By Sylvester Oluoch
The talk about Cryptocurrency has become quite a hubbub. Some people are making terrific gains that point towards absurd profits. Others have cashed in over time. To understand this emotional money matter, it is important to first understand money: what it is and how it works. This is the way to tell whether your “crypto life” is either hot air illusion or solid money positioning.
Money is an I owe you (IOU) note. It is simply a promise by the issuing authority that the note will be honored upon demand – it is a legal tender. So, the question to ask is who backs the validity of your crypto currency? Is it a corporate entity that can endure like a government? Is it a government? What is it? Here lies the difference between hot air and solid currency.
A brief look at the history of money will clarify how the world got to gold, then notes with gold standards and later promissory notes that are not backed by gold – referred to as going off the gold standard. In early days of these promissory notes, that we now conveniently short-cut as notes, every issued note was worth its value in gold.
Today the value of every note reflects the promise held by the issuing authority. That is why weak, unstable governments suffer massive inflation rates, which essentially reflect the promise they hold. Any money, be it a $ Billion or $20, could be worth nothing if the foundation it stands on is quicksand. Many cryptos are worth the faith people hold in them. If that faith evaporates, all the solid money will melt away and you will be left holding hot air.
Cryptocurrency comes with indisputable advantages.
In the crypto currency trump card are convenience, round the clock availability, efficient and cheap international transaction fees as well as pliability that draws from cryptos’ internet nativity. Cryptos provide avenues to “passive investing” and that presents much exposure to blather. Find solid ground for solid money.
George Clason, through one of the characters named Arkad in his classic – The Richest Man in Babylon – says: “The first sound principle of investment is security for thy principal. Is it wise to be intrigued by larger earnings when thy principal may be lost? I say not. The penalty of risk is probable loss.”
When you invest be clear that you can safely guard your principle and that you can determine the value of your investment at any given time. If you are going to play the crypto game, please play it right. So far, I have found no better counsel than the one from Coinbase: Crypto Basics – What is a stable coin?
A stable coin is a cryptocurrency that combines the advantages that accrue in the crypto world with the stability od the U.S dollar. It ensures that you can transact easily with a currency that is pegged to the dollar. This matches each token of stablecoin one-to-one with the dollar.
I place it here verbatim for your own journey from hot air to solid money in cryptos through stablecoins.
What can you do with stablecoins?
Minimize volatility. The value of cryptocurrencies like Bitcoin and Ether fluctuates a lot — sometimes by the minute. An asset that’s pegged to a more stable currency can give buyers and sellers certainty that the value of their tokens won’t rise or crash unpredictably in the near future.
Trade or save assets. You don’t need a bank account to hold stablecoins, and they’re easy to transfer. Stablecoins’ value can be sent easily around the globe, including to places where the U.S. dollar may be hard to obtain or where the local currency is unstable.
Earn interest. There are easy ways to earn interest (typically higher than what a bank would offer) on a stablecoin investment.
Transfer money cheaply. People have sent as much as a million dollars worth of USDC with transfer fees of less than a dollar.
Send internationally. Fast processing and low transaction fees make stablecoins like USDC a good choice for sending money anywhere in the world.
For additional understanding of how to lower your chances of massive losses and be able to place more accurate value on your crypto stock read What is a stablecoin?
