Staff Writer: Maya Arruda
If you live in the U.S., you were asked when filing taxes this year if you bought or traded any Bitcoin. It may have been a bit of a surprising question. I was amazed that something that seemed to exist solely on the internet would actually gain the attention of the IRS. My older relatives, especially my grandparents, didn’t even know what it was at all. They didn’t understand what the question was even asking for or what this “Bitcoin” thing even was, except for something she may have seen on the news once a while ago while waiting for the weather forecast to come on. Bitcoin, as I explained to my confused grandmother, is internet money a.k.a cryptocurrency.
Okay, but what does that mean?
Cryptocurrency is a form of digital token that can be spent or traded like normal cash. People with cryptocurrency can use it to buy pizza or NFTs or just about anything, just like with paper or plastic. Unlike today’s fiat money (thanks, Nixon), which is determined by people’s faith in the ability of the government to collect taxes, the value of cryptocurrency is determined by its scarcity and demand, like commodities such as gold or Pokemon cards. If demand is high and scarcity is low, the value shoots up. If either one is lacking, the value plummets. Unlike the
American dollar or the Japanese yen, cryptocurrency is not affiliated with any country, making it a pretty universal form of currency. Cryptocurrency is made by programmed algorithms and stored on a blockchain based on cryptology, the study of secure and private data communication and storage, hence the name cryptocurrency.
What can I use it for?
Cryptocurrency is just another form of money, so anything money can do, it can do. You can use it to buy food, cars, anything. As a data-based currency, any online transaction that allows for cryptocurrency is rather easy to perform. For brick and mortar stores, cryptocurrency can be accessed through debit cards. That’s right, you can get a debit card for your online crypto wallet. Companies like Coinbase and BlockCard make crypto cards directly linked to your online wallet. Or, you can link your online crypto wallet to your normal bank account and get a debit card through your bank. Crypto cards are usable at any store that accepts plastic as payment. Which excludes Las Vegas’s Heart Attack Grill. How sad.
Who makes it?
The short answer is anyone. Anyone with a computer and some coding knowhow can make their own cryptocoin. For example, a cryptocurrency called Dogecoin was made as a joke by two guys before the coin was popularized by Elon Musk as a legitimate coin. It’s like Oprah. You make a coin! And you make a coin! Everyone makes a coin!
Is it safe?
Well, this is a bit complicated. The short answer is: yes and no.
Cryptocurrency is pretty hack-proof. Getting into someone’s wallet is like hacking a randomized password that’s 40 characters long with caps, numbers, symbols, and randomized letters. Unless someone tells everyone their wallet number, no one will realistically be able to get it. So, the wallets for credible crypto businesses are pretty secure.
However, it is very easy to get scammed with cryptocurrency because it’s a very unregulated market. With anyone being able to make their own coin, there is a large margin for coins created for the sole purpose of scamming investors out of their hard earned cash, typically through pump and dump coin scams. This type of scam is very popular with, to the surprise of absolutely no one, YouTubers. A video on the SaveTheKids coin scam can be found here, and a more general video about cryptocurrency scams on YouTube can be found here for those of you who share my love of recreational commentary-style documentaries about crime.
How do I get some of that?
You can get a crypto wallet on the internet. Just type it into Google and pick which one you like. After that, put in a starting investment amount and start trading. Of course, do some research into what type of crypto you want to invest in and what wallet would best suit you. A list of the top 10 crypto wallets can be found here. Bitcoin is the most common and trustworthy coin in the current market.
To start trading, you can use some standard cryptocurrency trading websites to buy, sell, and trade cryptocurrency. However, just remember, this isn’t a marketplace like Amazon. It’s an investment site, and the coins you buy can gain or lose value depending on a fickle market. While beginners can get predictions on changing coin values numerically, the accompanying graphs are better indicators of coin value trends. For those more techno-inclined or just plain lazy, you can train bots to trade crypto for more to maximize profit on a certain coin based on risk probabilities.
Are there things I can only buy in crypto?
Strictly speaking, no. You can pretty much still buy anything you want with good old-fashioned fiat money. However, some things are more conventionally bought and sold in cryptocurrency, namely NFTs which are about as an internet thing as cryptocurrency itself.
NFT stands for Non-Fungible Token. What that basically means is that no two objects are exactly alike, which is different from cryptocurrency (or any type of currency really) where coins in that currency system have exactly the same value. For example, one U.S dollar has the same exact value as another U.S dollar. That’s what “non-fungible” means. “Token” is just a default term for whatever it is you’re buying or selling, an umbrella descriptor. You can’t use NFTs as a standard form of currency for this reason: it doesn’t have a set universal value since all NFTs are inherently different from each other. It would be like trying to buy pizza with a Picasso as payment; it just wouldn’t work.
NFTs are bought and sold in Ethereum, generally. Technically, you can use other forms of currency, both crypto and fiat cash, but Ethereum is the most commonplace for transactions. They are not purchasable offline. Like cryptocurrency, NFTs are stored as digital data on the blockchain and can be minted. Through this minting process, the NFT can gain verification as the original and genuine article, like how auction houses would authenticate a painting. The easiest way to think about buying or selling NFTs, in my opinion, is like an art auction. A group of people vie to own the original artwork and spend a ridiculously large amount of money in the process. And, the value of the art is inherently subjective. For example, someone may be willing to buy Starry Night for $100 mil, but another person wouldn’t think it’s worth spending that much money over a painting that you can view for free online. And just like taking a picture of a painting at an art gallery, nothing is stopping you from taking a picture of an NFT and making it your lock screen background, though you won’t be able to sell your picture for much online as it doesn’t have that authentication. If you’re interested in NFTs, they have a Tik Tok account where a guy goes over NFT related news and trends.
The major problem with NFTs, other than the fact they are ridiculously overpriced, is the environmental impact. Transacting NFTs through the blockchain and going through the minting process costs a lot of energy (around 340 kWh) and causes the output of CO2 (211 kg), which heavily affects the environment.The creation of an NFT alone takes over 142 kilowatt hours of energy. For reference, the average American household uses 30 kWh per day. If you’d like to hear more about that, D’Angelo Wallace has a pretty good video on NFTs.
Is this financial advice?
For legal purposes, no.
This is just meant to be a helpful, and hopefully entertaining, summary on cryptocurrency. It’s not meant to encourage people to invest in crypto or not to invest but rather to educate about a growing contemporary topic that many people still lack information on in a way that is accessible or understandable.