Enough people have asked me about my thoughts on cryptocurrency that I thought it was worth capturing them somewhere. So this is that place.

Disclaimers: All crypto is speculation: it’s that simple. This is a piece of subscriber content, so you probably already know that I am in security and don’t spend my time giving financial advice. So you’re getting basically getting my analysis of other peoples’ analysis. But even then, it’s still crypto, so you have to take everything—including what I say here—as speculative. Seriously.

Disclosures: I own ETH, DOGE, SHIBU, and LTC.

Clears throat and shakes hands.

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Some Quick Thoughts on Crypto (October 2021)

• Nobody has any idea what’s going to happen with crypto. That is the one fact you should take from this. Not the experts and not the people who are pretending to be experts. There are no experts on the future, only experts on what the future could be.
• Inflation is a thing, and it’s rising quickly right now. As a refresher, inflation is when everything gets more expensive, making your money worth less. One of the most accepted pieces of analysis from—ahem—experts, is that inflation will help boost crypto because it won’t be as affected by inflation as holding cash or stocks.
• There seem to be two different types of crypto: 1) the kind that the wonks think could be part of the future of human money, and 2) those that are getting popular purely because they exist during a crypto boom. Unfortunately, telling the difference isn’t as easy as it would seem, and it may be that one can start as one and become the other, e.g., possibly Doge.
• Bitcoin and Ethereum are very different, despite most laypeople seeing them as two different versions of the same thing. Bitcoin was designed to be a currency, and Ethereum is being designed as a platform for applications. You can obviously still sell ETH, similar to Bitcoin, but they’re not the same.
• I am most excited about Ethereum. One possible way of thinking about it is as a second version of the internet. Basically, the first version would be graphical applications built on TCP/IP, and the second version would be agreement applications built on a smart contract blockchain. Like Ethereum. I think that’s my own analysis, but lots of people believe similar things. Essentially, much of the internet gets powered by smart contracts. This is super important because it would cut so many people out of the middle. Lawyers and banks would be two groups that would get hit pretty hard I think. But really anyone who serves as a gatekeeper would face pressure in this type of world. The overriding concept—or at least one of them—is peer-to-peer transactions managed by smart contracts. It’s big. But, only if it catches. Again, it may not, for several reasons.
• There are several risks to crypto, and I’ll try to capture a few here. The first is legal/government. Biden and/or China, or any other government forces, could simply say the danger to the powers that be is too great, and they can start making it illegal to create/store/share the stuff. That would be bad. And China can do this in a blink of an eye. This is why I am not personally in Bitcoin. I see it as the most visible and clearly dangerous to governments. One narrative along this line is that state power is closely tied to currency, and if you replace that currency with something newer and better, it could put the state at risk. The second risk to crypto that I see is it simply being too early. Like maybe all these things will happen with decentralized payment, peer-to-peer, cutting out the middleman, etc., but maybe the current tech can’t or won’t support it. So it could be that this happens, or is close to happening, but that it’s with a coin that isn’t prominent yet, or hasn’t yet been invented. The third risk I see is that the tech could break somehow. Either with performance or with integrity/security. If they can’t scale or if they get hacked in any meaningful way, that could totally crash a given system.
• As I said above, I’m staying out of Bitcoin, at least for now. I just feel like it’s very expensive and that it has a target on its back. Doesn’t mean it can’t still go up. I’m just staying away for now because I like Ethereum more. I see Ethereum as more of an idea for a future tech infrastructure, as opposed to just a currency.

