For legal reasons, I should probably say that I haven’t really created my own cryptocurrency, as the title suggests. But I could create my own cryptocurrency.
I could call it Libertarian Coin. Or maybe Anti-Fed Coin works better. At this point, it is all marketing.
I like cryptocurrencies for a few reasons:
- The technology behind them, while still in need of significant improvement, is innovative. The technology will be useful for other purposes in the future even if I don’t fully understand it.
- I like competition for the central banks.
- The cryptocurrencies draw attention and discussion towards the Fed and central banking in general.
Unfortunately, on the last point, some of the attention it is starting to draw isn’t so much as cryptocurrencies as an alternative to fiat money, but the parallels between cryptocurrencies and the government-issued fiat currencies.
As a libertarian, I try to be somewhat sympathetic to cryptocurrencies and those who advocate them. After all, it isn’t easy to find vocal opponents of government-issued currencies.
With that said, I feel the duty to warn those who will listen that this is a giant bubble just waiting to implode. This isn’t to say that more money will not be made in cryptocurrencies. When I say money, I mean U.S. dollars or other government money. The bubble may last a while longer, and maybe a few will be smart enough to cash out, even though we have no idea when the right time will be.
Cryptocurrencies are very similar to government-issued currencies except in the fact that we are not essentially compelled to use them. With legal tender laws and tax implications, it is virtually impossible to live in the United States and not use U.S. dollars.
When you buy a stock, you are buying a share of the company. It is usually a very tiny share, but it is a share in the company nonetheless. If you own stock in Apple, you own a tiny fraction of its operations. You own a tiny fraction of its buildings and equipment. You own a tiny share in the profits in the form of dividends. When you buy Apple stock, you are buying something.
When you buy gold, or even a certificate representing gold, you are buying something. You can actually touch the gold, and you can use it for jewelry, or industrial purposes, or as an alternative form of money. Gold has a history of being used as money for thousands of years up through part of the 20th century. It is still held by central banks today.
If you buy a cryptocurrency – let’s say Bitcoin, since it is the most popular – then what are you buying? Bitcoin isn’t a company like Apple. You can’t redeem your Bitcoin shares for anything tangible like gold.
Bitcoin does not sell products like Apple. It doesn’t make a profit as a corporation would. The only profit is coming from the next sucker who will buy it at a higher price than what you paid for it.
Someone might say that you are buying the technology behind Bitcoin. But this means nothing. That technology isn’t earning a profit. It isn’t patented, as can be seen with well over a thousand cryptocurrencies today. There is no Bitcoin company selling technological services to consumers. And there is no building owned by a Bitcoin company.
In other words, when you have shares of Bitcoin – as opposed to shares of Apple or another company – you don’t really own anything. You don’t own anything tangible, and you don’t own anything that can be sold to consumers other than the speculation itself.
There will be a major crash in Bitcoin and all of the other cryptocurrencies, unless there is something out there that is actually backed by something. The only thing I am unsure of is whether the crash in cryptocurrencies will happen before a stock market crash and recession, or after. Or maybe they will occur simultaneously.
But as much as stocks are in a bubble, they aren’t going to zero. That is because you still own the company and its underlying assets. Some stocks might go to zero where the company’s debt is greater than its assets and it is no longer able to make a profit. But as a whole, stocks aren’t going to zero. I can’t be sure of cryptocurrencies, but they really could go to essentially zero.
Ok, so I didn’t really create my own cryptocurrency, but here are a couple of guys who did. Maybe you could get in early.
(Warning: You may not want to watch at work or around the kids.)