“You’ve heard of this new cryptocurrency coin called ethereum lately? It has been on the news quite a bit lately.” I asked my cousin Simon as I typed in ethereum on my phone browser.
“I have never heard of it.” My cousin Simon replied. “But I have heard of Bitcoin.”
“Well yeah, everyone has heard of Bitcoin.” I replied back while looking over the price of an ethereum coin. “Apparently this is another cryptocurrency that has been on the rise. This ethereum coin is $350 bucks right now.”
“That’s nothing compared to Bitcoin! A Bitcoin is worth over $8,000 right now.” My cousin Simon exclaimed. “Even though ethereum is cheaper than Bitcoin, it is still very expensive. I don’t think I could afford one.”
“Yeah, you’re right.” I agreed with Simon as we continued talking about various things. Our thoughts drifted away from cryptocurrency, it was not important to us. At least that’s what we initially thought.
A week later, I suddenly remembered my conversation with Simon and decided to check on the new price of ethereum. I was curious if there was any change. This time I grabbed my phone and googled the same thing. Back on the same dark blue webpage, a white centered number greeted me. It was 450. The new price for ethereum went up to $450! That was an increase of nearly 30% in price within a week.
Shocked and hardly believing the new price of ethereum, I quickly messaged my cousin Simon. I told him the news and he was mildly shocked. I just couldn’t understand what was going on and neither was he. However, I had an urgent feeling inside of me. If the price of ethereum can rise 30% in a week, what will happen a month down the line?
Without thinking much, I immediately convinced myself that I need to buy some ethereum. I went to YouTube and found an instructional video on how to buy ethereum. With the new knowledge, I downloaded Coinbase and added my credit card to the app. I ended up buying 2 ethereum coins without truly knowing what they are. And there I began my journey into learning about cryptocurrency.
What is Cryptocurrency?
The easiest way that I know how to describe cryptocurrency is electronic money or internet money.
You may say isn’t credit cards or PayPal electronic money? I would say, in a way it is, but it is centralized and restricted in a sense.
What makes money valuable in the first place? It is people’s trust in the system. Money like dollars is just a piece of paper or cloth however way you want to call it. It is only valuable because people believe in it. It is valuable because it is backed by a central power like the government. Why else would a one dollar bill be worth more than a one hundred dollar bill? Just because a number 100 is written on a piece of paper and a number 1 is written on the same kind of paper, why else should I believe that the 100 dollar bill is worth more?
The same goes for credit cards. It is backed by powerful entities like banks.
You may believe that cryptocurrency is highly risky. It is nothing. It simply doesn’t exist. It is just bunch of codes and electronic signals. But what is a credit card? Is it not a piece of plastic with numbers written on it? It has your name, a series of routing numbers, the expiration date, and a CSV number in the back. What’s so different between cryptocurrency and the things that we have right now?
The biggest difference between cryptocurrency and current fiat money/ digital money like credit & debit cards is that there is no need for a central, 3rd party for the exchange of value. Cryptocurrency doesn’t need the backing of banks nor government. It is the most democratic form of money. It’s value driven solely by the people. There are no cryptocurrency building, no banks, etc.
How cryptocurrency works is that it uses brand new technology like the Blockchain. Blockchain is basically a world wide spreadsheet for transfer of cryptocurrency. It is a digital ledger that records not only all financial transactions, but also anything of value. The data is stored on all computers or devices within the network of those who use this technology.
There are many technical aspects of cryptocurrency. It is hard to understand all the science behind the technology. However, not understanding how the internet works doesn’t make it any less revolutionary. The same applies to cryptocurrency. Why? Because it is changing the very nature of how money is transferred.
Why Invest in Cryptocurrency?
Cryptocurrency brings power back to the people from the banks. In our developed nation, having banks is not an issue. Transactions are fast the way it is. However, in underdeveloped nations where billions of people who don’t have access to banks like we do, cryptocurrency can help them.
For example, Venezuela is suffering from an economic crisis where its paper money is plummeting in value. Inflation is rampant. Cryptocurrency solves this issue because it is deflationary in nature since there is a limit to how many coins there are in each unique cryptocurrency.
Fiat money must be backed by the government supporting it. Cryptocurrency is backed by people who believed in it. It is an international currency, not gated by the government. Because you can send cryptocurrency anywhere around the world as long as there is an internet connection, it becomes an instant transfer of value with low or no fees.
