Know Your Cryptocurrencies.
Understanding Cryptocurrencies From Their Roots
Money created social classes. It’s why you’re stuck in a job you hate. It dictates who gets the highest quality of education and who doesn’t get educated at all.
As for the shoes you’re wearing, your pocket confirmed you could get them. But did we need all this? Was money necessary for our wellbeing.
Let’s see.
Initially, our ancestors used bartering to exchange goods. But can you imagine what it meant to exchange 3 tonnes of wheat for Iron?
Transportation was definitely a huge problem. In addition, trading was never fair. People would always negotiate the value of goods up or down in their favor. Why do I say so? There was no specific standard for value.
Why we needed money
All these problems require a game-changer. And that's money.
Starting off as a sea shell around 640 BCE to gold coins. Its main objective was to have a medium of exchange, unit of measurement, and storehouse of value.
Our ancestors would need something durable, portable, and probably with intrinsic value to attain this. Consequently, they adopted gold coins.
But again, I can imagine what it meant to make a big purchase in a far land. It would mean traveling with tons and tonnes of coins. You’d easily attract thieves with all that valuable baggage. The portability issue was addressed halfway.
Realizing this ushered in IOU certificates (I Owe You). The certificate was a claim to a reserve of gold stored somewhere. These certificates became more popular than the gold itself, especially in European colonies.
IOU certificates are somewhat equivalent to gold-backed currencies in today’s terms. But in more recent years, currencies aren’t backed by anything other than a nation’s economy.
These currencies are called Fiat currencies; the idea was first discovered in 11th century China; however, it only got famous in 1971 when Richard Nixon declared the U.S dollar, the world’s largest reserve currency, a fiat currency.
When you’re holding a dollar bill, you imply the U.S economy owes you and will pay you a commodity of such value.
Here Is Where Cryptocurrencies Get Their Seat
Going back to the fundamentals of money again. The whole point of money is to have a medium of exchange, a standard yardstick for measuring value, and a store of wealth.
You can’t argue with me that bitcoin doesn’t fit the profile. It offers over-the-top advantages in terms of portability; there is nothing as portable as a string of codes hanging somewhere in the air. Talk of divisibility, the smallest unit of Bitcoin, a satoshi, is 0.00000001 BTC, just about 0.0004426 USD. How awesome is that?
There is no central government controlling the currency to add sprinkles to the ice cream. I don’t hate governments, but let’s face it, some governments are pure trash. By the way, a lack of central governance comes with augmented volatility, but that’s nothing compared to legal evasion of ridiculous taxes.
In a cryptocurrency like Ethereum, you’re not putting trust in anyone, not the government. But an entire ecosystem of members who are more likely interested in their community succeeding.
It’s like, for the first time, people have chosen what value means for themselves. Aristotle would probably vouch for this type of democracy. Cryptocurrencies allow the majority to determine the value of what they hold, while the current banking system is more of an aristocratic system. Where a select group of elites call for shots.
Cryptocurrency users find the idea of moving away from governments intriguing. This is justified. Because governments failed their people many times, some continue to, Lebanon, Zimbabwe, Argentina, the list is endless.
Cryptocurrencies
You got an in-depth understanding of how blockchain works from my previous writing. I guess we can proceed.
Let me clear a couple of things first, Cryptocurrencies aren’t the sole use of blockchain.
Blockchain has several implications, most of them beyond my imagination. And yours too.
We’re still at the tip of the entire technology, and more is to come. It’s like when Nicolaus Otto discovered fuel engines; he never imagined turboprop and jet engines would be built on the same principles later on.
The same applies to blockchain. We’ve more to see.
Any currency that exists digitally, with no central authority issuing and using cryptography to secure its transaction, is a cryptocurrency.
Cryptography is the use of secure communication techniques where only the intended receiver can view the content of a message.
When you fund your cryptocurrency wallet, you’re paying to get codes that allow you to spend the virtual currency.
From another dimension, cryptocurrencies are a way of handling transactions without using a central authority like a central bank. They make use of blockchain to facilitate peer-to-peer transactions and secure them.
A cryptocurrency blockchain records transfer of codes that allow expending of value in a coin at its core.
The value is of a coin is determined by sheer forces of supply and demand. Demand represents the amount of willing and able buyers of the cryptocurrency. While supply means the amount of willing and able sellers.
