Getting started Investing in Cryptocurrency for Guyanese

You’ve probably heard about cryptocurrencies by now; sometimes called crypto. If you haven’t heard those terms, you’ve at least had to have heard about Bitcoin – the largest cryptocurrency right now. Currently the entire world has over $700 Billion USD in Bitcoin while in total, all cryptocurrencies account for $2.03 trillion USD of the wealth of the world.

History

In the early days of crypto, it was nothing more than a computer algorithm. It was invented as what is knowns as the “Proof of Work” algorithm by Cynthia Dwork and Moni Naor way back in 1993 as a way to deter spam and brute force attacks on networks by requiring some work from a service requester, usually meaning processing time by a computer.

Basically, the algorithm wanted your computer to work for what it wanted by expending energy to solve some useless puzzle before it was given what it wanted. Note: I am going to simplify the technical things below for the sake of helping you to understand so they may not be 100% accurate.

This was a genius invention since it caused computers that were used to spam networks to use up lots of power solving useless equations which led to many spam operations to shut down because the electricity bills were getting too costly. A win for the internet at the time.

Time went on, and the algorithm had no other use for quite some years.

Then finally in 2008, an unknown individual or group of individuals going by the name Satoshi Nakamoto invented something called Bitcoin. Bitcoin was based on this Proof of Work algorithm, but why? It was a strange invention that no one cared about at the time but it had this major feature that was simply unbeatable by any other solution at the time. Bitcoin had no owner, no central authority – its ownership was shared and everyone played a role in securing the network, ensuring transactions were correct and no single person was in charge. The currency began use in 2009 when its implementation was released as open-source software.

So what really is Bitcoin?

Bitcoin is what is known as a cryptocurrency. A cryptocurrency is a digital or virtual currency that is secured by cryptography (a way of securing communication by encryption [jumbling messages to make them harder to solve] usually), which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology — a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation – extract from Investopedia.

Here’s a scenario:

Persons on a network want to exchange money without using physical cash and without a central authority. In traditional banking, the bank (the central authority) acts as the person who validates transactions and ensures that everything is correct. However, without a bank or central person how will we ensure no one is lying about transactions?

Bitcoin is built on a concept known as the blockchain. A blockchain in the case of Bitcoin is simply a “distributed ledger”. A ledger is simply a list of transactions very similar to what a bank would use for accounting with debits and credits. However, it’s not just a ledger – recall that we said bitcoin has no central authority. This is where the “distributed” portion comes in. Every participating computer on the Bitcoin network keeps their own list of transactions in their own ledger. This ledger however, is public to all of the computers on the Bitcoin network.

So if everyone is keeping their own ledger, how can we be sure that everyone is telling the truth? Did Pam really pay Jim $100? In order to ensure transactions are valid, Bitcoin transactions are broadcasted across the entire network. If Jim says that Pam paid him, Pam also has to publicly agree that she paid Jim. If Pam doesn’t agree, then we know something is wrong. They also both need to sign their messages to prove their identity to the network. This is done by a digital signature that cannot be replicated as it uses a private-key, public-key pair (I’ll break this down in a detailed article later for the tech nerds).

Bitcoin Miners and their role

On the network, there are computers that are called “bitcoin miners”. These miners have a critical job. Their job is to eliminate any fraudulent transactions while keeping the verified ones. Remember we said all transactions are broadcasted publicly? Well, the miners collect these transactions and write it on their own ledger. They first check to see if the signatures are correct, and if the sender actually has the money to send based on previous transactions. Once they verify that, they add the transactions to a block of their blockchain and move on to the next step.

So when does this Proof of Work algorithm come in for Bitcoin? The creators came up with a really interesting way to use this algorithm to ensure this network was one of the safest and trustworthy at the time, and remains so to this day.

Mining Pools and the Proof of Work Algorithm

The miners are then required to solve a random cryptographic equation that takes a huge amount of power. It is such a difficult equation that one modern computer cannot realistically solve it on its own in any reasonable time. For this reason, miners usually “pool” their resources into what’s called a “mining pool”. Mining pools usually have millions of nodes (computers) working together to guess the solution to this random equation. Think of solving this equation as if someone gave you a chance to guess a number between 1 and 1 trillion. It’s almost impossible! If you made a guess every second, realistically you’d take 31,709 years to guess the right number on average. However, if you joined a group of 1 million people and each of you made a different guess every second, it will take on average 11.6 days. Crypto mining pools are very similar – except, computers make guesses a million times per second, and the number they are trying to guess is much larger.