My primer on DOGE

• DOGE is a coin that seems to be straddling the boundary of real coin and speculative copycat. It was invented as a joke, first of all. But given how crazy this world of crypto is, and how unorthodox Elon Musk is (who’s pushing it hard), it really could end up getting adopted by multiple places and unexpectedly become mainstream. Just remember, nothing about any of this makes sense. So the laws of physics aren’t as reliable in this world as they are elsewhere.
• One possible world where multiple coins survive would be one where everyone has a digital wallet and they have a hierarchy of coin preferences. For different amounts, different types of transactions, etc. So maybe when I’m on a website and I want to give someone a small amount of money for a video like, I click the thumbs up and it deducts 30 KARMA COINS. But if I want to send someone money for half of a night of drinking, it still goes from my wallet to theirs directly, but it uses DOGE instead for that. The different coins have different technical features that could make it better to use one vs. the other for various applications, in other words. And this is the type of scenario where you could have lots of coins survive.
• What seems more likely, though, is that only a few survive. If this current generation of coins hold up, BITCOIN and ETHEREUM are the natural favorites. From the experts I’ve listened to, the confidence level in every other coin drops steeply after that, at least for long-term investment. The thing you have to ask yourself is, “Assuming crypto does take off, why would we need 20 coins if we could do the job with 2 or 3?” The attributes of a given coin would have to be compelling enough to survive such a culling. I don’t have a strong opinion on which of the two will happen, but I do recommend we learn from history that it won’t necessarily be the best ones. Luck has a major part in all this, as we see from videotapes to streaming services. Right place at the right time with the right memes could put some coins in the real conversation while others get left out. My best guess is that we end up with a digital wallet that can handle like 100 different currencies, both digital and legacy, but that the top 5 will be heavily weighted. And I’d bet we end up with like 3-5 main/serious cryptocurrencies. But that’s just a finger in the wind.
• Shibu Inu is a new-ish currency that is a joke on top of a joke. Shiba Inus are the breed of dog that DOGE is based on. So someone made a new currency to play off of that. I bought a decent amount of it just because it was so cheap, and I already doubled my money. But that could vaporize at any moment.
• My general approach to investing in cryptocurrency right now is this—and this is just for me and my risk profile: invest only what you can stand to lose. Like seriously. Do not put your life savings in this stuff. Use play money, basically. Second, I tend to invest in two types of crypto: 1) real stuff like ETH, and 2) super speculative stuff that I can get cheap, like SHIB. If I lose all of my SHIB tomorrow, I seriously won’t care. It wasn’t enough to lose any sleep over, but if it multiplies by 10 or 20x, it will significantly change my short-mid-term finances. My recommendation is to stay in that lane with this stuff. Play money. Anything else is super scary.
• Advice for conservative people. Probably stay out, but if you want to get in, put a low/safe amount in ETH and/or BTC.
• Advice for medium risk-tolerant people. If you want to get in, put a low/safe amount in ETH and/or BTC. If you see a super cheap coin somewhere that you think has some buzz, maybe throw a tiny amount in for fun. But only if you don’t mind losing it.
• Advice for highly risk-tolerant people. Put some in ETH and/or BTC, and then look for the up-and-coming coins that have many zeroes after the decimal point. Investing in these will require all sorts of strange contortions using questionable/shady steps involving different wallets, services, exchanges, etc. That all presents risk to you in multiple ways. You could lose your money. A wallet could get hacked. Exchanges could just fold. Etc. Basically the more weird and difficult it is to get a coin, the higher the POTENTIAL upside in investing because those tend to be super worthless coins. In other words, the easier it is to trade a coin, i.e., the more mainstream the coin is and the more mainstream the platform you’re using to trade it, the more it probably costs. And the harder it is to trade, and the earlier it is in its lifecycle, the more you COULD make, but the higher the chance it’s just a copycat fad as well. So it’s a tradeoff.
• At the extreme end of technical exploration, you can download a copy of some of these blockchains and start messing with mining or building applications on them (like with ETH).
• All that being said, a LOT of people have become millionaires (and billionaires) on this stuff, and I’ve done quite well myself with it. There is an aspect of FOMO that really hits here. People really are making money in this space, but nobody knows when the train will stop. Or where. Be careful.

Summary

• The whole thing is speculation. Like all of it. Really.
• The most likely to succeed, at least right now, are BTC and ETH.
• There’s a good chance most of the others will die off at some point, but nobody knows when.
• There’s another chance that several decent ones will survive in a multi-crypto society.
• There are multiple risks to all of crypto, including government, being too early, and technical flaws.
• Don’t let FOMO drive you. Look at your risk profile and determine what you can invest—if anything.
• If you’re financially conservative, you probably want to only consider ETH/BTC.
• If you’re super flexible and risk-tolerant, consider ETH/BTC and the cheap speculative coins that have lots of headroom, and maybe look into mining/building if you’re technical.

Don’t play with anything you aren’t comfortable losing.