According to a recent report from CNBC, Ethereum has just completed its “final dress rehearsal” for the so-called Merge, which will shift the second-largest cryptocurrency by market value from a “proof of work” validation protocol to “proof of stake.” As CNBC notes, this upgrade has been years in the making and is considered “one of the most important events in the history of crypto.”
The reason is simple: efficiency. Moving to “proof of stake” will reduce Ethereum’s carbon footprint over 99.5% per its internal estimates, and also significantly lower its “gas” prices, i.e. the cost of transactions. Carbon emissions and the cost of converting crypto to fiat currencies (or other crypto currencies) are the two major criticisms of Ethereum, in particular, and crypto, in general.
Network will be more secure and less prone to manipulation
The Merge is not only important to the investing public, however; it’s a critical upgrade for the crypto community. The Ethereum network will now be more secure and less prone to manipulation. For example, anyone who wants to take over 51% of the network will now need to hold half of the total staked amount in ETH, rather than 51% of the mining hash power, as was the case previously. What this means is that the platform is guaranteed to be controlled by those who have a long-term interest in its success, ergo the term “proof of stake.”
But it’s the lower “gas fees” that will probably attract the most attention: and have the most profound effect on adoption. As the cost to process any transaction on the Ethereum blockchain goes down, more adoption will occur, meaning more people will be more open to participate in Ethereum blockchain projects. Think of how stock trading took off in the 1980s after US markets were deregulated and the world’s first discount stockbroker, Charles Schwab, opened for business. More recently, Robinhood spurred another surge in trading by reducing the cost of stock transactions to zero. This is commonly referred to as the “democratization” of investing. With the Merge, a similar revolution is coming to crypto. Continue Reading…
Zoomer Magazine has just published a column by me on investing in cryptocurrencies. Contained in the June/July 2022 issue, the headline is The Crypto Conundrum.
There is an online version but it is not yet available: when it is, I will update with a clickable link. Alternatively, you can subscribe to the print edition and/or the digital edition, by clicking here.
As the adjacent artwork shows, “this notoriously volatile investment is not for the faint of heart” and I therefore “advise caution.”
The article does of course stress the volatility of this asset class and it goes without saying that if you’re a long-term believer in crypto — a so-called HODLer (for Hold On for Dear Life) — then you’re much better off investing in Bitcoin closer to $30,000 than the near $60,000 it reached late in 2021.
The article arose when a Zoomer editor was intrigued by a MoneySense column I wrote early in 2021 about my own personal experience with investing in Cryptos. You can find it by clicking on this highlighted headline: How to invest in Cryptocurrencies(without losing your shirt.
The gist of both articles is that I suggest investors restrict themselves initially to just Bitcoin and Ethereum, which I regard as the “Big 2” of crypto. I also suggest using ETFs in registered portfolios, and taking profits if and when they materialize: by selling half on any double, you can do what Mad Money’s Jim Cramer calls “playing with the house’s money.”
The other guideline I offer is to restrict total crypto investments to 1 or 2% of your total wealth: a range recommended by billionaires like Paul Tudor Jones or Stanley Druckenmiller.
Start small and try to play with the house’s money as soon as you can
If you find you lucked out and the 1% becomes 3% or the 2% becomes 5%, then sell about half so that you’re back to your original target.
The article notes that as reported here, as of January 2022, Fidelity has 2% in its balanced and 3% in its more aggressive asset allocation ETFs. FBAL has 59% stocks, 39% bonds, and 2% crypto while its growthier FGRO is 82% stocks, 15% bonds and 3% crypto. These seem to me prudent allocations for investors wanting a sliver of crypto. Continue Reading…
Time Magazine’s Person of the Year Elon Musk — chief executive officer of Tesla, The Boring Company and founder of SpaceX — has helped bring cryptocurrency into the public spotlight. He supports cryptocurrency and has made people more aware of what it is and how it works.
What is Cryptocurrency?
Cryptocurrency, also known as crypto, is a digital currency traded for goods and services. Many companies issue their own cryptocurrencies to be spent specifically for the service or product they provide. A company’s crypto is comparable to arcade tokens or poker chips. People must exchange real currency for cryptocurrency to buy the product or service.
A type of decentralized technology called Blockchain is what powers cryptocurrency. Different organizations (none of which have absolute control of the data) can trace the data through the processes of multiple computer systems. Blockchain manages and records transactions with an online ledger that is very secure. It can be shared and used by anyone with the proper credentials.
Blockchain allows businesses to use shared and protected information for collaboration. It is starting to emerge in almost every industry. It is a good fit for CRM for small business because it provides a secure place to store certified data.
Why do people use Crypto?
Because cryptocurrency is decentralized — not regulated by an authority or issued by a government — it offers autonomy to its users. Crypto is not subject to the boom and bust cycles in a country’s economy. Theoretically, it promises more control to the owner.
Cryptocurrency offers low transaction fees for international payments. Foreign purchases and wire transfers have associated costs and can be expensive. There are no banking fees related to cryptocurrency, such as minimum balance fees or overdraft charges. Continue Reading…
The latest Bitcoin bull run made many people want to jump on the train and use or store cryptocurrencies. There are many digital assets to choose from, and while wallets support most of them, the traditional payment apps have just started to experiment. PayPal was the latest company to show interest in allowing users to purchase cryptocurrencies with its app.
