By now, it is practically impossible to find a person that has not heard of cryptocurrencies. They are, after all, the latest technological trend that has completely revolutionized financial systems. And yet, although the vast majority of people heard about them at one point, most are unfamiliar with the basic concepts. Thus, what exactly are cryptocurrencies? Also, why are they disrupting the banking sector that has been operating for centuries?
At First Glance
Cryptocurrencies are blockchain-based networks where digital coins are exchanged online. They are decentralized systems in which all transactions are confirmed by independent miners. Additionally, every user retains a copy of the entire blockchain node. Thus, the transparency and security are unparalleled.
The reason why the technology behind this invention is called blockchain comes from the way that the mining is handled. Once someone initiates a transaction, they use their public address and a private key. Once those two are matched, the transaction is submitted for approval. Then, a miner solves a series of mathematical equations in order to get the necessary verification. If they are able to verify it, the transaction is approved and becomes a permanent public record. It is important to recognize that approved transactions cannot be undone.
A very common catch-phrase that accompanies cryptocurrency is “decentralization”. For those unfamiliar, this is the word used to describe the way in which the network operates. Unlike large financial institutions that control the market of credit and debit cards, cryptocurrencies have no authoritative figure. Meaning, there are no banking fees and miscellaneous charges like the ones that banks rely upon for generating revenue.
This type of system works well because every user on a network has a role in confirming transactions. Thus, there is no need to have a third-party overseeing every single individual who is using the cryptocurrency. Additionally, this is also why the blockchain-based systems are disrupting countless markets.
Store of Value
For people like Nando Caporicci, founder and owner of Olitris Technologies, cryptocurrencies serve more as store-of-value vehicles. Mr. Caporicci is a mining rig builder and works mostly with Bitcoin. After all, Bitcoin is still the most valuable cryptocurrency that currently trades at nearly $6,400. Just nine months ago, however, this same coin was worth almost $20,000.
So, cryptocurrency values constantly go up and down. Although they are directly related to politics, regulation, and so on, millions of people became rich by investing successfully. For example, individuals that bought Bitcoin in 2016 and sold it at the end of 2017 made north of $15,000 per coin. For comparison purposes, no other investment in form of a stock or bond gave a return even remotely close to that.
The Bitcoin Sensation
The reason why experts like Nando Caporicci work with Bitcoin is quite simple. This cryptocurrency is the poster child for the entire movement. In fact, many altcoins that were created subsequently were just minor edits to the Bitcoin coding. Therefore, the fact that Bitcoin is still well above every other cryptocurrency is reasonable according to Nando Caporicci.
Sadly, however, the so-called Bitcoin sensation caused the value of this cryptocurrency to plummet. Towards the end of 2017, the asset hit a price ceiling and started coming down. Since then, there have been no major recoveries and it is currently trading at less than 30 percent of its peak. So, what exactly caused Bitcoin to decrease so much in a short period of time? The bubble that slowly wrapped around the asset.
Similar to the economic crisis that was caused by the housing bubble in 2008, Bitcoin went through a similar struggle. At one point, it was growing so fast that its intrinsic value could not keep up with the dollar-based value. Not to forget the regulation and international economies that also played an important role. After a while, Bitcoin simply succumbed to the pressure after dealing with too many external challenges.
Regardless of Bitcoin’s track record, the overall future of cryptocurrency is bright. In fact, companies like Ethereum, Ripple, Dash, Monero, and many others have much more room to grow. Although it is too early to say that the blockchain technology will replace banks, it may happen eventually. If it does, individuals who invested early will reap unbelievable returns.