Advice

Ethereum? Bitcoin? Altcoins? What does it all even mean? We've got the answers.

Follow the E-Money: A Total n00b’s Guide to Cryptocurrencies

At 19, Vitalik Buterin was looking for a way to fill time after he gave up his World of Warcraft habit. But instead of taking up the popular teenager pastime of trolling Reddit forums, he invented Ethereum.

Like its predecessor, Bitcoin, the made-in-Canada cryptocurrency isn’t tied to any bank, country or company. Ethereum operates independent of the political and economic systems of a country and can be transferred without a middleman. It’s a digital currency for a globalized age.

Now, Ethereum is poised to surpass Bitcoin in value and has an estimated worth of $25 million U.S. Unless you, too, are a 19-year-old hacker genius, you probably have some questions about all this. Let’s answer them.

Why is cryptocurrency suddenly a thing?

You probably assumed that cryptocurrency is on a par with mini disc players—a tech fad that you can safely ignore until it disappears into oblivion.1

This past year has proven otherwise.

“It’s not a globally competitive form of money yet, but it has the credentials to become one,” says Jonathon Miller, managing director of Bit Trade Labs. In the past year, Bitcoin has increased in value by more than 800 per cent, partially owing to its improved scalability and recognition by Canadian regulators.

With the limited supplies of each currency—there are, for example, only 21 million bitcoins available— cryptocurrency’s value has the potential to continue to increase.

Doesn’t “crypto”2 imply that it’s fake or mythic?

Bitcoin, at least, does have mythic origins. Ten years ago, a programmer named Satoshi Nakamato created the code for blockchain: the incorruptible digital ledger of financial transactions that forms Bitcoin’s backbone. Except, as it turns out,Nakamato is a pseudonym. Nobody actually knows who he, she or they are.3

But while there are constant headlines stating that altcoins (Bitcoin alternatives) are a fraud, or even Ponzi schemes—further perpetuated by big banks, whose entire business models are threatened by the existence of cryptocurrencies—they have a very real value. As of this writing, one bitcoin (XBT) is worth $4,648.

What can I buy with it?

At this stage, most people who have cryptocurrency in their digital wallet4 think of it as an investment. You can, however, use it for low-cost international money transfers, getting your teeth cleaned5 or buying a flight on Expedia. Once hailed by users of the dark web as the ultimate currency for purchasing drugs and other unsavoury items, bitcoins are now accepted by thousands of merchants.

But could I use it to buy drugs? (Asking for a friend.)

Sure, but you might want to stick with the old standard of a suitcase full of bills. “Bitcoin is a bad choice for criminals because it’s more traceable than cash,” says Miller. Transactions aren’t tied to real-world identities, but every single activity is logged on the public ledger. Suggest to your “friend” to look into altcoins Zcash or Monero instead—they have privacy built into their code.

What are the risks?

There are about 900 kinds of altcoins available, all of which are volatile and far riskier than investing in real estate, oil or the stock market. So even if you’re not into online gambling, with altcoins, you kind of have to be.

The biggest risk of all, though, isn’t losing your assets—it’s losing control of them. “If you forget your password, no one—including you—can access those assets,” says Miller.

Okay, I’m sold. How do I get in on this?

First off, skip the finance pages. Instead, Reddit is your new go-to for determining when to buy and sell.

If you’re strapped for time, there are other ways to invest. “You don’t need to be a trader to have bitcoins,” says Miller. You do, however, need to nd someone who is willing to sell them to you in exchange for Canadian dollars. The easiest on-ramp is a currency conversion service like Bit Trade, which, in exchange for a service fee, will sell you altcoins at a fixed rate.

Alternatively, you can acquire bitcoins by offering them as a form of payment for goods or services. Web giant Shopify, for example, started offering bitcoins as a billing option for merchants in 2013. Ultimately, this is what will make your investment worthwhile.

Token Celebrities

Sayonara, clothing lines and endorsement deals! Celeb-backed cryptocurrencies are the hottest new status symbol in Hollywood.

The Star: Ghostface Killah
The Currency: Cream Capital
Chances of Success: Excellent. Its name, a nod to the classic Wu-Tang joint, stands for “Crypto Rules Everything Around Me.” Its FAQ page reads “Wu-Tang is for the children and the children will use the blockchain.” Everything about this is a win.

The Star: Paris Hilton
The Currency: LydianCoin
Chances of Success: Not great. Hilton should probably stick to reality TV. According to Forbes, LydianCoin founder Gurbasksh Chahal is currently facing possible jail time, with “four lawsuits hanging over him.”

The Star: Jamie Foxx
The Currency: Cobinhood
Chances of Success: Suspect. Cobinhood’s CEO was recently forced to apologize for secretly offering major investment discounts to insiders and celebrities like Foxx.

The Star: Floyd Mayweather
The Currency: Stox.com
Chances of Success: Good. Stox is operated by invest.com, an established finance company with $50 million in annual revenue. Plus, as he proved with his savvy mega-fight with Conor McGregor, Mayweather knows how to make a quick buck.

References   [ + ]

1. And that’s understandable. Remember beenz? No? Created during the late-’90s dot-com bubble, it was one of the first online currencies, attracting $100 million in investments before it crashed and burned. We’d like to think that all currencies with stupid names would suffer a similar fate, but then there’s Dogecoin, the altcoin “favoured by Shiba Inus worldwide,” which is currently worth nearly as much as a greenback.
2. You’re thinking of cryptozoology (naturally), which is the study of chupacabras, yetis, unicorns and the like. However, “crypto” is actually latin for “hidden” or “secret.” Because, you see, the Loch Ness monster isn’t fake—she’s just in hiding.
3. Straight up, Nakamato is the Banksy of tech geeks—but worth a heck of a lot more. He (or she or they) is rumoured to have one million bitcoins, or about $4.7 billion.
4. “Digital wallet” isn’t a turn of phrase—it’s an actual thing, and you’ll need one to hold your cryptocurrency.
5. Seriously. There’s a place in Toronto.