Cryptocurrencies: Tokens, stocks and applications. What do these all mean?
Cryptocurrencies have become the new hype in the international investment community. Everyone in the civilized world has heard of cryptocurrencies and Bitcoin. Even if you are a senior citizen and all you do is stay home and watch TV, you surely have heard about such thing as cryptocurrency. A lot of people compare the rise of cryptocurrencies to the tulip mania during the age of the first stock exchange in Holland. However we believe the development of currencies will go in a different scenario. Without doubt there will be a rise and fall in prices but this is the structure of all market cycles, not just tulips and cryptocurrencies.
World governments can not come to a consensus whether the asset class of cryptocurrencies is commodity or currency. Europe counts cryptocurrencies as virtual currencies but in the United States it is considered a commodity and taxed as such. So how can we, the ordinary people, decide what do cryptocurrencies mean to us and how do we make sense of them?
Origins
We propose to take a look at the function of cryptocurrencies to figure out what value they may have now and in the future. Bitcoin was the first cryptocurrency to be released publicly and was developed to provide a store of value and facilitate anonymous transactions of money. In order to do this, they created a small amount of bitcoins for use and to test the platform and hid the rest behind a wall of mathematical ciphers for rewarding users with additional tokens. These “miners” play a secondary role, providing the backbone for the entire system. They hold a list of the entire database of users and bitcoins. The platform upon which bitcoin was built is called blockchain — the open source allows for upgrades and replication. Some companies copied the source code and added their own special upgrades to it .Thus altcoins were developed. The most popular altcoin with the most flexibility source code is Etherium. This is the second currency after Bitcoin in terms of capitalization on market. However this does not answer the question, why do we need cryptocurrencies and what should we do with them?
Difference between stock and app coins
Let’s talk about the uses of cryptocurrencies now. Today the most common way of using cryptocurrencies is storing wealth and value in a decentralized non-government controlled currency. It allows the investor to bypass high commissions, taxes and inflation in most cases. Although governments of some European countries and USA are taxing transactions and wealth stored in cryptocurrencies. The second way is to make use of whatever service is offered by the cryptocurrency community by turning in their application coin or appcoin. Tokens are earned by participating in the community by either offering their services or hardware to be used in the peer-to-peer community driven marketplace. These are two main way of using cryptocurrencies: as an appcoin or a stock coin.
Going deeper
The real value of cryptocurrencies and tokens is much deeper than mentioned above and the potential uses are much greater . At present it is difficult for newсomers to understand the scope of change that can come from widespread integration of cryptocurrencies. We will give an example for a better understanding.
Imagine that you would like to start an open source music streaming service and you need funding. Banks have turned you down and private funds don’t want to invest in your business directly. Cryptocurrencies provide a solution for several of your problems: first you can start a crowdfunding campaign to get the initial capital for starting your service. You would sell a part of your tokens and keep the rest for yourself to run your new business and for accumulation of capital, in case of tokens increase in value. Second, in order to use your service and play music people would need to buy tokens and pay for the songs using them. Now we have a supply and demand system which challenges the concept of equity as traditionally understood. This ecosystem created by cryptocurrencies can be applied to any industry: accommodations, banking, social media, advertising, video games, air transportation, retail and many more.
A picture of the world
Today the most successful and popular services that are run using a cryptocurrency tokens are cloud storage services (IPFS), computing power (Etherium), and social media (Steemit). Potential investors are already looking for the next big thing to buy and hold tokens instead of investing in the business directly. There are also a lot of possibilities in the banking industry. For example the bank transaction service SWIFT is under extreme pressure from a cryptocurrency called Ripple. They both provide secure real-time global payments, except Ripple does it faster and cheaper.
At a recent cryptocurrency conference hosted by Ripple, ex-chairman of the US Federal Reserve, Ben Bernanke, said “I hope investors of cryptocurrency are putting their money in cryptocurrencies because they will be of use in the future”. So while you are thinking of which cryptocurrency to invest in, please remember to understand its uses and its community. A buy and hold strategy is definitely the way to go but also using and understanding the technology will bring you closer to understanding and evaluating the opportunities for future growth and possibility. Experts do not recommend to invest more than 5% of your risk capital into cryptocurrency. If you find that you are using a cryptocurrency in your everyday life then you are the driving force behind its growth and integration into modern society.
