What is crypto currency, and is it the future of money?
Sept 1 2022 | 24 min listen
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Guest: Tegan Jones
Crypto currency has been around for more than a decade, regularly making headlines for skyrocketing prices and equally spectacular crashes. So what is crypto exactly? Host Val Quinn talks to Tegan Jones from Finder.com.au about how it works, what it buys and whether it really is the future of money.
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[Tegan] I really believe the vision for cryptocurrency was to democratise currency in general. We knew that there was so many things going on in the background between banks and big corporations. I guess the idea was that if it was in the hands of the people, that that would be better for everybody.
[Val] Hello and welcome to the "Be Connected" podcast. I'm Val Quinn and I'm a technology commentator, broadcaster, publisher, and your host of the "Be Connected" podcast. Cryptocurrency or crypto has been around for more than a decade and it regularly makes headlines for its skyrocketing prices and equally spectacular crashes. So what is crypto exactly? How does it work? And can it make you rich? And what can you even buy with it? Is crypto just a fad or is it the future of money? Well, thankfully here to help us navigate the era of virtual money is Tegan Jones. Tegan is the host of crypto podcast, "Block Climbing" and a global reviews editor at Finder, an award-winning journalist and a regular commentator on TV and radio about all things technology. Sounds like we got the perfect person for this topic. Welcome, Tegan, thanks for joining us.
[Tegan] Thank you so much for having me.
[Val] Well, before we start, we just need to say that the commentary in this episode is general in nature and is in no way offered as financial recommendations. So the subjects we'll talk about reflect our personal opinions and experiences and is not intended as investment advice. So let's just go back to the very beginning, what exactly is crypto, Tegan? What is cryptocurrency?
[Tegan] To put it really simply cause it's very complicated, cryptocurrencies are a digital asset that you can swap between people without a third party in the middle, so you don't need a bank. And it was created so people wouldn't have to rely on government or financial institutions to make those financial transactions. Cryptocurrencies are a digital asset that's secured by a database known as the blockchain. Blockchains are designed to ensure privacy and security using complex cryptographic algorithms.
[Val] Right, okay, so it's not a physical coin. There's no sort of physical representation of this money, it's just sort of a digital type of money that's kept track of through a very sophisticated system called the blockchain.
[Tegan] Absolutely, and the blockchain is really just like a digital ledger. We've all known ledgers for a really long time, maybe even back in a written book, but this is all digital. And like you said, Val, it is not like a regular fiat currency, like the Australian dollar, you can't pick it up. It doesn't physically exist, you can't put a Bitcoin or an Ethereum or any other cryptocurrency in your wallet, like a $5 note.
[Val] Right, okay, so when or how did this even happen? How did it start? Why did it come about?
[Tegan] Part of that, Val, is a complete mystery even to this day but what we do know is it did come off the back of the global financial crisis back in 2008, where we saw a lot of people lose a lot of money and it meant that people also lost a lot of confidence in those traditional financial institutions. And so off the back of that, a lot of very clever people got together and started thinking about some alternatives. And out of that came the Bitcoin White Paper in 2009. And it basically reinvented this way of how you could send transactions to people without those third parties in the middle. And it was created by someone or a group of people that went by the name of Satoshi Nakamoto. And they put out this white paper to address the problem of centralised control of money. But interestingly to this day, no one has ever stuck their hand up and said that they were Satoshi, we still don't know who this person was.
[Val] Wow, that's certainly a mystery, why on Earth would this person or this group not step forward? It's really strange. Ultimately I guess it was just a really good idea to solve a problem that people saw in the financial system and thanks to all the digital capabilities we have, someone came up with this idea. So there's Bitcoin, there's Ethereum, there's I guess, different types of crypto. How many are there and what are the main currencies?
[Tegan] Oh, there's absolutely thousands because unlike fiat currencies, anyone with the knowhow can make one. And so this is why we've seen a lot of very funny coins come up, one with ridiculous names, even Garlicoin, UFOcoin and Draculacoin.
[Val] So let me get this straight, do you mean I can actually make my own coin? I could make a Valcoin?
[Tegan] You could. I'm not saying it'll be worth anything, Val, but you can try.
[Val] So I can create my own digital currency and if people wanted to, they could trade with it or buy things with it or that type of thing?
[Tegan] Absolutely, I mean, to be able to buy things with it, you would probably need some retailers to go, you know what? That Valcoin sounds legitimate, we will take that on. But, yes, in theory you could do that. But while some of them might become popular because of the internet, it's very easy to spread information around now and drum up, maybe a bit of marketing around something. Most of them aren't worth very much if anything, and probably never will be, but there are some that you might have heard of Bitcoin, which we've mentioned before, as well as Ethereum, they've been around the longest. But there's also more to the technology than simply being a digital currency, especially for Ethereum. So that's given it a little bit more legitimacy and longevity and gives it a purpose other than just profit.
