What I learned about Bitcoin and how it can help you invest in Cryptocurrency! (Part 2)

What I learned about Bitcoin and how it can help you invest in Cryptocurrency! (Part 2)

In Part 1 we touched on the qualities of a currency and mentioned that Bitcoin satisfies all of them, whilst other examples of cryptocurrency meet most. Now we want to dig into these further and split them between Transactional and Monetary properties:

Transactional Properties

Absolute

Once a transaction has confirmation there is no way to unwind it. Whilst this will provide you with a sense of security it can also fill you with dread. If someone scams you or you have funds stolen by a hacker there is nothing that you can do. There is no one that you can go to for help or safeguards that will get your money back.

Anonymous

Bitcoin ownership and transactions link to addresses, random chains of around 30 characters. They do not connect to the real world identities of people or companies. Whilst it is possible to monitor flows it is impossible to connect them with any real-world entity.

Having said this in 2013 the US Drug Enforcement Agency (DEA) was the first government agency to seize bitcoins in connection with a crime. Later that year the FBI also seized around 26,000 BTC from website Silk Road.

Universal & Swift

Physical location has no bearing on cryptocurrency. It is irrelevant whether you transfer them to someone 10 meters, 100 kilometers or 10,000 kilometers away. Transactions hit the network almost instantaneously and generally get confirmation within minutes.

Whilst there are no physical boundaries some countries have made bitcoins illegal. Others such as China have made restrictions on who exactly is allowed facilitate transactions.

Secure

A public key cryptography system locks away your cryptocurrency balances. Only the owner of the private key can send cryptocurrency. Strong codes and the sheer power of big numbers makes for unbreakable security.

The issue arises when hackers get access to this key. At this point they can steel the balances by transferring them onto another address. Whilst these transactions are trackable pinning an identity on the thief is much more difficult.

Accessible

You don’t need anyone’s permission to use cryptocurrency they are “permissionless”. You simply download the free software and you can send or receive cryptocurrency. No one can stop you there are no bouncers on the door.

Monetary Properties

Scarcity

Most cryptocurrencies limit the supply. With Bitcoin, the supply will reach the final number somewhere around 2140. In theory, this number will be around 21 million. The code that creates cryptocurrency also controls the supply. The ultimate number of any cryptocurrency that miners can create we know today, which, means there are no nasty surprises later. Unlike governments that can print more money at any stage as we saw with quantitative easing.

No debt but bearer

The Fiat-money on your bank account is created by debt, and the numbers, you see on your ledger represent nothing but debts. There are no real assets backing it and is a system of IOU. Cryptocurrencies don’t represent debts. They just represent themselves. They are as real as diamonds or gold.

Tools For Change

Bitcoin and cryptocurrency have a revolutionary nature about them. Their transactional properties attack the control that banks and governments have on our money. The monetary properties of cryptocurrencies also contribute to their subversive nature. The fact that governments have no influence over their supply means that they are free from political influence. People call them digital gold and this only adds to their popularity as appetite for Fiat-money wains. The disillusionment with central banks, bankers and government control over monetary policy has grown in recent years. This has only fueled the interest in cryptocurrency.

Cryptocurrency – Types and the differences

It would be very easy to write just about bitcoin and many articles do just this, though this is only a part of the story. We want to look at the main current cryptocurrencies currently available (including bitcoin) and what they have to offer.

Bitcoin

The first, best known and the one that most people are talking about. It is the easiest to spend accepted by Subway, Microsoft, Dell and Expedia to name but a few of the ever-growing list. Gone have the days that you could only use it to buy pizza, weed and place a bet. Today you can book a holiday, buy a computer or pay for space tourism. In May 2017 daily transaction figures headed over the 300,000 mark. One bitcoin can be subdivided into 100,000,000 Satoshi. Much of what we are writing relates to bitcoin and it looks as though it is here to stay.

Ethereum

Launched in July 2015 it was initiated and developed by Vitalik Buterin. Today it is only second to bitcoin in terms of market cap within the cryptocurrency universe. Its blockchain does not only validate a set of accounts and balances but of so-called states. This means that Ethereum can not only process transactions but complex contracts and programs.

This flexibility makes Ethereum the perfect instrument for blockchain. It also broadens the scope of Ethereum to smart contracts which have an extensive range of uses. Though this flexibility attracts the attention of governments and financial institutions. This could have negative repercussions as they see their grip on financial systems starting to weaken.

After a hack in 2016 developers decided to do a hard fork without consensus, which resulted in the creation of emerge of Ethereum Classic. There are several clones of Ethereum, and Ethereum itself is a host of several Tokens. like DigixDAO and Augur. This makes Ethereum more a family of cryptocurrencies than a single currency.

Ripple

Ripple seems to be popular with the banking community, though the viewed with contempt by many in the tech world.

The native token is the XRP though Ripple is more about being a processing network than the cryptocurrency itself. The system can process high volumes of IOUs almost instantaneously without limit and very cheaply. Unlike other cryptocurrencies ripple is not a replacement to traditional fiat currencies it is rather a bridge between them. In fact, it positions itself as a bridge between all forms of payment including Bitcoins, Ethereum and even Air Miles.

We now come to the main reason for Ripples unpopularity within the tech world and why it is not considered as a real cryptocurrency by many. Ripple Labs are the company who run the network and create every XRP token. They distribute them at will and state that their intention is to create 100 billion XRP. Critics of  ripple refer to them as being  pre-mined and feel this eliminates the revolutionary characteristics present in other cryptocurrencies.

As previously mentioned banks are big fans of the Ripple network. It cuts out any middle men, speeds up transactions and reduces costs significantly. At the time of writing over 75 banks are using Ripple including UBS and Santander. The pace of adoption is ever increasing and even central banks have been testing the network.

Litecoin

Litecoin was one of the first cryptocurrencies following on from bitcoin. If bitcoin was seen as the new digital gold then Litecoin was the digital silver. Transactions are confirmed faster than bitcoin and there was a new mining algorithm. Litecoin had innovation and was positioned perfectly as bitcoins little brother.

Litecoin has also facilitated the introduction of other crptocurrencies such as Feathercoin. They took the Litecoin codebase and made it even lighter.

Unfortunately Litecoin did not translate into real life where the opportunities for use were scant. As a result began to surpass litecoin in the cryptocurrency list of importance.

Litecoin still exists and it actively developed and some see it as a fall back if anything were to happen with bitcoin.

Monero

Monero is the most prominent example of the cryptonite algorithm. This algorithm was invented to add the privacy features Bitcoin is missing. Whilst no one can link bitcoins transactions to an individual every transaction is traceable.

The cryptonite algorithm severed the ties between transactions by using a concept known as ring signatures.

Monero was the first cryptonite cryptocurrency not to pre-mine tokens which gave it credibility.

Monero‘s popularity peaked in summer 2016 when some dark-net markets decided to accept it as a currency. This resulted in a steady increase in the price, while the actual usage of Monero seems to remain small.

And the Rest

In addition to the ones that we’ve mentioned already there are many other cryptocurrencies with differing roots. Some may one day come to the forefront and provide viable alternatives. Many are simply attempts to make money quickly in a sector that is gathering momentum rapidly.

 

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