By Telo Hoy
Illustration by Ben Bajema
Fall 2021 / Winter 2022 Issue
For the longest time, cryptocurrency remained an illusion to me. Was it cryptographic? What did that mean? I had heard about Bitcoin as early as 2010 from my father, but always shrugged it off as a strange new idea that would never be relevant to me. For the majority of my life (an in-between Millennial and Gen-Z), the US Dollar has been as much a digital currency as a physical one; the idea of a purely digital currency seemed unnecessary.
It is completely unsurprising that my education in cryptocurrency would begin during a global pandemic, alongside my beginnings in regular stock investing. I was not alone. With many young people at home, out of a job, and living day-by-day with dim prospects of future work, trading and investing has appeared as a way to pass time, learn about markets, enjoy the thrill of legal gambling, and maybe make some money. After creating a small investment retirement account for myself in May 2020, I educated myself in the differences between stocks, bonds, mutual funds, ETFs, and indexes. I wanted to understand how it all worked, so that I could be in control of my own investing as much as possible.
Charles Schwab’s website appeared as a maze, with multiple ways to look up a symbol – such as NYSE – navigating through its different sections was a challenging map to learn. After about a month, I learned my way around. I was building a modest little portfolio made up of stocks, mutual funds, and ETFs of companies and industries that I thought to be exciting and important in the upcoming decades on Earth. I focused on sustainable companies, ETFs and funds, researching each new one I’d discover to find out exactly what was lurking in millions and billions of dollars of investments.
Over time, I’ve come to believe that there is probably no way to ethically invest. Each stock or ETF usually has some element that will harm another human, creature, or environment if you look close enough. The question is, to what extent can one accept the exploitative nature of capitalism and move into the number and percentage crunching, into the market watching of ups and downs.
During the pandemic, I would occasionally hear about cryptocurrency, whether it was on the radio or from my father. I continued to be reminded of the immense amounts of energy that are used to mine it (the process which validates transactions in place of a traditional central institution such as a bank or Visa network and also creates new crypto coins). In conversations with my father, I’d mention the kilowatt hours which measure in comparison to countries, for the amount of energy used in one year by one cryptocurrency. For a time, it appeared to me that there was no ethical way to participate in the crypto market if one cared about energy usage and its environmental effects. I still don’t believe that there is an ethical way. But with time, I grew interested in the philosophy of decentralization.
In the Spring of 2021, when crypto markets crashed after being at record highs (Bitcoin went from roughly $65,000 to $39,000 in about 10 days), I learned of a new cryptocurrency, in fact, a whole family of cryptocurrencies that were more energy efficient than Bitcoin and Ethereum. Cardano first sounded like an Italian bicycle company to me. I kept mixing it up; “Cardona” or “Cardono?” This was the cryptocurrency that changed my perspective. I learned that this cryptocurrency uses a different process than Bitcoin to validate transactions; proof of stake instead of proof of work, which in turn consumes far less energy than Bitcoin in the process of validating transactions.
What is decentralization you might ask? The way I think of it is, the internet is made up of servers that hold websites and information, and many of them are hosted by massive data centers that hold tens of thousands of servers holding all of our favorite websites, personal files in the “cloud”, photos, and messages. The same holds true for banks and currencies. Visa and Mastercard are massive payment networks that correspond with a centralized server to be able to keep the system safely running without false transactions or falsified money.
The idea of decentralization changes the way the internet works by creating servers on a blockchain, a massive international network of computers that communicate with each other instead of using a centralized server. At first glance, this idea appeared to me as the future of the internet, a new web in which individuals might be able to have more power over their internet connections and hosting. Over time, I have learned how this idea permeates into the financial world, where its uses are currently being most explored.
There are over 7,000 different types of cryptocurrency. In my initial education of cryptocurrencies, I only learned of three: Bitcoin, Ethereum, and Cardano. Bitcoin and Ethereum being much more energy intensive (although Ethereum less), and Cardano being much more efficient. As I searched through Coinbase’s incredibly user-friendly interface (especially compared to Charles Schwab’s), I would parse hundreds of other cryptocurrencies with interesting names and beautifully creative symbols. Some of their descriptions showed their uniqueness, their reason for being and why they might be used as opposed to a more traditional cryptocurrency. The majority however, provided no new usage idea to me, at least in my understanding of cryptocurrencies, and instead appeared to be slightly varied repetitions of Bitcoin or Ethereum.
