What is cryptocurrency and do I need to care about it?

What is cryptocurrency and do I need to care about it?


Another Tech Tip Tuesday with Jesse Mulligan at RNZ.

Jesse (00:00): RNZ National it's Tech Tuesday and I'm joined by Daniel Watson from Vertech IT services. If you've got a tech question send it unto us. jesse@rnz.co.nz. Daniel, hello.

Daniel Watson (00:14): Hey, how's it going?

Jesse (00:15): Good. One of the questions I hear most often is what is cryptocurrency and do I need to care about it? We hear about Bitcoin and the other ones so much these days, and there's a bit of a feeling of... What is it, FOMO, a Fear Of Missing Out. Maybe everyone else is making heaps of money off this stuff and I should just have a little dabble in case I'm the last one, last cab off the rank. What's your view on that one?

Daniel Watson (00:42): Briefly put it's a bit of a scam.

Jesse (00:47): I was really hoping you were going to say that, but I didn't believe it.

Daniel Watson (00:50): Yeah, no. Look, I know people who have made serious amounts of money by speculating on cryptocurrencies, but when it gets to the point where the average people in your group of mates are having a bit of a play with it. What you're looking at is a pyramid scheme, which is now hoovering up money from a very wide base. The people who were in early, they're the ones who make the coin, make the real dollars.

Everybody else is just throwing dollars up the pyramid. There's quite a few concerns with it. It's not against blockchain technology in itself. I think there is definitely utility there in the technology. However, there are now tens of thousands of cryptocurrencies out there on these marketplaces. And I can't give a percentage of them, but let's say maybe 40%, maybe 60%, maybe 80% are simply pump and dump schemes. If you've watched the Wolf of Wall Street, you know what I mean by that pump and dump?

Jesse (02:10): Go on, explain it to us.

Daniel Watson (02:13): Well, the idea is high pump. In the Wolf of Wall Street, the idea was take a penny stock, a publicly traded company which is on its last gasp. You can buy stock in the company for pennies. Then you hype the hell out of it. Now, back in Wolf Wall Street days in the '80s and '90s, they literally had a boiler room of guys in suits on the phone, pressuring people to buy stocks, sparking it as the next big blue chip investment.

So all that demand will increase the stock value on it and in this case, the cryptocurrency value against real currency. And then the people who already hold a lot of it when the price gets up, they can sell out knowing that they still got the boiler room going, and people are going to buy it. Now in the world of the stock exchanges there is regulations. That's actually a legal activity. But the key thing people need to understand is that cryptocurrencies, the legal frameworks have not caught up to this, even though it's been around since 2008.

Jesse (03:22): So not only is it not illegal, but it's for a lot of them, the actual business model.

Daniel Watson (03:29): Yeah. Nobody's going to get punished for running a pump and dump scam on crypto currencies or these NFTs on non fungible tokens, which is... Yeah. So you get what I mean? That's why I feel that the whole thing really is on the whole, for the average person on the street who's probably listened to this on the radio. The only time I would be buying a cryptocurrency is because as an IT service provider, there might be times when a client has, or somebody comes to me who's not currently a client, I should probably say. Who doesn't have an effective backup solution in place and finds that they've been ransomware and they've got to pay the ransom. Maybe I hold a few Bitcoin just for that case. But realistically, I'm just going to say you should have cyber risk cover. [crosstalk 00:04:15] anyway.

Jesse (04:17): Can we do one of my favorite philosophical exercises is just to take somebody who feels firmly of one view. And can you give me the best argument for Bitcoin and other cryptocurrencies? What is the best version of why they are the future?

Daniel Watson (04:36): So you want me to steel man the argument?

Jesse (04:38): Yeah. That's the one.

Daniel Watson (04:40): Yeah. I think we both listened to Sean Harrison. Okay. So the idea is that cryptocurrencies are an open ledger system for transactions. You can't fake that you hold the currency. So in con artist world, they might pretend that they have a good line of credit in order to convince other people to jump into a transaction, whereas you can inspect anybody's wallet and see what's inside it and see what transactions have taken place. So there is ways that you can use this and not just currency, but I think one of the Baltic countries are using this for their medical information system, i.e. It's all encrypted, but it can't be interfered with because it's massively distributed. Most of the computing power within the blockchain is about checking and verifying every transaction and the transactions are spread out across thousands of computers.

Jesse (05:51): Decentralized.

Daniel Watson (05:52): [crosstalk 00:05:52] surety that the decentralized information is accurate. So that particular technology can be used for very useful things. It's just that somebody created a cryptocurrency, which means that the bank isn't holding the money, is not the final arbiter of who holds what dollar amount or what have you. And it can be used to work around various trading limitations because you can operate this from wherever you are in the world, and you can do so somewhat anonymously. There is some very specific utility in these systems. I just see that on the whole, looking at it at arm's length, I'd probably set it on fire and walk away, [inaudible 00:06:43]. If you want have that kind of fun, get all your money out of the bank and go, "I'm just going to burn this and enjoy the warmth of it."

Jesse (06:51): And one thing you might have missed from your steel man argument. I got that phrase from someone I interviewed a couple of weeks ago. It wasn't Sam Harris. I don't think that might be the origin of it. Anyway, one thing you missed is that if you believe that the world's central banks are all going to fail, that all this kind of money that they've created to try and solve some of the problems that we have is all going to fall apart like a house of cards, then you might feel like having your money in a cryptocurrency, which is safe and which governments can't touch is your best bet for the future.

Daniel Watson (07:34): Yeah. The problem is the that volatility of these currencies are extremely high. How do you price the exchange rate with goods and services? It's very difficult.

Jesse (07:47): Yeah, that's interesting. I see that. I just had a look at the Bitcoin price is quite fun to look at, at any given time. If you put Bitcoin price to Google, it'll give you a graph and you can look over one day, five days, a month, six months. It's down 9% over the past six months. That's a pretty bad investment.

Daniel Watson (08:04): Yeah. I'm sure if you're a currency trader, like John Key used to be, you'd actually find it a very interesting, very fun platform to play with because there's fortunes to be made if somebody who has access to the right information.

Jesse (08:16): Just to finish, sorry. It's down 9% over the past six months, but up 18% over the past month. It's crazy stuff. It's rollercoaster.

Daniel Watson (08:28): Those kind of swings are... Yeah. That's where the money gets made. But I guess Bitcoin itself is the original and it's a larger, so it's probably more of a safer investment, but given that it's unregulated and given the huge volatility, just like the standard investment advice, I guess for this kind of thing is like, only play with money that you're willing to lose. Say goodbye to forever. All right. Yeah.

Jesse (08:53): Great chat. I was going to ask you about NFTs. We've run out of time and I suspect I know what you're going to say, but maybe we'll do that in a future segment. Daniel Watson from Vertech IT services for tech Tuesday. Thanks so much for your thoughts today.

Daniel Watson (09:05): No worries. Good stuff.