In this episode, you can literally watch my brain spinning as I try to understand a fundamental concept – what is the relationship between the “white paper” of a cryptocurrency and the “coin” of that currency that you buy on an exchange.
The white paper I refer to is the one for “EOS” a supposedly exciting coin and good investment opportunity.
Interested in trading CryptoCurrency yourself? Next episode I will discuss opening accounts…but one exchange I highly recommend is BiNance!
I’d heard about it. I’d ignored it. I looked into BitCoin in 2010! I’d even mined, but thought it was too slow and at the time it was worth nothing. It was like doing SETI.
Even as late as last year friends asked me if it was a good investment and I had to honestly say I had no idea.
Some people say now it’s too late. But, I’ve made a career of being late to the party, so I’m going to spend 2018 looking at and investing in, crypto currency. Every month I will invest at least $500 of my own money into different AltCoins. So that’s about $6000 for the year. Let’s see if crypto can beat my regular stock investments, in which last year I made 29.4%.
I am a buy and hold kind of guy, so I don’t envision me getting into day trading – I’m also too busy to do that!
I hope you’ll follow along and watch me either lose $6000 or gain and learn about this exciting investment area.
But before I start on that adventure I thought I’d prepare a little background
So what is CryptoCurrency and what is BitCoin – the grand-daddy of them all?
Back in 2008 BitCoin was announced. Its intention was to succeed where others had failed. Namely, in creating an alternative to government-backed cash. This was not the first time it had been tried, and you could argue that even PayPal was an attempt at this. But, the difference that BitCoin held was the decentralized nature of it. It was peer to peer sharing. It was the BitTorrent, the Napster, of money. BitCoin, and all AltCoins/CryptoCurrencies are simply abstract representations of value. Like your bank account. Your bank account is not a little pile of money in the corner of a building somewhere. Your bank account is rows in a database. The only person who really knows what is in your bank account is your bank.
So to that extent, BitCoin is no different. Except that BitCoin’s database is something called the BlockChain, which is a decentralized database of ALL transactions having to do with BitCoin. So everyone knows how much money is in your bank account. It can’t be fudged or faked because all these records are spread across the world, reconciled and confirmed through strong cryptographic means.
So whereas the bank can go in and change your records, with BlockChain currencies – CryptoCurrencies – that is impossible.
CryptoCurrencies have 5 transactional differences over the current cash system:
Irreversible: After confirmation, a transaction can‘t be reversed. By nobody. And nobody means nobody. Not you, not your bank, not the president of the United States, not Satoshi, the unknown inventor of bitcoin, not some BitCoin miner in Guangzhou. Nobody. If you send money, you send it. Period. No one can help you, if you sent your funds to a scammer or if a hacker stole them from your computer. There is no safety net.
Pseudonymous: Neither transactions nor accounts are connected to real-world identities. You receive Bitcoins on so-called addresses, which are randomly seeming chains of around 30 characters. While it is usually possible to analyze the transaction flow, it is not necessarily possible to connect the real world identity of users with those addresses. — This is an area I am curious about as it seems that if you give someone your address they should be able to search the blockchain for your “bank balance”.
Global: Transaction are propagated nearly instantly in the network and are cryptographically confirmed over time. Since they happen in a global network of computers they are completely indifferent of your physical location. It doesn‘t matter if I send Bitcoin to my neighbour or to someone on the other side of the world. Ironically, this way of doing it is actually the area of concern that has opened up the whole AltCoin market, as they often offer faster and cheaper ways to confirm the transactions.
Secure: Cryptocurrency funds are locked in a public key cryptography system. Only the owner of the private key can send cryptocurrency. Strong cryptography and the magic of big numbers makes it impossible to break this scheme. A Bitcoin address is more secure than Kim Jong Un’s stash of candy bars.
Permissionless: You don‘t have to ask anybody to use cryptocurrency. It‘s just a software that everybody can download for free. After you installed it, you can receive and send Bitcoins or other cryptocurrencies. No one can prevent you. There is no gatekeeper.
Also, a key monetary difference is that most (if not all) cryptocurrencies are limited in their supply. Unlike cash, which can be printed willy-nilly (ask someone in Zimbabwe!), the technology limits the number of AltCoins that will ever be available.
I’m not going to get into all the technical details behind all this. It’s not totally relevant to us as investors at this point in time.
People talk of BitCoin being a bubble, one who’s time has already passed. That may or may not be true for BitCoin as a commodity, but I think that the concept of CryptoCurrency is here to stay. It is a technologically-backed paradigm shift. We can see a clear evolution towards it – from PayPal to mobile payment systems like mPesa. To call the whole thing a bubble or a fad is akin to back 100 years ago when the horse and buggy industry said that the automobile was a fad. Personally, I can already see that BitCoin, specifically, will not be used as a standardized payment method. The transaction costs are too high. BitCoin is more like gold – a way to store value. Other AltCoins have come along and have a much better chance at being a cash substitute. But more on that in other videos.
In short – a CryptoCurrency is any “value exchange” ledger based on a decentralized cryptographic system.
So that’s it. In the next video I’ll show you how to invest in AltCoins and what I’ve already invested in.
I am not asking for you to pay to follow me, and I’m not saying what I will do will be of any value to copy. I’m not starting a “AltCoin” investment newsletter. I am an experienced investor, and experienced in tech startups. But I’m not going to sell you the idea that I have cracked the way to make money in CryptoCurrency.
If you want to join in on the fun, leave some comments below with your investment ideas. And let’s learn together.