[Val] Right, okay. So it sounds to me that crypto coins can be used as currency so I can potentially buy something with it if they accept cryptocurrency, but also people just are buying crypto because it's more of a commodity.
[Tegan] Absolutely, I think that honestly, the way that cryptocurrency is being treated in this current market is really similar to stocks. That people, especially regular people who might not be as ingrained in these crypto communities have seen it as a potential prospect for wealth generations. So they will invest in it, hope that it goes up in value and that's the only way that it's being used. But what's being missed is what it can do in the future outside of just being a commodity, like you said. I really believe the vision for people who were early evangelists of cryptocurrency was to democratise currency in general. There was so many bad things that came out of the global financial crisis, people got absolutely crippled. We knew that there was so many things going on in the background between banks and big corporations, where there were just making these big conglomerates. And a lot of people lost out because of that, so I guess the idea was that if it was in the hands of the people and it was far more transparent, that that would be better for everybody. But obviously what we've seen in the last couple of years is that it's mostly being used for profit or treated like a stock, so I really feel like where crypto is now is very different to what was envisioned in the beginning.
[Val] Right, okay, so a crypto coin, isn't something that's created in a mint or by a bank or anything like that. So who creates them now? And how do they come to exist?
[Tegan] That's a really complicated question, but we can give it a try. So taking Bitcoin as an example, there's actually miners. They can be regular people actually, even in their own houses or there's big mining farms that are set up as well, where they will solve these very complex cryptographic puzzles to validate these coins on the Bitcoin network, which then adds them to the ledger.
[Val] Right, okay. So these cryptocurrencies are almost like a mathematical puzzle and each coin represents a very complex mathematical puzzle that's unique so there's only one puzzle per coin. And then the blockchain is I guess, a system that keeps track of all of them and it knows how many crypto coins there are. And it knows each one, I guess it identifies each one by its uniqueness, and that's how it's all kind of kept track of?
[Tegan] Absolutely, and then it's recorded on the blockchain, which is the really important part because it's public and this was so central to the whole idea of Bitcoin, which was the first cryptocurrency. In that these people who created it, or person who created it, wanted it to be visible. They didn't want it hidden behind banks that wanted it to be validated by a group.
[Val] Okay, so the blockchain is, I guess it's accessible across the Internets and anyone can see it, I suppose, if they have the right tools or the right software. And there's no sort of hidden behind the scenes things, it's just a publicly accessible way of cataloguing Bitcoins.
[Val] Okay. Well, we talked about banks. I mean, how do you even get your hands on crypto? And can you walk into a bank and exchange Aussie dollars for crypto or what's the best way of doing that?
[Tegan] No, because the aim of cryptocurrency is to be decentralised, so that means it's not kept in a bank or in those really any other third party institutions. Though, we have seen some banks try and get involved in crypto again, 'cause I think they see a value in that and see some profit in that. But instead you keep control of your purchase crypto in a wallet and where you purchase crypto from is an exchange online, very similar, again, to an online exchange where you might buy stocks.
[Val] So I can log onto an exchange, a crypto exchange and then I can just say, I'd like to buy X number of Bitcoins and I'll get a rate for what that is in Aussie dollars and I can just purchase it that way?
[Tegan] Absolutely, the one thing to really remember is that with crypto, one of the problems that we're really facing is that you'll usually get charged some sort of transaction fee still as well, similar to a bank, but it can be a little bit higher in some cases, sometimes it's lower, so that's worth keeping in mind as well.
[Val] And are these crypto exchanges, are there a lot of them? Are there ones that are trustworthy and not trustworthy? I mean, how should we feel about buying crypto online?
[Tegan] Yeah, there are quite a few of them, but what I always say is to do your research. If you even look up on Google, best crypto exchanges in Australia, you can always find ones that are really trustworthy. You can see other outlets that are writing about it and ones that are say partnered with other brands as well to really know that they're legitimate.
[Val] Right, and so once I buy my crypto, I mean I can't keep it in my bank account. So how do we store it and hang onto it and use it for transactions?
[Tegan] No, so sadly you can't put it in your back pocket, but you can keep it in a wallet. Not again the one in say your purse, but this is a digital wallet where you can store your crypto safely and there are three different types.
[Val] Okay, well let's go through what those types are.
[Tegan] So there are three different types. There is a hot wallet and the easiest way to describe that is it is connected to the internet in some way so it can be moved around and accessed really easily. But because it is still connected to the internet that does have some security risk, you can possibly be hacked for example. So a lot of people sometimes opt for a more offline wallet instead. The second is a cold wallet, which is completely offline and this could even be something as simple as a USB stick or an old computer that's not connected to the internet. So it's more secure, hackers can't get to it. And then the third type is a paper wallet where you literally just write down your personal key for your crypto on a piece of paper, you might a password, but in that case you just really don't wanna lose it.
