A few years ago, if you mentioned “cryptocurrency” to me, I would have imagined some kind of currency involving an underworld banking system, with hooded traders sitting behind shady computers.
Business topics like Bitcoin, which for a long time were considered too niche to be of interest to the general populace, are now receiving extensive coverage everywhere.
There has been a lot of legislation put in place to make it easier for companies around the world to issue ICO’s and Token offerings. I am not sure cryptocurrency is the right terminology for these types of securities offerings, but they seem like they will be hugely successful.
Cryptocurrency seems to be getting a lot of attention from governments, regulators and banks. What should we call cryptocurrency if it falls under the umbrella of a “currency”? Should we care about crypto or is it just a fad? What is crypto going to do for our long-term economy?
What is it again?
In its most basic form, cryptocurrency is a digital or virtual currency that functions as an exchange for goods and services. Blockchain-based platforms are designed to be completely decentralized which means they’re governed by no central bank or monetary authority. The Bitcoin blockchain is maintained by a peer-to-peer network of computers from around the world. If you’ve used BitTorrent before, it should come as no surprise how it all works!
Blockchain is a decentralized, public digital ledger created via cryptography. Bitcoin and other cryptocurrencies are secured because their transactions have been confirmed by processes called mining. Bitcoin mining is the process of adding a new block to the Bitcoin blockchain. All this data is mathematically checked with a high-level digital code set up on a network before being added to the ledger. This new addition will be verified and confirmed by other nodes (miners) on the network.
Keep in mind that while transactions are encrypted by math, they follow a global public ledger system. This means every transaction can be traced through cryptography.
Why is it so important?
The first thing you need to know about cryptocurrencies is that there are different types. Bitcoin (BTC) and Ether (ETH) are probably the best-known ones, but there are various others too.
Bitcoin was the first crypto-currency. Bitcoin’s value has increased exponentially and it’s not hard to find articles online about Bitcoin millionaires. You may have seen some articles claiming that you’d be a Bitcoin millionaire if you had bought US$100 of Bitcoin in 2010 – and while these claims may be exaggerated, they do illustrate the potential for Bitcoin. Bitcoin is starting to be adopted by more and more retailers and internet sellers as a means of payment.
Without going into too much detail, while Ethereum is similar to Bitcoin in many ways, its use goes beyond just being a currency and includes other services on its own blockchain. Ethereum has its own built in programming languages for writing applications in smart contracts. For example, these can be used to transfer and mine their token called Ether which is even more versatile than Bitcoin
Before Christmas 2017, the cryptocurrency market went through a process called “mooning ”. The prices went up higher that anyone would have predicted. At that time, it was by no means sensible to buy into this currency. As it gets closer to Christmas, the market is becoming more and more volatile. This is because the traders are overestimating demand for electronic goods over a short period of time.
In early January, crypto exchanges dropped in price, Ethereum being one example with a 25% decline. However, the situation quickly changed when the bubble started inflating again.
So, regulators are issuing “buyer beware” warnings. They’re certainly needed, but it’s tough for central regulators to regulate decentralised technology without problems. Investing in ICO’s and cryptocurrencies is an extremely risky proposition and you can lose all your money.
Examining the past year, many cryptocurrencies have seen wild swings in their price. For example, the price of Ethereum has gone from $400 to $0.01. With increased volatility comes increased risks
Nevertheless, cryptocurrency is very important and it won’t just die out. Unlike other experts who predict that cryptocurrency could only last for 20 years, transactions are fast, digital, secure and can take place worldwide. All these qualities mean you don’t have to worry about any data being pirated.
The benefits of using bitcoin are plenty, including not having inflation. There is only a limited supply of bitcoins that can be mined, so the total amount or cash in the system should not increase or decrease too much. Bitcoin is scarce by design though one could argue that all cryptocurrencies are infinite since anyone can create them.
Should I really care?
There are now a growing number of major lenders, investing in crypto and exploring cryptocurrency.
As mentioned, the cryptocurrency markets are currently all over the place. While that’s all true, you should also note this: there are other coins and digital tokens out there with good backers and management, who have AML procedures in place – some better than others.
New ICO projects are popping up every day, but many of them fail. This is why regulators have warned investors with the phrase ‘buyer beware’. It’s crucial to research your investment before you buy it.
One other important thing to note is that, as cryptocurrency becomes more widespread, it is really the underlying technology- the decentralized ledger system, blockchain- which provides them with their true worth.
Blockchain technology is only the basis for cryptocurrencies. It allows their digital tokens to be spent or exchanged on that particular platform. Essentially, any transaction that is able to be recorded and verified can use blockchain. This includes insurance policies, birth certificates, immigration information – essentially anything similar to them will be able to take advantage of the benefits of blockchain technology.
Blockchain-based smart contracts, once implemented into into our daily conveniences, will be headline news.
It really does need to be taken into account that crypto is a form of currency that has been in existence for approximately only 10 years. It isn’t gold and it isn’t fiat. This is cutting-edge technology that has already shown how it can transform the global financial system. It isn’t perfect, but it’s really close to becoming groundbreaking.
Cryptocurrencies have changed the way we look at money. It could be a good idea to start purchasing it and spending it.