Spend time at a ski resort and you’ll quickly learn that you make friends on the chairlift. After all, you’re 12 metres above ground and have a 20-minute trip up the mountain.
It was only a few weeks ago that I met a carpenter from Melbourne on a chairlift at Mt Hotham in Victoria. Rather than talking about mountain conditions — a standard chairlift conversation starter — he opened with ‘Hey, have you heard of bitcoin?’
A smirk and an introduction later, and there I was, gliding above Heavenly Valley, talking about all things bitcoin and cryptocurrencies with a tradie. With the formalities out of the way, I asked him why he was thinking about buying cryptocurrencies. I mean, he had no interest in gold. And he wasn’t a fiat-currency-hating anti-government type either.
What brought on the sudden interest in bitcoin?
‘Dunno,’ he told me. ‘It’s just been all over the news. And with China telling people they can’t have it, I wondered if maybe I should get some. For the future, you know.’
When you work in this industry long enough, you forget that bitcoin and all cryptocurrencies are still completely foreign to people.
I only learned of bitcoin in 2013 after colleague Sam Volkering, editor of Secret Crypto Network, brought it up. Back then, I thought I was late to the game. Yet four years later — and a 3,501% gain in price — bitcoin is still a novel idea to many people.
What I found interesting was that China looking to ban initial coin offerings (ICOs) was the headline that caught his attention. One that made him wonder whether he should invest in cryptos.
The problem I discovered during our chat — and I’m sure this tradie isn’t alone in this — wasn’t so much as where to start, but what to believe.
There appears to be two types of news analysis in the press when it comes to bitcoin and other cryptos: those for it, and those against it.
Confusing this for many first-time investors is the fact the so few analysts actually ‘get’ bitcoin.
While the cryptocurrency has been around for seven years, it’s really been this year’s incredible price rise, from US$997 (AU$1,281.51) in January to US$4,784 (AU$6,149.65) as at this morning, that has pushed new investors to rush into the currency.
This is where new investors and buyers in the crypto space need to be careful. Any analyst that just started paying attention this year to cryptos is really only aware of price movements. They are yet to fully understand what cryptocurrencies mean to our economy.
One of the biggest deterrents for new people when it comes to buying bitcoin is the idea that it’s not ‘safe’.
The mainstream press continues to air scaremongering headlines that suggest bitcoin is either fuelling a bubble, or that, every time ‘hackers’ attack a bitcoin exchange, it’s for criminal purposes.
They repeat the idea that bitcoin isn’t safe because you can’t hold it in your hands. It’s nothing more than ones and zeroes, they say.
Tapping into this fear, Reuters pointed out just how vulnerable bitcoin holders are to hacking:
‘There have been at least three dozen heists of cryptocurrency exchanges since 2011; many of the hacked exchanges later shut down. More than 980,000 bitcoins have been stolen, which today would be worth about US$4 billion (AU$5.14 billion). Few have been recovered. Burned investors have been left at the mercy of exchanges as to whether they will receive any compensation.
‘Nearly 25,000 customers of Mt. Gox, once the world’s largest bitcoin exchange, are still waiting for compensation more than three years after its collapse into bankruptcy in Japan. The exchange said it lost about 650,000 bitcoins. Claims approved by the bankruptcy trustee total more than US$400 million (AU$514 billion).’
To be fair, nobody anticipated that bitcoin exchanges would see their coins stolen.
But that doesn’t mean bitcoin exchanges are any riskier than banks.
In this day and age, nobody expects a bank to go broke.
Yet the 2008 financial crisis only ended when authorities came in to bail out some of the biggest banks in the US.
Then you had the Greek banking crisis in 2015. Instead of the government supporting the banks, this time the banking system got a ‘bail in’. Existing customers with accounts above a certain amount found their cash was absorbed by the bank and used to recapitalise the Greek banking system.
That hardly sounds fair at all.
Because we are caught up in a fiat currency system, where governments determine the value of your money, the banks and the government can do what they like.
Whereas with bitcoin, banks can’t do what they like. And governments can’t control the value of the cryptocurrency either. And if you are worried about having your bitcoin stolen, then heed Sam Volkering’s advice: Avoid storing any cryptocurrency through an exchange on the web, and opt for ‘cold’ storage instead. Something offline, which you can store securely at home.
As the chairlift came to a halt, the tradie asked me if bitcoin really was going to change money as we know it. I borrowed a line from Sam: ‘Bitcoin is the start of a monetary revolution. 50 years from now, today’s price will look like chump change.’
Editor, Markets & Money