Crypto: Why Cryptocurrency? Why Bitcoin?

There are a zillion crypto currencies available these days, and you may be wondering: “What can they do for me?”
Some of them are scams. A few have stood the test of time. A couple have demonstrated novel innovation. And all of them are complicated. Let’s simplify all of that and look at how you might use one of them in your daily life.
Imagine you’ve got a new job and you decide to take part of your monthly pay in Cardano (ADA)–note, this is not financial advice and I’m not recommending that you buy, sell, invest, or get paid in Cardano, mostly I’m using it in this example to piss-off the insufferable Bitcoin maximalists. You give your new employer the address of your Cardano wallet–earlier, you set that up with the free Daedalus app that you’ve got on your desktop computer at home. And, every month, your employer deposits 1,000 ADA in it–that’s about $1,270 as I write.
Do you remember when banks used to pay interest? There’s something like that with Cardano. It’s called “staking”. You stake your coins in one of several staking pools and are granted staking rewards periodically. You open your wallet in the Daedalus app, check the various staking pools, find one that has low fees (maybe do some sleuthing on the Internet to help you decide), and stake your ADA coins. You’ll get about a 5% annual return in ADA paid out every five days. There’s a bit of a startup period when you stake ADA, so it will be a couple weeks before your staking rewards start rolling in. Those rewards will be staked, too, just like interest paid on a bank account.
Your landlord tells you that he’ll accept Cardano for your monthly rent. He says you can just convert your monthly $1000 rent payment to Cardano based on ADA’s closing price for the last day of the month. Crypto currencies are traded 24/7/365, so you agree with your landlord to use the closing price reported on Yahoo! Finance. He gives you his Cardano wallet address and you send off your rent which has a transaction fee of 0.165 ADA, about 21 cents at the moment–a bit less than a stamp.
Obviously, you can do all this with a bank account and a checkbook (or PayPal or Venmo). I just wanted to illustrate that a good portion of what you use banks for today (saving money, collecting interest, and paying bills), can be replaced by a free app on your computer and a little know-how. And your personal investment in learning about crypto will 10x your ROI from 0.5% interest on your bank account to about 5% staking rewards. Obviously, in this example, you’re also incurring the risk/reward of your financial exposure to Cardano.
As Jeff Booth explains in his book The Price of Tomorrow: Why Deflation is the Key to an Abundant Future, technology is always deflationary. Companies invest in tech to reduce expenses, increase revenue, and grow market share. A portion of “reducing expenses” is often closing facilities and laying off workers. As adoption of crypto currencies increases, banks will have to adapt or go out of business. I can see a world where banks custody and insure crypto assets (for a fee, of course, maybe you only get 3% of your staking rewards while the bank gets the other 2%). They would add value by leveraging their existing bill pay infrastructure and build out reporting so that customers could manage the tax requirements associated with crypto currencies. However, there are free tools to help with reporting too, like PoolTool.
The Cardano “on-ramps” are the real trick. It’s still hard to turn dollars into ADA. You can open an account with Coinbase, Kraken, or a number of other exchanges, and buy Cardano there and transfer it to your Daedalus wallet. There’s a proposal to create an ATM based on already existing Bitcoin ATMs. But Cardano just isn’t in widespread use yet, unlike Bitcoin. To be sure, Bitcoin isn’t ubiquitous either, but the daily transaction volume of Bitcoin is around $9 billion while Cardano is less than a tenth of that. In the crypto world, Bitcoin is like the US dollar and Cardano is, I don’t know, like the Brazilian real.

Bitcoin (BTC) is the lingua franca of cryptocurrencies. Every crypto exchange has it and many report the prices of other cryptos in BTC, so it functions as a unit of account on those exchanges. It’s far more decentralized than other cryptos partly because it was first, partly because it’s been more widely adopted, and partly because competitors have chosen more centralized protocols. That decentralization makes it incredibly difficult to disrupt–there’s no server to shut down and the founder, Satoshi Nakamoto, hasn’t been heard from in years. Charles Hoskinson, the founder of Cardano, is actively working on improvements to Cardano. If you want to learn more about Cardano and the history of cryptocurrencies, Lex Fridman did a five-hour interview with Hoskinson.

While there are advantages to having a leader, it also means that he can be “persuaded” in ways that simply cannot happen to Bitcoin. Bitcoin is the people’s money.

Bitcoin can do almost everything that Cardano can. The one difference is that Bitcoin can not be staked. Bitcoin is a proof-of-work protocol where Cardano is a proof-of-stake protocol. You could mine Bitcoin. Mining Bitcoin is how new Bitcoins are created. Staking Cardano is how new ADA are created. FWIW, when banks loan dollars, that’s how new dollars are created. There are some ways to loan your Bitcoin and collect interest. I expect banks in the US to start doing that in the coming years, so you might realize some good ol’ fashion interest on your BTC at your favorite bank. NYDIG is working to make this a reality. But, government regulation around crypto loans and decentralized finance (DeFi) are still being worked out.
Bitcoin is sooo expensive! Yes, it is, but each BTC can be subdivided. One Bitcoin is composed of 100,000,000 Satoshis (Sats). That’s a lot of zeros, so think of it like this: when 1 BTC is worth $1 million, then 1 Sat will be worth 1 penny. When Bitcoin ran up to $1000 for the first time, a lot of people felt that it was out of their grasp. Some, with an air of stoic resolution, decided to “just stack Sats.” Those Sats are worth a lot of money now. As I’m writing, 1 BTC is trading for about $39,000. That means that $1 will buy you about 2500 Sats. I’m not recommending that you buy or sell cryptocurrencies, but you might want to talk to a financial planner about them.
Both protocols–Cardano and Bitcoin–are working to improve privacy and payment solutions for customers and vendors. Transactions on the public blockchain take too long for day-to-day purchases like coffee, gasoline, and groceries, so the idea of layer 2 is to move those small transactions off of the main chain and have them execute as fast as credit card transactions. Cardano recently announced work on their layer 2 payment solution, Hydra; however, Bitcoin already has a maturing layer 2: the Lightning Network. The Lightning Network is the base layer for freedom around the world, so I’ll talk about that next time.
Correction: Removed the mention of the Gemini exchange because it does not currently support Cardano.
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I'm a cryptocurrency enthusiast living in middle America. I am not a financial advisor and nothing I write here should be construed as financial advice.

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Thanks for sharing!