Cryptocurrencies have become all the rage over the last few years, especially after the meteoric rise in the price of Bitcoin back in December 2017. It used to be that cryptocurrency investing was the realm of experts and savvy investors. But because of Bitcoin’s massive success and popularity after December 2017, things have changed. It has now expanded to include even the smallest and least experienced of investors. Before going into the details of hodling and cryptocurrencies in general, it would be very beneficial for you to get a glimpse of how cryptocurrencies became what they are now.
Brief History of Cryptocurrencies
It all began in the 1990s when American cryptographer, David Chaum, created what was considered as the first kind of online money in the Netherlands: DigiCash. He created DigiCash as an extension of an encryption algorithm that was considered popular during those times, which was RSA. The technology he created, together with its eCash product, was able to generate a huge amount of attention from the media. It became so popular that Microsoft Corporation tried to buy DigiCash for $180 million with the intention of placing DigiCash on every computer in the world that ran on the Windows operating system. One of the crucial mistakes Chaum and his company made was to reject Microsoft’s $180 million offer and earn the ire of De Nederlandsche Bank (Netherland’s Central Bank), which was the Netherland’s primary monetary authority. All of those crucial mistakes eventually led to the demise of DigiCash in 1998, when the company went bankrupt.
The second generation of Internet money was borne from the learning experiences of DigiCash. Companies from this generation came up with alternative payment solutions and money systems that were also Internet-based but with small but important changes. Of these companies, the clear winner was PayPal. The reason why PayPal trumped its competition was its ability to give users what they really wanted in the first place, which was money on the web browser platforms they were already familiar with. PayPal – unlike its peers back in the day – was able to give its users the ability to transfer money to and from merchants and buyers, respectively, using a seamless peer-to-peer money transfer system. PayPal’s massive success is very obvious by the fact that next only to credit cards, it’s the most popular means by which to transact online.
The next significant event in the history of cryptocurrencies is the 2008 subprime mortgage crisis that nearly crippled the financial system of the United States and affected many of the world’s major financial institutions. This event served as some kind of wakeup call to many of the world’s major economies and has led to the emergence of what is now popularly known as the blockchain, which is the foundation of cryptocurrencies today as we know them.
In 2009, an anonymous person (or group) that went by the identity of Satoshi Nakamoto published a white paper that expounded, among other things, the source code, technology and concept of what is now called the blockchain. And together with the blockchain, he launched the granddaddy of all cryptocurrencies as we know it; Bitcoin. The blockchain, while not an earthshattering, disruptive or incremental technology, was considered a foundational one. Why foundational? It’s because it was meant to – and it still does – serve as a bedrock upon other data network storage technologies can be built. The blockchain naturally challenges all the conventional online data management protocols of that time, which included centralization of data.
Today, there are more than 18 million units of Bitcoin that are circulating in the digital financial system and these have a total market capitalization of more than $500 billion. More importantly, Bitcoin’s already garnering increasing acceptance and support from both the I.T. and business communities alike. As part of its gradual integration into the financial mainstream, some economic powerhouse countries like Australia, Canada and Japan have already begun regulating Bitcoins through tax and legal measures.
Since 2009, the growth in the popularity of the blockchain and Bitcoins has surged. This surge in popularity gave birth to other cryptocurrencies, which are referred to as altcoins or alternative coins to Bitcoin. Today, there are more than 850 cryptocurrencies in the digital financial system being transacted internationally, which include Ethereum (Ether), Ripple, Litecoin, Monero and Stratis. And if you combine the total market capitalization of all altcoins with that of Bitcoin, the result would exceed $100 billion.
Because of the massive expansion of cryptocurrencies, it appears that cryptocurrencies have created an entirely new and global industry. Because of the massive advances in the blockchain technology, as evidenced by the growth in the number of cryptocurrencies on the market today, newly developed apps that will be created upon the blockchain technology will naturally use cryptocurrencies. And as more and more cryptocurrency platforms and exchanges start to emerge, more and more people will be able to use blockchain-based apps, which in turn will make the latter industry grow even more.
THE ADVANTAGES OF CRYPTOCURRENCY
Cryptocurrency is quite a different thing. This decentralized currency is characterized by the independence from a single transaction processing center. It is very difficult to track cryptocurrency transactions and impossible to cancel them. Using this type of currency, two people can carry out a purchase and sale transaction directly on the Internet, without resorting to the center of financial transactions. But let’s discuss in more detail the advantages of cryptocurrency over fiat money. These advantages are obvious!
- Emission and circulation standards: cryptocurrency is established once, and it is inviolable, while the standards for fiat money are changed arbitrarily by the central banks.
- The issue is carried out: cryptocurrency flows from the network to the participant while fiat money flows from the central bank to banks, from banks to companies, and only from companies to participants.
- The flow of funds: direct for cryptocurrency; through banks, payment systems, and cash for fiat money. The number of participants: 5 million for cryptocurrency; 7 billion for fiat money.
- Transaction speed: high for cryptocurrency; low for fiat money.
- Anonymity: always possible for cryptocurrency; sometimes possible when dealing with cash for fiat money.
- Inflation: impossible only for cryptocurrency; a constant reality for fiat money. Rate volatility: definitely high for cryptocurrency; low for fiat money.