If you’re one of the millions “heading out west” (figuratively) in order to pan for gold in the new gold rush of “crypto” currency, you will need to be VERY careful, as just as it was in the days of the “wild west” – the environment is strewn with potential setbacks and obstacles.
This short tutorial is going to explain how “cryptocurrency” works and – ultimately – where many people are looking at it for “profits”. Unfortunately, it has all the hallmarks of a bubble, where the people at the end (who bought for the highest prices) will eventually get stung the hardest.
Fortunately, there *are* profits to be made with “crypto” currency BUT only if you bought when the likes of Bitcoin was trading at $200. And will be interesting to see what it does by the end of 2017. If you’re buying now, you’ll likely stand to lose a LOT. Nonetheless, if you’re still looking to make progress by “trading” these currencies, the following information should help.
Before we begin, it must be stated that we are *not* financial advisers, and as such this information should NOT be construed as financial advice. This article is provided for educational and information purposes only…
The core of the “crypto” fad rests with the “blockchain” database technology that was developed in early 2008.
This technology was designed as a way to manage data in a decentralized way – removing the need for a “central” service provider the likes of which are required to manage payment transactions, chat transcripts and other transactional applications.
Whilst “blockchain” is actually a valid technology-set, with adoption increasing daily, the need for privacy protection for the system became apparent shortly after developers began to use it. As such, in 2009, “Bitcoin” was released as a way to store a “public ledger of financial transactions” in “blockchain” databases whilst retaining complete security and anonymity.
The secret to “Bitcoin”, and later the likes of Ethereum etc was that they were all encryption algorithms, designed to scramble the “data” inside the various protected decentralized databases which were being used by the system. To decrypt the various data elements, you would need a decryption token (“coin”). This is the basis of ALL the “crypto” (cryptographic) tokens / “coins” we’re seeing today.
Now… the real problem with the myriad of “crypto” coins is that most people have become confused – thinking they will replace the “fiat” currencies of the world with some new “decentralized” currency that answers to no government or bank. This will not happen.
The real value of these “crypto” currencies lies in how they may be able to facilitate new transactions within the “blockchain” eco-system. The “value” of Bitcoin etc lies in how it can be used to “buy” products whilst in China or Russia, when using their local currency could either be difficult or financially unwise (IE if they have high inflation or something).
Thus, the idea that prices for “Bitcoin” tokens have reached $10,000 per coin strongly suggests that the majority of “buying” has been on the back of speculation and hearsay (people wanting to make a quick buck).
With this in mind, and the notion about “blockchain” etc already observed, you could argue it to be quite obvious that the unregulated secondary markets through which the “coins” have been traded are experiencing the effects of a “bubble” – where buying is done on the pretence of future resale value, rather than intrinsic value, as would govern the “investments” from legitimate investment houses.