How Crypto is Different from ‘Real Money’
and Why You Shouldn’t Fall Into Old Habits in the World of Crypto
Crypto has been called everything from ‘revolutionary’ to ‘a hoax’, but there is no denying that it has challenged our understanding of money and the financial system as a whole.
By now you probably understand that fiat and crypto are different in a variety of ways. But knowing that they are different and actually treating them differently are two very different things.
We keep bringing our old habits from the legacy systems into this new and exciting world and we need to stop and think about what we’re doing.
Crypto allows you to control your finances, but you have to take responsibility.
YOU have control over your money, not a bank
When your money is in a bank, the bank has control over it. They can monitor your transactions, freeze your money without notice, take all sort of fees (such as a ‘maintenance fee’ and a ‘minimum balance fee’). Banks can even manipulate the order of transactions, and generally do whatever they want with your money.
With crypto, you can control your finances. But only if you hold your private keys.
Private keys are like passwords for a digital bank account and you have a different one for each of your assets. Your 12-word phrase controls them all and is what allows you to back up and restore your wallet. Anyone who has your private keys or your 12-word phrase can access your assets so keep them safe!
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If you control your keys, which you can do with most hardware and software wallets such as Exodus, you control your wealth. If, however, you leave your coins on an exchange such as Coinbase and Xapo, they hold your keys for you and therefore they control your assets. Much like a bank which owes you any money you deposit, an exchange owed you any assets you leave with them.
Allowing an exchange to hold your keys means you don’t need to worry about securing them and you can exchange assets faster because of it. However, leaving it on an exchange means that they can monitor your transactions, freeze, or even transfer your assets without needing anything from you, which is also particularly a problem if the exchange fails for any reason. If the exchanged is hacked, then you can say bye-bye to your assets. While some hacked exchanges such as Coincheck have managed to mostly refund losses, others such as Mt Gox are still having trouble years after the hack. You can also have problems if the exchange.
If you truly want to control your wealth, you need to control your private keys. Financial freedom comes from owning your assets, not allowing someone else like a bank or an exchange to control them for you.
You have to protect your crypto because once it’s gone, it’s gone
Part of financial freedom is understanding how your financial assets work. You likely understand that commodities like gold are a store of value, that debt is money that belongs to someone else, and currencies are a medium of exchange.
What you may not understand is that crypto is more like cash than other forms of payment you regularly use — once it’s gone, it’s gone.
If you’re scammed and used either a credit card or debit card, a bank transfer, or even PayPal, you can usually get your money back. If however you give someone cash, use a money transfer wire service, or crypto, then you can’t get your money back. Using these forms of payment is final — there is no one who can stop the payment or reverse it.
This shouldn’t stop you from using or being afraid to use digital assets, however. It just means that you should be careful. The crypto world is full of scams, from forks and wallets to airdrops like with EOS, so you need to do your research!
You have better control over your wealth in a digital global financial system
Other than stable coins, crypto assets sit apart from the existing financial systems. They do not rely on dollars, pounds, euros, or any other currency we currently use — similar to other stores of value. Currencies like bitcoin don’t suffer from inflation and cannot be printed frivolously by governments. Like gold, crypto can even act as a hedge against fiat which we’ve already seen after the Brexit vote and Trump’s election.
Unlike fiat currencies, you can send very small micropayments. One satoshi, which is one hundred millionth of a single bitcoin, is $0.0001 when bitcoin is $10,000. This allows for a new type of new payment processes which could help artists to have better control over their works and set their own prices, which isn’t possible or profitable with existing music services. For example, rather than having to paying a subscription to a music service, purchasing songs outright, or stream music illegally, users could simply pay X satoshi per play. The need for easy micropayments is also important if we want the Internet of Things to work seamlessly.
Crypto can act like a global financial system and therefore away from the problems we see in fiat, but this doesn’t mean that crypto is without any problems at all. As we’ve discussed, the ecosystem is full of scams, but there are also problems with volatility and general misunderstanding of the technology. This means that while crypto can be used as a medium of exchange and a tool to use various services, there are still risks so be careful with your wealth!
Crypto can be an investment, every day money, or have an entirely new purpose all at once
Because crypto is so new, there are many ways that you can use crypto. You can use it as an investment, like stocks. You can use it as a currency, like the cash in your pocket. You can also use it because it does something, kind of like gold bars in Candy Crush which have no use in the real world.
It doesn’t matter why you got crypto, even if it was only to be involved in the hot-new-thing, but you should really remember your reasons. Set yourself limits and stick to them. Make a plan to be resilient to FOMO and FUD. Tailor your plan to your needs and decide what sort of projects you want to support. Hubris and greed has led to many more failures than success stories.
