Will Cryptocurrency Save the World?
For the uninitiated, cryptocurrencies are an exotic digital currency that some people are playing with to buy and sell mostly digital products on the internet.
For many adherents, it promises hope of a decentralized currency or currencies, that can provide anonymity and to some degree, privacy, to those using currencies like Bitcoin to engage in transactions.
Many are jumping on the investing bandwagon for these currencies, with little idea of whether or not the more than 1,000 currencies are legitimate or viable. A lot of people have lost a lot of money, and many more will because they’re looking through rose-colored-glasses at the potential to quickly make a lot of money, after hearing of a small number of people that invested at the right time and made a fortune.
Unfortunately for most, they not only won’t make a lot of money, but they’ll lose a lot of money, as they don’t do much more than throw it at the newest cryptocurrency without performing due diligence, or even knowing what it does.
One of the first things to understand about crypto is in most situations, they are more than a currency; many of them include apps which perform other functions.
So if all that’s happening is a new coin is generated that doesn’t do anything new, it is almost certainly doomed to failure.
For example, Bitcoin is, for the most part, a pure currency, meaning it was developed for the purpose of buying and selling stuff.
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Probably the second-most popular or known cryptocurrency is Ethereum, which ahs been enjoying a nice run in 2017. What isn’t as well known is Ethereum not only is used to buy or sell stuff, it has the added value of being able to run crypto infrastructure, such as apps and smart contracts.
Another less known crypto called filecoin, is able to produce peer-to-peer storage.
So when looking at all the coins being created, the first question to ask is what problem does it solve. If it doesn’t solve a problem, it’s not likely to gain any traction or last for long. Most crypto currencies to day are scams, and they’ll end up losing investors a lot of money. The reason is is because they offer nothing that the market is looking for, meaning there is no demand for it.
Two reasons for the emergence of cryptocurrencies
The primary or initial reason for the emergence of cryptocurrencies is over concerns over the impact of central banking on currencies, and the accompanying control they have over the economy and by extension, our finances and personal lives.
With the loss of privacy in the digital age, it has generated concerns over how governments can control the money of individuals that may want to move it to different places if it faces risk.
Think of Venezuela at this time. It could become very hard if not impossible to get your capital out of the country if someone with some wealth wanted to, which means it could be locked in and essentially stolen by the government through various confisgatory means.
With the creation of Bitcoin, it was done to solve the problem associated with fiat money, including decentralization, anonymity, and a limited supply. There will only ever be 21 million Bitcoins in the world. It also was formed to provide better security, which the validation process ensures; although it’s a weakness in that it makes it harder to buy and sell with it because of the time it takes to confirm ownership and control of Bitcoins.
Cryptocurrencies, while providing anonymity, don’t provide full privacy, because people can see the transaction because of the validation process. It isn’t known who is engaging in the transaction, but the transaction itself can be seen.
The second reason for cryptocurrencies is what I mentioned earlier, which is the inclusion of functionality in them, such as with Ethereum and filecoin. The functionality operates similar to apps. This is where you look to determine whether or not the crypto meets any demand, or it has no other function than buying or selling. Bitcoin already provides that option, so having others that only do that don’t make sense. They’ll fail.
Another factor to consider is there are cryptocurrencies being pre-mined and centralized, which takes away the major purpose for them being created in the first place. Coins like that aren’t going to offer people the desired decentralization and anonymity, which means they are basically something different than Bitcoin, Ethereum, and others. It’s an attempt to control the market and remove what makes cryptocurrencies what they are.
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Not too late to get in
If you’re interested in cryptocurrencies, don’t believe the hype from marketers that you’re too late to the game. This is really only just the beginning stage of the market, and there will be a lot more to come. So don’t make decisions to rush and buy crypto because it’s being presented as being too late to the game. It isn’t.
Again, the key is to do some research and look for elements in the currency that differentiate from others, and provide another function besides buying power.
Also look at who’s investing in or behind the currency, and how much traction it’s getting in the media or social networking sites. Understand that cryptocurrencies need a network to grow, and if there isn’t a lot of interest, there is no market for a specific crypto. That means it’s useless and won’t be important in the market, or last for long.
Don’t be persuaded that if you don’t buy some cryptocurrencies now that the opportunity is passing you by. Not only is that not true, it’s completely the opposite. Bitcoin, and to a lesser degree, Ethereum are no longer a secret, but there are more legitimate contenders that will generate a nice return for those buying them up.
Just be aware that the vast majority of cryptocurrencies are either a scam or don’t include any other functions. This makes them worthless. On the other hand, those that provide a function represent a significant opportunity to generate a nice return.
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Another thing to consider
What those that follow cryptocurrencies closely tell me is there is an easy way to identify scams in this market, and that is by looking at the underlying code of the crypto.
This doesn’t mean you have to know code, only that you need to know someone that does, or find out in forums or other places if the code has been checked out thoroughly.
The reason for that is a number of cryptocurrencies have been found to have flaws in the code which allow them to be susceptible to being hacked. You definitely want to know if that is the case before buying any cryptocurrency.
The question now is whether or not cryptocurrencies are a passing fad, or they have legs. My belief is this is a lasting trend and not a fad. Cryptocurrencies are here to stay.
As usual, it will take a period of time to sort out the winners from the losers, and that includes many more that will be introduced in the future. The problem is these currencies are nothing more than a little code that is easily duplicated. Almost anyone with a little knowledge of that could create a currency and try to build a network around it.
I don’t mean by that there is necessarily something bad about that. I’m simply reinforcing the fact we must look at the functionality of the currency going forward. Developing a direct competitor to Bitcoin isn’t going to cut it, now or in the future.
What Bitcoin and others need is for a major retailer to accept it as a means of making transactions. Most people are hoping and looking to Amazon for this, as it would be a complete game changer for the crypto market.
If crypto is here to stay like I believe it is, this will be inevitable. There will need to be some improvements in the time it takes to validate Bitcoin and other currencies, but that is a solvable problem. It will come about.
What remains to be seen is whether or not governments will force their way in and attempt to take over the market, or make it illegal. The decentralization at this time makes it extremely unlikely that will happen, although there will always be those that want to avoid any risk, and will accept pre-mined and centralized crypto, in exchange for perceived safety.
The value of crypto as a currency is obvious, what remains to be seen is how creative this will get, and what types of functionality will be added to the currency role of each cryptocurrency.
In a way, the term already doesn’t apply to the rapidly changing market, as the value of new cryptocurrencies will increasingly be what they offer beyond the ability to be something that can be used to exchange goods or services.
What’s fascinating is the value of the quality cryptocurrencies will increase based upon what market problem they solve, and that will give owners more buying power, based upon functionality, and not the value of the currency in and of itself. This is an extraordinary change in how we view and use currencies, and that is where a lot of the potential lies as a wealth builder.
I’m not sure this is going to be the salvation of currency, the economy or markets some think it’ll be, but it definitely is going to change the way we perceive money and buy or sell.