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The future of money has been under debate in recent years especially with the increased rise in digital currencies. Digital currency has been referred to by various names amongst them being electronic money, cryptocurrency, the people’s currency and e-curreny amongst many other names. I have been asked by the Insider Club to run a series of articles on cryptocurrencies in response to an increased interest in bitcoins Zimbabwe. Scary statistics states that only 24% of the world population has an idea of what cryptocurrencies are.
Currencies like Bitcoin, One Coin and Ethereum have been making the headlines with Ethereum having hit another record high after bitcoin and is now up over 5,000% as I write this article. As of today Ethereum is valued at $USD407.10/Ethereum. The potential of the underlying ethereum blockchain technology and support from some governments is believed to have increased the appetite. But what is cypotocurrency? What is blockchain? What is Bitcoin? I had all these questions rushing in mind a few years ago too.
I would like to start by assuming that you understand what money is or more specifically fiat money. Fiat money is what we use these days and it is currency established as money by government regulations. In short, it is money because the government says so. I know we can all relate with that simple definition. Cryptocurrency mirrors the same characteristics of government fiat money however; it gives holders the ability to free themselves from government fiat currencies whose value in most countries is distorted by controlled exchange rate systems.
Cryptocurrencies also give individuals the ability to be own banks, reduce banking fees and limit the level of quantitative easing by implementing a technology called mining currency which is a process of creating new coins. This mining of new currency is more synonymous to gold mining with the underlying fundamental being that if you keep on mining the gold will become scarce and scarce until there is nothing left. Unlike fiat money which can theoretically be printed without limits, there is a limit as to how much cryptocurrency you can mine. For example, the supply of bitcoins that can exist is limited to $21 million and when we reach 2140, no new bitcoins will be able to be mined. Theoretically this means the bitcoin can only increase in value.
The technology of these digital currencies eliminates the banking system completely by using the blockchain technology on peer to peer computers. Imagine you are playing golf with your 4 friends and you have made a huge bet. To make sure that no one cheats on recording points, you may have the four of you record the points and compare after the 18th hole. Thus everyone sees everyone’s points. By doing this, you eliminate relying on one person who would be recording the points. This is the best simple analogue I could find. In short, unlike a traditional bank were transaction records are kept by the institution, the block chain technology means peers will be maintaining the ledger of transactions on their own computers and as such it won’t rest on one machine. This means you don’t need a lot of bank employees and overheads which translates to high banking fees.
Let’s try to keep this post simple.
Bitcoin was the 1st of such currencies created more than 8 years ago. It came into the market valued at about $0.10 and over the years it has increased to over BIT1/USD1500. At the time of writing this article, the bit had reached an all-time high of $2000.00
Now there are over 2 billion businesses which accept bitcoin. Bitcoin works more on supply and demand and works in limited supply and as such show their true value.
Can I bet on Cryptocurrencies?
More and more traders are now accepting cryptocurrencies such as bitcoins as currency. How does this happen? Only faith and believe that it is money just like with fiat currency. Remember the Spice Girl Mel B, she was the first musician to recognize the cryptocurrency bitcoin as payment for her music. However, fact that there isn’t any regulatory body governing cryptocurrency is a risk itself. Cryptocurrency is also a high risk currency totally unpredictable and very volatile. Like I highlighted earlier, ethereum value increased by 5,000%. This means they have the same potential to go down as they go up. Analysts believe that cryptocurrencies can lose more than 80% of its value within minutes. I will be talking of the opportunities in cryptocurrencies in future posts.