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.
We spoke with Joseph Taylor, who is chair of the Department of Information Systems and Business Analytics in the College of Business at Sacramento State.
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
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 the in the typical investing world: if you don’t understand it, never invest in it.
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.
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