The Crypto-Currency Wave
Every so often in the tech industry a revolution occurs, materialized in such inventions as the microprocessor, the widespread adoption of broadband internet, the era of cloud computing and the emergence of mobile application platforms to name a few. These technological revolutions are like nebula for start up companies. We at first are wary of the technology, but once its merits have been established, the wave hits with a new batch of products and services that aim to change the world. New markets are formed which permits the formation of new companies. Sometimes these opportunities are evident and smack us in the face as to their merit. Other times they are ambiguous and only after the wave crests do we realize what is coming. It is our belief at Hash Ops that we are upon the crest of another wave, that of crypto-currency.
Bitcoin has initiated another of these technological revolutions, we might not know it yet because it is tough to understand. So new that even the smartest people in Silicon Valley are only beginning to wrap their heads around it. The beauty behind Bitcoin is not in the value of the coin itself, which as of today it was trading at over $650 per coin, but the protocol that is used to generate the public ledger and the block chains in a Peer-to-Peer (P2P) networks which ultimately pay out the coin. You might remember P2P networks from such infamous services as Napster and Bitorrent, the ability for multiple computers to house the data that makes up either a song or a movie. Bitcoin networks work similarly, however there isn’t really any tangible data like a movie or a song exchanged between two nodes in the network, rather it is all nodes in the network maintain a public ledger of all transactions on the network. Hard to grasp isn’t it? Diving into the programatic particulars of Bitcoin and other crypto currencies is not the purpose of this post. Rather, if you are interested I recommend that you read the original bitcoin paper: https://bitcoin.org/bitcoin.pdf and do your own research.
From our perspective, Bitcoin and other crypto currencies are here to stay. How that happens will be up to the people who use the currency and the regulators in Washington. Regulation is coming, however at Hash Ops we foresee a favorable outcome because the “value” that has been given to Bitcoin and other crypto currencies will outweigh the effects of market manipulation. There are over 50 additional crypto currencies currently on the market, all are tradable for Bitcoin on open exchanges such as BTC-e, Cryptsy and Coinex. These currencies come in a plethora of flavors, from DOGE Coin to FeatherCoin, Litecoin, MasterCoin, NameCoin, PeerCoin, MoonCoin… etc. The list goes on and is only growing as people adopt these new methods for exchanging “value.”
For many years now, the value of a currency has relied on the “faith and backing” of the issuing entity, a governmental body. For example, the United States Dollar (USD) is so powerful in the world because it is backed by a powerful nation. The same can be said about the Euro (EUR) as it is backed by a group of nations aligned under political motives. We can exchange USD and EUR almost anywhere we go because the receiving person can rest assured that it will not lose its “value” relative to the products and services that are offered in exchange for it. However at its very essence it is just a piece of paper printed with fancy ink and anti-forgery techniques. The value is attributed to the note by a group of people. In the case of the USD, the United States government and the people of our nation. Because we value it, others value it as well.
That is the essence of value in currency, the worth of an intangible idea is based upon the value that a group of people attribute to it, rather the worth of the piece of paper you are exchanging. To put this into historical contexts, before we used paper notes our entire currency system was based on the tangible value of gold. When we switched away from the Gold Standard to paper notes it was seen as a huge mistake by some at the time. The switch was adopted with a lot of uncertainty because we didn’t know if the value of the dollar would maintain without the backing of a hard asset like gold. However, there is an inherent flaw to backing currency with a physical asset: there are limitations to the amount produceable from the world. There are still those whom believe it was a mistake to move away from a system of physical value to one of intrinsic value. However without this move we would not have been able to experience the huge amount of growth that we saw in industry and technology in the later part of the 20th century. It was the ability to create value without a physical asset that allowed us to capitalize the aggressive growth of the technological revolution.
In part the value attributed to the currency is also a direct result of its proliferation. The more people have adopted a new currency the more valuable it becomes. Crypto currency is in its infancy but growing rapidly, and it represents the next step in the way in which we perceive and exchange value. It facilitates electronic transactions on a 1 to 1 basis, meaning that you don’t necessarily need a payment underwriter like Visa or MasterCard to exchange the value. That won’t stop companies from entering the market to provide those services to bring the currencies into the physical world. It’s the opposite happening and history repeating itself, just as many companies profited by bringing what started as a physical currency, the USD, to the electronic world.
The world needs electronic currency to facilitate electronic transactions. Because the internet is so large and there are so many people using it, many crypto currencies can exist. There is enough “electronic mass” in the internet to support multiple currencies to be used. Some currencies can become specialized to purchase specific assets, while others will attribute their value to pop culture. Whatever the case may be the more people use crypto currency the stronger they will get.
Written by Alex Garcia,
Hash Ops
