| 03.17.2018

Virtual financial futures — Bitcoin and other cryptocurrencies are as dangerous as they are exciting


It is a fact of life that someone is always looking for the next get-rich-quick scheme. Whether it be dangerous pyramid schemes, unproven startups or even the quaint scratch-off lottery ticket, it always seems as if the next overnight millionaire is just around the corner.

The latest fad is undoubtedly cryptocurrency. It’s exciting, it’s unpredictable and it has skyrocketed in popularity over the last few months to establish a foothold in the public consciousness. Cryptocurrency’s poster child, Bitcoin, is leading the charge.

Over the course of only nine months, Bitcoin has risen in valuation from just under $1,000 to nearly $19,000 by December 2017. Such a meteoric rise has attracted the interest of average Joes and investing firms alike, as futures for the cryptocurrency are now tradeable on the Chicago Board Options Exchange. Some retailers are even beginning to accept Bitcoin in transactions.

Jonah Baker | Argonaut

Cryptocurrency may have gone through some incredible growth in the past year, but almost all signs point to a far less optimistic future. There is no reason for someone like a typical student to invest their money in it.

Bitcoin has been available online to the public for cash investment since 2010, but its recent foray into public trading markets has hurt the cryptocurrency more than it has helped. Since it first became available on public markets, Bitcoin has fallen by almost $5,000 from its opening to $13,290 by the end of Jan. 11. And, after owning more than 85 percent of the cryptocurrency market as recently as February of last year, a slew of new competitors have risen and shrunk Bitcoin’s share of the market to 33 percent.

Cryptocurrency as a whole has become more volatile as more competitors have filled the space and increased speculation has fallen upon the market’s leaders.

The outlandish nature of cryptocurrency can be perfectly summed up by Dogecoin, an actual cryptocurrency with the infamous Shiba Inu meme as its mascot. Created way back in December 2013 as a parody of cryptocurrency, Dogecoin’s value has risen by nearly 500 percent in the past year to ascend to the bona fide cryptocurrency status that it was created to poke fun at. Jackson Palmer, Dogecoin’s creator, had no intention of ever developing something with serious market clout, and his attitude toward the market has taken a serious turn for the worse now that Dogecoin has a meaningful impact on the economy.

“The fact that most conversations happening in the media and between peers focus on the investment potential is worrying,” Palmer said on Twitter. “We’re seeing even highly centralized assets achieve extremely high valuations, despite their lack of technological innovation and misalignment with the original vision of Bitcoin.”

Simply put, cryptocurrency is the wild west of unprotected and unprecedented investment that could be ruinous for uninformed people looking to make a few quick dollars.

The creation of cryptocurrency itself is starting to attract negative attention to make matters more concerning.

A report from CBS News found Bitcoin mining consumes an enormous amount of energy. In order to ‘mine’ Bitcoin, powerful supercomputers are directed to solve complex problems that essentially create new currency, and the ‘miners’ that operate the computers are paid for their services. According to the report, these supercomputers account for about 0.13 percent of global energy consumption, or more than the electricity consumption of 159 countries.

“Nearly 10 U.S. households can be powered for one day by the electricity consumed for a single bitcoin transaction,” the report said.

That level of energy consumption only adds to the scrutiny that cryptocurrency already faces from regulators and regular people alike.

The greatest problem with cryptocurrency is that it is new, exciting and largely devoid of informational material. The only indicator that people see are whether or not it is trending up in the market, and a select few understand why and how it does what it does. Stocks are hard enough to understand, but cryptocurrencies like Bitcoin and Ethereum have an extra layer of mystery that stems from their relative infancy.

There is plenty of information available online for those that believe it to be a revolution in investing, but tread carefully before investing anything.

Cameron and Tyler Winklevoss, internet entrepreneurs, may have made an ungodly amount of money by jumping on the cryptocurrency train early, but they were nearly a decade ahead of the curve. Suffice to say,  it is unlikely that an average Joe will make millions on the dollar at this point, but that doesn’t negate the fact that there is some upside to investing in cryptocurrency.

Like all investments, proceed with caution.

Jonah Baker can be reached at arg-opinion@uidaho.eduor on Twitter @jonahpbaker

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