Crypto 101

What is Cryptocurrency?

crypto 101Crypto 101:  Cryptocurrency, digital currency, and virtual currency are all names for money that can be sent digitally and, most often, operate independently of a central bank. Digital currencies most often deploy encryption techniques to generate the units of a currency. In theory, cryptocurrencies solve problems such as double-spend. [1]

 

Crypto 101: What coins are out there?

There are many cryptocurrencies that are available such as Bitcoin, Ethereum, Ripple (XRP), Binance, Libra, TRON, Bitcoin Cash, and Litecoin. However, in total, there are at least 2,200 cryptocurrencies.  [2]The coins range from decentralized coins like Bitcoin (although some argue that Bitcoin is not truly decentralized) [3]to centralized coins like the recently-announced Libra from Facebook.

 

Crypto 101 understandingCrypto 101: There are also permissioned tokens and permissionless tokens. You can think of the difference here like comparing open-source, public information that you don’t need permission to use (permissionless), with a private, secured network that is insularly (permissioned). Bitcoin is a permissionless network. It is open-source, and anyone can build on the protocol. However, coins like Facebook’s Libra and JP Coin from JP Morgan are centralized and permissioned. Then there are what some people would consider hybrids between permissioned and permissionless. [4]One of the drawbacks to permissioned ledgers is that they are centralized authorities which almost contradict the initial idea that Satoshi outlined in the Bitcoin whitepaper.[5]

 

Financial Crisis

The Bitcoin protocol and corresponding white paper were created in 2009 in the year following the financial crisis. In that year, as you probably remember, there was a massive bank “bailout” in which the central banks of the world, most of which make up the federal reserve, received, a whopping $700 Billion from then-US President, George W. Bush. The bailout paired with the pending mortgage and loan crisis destabilized the world economy and resulted in protests such as Occupy Wall Street, among others. It also resulted in a “credit freeze” and lower consumer spending.[6]

Bitcoin’s whitepaper was released anonymously by Satoshi Nakamoto about 1 year after the financial crisis started. Its goal was to create a currency that did not require a central bank as a centralizing bottleneck, aka, peer-to-peer cash without a government or other third party.

 

The Cycles of Bitcoin and Cryptocurrency:  Is Cryptocurrency an Investment?

There is disagreement over whether or not cryptocurrencies are considered investment or speculation. Cryptocurrency is a long-term investment that goes through market cycles. While the most recent market cycle (BTC rallied from $600, to $20,000, to $3,000.00), is the one that everyone remembers, it is most definitely not the first. Again, Bitcoin exists in cycles.

In 2013, it went from $1,300 to $200.00. That was the first well-known bubble. Leading up to the then all-time high, Bitcoin went from $50.00 all the way to $1,300. Then the cycle brought the price down to just below $200 in the Mt. Gox era. [7]The bottom of that cycle was in January 2015. Rising again, it stayed around $300, then it rose again to $400, $500, and then the beginning of 2017, it was around $900.00. Later that year, it was at an all-time-high of $20,000.00.

 

Bitcoin Saving versus Bank Account Saving

If you take the same money and put it in a bank account, the bank will assess fees and cause you to lose your money. Bitcoin has not lost anyone money for long-term investments over a 3-year period.

Day trading is a very different story.  If you buy this week and sell next week, you will lose money (except if you are a professional day trader that can analyze the charts). Even for the people that bought at the top of the last bull run at $20,000, if they wait long enough, they will make their money back. Bitcoin is a safe haven against recession and wars because it’s not controlled by a central bank or government.

Additionally, it is a very fast way to send money. It’s accessible to anyone everywhere in the world with internet (and increasingly to those without internet). [8]Transactions do not take several days like SWIFT or bank wires.

This is the future of payments although it will still take time to be understood. It’s like credit cards in the beginning, no one understood where the innovation was headed – “What is this plastic thing?” they thought. “I carry cash.” It took a long time for the value of cards to be understood, just as it will take time for the value of Bitcoin to be understood.

 

Long-Term Investment Due to Limited Number

The true long-term value lies in the limitation of Bitcoin and the fact that it’s a storer of value. When Satoshi created Bitcoin, (s)he created a limited supply of 21 million Bitcoin in total. This is not like a central banking system or federal reserve that can print money at will. This is simple supply and demand economics- because there is a limited supply, the demand will follow. Every day it’s being used more and accepted by more people. When it was created, there was a certain number in supply. That number will remain constant. The demand is increasing. You have a supply that is drying.

Now we are seeing the mainstream adoption of Bitcoin and cryptocurrency. Vendors such as Starbucks and Whole Foods will be accepting Bitcoin in the near future. Nobody saw this coming (just as credit card acceptance grew over time). Other vendors like Microsoft, Expedia, Wikipedia, Overstock, and many more.

 

In Conclusion

Cryptocurrency is definitely one of those things that is exciting to learn about and even hard to understand. It is a long-term investment with a limited supply that plays into supply-demand economics. It is a store-of-value. Even people working in the industry take years to truly figure out the major components of crypto.

Bitcoin is a worthwhile pursuit. That’s why we’re in the business of making Bitcoin accessible to everyone, everywhere. At BelcoBTM, we believe in having direct access to capital without needing a centralized bottleneck taking a cut. BelcoBTM is building one of the largest crypto ATM Networks in the United States, and soon we’ll be expanding internationally. Follow our journey by visiting our website today.

 

 

[1]Double-spend in traditional currency is that you spend money that really isn’t in your bank account. For example, if you have a pending credit transaction that has not posted yet, your available funds may not reflect that. With Bitcoin and other cryptocurrencies, Double-spend is solved.

[2]According to CoinMarketCap.com

[3]https://www.coindesk.com/bitcoin-is-becoming-more-decentralized-indicates-new-research

[4]XRP ledger is not controlled by Ripple as a company. It is pre-mined.

[5]https://bitcoin.org/bitcoin.pdf

[6]Two good sources for information on the 2008 financial crisis, although incomplete, can be found here http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-to-aid-mortgage-lending.htmland here https://www.reddit.com/r/explainlikeimfive/comments/1mxga1/eli5_what_caused_the_financial_crisis_in_2008/

[7]https://en.wikipedia.org/wiki/Mt._Gox

[8]Applications such as GoTenna and other mesh-network devices are becoming increasingly popular as offline ways to send Bitcoin (e.g., TxTenna).