When it comes to Cryptocurrency, Bitcoin is king. Its market cap dwarfs that of its nearest competitor Ethereum, and is still largely the only Crypto asset that attracts institutional money. If you are new to Crypto and are keen to dip your toe, here’s three things you need to know.
A is for Alternative
I’ll assume you know nothing about Bitcoin, so here’s a quick primer on the last eleven years.
According to Wikipedia, a mysterious guy named Satoshi Nakamoto registered the first Bitcoin domain in August 2008. Satoshi’s identity has remained a mystery since, despite a number of attempts of people trying to claim his identity and ultimately ownership of the worlds first Digital Currency.
Bitcoin was developed in order to provide an alternative to traditional currency, and the reliance on big banking institutions for the safeguarding our assets. Bitcoin is the embodiment of peer to peer transfers, removing the third party by way of a direct, encrypted transfer of currency from one digitally secure wallet, to another.
The idea is simple — Bitcoin is a digital form of cash, a store of value like any other that you can use to buy with, transfer or retain as an investment.
In January 2009, Bitcoin was born with the first digital transfer taking place. The timing couldn’t have been more symbolic. In September 2008, Lehman brothers famously failed, it was the biggest bankruptcy case in history and provided the perfect backdrop for the Bitcoin revolution.
Bitcoin was a new form of money, born from distrust for the old, for a world that seemed ready to accept a counter culture in money.
The digital currency spent the next eight years steadily finding its feet. By 2011 the Cryptocurrency space had developed into a variety of different currencies or “coins”, had reached parity with the US Dollar, and had given birth to a wide variety of startup businesses who saw the development of the space as the single biggest development in the history of finance.
By 2016 there had been scandals, bankruptcies, lawsuits and an increasingly parabolic rise in price. The Bitcoin bubble was well under way. The next year saw the highest all time price of Bitcoin, circa $20,000 USD per Bitcoin in December of 2017.
Word had gotten out. Bitcoin was everywhere, you heard about it in the bars you drank in, the McDonalds you ate in and it was everywhere in the financial media. People either loved it and saw it as the next coming of finance, or they hugely distrusted it, dismissing it as a fad.
2018 would see a dramatic decline in prices as the speculative bubble burst. The naysayers came out in force and smugly turned their backs. Those who saw Bitcoin (and what has become a vibrant, diverse and firmly established part of modern finance) for its long term value however, were buying.
Early 2019 saw the emergence of another bull market, prices rose to $12,500 USD before sliding back to current prices just below the $10,000 USD level. Everyday speculation has somewhat died away, the market seems more stable, with more buy and hold investors entering the market. It seems a new era in the life of Crypto is upon us, and big money is starting to listen.
What does the future hold? As ever in finance, no one knows with any certainty, but Bitcoin and the Crypto market is here to stay. The space continues to see resistance from legislative bodies and those that stand to loose from Bitcoin’s wider adoption, but the Crypto space is solidifying ground in the eyes of investors by the day.
There are definitely head winds ahead, but with a worsening economic picture underlaying global finance, the emergence of interest from bigger and bigger institutions, and the shift in focus of individual investors from quick profits to long term value, the future seems bright for Bitcoin.
B is for Blockchain
Ok, now you know a brief bit about the history of Bitcoin, now you need to know how it works.
So what is a blockchain?
Blockchain is basically the technology that allows the transfer of Bitcoin from one wallet to another. Blockchain as a technology is finding applications in a huge variety of places, and is a whole other topic in itself. In an effort to keep this brief, I’m going to point to Ibad Siddiqui’s excellent article here on Medium that explains it well.
What The Hell Is Blockchain And How Does It Works? (Simplified)
“On the Internet, nobody knows that you’re a dog” — Peter Steiner
The important thing to know is this. Each time a transaction is made, i.e a Bitcoin is transferred, a block of data about that transaction is added to the blockchain.
The blockchain is a list of all past transactions, that everybody in the network has a copy of, but cannot edit.
What does this mean? It means that the history of the blockchain is safe from the failings of traditional banking, where institutions can cook the books or loose information. It’s also not held by any one body, so it is decentralised, once again reducing risk to the Bitcoin holder.
C is for Cryptocurrency
Bitcoin was the first cryptocurrency, it’s the biggest by way of market capitalisation, and is the only one to have Futures and Options available. Obviously though, it is not the only Cryptocurrency out there, nor is “Bitcoin” the only version of, well, Bitcoin.
There’s more than one Bitcoin?
That’s right, there are different types of Bitcoin. These are called forks, where variants of Bitcoin branch off and become their own beast. There have been countless Cryptocurrencies release over the past few years, many offering dedicated applications for cspecific industries.
New Cryptocurrencies come to market by way of an Initial Coin Offering, the Crypto version of an IPO. A number of ICO’s have come under scrutiny for basically being a veiled attempt at those behind the offering to get rich, without the coin being of any real value.
Individuals see each coin as a value proposition for as many reasons as there are coins, but the thing to keep in mind is not to get bogged down worrying about which ones to invest in or become familiar with. To start at least, you should focus on understanding and developing your own investment case for Bitcoin.
Ethereum is a coin that arguable is chasing Bitcoin for credibility with institutional money managers, but is probably the only other coin beginners should consider, but once again — get to know Bitcoin first.
The new case for Bitcoin
Historically, if you were interested in trading or holding Bitcoin, you fell into one of three camps.
- A believer in the use case. The idea the the technology and the concept is viable for the masses in good time, that finance and banking as we know it is broken — An early adopter and lover of the movement.
- Someone who believed that over time, it makes a sensible investment case, is distrustful of the current financial paradigm, and believes the futures will look very different to the present.
- You heard about it on CNBC and wanted in on the modern day gold rush.
Participants in camp 3 have largely been shaken out, a lot of people lost of a lot when prices crashed and have either left the market completely, or are sitting on the sidelines waiting for a chance to start again.
Quietly though, there has been an uptick in interest from hedge funds, money managers and institutions.
With consumer and national debt becoming a worrying concern the world over, increased tensions from trade wars, a potential banking crisis in Europe, and the business cycle in the US looking set to usher in a recession any day now, Bitcoin and Crypto are being considered as a new alternative to safe havens such as the US Treasury Debt, Cash Dollars and Gold.
Bitcoin faces challenges. Challenges from those that fear its widespread adoption, those that stand to loose from its growth, and those that just don’t believe in Crypto as a serious contender for hard assets. Sometimes though, the more you hear talk about why you shouldn’t hold Bitcoin, you need to consider the reasons why you perhaps should.
With prices presenting a potential buying opportunity, the value of safe haven assets such as Gold increasing, and with a very heavy US Stock Market, now could be a good time to get educated, and decide how you feel about the long term future of Bitcoin.
As ever this is not investment advice. I’m not a financial professional, just an investor like you trying to make his way in the markets. Do your own research before you do anything.