Understanding the meaning of Cryptocurrency
First off – as per investing with anything under the sun, you have to understand what exactly constitutes a currency! Currency refers to an accepted form of money, which is used to exchange for goods and services. In the most primitive days, people used barter trade.. but it made things difficult. For example, if you needed a wall built around your house, the mason may not want to accept your stash of cow’s milk for payment! Currency made it easy to exchange for goods and services as a surrogate.
A cryptocurrency is the exchange of currency done digitally, using cryptography to secure and verify transactions. In simple terms, the cryptocurrency is money that is made secure by a chain of computers solving a secure puzzle.
With the hype of bitcoin prices hitting an all time high over the past few months, it is no surprise that more and more people are jumping into the hype of investing in cryptocurrencies. Now that there is some form of correction, people are wondering if it’s safe to go in again.
3 problems with Cryptocurrencies that most people aren’t aware of
1. Extremely high transaction fees
2. Long transaction time (>1 hr, as of dec 2017)
3. Huge price fluctuations (you can either be really rich very quickly or get poor really quickly)
Imagine having to buy something online with cryptocurrency. Things will be more expensive compared to what you pay with cash, the amount only gets transacted an hour later and… the price of the item that you buy isn’t fixed because an hour later, the price would have gone up or down! With these limitations, it is extremely hard to use cryptocurrency to purchase goods and services (its more like a speculation tool now!). It may get better in future as technology evolves.
In addition to that, it is hard to value Cryptocurrencies as there isn’t an underlying asset. The prices that you see are purely based on demand and supply. However, people argue there is value in the security provided by the blockchain. So what is the blockchain?
The Missing Link in Crypto
Have you ever wondered about the technology that is behind Cryptocurrencies? Yes, you’re right – its blockchain technology.
Unknown to many, blockchain technology is actually a hidden gem. This technology is also used in the healthcare, banks, diamond and driverless cars industry.
Instead of looking at Cryptocurrencies, we should look a little deeper into the technology that enables secured transactions around the world. Also, it is much easier to valuate compared to Cryptocurrencies as they have underlying assets!
For example, Lucara Diamond Corp., a listed U.S. company uses blockchain to track diamonds as the move through the supply chain. Their diamond blockchain initiative is such that when each event or interaction is registered on the chain, it becomes a ‘block’ that represents unique information, data or characteristics about the diamond as it passes through each stage of the value chain. Each block is then verified by the blockchain community before it can be added to the blockchain. It then continues to grow with each new block that is registered and when ‘chained’ together, these blocks will construct a complete digital record for each diamond, providing consumers with further and irrefutable assurance about their diamond purchase.
This blockchain is unique from a privacy perspective because it leverages the latest technology that means an event registered on the chain is visible to all users, while ensuring that certain commercially-sensitive information, such as price, is only visible to the users involved in the interaction.
In all, the future of cryptocurrency is largely an unknown. Some believe in its value while others believe that it is on its road to doom.
If you wish to place your money on Cryptocurrency, perhaps you can do so with a portfolio sizing theory we teach – go in with a portion of your capital you can afford to lose!
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DISCLAIMER: this article does not constitute any investment of financial advise. It is written for educational purposes. The author has no vested interests, short or long in cryptocurrency.