What Reason to Invest in Crypto?

Until recently, there was only one proven market: bitcoin, since bitcoin is still by far the most widely used and accepted cryptocurrency in the world. However, not all crypto currencies are bad. In fact, many are very good – and will continue to grow.

In short, it’s worth knowing the main features of some of the most widely traded and well-known digital currencies. If you don’t already own any, then it’s time to consider investing in some.

A few of the key features of a few popular digital currencies, ranked in ascending order of how widely used they are.

What Reason to Invest in Crypto
What Reason to Invest in Crypto

What Reason to Invest in Crypto?

Ethereum (ETH)

First off is Ethereum. It’s one of the best selling cryptocurrencies out there and this is because it’s the foundation of the popular decentralised application (dApp) platform ethereum-go. Many (if not all) of the large dApp companies out there have plans to develop their own apps with the tech which is built on top of the ethereum platform.

As a consequence, ethereum is often touted as the place where bitcoin lives (although not on the same level) and ethereum could end up being the way of the future for cryptocurrencies. It’s the cheapest blockchain at the time of writing and probably the least ‘complicated’.

Up until December last year, ethereum’s market cap was around $35bn but recently it’s been on a rocket-boost. ETH was trading at $636 per coin at the start of February, before hitting a high of $847 per coin on March 6th.

Dogecoin (DOGE)

Dogecoin is currently the third most well-known digital currency in the world. It also happens to be the ‘funny’ or ‘milo’ (the dangly bit at the bottom) and coin of the digital currency world. Dogecoin comes in a number of different varieties including gold and silver, as well as the slightly more expensive ‘silver’ variety.

It can be used to purchase anything from bread to a pizza, and even to help fund a good cause. It is like Litecoin in many ways, but even more fun and a whole lot more fluffy!

DASH

Also known as Darkcoin or a few other terms, Dash is probably the second most well-known cryptocurrency, behind only bitcoin. Dash is used for payments on darknet marketplaces such as the now-defunct Silk Road, and is often used as an alternative to bitcoin for those who want more privacy with their payments. It also has the ‘private’ key hidden inside the currency itself to stop people spending coins they don’t have.

Part of what makes Dash so useful is that there are no fees. So far, this has led to a staggering 200% annual increase in transaction volume. However, in order to acquire the currency you need to ‘mine’ the coins which requires a powerful computer.

However, Dash is getting harder to mine, and its system is designed to be harder to hack and exploit which is a promising development. Dash has more than 20,000 monthly active users – and this is up from 7,700 in March 2017.

Ripple

Ripple is essentially the second offering from crypto-currency company (and one of our own) XRP. XRP is the digital currency used in Ripple’s instant settlement system known as RippleNet. XRP can be sent around the world quickly and securely without a fee and with very low counterparty risk.

XRP is the third most popular digital currency on the market and is also extremely important in the banking world as banks which use RippleNet are able to exchange money instantly and cheaply.

Ripple’s market cap currently stands at over $100bn making it the second biggest digital currency in the world. It is also the second largest digital currency by market cap to bitcoin.

Litecoin

Litecoin, sometimes called ‘silver’ or ‘silver stack’ and now the fourth largest digital currency, is another digital currency based on the blockchain technology. Unlike the ‘big three’ – bitcoin, ethereum and bitcoin – Litecoin has only ever had a market cap of around $10bn, compared to the ‘big three’ which are more than $300bn.

Litecoin has been the best performing crypto-currency of the three but its overall market cap is currently just under that of bitcoin. Like many others in the digital currency space, litecoin uses mining as a means of generating its coins and has no premine, just a pro-rata divisibility of the currency.

Monero

Like litecoin, Monero is also based on the blockchain and uses similar mining techniques but also implements faster transactions, zero fees and its own currency known as XMR. Unlike litecoin, monero also has a built-in privacy technology called RingCT. The technology means that every transaction is protected with a number which is random and unique, known only to the parties involved.

Monero is currently ranked number 16 on the list of ‘top 20 digital currencies in the world’ and has the highest market cap in the top 20.