Some cryptocurrencies stood out. One that creates a new currency with which individuals can send funds between any country in any currency without the high wire fees and exchange rates (Stellar Lumens). One that aims to bring down the costs of video streaming by creating a decentralized video streaming network (Livepeer). One that has created a new cryptocurrency specifically for musicians and artists to interact with their fans (Rally). One that attempts to create a new system for lending money in which individuals can loan out their cryptocurrencies and gain interest, which others can then borrow money from without the traditional challenges and approvals required to do so (Compound). One that provides a network for freelancers to find work with organizations in a decentralized fashion (presumably without a website like Upwork taking a 20% fee from income) [Braintrust Token].
The more unique cryptocurrencies interested me the most, their specific usages being imaginable and innovative. I have since invested a small sum into some of these more peculiar cryptos (about $10 a piece), alongside a few larger ones. Over time, my ethical pureness faded and I even found myself putting a few dollars into Bitcoin.
This experiment has been an investigation into my own morality. Do I believe in technology to create solutions or to be detrimental? How do I weigh the environmental costs with something that presents new economic ways of being? How much of the crypto market is purely for the sake of making more dollars and gambling, and how much of it is actually used with the intention of changing the way we use and think about money?
Cryptocurrency markets are much more volatile than traditional ones. While a 5-10% change in a traditional stock might prove exciting or shocking, cryptocurrencies sometimes move more than 150% in one day; while a 5% change is a very typical day. The acceptance of loss or gain is necessary in approaching cryptocurrency with a stable mind. Whether one day brings gains or losses, the flexibility of money is proved through the resilience of the market’s ability to bring itself back up.
In June 2021, Coinbase introduced a debit card, which seemed to be a truly revolutionary new way of using cryptocurrency in the everyday world. I was excited by this, by the possibility of an investment being more than just a pot of money sitting on a server going up and down. The card came with its caveats, which revealed themselves to me slowly as I learned the limitations of using cryptocurrency in a country where the official currency is the US Dollar. While the card offers up to 4% rewards in three select cryptocurrencies (Stellar Lumens, The Graph, and Rally), spending these cryptocurrencies themselves incurs a fee of 2.5% per transaction. This fee is due to the fact that Coinbase must convert any given cryptocurrency into US Dollars each time it is spent, using the real time conversion rate. Initially, this seemed decent. With the 4% rewards, I would be left with 1.5% back (about the same as many cash back credit cards). When I finally received the card itself and prepared to use it, I learned of another, more terrifying caveat. The IRS treats cryptocurrencies as property, not currency, meaning that each time one sells any cryptocurrency, the transaction is taxable. Every transaction spent on the Coinbase card would be then considered taxable.
Putting the tax nightmare behind, I learned of an alternative to all of this madness called USD Coin; a stable coin cryptocurrency, which is always pegged to one US Dollar. If I spent USD Coin instead of other cryptocurrencies, I would avoid the 2.5% fee and the tax liability. Since then, my use of the card has truly been an experiment. Each time I spend, the graph of my digital portfolio takes a cliff dive as if the market has dropped. Visually, it looks strange, while in truth, graphing a normal bank account would look mostly the same.
What occurs is, in effect, similar to having a regular checking account with some key differences. Normally, these kinds of rewards would only be available with a credit card. I find credit cards sometimes challenging in the sense that one must weigh the desire to gain rewards (however minuscule they may be), alongside the dissolution of constantly being in debt and remembering to pay off that debt. Another key difference is that a good day in the crypto market might mean that I am able to scrape off an extra $20 gained and put it into my USD Coin wallet to be spent on everyday items. It is a strange process.
The complexities of using this card are worthy to scare many away. One might accept the strangeness of crypto markets and put their money there, while avoiding the percentages and details of using a Coinbase card. I find the whole process to be a mental exercise in moderation and pace. My 4% back in Stellar Lumens might be worth more tomorrow and nothing the next day.
The unknowns of the crypto market, why it moves as it does, is perhaps one of the more exhilarating aspects of it. While the day’s news will mostly correlate to changes in the stock market, the crypto market often deviates from these more predictable changes. At this point I have experienced both large gains and declines, putting each day in perspective. I believe that cryptocurrency has a bright future, though I wonder how mass adoption of a new currency or economic system will take place. Then again, the adoption of digital dollars, credit cards, and debit cards, has taken place only over a few decades.
Telo Hoy is a composer and vibraphonist based in New York. He is also the co-founder and photography and sonic editor of The Documentarian.