The latest money-making craze is trading cryptocurrency. How hard can it be? Matt Rudd leaps aboard the rollercoaster.
If you or I had bought £100 ($200) of bitcoin ten years ago, you or I would now have £2 million ($3.9 million) and change in the cryptobank. If we'd bought it a year before that, when a bitcoin cost "basically nothing", we'd be well on our way to being billionaires. A string of digital characters with no physical intrinsic value that cost five thousandths of a penny in 2010 is, at the time of going to press, worth upwards of £23,000 ($45,500) a bit. In 2013 a man threw away a laptop hard drive containing 7,500 bitcoins. If only the poor guy had thrown it in the attic, he'd be worth £183 million ($362 million) today.
The rollercoaster ride that is cryptocurrency is absurd, but it is also ruthlessly logical. The more people want something, the more value you can attach to it. It's supply and demand — the oldest rule in the economics textbook and the only way to explain Jack Vettriano. But when everyone wants something because some people on Reddit say they want it, that's when you get the sort of price fluctuations that would make a Venezuelan finance minister blush.
I did not buy £100 of bitcoin 11 years ago and nor did you, and we really missed a trick. We missed the chance to throw £183 million in a landfill, to never work again, to live out our years as crypto-dandies inside our very own extinct volcano. Unlike you I have tried to address this omission. A few weeks ago I bought £100 of cryptocurrency and that was the beginning of a ride I should never have gone on. I still, despite hours of research, don't really understand blockchain. I know we're talking decentralised peer-to-peer transaction, a way for people to lend, borrow and spend without using traditional banks or money, up the revolution, boo to Threadneedle Street and all that. But the idea that any old former Microsoft/Google/Apple employee can just invent their own digital money and then convince other people to buy it is baffling. As of last month there were more than 4,000 cryptocurrencies, each with their own little fan club promising the earth. It's all very "emperor's new cash register".
In this story the most important acronym you'll hear is Fomo (fear of missing out). There will be other hashtag acronyms along the way, such as #ttm (to the moon) or #hodl (hold on for dear life), but ever since the first parents' basement dweller announced that his hundred bucks had magicked into a hot million, Fomo is the only way to explain what has happened this year.
It started with a handful of anonymous nerds in the late Noughties, then spread to a larger handful of gamers, but a new demographic of crypto-speculator is emerging. In the past two years the number of digital wallets has nearly doubled to 70 million worldwide and, judging by the number of times the subject has come up in my social circles, most of the extra 30 million or so are middle-aged dads in Kent. They're all at it, the #fomoing chumps, WhatsApping each other about paying off the mortgage, putting the kids through uni, retiring at 57, not 77. And that's how I got hooked.
A few weeks ago a friend turned up for lunch in the Step 2 roadmap rain and something was clearly up with him. He kept checking his phone — it was like lunching with a teenager. I put it down to months of social isolation but eventually he admitted that he'd "invested" £10,000 in ethereum, the second-biggest cryptocurrency after bitcoin. When the investment went up, he'd decided to diversify into other cryptocurrencies to "spread the risk". His total outlay was now £25,000, he explained, his jaw muscles tensing. At the start of lunch it was worth £31,000. By coffee it was more than £34,000. He'd made £3,000 just sitting there. I wanted to make £3,000 just sitting there too.
I opened my digital wallet in April. This involved entering a few details, screenshotting my driver's licence and transferring my £100 of proper money from a proper bank to a random app. The proper bank was not at all happy about this. It reacted very much like a wife being asked what a girlfriend might like for her birthday … red flags galore.
Was I sure the details were correct? Was I aware of the risks? Did I understand that the king of Nigeria's second cousin did not have my best interests at heart?
Yes, I was. Please proceed.
Immediately I got a panicky text that read "Please immediately call us". I called and the lady in the "not another crypto idiot" department asked more specific questions. Was I sure I wasn't being conned? No, I wasn't sure, I joked, it's the Wild West out there. This did not go down well. She asked another lot of questions and we had a laugh about how cryptocurrency was undermining the entire banking industry, and then, still reluctant, she agreed to let me throw my money away.
The money left my old-fashioned bank account. Four hours later it had not arrived in my newfangled cryptowallet. I asked my friend — now rolling in £39,000 — how long his transfer had taken. A few minutes, he said, adding helpfully that another Kent dad (I told you) had got a digit wrong and lost one whole ethereum (£2,850 at the time) for ever. So this was going to be a short story. Man attempts to buy cryptocurrency. Man does a typo. The end.
That would have been better than what actually happened. A whole day and a few more hours later, the money arrived with an apology for the delay — they'd been experiencing "unprecedented demand". No problem. I was ready to start making millions.
