How "Crypto" Currencies Work – A Brief Overview Of Bitcoin, Ethereum & Ripple
“Crypto” – or “cryptocurrencies” – are a type of software system which provides transactional functionality to users through the Internet. The most important feature of the system is its decentralized nature – typically provided by the blockchain database system.
Blockchain and “crypto currencies” have become major elements of the global zeitgeist recently; typically as a result of the “price” of Bitcoin skyrocketing. This has led millions of people to participate in the market, with many of the “Bitcoin exchanges” undergoing massive infrastructure stresses as the demand soared.
The most important point to realize about “crypto” is that although it serves a purpose (cross-border transactions through the Internet), it does not provide any other financial benefit. In other words, its “intrinsic value” is staunchly limited to the ability to transact with other people; NOT in the storing / disseminating of value (which is what most people see it as).
The most important thing you need to realize is that “Bitcoin” and the like are payment networks – NOT “currencies”. This will be covered more deeply in a second; the most important thing to realize is that “getting rich” with BTC is not a case of giving people any better economic standing – it’s simply the process of being able to buy the “coins” for a low price and sell them higher.
To this end, when looking at “crypto”, you need to first understand how it works, and where its “value” really lies…
Decentralized Payment Networks…
As mentioned, the key thing to remember about “Crypto” is that it’s predominantly a decentralized payment network. Think Visa/Mastercard without the central processing system.
This is important because it highlights the real reason why people have begun looking into the “Bitcoin” proposition more deeply; it gives you the ability to send/receive money from anyone around the world, so long as they have your Bitcoin wallet address.
The reason why this attributes a “price” to the various “coins” is because of the misconception that “Bitcoin” will somehow give you the ability to make money by being a “crypto” asset. It doesn’t.
The ONLY way that people have been making money with Bitcoin has been due to the “rise” in its price – buying the “coins” for a low price, and selling them for a MUCH higher one. Whilst it worked out well for many people, it was based on the “greater fool theory” – essentially stating that if you manage to “sell” the coins, it’s to a “greater fool” than you.
This means that if you’re looking to get involved with the “crypto” space today, you’re looking at buying any of the “coins” (even “alt” coins) which are cheap (or inexpensive), and riding their price rises until you sell them off later on. Because none of the “coins” are backed by real-world assets, there is no way to estimate when/if/how this will work.
Future Growth
For all intents and purposes, “Bitcoin” is a spent force.
The epic rally of December 2017 indicated mass adoption, and whilst its price will likely continue to grow into the $20,000+ range, buying one of the coins today will be a huge gamble that this will occur.
Smart money is already looking at the majority of “alt” coins (Ethereum/Ripple etc) which have a relatively small price but are continually growing in price and adoption. The key thing to look at in the modern “crypto” space is how the various “platform” systems are being used.
Such is the fast-paced “technology” space; Ethereum & Ripple are looking like the next “Bitcoin” – with a focus on how they’re able to provide users with the ability to utilize “decentralized applications” (DApps) on top of their underlying networks to get functionality to work.
This means that if you’re looking at the next level of “crypto” growth, it’s almost certainly going to come from the various platforms you’re able to identify out there.
