Blockchain Currencies in a Nutshell

in Finance

When asked about Blockchain technologies, most people respond with blank faces.  Here is a small rundown to catch people up.

The strongest cryptocurrencies have generally one thing in common, they have something called a blockchain which is stored on many users computers.  This is different then the current banking system, which stores records on databases on servers.  What that mean is that instead of individual transactions existing in one data-center in remote Kansas (which is what I imagined at first), transactions are actually stored on hundreds and sometimes hundreds of thousands of users’ private computers across the world using something called digital wallets.

A blockchain, in short, is a series of transactions block-chained together.

Though you won’t need to have a wallet to invest in Bitcoin or other crypto currencies per se (I don’t), if you decided you wanted a personal wallet, you would currently need around 145 GB of free storage space on a harddrive, which is a lot, I must admit.

Why is the blockchain important?

This new technology means that if large parts of the world’s civilizations are completely obliterated by some future event like EMP bursts or North Korean ICBM’s, as long as there is life and electricity somewhere, the blockchain currency would still exist, and would store user’s value.  Needless to say this is a very attractive quality to a lot of the newer investors out there.

It’s also important to mention that crypto currencies like Bitcoin have been fairly immune to the ebbs and flows of the equity market, and it’s safe to say that many people are banking (no pun intended) on the moment when there is a systemic central bank induced financial market failure like the one that happened a decade ago.  Bitcoin and other top quality crypto currencies’ value should hold up nicely if these things occur, in theory.

Lastly, it would be much lighter and more convenient to carry the wallet address of your bitcoins, then say $200,000 worth of gold across a war-torn customs border.  Blockchains seem to be the new financial assets of the future, as of right now.

Not All crypto currencies are created equally though.   Why are there so many of them?

The reason Bitcoin is attractive is because there are only 18,000,000 of them total, compared to for example, Ethereum, which has close to 100,000,000 coins.  One would assume that Bitcoins would be worth 5 times more then Ethereum, with all things being equal.

In short, there are a lot more people in the world then there are Bitcoins.

That means if one day Central banks would rather back their paper currencies with a crypto currency like Bitcoin instead of gold, each Bitcoin would need to be worth a lot of money.  It’s important to know then how many coins there will be total for each one of the crypto currencies.  Also knowing their market cap is important as well.

Not All crypto currencies have such a limited supply though, some like Ripple for example have 38 Billion coins.  In short, Ripple was never meant to be a currency at all.  In fact, the idea behind Ripple is that banks will spend them to make international transactions with each other, a noble and very realistic goal.

In fact, currently compared to the status quo, one would think something like Ripple should already be used.   International bank lending, currently, is an archaic and stone age process that tends to take days instead of minutes. But does that mean Ripple deserves a $1.19 valuation currently then?  I don’t think so, but that’s just me.  In fact, Ripple doesn’t even have a blockchain.  A corporation owns the currency and keeps records on it’s own private servers.  Some banks have already signed up with Ripple in a pilot program though, so that would explain it’s current popularity.

If one were to look at each one of the crypto currencies, one could find something unique about each of them.  Some good, some bad.

In fact, the bad thing about Bitcoin is that everybody on earth has access to each and every transaction ever made on the currency for each and every wallet address.  When I found out about that, I certainly didn’t find it as attractive as I once did.  I mean, at least bank accounts are mostly private to the public, you can’t say the same thing about Bitcoin.

While Bitcoin and many others aren’t, Monero (XMR) and Zcash are and have several technologies added to them that make transactions untraceable.  Many find these two blockchains especially important, because one would hope that with the latest digital technologies available, a crypto currency, would be, well, cryptographically secure.

I hope that you find some of this information helpful.  As we speak, crypto currency markets are reevaluating the values of all crypto currencies.  The may continue the current correction, or they may continue going up in value.  But one thing is for sure, they have already found there way into the imagination of every investor in the country.