DogeCoin features the image of the dog Shiba Inu from the “doge” Internet meme. The currency began as a joke and its creators never intended for it to be worth much. They built the program to create so many Dogecoins that supply would always exceed demand so the monetary value would always remain low.
But Dogecoin built up a surprisingly large internet following and it did gain monetary value. The Dogecoin community has a reputation for being lighthearted and using their cryptocurrency to support good causes, such as providing clean water. In 2014, the Dogecoin community pooled their cryptocurrency funds and paid for the 2014 Jamaican bobsled team to go to the Winter Olympics.
The vast majority of cryptocurrencies are worthless. They were designed to facilitate transactions on a single program, and unless that program becomes valuable (most will not), that cryptocurrency will never gain value. But there are quite a few cryptocurrencies that have real-world value.
They are not just a medium of exchange by enthusiasts in online forums who exchange bits of computer code. They can be and have been used to solve real-world problems, from facilitating traditional banking transactions to paying for a team to compete in the Olympics. Cryptocurrency has far exceeded anything Satoshi Nakamoto could have anticipated.
Most retailers still only accept traditional currency. However, some retailers do allow for cryptocurrency payments. Overstock.com, Microsoft, and BMW are just three of the dozens of companies that accept Bitcoin payments.
While you can’t use Bitcoin to buy products on Amazon, Purse is an escrow service that enables users to use their bitcoins to buy things on Amazon. Individual vendors on Etsy can allow Bitcoin to be used as payment for their products, and some online marketplaces are exclusive to Bitcoin users.
While the acceptance of cryptocurrency by traditional retailers is promising, don’t expect to see the day that cryptocurrency payments are universal. One reason is that many cryptocurrencies are worthless, have always been, and always will be. Other cryptocurrencies have held promise but failed to acquire real-world value.
And many retailers are simply unaware of the cryptocurrency world. Those who accept cryptocurrency want to build up their own accounts of cryptocurrency so that they can be part of its massive growth in market value. There probably would be more retailers accepting cryptocurrency if they were aware of its presence.
The exchange rate of cryptocurrency is still extremely volatile. Even Bitcoin, which has been around the longest and is the most stable, is still prone to booms and crashes in value. There is no guarantee that it will not continue to hit market bubbles.
The Ether, which has a real-world application and is more stable than many other cryptocurrencies, can still lose half its value over a concise amount of time. In some ways, accepting cryptocurrencies as payment feels like prospecting for gold instead of adding money to the bank.
The fact that some cryptocurrencies promise such large returns is a huge red flag to many would-be investors. Any promise to double your investment quickly is almost always a scam. Within Bitcoin’s history, there have been numerous embezzlers who have designed programs to hold people’s Bitcoins, with the promise that they will double their value. These pyramid schemes collapse and devastate the holdings of the people who deposit money into them.
Because there is no regulation in the cryptocurrency world, finding these scams and prosecuting them is extremely difficult. For a national government to attempt to break up a cryptocurrency pyramid scheme, it must first acknowledge the reality of cryptocurrency. Many governments have been unwilling to do so. The best way to avoid cryptocurrency scams is to do your homework. Make sure that the cryptocurrency itself is reputable and has a strong history. Look out for promises to double, or triple your investment quickly. Also, never invest more money than you’re willing to lose.
Cryptocurrency itself is not a scam despite being decentralized. This makes it very difficult for scam artists to manipulate. Cons are much easier in a centralized system that focuses on one person or entity.
Still, not everything is rainbows and unicorns in the world of cryptocurrency. One of the biggest drawbacks is that their values are extremely volatile. They can double or halve their value within a matter of hours. The volatility alone makes many investors see them as unfit for long-term gain.
Regulation refers to laws that hem in the practices associated with a government’s currency. The United States government is constantly issuing policies to regulate the dollar. It changes interest rates to protect the dollar’s value, and it implements tariffs on foreign goods to keep the dollar strong against other national currencies.
Because cryptocurrencies have no central entity governing them, they are entirely unregulated. There are no laws that govern it. People have used them for illicit means, such as in the infamous Silk Road scandal. Furthermore, others used them to develop an entire economy separate from national economies.
Those with a libertarian mindset who believe that the government should intervene as little as possible into the lives of individuals and society, see the lack of regulation in the cryptocurrency world as a huge bonus.
