The cryptocurrency world is a very confusing space for those looking to dip their toes in. It’s not easy, but ignore it at your peril! We at ESAS have been doing this casually for 9 years, and seriously for 7 years, so here are our thoughts:
A cryptocurrency to us is a virtual currency designed to work as a trustless medium of exchange using cryptography to secure the transactions and to control the creation of additional currency, decentralised by a public blockchain (a ledger of all transactions), held by anyone who wants to get involved, in the digital space (….and breathe!). Note this is a subset of the formal definition, so whilst the likes of Ethereum and Ripple are big players for other reasons, they’re not proper currencies IMHO (and I don’t get the likes of IOTA and EOS!)
Fiat money is what we’re more used to. A currency without intrinsic value established as money by government regulation or law. Fiat money started to dominate in the 20th century. Since the decoupling of the US dollar to gold by Richard Nixon in 1971, a system of national fiat currencies has been used globally, with freely floating exchange rates between the national currencies. The Fed/ECB/Bank of England can issue more dollars/Euros/pounds whenever they please, and it instantly has “value”, even though backed by nothing real. Japan is one to watch, as they are big into this quantitative easing (QE). Inflation eventually kills fiat, the whole house of cards collapses when too much is produced. Proper crypto has deflation built-in mathematically, and cannot be changed – the creation of new currency is fixed by the maths and decreases to zero over a fixed number of years.
The subprime mortgage fiasco in the US leading to the collapse of Lehman Brothers and the subsequent fall of Northern Rock in the UK triggered a collapse in the world financial system in 2007/08. Although Northern Rock savers were looked after, the creditors in the US and leading UK banks were bailed out (rather than the debtors??!). Save the too-big-to-fail banks and screw the people. To date, there’s been no real prosecution of bankers for plunging millions into poverty and faux austerity, and costing taxpayers trillions and trillions the world over.
In 1998 the visionary Nick Szabo designed a mechanism for a decentralised digital currency, he called “bit gold”. Little more a thought experiment, and brilliant though it was, it never amounted to anything. Cue the financial crisis, and people’s disgust at the above-the-law banks stealing our money with impunity, and the scene was set for a game-changer.
Bitcoin is the daddy of the cryptos. Don’t let anyone tell you otherwise! There is no “next Bitcoin”, so ignore such claims. If you want in, it’s Bitcoin. It’s the “world reserve” cryptocurrency, but unlike the fiat equivalent, the US dollar, no one can print more for themselves, if they’re running a little low – so inflation can’t kill it! It was the first, and it’s eloquent design, clearly based on Szabo’s bit gold, paved the way to today’s world of cryptocurrency.
On 18 August 2008, the domain name bitcoin.org was registered. In November that year, a link to a paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System was posted to a cryptography mailing list. Nakamoto implemented the bitcoin software as open-source code and released it in January 2009. The identity of Nakamoto remains unknown, though to me it’s the work of Nick Szabo and the receiver of the first coins, the (late) PGP coding maestro Hal Finney.
In January 2009, the Bitcoin network came into existence after Satoshi Nakamoto mined the first ever block on the chain, known as the genesis block, for a reward of 50 bitcoins. Embedded in the coinbase of this block was the not so cryptic “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
If you want to invest in a single crypto, it has to be Bitcoin, as a store of value away from corruptible fiats, it’s the only game in town. Consider it as digital gold. As a replacement for cash, it’s more limited, it’s not designed for high volume low worth transactions. Buy (and sell!) your Bitcoin on a trusted exchange instead. We like Kraken, proper trading platform, low fees, and frequently fails when busy(!). That might sound bad, but they’re all unregulated, so anyone with a couple of days PHP coding experience can knock-up a “trading platform”. If you consider Kraken the best of a bad bunch, you won’t go far wrong!
If you’re solely interested in buying and selling with fiat and don’t care about wallets and sending or receiving Bitcoin (or Ether or Litecoin), checkout Revolut. Half-way house? crypto.com is a feature-rich App.
The validation of all transactions, called mining, is used by all so-called proof-of-work cryptos, like Bitcoin. It’s highly numerically intensive and the SHA-256 hashing algorithm run on CPUs and GPUs will use far more electricity than Bitcoin value, so don’t bother. Specialist hardware is available, but low electricity costs are the deal maker. Proof of stake, like Cardano and Electroneum, are better for the planet!
Do people have trouble visualising what a Bitcoin is? – some digital file wrapped in uncrackable cryptography perhaps? When they find out it’s little more than entries in a public ledger that can only be accessed with a unique private key – a string of seemingly random alphanumeric characters, that doesn’t help! But that’s what it is, and like any asset, if at least one other person thinks it has value, it does! “Luckily” some bulletproof high-end maths and a world ruled by aloof banksters, and there’s more than a few believers!!