Ethereum

Ethereum is another currency, although it is technically still in ‘beta’ and just over a year old. It is the fifth largest digital currency in the world with a market cap of $46bn and is used as the underlying technology for the ‘smart contract’ style of transaction which underpinned the original Silk Road marketplace.

Ethereum allows people to set up ‘smart contracts’ which execute automatically when certain conditions are met. This can be a very powerful system but it has faced criticism for allowing for significant financial and other fraud to be executed.

People have also expressed concerns that the rise of smart contracts may be allowing for people to bypass the traditional laws and protections which would otherwise protect individuals.

BitConnect Bitconnect has its origins in the Ponzi scam which has been labeled as the biggest in history. Ponzi schemes are responsible for the most spectacular financial disasters in history and are considered by many experts to be one of the chief causes of the 2008 financial crisis.

There are concerns that the Bitconnect bubble may yet go on to surpass the many other financial bubbles of the past. Although many claims have been made that the Ponzi scheme has begun to ‘pop’, the BitConnect team continues to insist that the program and its currency is not fraudulent and that all funds have been safe and accounted for.

Whilst there is evidence to suggest that the BitConnect currency may have taken a dive after news broke that its founders were being investigated by authorities in India, it is still by far the largest cryptocurrency in the world and is currently valued at around $15bn, making it worth almost 20 times more than Ethereum.

Satoshi Nakamoto

While Satoshi Nakamoto is best known for co-founding bitcoin, he is also believed to have been the anonymous creator of ethereum. Although he has never published any substantial biographical information, Nakamoto has given interviews to tech and finance publications.

The total value of all known bitcoins is now in excess of $100bn but there are very few clues to Satoshi Nakamoto’s identity. In January 2016, Forbes revealed that they had “credible” evidence that the creator of the cryptocurrency was likely a 63-year-old Australian computer scientist named Craig Wright.

Wright has insisted that he did not invent bitcoin but that he is only a ‘forger’ who used his talents to help the technology to develop further.

Whilst it is widely believed that Satoshi Nakamoto is a man, Newsweek suggests that it is actually a group of people and further identifies two men as the most likely candidates to be Satoshi Nakamoto:

Ross Ulbricht, who is serving life in prison for being the creator of the Silk Road and the founder of the failed bitcoin exchange Coin.mx.

Nick Szabo, a cryptographer who believes he wrote the original version of bitcoin but has always denied that he is the creator.

While it is hard to know who Satoshi Nakamoto is, one thing is certain – it is a very famous name.

Smart Contracts

As with bitcoin, the idea behind smart contracts is to allow for the automation of certain financial processes, such as sending a payment to a specific address on the blockchain without having to involve any third party.

The original version of the ‘smart contract’ was originally designed for the iota cryptocurrency. Smart contracts allow participants to agree on certain predefined conditions in order to automatically transfer funds, much like bitcoins, but the cryptocurrency market has proven to be relatively weak in comparison to other blockchain and cryptocurrency markets and the ‘smart contracts’ market has consequently languished.

Despite this, smart contracts have been used in a number of other industries.

One example is IBM’s KCS (Knowledge Capture and Contracts). This service is designed to help banks improve their business processes by allowing them to automate complex commercial agreements without relying on any third party, such as banks or lawyers.

It is widely expected that the main focus of blockchain development will now be on creating ‘smart contracts’. In a report from the Royal Institute of Chartered Surveyors (RICS), many professionals within the real estate industry are now claiming that smart contracts will revolutionise the industry.

DeepMind

As a spin-off company from the UK’s Oxford University, DeepMind develops computational techniques for machine learning. They have successfully developed algorithms capable of beating the world champion of the computer game Go by using only the amount of processing power that can be provided by a laptop.

However, DeepMind has largely remained a research laboratory under Alphabet, the parent company of Google, while its parent company Alphabet has been accused of encroaching on a number of its fields, including healthcare and food.

The technology giant has already taken the first step towards breaking down the wall between smart contracts and conventional computing by creating a blockchain application called the ‘Deep Query’ tool, which allows users to issue customised queries that generate smart contracts. This process makes the ‘Deep Query’ blockchain application possible.

