The Best Way To Play The Cyber-Currency Boom
Oh, the perils of our digital age: A few weeks ago, some users of two of Showtime’s websites noticed that their computers and phones had slowed to a crawl. Some devices had become non-responsive.
It took a while to connect the dots, but the cause was found (and corrected). The issue? A rogue string of code had invaded these people’s computers and was secretly running super-heavy calculations in the background.
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Somebody was mining for cryptocurrencies. On other people’s computers. Without their knowledge. And, of course, without sharing the proceeds.
Why go to all this trouble? Because mining for cyber currencies is, just like any other type of mining, a resource-intensive endeavor. The major difference, in this case, is visual. There’s no huge hole in the ground with heavy machinery sifting through tons of ore and trucks transporting enormous amounts of materials. Instead, there’s just the whirring of a computer — or banks and banks of computers.
#-ad_banner-#The first thing to understand about cyber currencies is that they are not actual coins or paper money. Those coin-like images you may have seen in depictions of bitcoin, the granddaddy of cryptocurrencies, are just that: images. Rather, cyber currencies are digital tokens that can be transmitted electronically.
In the most basic terms, cyber currencies are created, or “mined” with special software to solve complex math problems. How complex? According to StackExchange, a programmer community, the average time the average computer would need to mine one “block” is about 2.7 million years (a “block” is a file where key data pertaining to the bitcoin is stored).
Suffice it to say there’s a lot of computing power involved in the mining process.
This explains the willingness of whoever was behind the Showtime malware to risk being found out only to have an ability to use more resources. In that case, the resources were the computing power and, of course, the electricity needed to run the “borrowed” computers. It all adds up. To solve the equations, a ton of computer time and electric power is needed.
As a result, the number of digital coins is limited, and they have intrinsic value. These are attributes that are universally accepted as must-haves for any type of currency — anything that can potentially serve as a store of value and means of fair exchange.
Gold, for instance, is actually similar to bitcoin (and other cryptocurrencies) when you stop to think about it: Both have intrinsic value (they cannot be worth less than what they cost to produce), and both are limited. There is only so much gold on Earth, and a formula for cryptocurrencies makes sure there is a limit for those as well.
But gold isn’t the only metal that can function as money. Silver, too, has all the necessary attributes, and is also considered “money.” While its value fluctuates, it generally serves as a reliable store of value.
On the other hand, over the course of human history, other means of exchange that also had both scarcity and intrinsic value — shells and furs, for instance — had functioned as money, but no longer play that role.
Fiat/paper money, as yet another part of the argument, has no intrinsic value — not as a piece of paper anyway. That’s why, when imprudently managed, it can become just that, a worthless piece of paper.
Money is a human invention. And modern money has all the power of the modern government behind it.
Bitcoin, on the other hand, is more like gold. It’s mined. It requires resources to be uncovered and thus has intrinsic value. It does not need any government to back it up. There is value — real value — to a bitcoin. With a formula behind its creation, based on a technology called blockchain, an enormous amount of resources are needed to mine every next coin in addition to the ones already in existence. The number of coins in circulation is limited, and their value is defined — somewhat — by the amount of resources needed.
But just as with gold, the market value of bitcoin can greatly exceed its cost of production (mining), which determines its intrinsic value. This makes outsourcing the mining — by hook or by crook, as we saw in the Showtime case — a potentially profitable proposition.
Just this year alone, the price of a single bitcoin soared to more than $5,800, from $969 at the start of the year, according to Bloomberg.
And just as gold isn’t the only precious metal we know, bitcoin isn’t the only cyber currency around. Today, we also have Dogecoin, Litecoin, Zcoin, Ethereum and more. And because they are all digital, who can be sure there won’t be others in the coming years?
While there is no way for me to say where the prices of all of these cyber currencies are going, one thing is almost certain: The interest in this brand-new asset class will grow, and with it, a super-hot demand for computer power.
That’s why, if you don’t want to open an actual cryptocurrency account, you should know about the best stock play to profit from the alternative currency boom. It’s a computer chip maker whose stock has gone up more than 650% in the past two years. Intel is far behind with a paltry 32% gain.
What does it have that Intel doesn’t? You guessed it: a cutting-edge chip that’s critical to digital currency “miners” who require massive computing power to generate new Bitcoins.
Thanks to its high performance and cost-efficiency, it is now a major player in cryptocurrency mining. And it’s also a huge player in artificial intelligence and gaming.
I think this stock — and the cyber-currency boom — is just getting started. Unfortunately, I can’t reveal the name of this stock today because it’s one of the picks in my all-new report: 13 Shocking Investment Predictions for 2018. From the best way to play bitcoin to a cure for the deadliest allergy on the planet to Buffett’s next major move (and more), this report is filled with some of the most surprising — and potentially profitable — predictions you’ll find all year. To get your hands on them now, simply go here.