12 minute read
Cryptocurrency
CRYPTOCURRENCY 101 THE BEGINNINGS OF CRYPTO
BY ERIN SHACKELFORD
I think it’s important to begin this article by admitting one thing: after hours of research on cryptocurrency, there is still much for me to learn. It’s a cryptic currency for sure! It’s also critical to preface the article with a reminder that any major financial decision should be well-researched and planned. In this case, if you decide that cryptocurrency is a good investment strategy for you, I would strongly recommend consulting with a seasoned advisor before leaping into the world of cryptocurrency. Before we consider any leaps, let’s dip our toe in the water, shall we?
WHAT IS IT EXACTLY?
According to the IRS, cryptocurrency “is a type of virtual currency that uses cryptography to secure transactions that are digitally recorded on a (publicly maintained) distributed ledger, such as a blockchain.” This type of currency does not rely on central banks or third parties to verify transactions or create new currency units.
There are thousands of different cryptocurrencies out there at any given time and thousands more that are now defunct. According to CoinMarketCap, there were 13,669 cryptocurrencies in late 2021 with new ones constantly being created.
Pros and Cons of the Cryptocurrency Market
ADVANTAGES
1. Lower Fees
Sending money internationally is less expensive compared to other methods. Plus, the cost of using crypto is lower than using most financial institUtions.
2. Speed
Cryptocurrency transactions are expedient, taking just a few minutes to confirm.
3. No Entry Barriers
Unlike normal banking and finance, you don’t need a valid ID to use crypto. There are also no credit checks, and no personal information is collected.
4. Security
The encrypted and impenetrable blockchain ensures better security than debit cards or the internet. Transactions are also generally anonymous.
DISADVANTAGES
1. Disputing Transactions
If you accidentally send too much crypto to someone or you don’t get what you expected, there is no way to dispute or reverse a transaction. Once transactions are on the blockchain, they’re final. The only way to rectify an issue is to hope the other party is agreeable.
2. No Insurance
While funds in a U.S. bank account are typically insured through the FDIC, there is no such thing with cryptocurrency.
3. Easy to Lose Access
If you lose your private key (a part of your digital wallet), you’re toast. You have lost total access to your funds.
4. Highly Volatile
Satoshi Nakamoto is a pseudonym for a single person (or possibly a group of people) who is credited with developing the first Bitcoin software and introducing the concept of cryptocurrency to the world. Nakamoto published “Bitcoin: A Peer-to-Peer Electronic Cash System” in 2008, spiking interest in the cryptocurrency. At that time, cryptocurrency was not a new concept – there had been many previous attempts to create a digital currency. However, Bitcoin solved a significant issue with preceding forms of digital currency: the “double-spend” problem. Since digital currency doesn’t occupy a physical space – like a normal dollar or coin – it could be duplicated in multiple transactions by being doubly spent. Nakamoto fixed this problem by creating something called a blockchain, which in the plainest terms, is an encrypted digital collection of linked transaction data that is incredibly difficult – if not impossible – to hack or alter. Nakamoto has never been positively identified; although, there has been speculation. Reportedly, Nakamoto holds 1 million bitcoins. Since Bitcoin and other cryptocurrency is highly volatile, it depends upon market conditions as to what that means in terms of value. But, for example, if Bitcoin had a current market value of $29,000, the total value of 1 million bitcoins would be $29 billion.
Source: investopedia.com
However, there are certainly some top dogs in the cryptocurrency world, including Bitcoin and Ethereum. “Altcoin” is an umbrella term for all types of cryptocurrencies other than Bitcoin.
HOW DOES IT WORK AND WHY DO PEOPLE USE IT?
Cryptocurrency can be bought or sold using a cryptocurrency exchange or brokerage. First-time buyers get started by using fiat currency – government issueed money not backed by a tangible asset like gold – such as the U.S. dollar. To make a transaction and purchase a product or service using cryptocurrency, you need a digital “wallet.” These wallets aren’t made of leather, though. This wallet is your unique address for your funds on the blockchain. It also encompasses special private and public keys that ensure security and authenticity when transferring cryptocurrency. Now, at this point, you’re likely asking, why? Excellent question. Cryptocurrency has maintained and even gained popularity as more and more businesses, service providers, and individuals are adopting it as a payment method. Many people see cryptocurrency as an attractive investment. While it is considered a volatile market, it can pay off handsomely. You don’t have to look very far on the internet to find a “rags to riches” story of someone profiting off of crypto. Others believe cryptocurrency is the future of money and doing business. There is so much more to learn and explore in the world of cryptocurrency. This is truly just the tiny tip of the puzzling currency. Even though it is a bit confusing, it looks like crypto has staying power!
Sources: Internal Revenue Service, The Motley Fool, Nerd Wallet
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BOOM & BUST
By Steve Clem
Penn Square Bank collapsed in 1982 after agressively making high-risk loans to the oil and gas industry.
Photo courtesy of Oklahoma Historical Society From frontier days through roller coaster booms and busts of the oil and gas industry, the Oklahoma banking industry has grown along with the state it serves.