[Val] Wow, so if I lose that piece of paper, that means I lose all of my crypto as well?
[Tegan] It absolutely does and the same goes for your cold wallets. A few years ago, there was a lot of news stories about people who got into crypto really early, say 10 years ago, when it wasn't really popular yet and wasn't worth very much. And then suddenly it got really popular, but they'd forgotten about it, had stored their USB drive somewhere or maybe thrown it out and that's it they'd lost hundreds of thousands or maybe even millions of dollars worth of crypto.
[Val] The thought of that is terrifying. And of course using a password is really important to protect your digital wallets, but we've actually got a fantastic course on that called managing passwords. And that helps you learn about how to create difficult passwords to guess and also how to store and memorise important passwords. And you can find that on the "Be Connected" website. Okay, Tegan, so I've got my cryptocurrency now, what can I actually buy with it? What can I do with it?
[Tegan] You know what? Honestly, not a lot yet when it comes to buying things, you certainly can't pop down to Woollies and buy your groceries, but there are some retailers who accept certain cryptocurrencies like Bitcoin or Ethereum, but they're really very often few and far between. And the big problem is the price of cryptocurrencies fluctuate at all times. So it means that if you go to buy something with cryptocurrency, it might be worth something different today versus tomorrow.
[Val] So I might buy a loaf for bread for five Bitcoin today and I might have bought it for two Bitcoin tomorrow, is that the idea?
[Tegan] Exactly, and when there's no real regulation around cryptocurrency yet, that's a big problem.
[Val] Right, okay, so I guess there's also risks that we need to be aware of too. So what would you say are the biggest risks of crypto?
[Tegan] They're still a lot. Firstly, as we've seen in 2022, especially, cryptocurrency is very volatile. While the stock market was hit hard this year, crypto was hit even harder. And part of the problem is the lack of regulation around them. It means there's far more risk and little to no consumer protection. And it's really only been in the last year that the US and Australian governments began even proposing proper regulation around them. We only just recently saw the Labor government mention that they were going to be looking into it themselves, but there's not a lot of timeline around when we're gonna see these regulations come in, so that makes it risky for people.
[Val] Wow, okay, so it sounds like even though crypto's been around for a while, it's still kind of in its infancy and there's still a bit of the wild west happening here where there's potential scams and ways that crypto can be stolen and that type of thing.
[Tegan] Yeah, absolutely because being around for a while, at the same time, it's still less than 15 years old. And if you compare that to regular fiat currency, it's still very much in its infancy and people are trying to work it out. And I truly believe that at least from a government level, there might have been some thought that it would just disappear, but it's not. So now when it can impact people in real time and in the real world, they have to. Especially as more, say, crypto gambling platforms pop up, like you said, a lot of scams are popping up, it means people need to be protected. But the other thing too is that market manipulation is a huge thing in crypto. There are regulations around that with the stock market. A great example is Elon Musk, again, the CEO of Tesla, he's been brought up on criminal charges in the past for using Twitter to influence the share price of Tesla, but he has then gone and done the same thing with cryptocurrencies. And no one can do anything about it because there's no laws around that. So he can jack up the price of certain cryptos, he has made other cryptos like Bitcoin fall in price just by tweeting, and that is very problematic and very dangerous for investors.
[Val] Wow, absolutely, so just at the whims of a billionaire, they can influence the value of the cryptocurrency that you hold, boy, that is a bit scary.
[Tegan] It absolutely is in going back to your loaf of bread analogy. Imagine if you had a $5 note in your pocket to buy something today and then tomorrow that was only worth a dollar? That's really not good for people.
[Val] Tegan, I've heard that crypto is really, really involved in scams right now. Like investment scams are one of the leading scams that we're suffering from here in Australia.
[Tegan] That's absolutely true. I mean, we've seen scams on the rise in Australia in general. But you're absolutely right, there's so many in crypto, again, because we have this lack of regulation, we have a lot of people that are new to the space coming in, maybe not understanding a lot about it, so they're in a really vulnerable position to be taken advantage of and it's absolutely happening. One of the ones that I've seen on the rise is a rug pull and that name comes from the expression, pulling the rug out from under someone. So this might be where, say a developer, attracts investors to a new cryptocurrency project and then pulls out before the project is built. Meanwhile people have put in their own money or cryptocurrency into something that is now worthless. Another one that I've seen is around natural disasters and even the war in Ukraine. So fake donation pages are popping up that are asking people to help and to pay in crypto because it is harder to trace. Another way that these crypto scammers are getting to people are by posing as financial institutions. In this case, we'll have, say, someone saying that they're a bank and that if you put in a certain amount of money, they're gonna give you some crypto back, but it's actually someone just trying to get your personal information or your account details or your passwords or in the case of crypto, trying to get your cryptocurrency. And it's just very scary how many of these scams are out there.
