How I dabbled into world of crypto currency

Personal story

Like every other person, I wanted to save money hence I spoke to people around me who were working in banks, investment management firms and realised they gave me a next to nothing return of around 1% or at most 3%. Observing the pound depreciate it would put me at a loss if anything consequently, I started reading books on financial interest and came across a quote from Warren Buffet. ‘Never underestimate the value of compound interest.’. Although I agreed with every word I realised that in current times there are very few if any investment opportunities where you can get good value for saving a couple of hundred pounds a month. As most of it is designed for the big investors.

Being an IT person who wanted to invest in stocks, I researched ways of investing in companies which I already knew a little about, the majority of them being based in the USA. I learnt that a single trade can cost upwards of £10 and minimum investment started from $10k unless you traded options. It’s ridiculous! There are no alternates to Robin Hood in the UK, I know a company called Freetrade Team is working on one(looking forward to it) but not live yet. To set up some of these accounts it would take me days if not weeks. This wasn’t acceptable especially in times where I can open an account in minutes with amazing start-ups like Revolut. Unfortunately, this was way outside my monthly budget but at that moment my eyes opened to a whole new world. Cryptos! I was able to invest in my first crypto currency in under 15mins. I could even invest in companies around the world with no red tape, bureaucracy or high barrier to entry all the whilst earning more interest than any other method through Initial Coin offering (ICO) which is similar to traditional Initial Public Offering (IPOs. I know it’s not all hunky dory hence I will talk about some of those things in a little more detail.

Crypto currency in simple English

For those of you who are new, everyone has their own definition on how to best explain it the most commonly used term is ‘decentralised ledger’ to understand it we need to think of early days of banks when they weren’t connected they used to be incoming and outgoing transactions logged in a book which is still known as their ‘general ledger books’. The reason, you would trust that as it’s not manipulated with because it’s securely stored with the banker whom we trust to do the right thing. In modern days this is all interconnected with huge IT systems managing the same thing but digitally. The problem lies with the bureaucracy and red tape with this environment where banks hold the keys to this ledger and they decide how much they should charge you for a certain service (which might not cost them the same).

This bureaucracy also slows down transactions between banks hence inter country transfer often take days and weeks (Euro transfer of SEPA is around 4–7 days). As the transaction i.e. the ledger goes through countless mediums to get to the end user with each part taking its time and charging for the transaction even though there is no physical transfer of any amount. This works the same way in our daily work life where we work on spread sheets and only one person usually has the latest source of the truth. So if the spread sheet is being worked on by 9 different team members it will pretty quickly become outdated and slow down the whole process. To keep all in sync each individual would have to update the spread sheet and share it across so everyone updates the most recent spread sheet. Now imagine google drive compared to it where everyone has one source of truth which is the single document that can be accessed anywhere by everyone in real time while keeping track of every change that has been made in real time.

The simplest way to look at cryptocurrency is a type of google drive where everyone has a copy of that spread sheet and when a transaction is updated in one place it would be updated everywhere in the same way. So if one person tries to cheat it than it won’t match the other spread sheet versions making that individuals block invalid, hence creating trust without human intervention.

Now this ledger spread sheet or often known as blockchain in the crypto currency world that are stored in tens or hundreds of computers so even deletion of one file or even few won’t affect the chain.

Most importantly each of these spread sheets is heavily encrypted so nobody can actually view, understand or manipulate the information. As this is encrypted and decentralised this can be stored on anyone’s computer as on its own they can’t-do much with it.

This whole technology is open source so anyone can download a piece of software that will allow them to help with storing it and helping match the transactions for blockchain, as the individual is using their electricity and computing power with this process often known as ‘mining’, they get a small reward in form of crypto currency. So, the people who say crypto currency is generated out of nothing is not actually correct, quantitative easing and taking a national debt is the money generated out of nothing hence a piece of bread which costed 50p 10 years ago is costing you a £1 as the value of your currency has halved in that amount of time. If value of that 50p was increasing by the day you would have been able to buy more out of that not less.

