David Sovka: A primer on cryptocurrency, a.k.a. a fool and his money are soon parted

6 views 12:15 pm 0 Comments November 19, 2023

 Your 50s tend to be a time of reflection. You’re pretty sure you are halfway through life and start asking what it all means.

You wonder about career choices, family relationships, and why your back hurts. Also, why can’t you be rich beyond the dreams of avarice?

This is why so many people in their 50s have ­succumbed to the predatory schemes and bald-faced lies of the Charles Ponzis, Bernie Madoffs, and Sam Bankman-Frieds of the world.

And speaking of overly complicated financial ­flimflam …

Cryptocurrency refers to a virtual currency protected by cryptographic techniques, creating a concept that blends a technological essence with a touch of intrigue reminiscent of James Bond.

I know what you’re thinking: Dave! Doesn’t “virtual” mean that it is inaccurate, just made up, like what you write weekly? First, yes, in the same way that money and the entire global economy are made up. Second, thank you for reading.

Most cryptocurrencies live on decentralized networks using blockchain technology to the extent that they exist. Not Lego. A blockchain is a set of connected blocks of information on a virtual ledger. Each block contains a list of transactions independently verified by each validator on a network.

There’s probably a more straightforward way of explaining all this, but that’s kind of cryptocurrency’s superpower: ­technical obfuscation. On the surface, the explanation makes little sense.

But then you dig deeper, and it makes no sense at all. Nevertheless, it is all safely based on the fundamental accounting principle: A fool and his money are soon parted.

In cryptocurrency, “crypto” denotes encryption algorithms and cryptographic methods like elliptical curve encryption and public-private key pairs. These measures act as safeguards, shielding your funds from potential threats and entities like werewolves and tax authorities.

Don’t think about it too much. The point to remember with crypto is that Bigfoot, chupacabra, and Taylor Swift are authentic things and want your money!

You have probably heard of Bitcoin, the most well-known and flourishing of the cryptocurrencies (as of Oct. 27, Bitcoin had a total market value of $656 billion U.S.).

There is also Ethereum ($212 billion), Tether ($84.5 billion), Binance Coin ($62.6 billion), XRP, Terra, Solana, Cardano, and Avalanche … CoinMarketCap reports there are currently 22,932 different cryptocurrencies, with a total market capitalization of $1.1 trillion.

So many people throwing their money here/away means it must be real!

You may be wondering why there are so many types of cryptocurrency. Part of the reason is that ­blockchain technology is open source and can be ­developed by anyone with a computer and a pointy head. The other part is that generally speaking, people are greedy idiots.

I don’t mean you, obviously, but consider all the ­people you know: your friends, family, colleagues. Knuckleheads to a man, am I right? Those people should not be goofing around with global economy-wrecking technology, nor handing over all their money to somebody else doing that.

Enthusiasts of cryptocurrencies highlight that these digital assets, not issued by any central authority, the Bank of Canada, or even your mom, theoretically possess immunity from government interference or manipulation. Also, they are a great way to buy and sell non-fungible tokens, one of the hottest topics in the Decentralized Finance space.

If you think I need to learn what the Decentralized Finance space means, then pay no attention to that man behind the curtain! Anyway, non-fungible tokens track who owns “things” that do not necessarily “exist.”

For example, expensive digital artwork.

Here’s how it works: Suppose somebody uses a computer to draw a dog’s bum with a hat and names it after my mother-in-law, Margaret. Using blockchain technology, the artist can label a single digital instance of the artwork and sell it to you!

Anyone can look at Margaret online, but the ­non-fungible token proves Margaret is all yours. Doesn’t the empress look great in her new clothes?

Cryptocurrency is made up of a process called “mining.” I would give you a detailed explanation of this process, but the critical thing to know is the ­process does not involve mining in any way. It’s just hot computer homework. I mean that, literally.

Here in British Columbia, B.C. Hydro had to impose an 18-month suspension on new ­cryptocurrency ­mining, an energy-intensive process involving ­computers, chupacabras, and whatnot.

Cryptocurrency mining takes too much of our electricity for too few people hunting for El Dorado. Reminder: We need that electricity to heat our homes, charge our electric cars and toothbrushes, power the industry, and generally keep the lights on—reminder: El Dorado is not a real place and never was.

Which brings us to our 50-something problem. My wife and I have always tried to manage our monthly finances by following two principles:

  1. Spend a little, save a little, give a little.
  2. Don’t spend more than you earn.

We have done fine over the years. We are wealthy by world standards and have no actual wants except for the part about being filthy, stinking rich.

For that, let me suggest one more principle to ­follow (as soon as B.C. Hydro allows us to start mining ­operations again):


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