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Investments based on trust or the crypto-currency alphabet

Yuuma Nakamura by Yuuma Nakamura
May 23, 2022
in Hot Crypto
0

Home » Investments based on trust or the crypto-currency alphabet

Cryptocurrencies and blockchain are now very confidently changing our usual ideas about modern finance. Banks, government agencies and innovative startups are passing the baton of introducing these technologies even to ordinary street vendors. According to the latest data, the capitalization of the global cryptocurrency market has outstripped the forecasts of many experts, exceeding the landmark mark of $ 2 trillion.

Table of contents

  • The phenomenon of cryptocurrency and blockchain
  • Bitcoin: Money created by people for people
  • Why invest in cryptocurrencies?
  • Where will everything develop further?

The phenomenon of cryptocurrency and blockchain

For the first time, the concept of “cryptocurrency” and “blockchain” became known in narrow circles of IT specialists at the turn of 2008-2009, thanks to a certain Japanese programmer (or is this the name of the development team) Satoshi Nakomoto. It was with his submission that the first Bitcoin cryptocurrency managed to make so much “noise” around the world. It is the “noise”, because most ordinary people meet mentions of this coin, but do not realize its real significance.

So, what is cryptocurrency in the usual sense? To simplify it a lot, this is a lot of interconnected computers and servers around the world. On each of these computers, the same records are stored simultaneously, representing blocks of data. All of them form a single information chain of blocks, accessible at any time to each of the participants of this computer network. It is called a blockchain, and cryptocurrency is just an entry in this blockchain.

Still unclear? Then let’s draw a very ordinary analogy. Let’s say that you are a warehouse worker, but your computer broke down for some reason. Therefore, you take out an ordinary paper magazine in which you record everything related to loading or unloading goods. A driver named Alexey brings one ton of flour to your warehouse, about which you make an appropriate entry in your journal. If you are not the only warehouse employee who has access to this journal, then each of your colleagues has a theoretical opportunity to make any changes in it.

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In the blockchain, it is simply impossible to perform such manipulations! This “journal” (blockchain) is constantly multiplying among other people, replenishing all of them online with the same new records. And if it is written in this “magazine” that the driver Alexey shipped you a ton of flour, then this automatically becomes known to all other owners of the same “magazines”. Any of them can track any conditional shipment from Alexey’s conditional driver to your conditional warehouse at any time!

Thus, if the blockchain is a kind of digital analogue of our “warehouse magazine”, but publicly available and unchangeable, then the cryptocurrency is just an entry in this “magazine” about the very ton of flour that the driver Alexey brought to our warehouse. 

Bitcoin: Money created by people for people

 Bitcoin (Bitcoin) is an alternative financial system, a digital asset, an investment tool. There are a great many definitions of the first cryptocurrency. However, none of them will probably be able to fully describe the potential of its capabilities.

For the first time in human history, there was money created by people for people, and this money is controlled only by the laws of mathematics, and not by any specific government structure.

Imagine a payment system where all payments are made only from person to person without intermediaries: almost instantly, without commissions and all over the world. You can transfer any amount you want, and all these transfers will be completely anonymous. At the same time, anyone gets access to such a system without restrictions. You only need a smartphone with an installed wallet program and the Internet.

It is important to understand that in order to transfer bitcoins to each other, they must go through a chain of 5 confirmations on different computers. In the blockchain, this happens automatically and is done in order to make sure that you really own these bitcoins and can dispose of them. Once again, we remind you that all this happens on the condition of complete anonymity.

And where does the money that is created by people for people come from? The issue or emission of bitcoins in most cases is carried out at the expense of so-called mining. People purchase expensive equipment to mine (mine) cryptomoneta, thereby ensuring the operability of the blockchain. And if you own a device that can solve a cryptographic problem faster than others, then a new block will appear in the blockchain, and you will receive a reward in bitcoins. 

Why invest in cryptocurrencies?

 The world of bitcoin is designed in such a way that its release is strictly limited by a special algorithm: only 21 million of these cryptomonets can exist at all times. And this applies to the entire population of the planet, which is constantly increasing! That is why bitcoin is often compared to digital gold.

If in 2011 1 bitcoin cost $1, today its price is about $40K. And all because people believed in the potential of software code that could change our previous ideas about payments and money transfers. 

It is clear that the value of bitcoin is not fixed, it is set on exchanges by market mechanisms. Cryptocurrency has become the same full-fledged exchange-traded asset as gold, oil or Sberbank shares. All this opens up enormous opportunities in the field of investment. And a lot of people have already taken advantage of these opportunities.  

But is it worth investing in bitcoin today at such a high price? Why not? After all, no one forces you to buy 1 bitcoin in its entirety. You can easily purchase, for example, a thousandth part of it for quite reasonable money.

Moreover, bitcoin is far from the only cryptocurrency today. In 2017, alternative cryptomonets – the so-called altcoins, which showed a stunning increase in the initially announced rates, seriously declared themselves. By the summer of 2017, the capitalization of the cryptocurrency market exceeded $100 billion! Large capitals rushed into this young market.

According to the analytical firms CoinGecko and Blockfolio, at the beginning of 2021, the total value of all cryptocurrencies in the world reached $ 2 trillion. And this is twice as much as the leading industry experts predicted a few years earlier.

Where will everything develop further?

It is clear that the rapid growth of the cryptocurrency market, like any other market, cannot be eternal. The hyped demand for digital assets has led to a banal, but inevitable “overheating” of the crypto economy. It should be recognized that today the cryptocurrency market has plunged into a phase of stagnation. But all this does not mean that this industry is not developing!

Yes, we will most likely not see the old hype around cryptocurrencies anymore. Nevertheless, it is already becoming clear that this market is gradually changing. And these changes are only good for him. There are new cryptomonets, new technologies, faster, more customer-oriented.

There are no fewer projects promoting the ideology of crypto-economics now. Great competition in the industry, of course, will not allow such companies to grow as fast as it was at the dawn of the emergence of cryptocurrencies. Therefore, this market, as expected, becomes more predictable, slower, and therefore more civilized and reliable.

And, of course, there is no doubt that blockchain technologies will continue to penetrate even deeper and more actively into our lives. Institutional investors understand this perfectly well, which means they will continue to carry their money to where money is made.

So don`t you be surprized if in a few years your ownership right for an apartment turns into a piece of a program code on your laptop. New reality sets the new rules.

Yuuma Nakamura

Yuuma Nakamura

Yuuma Nakamura is a staff writer covering crypto, blockchain, finance and other technology for FintechZoom. Contact: [email protected]

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