What is cryptocurrency?

2017 has been the year for cryptocurrency.

On November 29th, Bitcoin hit $10,000. This means that one bitcoin is worth $10,000. It was at this moment it garnered the attention of investors, the media, banks, your friends, co-workers, regular people down the street, and your mom. There were internet memes, local news, and national news going absolutely crazy.

Since November 29, there have been people purchasing cryptocurrency that either

  • Believe in the future technology.
  • Are looking to make a quick buck.
  • Using it as a long term investment strategy.
  • FOMO (fear of missing out).

For the record, I do not own cryptocurrency. I have done months of researching because

  • The technology interests me.
  • As a regular human being, I did feel a bit of “FOMO”.
  • I have actually tried getting into the Wild Wild West game of Cryptocurrency (but couldn’t since all marketplaces are getting swamped and fails to accept my ID for verification).
  • Close friends and co-workers of mine are long time holders (or “HODLERS”) and day traders.

So at the end of the day, I am just going to write about it and watch it from the sidelines. I felt this initial impulsiveness when cryptocurrency blew up (when I tried to join in), but after getting my ID rejected a number of times my feelings have subsided. Am I aware that I might be losing on one heck of an opportunity here? Yes, but oh well. I know friends, co-workers, and cryptocurrency  day traders with portfolios of about $10,000 to around 1 million dollars that I talk to everyday and tell me about their gains and losses. I am going to do my best to remain unbiased here.

On the internet, you will see two sides

  • People against cryptocurrency.
  • People for cryptocurrency.

My goal is to remain neutral here. I am going to explain what is cryptocurrency, and my opinion on the future of cryptocurrency (after all, any idea piece about cryptocurrency is just an opinion and the future of cryptocurrency is just a speculation since nobody can predict what is going to happen to it as of now).

If there is one thing that worries me about cryptocurrency, it is the people purchasing it without knowing anything about it. I have heard/read of people taking mortgage loans to purchase cryptocurrency (please don’t do this), using all their emergency savings (this is reckless) or kids college fund (for this specific person it actually worked out well, but too risky for my taste). The rule of thumb here is put money on cryptocurrency that you do not mind losing if there is a drop in value (cryptocurrency is extremely volatile since  the technology is new, small amount of crypto is in circulation, and everything is entirely based off on speculation. Meaning, that we are just speculating this technology going to take off one day).

What is cryptocurrency: “A medium of exchange that is created and stored electronically in the blockchain, which uses encryption to control the creation of monetary units and to verify the transfer of funds. In this case, bitcoin is an example.”

What is blockchain: A distributed (public) database that has a growing list of records which are linked (or chained) using secure cryptography. This is hosted by millions of computers connected to the internet, accessible to everyone. This is basically a growing ledger. Think of it this way, a google drive document where a number of users can edit one same document all at the same time as long as you are within the verified rules (you name, last name, type of permission, gmail account). Computers (known as nodes) get connected to the blockchain network that uses a client to perform and validate these transactions after getting a copy of the of the blockchain.

Back to cryptocurrency, cryptocurrency is called “crypto” currency because the agreement keeping process is used by cryptography (just plain old math). You send and receive by using an address (like an email) except in this case its a 26 to 35 alphanumeric character beginning with 1 or 3 that represents a destination.

The Transactional Properties of Cryptocurrency

Once a transaction is completed it can never be reversed. Double check addresses. No safety net exists here. If you accidentally get tricked or send it to the wrong person, you will never get your funds back. On top of that, everything is pseudonymous. This means that real world identities are not connected, because everything is used by alphanumeric addresses. This is the part I enjoy of cryptocurrency, fast and global transactions.

Transactions are instantly confirmed within minutes since everything is connected within a growing number of computers. Imagine sending money (in this case cryptocurrency) to a family member in a different country, you don’t have to rely on the banks process (you are eliminating this middle man). Everything is P2P (peer to peer or person to person). In a way…you are the bank. Cryptocurrency is secure. Your funds are locked in a cryptographic system that is public. Big numbers make this difficult to hack. The owner has a private key to send cryptocurrency (do not share your private keys). Want to obtain cryptocurrency? You do not need permission. Just download an application or go on a site to purchase cryptocurrency and set up your wallet to hold your cryptocurrency to send/receive.

The Monetary Properties of Cryptocurrency

There is a limited supply of cryptocurrency. There is no way to “up” this amount. This makes it easier to calculate the supply of cryptocurrency and not have a monetary policy where government (like we have it today) controls the banks on inflation, deflation, and manipulation of supply. The revolutionary part about cryptocurrency is that they represent themselves.

Moving on from Cryptocurrency

When people think of cryptocurrency, they think of bitcoin. When in fact, there are hundreds of types of cryptocurrency with different technologies such as Ethereum, Litecoin, Ripple, and Monero (to name a few). When investing in cryptocurrency, please research the types of cryptocurrency, the technology, and the basic foundation of blockchain technology.

Future of Cryptocurrency

So is cryptocurrency here to stay? Nobody knows. For now, everything is based off of speculation. Speculation that this currency and technology is going to take off. In the coming years we may see a combination of:

  • More companies adopt the technology, the specific currency (ethereum, bitcoin, litecoin, etc).
  • Popular coins fall off while new coins rise.
  • Countries be more open to adopting it and using it for real purchases
  • Government regulations that are either for cryptocurrency or against it.

On my end, I would like to see this technology thrive. It would be neat (for example) to send money to another country within minutes and without crazy bank fees. There is no reason to root against it. I am a firm believer in embracing new things.

Below are great educational videos with visuals to help understand cryptocurrency (my favorite is the second video):

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s