A common uneasiness of ordinary people concerning cryptocurrency is that the financial gurus including economists assume too much knowledge of it and/or their language is too mathematical.
As someone who understands economics, I thought that writing about the subject using simple English could help, that perhaps even a well-read twelve-year-old could understand.
The crypto was designed to remake money by creators who did not like or believed in banks, taxes, and the government.
They did not trust big organisations or big groups of people no matter how well-meaning they are, and they thought we should trust computers instead. The people who carried out the project had very weird ideas about regulations, the history of finance, and what constitutes good money.
Money is created and backed by national governments or banks, and a central bank has the job of making the money usable. They do this by controlling how it is lent out between banks and people.
Good money is one that exists to be lent out over many years for people to buy stuffs and to pay people who do jobs for others. When this works well, the economy grows and everyone is happy.
The first crypto project was called Bitcoin which started as a special type of money that did not come from a central bank. The project went badly because the technology and economic system were poorly designed.
Bitcoin was based on a technology called blockchain. It was like a spreadsheet that would update across multiple computers. But the catch was that people could only add new rows to the spreadsheet, but they could not delete the rows.
Initially, it seemed that Bitcoin would be very useful, but in practice it was very slow to update the spreadsheet. This was problematic when people wanted to delete things. People also did not want to use spreadsheets that everyone in the world could see.
The economics of Bitcoin were also bad. When people have money, they want to buy things with it quickly and they want to know that the prices of those things won’t change drastically.
Bitcoin was unstable because, among various reasons, the technology was not designed properly to run without a central bank. This was unfixable because the entire project was based on a bad idea. Not only did the whole experiment fail, it also consumed lots of electricity.
Still, some people excused the failures and made up a story that Bitcoin was no longer money, but a new type of investment. They said it was a way of making a lot of money really fast. But unlike other investments, Bitcoin depended on bringing more and more people in. It worked by borrowing from one person to pay another until there was no more money left.
People created a lot of other Bitcoin-like projects and called them ‘cryptocurrencies’. As of December 2022, CoinMarketCap reports that there were approximately 21,910 cryptocurrencies with a total market capitalisation of $850 billion. They used different types of blockchains and all of them tried in different ways to remake money. Some of them wanted to create new types of banks; some wanted to create ways to break the law, and some believed that they were building good things for the world, that is, until they blew up. A lot of normal people believed these lies and subsequently lost a lot of money.
Crypto money was bad for buying things in the real world because whenever it is converted into hard cash the owners had to pay taxes on it. People had to create imaginary things to buy and sell to materialise the “conversion”, thus resulting in the production of make-believe cartoon animals for purchase. Many celebrities took to promoting these tokens to capitalise on their fame.
Many believed they could make money with the click of a mouse. When they did click, a video appeared showing two dashing young millionaires discussing their finances aboard a private jet. In vague terms, they explained that growing their fortune had been as simple as pressing a button. When the video ended, a phone number appeared on the screen. The rest was history.
This hurt a lot of people who realised that what they bought was imaginary and their investments came to nothing. Despite all the anger over these cryptocurrencies, a lot of rich people still used them. This was because they could make money in ways that were illegal elsewhere. And rich people did not have much else to buy in the real world so they run scams to grow their wealth. A lot of historians warned that this was a repeat of the Gilded Age when rich people became richer while the poor became poorer. Crypto made that even worse.
Crypto was a story about giving people new money, but instead it just stole old money and destroyed lives. Unfortunately the world figured out too late that crypto was a bad idea.
