Cryptocurrency – what is it all about
In 2008 Satoshi Nakamoto (pseudonym – no one knows who he / they are!) invented Bitcoin, the first and still most important crypto currency. In fact, he had no intention of inventing a currency, being a true geek, he was trying to resolve a known technical issue with digital cash and developed the first working decentralised cash system.
Why invent cryptocurrencies?
For the same reasons we invented our own currencies. Using a promissory note in exchange for goods and services rather than bartering, allowed civilisation to grow. However, the systems needed to ensure the stability of individual currencies are many and complex and as we know open to abuse. We are lucky that our government seem to want to protect the value of our currency by use of recognised tools such as quantitative easing and interest rates to control inflation. Many are not so lucky and have to rely on poor controls and high levels of corruption by their respective governments. Others are unhappy with the “cost” of funding their money with charges set by the middlemen who control their own industry, namely the banks. More recently the slow transaction times have stunted progress for many business ideas.
How do they work?
Currencies like the GBP are centrally controlled by the Bank of England via our government. A cryptocurrency has no central control. Rather it relies on software that runs on millions of privately owned computers known as Bitcoin mining, that continually check with each other on each and every transaction made worldwide. This is called a Blockchain which is basically a continually growing list of records (your old-fashioned ledger) and is the technology that allows decentralised currencies like Bitcoin to exist.
What’s the fuss about?
Bitcoin was the first and has been in existence since 2009, like most new ideas, no one had any use for it and only a few geeks knew about it. in 2010 its value started at $0.008 and rose by 900% to $0.08 took a further year to hit $1. It fluctuated wildly for years trading between $350 and $750 until last year. In Jan 2017 the price was $800 by December it had hit $19000+! Since then the price has dropped to below $7k and is currently today sitting at $11300. Meaning if you had bought $100 in Jan by Dec it would have been worth $2500. So, you can see why many are very interested in jumping on the bandwagon.
The darker side.
A currency that is tradable worldwide not linked to your identity or controlled by any government and has little or no paper trail. Mm mm I wonder who might use that. Suspicious organisations wanting to sell drugs from Columbia in Miami and use the funds to buy weapons from Serbia to sell to some regime in Africa, previously had a nightmare with making and receiving payments. They were a bit concerned that their questionable business might be traced if using normal bank accounts and flying about with large bags of cash also raised some eyebrows. Terrorists also liked the idea of not turning up in person to pay or take payment and internet fraudsters find it suits their activities far better than traceable credit card transactions. These guys must be very happy that the city boys and now everyone who can log on to the internet are trading in their chosen currency. I assume there is good profits in dealing illegal drugs or arms and no doubt terrorist organisations are not short of a bob or two but for your ill-gotten gains to increase in values by twenty five times in one year must make some of them wonder if they are in the right game?
Should I invest or have I missed the boat.
If I knew the answer I would not be writing this. I am very sure the technology is here to stay. As are many established organisations. The US Government are seriously considering launching their own digital currency. New currencies are started every week it seems and some very well respected people have invested in the technology. As to investing your hard earned, well if you feel like dipping your toes it is very easy, there are many online portals like Coinbase.com where once you have entered a few details and linked to your bank account or card you can start to trade – good luck.
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