U.S. Sen. Thomas Carper (D-DE) summarized Bitcoin best when he said cryptocurrencies have “captured the imagination of some, struck fear among others, and confused the heck out of the rest of us.” For most of us, it’s the latter, even six years later. The only difference now is that more of us know cryptocurrencies exist, even if we don’t know exactly what they are.
The rise in Bitcoin’s value to nearly $20,000 in late 2017 is why cryptocurrency became a household name. (Its value has since fallen to a little over $3,700.) Thanks to that surge, people who bought a couple of bucks’ worth of Bitcoin in 2009, became millionaires overnight.
It’s not hard to see why people are drawn to the excitement and hope around cryptocurrencies. But let’s take a few steps back to understand what role, if any, cryptocurrencies like Bitcoin should play in fast tracking your path to an early retirement.
What exactly is a Bitcoin? Despite its frequent depiction as a gold coin, Bitcoin and all other cryptocurrencies are just code. It all began in 2009 when an anonymous person by the pseudonym Satoshi Nakamoto announced he had developed a peer-to-peer electronic cash system that prevented double spending. It all sounds a bit technical, and it is, but the bottom line was blockchain technology securely transferred cryptocurrency from one person to another. It created a permanent transaction record and ensured that money couldn’t be spent by the same person more than once.
Blockchain is the network and Bitcoin is the currency. You settle currency on the blockchain, which is no different in practice from a ledger, from the Mastercard network or the clearing system for banks. When you send a Bitcoin to another person, you use a private key to sign over your rights to that virtual cash. No central bank is required to facilitate the transaction, which places cryptocurrencies squarely outside of the system and ultimately democratizes their use. Anyone can buy some.
What’s more, you remain anonymous when you sell Bitcoin. In fact, your identity in real life is not connected to your Bitcoin ownership. (There are pros and cons to that—an obvious con being that it’s strongly appealing to drug dealers and money launderers.)
The Closed Loop
Despite the passion of those who have purchased Bitcoin and the dozens of other virtual currencies that have arisen since then, cryptocurrency remains for the most part a closed-loop system. A Bitcoin inherently holds no value except for what someone is willing to pay for it. And because it’s hard to pin down a value, given its volatile ups and downs, it would be difficult to price a product or service accurately in a cryptocurrency. In other words, they face a lot of obstacles to broad usage in the real world.
“There is no payment rail,” says Jason Cozens, co-Founder and CEO of Glint. A payment rail is a payment network, like those that facilitate bank transfers, or mobile money apps that facilitate payments between people regardless of the currency or where they’re located. “The payment rails don’t want to work with cryptocurrencies because of the risk,” Cozens says. “The very nature of cryptocurrency relies on some sort of proof to say I own it, or you own it. When that’s done, it settles.”
It takes somewhere between 10 minutes and four hours to settle a trade (with Bitcoin). When was the last time you had to wait for your money to be approved before you could take a bag of groceries home?
If someone were to use Bitcoin to buy a cup of coffee, for example, and walk away with the “trade” not yet settled, the shop bears the risk if the trade (cash for coffee) doesn’t settle. “There is a price to that risk,” Cozens says. And while some options are emerging, including prepaid credit cards you can load cryptocurrencies to, users pay a higher interest rate to account for the additional risk the vendor is taking.
Even the 2010 purchase of two pizzas—which is widely recognized as the first time someone bought an actual product with Bitcoin, was done by sending Bitcoin to another person within the Bitcoin network. That person then ordered pizzas from Papa John’s with dollars and had them delivered to the purchaser.
Since then, a few online vendors have started to accept Bitcoin as a form of payment, but given the volatility of the currency, some argue it makes far more sense to hold onto Bitcoin in the hopes it will spike again, than it does to spend it.
No Safety Net
The bigger problem to putting cash into cryptocurrencies is the lack of central management. In other words, while the decentralized nature of cryptocurrencies is what has drawn many to buy them, it can also play against the user. For one, it’s difficult—if not impossible—to reverse a trade. Once you sell the cryptocurrency, it’s gone. There are pluses to that level of security and the anonymity that the network provides, with one writer saying, “a Bitcoin address is more secure than Fort Knox.”
