What Is Crypto and How It Will Change Your Life?
In January 2018, the cryptocurrency market made international headlines because its total capitalization exceeded $800 billion; up from about $20 billion the year prior, the world watched in wonder as the rise of the digital assets dwarfed any other asset class in comparison.
The steep growth of the cryptocurrency market is even more breath taking when you consider that cryptocurrencies weren’t even a thing a decade ago. The sudden accent from fringe internet community commodity to a bonafide investment vehicle happened as quickly as crypto’s mysterious appearance.
Lets’ be real, new innovations in technology are misunderstood by the public all the time (no one understood the internet when it took forever to load a single page of text); Lucky for us, as technologies mature, the public’s first perception is thankfully is nothing like their last one. Just as when the internet was first being introduced, cryptocurrencies are experiencing the same level of skepticism and scrutiny.
Despite all that cryptocurrencies have accomplished so far and its growing list of supporters located all over the globe; many people still don’t truly understand what cryptocurrencies are, where their value comes from, and how they can change our world as we know it. I hope you have your swim suit handy, because we are about to dive in head first into the deep end of cryptocurrency.
The Evolution of Cryptocurrency
What is Crypto, you ask? To explain what cryptocurrencies are, it’s helpful to take a brief look at how they came to be. Long before the first cryptocurrency (Bitcoin) appeared on the stage, businesses and merchants were experimenting with virtual currencies, offering various redeemable tokens to their customers to be used for purchases of their respective products and bonuses and incentives.
What separates cryptocurrencies from other forms of digital money is their use of strong cryptography to secure financial transactions, control the creation of additional units, and verify the successful transfer of assets between parties. Unlike centralized electronic money that may be controlled by a few controllers, cryptocurrencies use decentralized control through distributed ledger technology (meaning many control points), typically a blockchain, to record transactions between two parties efficiently in a verifiable and permanent way.
As evidence of the public’s increased awareness of this new finance innovation, the Merriam-Webster Dictionary added the word “cryptocurrency” in March 2018, defining it as “any form of currency that only exists digitally, that usually has no central issuing or regulating authority but instead uses a decentralized system to record transactions and manage the issuance of new units, and that relies on cryptography to prevent counterfeiting and fraudulent transactions.”
The Birth of Bitcoin
The first cryptocurrency in the world that combined strong cryptography with decentralization was Bitcoin (BTC), first released as open source software in 2009 by an unknown person or group of people using the name Satoshi Nakamoto, who described it in a paper entitled Bitcoin – A Peer to Peer Electronic Cash System.
Nakamoto’s goal was to create an electronic peer-to-peer cash system that would require no intermediaries and would inherently resist centralization, serving as an alternative to the traditional centralized banking cartels. Put into context, with Bitcoin’s introduction occurring on the heels of the 2008 financial crisis, the mass distrust caused by bank bailouts acted as rocket fuel for the adoption of Nakamoto’s brain child.
The first Bitcoin transaction occurred in 2010, on the now-defunct BitcoinMarket.com exchange. On May 22, Laszlo Hanyecz swapped 10,000 BTC for two pizzas, which catapulted the price of Bitcoin from $0.008 to $0.08 in just five days. This event, especially since Bitcoin’s dramatic accent in price, has been viewed as an historical event to the cryptocurrency community; commonly referred to as Pizza Day.
The Alt Coin Era
Since May 22, 2010, lot has changed, and there are now nearly 2,000 cryptocurrencies, each trying to solve a slightly different problem or offering a different set of features. While many have emerged and make grand claims, the reality is that not all have unique use cases and may go the way of Pets.com during the “dot com” bubble. However, there are cryptocurrencies that emerged after Bitcoin that not only show promise but may even give the king crypto a run for its money.
Among the first cryptocurrencies that appeared after Bitcoin were Namecoin and Litecoin, the later being referred to as “the silver to Bitcoin’s gold”. Litecoin, being nearly a clone of Bitcoin (besides the different encryption algorithm and block timing), focuses on minimal fees and processing times; while Bitcoin (core) is seen as more of a store of value.
With all that said, the cryptocurrency that has managed to take a lot of Bitcoin’s thunder has proved to be Ethereum, which is an open source blockchain-based distributed computing platform and operating system that uses cryptocurrency known as Ether to enable smart contract functionality (whew!…that was a mouthful).
Smart contracts are self-executing contracts intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract (which means they basically run themselves). Their use cases are incredibly broad, and there are a number of high-profile companies that have invested in their development (big name companies like JP Morgam Chase). Ether (the unit of exchange of the Ethereum platform) can also be used to create decentralized applications (or DApps for short).
Think of DApps as applications (much like the ones you run on your cell phone) that are designed to avoid any single point of failure and be run by many users on a decentralized network with trustless protocols. Such applications don’t rely on any single entity (i.e. like Twitter Instagram, etc), and they are highly resistant to censorship.
How Does Cryptocurrency Have Value?