DeepQuery and its underlying blockchain technology have been developed by Dr. Ian Goodfellow and Professor Regina Barzilay of DeepMind, with the assistance of Professor Andrew Miller, the co-founder of financial technology startup Symbiont.
The technology was first demonstrated at a conference in Hong Kong in May. It is expected that the application could significantly increase the efficiency of the underlying smart contract framework.

Digital Identities

New identities created for specific use cases, like electronic medical records, smart contracts and voting in elections, could use a blockchain to store and verify their existence.

For example, it is difficult for a hospital to track down the right patient if their identity has been changed during the course of treatment. The same holds true for voters when their vote has been registered with a different person.

The technology has the potential to revolutionise the way that these issues are addressed by creating digital identities for an increasing number of people, which would include criminal defendants.

Unlike traditional identity systems, blockchain identities are subject to the very strict set of security protocols that Google and DeepMind have already created. These protocols would ensure that identities could not be manipulated and were based on a ‘proof of work’ model, which would require an individual’s application for the identity to be authenticated.

“If the storage and transmission of medical records was automated, the potential for fraud would be reduced to zero. As the technology develops further, it will be more and more beneficial to the parties using it.” — Dr. Ian Goodfellow, Google Brain.

Wealth Transfer

Transferring funds and assets in the digital world is a complex business. Digital money transfer platforms like Western Union don’t have the technology to work around different currencies or prevent the theft of funds, nor do they have the means to negotiate the exchange rates of multiple currencies for customers.

These kinds of complications mean that users are generally forced to carry around cash and face high transaction fees.

The technology is transforming the world of remittances and allows people to make and receive payments without currency conversion and without the need to carry money around.

Experts predict that the majority of cross-border payments using virtual currencies will be from China to Africa, India and Latin America. However, because of the lack of infrastructure across these regions, the rise of blockchain technology in these regions is constrained by the Chinese.

Cryptocurrencies, however, can move money across borders at low cost, while providing transparency to the transaction. As the technology grows in popularity and the value of cryptocurrencies increase, their value is expected to rise too.

“The market is big enough and people are getting used to cryptocurrencies. People know that it is a kind of safety net for them, and that’s why they want to use it. Cryptocurrency has to stay that way.” — Professor Regina Barzilay, DeepMind.

Broadcasts

To extend the benefits of blockchain to the internet of things (IoT), data could be shared between the real world and the virtual world. For example, a smart refrigerator could be programmed to send an alert to the owner if it detects an increase in the contents of a pantry.

In order to receive that alert, the owner of the fridge would need to own a digital copy of the information stored in the machine’s microprocessor.

This is not the case for all IoT devices, however. This is because the microprocessors in IoT devices are vulnerable to hacking and data theft.

Part of blockchain’s benefit is that it protects the data on connected devices, making them safer for customers to use.

Wrap Up

Blockchain is a fundamental component of the modern world. For example, it allows countries to sign international treaties and collaborate on a global scale without the need for expensive travel and the use of diplomatic notes.

In short, blockchain is the foundation for the new digital economy that is set to develop in the coming years.

With the technology being more readily available, the demand for its usage will increase. There are also a number of ways to incorporate blockchain into existing operations without the need for blockchain-specific software.

Earlier this year, Accenture revealed it is to develop a new blockchain framework that will be used across a range of industries.

“Accenture is looking to standardise the building blocks that underpin blockchain technologies, especially its data and trust components. They will be used to identify and mitigate risks and ensure standards for transaction and asset tracking, while scaling the technology for greater production use.” — Thinkmarket.

The developing world is a hotbed for blockchain innovation. Blockchain solutions will soon allow countries to become more efficient and provide transparency for businesses.

This is a reality that would have been impossible to imagine a decade ago.

As blockchain becomes more accessible and the technology begins to be used by more and more businesses, the benefits of its use will begin to be realised around the world.

What risks to investing in crypto?

