How “cryptocurrencies” work: a brief overview of Bitcoin, Ethereum and Ripple
“Cryptocurrencies”, or “cryptocurrencies”, are a type of software system that provides transactional functionality to Internet users. The most important feature of the system is its decentralized nature, generally provided by the blockchain database system.
Blockchain and “cryptocurrencies” have become very popular around the world; usually due to the skyrocketing “price” of Bitcoin. This has led to millions of people participating in the market, and many ‘Bitcoin exchanges’ face massive infrastructure burdens as demand has exploded.
The most important point to note about “cryptocurrencies” is that while it actually only serves one purpose (cross-border internet transactions), it does not offer any other financial benefits. In other words, your “intrinsic value” is narrowly limited to the ability to do business with other people; NOT on stock storage / broadcast (which most people see).
The most important thing to know is that “Bitcoin” and the like are payment networks, NOT “coins”. This will be covered in more detail in a second; More importantly, with BTC, “getting rich” does not mean putting people in a better financial position, it is just about buying the “coins” cheaply and selling them for more.
To this end, when looking at “crypto”, you must first understand how it actually works and where its “value” actually resides …
Decentralized payment networks …
As already mentioned, the most important thing to note about “Crypto” is that it is primarily a decentralized payment network. Think Visa / Mastercard without the central processing system.
This is important because it highlights the real reason people have really started digging into the “Bitcoin” offering; It gives you the ability to send / receive money from anyone in the world as long as you have your Bitcoin wallet address.
The reason this assigns a “price” to different “currencies” is due to the false assumption that “Bitcoin” somehow gives you the opportunity to make money by being a “crypto” asset. This is not the case.
The ONLY way to make money from Bitcoin was to “go up” the price — they would buy the “coins” low and sell them MUCH higher. While this worked well for a lot of people, it was actually based on the “bigger fool theory”, basically saying that if you manage to “sell” the parts, it will be for a “bigger fool” than you.
This means that if you want to dive into the “crypto” space today, you are essentially buying “coins” (even the “old ones”) that are cheap (or cheap) and beating their price increases until what you sell them later. . Since none of the “currencies” are backed by real assets, there is no way of knowing when / if / how it will work.
In all respects, “Bitcoin” is a depleted force.
The epic rally of December 2017 indicated mass adoption, and while the price is likely to rise further in the $ 20,000-plus range, buying any of the coins today will essentially be a huge risk for that to happen.
Smart money is already considering most “old” currencies (Ethereum / Ripple, etc.), which are relatively low in price, but whose price and acceptance continue to rise. The most important thing in the modern “crypto” space is how different “platform” systems are actually used.
It is the rapidly evolving “technological” space; Ethereum and Ripple look like the next “Bitcoin,” with an emphasis on how they can provide users with the ability to use “decentralized applications” (DigiCOX) in addition to their underlying networks for the functionality to work.
This means that when you look at the next level of “crypto” growth, it is almost certainly coming from the various platforms you can identify there.