Once “Beanie Babies” toys began to be made and sold in the mid-1980s, people began collecting Beanie Babies. The most valuable components of those collections were Beanie Baby toys that still had their tags attached, which was proof of the toy’s authenticity.
Like so many other new, technological aspects of our lives, cryptocurrency has recently burst onto the scene with many of us wondering exactly what cryptocurrency is. An easy way to think about cryptocurrency is to think of each of its units (bitcoins, dogecoins or many others) as being Beanie Babies.
Beanie Babies can be bought, sold and traded. Beanie Babies create no wealth on their own (Beanie Babies are not factories or research centers). The value of a single Beanie Baby is the value placed upon that Beanie Baby by people other than the collector who owns that Beanie Baby.
The idea is that someone buys a collectible for one dollar today, and, later, someone else will want that collectible for three dollars, due to a shortage of supply or some other unrelated reason that increases the demand. The original purchaser then sells the collectible for three dollars and is left with two dollars of money that the collector did not have initially. Of course, if no one wants the collectible in the future, the original purchaser will have lost up to the entire one dollar that was initially paid.
Cryptocurrency is typically bought and sold through various trading platforms where people can also purchase and sell stock in corporations like Walt Disney, Tesla and Boeing. However, as explained above, cryptocurrency is not like traditional stocks and bonds. For example, Walt Disney, Tesla and Boeing produce things. Cryptocurrency and those who create cryptocurrency produce nothing other than the cryptocurrency.
Therefore, cryptocurrency is more like currency (money) than like stocks or bonds. In our contemporary society, most currencies are issued and regulated by governments. Governments determine how many of its dollars, pesos or euros will be produced, which government control over supply allows governments to determine how valuable that government’s currency will be.
For many types of cryptocurrency, people with computers and certain software can create/issue the currency. Many types of cryptocurrency are limited on how much of its cryptocurrency can be created. The cryptocurrency Bitcoin is like this, because there will never be more than about 21 million bitcoins. For other types of cryptocurrency, there may no limit on the quantity issued. These types of cryptocurrency are like Beanie Babies, which are still made today.
Cryptocurrency includes the electronic equivalent of an “attached tag” providing confirmation of authenticity. This aspect of cryptocurrency works with the other technological aspects of cryptocurrency to provide confidentiality. Often, cryptocurrency can be transferred from one anonymous person to another anonymous person with a series of passwords. The identity of the party paying/transferring the cryptocurrency can be kept confidential from the party receiving the cryptocurrency, and vice versa. For this reason, thieves (like those involved in last week’s Colonial Pipeline ransom) often demand that they be paid in cryptocurrency.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.