Here is a letter I wrote to my stock broker last summer explaining why I transferred some of my money out of my 401(k) and into a self-directed IRA so that I could buy crypto-currency. When I wrote it, bitcoin was trading around $2,500 and Ethereum was around $300. I hope to write more about self-directed IRAs as a vehicle for crypto investing later.
To start, I’m a technologist, not an economist. I think of investing in crypto-currency as investing in blockchain technology and it’s potential, much more than an investment in another form of money.
Many people compare where blockchain technology is now to where the internet was in the early 90’s. Imagine if you could have invested in “the internet” in the early 90’s. That’d be one hell of an ROI.
If you remember the early 90’s, some people had heard of the internet, but not everyone. The more technically minded folks had. More people had heard of email, the first popular application of the internet, and some used it at work. Some people thought the internet was novel and interesting. Some people doubted or didn’t even think about what the potential of the internet was. Some thought it would change the world
Today, some people have heard of blockchain technology, but not everyone. The more technically minded folks have. More people have heard of crypto-currency, the first popular application on blockchain technology, and some have bought a little crypto. Some people think it’s novel and interesting. Some people doubt or don’t even think about what the potential of blockchain technology is. Some think it will change the world.
To me, buying crypto is an investment in a blockchain technology, and I believe that in the future everyone will use blockchains every day without even knowing it, much like the internet is used today. This UBS report (UBS_Crypto_BlockChain_Report_2017) says it “is likely to have a significant impact in industries ranging from finance to manufacturing, healthcare, and utilities. We estimate that blockchain could add as much as USD 300-400bn of economic value globally by 2027.”
Each different crypto currency is a project that uses blockchain technology. There are a few big projects like Bitcoin and Ethereum, that are analogous to a technology platform. There are many smaller projects that are specific functions on the platforms. For example there is Power Ledger, which is a project working on peer-to-peer electricity selling, where all transactions are kept on a blockchain ledger. There is iExec, which is a market place for computing power that you can use to run complex algorithms on the blockchain. There is FileCoin, which you can probably guess is storing files on the blockchain. And on and on I could go.
Investing is very risky because which projects will succeed and which will fail is obviously unknown. Like the internet in the 90’s, there are a lot of problems that need to be solved before blockchains can expand the functionality they provide. And which potential solutions (i.e. which projects and related crypto-currency) will succeed is uncertain.