Even though it covers 26 currencies in various countries, PayPal currently allows Bitcoin purchases to US citizens only. Still, that’s a great start. If you’re curious to know how to use crypto or invest in it and hold it, these are some of the best payment apps and crypto wallets to explore.
Cryptocurrency Payment Apps
Both merchants and private individuals can use these payment apps to send and receive various coins. Fees are minimal, and payments are fast.
Coinbase Commerce
Coinbase Commerce is one of the most famous cryptocurrency apps to help merchants accept payments. Coinbase Commerce doesn’t charge fees, and it also supports price-stable cryptocurrencies. Payments are irreversible, and merchants can immediately sell earned crypto for cash or USD coin. This app integrates with WooCommerce and Shopify.
BitPay
BitPay is available for both personal and business users. This app can store and manage BTC, Bitcoin Cash, Ethereum, and other coins. Also, it comes with a BitPay Prepaid Mastercard. Merchants can use this app to accept crypto payments with just a 1% fee.
Electroneum
Electroneum (ETN) is helping people across the globe pay for goods and services in-store and online. It’s accepted in more than 190 countries and brings benefits to people, merchants, and corporations. It removes the need for a bank account and provides new payment opportunities for all.
GoCoin
GoCoin is one of the longest-running blockchain invoicing platforms. It supports Bitcoin, Bitcoin Cash, Litecoin, Ethereum, and EOS. The fee is only 1%, and the GoCoin gateway provides ultimate flexibility and security of payments for merchants. Merchants of all sizes, as well as startups, are using GoCoin all over the world.
BTCPay
BTCPay Server is an open-source crypto payment processor. It’s secure, private, and free to use. There’s no usage fee, and merchants can connect their e-commerce store or use other apps to receive payments. BTCPay is excellent for invoicing and supports WordPress, Tor, WooCommerce, Magento, and other platforms.
The Best Wallets to Store Digital Currencies
Even though payment apps can also serve as wallets, some cryptocurrency owners prefer to download separate software to store their investments. Continue Reading…
The tremendous surge in the price of cryptocurrencies has attracted the attention of many investors, who may be considering the digital currency as a potential substitute for traditional asset classes in diversified portfolios. But Roger Aliaga-Díaz, chief economist for the Americas and head of portfolio construction at Vanguard, cautioned against speculating in cryptocurrencies, which are largely unregulated and accompanied by considerable risks.
“Cryptocurrency prices depend mostly on speculation about their adoption and use,” Mr. Aliaga-Díaz said. “And that speculation creates volatility that, ironically, undermines their potential use as either a currency or asset class in an investment strategy.”
What is a cryptocurrency?
A cryptocurrency is a digital or virtual means of exchange. There are more than 6,700 cryptocurrencies today; among the better known are Bitcoin, Dogecoin, Ethereum, XRP, Tether, and Litecoin.
Unlike traditional currencies, virtual currencies currently operate without central authorities or banks, and they are not backed by any government. Cryptocurrencies are stored in “digital wallets” on a holder’s computer or phone, or in the cloud. The wallet serves as a virtual bank account that enables holders to pay for goods and services or simply store the currency in hopes of an increase in value.
Cryptocurrencies defy neat categorization. They are not a traditional currency, commodity, or asset class, though they share characteristics of each.
There are several reasons why cryptocurrencies are not a traditional currency. Although some merchants have begun to allow cryptocurrency payments, they are generally not accepted as a medium of payment. Cryptocurrencies also are not used as a unit of account because prices, trade invoicing, and contracts are not quoted in digital currency units. Finally, cryptocurrencies’ ability to serve as a store of value—a safe instrument to preserve the value of people’s financial wealth—is severely limited by their notorious volatility.
“The fact that cryptocurrencies are not issued by a central bank is actually the very reason why they can’t achieve the quality of other well-accepted currencies,” Mr. Aliaga-Díaz explained. “The role of a central bank is precisely to preserve the value of the currency by keeping inflation under control. That’s why prices are more predictable under Federal Reserve management of the U.S. dollar money supply.”
Cryptocurrencies share some characteristics of commodities. For example, they can be bought and sold in cash markets or via derivatives. But Mr. Aliaga-Díaz said they are not commodities because they are not physical raw materials.
No substitute for stock and bonds
Some wonder whether cryptocurrencies can be used in strategic portfolios as substitutes for stocks and bonds. “But unlike traditional asset classes, cryptocurrencies lack intrinsic economic value and generate no cash flows, such as interest payments or dividends, which can explain their prices,” Mr. Aliaga-Díaz said.
Mr. Aliaga-Díaz pointed out that as with currencies and spot commodities, such as gold, there is no risk premium expected with cryptocurrencies as compensation for bearing the risk of their price movements. “Because cryptos represent uncompensated risk to the portfolio, they are not a good substitute for stocks and bonds in a long-term portfolio,” he said.
Some investors may be willing to bet on sustained crypto price increases based on the belief that crypto demand will always outpace its supply. And though there might be some valid reasons around projected demand and usage to make a compelling case for a persistent supply shortage that can sustain increasing prices, Mr. Aliaga-Díaz noted, the supply of cryptos has exploded over time, and there is no reason to believe that supply can’t keep up with demand.
“The biggest risk for all investors would be to assume that demand growth will continue just because their prices have recently gone up,” he said. “That’s speculation, not investment.”
Other risks to keep in mind
Despite all the recent attention devoted to cryptocurrencies, Mr. Aliaga-Diaz cautioned that there are a number of additional risks associated with digital currencies, including: Continue Reading…