[Val] Wow, it really is scary. And they just capitalise on people's lack of knowledge around crypto, for example, or just our trust and then use crypto as a means for taking our money. And it's very, very hard to get that back once it's sent in crypto.
[Tegan] I absolutely agree, and what's really bad is I think that it can make people feel very stupid if it happens to them. And I think it's really important that that's not the truth. This is such a new area for so many people and it's just a real shame that it's not a safer environment for people to learn, but again, because of this lack of regulation and that there are people in the world who will take advantage of others that it's unfortunately happening.
[Val] So I guess the operative word here is that there are risks involved in crypto, whether it's when you invest in crypto itself, because it's a highly volatile currency and the values can fluctuate and no one really knows where it's gonna go, I don't think, for sure, anyway, and also there are risks in terms of the possibility of being scammed when you're buying cryptocurrency or using an exchange. So it's certainly something that we need to educate ourselves about before we jump into crypto.
[Val] And for those that wanna be really sure that they're not gonna fall into a scam, we have a "Be Connected" safety first course, and that's got plenty of tips on how to recognise and avoid scams and to learn some of the ways that you can pay safely online from your computer or mobile phone, so definitely check that out and that's on the "Be Connected" website. At the time of recording this podcast, the team at "Be Connected" are working on a brand new scams topic called identifying and avoiding scams and it's due for release soon. The topic covers a range of scams and how you can avoid them, but also has of course dedicated to exploring cryptocurrency scams. So keep an eye out for that one. Well, thanks, Tegan, there's really just so much to think about when it comes to cryptocurrency and its future. So what's your opinion about where crypto is going and is it even money or is it just gonna be a commodity in the future?
[Tegan] I think it's really, really hard to say at this point. But I think in the very least we really need to see that more regulation come in before we really know where it's going to go. In terms of it being money, it's still a really unreliable form of payment, as we've seen. As a commodity, again, it swings in roundabouts all the time and unlike the stock market, there is no closing bell. It's glowing all the time, it can be influenced like you said, by billionaires. And so until that is somehow regulated or it's just not as volatile, it's really hard to see where it's going to go. And I don't know if that's a sustainable system. We also, I think, need to stop treating cryptocurrency just as currency, there are a lot of projects out there that are beyond just profits and losses that aren't really talked about very much, unless you are in those crypto communities. So despite the confusing name, there are a lot more possibilities for cryptocurrency and blockchain technology in the future, it just depends if they'll actually come about.
[Val] So we've been talking about how regulation is critical to the future of cryptocurrency and protecting people, but isn't regulation sort of the opposite of what the creators of Bitcoin were setting out to do?
[Tegan] Yes, absolutely. There's no getting around that. It's quite confusing to be honest, but I think if we look back at it, it's 2008, the global financial crisis had just happened, people were suffering. And so we had some smart people or person came together to find a solution to that. And I think that turned into a dream versus reality scenario where you can create this utopian idea of completely transforming finance, but maybe they didn't know that it would blow up in such a way that's now impacting real people on a global scale. Where you need regulation to protect people there's a reason it's in place, you can't just have it be the wild west. Otherwise, like we said, there's scams, there's fluctuating prices, there's people who are getting into it that don't necessarily have all the information or haven't done all of their research. So unfortunately you do need regulation and to centralise it in some way to make it viable and to not have people lose a lot of money.
[Val] Tegan, thank you so much for helping us understand a little bit more about how this world of crypto works and what we need to be aware of and what we need to watch out for. We really appreciate your expertise today.
[Tegan] Thank you so much for having me, it's always a pleasure.
[Val] Well, thanks for joining me for this episode of the "Be Connected" podcast and thank you so much, Tegan, for sharing your expertise. And if you like what you've heard, please subscribe to receive all the latest podcasts and leave a review to help others find us if you're listening on a podcast platform. And remember to visit the show notes for information on anything we've covered here today, including links and other useful material. So for more about today's subject and to discover other great topics, go to www.beconnected.esafety.gov.au. That's www.beconnected.esafety.gov.au. I'm Val Quinn and I look forward to your company next time. [Narrator] "Be Connected" is an Australian government initiative developed by the Department of Social Services, the eSafety Commissioner and Good Things Foundation Australia. "Be Connected" builds the digital skills, confidence and online safety of all Australians with engaging online learning resources and a network of over 3,500 community organisations to support them to thrive in a digital world.