Posted on January 1, 2019
Imagine you had a bank account. To fund your bank account you have to buy currency from a third party, who charges you a fee, and then you need to transfer the currency to your bank account, incurring another fee.
Now imaging you want to use your bank account to make a purchase. Every time you want to make a purchase you pay a fee. In addition, you also have to wait for the transaction to clear, sometimes waiting many hours.
Further, the value of your bank account fluctuates daily, sometimes drastically, meaning the purchasing power your bank account is never stable or predictable.
And to top it all off the bank does not give you any instructions on how to do all of this. It’s up to you to figure out how everything works on your own.
Would you use this kind of bank account? Of course not. But this is exactly how cryptocurrencies work. Below are reasons why cryptocurrencies are stupid and why you should stay away from them (unless you want to gamble).
Cryptocurrencies Make Terrible Currencies
Cryptocurrencies fail at their main purpose of acting as a currency. Making a transaction is painful and complicated. Fees are incurred at just about any stage of the process. Further, very little vendors actually accept cryptocurrencies as a method of payment.
The Inherent Value of All Cryptocurrencies is Zero
Cryptocurrencies’ inherent value is zero. Cryptocurrencies can’t be melted down, they can’t be recycled, they can’t even be burned for heat or used as toys (Weimar Republic anyone?). One might make the argument that fiat currency is also worthless and the value is thus derived from confidence but that is not necessarily true since fiat currency is theoretically backed by public taxpayers.
Cryptocurrencies Aren’t Truly Anonymous
Anonymity is a major selling point of some cryptocurrencies and indeed some are anonymous. However, all the most popular cryptocurrencies are not anonymous. At best they are pseudonymous but risks remain if the pseudonym is ever linked to an identity.
Cryptocurrencies Are for Gamblers, Not Investors
Anyone attempting to purchase cryptocurrency with the intent of selling it for a higher price in the future is gambling, not investing. If you are willing to take the risks and are OK with gambling then cryptocurrencies might be attractive. However, do not make the mistake in thinking that there are any investment qualities in cryptocurrencies.
It is no secret that cryptocurrency exchanges and wallets have been and continue to be subject to hackers. To be far so are banks and other financial institutions. However, the track record speaks for itself. There are far more exchanges and wallets hacked resulting in millions of lost dollars.
The Bottom Line
Do yourself a favor and stay away from cryptocurrencies unless you are willing to gamble.