Is Cryptocurrency the currency of the 21st century?

The first time I heard of Bitcoin was around 2009 through a documentary on an International TV News Channel. At the time the concept of cryptocurrency was barely discovered, and while watching the show, I brushed off the idea of buying into something that may not last beyond the year 2009.  At the time the currency was trading around one US dollar per Bitcoin. Since then, I didn’t bother pursuing or following the trend until recently when I heard Bitcoin was trading around US$4500 per bitcoin, and approaching US$5000 at lightning speed. That’s when I realized my utter stupidity for not buying and investing at least 100 US dollars in Bitcoin!

Cryptocurrencies are a relatively new digital financial instrument that has its trading platform entirely independent from traditional financial trading markets. The first cryptocurrency, Bitcoin, was developed in 2009, by Satoshi Nakamoto. Although the founder has never revealed himself to the public, the general consensus is that this name is just a pseudonym to hide the founder’s real identity. Why? Your guess is as good as mine. Digital cryptocurrency trading has grown with new currencies like Etherium, Zcash, Litecoin, Ripple, etc entering the market. The phenomenal growth in terms of trading price has grown with these currencies and out-performed the growth of traditional commodities, like gold or natural gas. So what are Cryptocurrencies, and why all the hype around it?

A Cryptocurrency is a digital currency that uses cryptography as a means of security in the exchange of this digital currency during trade. This cryptography in turn is also a means of creating new digital currencies based on complex algorithms processed by the Bitcoin application software.  Bitcoin was the first cryptocurrency that was created and traded through a digital trading market. The trading of Bitcoin is referred to as a Peer-to-Peer trading system for online payments that does not require a central authority or third party to vet or manage the transaction, as in the traditional trading market where brokerage firms manage your share trading. Bitcoins are generated or “mined” by miners with specialised computer hardware that processes transactions and packages them into a blockchain. A blockchain is a collection of linear, timestamped series of transactions formulated in a block. The blockchain is essentially a digital transactional ledger which is freely shared and is under no control of any regulatory body.

The Real value of Bitcoin & Crypto Currency [Source: Youtube -Beschrijving]

Bitcoins can be used to trade any goods and services. It is also a convenient investment vehicle through manipulation of its market price. Bitcoins can be used to trade in Forex and can be exchanged for any currency. It is a purely digital entity and has no physical appearance. It is usually stored in digital Wallets that are protected by Cryptographic signatures. All transactions, cryptographic signatures and Private keys are protected by sophisticated encryption algorithms generated by the Bitcoin application software. It therefore protects a transaction and currency from being traded to two different recipients.  

What is Bitcoin [Source:Youtube; WeUseCoins]

Due to the huge success of the Bitcoin, several other crypto coins have emerged on the market that offers additional trading services which are not offered with Bitcoin. Etherium cryptocurrency  has additional service offerings through their smart contract applications. Where Bitcoin’s primary function is Peer-to-Peer transacting, thus eliminating the middleman in the form of a Broker or trading entity, Etherium takes this one step further where application code can be developed to form contracts that, in essence eliminates any third party or middleman between two transacting entities. Thus, a smart contract can be developed to sell your house directly to a buyer without an intermediary of an estate agent or any lawyers. This naturally reduces additional expenses and time incurred through these middlemen.

Source: Blockgeeks.com

There are several other Cryptocurrencies in circulation. As of July 2017, more than 900 cryptocurrencies were available for trading over the Internet. Bitcoin is currently the largest blockchain network with a market capitalization of 75 Billion US Dollars. The total market capitalisation of all cryptocurrencies is around 175 Billion US Dollars. The purposes for development of these cryptocurrencies varies from servicing the legalized Cannabis community in the US (Potcoin) to the trusted storage of any kind of small data, like DNS entries, KPIs, or SSL protocol data (Emercoin). There is even a cryptocurrency that services the adult entertainment industry, called Titcoin!

Trading in cryptocurrencies is available for trade in most countries globally, with a few exceptions like Saudi Arabia, Bolivia, Ecuador, etc. Due to the lack of a regulatory framework to govern the crypto markets, although it can be legally traded in most countries, there are specific restrictions of its trade for businesses and financial Institutions. Countries and regional Trade bodies do not have explicit systems that restrict, regulate, or ban cryptocurrency. The decentralized and anonymous nature of cryptocurrency has challenged many governments on how to allow legal use while preventing criminal activity. Most countries are still analysing ways to properly regulate cryptocurrency. Overall, it remains in a grey area as the technological breakthrough has left lawmakers at a loss for a feasible regulatory framework. Recently countries like Russia and China have moved to restrict its trade further so that a more rigid and manageable control can be formulated to prevent criminals from seeking a safe haven to launder and move illegal money around.

The key differences between Cryptocurrencies and your credit/debit cards when trading on the Internet are:

1. There is no central bank that determines its value or controls the flow of new money being created.  Hence, there is no manipulation of the amount of money in existence by an institution, like the US Dollar  The US Dollar is controlled by the Federal Reserve, but cryptocurrencies like Bitcoin, are controlled to produce an amount of coins limited by an algorithm that no single person, company or country or other type of interest can change.
2. The value of a cryptocurrency is determined by the market .  Countries are not involved, so the welfare of your nation’s economy will not affect the value of your cryptocurrency.  The value of a true cryptocurrency is based solely on supply and demand and functions much like a commodity on the stock market.
3. Cryptocurrencies command the lowest fees to transfer money anywhere in the world.  The fee is not affected by distance, or country borders.  

At the rate that this Industry is growing and the popularity it’s attracting, the Bitcoin may well be the currency of the future. Although there are some countries that refuse to recognize or allow the trading of cryptocurrencies, it is quite evident that this Industry is here to stay and will grow exponentially based on its current status and trajectory.