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Cryptowriter: Talking Crypto with My Mother, The Accountant

By Thomas Wolf | Thomas Wolf's Den | 31 Oct 2020

I thought it would be amusing and informational to document a conversation with my mother, who has a long history in governmental accounting on the topic of cryptocurrencies.  It was a reasonably laughable discussion that also brought up some valid points.

“Mothers are all slightly insane.” ~J. D. Salinger

I started by requesting my mother ask me some general questions she had about cryptocurrencies, and she began with a series, “How are they regulated? Can they be audited, and how are they tracked?

Cryptocurrencies are regulated differently from currency to currency in dealing with internal differences, but it is ultimately up to the holders and project communities to decide. Secondly, as far as government tax regulations are concerned, centralized exchanges readily offer tax records, including crypto transactions. While typical IRS auditors have virtually no experience in this area, the IRS has begun hiring cryptocurrency experts to conduct audits on individuals whose transactions do not accurately reflect their reported assets.

Lastly, cryptocurrencies are initially tracked through their blockchain, an online digital ledger that contains every transaction to every account available for view to anyone. This otherwise-public data can withhold the identity of its owners.  The second tracking aspect comes to play as soon as that money reaches a centralized exchange to be cashed out; it is recorded as income to the IRS and can be tied to the exchange account’s identity.  You cannot cash out to USD or other FIAT from a decentralized exchange, which begs the controversial argument that DeFi (decentralized finance) is not genuinely decentralized.

Since she was throwing hardballs at me, I thought I would throw one back and asked her, “What is a Bitcoin?” and she replied, with a puzzled look on her face saying, “That is a good question - an intangible digital currency valued by... whatever?

That’s not far off; per, Bitcoin is defined as “an innovative payment network and a new kind of money.” and that was probably true whenever someone wrote that years ago before other cryptocurrencies had been developed.  However, it is the social construct behind Bitcoin that gives it value beyond its software which decides its value in the form of Satoshis. 

The market decides via the market-cap, the amount in active (and inactive) circulation, how much and how many people have invested while promoting the product to control the mid-market price - very similar to real gold and other tangibles economically speaking.

I asked, “What would you do if someone gave you 1 Bitcoin?

That depends entirely on the value.  If it were worth a lot, I would need to cash some of it out due to bills and COVID, but I would want to reinvest some of it.  I just wouldn’t know how.

I begged the question, “What makes you so apprehensive about getting involved with cryptocurrencies in general?

I am not familiar with it. I trust the US dollar to go through inflation periods and still see the cash as a tangible currency.  I am used to accounting in US dollars. The rules and regulations on cryptocurrencies don’t seem well established, leading to a great deal of legal uncertainty.  Additionally, cryptocurrencies are known to have great consequences because they are so volatile.

I pointed out that the US dollar has been inflating endlessly and that cash is only “legal tender,” which is not backed by physical gold or silver as it originally was.  Even knowing that to be accurate, she still wasn’t wavered by any digital currency appeal vs. one she can physically hold and has a sense of familiarity with.  I believe that was very much a part of the Federal Reserve’s plan - to switch out precious metal backed bills for FIAT and keep the bills the same minus that tiny fine print that reads “legal tender” and renders the bills worthless in reality.

After thinking for a second, she then asked, “How am I supposed to go grocery shopping with Bitcoin?  What would the implementation of that look like?

This one is frustrating to answer, as here in Wisconsin, virtually no store offers Bitcoin payment options, and even the Coinstar with a crypto conversion option is “out of service.”  At the same time, you hear the racket of cash registers all day long as a constant reminder that FIAT is the audible standard in society.  The short term answer is that you’d need to exchange it for US dollars and then pay with that as I do.  However, many companies like Uphold, Robinhood, and SoFi offer debit card options that can use crypto assets.

It is a transitional process.  It’s challenging to get people to jump on the bandwagon to using “unfamiliar” currencies that are not labeled on the shelves and have a continuously varying range of prices listed in decimals.  It needs to be far more seamless to work for all individuals - we agree on that count.

She asks, “Why should I invest US dollars into a currency not backed by the FDIC (Federal Deposit Insurance Corporation)?  Wouldn’t it make more sense to invest in stocks that have business plans, product goals, and tangible goods be a better idea?

Well, mother, crypto is pretty popular now - centralized exchanges started offering FDIC protection on crypto-assets paid for in US dollars up to a reasonably large amount per individual.  However, the downside with this is that when the exchange holds your currencies, you don’t own the private and public keys, which makes them belong to the exchange, not you.  When in a private wallet, you own the assets, but they have no value in USD or FIAT until they hit an exchange.  I have to say; I trust my exchange more than I trust Wells Fargo, though she doesn’t share the faith.  That being said, anything off of an FDIC protected eligible exchange account does not have any insurance beyond individual security measures.

As for stocks, my mom hadn’t seen the stock market COVID-19 crash on a graph.  Now, I am not saying there are no stocks worth investing in - I know there are.  But, overall, the stock market is in a very sorry state while Bitcoin is the second-highest it has ever been.  Also, crypto projects do have business plans and product strategies; they are simply offered in a digital format, and their universal properties are being overlooked.  A currency can be developed for virtually anything using modified blockchain technology.  Ordinary people like my mother do not recognize the benefits of owning their assets instead of trusting what is presented to them as ordinary when it’s essentially financial slavery to a flawed system.  At the same time, I feel I have to understand that people stick with what they know as a way to feel secure.  So, what is the price of her security?

Questions and comments are always welcome.

-Thomas Wolf

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