On the surface, Bitcoin and Ethereum seem to share a lot in common. Both are decentralized digital currencies that rely on blockchain technology, and both have seen their prices rise by incredible amounts over the past several years. Yet any investor who has been around the block knows that these two assets are far different than each other, and it is important to understand exactly why that is before making a decision as to which (if either) you want to invest in.
This blog will try to answer the following questions:
1. How did we get here? – An overview of how cryptocurrency prices have changed since the first coin was created.
2. What factors contribute to crypto-price changes? – The differences between how blockchain networks value cryptocurrencies vs fiat currencies
3. What does this mean for the future? – A look at adoption rates across different use cases and what this means for the future of crypto-prices
I’m not a financial advisor, I’m just a guy who is interested in crypto and has been studying it for years. I do have a great deal of experience with this asset class and try to explain things in as simple terms as possible. If you’re an amateur like me, or even a pro, I hope you get something out of this blog where I summarize some things that I’ve learned.
[This post is part 3 of 3: the past, the present, and the future]
The current state of crypto markets
I think it’s important to understand where we are today before we can make any predictions about what the future holds (however uncertain they might be). So let’s take a look at the current state of crypto markets.
It’s still early days in crypto-world
Bitcoin was invented only 10 years ago and there are still very few people who know about it. The number of people who own cryptocurrencies is still very small compared to other asset classes. According to one study , only 5% of Americans own cryptocurrencies. This means that there is still a long way to go until we reach mass adoption.
The growth potential of this market is almost unlimited
Cryptocurrency is global. It doesn’t matter where you are in the
I’m still a bit shocked that crypto prices are down so much, so fast. It’s been a rough year for cryptocurrency and blockchain related stocks, but the actual cryptocurrencies themselves have been hit even harder. The decline of Bitcoin and other cryptocurrencies has a lot to do with their rise in popularity last year. The more people who bought into these currencies, the more problems they had with managing the networks and confirming transactions. As the number of transactions grew, so did the time it took to confirm them.
This became a problem for two reasons. First, it made trading more difficult because traders didn’t know how long it would take to get their transactions confirmed. Second, it made trading less fun because traders were constantly waiting for transactions to go through. To deal with this, exchanges such as Coinbase and Bitfinex began charging higher fees for moving funds into and out of wallets on their platforms. As the fees rose, people began looking for ways to avoid paying them by transferring their funds into other exchanges or wallets.
Many of these transfers were made quickly and without any fees at all; however, some took several days to complete due to network congestion, which caused delays in sending and receiving bitcoins from one wallet to another.*
On the most basic level, cryptocurrencies are entries about token in decentralized consensus-databases. They are called CRYPTOcurrencies because the consensus-keeping process is secured by strong cryptography. Cryptocurrencies are built on cryptography. They are not secured by people or by trust, but by math. It is more probable that an asteroid falls on your house than that a bitcoin address is compromised.
Bitcoin was the first cryptocurrency, and still has the largest market cap of any cryptoasset currently in circulation. It represents the first time anyone has successfully solved a computational puzzle in order to store value permanently and transfer it from peer-to-peer without a middleman (such as a bank). Bitcoin’s success has spawned hundreds of competing cryptocurrencies – known as “altcoins” – with some being less reputable than others.
The whole cryptocurrency market capitalization is smaller than some of the world’s biggest companies like Apple or Amazon. But given how many people use their services or products, it doesn’t seem right to compare their values to that of cryptocurrencies’ market cap.
The cryptocurrency market is currently experiencing its biggest correction since early 2017, with prices across the board dropping more than 80% from their all-time-highs (ATHs). This follows nearly 9 months of extremely strong performance, during which time the total market capitalization of cryptocurrencies grew from $20 billion at the start of 2017 to over $800 billion by January 2018. That is a 4000% increase in just over 12 months. The magnitude of these swings is unprecedented and has mesmerized everyone from finance professionals to technologists and retail investors alike.
The purpose of this article is to provide a balanced view on what brought us here and where we might be headed next. Our goal is to help you make sense of this seemingly irrational market, so that you can make informed decisions about whether or not to get involved.
The prices of cryptocurrencies are volatile; some can go bust, others could be scams, and occasionally one may increase in value and produce a return for investors.
The market for initial coin offerings (ICOs) has been experiencing a massive boom in 2018. So far this year, about $7 billion has already been raised through ICOs worldwide – more than 10 times the total amount of funds raised via the traditional IPO model.
According to ICOdata.com, in 2017, a total of $5.6 billion was raised via ICOs. If we take into account data from the first quarter of 2018, it appears that the amount raised this year alone has already exceeded last year’s total.
The data shows that since January 2017, there have been over 800 successful ICO projects worldwide, while another 900 are still ongoing or are scheduled to launch their respective token sales campaigns later this year.
The underlying technology securing bitcoin is known as the blockchain. (Related: How Does Bitcoin Work?)
Blockchain is a decentralized technology spread across many computers that manages and records transactions. Part of the appeal of this technology is its security.
Cryptocurrencies are lines of computer code that hold monetary value. Those lines of code are created by electricity and high-performance computers. Crypto miners run programs on specialized hardware made specifically to solve proof-of-work puzzles, a computational problem.
Cryptocurrency mining is essentially solving complex math problems with computers or specialized hardware, and for solving these problems, miners are rewarded with cryptocurrency tokens or “coins.”
Proof-of-work coins like bitcoin and Ethereum require miners to use powerful graphics cards or ASICs (application-specific integrated circuits) to generate hashing power for solving complex hashing algorithms like SHA256 in order to add new blocks to the blockchain.