Start with ethereum, said a Sussex dad (them too). It's big, it's safe and it's going to keep rising until September, he said. Now, I should add here that this friend is an economist. He spends his waking hours advising developing countries on their finances. In his second year out of university he wrote a whole national budget. Smart guy. But I've also seen him try to get a wine stain out of a carpet with the trousers he was wearing and he once decided to outwit an Amsterdam mugger by pretending we were Russian. "You're not Russian, are you?" said the mugger. So I ignored his advice. One ethereum cost £400 in December. It was now £3,000. I'd missed the run.
Of the 200 — 200! — cryptocurrencies available on my new bank-unapproved app, 192 of them had at least quadrupled in value over the previous four months. Most had rocketed tenfold or more and veThor was one of them. In mid-January one veThor cost 0.0005p. By mid-March it cost 0.015p. A thirtyfold increase in eight weeks. Eight weeks! But here in late April, veThor had just plummeted by a third. A bargain 0.01p a token.
The word on the street, and by street I mean Reddit chatroom, was that veThor was going to the moon #ttm. I wanted to go #ttm — who doesn't? — so I should #btd (buy the dip). It would hit a dollar by Christmas, they said, so, after half an hour trying to understand what veThor actually was or did, I bought 10,000 of it or them.
It was a Sunday. By Tuesday my £100 had mushroomed into £160. Wow. Imagine if I'd put £10,000 in. Imagine if I'd remortgaged the house and put £100,000 in. The lady at the bank would not have been happy at all but I'd have made £60,000 in four days. Why hadn't I done that?
"You've got the knack," said the wine-trouser friend. So, after a couple of weeks and a pay day, I transferred £300 more of my actual money. "That's the limit," said Harriet, who had stuck by me when I discovered online casinos. This was different, though, I explained. I had the knack.
This time my experienced eye settled on harmony. On its website harmony says it is an open and fast blockchain and that its "mainnet runs ethereum applications with two-second transaction finality and 100 times lower fees". Two-second transaction finality! As if that wasn't enough, its "secure bridges offer cross-chain asset transfers". Cross-chain assets! And the guy who runs it might look like a teenager but he has a doctorate in security protocols and compiler verification from the University of Pennsylvania, which is probably relevant.
The clincher, though, was that one harmony token cost 10p and everyone on the street, and by street I mean another Reddit page, said it was also #ttm. I bought 1,000 of them, another 6,000 of the veThings and, on a whim, 2,300 CELR, whatever they are.
The next morning, my £400 was £630 and I hadn't felt this good since I found a tenner in the trousers I was about to wash. On a financial high I transferred another £1,000 and split it between ethereum for safety and shiba inu for kicks. Highly attuned to market fluctuations, I'd picked up a very definite vibe about shiba inu. It was, said some people, the next dogecoin. You've heard of dogecoin, right? It's that meme-coin created as a joke by two software engineers to show how ridiculous cryptocurrency speculation can be.
I guess you had to be there. Anyway, the joke dogecoin is now the sixth-largest cryptocurrency. It's up 7,000 per cent since the beginning of the year, which is infinity per cent better than my "bonus" savings account at the bank with the sceptical lady. Why?
How? Nobody knows. Except Elon Musk keeps tweeting about it. And Snoop Dogg keeps rapping about it. And on one day in April the volume of doge traded was US$70 billion. This is where we are as a civilisation.
Let's not get morose. The point is, doge was already a long way to the moon by the time I started investing, but shiba inu — named after the Japanese dog that forms the logo for doge — was yet to blast off. Purportedly "the dogecoin killer", it was created last summer by an anonymous bloke to make fun of the blokes who'd made fun of cryptocurrency. Again, you had to be there.
Shiba inu tokens have no obvious utility and are not backed by any assets or rights. But on that morning I could buy almost 100 million of them for £500. I've never owned 100 million of anything. I did the maths. If one token cost 0.00008p instead of 0.0000008p by Christmas, I'd be up 50 grand. If it went to 0.08p — still, I'm sure you'd agree, a bargain — I could retire. In the Turks and Caicos. On my own Turk or Caicos.
For the next few days my portfolio of coins went up a bit and it went down a bit — 20 per cent here, 30 per cent there. The sort of movements that would have a traditional fund manager throwing himself a party or throwing himself off a building, but in cryptoland this constitutes stability. And then on Saturday my notifications started to go berserk. Everything except the sensible, boring ethereum was going up. The total in my digital wallet kept updating every few minutes: £2,100; £2,430; £3,145. Shiba inu was not a joke. Well, it was but some other Kent dads were falling for it. Don't say pyramid. Don't say Ponzi. I was #ttming!
