John Oliver, the host of Last Week Tonight with John Oliver, recently did a segment on the basics of cryptocurrency and blockchain. It is becoming more and more popular as time goes on, but still people have a hard time understanding the concept. As Oliver appropriately puts it, it is “everything you don’t understand about money combined with everything you don’t understand about computers.” Yet that doesn’t stop people from investing. They see stories all over about people investing a couple hundred dollars and now those people are millionaires. They see cryptocurrency as a “get rich quick” scheme. John states that people are “feeling driven to invest in Bitcoin due to FOMO, or fear of missing out.”
After throwing shade at different people, as he so cleverly does in all of his shows, Oliver delves into the intricacies of cryptocurrency and attempts to explain it so that laypeople can have a better grasp of what it all means.
Bitcoin is a decentralized, digital currency, but what exactly does that entail? Essentially, it is a “virtual, worldwide currency that can be transferred with little to no fees, and is an open source that cannot be controlled by the government” or any single entity, allowing users financial freedom. Another common question is how does Bitcoin have any value? Simply put, because people agree that it has value! It works the same way as if you want to sell a computer. You need to sell it to someone who wants to buy it from you. Oliver offers the example of Beanie Babies that are being sold for thousands of dollars on Etsy. Why is being sold for that much? Because the seller believes that someone will buy it for that much. The value of anything is marked by the last transaction, whatever price at which the buyer and seller had decided to meet.
Cryptocurrencies are backed by a blockchain technology which allows for the program to be decentralized and have no central server, creating a very secure way to store and send money. The term “blockchain” has become a very trendy word as Bitcoin and other cryptocurrencies have gained popularity. Oliver points out that Reuters has published a study showing that by simply adding the word “blockchain” to one’s company name, it can increase said company’s stock by more than 3 times its previous price.
Virtually anyone is able to create their own cryptocurrency, and many startup companies have resorted to this route actually rather than sell stock in order to raise money. They offer what is called tokens that investors can later exchange to redeem the service that the startup will eventually provide. These are called initial-coin-offerings, or ICOs. Over $6 billion was raised through ICOs alone in the year 2017.
One company in particular, block.one, raised over $1 billion in 9 months with the hopes of building a blockchain platform in the future called EOS, as a result of investors buying ICOs, despite the Wall Street Journal claiming that block.one was a “software startup that doesn’t plan to sell any software” and the company was selling tokens with “no purpose.” EOS is a prime example of people buying simply as a result of FOMO.
Oliver ends his segment with a warning to those interested in invest in Bitcoin or the likes of it, to be cautious and to do diligent research into the coin you are looking into investing, because it is too easy to just go where the focus is. And for everyone else out there, “don’t worry if you still don’t understand it; most people don’t.”