 2010, each bitcoin was selling for a fraction of one cent (less than $0.01). The price for one bitcoin hit its all-time high of $68,789.63 on Nov. 10, 2021. One millionth of that record price is about two-thirds of one cent ($0.00687).]
Will we transact in it someday as a currency? I don't know. There are other countries that have legalized it as tender, including El Salvador, but right now I just think people should look at it as a store of value, and why would you want to spend something that's going up in value, right? Spend your dollars, which are decreasing in value, and save and hold your bitcoin.
Q: WHAT’S THE BEST WAY TO GIVE CRYPTOCURRENCY A TRY?
NATALIE BRUNELL: You do not have to buy an entire bitcoin. I think that that's sometimes a myth for people that are new in the space. Like ‘Oh, I have to, you know, have $50,000 to buy one Bitcoin.’ Absolutely not. You can buy as little as $1. There are apps out there that allow you to transfer your U.S. dollars into Bitcoin.
CHARLENE FADIREPO: I encourage people to start with Cash App. The reason why is, you probably already have Cash App on your phone, maybe even buying stocks on Cash App. You might be even paying your friends on Cash App. Well, Cash App actually has a Bitcoin section.
JOSEPH TAYLOR: If you go to Coinbase or crypto.com, they all offer a wide range of different types of cryptocurrency, and you can buy and sell any number of different kinds to start a wallet.
CHARLENE FADIREPO: I also encourage people to see cryptocurrency as a piece of a broader portfolio. You already might be investing in stocks and bonds. Great! Add crypto as another piece. This whole idea of diversification, it really does apply. It allows you to kind of spread the risk that you have — for your entire investment portfolio.
Q: IS CRYPTOCURRENCY TAXED?
NATALIE BRUNELL: When you decide to sell, that will be a reportable taxable event and you'll face capital gains tax just like if you sold a house in real life. So it's not something, again, that you want to buy and then sell and then buy back, because you will face taxes. This is, again, a savings account. This is like a 401k. You kind of ‘set it and forget it and don't worry about it.
CHARLENE FADIREPO: And just like in the typical investing world: if you don't understand it, never invest in it.
Cryptocurrency tools: a tool for equity
Q: HOW HAVE MARGINALIZED COMMUNITIES BEEN HURT BY THE TRADITIONAL FINANCE SYSTEM?
CHARLENE FADIREPO: When I think of social justice, I think of an ability to address past financial harm that is connected to the distribution of wealth. Unfortunately, in this country, we have a history of predatory and discriminatory bank loans, bank deserts, and neighborhoods where you have folks that don't have access to fair banks, affordable checking accounts. In these communities, many of these folks have to use payday loans, they have to use check cashing places.
Q: HOW CAN CRYPTOCURRENCY BE USED AS A TOOL FOR SOCIAL JUSTICE?
CHARLENE FADIREPO: I believe that bitcoin offers Black Americans and other marginalized communities the ability to build generational wealth, over time, through wealth appreciation. We're not talking about in six months; this is 5 to 10 to 15 years from now. The bitcoin monetary network allows you to step outside of the existing system and get access to better products. There are bitcoin financial services companies today that are offering bitcoin credit cards, they're offering bitcoin mortgages, they're offering bitcoin loans, and those products are being offered without that human bias, without those gatekeepers that have been in existence in our traditional system.
Q: HOW DOES ACCESSIBILITY PLAY A ROLE?
CHARLENE FADIREPO: A lot of communities just really feel like the traditional financial markets are not for them, whereas crypto — where you can download a mobile app on your phone and, you know, you're already used to Cash App, you're already used to PayPal, you're already used to some of these other products and you can purchase crypto really quickly — it's just a lot more accessible. Literally, you can invest in bitcoin with a phone and an internet connection. That is all you need.
Q: HOW CAN CRYPTOCURRENCY EMPOWER PEOPLE?
NATALIE BRUNELL: There are a lot of people in the world who are unbanked. In fact, there are a lot of people still in the U.S. who are unbanked. I believe that this is really a tool for empowerment, for human rights and for allowing people to take their power back in terms of their monetary independence.
