A Brief Overview
According to Wikipedia, a cryptocurrency is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control creation of additional units, as well as verify the transfer of assets.
In other words, a cryptocurrency is a digital asset, meaning it has intrinsic value, but the probably most significant aspect of a crypto currency is that its value is almost totally defined by market forces. This is known as the decentralization technology, that is, there is no central base of control like a central bank, rather a peer to peer system is used, this means that every single entity on the network has to agree and confirm any transaction before it is accepted. In fact, cryptocurrencies can be said to be all about confirmation. It is a system not built on trust, but on cryptography.
The idea of a digital electronic currency had been in existence since the 1980s. many ideas started up but ultimately failed. The reasons given range from lack of trust, to the companies themselves folding up. The modern face of cryptocurrency came to light in 2008. A mysterious individual or group of individuals called Satoshi Nakamoto posted a paper called ‘Bitcoin – A Peer to Peer Electronic Cash System’ on a mailing list for discussing cryptography. The real identity of this person or people remains a mystery till date.
In the year 2009, the Bitcoin software was made available to the public and mining, the process of creating new Bitcoins and recording transactions on the blockchain began. Before 2010 however, Bitcoin had no monetary value as it had never been traded. That year, someone swapped 10,000 bitcoins for two pizzas. If the buyer had held onto those coins, they would be worth more than $100 million today.
By 2011, rival cryptocurrencies began to emerge and increase in popularity, they are usually called ‘altcoins’ or alternative coins. Since then, the number of other cryptocurrencies has increased exponentially. It is estimated that there are about 1,800 cryptocurrencies in circulation today.
In 2016, Ethereum began to grow in popularity, it uses cryptocurrency known as ether to facilitate blockchain-based smart contracts and apps. This marked the era of Initial Coin Offerings (ICOs), fundraising platforms which offer investors the chance to trade established cryptocurrencies such as ether and bitcoin for what are essentially stocks or shares in startup ventures, usually called ‘tokens’,
By 2017, Bitcoin had reached $10,000 and the total market cap of all crypto coins rose from $11 billion to $300 billion.
Reception and Reactions
Various reactions have continued the rise of cryptocurrencies, ranging from predictions of its future dominance in the global economy, to predictions that it would ultimately fail.
The Winklevoss Twins:
Cameron and Tyler Winklevoss are venture capitalists who own a cryptocurrency exchange, Gemini. Cameron Winklevoss, in February 2018, said Bitcoin could be worth 40 times its current value one day. He made this statement after comparing bitcoin to gold during a CNBC-hosted chat at the Milken Institute’s MENA Summit. His brother, Tyler was quoted as saying “You know criticisms are just a failure of imagination”, referring to criticisms on cryptocurrencies
Barry Silbert, the chief executive officer of Digital Currency Group, a New York venture capital which is tied to or backed by a number of prominent digital-currency enterprises including Circle and Coinbase, among many others, said in July 2018, that although he was extremely optimistic about the long-term prospects of bitcoin, as well as the broader cryptocurrency industry, a huge number of new entrants seemed to be headed for zero.
Tim Draper, a venture capitalist predicted that bitcoin would multiply about 30 within the next four years. He made the forecast in April 2018, at his ‘Draper Block(chain) party” in California. He tweeted the next day that he predicts “bitcoin at $25k by 2022” which brought confusion to quite a number of investors. He however clarified in a later tweet that he meant “$250,000”
Charlie Shrem, early bitcoin adopter and founder of BitInstant and Crypto.IQ said in an interview with Yahoo Finance in August 2018, “A lot of crypto people aren’t traders, traders know there are bear and bull markets. They think it’s always bull”. Shrem, who spent two years in prison for selling bitcoins to resell on the now-defunct ‘black market’ website, The Silk Road, said he was not discouraged by the current fall in the price of bitcoins, he painted pictures of creative destruction by saying “It’s during these bear markets, its when things die, things are born and rebuilt”.
Co-founder and CEO of BitPay, which develop tools to help merchants accept Bitcoin as a form of payment. He said in an interview with CoinTelegraph, that Bitcoins are the most secure and popular form of digital currency, he also referred to Bitcoin as a New Asset class with the potential to change how we send and receive money.
The anonymous originator of Bitcoin, is quoted to have said on forums and mailing lists, that bitcoin would be convenient for people who don’t have a credit card or don’t want to use the cards they have.
Billionaire investor, Warren Buffet says buying bitcoin is not an investment, because it lacks intrinsic value. He said in an interview with CNBC, he described bitcoin as ‘rat poison squared’ and that he’s almost certain that cryptocurrencies will come to a bad ending.
The Berkshire Hathaway Vice Chairman said bitcoin is ‘worthless artificial gold’ when speaking to CNBC’s Squawk Box, He also said bitcoin was a ‘turd’ and that trading cryptocurrencies is ‘just dementia’.
JP Morgan CEO, Jamie Dimon called cryptocurrency a “scam” and said he had no interest in it, Bloomberg reported in August 2018.
Paul, a Nobel-Prize winning economist said that the feverish enthusiasm on cryptocurrencies is ill-informed and that a full-scale collapse of bitcoin is a real possibility, while arguing that cryptocurrencies aren’t solving any problems in the current monetary system.
In my opinion, cryptocurrencies are a very interesting phenomena, seeing as it has widespread publicity and investment, it is also very possible that it has come to stay, as it currently boasts of a market cap of over $300 billion. However, there are serious questions that must still be answered by the cryptocurrency industry, such as security, as well as it’s controllability. Cryptocurrency at its core has a vision of decentralization, which means it would have no oversight from the government or any central organization, while banks and the government exist for the sole purpose of centralization, hence there will be quite a number of clashes as the days unfold.
On the economic side though, it is very likely that the meteoric rise in the value of cryptocurrencies continues, as more advances are made in the industry. The best advice for participants in the sector, especially those not very tech-savvy, is to exercise caution. The industry is widely agreed to be very volatile, so there is equal opportunity for huge gains as well as losses.