Cryptocurrencies like bitcoin and ether exploded into the mainstream in 2017, creating over 100,000 new millionaires and causing many to wonder if they need to invest in “crypto” — either for normal financial returns or specifically for prepping.
Many people in the technology community think crypto and blockchain (the underlying technology that powers cryptocurrencies) could be as big of a fundamental and transformative innovation as the internet or mobile phones. That won’t happen quickly and could very well be overhyped. But it does represent a meaningful jump forward that can change much of how the world operates.
For now, putting money into cryptocurrency is a speculative gamble, not an investment. It’s the difference between buying a house to rent out for passive income versus heading to Vegas.
Bitcoin and other cryptocurrencies can be a small part of a prepper’s portfolio, similar to precious metals like gold and silver. It’s a diversified insurance policy against economic and political risks.
- Below, we explain what bitcoin, cryptocurrencies, and the blockchain are in plain english.
- In short, think of cryptocurrencies as the internet’s money, similar to how the US has the dollar. It’s entirely digital, programmable money — opening up all kinds of new potential uses and technology, similar to how the internet changed everything.
- Do not blindly put money into cryptocurrencies because your neighbor’s grandson or Uber driver said it’s a good way to get rich.
- Do make an effort to understand what’s special about this technology, then invest if you believe in it.
- Things are still early and fluctuating wildly. The market is irrational and driven by emotion and potential. The fundamentals are not solid yet. This is somewhere in between an investment and a gamble.
- Up to 5% of your portfolio is a reasonable target — but only if you’ve already covered your financial basics, like a six month liquid safety cushion and paying down high-interest debt.
- You can’t “do” much of anything with cryptocurrency… yet.
- Cryptocurrencies have value for the same reason paper money does: Everyone agrees it has value, and they trade it back and forth.
- That concept, called “store of value”, makes crypto more like gold and silver than owning stock in a profitable company (for now).
- Crypto relies on computers and the internet. If there’s a global SHTF grid-down situation, your crypto is worthless.
- But crypto still has a solid place in a prepper’s portfolio, because there are plenty of disasters where there’s still electricity and the internet, but for some reason you benefit by holding currency other than your local state-controlled one. For example, America‘s balance sheet might finally explode, causing the dollar to rapidly lose value.
Why you should trust us
I am a technology entrepreneur and engineer that has built and sold companies in Silicon Valley. I’ve been aware of cryptocurrency/blockchain since 2010 and started investing in 2012. A former business partner was one of the largest holders of bitcoin in the world, many in my network have made multiple millions of dollars in the last years, and I’ve successfully traded the major market movements in the 2017-2018 period. Disclosure: As of publishing, I own Bitcoin, Ether, Tron, Stellar, and Elf.
Bottom line for most preppers
You shouldn’t invest in crypto until you’ve got your basic financial foundation in order. If you’ve got enough of a financial foundation where you have a retirement account or do some stock market investing, then you can look at putting some of your eggs in the crypto basket.
Investing in speculative things like crypto when you have piles of credit card debt or no rainy-day fund is just too much of a risky gamble, and doesn’t align with sane prepping principles.
If you’ve got enough of a financial foundation where you have a retirement account or do some stock market investing, then you can look at putting some of your eggs in the crypto basket.
We recommend people put up to 3-5% of their liquid net worth into a diversified mix of cryptocurrencies, namely ether and bitcoin, which are by far the two largest.
So instead of having all of your $100,000 in retirement/savings in the stock market, diversify $5,000 of that into a mix of cryptocurrencies.
If you’re older, perhaps over 60-65, it’s generally a good idea to invest in safer assets like bonds and stocks. You can still play with crypto, but lean towards a smaller percentage of your portfolio. Crypto’s real potential is in the long term, but it might be a bumpy road to get there, and you don’t want to paint yourself into a corner with fewer years to recover.
How to buy cryptocurrencies
We recommend using Coinbase to start your investing. Sign up through that link and get $10 for free!
Coinbase is the largest and safest US-based exchange, similar to E*Trade or Vanguard for stocks. You’ll have to go through normal Know Your Customer verification steps, just like any other regulated financial institution, but in exchange you’ll get more safety than some of the anonymous crypto exchange platforms.
Your Coinbase account acts like a “wallet”, which is the digital pocketbook that holds your digital money.
Why preppers like cryptocurrencies
- No government or company controls it.
- Everything can be anonymous (if you want it to be).
- The tech is distributed across millions of highly-encrypted computers around the world, meaning there’s no single point of failure/control and it can’t be hacked/corrupted.
- The value/price of cryptocurrencies aren’t correlated with disasters or geopolitical events the way a local currency is.
- There could be emergency scenarios where cash is hard to get or use, but you can still pay for things with crypto.
- You can move money across borders instantly, without insane bank fees or government permission.
- As the technology matures, you can use money in new ways that fit well with emergency preparedness — for example, you can “program” your house title or bank account to automatically transfer to your children upon death.