The final part of this is transaction from A to Z. Currently, we work in confines of a bank where if somebody wants us to send money we need to create a bank account and that’s the only way we can send or receive money or through money transfer service which has their own network. However, in world of crypto currency, there is no single owner or entity anyone can create their own crypto wallet (a.k.a bank account) for free which is a unique id like your bank account/debit card number which is public key that you can give out to everyone and private key which is like your password or pin that you keep it to yourself. Once both are verified you are allowed to spend the money. So now we have a system which can verify the individual’s identity without needing a bank in between.

The Impact

As you can open your crypto wallet on your own (bank account) send receive money using an open network securely (using open secure network) and ledger is maintained/matched automatically using blockchain technology. This significantly shifts the power that traditionally stayed with banks, which is now been de-centralised taking the control away from them.

The government could penalise banks if certain taxes aren’t being paid by the individual or they are sending money to a sanctioned country as it happened within confines of bank however with crypto currency it is an independent network controlled by no one and money transactions happen directly between two parties, who would mostly be anonymous. This can be viewed both as a good bad thing like in case of government surveillance. In summary, this creates an alternate financial system which is fully autonomous and out of reach for big banks, companies or countries cutting all the bureaucracy and red tape raising the barrier to entry into investments.

This bureaucracy is how I actually dabbled into crypto currency and its also ironic that the first white paper about bitcoin by an unknown individual named Satoshi Nakamoto was also published on heights of financial crisis on 31st October 2008 just over a month after one of the biggest bank Lehman Brothers filed for bankruptcy on 15th September 2008 and the whole meltdown.

Crypto world is like the wild west right now where rules aren’t set people are still discovering new lands and trying to understand the value they can create out of this new piece of technology. There are Initial coin offering (ICOs) instead of Initial Public Offering (IPO) which aren’t regulated and anyone can do it.

A recent parallel could also be looked in a way of internet when Tim Berners-Lee help created world wide web where everyone knew this was going to be huge but it took 5–7 years for people to figure out something meaningful to do with it. It roughly took 10 years for everyone to get on the bandwagon of internet bubble (1997–2001) before it crashed in the early 2000s and people started looking at actual value companies provided behind this internet businesses.

If we look at the interesting parallels crypto currency was first came into the picture during the height of financial crisis in 2008, it started making headlines by 2011 and currently, it definitely is in a bubble. It has bursted a couple of times in past and even in this year but like the internet, the technology is too good to ignore in spite of these minor setbacks.

The future

As for the future of Bitcoin compared to other currency I see it as gold. As in the past people used to trade in gold coins but slowly it just became a stored value based on which you can trade. So no matter what kind of currencies are built on top/around it the value of gold a.k.a Bitcoin will always hold or rise. In terms of the speed of Bitcoin and its limitations with amount/speed of transaction which is limited to 7 per second, similar to internet with time we would move in it fibre optic from dial up internet. However the block chain technology on its own even if you take the currency out of it is the real technology like internet whose benefits are still to be realised.

There are over 1100 crypto currencies with numbers growing by the day, total market cap of crypto currencies is over $169 billion, currently there are daily transactions of over $2 billion happening every second, different ICOs have raised over $1.3 billion in 2017 alone. You know something is great and has gone big when China starts banning/censoring it like the other in the past Internet, google, facebook, WhatsApp etc. Cryptocurrency is simply too big and good to ignore anymore however blockchain is just a technology like an internet actually companies that come out of it creating value for end users are still few and far between. One of the few companies I can see creating value out of crypto currency is Ripple even though it might be for the banks right now but that’s how a lot of technology get funding to innovate as well like the IBM computers. Great fintech startup bank like Revolut are planning to provide access to crypto currency in their mobile apps having used multiple platforms over time I think it is by far the simplest way I have seen to start investing, saving, trading, using crypto currency. Possibilities are endless and its only getting started. A simple analogy I often use is when I moved to London you think you are late for coming in to settle and should have done it earlier but no matter what you are still early because of what’s to come in future.

This is actually my first blog so hope you found it insightful, please share your views and feedback further, so I can write better in future. A source of inspiration for writing my first blog also has been this platform Medium and work Medium Staff which has brought back fun and simplicity into world of writing. Feel free to follow/connect with me as I am always looking to interact with new people in all walks of life.

I am also thinking of writing further about getting started into investing and recently I have also started looking in to crypto mining, I might talk about in a follow-up blog.