When there is much demand for a coin, its value goes up, and when there is more supply than demand, the currency plunges. . That also supports the concept of decentralization, as the value of a coin is only determined by all cryptocurrency ecosystem members who decide whether they should buy, hold or sell.
See, in typical fiat currencies, a central authority like a central bank determines the currency’s value. They do this through regulating interest rates, fiscal policies or aimlessly printing out money as they did in Zimbabwe.
The idea of having a currency whose value is controlled and influenced by market participants has made the view of cryptocurrency shift from a mere mode of exchange to an instrumental investment.
Most cryptocurrencies are deflationary; this does a good job of securing wealth. For instance, only 21 million Bitcoins can be mined in total. In 2140 the last bitcoin will be mined. In turn, this creates scarcity, thereby hedging against inflation.
On the other hand, governments control fiat currencies and can print them whenever they feel the need to fork themselves out of trouble. Between 2020-and 2021, the U.S printed over 5 Trillion dollars for their covid relief package. Adding Infrastructure spending, the U.S could’ve printed about 60% of its GDP in a timeframe close to a year. This means too much paper circulating.
I can’t conclude on this cause central authorities can manipulate politics in their favor. But not all countries can ride out this well.
Consequently, poorly managed fiat currencies can spiral down in value.
The dual nature of cryptocurrencies as both investment assets and mode of exchange makes them rub shoulders with other investment instruments like stocks and futures while competing with traditional currencies. As a result, describing the role of cryptocurrencies can be complex.
But here is a thought, most fiat currencies are investment assets too. At Least those from well-trusted economies. Let’s talk of the Swiss Franc, Japanese Yen, and the mighty U.S dollar. All these currencies can equally be viewed as investment assets and a medium of exchange.
It shouldn’t be shocking to realize cryptocurrencies have the same traits. And can play both roles. However, their investment traits have become more popular than being mere mediums of exchange.
The bottom line is that the idea of money is evolving from seashell coins to a string of code. All of it should be appreciated as it reflects the times.
Here are some coins you need to know.
Bitcoin (BTC)
The bitcoin sign is the closest rival to the dollar sign. The coin was invented in 2008 as a response to the global financial crisis.
No matter what the cause was and who invented it, this crypto king is making it huge in the market. With a market cap of over 800 Billion USD, It holds 3% of the world’s money despite being in its early teens.
Don’t forget that some currencies have been there for centuries but are worth nothing.
What bitcoin did was eliminate double-spending and central authorities in handling transactions. In double-entry accounting systems, we need a central authority to verify the validity of transactions.
It was hard to deter double-spending for years without using a centralized system to check transactions.
What satoshi did was move the burden of transaction verification from a central authority to everyone in the network. The heavy lifting is done by the specialized nodes called miners.
The result is a purely P2P system (peer to peer). No one stands between you and whoever you want to transact with. And as discussed in the previous write-up, forging or changing transactions is impossible, or at least has never been done in the bitcoin network.
The coin receives a fair amount of criticism. In some countries, it is banned. Reasons range from natural detest by governments to the carbon footprint it leaves. All of it is understandable.
For instance, Proof of work uses a lot of energy. The rise in energy demand directly results in more carbon dioxide emissions. Given that China, which has probably the most miners, uses coal for energy, you can tell the environmental implication of this coin.
Bitcoin is also criticized for its anonymity feature. That protects innocent users and drug trafficking crooks, among other criminals. Though transactions are transparent, tracing them to an individual is arduous.
Some of these problems have no solution so far. But as for the carbon footprint, bitcoin might move from a PoW(Proof of Work) system to a PoS(Proof of Stake). If that is even possible.
Alternatively, we can bolster the use of green energy for bitcoin mining. This also doesn’t solve the problem of electronic waste.
Perhaps we don’t have it altogether yet, but soon enough, we will.
Ethereum (ETH)
Through his work in his founded Bitcoin Magazine, Vitalik Buterin thought cryptocurrencies could be much more.
Looking at Bitcoin, he thought the system could be made more robust. In addition, blockchain could be designed to carry apps or programs.
This innovation is what brought about Ethereum. And Vitalik was right. Ethereum has a sophisticated system that allows assets and programs to be moved and stored in its blockchain.
Most tokens like TenX(PAY), Status(SNT), and the rest of the shitcoins don’t have their own blockchain. Instead, they employ the existing Ethereum blockchain.
