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Exploring Cryptocurrencies

Bitcoin

On October 31st, 2008, the white paper titled Bitcoin: A Peer-to-Peer Electronic Cash System was published on a cryptography mailing list online by Satoshi Nakamoto. The open-source software was then released in January 2009, which proposed a completely brand new decentralized payment system that operated outside the control of any central authority, government, or corporation. Although, the real identity of Satoshi Nakamoto is still unknown, it is often argued that knowing the true identity of Satoshi Nakamoto is irrelevant. Whether we know the true identity of the creator or not, they have nothing to do with its functioning as a payment system or with the technology behind it.

Bitcoin is a global digital payment system, that allows anyone to send money to anyone across borders, without the limitations of traditional banking systems. No longer do you have to abide by the constraints of expensive money-wiring fees, geographic restrictions, or the hours of operation set by banks. The infrastructure of Bitcoin, allows anyone with an internet connection to participate in the network, giving them the freedom to essentially be their own bank.

Exploring Bitcoin

The backbone of Bitcoin, blockchain, is a globally distributed, tamper-proof public ledger, that secures the integrity of all transactions that has ever occurred. Essentially, it is a network of computers, that communicate with each other to validate that a transaction has occurred. Each network node, has their own copy of the blockchain, so they can confirm the integrity of a transaction, completely eliminating the possibilities of fraud or double-spending.

Bitcoin has a capped supply limit of 21 million Bitcoin that will ever exist. This characteristic is important to point out because it is the first time that digital scarcity has ever existed. Unlike fiat paper based currencies like the US Dollar, you cannot simply print or make copies of Bitcoin. Bitcoin can only be created by the process of mining, similar to how physical Gold is mined. With the use of powerful dedicated computers, they computationally work to solve an algorithm.

Price of Bitcoin

When Bitcoin was first introduced, it was worth only a few cents. On May 22nd 2010, programmer Laszlo Hanyecz paid a user 10,000 Bitcoin over the internet for two Papa Johns pizzas worth around 25 at the time. Now known as Bitcoin Pizza Day, the event was recognized as the first real-world transaction with Bitcoin. Today, 10,000 Bitcoin is worth around 14.8 million USD, making it the most expensive pizza order ever.

This week, on May 2nd 2017, Bitcoin surged to an all time high above 1,400 USD, after more than tripling in value over the past year. As more countries are becoming aware of the technology of Bitcoin, it is beginning to get wide spread recognition. In April 2017, Japan officially recognized Bitcoin as currency, making Bitcoin a legal form of payment within the country. In light of this news, the new developments are expected to drive the cryptocurrency usage in Japan to over 9 billion USD in the next three years.

According to CoinMarketCap, as of May 2017, the total market cap for cryptocurrencies is more than 38 billion USD as opposed to the 8 billion USD market cap in May 2016. In the wake of a new digital era, many alternative cryptocurrencies have been developed. While some altcoins offer nothing new when compared to Bitcoin, there are quite a few that offer fundamentally unique properties and functionalities such as Ethereum and Monero. The impact of altcoins can be seen by the drop in Bitcoins dominance of the total market cap of cryptocurrencies to 61.4 percent, while the remaining combined altcoin market capital currently sits at roughly 15 billion USD.

Birth of New Markets

Bitcoin and its underlying blockchain technology, has undeniably paved the way for innovation in vast areas of the world. The influence of the technology behind Bitcoin has seeped into many different fields, breeding newer ideas and driving the evolution of technological development. With this in mind, there has been a push to allow buying and trading cryptocurrencies easier for everyone through online exchanges.

As of May 4th 2017, exchanges such as Poloniex, Kraken, and GDAX currently have 24 hour volumes of 423,075,331 USD, 132,277,384 USD, and 118,399,866 USD, respectively. Other exchanges such as OKCoin, based in China has a 24 hour volume of 65,565,970 USD along with Bitsamp at a volume of 27,404,347 USD in Solvenia. However, to mitigate the risks of using these third party exchanges, BitSquare, a decentralized exchange, has been recently deployed. Although its volume of 10,448 USD is low compared to centralized third party exchanges, it is filling the void of the need of a decentralized exchange. At the very least, these numbers are an indication of the rise in demand and will most likely continue to rise in the future as more countries begin to enter the market and development increases.

Ethereum

Ethereum is different than Bitcoin due to its smart contract functionality. Smart contracts are used to describe computer code that can facilitate the exchange of money, content, property, shares, or anything of value, without any possibility of censorship, downtime, fraud or third party interference. It currently has a market cap of roughly 8 billion USD, priced at 91.14 USD per Ether.

The Ethereum platform allows anyone to develop decentralized applications which have the ability to run autonomously and cryptographically store the applications data on the public decentralized blockchain. The emergence of this new technology has sparked interests from many companies such as Microsoft, Bank of America, and JPMorgan and other big corporations. Ethereum has the potential to drastically change the way the Internet functions as more developers, investors, and entrepreneurs enter the ecosystem.

Monero

Taking Back Our Privacy

Privacy is a fundamental human right and is unfortunately being stripped away from people all over the world due to oppressive governments. Monero is a cryptocurrency that is completely private, secure, and untraceable. It was often thought that Bitcoin was anonymous and untraceable, however, this was discovered to not be true. Although, the true identity of someone sending or receiving Bitcoin may not be very clear, every single transaction that has ever occurred is publicly recorded on the blockchain. This makes it possible for anyone to trace the funds by inspecting the blockchain until the user is deanonymized, which can happen when users link their real identity to third party Bitcoin exchanges.

Monero solves the issues of privacy that Bitcoin necessarily has not. As a privacy centric digital currency, Monero enforces mandatory privacy at the protocol level by hiding the sender, receiver, the amount transacted, and balances of Monero addresses. It is important to note that privacy is mandatory, not optional. But, if users wish to deprivatize their funds, the nature of Monero lets them do so with its view key functionality, giving someone permission to view the amount. With a market cap of around 378 million USD at 26 USD per Monero, it is often claimed within the active community that it is severely undervalued for what its technology offers today.