The first crypto-currency is one of the cheapest and easiest to use, though it is not a secure store of value.
The mining of cryptocurrency, especially Bitcoin, has become a specialized occupation. If you have money, you can hire people to do it for you. If you don’t have money, you can’t. It is the only thing that needs specialized equipment, and if you don’t have the equipment, you can’t do it. If a country’s government suddenly decided it was illegal to mine cryptocurrency, all the specialized equipment would be confiscated, and people who owned the equipment would be subject to imprisonment or worse.
Cryptocurrency has become wildly popular. But it also looks like a bubble: there is no obvious purpose for it other than making money; in fact most of the things that seem to need cryptocurrency are already made by ordinary companies selling ordinary products.
Despite its popularity, however, normal people can’t afford to buy cryptocurrency with their own money. It is way too expensive. The price of Bitcoin reached $20k by late January 2018; at the time of writing it is down almost 1/3 from its peak but still very high, and rising fast. If you want to buy cryptocurrency with your own money, you can’t even do that with a credit card or Paypal because both companies have stopped doing business with cryptocurrency exchanges. (Paypal does not accept credit
The question of which is the cheapest cryptocurrency depends on what you mean by “cheapest”. Which would you rather have: one coin or a thousand coins, each worth a tenth of a cent?
The answer is obvious if we follow the usual rule of thumb: price per unit of utility. But there’s another rule of thumb that applies in some cases—the rule that says the best investment is not to invest at all. If you have a million dollars and want to buy one bitcoin, why not just buy one bitcoin and keep it yourself (at a fraction of a penny)?
The advantage is that you would then own one bitcoin. The disadvantage is that you would have to pay for it. A dollar spent buying ten coins costs less than a dollar spent buying one hundred coins. So in the long run, if Bitcoin catches on, owning a million bitcoins will be cheaper than owning ten million bitcoins. But if Bitcoin doesn’t catch on, then the opposite will be true.
There is no such thing as a cheap “currency”. Bitcoin is the cheapest, but not for long. If people can use it to trade things, it won’t be so expensive. That’s the point of cryptocurrencies. They are money so cheap that you can use them to pay for trading things, which is very cheap in its own right.
Cryptocurrencies are a new class of asset, invented by computer scientists and economists, who have seen what happened when existing assets became too expensive.
The existing currencies – dollars and euros and yen – have been designed to have stable exchange rates against other currencies, so that you can feel safe using them as stores of value. But that stability has come at a price: the more other currencies are worth, the more valuable the currency itself must become. If a currency has become too expensive, it simply becomes less used for buying stuff; it’s just like gold.
Or like diamonds: there are different kinds of diamonds and some are cheaper than others. The ones that are cheaper get used more; they have a higher “reserve” or “saturation” ratio: they’re used up in actual transactions before they get spent on buying stuff you want – because other people want to spend them on stuff you want too.
Cryptocurrencies are not a new invention. Bitcoins are only the most famous, but they have been around since 2009. They were created by a programmer named Satoshi Nakamoto and designed as an alternative to government-backed currencies. But as soon as they became popular, governments started trying to shut them down—because they competed with their own currencies, because of concerns about money laundering and tax evasion, and because they involved the use of cryptography which governments feared would become more widely used.
What makes cryptocurrencies special is that they are not like any other kind of money. Countries issue them in relatively fixed amounts, usually with a maximum amount you can purchase; this limits how many there will be in circulation at any given time and thus influences how much each unit is worth. These limits are supposed to keep inflation from getting out of hand—but there is nothing like a central bank to make sure that happens.
The whole point for which people started using them was to avoid these problems. Cryptocurrencies don’t have the same kind of rules that governments do, so if you want to buy something with one or if you want to sell one it has to be done privately (and preferably anonymously).
Cryptocurrencies are a way of making money in a situation where no one can enforce contracts. The basic idea is that you sign an agreement with someone and transfer tokens to them, which they can later exchange for things you want.
The problem is that the system doesn’t allow anyone to enforce this agreement. If the other person doesn’t deliver what she promised, you don’t get your tokens back; if the other person does deliver you some token, you can’t be sure it was what you wanted, so she gets a reward.
That’s why cryptocurrencies are very fast and cheap – there is no need to check the actual value of anything. But it also makes them very easy to cheat: no one needs to be trusted.
In the early days of bitcoin, there was a joke that bitcoin was a lot like gold. You could use it to pay for stuff, but you couldn’t make much money by just holding it. But bitcoin has turned out to be much more useful than gold.
People now routinely buy and sell things with bitcoin that they could not have bought with gold, and in many cases they can’t even be paid for with gold. If you used your gold to buy coffee, you would probably get the coffee, but there wouldn’t be any money left over. With bitcoin, you could still spend it on something else — by paying someone else in bitcoin — and the price of something else would include the equivalent in bitcoin.
Bitcoin is not just more useful than gold; it is also cheaper. As a store of value, one reason to own gold is that people expect it to go up over time. But if you own a tiny fraction of one dollar of gold, that fraction will go up or down only as much as the dollar does. If I own 1/100th of an ounce of gold, I can expect my share to go up or down a little less than 1% per year, because 1/100th of an ounce will change hands about 100 times per