As If that is not enough, trading and storage of NFTs(non-fungible tokens) are premised on Ethereum. This is thanks to an extra feature on Ethereum that allows programs to be carried in its blockchain.
Ethereum 2.0 has many promising features. The upgrade made in 2020 works to alleviate the risks of harmful gas emissions resulting from PoW by using PoS.
Proof of Stake fosters environmental sustainability by allowing miners to validate transactions by staking their coins.
To mine, the node has to offer coins as collateral. Then if they’re lucky, they get picked; the randomness removes the concept of complex computations, which are dominant in PoW.
All this innovation and the ones to come in Ethereum 2.0 phase 1 and phase 2 can justify its 300 billion dollar market cap.
Cardano (ADA)
Cardano’s vision is that of Ethereum on steroids. As a matter of fact, one of its founders, Charles Hoskin, once worked with Ethereum’s popular Vitalik Buterin. Hoskin served as Ethereum foundation’s CEO before going on to found Cardano.
That should explain the similarities in approach between ADA and ETH.
Cardano is all that most cryptocurrencies have; however it fully uses Proof of stake (PoS), positioning itself as the most environmentally friendly coin.
Using Proof of Stake ( PoS) discussed earlier massively reduces the environmental hazards that come with Proof of Stake cryptocurrency mining methods.
In addition to the revolutionary PoS it employs, Cardano is said to be developing app-building capabilities. That would imply interested developers can build decentralized applications (dApps) on its blockchain.
Consequently, these usher in smart contracts among many technological developments.
Fortunately, tests have been rolled out. For now, it’s fingers crossed; let’s see what Cardano’s web 3.0 has in store for us.
About the apps, what’s more, intriguing is the high-level programming languages they will require to construct. To my friends who hate learning Java and Python, this might be the best time to be alive.
Overall, Cardano is promising and remains my favorite. Despite not fully developing its technologies, it has amassed over 70 billion USD in market cap, putting it in third place market cap-wise.
Ripple coin (RXP)
Founders of the Ripple coin (RXP) claim that about 1.6T USD is lost while processing global transactions. Therefore, their call is to solve these issues through a more efficient payment system that employs blockchain.
Unlike Bitcoin, which seeks to do away with banks and financial institutions, Ripple aims to incorporate banks into their system, or better, banks incorporate them into their design. Whichever way you want to think of it.
In a way, Ripple sells transaction facilitating software. Good idea, right.
What Ripple brings into the mix is a cheaper way of handling transactions, not for banks and institutions alone, but for consumers who want to settle global transactions seamlessly. Employing blockchain reduces cost through an Interledger Protocol that makes transactions certain while reducing settlement risk. Of course all that is done without excessive interference from a third party.
Needless to say, Ripple is probably the only famous cryptocurrency that doesn’t seek to completely disrupt the current financial system. Instead, it aims to strengthen it and make it more efficient.
DogeCoin
In a world of social media and memes, it would be uncommon not to see the same manifest in cryptocurrencies. Regardless of being the third most popular coin with the 5th largest market cap, Dogecoin remains a meme.
The coin is popularly known for its solid fan base, including the Tesla boss Elon Musk.
I have nothing to say about Dogecoin that is revolutionary; its blockchain architecture is somewhat outdated in so many ways. This is mainly due to the PoW that it employs; as discussed, this presents environmental hazards.
Like Bitcoin, Dogecoin can be used for global transactions. And It can be traded as a financial vehicle. But that’s just about it.
We love Dogecoin, but there is probably no hope regarding technological upgrades. That is because it’s practically impossible to reconstruct the core of an already existing and fully functional blockchain.
This write-up’s purpose is to keep you in touch with your cryptocurrencies. At Least knowing the top 5 and the features that differentiate them.
sources
here is my previous article, l referenced it several times in the write-up
https://www.nasdaq.com/articles/money-printing-and-inflation%3A-covid-cryptocurrencies-and-more
file:///C:/Users/Admin/Downloads/Dogecoin%20Cash%20Whitepaper.pdf
file:///C:/Users/Admin/Downloads/CARDANO_Building-Block.pdf
file:///C:/Users/Admin/Downloads/ripple_solutions_guide.pdf
https://www.dogecoincash.org/Dogecoin%20Cash%20Whitepaper.pdf
https://en.wikipedia.org/wiki/Ethereum
derbymatoma.com
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