Image by Top 10 Money.
What is a cryptocurrency? Wikipedia defines a cryptocurrency as “digital assets designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units and verify the transfer of assets.”
Let’s look at a brief history of cryptocurrencies. The true father of the cryptocurrency is David Chaum. The idea was to break away from any financial trail from the issuing bank or the government and keep transactions private. The design was to offer a currency not controlled by financial and political misgivings like fiat money. The digital currency used complex algorithms assuring the transactions could not be altered thus safe allowing peer-to-peer transactions.
David Chaum eventually started the company Digicash in the late 1980s. His company set-up house in the Netherlands. The idea was a blind decentralized currency as an alternative to the central bank. Digicash eventually monopolized control of the currency and became a new type of central bank. The official central bank rallied against Digicash and in the end, regained control.
After several failed attempts by others to establish a foothold in the cryptocurrency market, Bitcoin arrived on the scene in 2008. Satoshi Nakamoto is either an individual, pseudonym or a group of unknown people associated with the invention of Bitcoin. The development of Bitcoin is a reaction to the 2008 financial crash experienced in the US. Under the guidelines of fractional reserve banking, the bank only has to keep 10% of deposits on hand. Think about this for a moment. I deposit $10,000 in the bank. They invest $9000.00 into solid investments. The return the bank gets is .15% profit or more on that investment. The bank makes $1500.00. The interest rate on the money I deposited in the bank is .01% and .06%. The bank pays me between $100 and $600.00 in interest a year. The bank just made between $900.00 and $1400.00 off of my money. It’s a racquet in favor of the bank. Commercial banks make money from other people’s money.
With the invention of Bitcoin, the bank is cut out of the process. Security measures are in place to guarantee the function of Bitcoin. The banking systems poor investments culminated in the financial crash of 2008. This situation stimulated the need for an alternate system. Hence, the slow rise of Bitcoin. The use of Bitcoin allows peer-to-peer transactions devoid of a central authority or bank. Cryptocurrencies are the beginning of the slow death of the banking system. The blockchain is an open distributed ledger and it is what keeps the transactions transparent and honest. It is the foundation of the system. Watch the video below for a brief overview.
According to Jan Lansky, an employee in the Department of Computer Science and Mathematics at the University of Finance and Administration, six criteria must be met for a cryptocurrency system.
- The system does not require a central authority, its state is maintained through distributed consensus.
- The system keeps an overview of cryptocurrency units and their ownership.
- The system defines whether new cryptocurrency units can be created. If new cryptocurrency units can be created, the system defines the circumstances of their origin and how to determine the ownership of these new units.
- Ownership of cryptocurrency units can be proved exclusively cryptographically.
- The system allows transactions to be performed in which ownership of the cryptographic units is changed. A transaction statement can only be issued by an entity proving the current ownership of these units.
- If two different instructions for changing the ownership of the same cryptographic units are simultaneously entered, the system performs at most one of them.
In the cryptocurrency world, there are many options in which to invest. At the writing of this article, there are 1998 crypto assets from which to choose. Some of the more popular trades involve Bitcoin, Litecoin, Monero, Ethereum, EOS and Bitcoin Cash. It is fair to note, not all coins will survive. The range in value could be as high as Bitcoin at $4972.00 (70,348,828.00 IDR) to as low asShowhands Coin $0.00000163 (0.023 IDR). These prices fluctuate throughout the day. This morning the Bitcoin 24-hour range was $4954.35-$5200.01.
Not all cryptocurrencies are offered on exchanges and not all cryptos are currency based. Tokens represent something. Fiat money has no value beyond its perceived value. It is valuable because it is understood to have value and backed by the bank or government. Consider the value of a bus token. Its value is based on the bussing system and is used to travel from point “A” to point “B.” The bus token cost fiat money and is valued at that fiat cost. However, I can’t go to the store and buy a bottle of water with a bus token. It only has value within the bussing system. To buy that bottle of water, I need to provide a currency token.
Some cryptocurrencies are ICO’s or initial coin offerings. An investor should research and read the white papers of these companies before considering an investment. These companies will inform the investor how to invest and what they are accepting as an investment. Some tokens are slivers of investments into start-up companies. It is possible to buy into an extremely low-cost ICO and get a passel. Then later sell them when the price goes up. This does happen for some people but not many.
I am invested in Litecoin. I bought my first Litecoin at $35.00 in the summer of 2017. Since then, I have seen it go over $400.00 and drop to $19.00. The highest price I paid was $119.00 per Litecoin. I own 13 Litecoin and a tiny bit of a Bitcoin. Right now, Litecoin is just under $90.00 per coin.
An investor can get into the market for a low-cost investment. My first investment was $5.00. My transaction fees were either $.99 or $1.99 I do not recall. Although safe for the most part, the market has problems. There have been troubles in the past and I will cover those in a later article.
I have only scratched the surface with this information. It is complex, deep and not for everyone. I heard this somewhere, “If offered a Bitcoin or the current cash value at say $5000.00, anyone under 55 will take the Bitcoin and anyone over 55 will take the cash.”
This is an extremely volatile market which is not supported by all countries. DO NOT INVEST IN THIS MARKET WITH WHAT YOU CANNOT AFFORD TO LOSE!!! You have been warned. To those of you already in it, you know of what I speak. HODL, the bulls are coming back.