Ethereum is the next crypto of interest, not designed as a general-purpose currency like bitcoin, but as a public, blockchain-based, distributed scripting platform (using what are called smart contracts). The internal cryptocurrency token, ether, has become the 2nd most valuable crypto in terms of market cap at the time of writing but is largely pre-mined. Also currently Ethereum is also the leading blockchain platform for initial coin offerings. Personally, we prefer Cardano – Open source, peer-reviewed, and designed to improve on Ethereum. ADA is smart contracts with knobs on! Come Alonzo in 2Q21, and Cardano to the moon!
Ripple, the next largest “crypto” by Market Cap (ignoring the bitcoin fork, Bitcoin Cash), is even further away from the currency design of Bitcoin than ether. Ripple is a real-time settlement system, currency exchange and remittance network by the company of the same name. It is built upon something called consensus ledger and a native cryptocurrency called XRP (ripples). Rather than an out and out “disrupter” of the banking system, Ripple is a curious hybrid of “disrupter” and “saviour” of the banks! They actually want to work with banks to save them!! You can’t mine Ripple, that’s all controlled by the Ripple company, but you can buy and sell at most good exchanges. It’s cheap too, around 15p for 1 XRP on Oct 17, so psychologically an easier buy than 0.0000317 BTC! (or 3,170 Satoshi!!) Another selling point for the design is its scalability – most cryptos would struggle with more than a few transactions a second, Ripple reckons they can match the likes of Visa with 1,000s. Having said that, owning Ripple doesn’t allow you to do anything, It’s like you unofficially own a small portion of the Ripple Company (You don’t, it’s privately owned). Great tech but Ripple price a mystery!! Pure speculation.
Tether, do like the idea of stablecoins, but not this one! Safe haven, but get one backed by reality! Tether seem to magic up new currency by the billion. Iffy audit trails. Trusttoken looks better, stake for interest payments!
The rest! There are literally 1,000s of so-called altcoins out there – Litecoin, the first “new Bitcoin” (and a popular port of call for a decent network with low transaction costs), Dash, Monero, Zcash are worthy attempts at a “Bitcoin 2.0”, even DOGE, a ‘joke’ with legs! …with improved speed and anonymity… but still occupying that “store of value” space for the technically aware. Proper digital currencies all of them – public blockchain, distributed miners and a hard-limited total coin distribution, but still for the techies… Where’s the one with mass appeal??!
Most ICOs (Initial Coin Offerings) are wildly speculative. Avoid them, unless they look like a real game-changer, backed by real talent. Be very cautious investing and certainly not with money you can’t afford to lose. A few are great, most are worthless. Be extra alert for too-good-to-be-true scams.
Facebook was set to launch its own “crypto” in 2020 called Libra, likely to be a stablecoin. A long way from the original ideals of cryptocurrency, merely a cheap way to offer a centralised payment system like PayPal at a fraction of the cost, but to the world – mainstream adoption of crypto! Watch the Bitcoin price soar!
Mining. Whereas the days of mining bitcoin for profit are long gone for computer users, ether classic or cryptonight based currencies can still be mined with a “modest”, say £200+, graphics card. At the time of writing, you can make about 80p a day with a mid-range GPU (after electricity costs), but this value is tending to reduce slowly. whattomine.com is an excellent site to look at what cryptos are worth mining. As a general guide, don’t buy a pricey GPU just for mining crypto (buy on an exchange), but if you already have a decent “games-spec” PC, give it a go! Always opt to mine via a pool, and do your own research on the best ones, it’s too dynamic to recommend here. Nicehash is easy but has been hacked in the past. MultiPoolMiner is a fine piece of work but set up a Mining Pool Hub auto-exchange first, or you’ll end up with 10s of low-value altcoins!. Just bear in mind it’s all unregulated, so always extract earned monies asap (from mining pools AND exchanges).
Buying-in. You need some Bitcoin! Open an account with bittylicious or Kraken. bittylicious is old skol, buy using bank transfer to your personal wallet like Electrum. take backups of your wallet and secure them, understand what your Private Key is. If you’re keeping £1000s in cryptos, get your head around cold/offline wallets. Kraken is an exchange with lots of trader friendly features. Like an App? crypto.com is feature-rich. Don’t keep too much of anything on these unregulated exchanges, they’re not safe. If you’re solely interested in buying and selling with fiat and don’t care about wallets and sending or receiving Bitcoin/Ether/Litecoin, the Revolut App will do it, with a not-so-modest 1.5% commission in and out.
If you just want to lose, sorry try to make a quick buck, try spread-betting. We like Plus500. It’s just online gambling as has nothing to do with the game-changing properties of crypto. If you must, Bitcoin is the classic momentum buy – if is raises say 25% in one week, buy. Don’t be greedy, take your profits, and when your stop-losses start kicking in, get out and wait for the next momentum move (If you need another Lambo! 😉 ). Go short at your peril. If you really want to make money spread-betting develop your own Spread Betting App!