A couple of years ago, if you had mentioned the term “cryptocurrency” and crypto mining, to me, I would have imagined some sort of currency involving an underworld banking system, with hooded traders hiding behind shady computers.
We now often read about it not only in the business sections of daily websites or financial publications but on their front page as well. Entire sections of news publications are becoming devoted to things like Bitcoin, Ethereum, Ripple, etc.
Jurisdictions around the globe are scampering to put into place regulations and legislations to make it convenient for companies to carry out initial coin offerings (ICO’s) or token issuances.
So, the question which we must now ask ourselves: whatever we call it, do cryptocurrencies, really deserve this much hype/attention. What will the impact of crypto be in the long term?
What is it again?
In reality, cryptocurrency is – blockchain-based platforms are meant to be – entirely decentralized. A financially based blockchain means that it is not governed by any monetary authority or central bank. It is looked after by a peer-to-peer community computer network made up of users’ machines or “nodes”.
Using blockchain, it is efficiently a digital database – a “distributed public ledger” – which is run through cryptography. Cryptocurrency like Bitcoin is incredibly secure as it has been digitally confirmed by a process called “mining”.
Mining is a procedure where all the relevant information entering the Bitcoin blockchain has been mathematically checked using an incredibly complex digital code set up on the network. That blockchain network will confirm and authenticate all new entries into the ledger, as well as any changes to it.
Keep in mind that while it is anonymous, the complex math behind it makes it a worldwide public transaction ledger, so every transaction can ultimately be traced through cryptography.
Why is it so important?
First, remember that there are several types of cryptocurrencies, and for the objectives of this piece, I’ll concentrate on the most frequently used and mentioned: Bitcoin (BTC) and Ether (ETH).
Launched in 2008, Bitcoin was the very first blockchain – a financial one – developed by an individual (or group, who knows) called Satoshi Nakamoto. Bitcoin’s value has substantially increased to an insane level: you might have seen pieces swirling around the Internet like “if I had brought $100 of bitcoin back in 2010, I’d have over US$100 million now” or about Bitcoin’s first billionaires. A boosting number of retailers and internet sellers are now starting to accept Bitcoin as a medium of payment.
Without delving too deep into the detail, while Ethereum is pretty much similar to Bitcoin, its usages go beyond the mere financial side of things such as mining. Ethereum offers built-in software programming languages that could be utilized to write, for example, smart contracts that can be utilized for various objectives, including the transfer and mining of its tradeable digital token, Ether (which is even more complex than Bitcoin).
Before Christmas 2017, the cryptocurrency space went through a process called “mooning”. That is to say, their prices completely sky-rocketed. It became the wrong time to buy crypto. Because just before Christmas eve, the entire market hit rock bottom and completely crashed, losing approximately 20% of its entire global market cap.
It then bounced up. And then in mid-January, crypto exchanges again crashed, with prices in Ethereum for instance falling approximately 25%.
Investing in initial coin offerings (ICO’s) and cryptocurrencies is highly speculative, it possesses a risk of losing all your money.
Of course, you can say that the public shareholders also did, but unquestionably cryptocurrency exchanges are far more volatile than the stock markets.
But cryptocurrency is important and it is not going away or be restricted to 100 years as others may speculate: transactions are fast, digital, secure, and worldwide, which in return enable the maintenance of records without risk of data being pirated. Fraud is diminished.
Also, digital currency such as Bitcoin should not lead to inflation. The total number of bitcoins that can ever be mined is approximately 21 million, so there is no way the total amount of cash in the system can be increased by any central bank. Bitcoin itself is, by its nature, scarce. Though one can certainly argue that cryptocurrencies themselves, are infinite as they can be generated by anyone.
It does need to be taken into consideration that a 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 a brand new technology that has already illustrated its ability to fundamentally disrupt the global financial system. But it isn’t perfect by any stretch.
Crypto, or digital, or virtual currencies have created a paradigm shift in the way we look at money. The way we look at potentially buying it. The way we look at potentially spending it. Just be careful buying it.
Even Facebook already knows crypto is the future
Learn more about crypto mining here