You also have to take into consideration that it takes money to print money. If cryptocurrency becomes viable around the world, we can reduce the physical resources needed to make money. We don’t need so many different types of currencies around the world that only people locally can use. Why not create a bunch of digital, programmable currencies and let everyone in the world decide which ones to use?
Better yet, since cryptocurrencies are programmable, it can improve with the passage of time. In fact, many different types of cryptocurrencies are made. There are coins used for privacy, others used for lending purposes, others used for fraud protection and applications, and much more.
Cryptocurrency has grown exponentially. It is not at the phase of global adoption. Instead at its current phase, it is merely used as an asset for investment. If you study the past year trend, you would know. Take a look at the table below.If we look at the table above we can make the following conclusion. Seven out of ten coins all went up astronomically. I’ve created the ratio below:
What the table above shows is that the seven coins went up nearly multiply times. This trend is unsettling. If you invested a fraction of your money in the top ten coins and you also diversified your portfolio with wide varieties of top ten coins, you would have experienced growth. There is absolutely no way you would have not make money if you just held your coins for a year!
Let’s look at what the other coins in the table are on December 3, 2017. According to CoinMarketCap, Augur, NEM, and MaidSafeCoin are $36.61, $0.275911, and $0.554071 respectively. (Prices checked at 1127 Eastern Time) If I were to create a ratio for the remaining 3 top ten coin not on the above list, it would be:
From Nov 2016 to 2017, we can conclude that if you invested in any cryptocurrencies in the top ten, regardless of what you brought, you made money! The worse case, you multiple your money by over seven times! The best case over 71 times!
As you can see, this is why I am so excited and psyched about cryptocurrency. It is not mainstream yet. In the world there are trillions of currencies in circulation. Many more of them are in digital assets of stocks, bank accounts, and etc. The current market cap of cryptocurrency is around $600 billion. This is a mere fraction of the world’s currency. Even though the cryptocurrency market has exploded and grown over thousands of times, it is still in its infancy.
I suspect, and this is pure speculation but an educated one, that the cryptocurrency will easily bypass the one trillion dollar market cap. This means a growth of almost twice of what it is now. I don’t know if the top ten coins will experience another year of tremendous growth of growing 70 times normal value. But I highly suspect that at the very least the top ten coins will experience a 100% increase in value, which is a mere 2 times increase.
However, cryptocurrency is still an unexplored market. It took many years to reach the growth of last year. There are also times when the currency dropped in values nearly equal to its gains. However, I know that this market will continue to rise.
Bitcoin went through many trials. China banned it. One of the major exchanges called Mt. Gox was hacked and many people lost their coins. However, despite all the adversity, the coin has still grown no matter what happened.
We have many billionaires and financial folks in the Wall Streets calling cryptocurrency a bubble. To an extent I agree with them. People saw the crazy growth like none other before. The Dot-com saw growth but nothing like cryptocurrency.
What I see is this: cryptocurrency is growing astronomically and it is a bubble, but the bubble has not reached maximum capacity. Even if the bubble burst it will burst much later. And when it does burst, the values it will fall back to will still be many times bigger than what we have now! This is pure speculation on my part, but I see this as the future of currencies.
Who knows, if one day 3rd party officials like banks are not needed anymore. It will change the very landscape in how money is exchanged. Perhaps when Mars is finally colonized one day, the people there will not use fiat money, but a type of money like cryptocurrency.
Like all investments, there are risks involved. There is a chance that my investment will fall flat. I could lose everything. You must be aware of this. Investments may require luck. It may also require fate or even God like intervention. However, none of those are things that you can control. The only thing that you can control is yourself.
What you can do is to conduct your own research and come to your own conclusions. If you have done your research, you would understand that although you may not achieve what you want, you are one step closer. Risk taking is not gambling. Risk taking is about being bold and calculating.
I see the opportunities lie before me. This is something similar to the dot-com boom, or the stocks boom of the past. If we invested in Google or Amazon decades ago, we would be fabulously wealthy. We are at a time where there are many, many opportunities before us and just as many risks.
It is without a doubt though that this new kind of technology will change how people deal with money. I just can’t wait to see the global impact soon enough. It is already happening.