Those who use cryptocurrency are not beholden to fiscal laws that govern the dollar’s use, so cryptocurrency provides more freedom. Cryptocurrencies are also much less prone to the unethical banking practices that precipitated the 2008 financial crisis and the government’s response. They may ultimately be more immune to economic downturns than traditional currency.
Regulation is not always a bad thing. Environmental laws that politicians implemented in the 1960s and 1970s helped clean up rivers and lakes that were becoming too toxic for the ecosystems. The Clean Air Act helped clean up the smog that was devastating big cities around the country.
While some see the economy’s regulation as a bad thing, others see some rule as necessary to provide protection. While some fiscal policies, especially those that the government implemented following the 2008 recession, have been disastrous, others have been helpful. Some proponents of fiscal regulation are concerned about what the unregulated crypto-economy means for the economy. Cryptocurrencies are much more prone to use on the black market, and having unregulated currencies that are continually crossing national borders could impact the traditional economy.
Junk economies are in such a catastrophic state that there is little chance that the country will recover without substantial international help. Failed states such as Somalia, Yemen, and Venezuela have junk economies that will likely never improve unless they begin using another country’s currency.
Cryptocurrency cannot save an entire economy. However, it can provide a means for some individuals in these junk economies to escape poverty. If someone can buy cryptocurrency while its value is low and watch its value go up, they will start building wealth.
A decade ago, one bitcoin was worth less than a penny. Its value did not increase up to a dollar for a good while after. However, it did not look back once it began growing. There were bubbles and crashes along the way. Nevertheless, what was once a fraction of a penny is now worth tens of thousands of dollars.
The same holds with the Ether, whose growth has been slower and steadier than the bitcoin but has still trended upward. Litecoin and many other cryptocurrencies have also seen a positive change.
When you open a bank account, you have to provide your real name and documentation. Why? So that the bank can be sure that the person holding an account there really is you. With cryptocurrency, however, users remain completely anonymous. Users’ information is encrypted. But the blockchain’s data is publicly available. Furthermore, users have their own IDs rather than their own names associated with their accounts.
No one can track who a single cryptocurrency user is. Case in point? We still don’t know who Satoshi Nakamoto is, even though he has historically held a substantial number of the bitcoins in circulation. If we could trace a person’s identity through blockchain, we would certainly have identified who started the whole thing.
The Silk Road scandal provided a lot of exposure to the emerging world of cryptocurrency. At the same time, it also caused a lot of bad press. Silk Road was a website that exploited Bitcoin’s anonymity to sell illicit products, including illegal drugs. People who used the website could buy those products without divulging their true identities.
When the scandal came to light, those who had created the website faced prison terms. The government began to ask serious questions about how it should handle the emergence of the crypto-economy. People might have otherwise been interested in Bitcoin and other cryptocurrencies. But they decided that they did not want to be a part of it. You know, something that people might consider the black market. Still, in the years following the Silk Road scandal, studies have shown that most of the use of Bitcoin and other cryptocurrencies has been for basic goods and services, not illegal drugs.
One benefit that cryptocurrencies provide is that they are tax shelters. True, the dollars you earn and use to buy the cryptocurrency will eventually get taxed. But as the cryptocurrency itself increases in value, and as you use cryptocurrencies to buy more cryptocurrencies, they cannot tax that money.
Governments have tried to implement methods of taxing cryptocurrencies. Some wallets that people use to hold cryptocurrencies have conceded to tax laws and issue tax documentation. However, others have upheld the anonymity that is intrinsic to the crypto-economy and evaded efforts at taxation.
Despite the benefits of cryptocurrency, it is not a panacea for all of the world’s financial problems. There are certainly some enthusiasts who see it as the global market’s future. But people may overstate that usefulness. One reason why cryptocurrency benefits may be overblown is that many people buy cryptocurrency and hold onto it just to be part of its increasing value. If all that cryptocurrency does is increase in value, then it really is nothing more than a bubble waiting to crash.
Investors have to tie the value of cryptocurrency to its real-world usefulness, not just its ability to increase in value over time. As long as it is useful in blockchain transactions to develop blockchain apps and the Internet of Things, it will maintain value. But it will likely never overtake traditional currency.