DO YOU UNDERSTAND the fascination and legitimacy given to bitcoin and other cryptocurrencies? I would be very suspicious about something most people don’t understand because cryptos are volatile and speculative.

Bitcoins are created by a process known as mining. Powerful computers are used to solve complex mathematical puzzles to unlock new coins. Let’s be clear, bitcoins are nothing more than a digital token. They have no realistic value like gold does.

Cryptos are created out of thin air. Miners compete with others to come up with a 64-digit hexadecimal number called a “hash” that is less than or equal to the randomly selected target hash. It’s like finding one particular grain of sand in the Sahara Desert. The odds of being awarded a single bitcoin is 17.6 trillion to one. A new target hash is started every few weeks.

Bitcoin and ether are the two leading cryptos. Bitcoin was created as a store of value and a means to facilitate decentralized transactions. Skeptics warn that bitcoin and other cryptos are purely speculative assets that could be regulated out of existence, except as an alternative asset.

Treasury Secretary Janet Yellen, who also is a former Federal Reserve chairwoman, said Feb. 23 “To the extent it is used I fear it’s often for illicit finance. It’s an extremely inefficient way of conducting those transactions and the amount of energy consumed is staggering.”

Cryptos are a challenge to the government’s monopoly of the financial system and it’s a matter of time before the government acts to protect its franchise of issuing currency in the form of dollars. Failure to step in could result in a crash of the system which would unleash chaos in the banking and financial markets.

Berkshire Hathaway investing legends Warren Buffett and Charlie Munger have pledged to avoid cryptos because “it’s too volatile to serve well as a medium of exchange. It’s really kind of an artificial substitute for gold. We have advised other people to avoid investing in gold and bitcoin.”

New York Attorney General Letitia James recently warned investors about bad actors and urged unsuspecting victims to use extreme caution when buying cryptocurrencies. The market is ripe for scams.

On the other hand, many of America’s oldest banks, like Bank of New York Mellon, Mastercard and Visa, along with a bevy of billionaire titans, have lent credence to this mania. A wave of start-ups have been created to make cryptos a serious worldwide revolution. They see a new digital world on the horizon.

Disrupters rule the future. They want to cancel the past in favor of an all-digital future. Remember, greedy hedge fund managers only care about making money for their wealthy clients. Remember, a share of stock is just a piece of paper. Crypto is backed simply by the faith of those who proclaim it is a store of value. Faith becomes scarce when the selling starts.

Bitcoin proponents contend it presents an alternative to central bank-controlled fiat money. Currency is usable only if it is a store of value, if it can be reliably counted on to maintain its relative value over time. That’s a major unknown for crypto tokens. In the meantime, fortunes are being made by speculating in bitcoin. What happens when the government does step in?

This whole concept hit the financial world in October 2008, when a secret group using the pseudonym Satoshi Nakamoto published a nine-page paper envisioning a crypto revolution. Shouldn’t that fact set off alarm bells? Some insiders say the idea of a digital currency was intended as a joke.

The idea is that bitcoins will be initially limited to 21 million tokens. Backers are a passionate bunch, they believe it is the future, an answer to a cashless society being created and the unbridled printing of money by the Federal Reserve and the U.S. Treasury. The digital fiat would replace the current dollar.

Bitcoins total market value exceeded $1 trillion Feb. 19 when the price went more than $55,000 per token. Speculators have a $100,000 target by the end of 2021.