At the end of last year there were 25,000 crypto-millionaires. By the time I started investing that figure had reportedly quadrupled. In the past year the world has been blessed with 11 new crypto-billionaires, most of whom had themselves created cryptocurrencies. Satoshi Nakamoto, the mysterious overlord of all this madness, the person who created bitcoin and may or may not live in a suburb of Sydney, is now one of the 25 richest people on the planet.
These are not the people who really blow my mind, though. It's the kids. Such as Erik Finman, 22, who was a millionaire at the age of 18 after investing a $1,000 gift from his grandmother in bitcoin when he was 12. Or Cooper Turley, who began investing in ethereum four years ago while studying music business in Colorado. He's 25 now and never has to work again.
There are people who sold bitcoin for a 1,000 per cent profit in 2014. And 2017. And last month. This is what I was holding on to that day. I was going to the moon and it didn't matter that it was unimaginable that CELR or veThor or harmony could keep rising after they had already risen so far. There are 70 million people who've invested in this cryptic world so far. "Experts" think this will continue to rise exponentially. As long as enough people were arriving after me, eyes wide, mortgages loaded, anything was possible. I said don't say pyramid.
By Sunday night, after a glass of wine and another £500 — what the hell — on holo and ripple, I was approaching £4,500 on a £2,600 investment. And the star of it all was the fake joke-on-joke shiba inu. And I still don't know what a meme really is.
It's 3am — the second pee — and I notice my phone keeps lighting up. I take a look and immediately wish I hadn't. Down. Down. Down. Almost £5,000 has become nowhere near £4,000 in a few nocturnal hours. This is it, I think, because I have the knack. The bubble is bursting. #hodl is trending on American Twitter because there is a weird and infuriating cultlike aspect to all of this … if you sell, you aren't loyal to the cause, whatever the cause is. You must hold on for dear life.
In the time it takes me to empty my bladder my account drops another £200, and it's not a particularly large bladder. So I take a deep breath and start selling like a hysterical Wall Street junior on a dark Monday in 1987. In three minutes I've got most of my crypto-money back into money-money. At the third pee at 5am (I know, I need a check-up) my phone is screaming again. Up. Up. Up. So I buy back my billion shibas and my tenth of an ether. I buy doge and venus. It's a blur, but at 7am I'm back to where I started. Or at least that's what I tell Harriet, because the next weekend the same thing happens again. To the moon on Sunday. To the doghouse by Monday. Except this time I slept through it.
"My new plan is to cash out any profit," says the economist friend, who is also yet to become a crypto-millionaire. This, psychologically, is his worst advice so far. I sell my gazillion shibas at a 20 per cent mark-up and then watch them keep going. Not to the moon. Not even to the long-stay at Gatwick. But the only thing worse than losing money is not winning money. Fomo, remember.
There are larger questions in all of this. How will the global financial system work if trillions of pounds of it have been spirited off into the untraceable ether? How will tax work? And lending? How will I explain to my wife that next year's holiday fund is sufficient only for camping in Wales once again?
We can have misgivings about central banks and their ability to print their way out of trouble. We can feel scammed by the huge gap between savings rates and borrowing rates. But replacing the system with thousands of random digital currencies that can rise and fall by hundreds of per cent on a Musk tweet or a Snoop Insta is not a sensible alternative. My £2,600 is now worth £1,600; no, £1,500. From almost double to half in the last month. I don't have the knack after all.
I should cut my losses and take what's left back to the lady at the bank. She was right, I'll tell her, as she reopens my 0.0001 per cent easy saver. Then again, I like the sound of aavegotchi. #ttfm
What are cryptocurrencies?
Cryptocurrencies are forms of digital money that are not regulated by governments or central banks. Each "coin" is an encrypted digital file, stored in a digital wallet app. People can send a coin, or part of one, to someone else's digital wallet. Every transaction is recorded in a public list called the blockchain.
Bitcoin, the first significant cryptocurrency, launched in 2009 and remains the market leader with a total worth of $690 billion. Ethereum lies second, with a market capitalisation of $290bn.
What is mining?
Mining is the process by which bitcoins and other cryptocurrencies are entered into circulation. Bitcoin miners run powerful computer rigs to solve complex puzzles in an effort to confirm groups of transactions called blocks. If successful, these blocks are added to the blockchain record and miners are rewarded with a small number of bitcoins. So far 18.5 million bitcoins have been mined out of a total supply of 21 million.
As they become more scarce, the time (and energy) needed to mine them increases. Bitcoin mining uses as much power as the Netherlands every year. Some cryptocurrencies are not built on scarcity. Dogecoin was created as a joke in 2013 — it is almost a direct replica of bitcoin, but is infinite and inflationary. It is now valued at about $43bn.
- Amelia Gabaldoni
Written by: Matt Rudd
© The Times of London