Thursday, January 30, 2014

Crypto Currencies and the Roles of Miners, Speculators and Investors



There is a lot of media coverage of Bitcoin these days, both in the financial news and sometimes the crime news.  Here at ChimpWithPencil we first talked about Bitcoin in January 2013.  I wrote, "I think that as we watch governments around the world make poor financial decisions, and banks fail from reckless greed and ineffective management, we will see more virtual currencies like Bitcoin."

Huh.  I obviously have a gift for underestimating.  There aren't just three or four crypto currencies now, there are sixty or seventy.  You can visit sites like CoinMarketCap and CryptMarketCap to see their stock-style tickers.  Most of these virtual currencies are based on the Bitcoin model, but some attempt to improve on it, or even go in a different direction.



With the spread of these alt-currencies, we're also seeing new roles for people interested in crypto currencies.  At first, there were only Miners--people with the computer equipment, technical skill, and patience necessary to mine for Bitcoins.  And there were a few places online who accepted Bitcoin as payment--sometimes in legitimate places and sometimes in dodgy places on the Darknet.  We can classify these people as 'Users' because they simply used Bitcoin, but didn't necessarily mine it.  Although I suspect most early Users were also Miners.

The proliferation of new coins has opened up two new roles (or character classes for my RPG friends).  Speculators and Investors.  There have long been speculators in the world currency market, making (or losing) money on the changes in value of the various currencies.  This speculation wouldn't be possible in the crypto currency world without the rise of trade sites, often called 'exchanges.'

Exchanges allow account holders to trade crypto currencies, transfer them, deposit and withdraw, and in some cases even cash out for physical, state-owned currencies.  For instance, you can trade Bitcoins for US dollars. 

Currency speculation is a tricky thing.  Before a stock purchase, you can research a company and see if their products are doing well.  Or you can buy into mutual funds that are diversified.  But predicting swings in currency can be very difficult.

Although there is a lively trade in crypto currencies, there are also Investors who are sitting on their coins like a dragon on its horde.  They're hoping their coins will grow in value.  For example, when I first learned about Bitcoin, one Bitcoin sold for $9 USD.  Today, a single Bitcoin is worth about $800.00.  (I really wish I'd spent $18 back then and bought a couple.)

It isn't hard to find articles that deride the crypto currency market, and there are plenty that encourage it, too.  But with a total worth of around $10 billion USD, I think the world of crypto currency has grown too big to ignore. 

(Please note:  All investments involve risk.  If you're looking to Mine, Speculate, or Invest, do some serious research first.)

(Photo found via Google Images on http://itknowledgeexchange.techtarget.com/uncharted-waters/are-it-workers-the-coal-miners-of-the-21st-century/)

Author's Note:  If you enjoyed this article, please consider supporting Chimp With Pencil by buying one of my books.  Thank you. 

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