As you can see, this is where the Proof of Work algorithm comes in. Computers have to spend a lot of energy trying to guess this useless number. This process is what keeps the Bitcoin network trustworthy, because no one computer can realistically guess the right number unless they got lucky.

Once the number is finally guessed, the first computer or mining pool to solve it gains the right to write the next block of transactions to the blockchain. Now how do we know which blockchain is the real one? Remember since we all keep transactions, there can be tons of blockchains at any one time. The network simply chooses the longest blockchain to write the new block to. This ensures that we are only writing to blockchains that have had the most work put into it. So this means, if one computer introduces a fraudulent transaction, they won’t have the power to make it actually be added to the largest blockchain. Even if they try to introduce their own blockchain, it will be rejected based on length.

In summary: the Bitcoin network is built to always pick the most popular blockchain which is most likely going to be the real one. That will be the blockchain that every computer on the network agrees on.

Once this is done, the cycle repeats. A new block is generated and transactions are verified, then whoever wins the contest gets to add it to the official blockchain. Whoever wins, gets a reward and that reward is Bitcoin! This is how new bitcoins are “born”. The current block reward for Bitcoin is 6.25 bitcoins worth up to $375,000 USD (81 million GYD) at its peak. The reward is halved every 210,000 blocks that are added to the blockchain.

Ok enough history. Hope you get the idea.

Should you Invest in Cryptocurrency?

If you skipped the history, the TLDR is:

• Bitcoin is a digital currency.
• It was invented in 2008, but the algorithm on which it is based was envisioned since 1993.
• No central authority controls or owns Bitcoin – in fact, we don’t even know who made it.
• It is very secure and the risk of fraudulent transactions are next to none.

So it’s a digital currency (basically an online dollar), I get it – but how is buying crypto an “investment”? Well yes, it is pretty much like any other currency. Currencies can be exchanged for other currencies in markets similar to stock markets. These markets are called foreign exchange markets or “forex” for short. Most currencies do not carry the same value. $1 USD is worth approximately $209 Guyanese dollars currently. This means that the US Dollar is more valuable than the Guyanese dollar.

Why currency prices fluctuate

A high demand for a currency or a shortage in its supply will cause an increase in price, but that’s not all. There is no single factor that causes a currency’s value to change but rather a combination of multiple factors. A currency’s supply and demand are tied to a number of intertwined factors including the country’s monetary policy, the rate of inflation, and political and economic conditions.

Examples: If a country “prints more money” or adds to the circulating supply by giving free handouts, stimulus or by buying corporate bonds or mortgage backed securities, their currency’s value generally drops. If they raise benchmark interest rates, people tend to borrow less causing less money to enter circulation resulting in an increase in value. If a country starts to see more foreign trade, more tourists and an influx of investors the currency’s value will generally rise since more people want the currency. Remember, more demand – the more valuable the currency is.

The inherent rarity of Bitcoin

This brings us to Bitcoin and why many see it as an “investment”. Due to the way Bitcoin was developed, it has a finite supply – meaning at some point no new bitcoins can be released. Bitcoin is capped at 21 million coins and we’ve already released 18.9 million into circulation. This limit makes Bitcoin very unique and is thus what we call a deflationary currency. Unlike traditional currencies where more money can always be printed, once we reach this limit there will be no new bitcoins to be made… EVER.

This deflationary nature of Bitcoin makes it inherently “rare”. If we were to split all the bitcoins equally among all of humanity (~8 billion people), each person would only have 0.002625% of a Bitcoin which is currently worth about $20,000 GYD.

Bitcoin grew significantly in popularity in 2021 and since more demand pushes prices up, Bitcoin went from about $1.2 million GYD per coin in March of 2020 to a peak of nearly $13 million GYD per coin in March of 2021 making it the fastest growing asset of the decade.

Disclaimer: Before we go further, remember that investing has risks – you are not guaranteed to make money; you might even lose money. Past returns do not guarantee future returns. I am not a financial advisor, this is merely for educational and entertainment purposes. The opinions expressed in this article are my own and should not be taken as facts. Do your own due diligence and never blindly listen to a random guy on the internet. Hi, I’m Timothy – by the way. For full transparency, I actively mine, hold, trade and provide liquidity for cryptocurrencies including Bitcoin.

Pros for Cryptocurrency

It’s almost definitely here to stay

Many companies all over the world have adopted cryptocurrencies for buying/selling already and more say that adoption is on the way. Its user base has grown significantly and there are even dedicated communities that promote, create, maintain and upgrade their favorite cryptocurrency. The market cap of crypto, at $2.03 trillion USD worldwide is not an amount that will simply disappear overnight (*knock on wood*).

