Introduction to Cryptocurrencies:

Introduction to cryptocurrencies:

Cryptocurrency is a digital currency that is built on blockchain technology. The value of cryptocurrency is not determined by an authority (Central banks/ governments) but rather the demand and supply by the world; a completely FREE MARKET!

Common properties are Security and a lack of a central authority.

Bitcoin

This is the baby’s first steps into crypto. It is one application of blockchain technology. Created in Jan 2009, it was created by Satoshi Nakamoto (pseudonymous). Bitcoin is a digital currency that offers peer to peer electronic cash that enables online payment and is decentralized. It offers potential uses such as a means of payment, a unit of account and a store of value. Hence, it is seen as a potential substitute for money.

However, there are complications that come with it. Although it can be used for transactionary purposes, it is very difficult and inconvenient for daily use. For example, a plate of chicken rice costs SGD $3. That is equivalent to ~0.00006BTC(as of 4/2/2021).

Bitcoin’s code (altered through forks) only allows the total maximum supply to be 21 million BTC and is released to the masses at an exponentially decreasing amount. Today it has a circulating supply of 18,618,743 BTC. With that, Bitcoin today is seen more as a substitute to gold as a hedge against inflation due to it’s appreciating value. While Gold has a market cap of 17 Trillion USD, BTC has 700 Billion. What's interesting is that the market cap for JPMorgan is 407B and Apple Stock 2.2 Trillion. This suggests that BTC may be big enough to be legit and if it truly is Gold's direct compeitor, then it has so much growth potential up to said 17 Trillion. Another interesting fact is that given the same timeframe since 2009, Gold has doubled it’s valuation, but compared to BTC which has increased by more than that.

Figure 1: CFD Gold USD$

Figure 2: BTC USD

Figure 3: BTC USD (log to see price valuation prior to 2017)

What’s exciting this year is that large financial entities are starting to recognize Bitcoin as a legitimate financial instrument. JP Morgan has stated that Bitcoin Could Surge to $146,000 in Long Term; 5 Jan 2021

https://www.bloomberg.com/news/articles/2021-01-05/jpmorgan-sees-146-000-plus-bitcoin-price-as-long-term-target

But take note of the conflicting statement that JP Morgan said that Bitcoin May Never Go Above $ 40,000 Again 25 Jan 2021.

https://www.entrepreneur.com/article/364066

Another good sign is that many big names such as Mark Cuban and Elon Musk are in support of BTC.

Figure 4: Elon Musk Twitter

https://www.cnbc.com/2021/02/01/elon-musk-on-clubhouse-i-am-a-supporter-of-bitcoin.html

https://www.cnbc.com/2021/02/01/mark-cuban-on-digital-assets.html

*Updated 8/2/2021

Tesla bought 1.5 billion BTC. That's a sizable volume where as it constitutes about 1% of all Crypto in circulation. (Currently $1,289,620,432,365 Source:CMC) This is EXCEPTIONAL NEWS! As it shows REAL WORLD adoption to where Tesla will write it off into the balance sheet as an asset. Similar to Michael Saylor's microstrategy business.

https://www.bbc.com/news/business-55939972

When BTC was a $100, people were calling it a scam. When BTC was almost $20k, people were calling it a scam. When BTC crashed, recovered and hit $40k people are still calling it a scam.

Ethereum

In the past, Blockchain technology was extremely difficult to build as it requires background in coding, cryptography, mathematics time and resources.

Enter Ethereum, the biggest and most popular altcoin to date (may change in the future). Founded by; Vitalik Buterin (Main Founder and Creator), Anthony Di Iorio, Charles Hoskinson, Mihai Alisie & Amir Chetrit (December 2013); Joseph Lubin, Gavin Wood, & Jeffrey Wilcke. (early 2014).

Ethereum is an open source platform (tool) based on blockchain technology that allows developers to build and deploy decentralized applications. Ethereum focuses on running code for any decentralized computation that is deployed on its network where Ether (cryptocurrency) is used as fuel for the network. Ethereum runs Solidity ("Solidity is an object-oriented programming language for writing smart contracts. It is used for implementing smart contracts on various blockchain platforms, most notably, Ethereum" from wiki) that allows Smart contracts to be built on the Ethereum network. Think of Ethereum as something like an operating system where you can build applications that run on Windows OS or Apple IOS system.

Ethereum has the most developed ecosystem out of all the smart contracts platforms such as Polkadot DOT and "soon to be" Cardano ADA.

In 2016, DAO (developed on Ethereum) was hacked and USD$50 million was stolen by an unknown hacker. (This was due to bad code on DAO's part and not really ETH) This led to Etherum hard fork where the network split into 2 blockchains. Although Vitalik wanted a soft-fork not a hard fork. However, miners felt there were security flaws with the proposed soft fork at the time. Hence, the community at the time decided on the hard fork. What came out of the hard fork was Ethereum and Ethereum Classic. Ethereum Classic (ETC) was birthed from miners who disagreed with the philosophy of the hardfork. However, it is unpopular as the hacker retains all his stolen coins on ETC. Since then, developers have taken more precautions and are more careful with their code.

There is so much growth potential of Ethereum as most Defi projects are built on Ethereum platform such as aave, compound, Makerdao, uniswap and 1inch.

Figure 5: ETH USDT CMC

ALTcoins

After BTC, every other cryptocurrency is known as an altcoin. They are all very different and have different properties and purposes. Before buying any altcoin, it is best to understand what purpose they serve, the development activity and the media coverage surrounding it. This is where you will get burnt if you don't know what you're doing.

Figure 6: Top 10 Crytocurrency USD CMC

If you're new to crypto and want to invest, then BTC is the first thing to add to your portfolio. This is because BTC is widely recognised and where most of the inflow of capital goes into crypto first. ETH is the first ALTcoin you buy and not some random pump and dump like DOGE. This is due to the fact that it would be the next major one that would receive the capital inflows as it is being widely adopted via other developers. Take note that ETH along with most if not all ALTs depend on the price stability of BTC to succeed. If BTC is stable or growing, the ALTs will too. If BTC is crashing, ALTs will crash too. However, this is becoming less true with every passing day.

We are experiencing a transitioning phase where Cryptocurrency could well be the next step for the financial industry, which could be a once in a lifetime opportunity for retail investors like us.

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References:

https://coinmarketcap.com/

Disclaimer: This extract is not to be used as proper financial advice. Definitions used reflect highly subjective assumptions and judgements by the author. Crypto is an extremely high risk investment, and I will not be liable for any losses you incur.