Crypto has many risks. It is volatile and subject to speculative bubbles. Bitcoin prices went from under $1,000 in 2013 to over $19,000 in 2017. They have now dropped below $7,000. However, gold and stocks also experienced enormous price swings.

These price swings are not unique to crypto. Take the euro in 2017. The price rose from under $1.05 to over $1.25 in the course of a few weeks. It has since fallen back to under $1.10. Some recent research has shown that returns on asset classes such as gold and stocks are also volatile.

Virtually all cryptocurrencies are highly volatile, so they are not appropriate for most people. While there is a strong case for investing in crypto, the much larger, established markets offer an even greater opportunity.

Taking advantage of the hype, there are also companies that provide initial coin offerings (ICOs). This involves creating new crypto tokens, or coins, with an aim to create an exchange-traded fund (ETF) of this new currency. Such a fund would essentially combine exposure to gold with exposure to crypto. An ETF would have a wide range of investments, rather than just crypto, allowing investors to diversify across both assets.

An ICO of such a fund is effectively creating a new crypto currency. In fact, ICOs now account for 10% to 20% of all cryptocurrency trading, and will continue to grow, as investor excitement continues to build.

Can you buy a ‘physical’ bitcoin?

Blockchain technology is best suited to digital, rather than physical, assets, as it can securely store and verify data. As such, bitcoin, the original digital currency, is not of much use as a commodity or medium of exchange. Instead, people have expressed an interest in creating their own bitcoin ‘pieces’, known as bitcoin ‘nodes’.

These devices are sold in exchange for bitcoin, and can be used to receive the digital currency. Physical bitcoin ‘nodes’ are rare, and will not be widely available until supply is limited. One problem for bitcoin nodes is that they are large and heavy (up to a tonne) and may not be desirable for most buyers.

There have been numerous other ‘physical’ digital currencies. Two notable ones are BitConnect and Bixin. BitConnect aimed to provide an alternative to bitcoin by providing an alternative infrastructure. Like bitcoin, BitConnect was meant to be held in electronic form. Users are charged in return for the transfer of the coins to the exchange. However, the exchange was vulnerable to hackers and the platform collapsed.

Bixin was attempting to create a new currency using a more traditional model. It was intended to function as a medium of exchange or store of value in the same way as the traditional currencies. However, the project collapsed in 2017 and customers are still waiting to be refunded their money.

Examples of existing digital cryptocurrencies

While cryptocurrencies are essentially digital, they are largely based on the blockchain. This is a digital ledger system that records transactions. Each entry is digitally signed by one or more entities, and anyone with the right authorisation can view the ledger.

A number of cryptocurrency exchanges are operated on the blockchain. Investors can buy, sell and transfer crypto assets from one exchange to another.

For example, one exchange may serve South Korea, the United States and other major regions. The exchange is unable to move all crypto assets to another exchange, as this would be very costly and risky. The exchange serves as a ‘medium’ to exchange between users, in much the same way that the digital currencies serve as a ‘medium’ for individuals to transfer funds.

While there are significant differences between cryptocurrencies, there are some trends that are common across them. These include the need to have a place to store them, the requirement for them to be verified, and the use of blockchains to store them.

There are different blockchains in use, each with its own particular strengths. A blockchain is a shared network of computers that work to create an immutable record of transactions. The blockchain is public by default, and the records are stored in a ‘chain’ of connected blocks. Each block includes a timestamp, which is linked to the previous block. Blockchains work independently of each other, as each transaction is stored on each block, and then linked to the previous block.

The validity of a blockchain depends on the integrity of the previous blocks.

Consequently, for a blockchain to be secure, all the previous blocks must be correct and up-to-date. As a result, there is a fair amount of effort involved in the validation of a block. Hence the need to have a trusted third party that validates the block before it is added to the blockchain.

For this reason, digital currencies employ a number of different blockchains that are used to validate the transactions. This is known as ‘mining’.

Most digital currencies use a public blockchain to validate transactions. However, a new form of blockchain has been proposed, known as a ‘private blockchain’. This uses a single party to verify transactions. For example, an institution might be required to register transactions to a central server that a number of users of the currency trust.

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