Industry adoption is growing

Bitcoin is now being used by many companies in the US and around the world as an inflation hedge, a means of diversification, and even for transactions such as the purchase of products/services as well as some going as far to even offer their employees payment in Bitcoin.

Historically, prices have usually trended upwards

We don’t have a long history of cryptocurrency as we do for the stock market and other investments. However, for the 14 years it has been around for it has definitely performed admirably – especially the two largest currencies (Bitcoin and Etherium). Bitcoin was crowned the best performing asset of the decade and many people predict lots of future growth.

It is evolving

Cryptocurrencies are evolving and new ones are being invented ever so often. New coins bring new blockchain technologies, new algorithms, faster processing, energy savings and cheaper operation to the mainstream. While crypto started as simply Proof of Work algorithms, there are now new algorithms like Proof of Stake, Proof of Capacity, Proof of Activity, and Proof of Burn – all leading to new and unique improvements.

Cons of Cryptocurrency

Governments hate it – especially communist leaning countries

What do governments want? They want to spy on you, they want taxes and they want control. With crypto, all three of those things are made a bit difficult. In order to tax you, there is no central authority in crypto to report on your transactions so the government has to dig to find your transactions. Now your transactions are public, so they can be found, but it may take some digging. A government wants to control money in its country. Crypto throws that out of the window. Countries like America are like “grrrrr… but ok. It’s still more taxes for us”. Now for communist countries on the other hand, like China – this really pisses them off. They hate it so much.

Except for El Salvador

The president of El Salvador literally YOLO’d his entire economy into Bitcoin. It’s a risky bet with a ton of upside potential, but a whole lot of downside as well. I’d advise you not to yeet your entire paycheck into Bitcoin like this president does.

It is still very new

14 years of being around isn’t long enough to fully prove crypto’s long term potential. Other asset classes like stocks have been around for hundreds of years giving us a lot of information to work with and to be able to better decide if it is right for us. Some people recommend giving it some time to grow and stabilize before delving into it, while others say if you wait too long you might miss the train.

Cryptocurrencies are non-productive assets

These digital coins are assets that do not have any fundamental value and also do not generate income by themselves (unlike real estate and stocks). The prices and value of these currencies are simply determined by market forces. Through any period of financial instability, these types of assets usually plummet in value significantly and may even become almost worthless if interest dies down. Many value investors refer to this as the greater-fool theory.

The Greater-Fool Theory

When trading any asset at prices far above its fundamental value especially if that value is $0, it is said to be the game of the greater fool. When you buy Bitcoin, you are hoping that the price goes higher than what you bought it for so that you can sell it eventually to another person (who believes that the price will go even higher). This idea of buying assets with no intrinsic value just because you believe the price will go higher makes you a “fool”, and the person you sell it to, the “greater fool”. They will then sell it to another person who will be an even greater fool, and so on. Eventually, this line of fools will come to an end and there will be one last fool that will be left “holding the bag” with no greater fool than he is.

When you think of it though, cash is a non-productive asset with little to no intrinsic value. The only reason it has value is because the government says it does. Gold is also a non-productive asset but has some intrinsic value, and yet people treat it as an “investment” – food for thought. Gold prices move mostly due to supply and demand which makes it very similar to cryptocurrencies. Many persons have even referred to Bitcoin as “digital gold”.

My Recommendation

Do not simply buy Bitcoin simply because someone told you to. Ensure you do your own research (outside of this article) before committing to putting your money into this asset class. Only put money into this asset class that you are comfortable with losing. Crypto is extremely volatile and solely depends on market interest in order to keep prices above a certain level. I’d recommend putting no more than 5% of your total net worth into this asset class.

While I caution you, I also want to encourage you to do your research and put a few dollars into it. If you are on the fence, start with $50 USD (or some other small amount) maybe and just check back on it later. Do not try to time trades, just buy and forget about it.

I personally aim to keep roughly 5% of my total investable assets in cryptocurrencies for the foreseeable future. I aim to split this equally across the top ten currencies by market capitalization and simply leave it there for the next 10-20 years at least. I have a strong conviction in crypto due to my own extensive research so please do not let my opinions sway your own. If you do not trust it, do not invest.

How to buy cryptocurrency

To buy cryptocurrency in Guyana, I use Binanace – the largest crypto exchange in the world. Their comprehensive platform gives you tons of information and features, including being able to earn interest, stake your crypto and provide liquidity. I will explain those further in a future article. Stay tuned.

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