Independent of any country, government, or company
Cryptocurrencies are the world’s first universal currency since gold.
Many preppers are attracted to the idea of a private, encrypted currency that is independent of any government or Federal Reserve. There’s so much spiritual alignment between the cryptocurrency and prepper communities that many people joke crypto was “made for preppers.”
But governments aren’t happy about losing control over something as important as financial markets.
So although they can’t really do anything to shut it down or directly control crypto, any government can enact laws that technically apply to their people in an effort to indirectly control a market.
Essentially: “If you do that thing we don’t want you to do, and we find out about it, you’re in trouble.”
For example, China isn’t happy about rich people moving their wealth outside of that country. So the government created limits on how much their citizens can transfer and how they do it. Some people choose to obey those laws. Many others don’t, and crypto has been a key way for people to circumvent their oppressive government.
In the US, through the 2016 tax year (about ~7 years into this new technology), only a few hundred people in total had reported any crypto profits on their tax returns. The IRS knows that means many people are commiting tax fraud, and they’re starting to stomp their feet about it. Which makes it likely that Congress eventually passes a law that says crypto trades in the US can’t be anonymous and are reported to the SEC/IRS.
Note that bitcoin, ether, and most of the current cryptocurrencies are independent of any company or country. But some countries are already exploring how to use this technology to modernize their own money. So if you buy CanadaCoin in the future, then theoretically it would be at least partially controlled by the Canadian government.
Isn’t bitcoin worthless in an emergency?
Crypto only works through computers and the internet. It won’t matter how much digital money you have when the grid goes down. A bucket of food will be worth more than a $20,000 bitcoin.
But that causes too many preppers to automatically hand waive it away. There are plenty of emergency scenarios where crypto could be beneficial, and those situations are relatively more likely than total SHTF grid collapse.
Crypto can act as an insurance policy in a way that’s unique compared to other hedges like gold and food supplies. It’s a new and unique way to cover some of your bases.
For example, after the 2017 hurricane that decimated Puerto Rico, demand for cash became “extraordinarily high” because banks and ATMs were either destroyed or empty. But some people still had access to their phones. You might be able to buy goods through an instant transfer of bitcoin instead.
Partly because of the pain felt from the hurricane, Puerto Rico has attracted so many blockchain enthusiasts that it’s become known as “Crypto Rico”.
Consider the very possible scenario where the US economy rapidly declines as we enter a post-work automation world with 40% unemployment, growing income inequality, housing/consumer/student debt collapse, and government debt that spirals out of control as they attempt to put bandaids on cancer.
The dollar could suddenly lose half its value. The government could decide to automatically withdraw 20% from everyone’s bank account or prevent you from moving that money overseas. The Federal Reserve could print more money, causing even deeper drops in the dollar’s value. China and other countries stop lending to the US. Maybe war breaks out.
Having some of your assets in crypto is a smart way to diversify that risk. This is why some of the earliest adopters of bitcoin were wealthy people in China and Russia. They saw it as a way to protect their money against those local economic and political risks.
Is crypto a fad?
The short answer is that cryptocurrencies and the underlying blockchain tech are likely here to stay — but we don’t know which currencies will be the winners until the industry figures out what you can actually “do” with these coins.
Remember when the huge new innovation called the internet caused the late 1990’s “dotcom” stock market bubble?
A transformative new thing comes along, like electricity or cars or the internet. People get really excited. The media promotes stories of people getting rich and how we’ll all have flying cars by the year 2000. It snowballs. People on the outside feel like there’s a cool inside joke they don’t understand, so they jump in without thinking about it. More snowballs.
This is a common pattern. Crypto and blockchain are going through it, too.
No one can predict the future. Maybe crypto is a fad and everything blows up. Maybe bitcoin and ether are like the first websites in the ‘90s, who fade away only to be replaced by the eventual winners like Google and Facebook.
But it is the educated opinion of relevant leaders that there’s something to this whole crypto/blockchain thing.
Obviously, the internet actually was a huge deal in 1999, with very valid long term potential and wealth creation! But the emotions and speculation got a little ahead of reality, Fear Of Missing Out created a bubble, and things crashed. It took a few years of housecleaning to get back on the right track.
A single bitcoin has gone from $1,000 to $20,000 to $6,000 in less than a year, with frequent and wild price swings as high as 20% in a single day.
You can’t actually do much with the actual currencies for now. You can’t buy things with bitcoins in 99.9% of stores. The same is true for almost every other type of cryptocurrency (Ether, Ripple, Tron, etc.)
Much (or most?) of the increase in value so far has been driven by speculators gambling that someone after them will pay more than they did. It’s a gamble that in the future the tech will mature and become more useful.
Like any new tech, it takes time to build things. Many innovative companies around the world and working on interesting projects that use crypto now that the foundation is figured out.
For example, some companies and local governments are moving their real estate title/deed records and property taxes to the blockchain. That will make the process of buying, selling, leveraging, and verifying real estate much easier and cheaper.