Michael J. Hightower, PhD
Historian & Biographer
The time was 1982. The place, an Oklahoma City shopping mall bank riding the crest of an oil boom. An examiner investigating the free-wheeling practices of Penn Square Bank returned to the building and was surprised to find some remodeling had taken place over the weekend. A wall had been temporarily removed to make way for a Rolls Royce now parked in the lobby. A promotional sign near the car announced: Deposit one million dollars, leave it in the bank for five years, and the luxury automobile was yours. This audacious offer, occurring as authorities were on the scene scrutinizing the bank’s books, illuminates the brazen antics of the most bizarre and far-reaching chapter in Oklahoma banking history: 1982’s collapse of Penn Square Bank in Oklahoma City. “The event nearly brought down some of the biggest banks in the country,” said historian Michael Hightower, who has chronicled the Sooner state’s banking history in two volumes, “Banking in Oklahoma Before Statehood,” and “Banking in Oklahoma 1907–2000.”
BANKERS BEHAVING BADLY
Bill Patterson
Photo courtesy of Oklahoma Historical Society
Hightower says the Penn Square failure was fueled by hubris and greed. “They sent loan officers out like gunslingers in the old west looking for loan participations. The auto industry, lumber, different industries were not doing well so they were looking for one red hot industry where they could run to, and that was oil and gas,” Hightower said. These “participations” were then peddled to other banks. The small Penn Square bank, located in fashionable Penn Square Mall in Oklahoma City, found a lucrative niche – partnering with larger banks on huge loans related to extracting the natural gas deposits of the Anadarko basin in west Central Oklahoma. “The participants in these loans thought the price of oil could only go up,” said Hightower. If Penn Square Bank seemed more like a fraternity house than a bank, they came by it honestly. Their head of oil and gas lending, Bill Patterson, was just a few years removed from the Sigma Chi fraternity at The University of
Oklahoma. At the bank, he was known for guzzling champagne and beer from his cowboy boot. In one six-month period,
Bill Patterson’s energy lending department generated $900 million in loans. Epic Animal-House-style food fights in an establishment called Cowboys and milliondollar deals drawn on cocktail napkins are part of the documented shenanigans of the Penn Square Bank story. However, during the oil glut of the early 1980s, it all came crashing down with the price of crude. It was the fourth of July weekend, 1982. “Continental Illinois, Seattle First, and Chase Manhattan, huge banks, they lost buckets of money, because they participated in all of these oil and gas loans that originated at Penn Square Bank,” Hightower explained. The Tulsa institution that had helped build the Oil Capital of the World, Bank of Oklahoma (BOK), fared slightly better. The former Exchange National Bank, then National Bank of Tulsa, BOK was brought back to respectability by Chairman George Kaiser and President and CEO Stan Lybarger, to become the largest bank in the state.
Bank of Oklahoma traces its roots to the National Bank of Tulsa (formerly the Exchange National Bank) located at 320 S. Boston Ave. This photo was taken in 1953 when the bank building was remodeled.
Photo courtesy of Tulsa Historical Society & Museum
Of course, one bank’s failure is another’s opportunity. Changes in banking laws gave rise to companies like MidFirst Bank and BancFirst. They would buy up the assets and liabilities of distressed banks. “That’s how BancFirst built their empire,” Hightower said.
A FAMILY AFFAIR
For his books, Hightower interviewed bankers from Boise City to Idabel, Woodward to Checotah. Fourth-and sometimes fifth-generation bankers told Hightower how their fathers, grandfathers, or great-grandfathers ran their banks through the Great Depression, World Wars, and booms and busts. They talked about how different life was from today’s no-contact, automated banking services. “Back then, the local bank president in a suit was the lynchpin of the whole town,” said Hightower, recalling an era when your handshake was your contract. “These folks spent their lives making sure their customers succeeded because that’s the only way they were going to succeed. Everybody working together.” Some of these family-owned banks began in territorial days before statehood, pre-1907. “It was dirt cheap to start a bank. For a $10 filing fee, you could get a bank charter. A lot of them started that way,” Hightower said.
THE BANK ON THE CORNER LOT
In areas settled by a land run, like the Cherokee Outlet, towns sprang up overnight. There would be fierce competition to get the funds together to send to the territorial secretary and get the first bank charter. “Then they’d gather a few men, construct a building on a corner lot, and automatically be at the center of that town and at the center of that economy,” Hightower related. Other banks’ origins were more organic. According to Hightower, in Indian Territory, people might ask the dry goods or general merchandise stores to hold their valuables for them. “A gold coin, or whatever it might be,” he said. The business might even start extending credit, or a loan, from those items. Since they were already performing the functions of a bank in a corner of their store, eventually, they would apply for a charter. You’ll find remnants of these early banks in small towns across Oklahoma. Positioned on their corner lots, many are now abandoned, but some are repurposed with a name recalling their former glories, such as The Vault restaurants in Atoka and Comanche. Oklahoma’s early bankers personified the handed-down wisdom that was passed along to Hightower: “leave the woodpile higher than you found it.” It’s a lesson some of the bankers behind the Penn Square Bank collapse would have done well to learn.
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