It seems like everyone and their mother is making their own cryptocurrency. Considering that new cryptocurrencies are being created virtually on a daily basis, we get where you are coming from; it’s only natural to wonder what their true value is derived from. The answer to this question is fairly simple: cryptocurrencies meet the seven basic economic properties of money; a true form of money is scarce, fungible, divisible, durable, portable, uniform and accepted.
Take for example Bitcoin. Due to the rules established in its code, there will never be more than 21 million bitcoins minted into existence…EVER. At the moment, the number of bitcoins in circulation is over 17 million, which means there are less than 4 million bitcoins left to be mined, which is a time and power consuming process that keeps Bitcoin’s blockchain consistent, complete, and unalterable.
To make the case for Bitcoin’s scarcity even more extreme, 3.79 million coins are believed to be lost due to user error; never to be retrieved and be reintroduced into circulation. Taking into account these lost coins the reality of the situation is that 17.21million coins will be shared between about 7 billion people (Earth’s current population).
At the current rate of approximately 1,800 bitcoins per day, the limit of 21 million bitcoins will be mined by 2140. According to many analysts, this set cap makes cryptocurrencies like Bitcoin even more desirable than precious metals.
“There are potentially millions of times more gold underground than actually has been extracted,” said Tom Lee, head of research at Fundstrat Global Advisors. Tomorrow, a mining company could discover a treasure trove of gold, which would almost certainly cause its value to plummet. This will never happen with a cryptocurrency like Bitcoin because its mining difficulty is automatically adjusted to keep the supply constant.
Cryptocurrencies are also fungible; and just so you know, that word has nothing to do with fungus. Essentially the term fungible means that a cryptocurrency’s units of exchange are interchangeable; meaning one Bitcoin can exchange for another Bitcoin (not too much to explain on this one).
Crypto is insanely divisible; perhaps the most divisible form of money the world has ever seen. For example, back when the value of Bitcoin was priced in single dollars, whole “bitcoins” were the most commonly used unit of Bitcoin value.
Today, the most commonly used unit of Bitcoin value is “milli-bitcoin,” and, one day, it may even be “satoshi.” (or 0.00000001 of a Bitcoin). Being able to break up a single Bitcoin into 1 million satoshies is not only amazing, but it ensures that there will never be a shortage in circulation even with the limited amount of minted whole coins.
A good form of money must be able to be used repeatedly without damage to the item being transacted; thus, one of the reasons why for thousands of years gold and silver have been the money of countless civilizations (its metal…and metal is hard). However, Bitcoin it extremely durable due to the fact that it is not tangible so wear-and-tear is literally impossible.
Even in the sense of potentially losing your crypto wallet, if you have access to your recovery seed you can’t even lose your cryptocurrency (you can regain access through your recovery seed). I mean come on, you can’t destroy it or lose it… what more can you ask for?
Cryptocurrency is a digital intangible asset; therefore it can be stored in a wallet address which is present on the blockchain. What does this mean you ask? It means you can take your crypto with you anywhere you want in the world by simply re-entering your recover seed into a software or hardware wallet. If demand the highest level of security for your crypto stash check out our reviews of the Keepkey and the Ledger Nano S hardware wallets.
This is a significant breakthrough in personal wealth preservation because never before has the individual had the luxury to transport vast amounts of wealth across boarders anonymously, securely and as simply as recording a sequence of words onto a piece of paper. More traditional forms of wealth are halted and some times even confiscated by authorities when attempting to relocated wealth (I’m talking to you TSA).
Cryptocurrency meets the uniform property of money; meaning (for example) one Bitcoin has the same amount of purchasing power as any other Bitcoin in existence.
Due to the fact that most cryptocurrencies are deflationary in nature (there will never be more than the designated capped supply) crypto will increase in purchasing power; however, the units (whole coin, satoshis, etc) remain constant in relation to each other.
A good form of money is widely accepted in the market place; this is the area that cryptocurrency community has been focusing on the most. While it may be premature to state that cryptocurrency is widely adopted by the public, it is worth noting that this property comes with time. Many major retailers have began accepting select cryptocurrenies for their goods or services. Click here to learn the top 10 businesses that accept Bitcoin.
To help put it in perspective, a good deal of online silver and gold bullion dealers accept Bitcoin as a form of payment. Using flawless logic, if gold and silver have been widely accepted as money for centuries, and one can use Bitcoin to buy gold and silver; it is reasonable to conclude that if Bitcoin can be used to buy real money then Bitcoin itself is money as well.
The Future of Crypto Is Bright
Regardless of the volatility experienced in the cryptocurrency market, it’s amazing what has been accomplished since the first cryptocurrency in the world was released in 2009. Today, there are more cryptocurrencies than you can shake a stick at and they, as well as the technology behind them, are already changing the world and empowering people from all walks of life to get by without costly intermediaries.
In the current day, the role of the middle man often provides little to no added value to the consumer. While nobody knows for sure how the future of the cryptocurrency market will look like, most experts agree that virtually all industries will be impacted in one way or another. Time will tell as the industry continues to mature and strive towards main stream adoption. The good news is we will all be along for the ride, and if one this is for certain, it is going to be one hell of a show!