If you bought crypto as an investment…
Then that’s fine! Did you get involved because you wanted to make a little money now or are you investing in the long-term?
Knowing why you invested is important. It helps you find the limits you’re comfortable with and, most importantly, stops you from getting too greedy. People were investing all they had, even mortgaging their homes, all the way up to the bitcoin peak at almost $20,000 on 17 December, only to find a 30% drop in value which only tumbled further. People lost their savings, had debts they couldn’t repay, and were left only with regret.
Remember: never invest more than you can afford to lose!
Try to set values at which you’d be happy selling, especially if you’re investing short-term. Do you want to invest for a certain period of time, whether it’s a week, a month, or six months? Do you want to make a certain percentage return on your profit? Set those goals and have a plan in case you reach and even pass them. If you decide to test your luck, assess where you are and think of it as developing a new plan — what are your new limits?
Focus on the technology, especially if you’re investing long-term. Dips in price and problems in the ecosystem are temporary hiccups. The benefit in crypto assets is their potential to change the world and we’re only at the beginning.
Make sure to invest in projects that you believe in. This means taking the time to do research — learning how the technology works, about the team, and how it fits in the ecosystem. Don’t listen to anyone who claims, “X is the next big thing!” because many of these ‘experts’ are underqualified to give advice and are just trying to create hype.
If you bought crypto as a global currency…
Use it as such! Yes, there are a variety of businesses that accept bitcoin — such as Overstock, Expedia, and even Lush — and feel free to use it there but you don’t take advantage of a global currency by shopping at your regular stores.
A global currency means no currency conversions and no exchange fees. That means you can pay someone on the other side of the world without either of you losing any value or needing to rely on any intermediaries to exchange it for you.
You might have seen crypto bloggers and a YouTubers ask for tips in Bitcoin and other cryptocurrencies which they receive directly. This mean that no one else can take a 30% cut.
If you bought crypto as a global currency, treat it as such. You don’t have X dollars/pounds/euros of bitcoin, you have X bitcoin. Constantly comparing it to real world values implies that what you really care about whether it’s up or down, which means you are really treating it like an investment. That doesn’t mean that you can’t set aside some crypto as an investment, but you shouldn’t be afraid to lose out on any potential profits when that was never your intention in the first place. (And if you’re second-guessing ever using crypto as a global currency, remember that making money isn’t everything.)
If you purchased an asset which has a specific purpose or benefit…
Learn how to use it! There are so many interesting projects and uses for crypto that purchasing them for the sole purpose of investment is a really wasted opportunity.
You want a privacy coin because you don’t want it monitored by a bank? You could use bitcoin but transactions are publicly recorded and only pseudonymous — you’d be better off with other privacy coins such as Monero and Zcash. But to benefit from the privacy tools, you really need to download full nodes as leaving your assets on an exchange or using a third-party wallet won’t provide the same ability to shield your transactions. Remember to research how to actually utilise the assets you have!
You purchased a token because it does something in particular? Use it how it’s meant to be used! Use Basic Attention Token (BAT) on the Brave Browser to support your favourite businesses without them needing to have a paywall or throw advertisements at users who desperately attempt to block them. Storage services such as Storj and Sia rely on their tokens to help facilitate renting hard-drive space and storing documents. Reputation (REP) tokens allow its holder “to report on the outcome of events in Augur’s prediction markets, rewards them for honesty and regular reporting, with half of all trading fees on the platform.”
Investing in a cool project because you want to make it happen doesn’t help the project long term. Actually using the project when its developed, helping it grow and being part of the ecosystem, is why we want these projects to exist! Don’t get stuck in the greedy mind-set of “oh, this went up, this could make me money so I’ll keep it as an investment”. Remember why you chose this project and not another!
Why it matters
It’s hard to break old habits, especially ones that we’ve grown up with and have shaped our understanding of the world. For money in particular, those habits can heavily engrained and very resistant to change.
Crypto is challenging the existing financial system and while most people see this and want to get involved in the change, we’re unfortunately bringing our old habits with us.
Crypto can give you control over your wealth connect with others globally but you have no control when you continue to rely on intermediaries to hold your assets or even do you research for you. Crypto can also do so many different things — investing in a project is not the only way to support the ideas and only doing so can leave you worried to participate in the ecosystem.
We are in an interesting time, one that allows us to experiment with our understanding and relationship to each other and money but you need to be an active participant. Do your research. Engage critically with ‘experts’ and new projects. Consider the legitimacy of something you’ve seen advertised. Use your crypto rather than worrying about losing out on potential profits! Find or create a group of like-minded individuals to discuss any thoughts and ideas.
Crypto is only just getting started so get involved!