Most owners of Bitcoin purchased them through a cryptocurrency exchange. They then deposited that Bitcoin in a cryptocurrency wallet stored offline and protected by what are called keys. Some owners chooses to “store” their keys on a literal piece of paper. Those keys validate your ownership of Bitcoins; they are essentially your unchangeable password to your stash. They are also required to sell your cryptocurrency.
You can see why that would be a risky proposition. If you lose the piece of paper, or your wallet is stored on a computer that crashes or on a hard drive that simply gets lost, you lose access to your Bitcoins.
According to Cozens, that risk is one reason there won’t be mass adoption of cryptocurrency. If someone steals your private key, it’s gone. “They’re untraceable, and there’s no authority who can help you get it back,” Cozens says. “There’s no form of protection. That’s at odds with how we organized ourselves as a society.” The same is true if you simply lose the data.
One of the more famous examples involves a man in Wales who accidently threw away a hard drive, containing the keys to $127 million in Bitcoin. He’s now on a lugubrious mission to find it—in the landfill. “This is the level to which you are responsible for your money,” Cozens says. “I don’t think we’re ready for that. That’s almost back to the Wild West.”
The way we sell and buy cryptocurrencies has changed since that man purchased his now-lost Bitcoin in 2019 (cloud storage, for one), but the currency itself hasn’t become any less vulnerable. Being outside the market, they will remain unregulated.
The Gold Option
The appeal of cryptocurrencies is similar to that of gold: Buyers want something that can be used everywhere and that is controlled by no one. But when it comes to functionality, the similarities end there. “Cryptocurrency was genuinely set up as an antidote to a depreciating money system,” Cozens says. “Unfortunately, the way the network was built went far from it becoming a decentralized ledger where lots of people are participating in transactions.”
And as Bitcoin is “hoarded,” supply falls and prices go up. “Then you’re operating a bubble because people are speculating on the value. But people aren’t using it. They don’t trust it. They can’t relate to it, and that doesn’t seem to be shifting,” Cozens says.
While Bitcoin is frequently depicted as gold in pictures that accompany articles, it’s wholly digital. On the other hand, gold—real gold—is an actual physical commodity that can’t be hacked or wiped out in a rush of pixels. It’s numbered, regulated, insured, and protected in the world’s most secure vaults. Cloud-based currencies may ultimately have their place in the financial system, but gold is far less risky as an alternative to national currencies.
“We have no animosity toward cryptocurrencies,” Cozens says. “We think that people educating themselves about what money is and what money should be is a positive thing. The cryptocurrency boom has really opened up that debate.”
The value of the dollar goes down each year, which means you can buy less with the same amount of money. One hundred dollars in December 1999, for example, bought you the same as $146.48 did in December 2017, a nearly 50 percent loss of value in just 18 years, according to the U.S. Bureau of Labor Statistics Consumer Price Index calculator. Other currencies have faced the same fate: £100 in 1999 was £160.05 in 2017, a nearly 60-percent drop in value, according to the Bank of England.
“People are saving for things that are inflating in price,” says Cozens. “They are saving in a unit of currency that is deflating.” Glint’s answer is to offer an alternative to national currencies that is shielded from inflation and has a history of reliability. Enter: Glint Pay. With the mobile app, you can instantly buy, save, and spend gold that is stored in Brinks vaults, insured by Lloyd’s of London. And the app can be used at any shop or ATM that accepts Mastercard. All of that without the usual bank fees or an expensive investment advisor. Glint is also regulated by British financial authorities, and every ounce of gold purchased is held in segregated accounts at a tier 1 bank. U.S. accounts are FDIC-insured up to $250,000.
“It’s low-risk and holds its value better than paper money. Gold’s historical resilience makes it a very attractive way to protect your hard-earned savings,” Cozens says. Glint is introducing gold not as an investment, but as money that can be saved and spent for daily needs or for more discretionary payments, like a vacation or a down payment on a ski condo.
In fact, Glint’s online calculator shows that if you were to save £300 a month, with a goal of £35,000 toward a down payment on a moderately priced ski condo, it would take you nine years and nine months to achieve that goal with cash—and just six years and two months with gold.
“It’s an alternative currency—and gold has always been money. It’s the safest form of money in history,” says Jason Cozens.