Cryptocurrency, bitcoin, and blockchain 101
Bitcoin is a currency — a cryptographic currency, which means it’s digital and encrypted (cryptography). Think of bitcoin like the US Dollar. It’s simply a store of value used for transactions.
There are many different cryptocurrencies, just like there are many different currencies around the world. Other popular cryptocurrencies are Ether / Ethereum, Ripple, Litecoin, and Tron.
These currencies run on top of technology called blockchain. Think of blockchains as a more modern, internet-native form of banks and the Visa credit card network. The pipes/network (blockchain/Visa) execute transactions (cryptocurrencies/dollars).
A simple way to think about it: Blockchain is the virtual bank that keeps track of and protects everything, and bitcoin/cryptocurrencies are the money itself.
What is blockchain?
Let’s use the example of titles/deeds for a home. Today, we all trust one central database managed by the government to tell us who owns which piece of property, it’s tax value, GPS border coordinates, etc.
When you want to see if a person selling a house actually owns it and has the right to sell it, you check the local courthouse database. When you buy a house, the deed is updated in the local courthouse database.
That government database is the singular master record, and we trust our government to keep it accurate and safe. If some other random person said “I have my own list of who owns which property”, no one would take it seriously.
That system worked really well over the last centuries, but it’s starting to break.
The fundamental innovation in cryptocurrency is that instead of having one central, master database, records are now decentralized, spread around the world in a limitless number of copies that are constantly syncing with each other.
Imagine if everyone that lived in your town had a constantly-updated digital copy of local property records. Even if the courthouse burned down or a disgruntled employee deleted everything on their local courthouse computer, nothing would be lost.
Think about how easy it’s become to synchronize computer files. Most of us remember when you worked on a Word document on your home computer, then needed to email it to yourself or save a copy on a USB drive so you could continue on your office computer. Those files were constantly out of sync. Whenever a change was made to one local file, you had to manually copy and update the file on other computers to keep them synced.
Products like Google Drive, Dropbox, Mac iCloud, and Microsoft OneDrive eliminated that need. All of your phones and computers are constantly syncing the files, so that if you update a Word document on one computer, the same file is updated on another computer.
Now new technology, called blockchain, makes it possible to sync very large databases across a very large number of encrypted copies.
Not only that, but this network of copies can check each other for accuracy. So if one computer is hacked and records are changed, the rest of the network can tell something is wrong and reject those changes.
This drastically reduces single points of failure and single points of control.
As a result, cryptocurrencies and the underlying blockchain technologies are considered very safe and “immutable”.
If you’re thinking “I trust the courthouse to have more accurate records than a database hosted by random people”, consider Wikipedia. People used to think “I trust Encyclopedia Britannica because it’s their sole professional job to write accurate articles. Why would I trust Wikipedia when any random person can write whatever they want?”
But it turns out that when you decentralize records and knowledge, it usually gets safer, faster, and more accurate. Anyone can put false info on Wikipedia, but the network of people reject that change. The “crowd” is better than a single person. The end result is that Wikipedia has been found to be more accurate and with less errors than the (now defunct) professional encyclopedias.
Sticking with the property records example, each time a property tax value is changed, borders are altered, or ownership changes hands, that creates a new record in the history of that property. Over time, that creates a long list of records and updates/transactions.
In these modern distributed databases, when a new record update happens (like a new owner buying the house), that transaction is sent out to all of the computers in the network.
If other computers in the network determine that the new transaction is valid — it wasn’t hacked, each party is verified through their digital signature, each party had the right to buy/sell that property, the purchase contract was executed properly, payment was sent, and so on — then it accepts the transaction and updates the records.
The network bundles the most recently accepted updates together into “blocks”.
Those blocks are then synced to every computer in the network, adding that block as the most recent link in a long chain of transactions. Thus, a chain of blocks, or blockchain.
Once a block of records is added to the chain, it is forevermore part of that incorruptible history.
One of the very exciting things about blockchains and cryptocurrency is the creation of “programmable money”.
A $20 bill is just a dumb piece of paper. But imagine if you could program that money with instructions: “If Jerry Smith mows my lawn before July 4th, send $20 to his bank account.”
Or per-mile car insurance. Pretty soon, your driverless car will send wireless mileage logs to your insurance company, and your account will automatically be charged $0.01 for every mile you actually drive.
Emergency preparedness will get easier, too. Instead of worrying about how your two children will track down all of your financial accounts if you suddenly die, you can program your money to automatically split 50-50, send tax withholding to the IRS, then send whatever’s left to each of your kid’s accounts upon your death.
We covered the basic concepts, but there’s much more to it if you’re interested in digging.
Cryptozombies: What is blockchain — a cartoon-based lesson using zombies to explain the concepts.
Blockchain: The New Technology of Trust — great visual representation if you dislike dense text.
Intro guide to Ethereum by Coinbase — in our opinion, Ethereum will be the long-term winner in this space.
List of the top beginner articles by a Silicon Valley venture capital firm.