Behind the crypto curtain
Polis wants you to be able to pay your taxes in crypto, but how does it all work?
On a recent Wednesday evening, about 50 people who buy, sell, market and create cryptocurrency gathered at a brewery in Downtown Denver to network.
Colorado is a welcoming place for these market enthusiasts. Gov. Jared Polis wants the state to become the first to let residents use cryptocurrency to pay taxes. He signaled a hands-off approach to regulation of it when he signed a law in 2019 that exempts so-called digital tokens from securities laws that govern things like stocks and bonds.
Still, the technology remains somewhat intimidating to most Coloradans. So, what is cryptocurrency? The people at the crypto event had a lot of different answers.
“I would say it is a digital ledger. That’s the way it originally started. … It’s a ledger where you can see absolutely every single transaction,” Orsain Larrahondo, who works in IT security and trades crypto on the side, said. “And then you have … other chains, like Ethereum, that came on where you can actually bring in a smart contract. … So it’s like a programmable smart contract.”
Maxwell Saul, a molecular biologist, who is not much of a trader but is drawn to the underlying technology of crypto, put it in simpler terms. “Essentially what it boils down to is the concept of verifiable digital ownership, which I think is actually a much bigger revolution than a lot of people might realize,” he said.
Crypto 101, and why Polis wants in
If you’re still a little confused, you’re not alone.
“It’s hard because … it’s everything you don’t know about computers and everything you don’t know about math rolled into one,” Chris Wallworth, a software engineer, explained.
Basically, cryptocurrency is virtual money. But unlike the dollar, euro, peso or pound, there’s no government standing behind it, securing its value. Instead, there are people all around the world virtually minting coins on computer processors. The most well-known cryptocurrency is Bitcoin, but there are thousands others.
Proponents say the lack of government intervention is a big part of what makes cryptocurrency appealing. But that view has yet to catch on in the mainstream.
One of the biggest differences between cryptocurrency and regular currency is that you can’t use crypto to buy most things. Since there’s no central authority behind it, and it’s completely unregulated, the value hinges entirely on what you can sell it for. That makes it hard to pinpoint what it’s worth, hence the reason most businesses won’t take it.
In fact, the state of Colorado doesn’t really want to take it either, despite Polis saying people will be able to use cryptocurrency to pay taxes by summer. The state plans to work with a third party to convert the crypto into dollars before it goes into the state’s treasury.
“It's exciting, but I don't (want to) make it sound like more than it is, because we still budget and spend money in dollars. That's still where the world is,” Polis said in February while speaking to a crowd at the EHTDenver Convention, an annual meeting for Ethereum, the second-largest cryptocurrency behind Bitcoin.
The details of the tax plan are still hazy, but the message is clear: crypto is the future, and Polis wants Colorado on board.
One thing that’s certain is that some people have made a lot of money in the crypto market. Of course, some people have lost a lot of money, too. People in the industry will tell you that fraud is a big problem.
“A lot of exchanges try to protect people from the scams, but … throughout the last five or six years, you can look at the number of major projects, and it's a very large percentage of people that got scammed,” crypto consultant Steven Pattison said. “They’re not gonna get rich quick. It’s the Wild West.”
There are also environmental concerns, because the powerful processors used to create and store this stuff use a lot of electricity. In addition, crypto mining uses huge amounts of energy to run the math problems needed to decrypt transactions on what’s called the blockchain, the running ledger of who buys what and when.
Polis didn’t agree to an interview with CPR News on the topic, but a spokesperson said those mining crypto in Colorado are encouraged to use renewable energy.
Meanwhile, believers in cryptocurrency say it's worth the financial and environmental risks. True believers swear that behind the impenetrable jargon and the unsavory characters is a technology with the power to change the world.
They point to the blockchain as a way to democratize the financial system. They think crypto can be part of a decentralized utopia, where people take back control of the internet – and their money – from giant corporations and the government.
But this is the part that is even harder to explain.
“This is like climbing a fourteener,” Mitchell Valentine, a computer programmer and developer in Denver, said. “There's a lot to it. I was trying to explain this to my wife last night, too. And she was asking me like, how do you explain all these … things? And it definitely turns into sort of like a swirling ‘Which trail do you want to go down?’”
Valentine won a prize for his blockchain project at the conference Polis was speaking at. To simplify his idea, his application allows people to connect things like digital concert tickets with their real-world identity while protecting their privacy.
Valentine has also been lucky with crypto in a way most people can understand. He sold a bunch of it just before the value of cryptocurrencies tanked last year.
“I bought a pretty cool sports car with it. And I bought a boat with my buddy. And then the price crashed … lost about two-thirds of its value basically a month after I did all that,” Valentine said.
Since then, values for some cryptocurrencies have started to climb again. But Valentine says he’s more interested in building the underlying technology, as opposed to looking to make another big profit in the space.
“That was just luck,” he said.
For more from Colorado Public Radio, go to www.cpr.org. ?