CHARLENE FADIREPO: I see clients that are investing for the first time in bitcoin and they're making better financial decisions. They're saving more, they're putting off frivolous decisions. They're budgeting more. So there's also kind of a mindset shift that happens when people feel more in control of their financial life. There's data that shows that there are large amounts of Black Americans large amounts of Latino Americans that are active crypto investors, and we also see this around the world. Countries like El Salvador, Nigeria, Turkey - countries that have had depressed currencies are using cryptocurrency as a hedge against inflation.
NATALIE BRUNELL: I really think it's amazing when I hear stories of people who have in other countries been able to subvert oppressive governments or been able to help their families because they had bitcoin while their currency was, you know, inflated away.
Crypto and the environment: Is cryptocurrency a threat?
Is cryptocurrency a threat to the environment?
It depends on who you ask.
ABC10 asked experts to explain bitcoin mining and why there are environmental concerns.
DOES CRYPTOCURRENCY REQUIRE A LOT OF ENERGY?
JOSEPH TAYLOR: Yes, there is a carbon footprint associated with the mining and the storage of that digital record.
CHARLENE FADIREPO: A lot of times when we talk about Bitcoin, a lot of people bring up the energy argument. Bitcoin is created through a process called mining. A bitcoin miner is a super powerful computer that is doing super complex puzzles, and the reward for doing those puzzles is a bitcoin. So that's how the mining process works, very simply. That process is very energy-intensive, and so these individual bitcoin miners do take up a lot of power.
JOSEPH TAYLOR: I would say there's also a carbon footprint towards storing money in your bank ledger, so I don't know that it's substantially more. There is potentially more carbon footprint associated with cryptocurrency.
CHARLENE FADIREPO: What's interesting about Bitcoin mining is that it is actually the kind of industry that is encouraging the use of renewables…It's an incredible opportunity for us to explore real incentive-based renewable energy work.
JOSEPH TAYLOR: I think we will see in the future more miners being established in places with high degrees of renewable energy, particularly places where you've got lots of hydropower - or data centers tend to be cheaper in cold climates; you don't have to do air conditioning, you just open the walls. And so you will probably see more specialization of servers in those types of places if bitcoin were to become very popular.
CHARLENE FADIREPO: If you're going to invest in Bitcoin, you absolutely do not have to be a miner, right? You can purchase bitcoin and save it and hold it for yourself long-term and leave the mining to people that actually want to engage in that.
Cryptocurrency safety: Why is it used in crimes?
WHY IS CRYPTOCURRENCY USED IN CRIMES?
CHARLENE FADIREPO: A lot of people are concerned about scams and they're concerned about illicit activity, and those are valid.
JOSEPH TAYLOR: One of the reasons why you'll see cryptocurrency a lot in crime is that there's no centralized ledger. So it's much harder to trace the transactions.
CHARLENE FADIREPO: In the industry, we say it offers you the ability to be your own bank. What does that mean? Well, you know, we rely on banks to hold our money. In crypto land, you're actually entrusting yourself. So when you purchase crypto and you own a cryptocurrency exchange, you transfer it off the exchange into a software- or hardware wallet, which means you're trusting yourself to be your own bank.
JOSEPH TAYLOR: Because it's harder to trace bitcoin and there's not as many regulations on bitcoin, it becomes a popular way for hackers or ransomware to get paid, because there's no sacks of money to carry around. There's no bills to trace. There's much less of a paper trail in terms of how the funds were transferred.
SO IS CRYPTOCURRENCY MAINLY FOR CRIMINALS?
NATALIE BRUNELL: Yeah, so it is a false narrative out there that bitcoin is just used for nefarious activities. In fact, cash is probably the thing that's most used for nefarious activities, and certainly, there have been hacking incidents and incidents of fraud within our traditional banking system. In fact, I would argue that bitcoin is 10 times more transparent than the current system because bitcoin, the blockchain, is actually a digital ledger, and it is completely transparent and open for anyone to look at. You can look back at every single transaction that's happened in the network all the way ‘til the very beginning when bitcoin was invented in 2009, and you can see where money was sent. Good luck trying to do that with Chase or Wells Fargo or even our federal government.