In his day job, Justin Verley works as the operations manager for the Rainbow Movement Foundation in Cape Coral. However, while others may pursue gardening or golf in their off hours, Verley has a different hobby. His passion is cryptocurrency.
“I got into cryptocurrency in 2017 when one Bitcoin price pumped to $20,000 for the first time. A lot of friends had told me they had made a lot of money. Everything was happening so fast at the time that I got caught up in the hype and got lucky,” Verley says. “It wasn’t until afterward … that I gained a serious understanding of how cryptocurrency worked and became committed to Bitcoin in particular. My portfolio now includes Bitcoin, Ethereum, Litecoin and Algorand. I buy those proportionally every week, automatically.”
If you’re unfamiliar with some or all of Verley’s cryptocurrency holdings, you’re likely not alone. The mysterious origin of Bitcoin, its existence only as a digital asset and a rapid ascent into the mainstream have made Bitcoin and other cryptocurrencies both a curiosity and an investment opportunity. And while there’s still plenty to be learned about cryptocurrency, the number of available cryptocurrencies—and access to them—is still growing.
“There are more than 10,000 different crypto assets at this point and it seems to be growing every day. So it’s a very wide universe of a new, investable asset class. But really, I see it as [a kind] of new emerging technology, a new way to create and maintain different sorts of databases used for different purposes,” says Ian Breusch, CFA, chief investment officer for Naples Trust Company. “Bitcoin … was the first successful crypto asset, but it’s really snowballed from there. [As] investor appetite for these assets has grown over the last few years, you’re seeing more come on board with sort of different use cases.”
Most believe Bitcoin was created by someone using the pseudonym Satoshi Nakamoto. Regardless of the actual identity of its creator, Bitcoin’s initial design was built based on its role as a form of decentralized currency. That is to say, it’s a database that allows faster, more efficient transfer of value.
“We know what a database looks like, and it’s fairly easy to transfer digital information to one another today. Whether it’s a text message or a picture. Something that is worth nothing. Theoretically, it’s very easy to sort of transfer that piece of information digitally,” Breusch says. “But, if I have $100 and I want to send you $100 from my bank to your bank, for that to happen, the two banks have to confirm that I have the $100 and you have an account willing to receive it, and that takes time. That’s why the database systems tied to the financial systems are a little bit slower. Bitcoin was really designed to sort of fix that issue … to allow for instantaneous transfer of payment without needing two different banks or two different entities talk to one another and confirm each other’s side of the ledger.”
As the often-wild fluctuations in value have limited the use of Bitcoin and some other cryptocurrencies as viable means of exchange, that same volatility has made crypto attractive to many investors. However, Bruesch said, the value of Bitcoin and other cryptocurrencies lies in its value to others.
“There are a million different opinions on what a Bitcoin is worth. You can make a case that Bitcoin is worth nothing and you can make a case it’s worth far more than what it’s trading for today, and it’s hard to prove anybody wrong. That’s really what creates the volatility,” he says. “In the real estate market, for example, you can value assets based on comparable home sales. In the stock market, you value assets based on free cash flow and earnings potential of a company. But how do you value Bitcoin? It’s unlike any other asset that we traditionally value in any other way, and that’s really why Bitcoin is such a volatile asset or investment today.”
As more investors, companies and financial institutions invest in cryptocurrency, Breusch expects the volatility of cryptocurrency values to be reduced. Until then, he cautions that those considering cryptocurrency as an investment option should educate themselves and invest only the dollar amount that they’re willing to lose. It’s a lesson Justin Verley said he’s taken to heart.
“I didn’t do as much research as I should have before investing the first time. However, pretty much immediately after investing, I became fixated on learning as much as I could about cryptocurrency,” Verley says. “I use crypto as a legitimate way to store my money and grow wealth over time, like a normal person would trade stocks. I haven’t had as much luck in the stock market as I have with crypto. I understand crypto a lot better than I do stocks.”
Understanding cryptocurrency and how it works
In its simplest form, cryptocurrency is an asset with a finite quantity, much like diamonds or baseball cards. But unlike diamonds or baseball cards, cryptocurrency exists only in digital form. That means, rather than a tangible coin in your pocket or bill in your wallet, cryptocurrency is essentially an asset that’s represented by a code in a database.
Maintaining that database, and verifying each transaction, requires what are called “cryptocurrency mining rigs.” Mining rigs are supercomputers on a cryptocurrency network that compete to solve the complex equation—called a “hash puzzle”—that securely verifies a transaction. A miner is awarded a fractional amount of cryptocurrency for each hash puzzle solved.
In the early days of Bitcoin, those miner computers were often owned by individuals. Today, however, most crypto miners are industrial-sized computers located in large data centers or warehouses and the competition to solve each hash puzzle, and make a profit, is fierce.
Though crypto mining profits are getting more difficult to earn, how a cryptocurrency is “mined” can still play a big role in its long-term value. The key, Verley says, is understanding each cryptocurrency’s framework.
“Getting a basic understanding can be pretty easy. But nothing compares to actually learning the process of transaction mining and how the codes and algorithms work,” he says. “Once you learn about mining, it becomes simple to see which cryptocurrencies are backed by economic principles, and which are not. Everything is written out in the white paper for each coin.”