I wasn’t an early adopter of the blockchain technology. In fact, I made my first transactions involving bitcoin in 2015, seven years after it was first implemented. I still remember them: two separate transactions totaling 38 US dollars. Wow, quite a fortune spent, isn’t it?
Those 38 bucks now have a 79x ROI (doesn’t include only price difference, but also accumulation without purchasing more). Do I regret not investing more at that time? No! Greed was never my ally.
At the beginning of 2017, despite my virtual ROI from the increase of bitcoin price compared to US dollar, I had a rant toward what I considered to be an artificial price based on smoke. Since then the price exploded even more. How much will it continue to rise or when and how much will the correction be, I don’t know, but in the meantime, I understood there is great value, still unexploited behind the blockchain. However, if you decide to invest, be aware, chryptocurrencies are, at this point, highly volatile and speculative, and their volume and liquidity unsuitable for large investors (so, if they enter or exit the market, they can produce huge waves).
What Is Blockchain In Simple Terms?
The blockchain uses a different mechanism to store data.
While banks, credit card companies, assurance companies, governments, and so on, store digital data by copying it to central locations, a blockchain distributes digital data across its network.
I really appreciate the blockchain’s distributed model, and I think it will be the one to embrace in the future. But let’s go over the pros and the cons of each approach:
Pros for copying data to central locations:
– quicker transactions
– lower costs
Cons against copying data to central locations:
– risks by having the data stored in one central place (possibility of failure, tempering or theft)
– data is generally controlled / owned by one entity
Pros for distributed data as proposed by the blockchain technologies:
– no single point of failure
– data tempering is impossible, since it must be validated by other nodes in the blockchain
– no one owns the data
Cons against distributed data as proposed by the blockchain technologies:
– slower transactions*
– higher costs**
*,**) These cons often attributed to bitcoin are addressed by other altcoins, but in the end I think it’s about the speed and cost difference between a simple copy and a distribution to thousands of nodes of the same data.
The other important characteristic of blockchain is its openness. The open-source code can be consulted by anyone and even more, anyone can create a new altcoin, the only question is if it will be supported by the community and miners or not. After all, that’s how all chryptocurrencies appeared after bitcoin, by changing the existing blockchain code and introducing new or different features.
This openness is a strong engine toward the improvement of blockchain, in my opinion.
Bitcoin is the first chryptocurrency, called this way because the first blockchain envisioned by Satoshi Nakamoto was inspired by a cryptography work and bitcoin was meant as a digital currency.
The following “coins” were also called chryptocurrencies. Those which are direct rivals to bitcoin are also named altcoins, meaning alternative coins (to bitcoin).
Let’s take a short overview of the main chryptocurrencies we have right now:
The original chryptocurrency. The one everyone has heard about and the closest to gain mass acceptance. Designed as a digital currency, the slow transactions and high fees threaten this perspective. Its dominant capitalization, however, plays in its favor.
Bitcoin futures are available in the USA since last Monday. American financial market involvement was an important milestone for bitcoin. Pay attention if you have or buy bitcoins, with futures contracts one can make money if the price of the underlying asset (meaning bitcoin) goes up or down!
This is the second biggest chryptocurrency by capitalization. And it has two advantages bitcoin doesn’t: it wasn’t designed to replace currencies and transactions are a lot faster.
Ripple is a decentralized transaction network which also contains a digital currency called Ripples. If someone wants to exchange Ripples (XRP) to EUR or BTC, for example, they can do it on the network, without needing a 3rd party.
There are currently some tests performed by Japanese and South Korean banks involving Ripple. Price went up by 70% in 3 days.
Litecoin focused on overcoming bitcoin’s primary issues. So, litecoin transactions are super fast at a near zero cost. I haven’t really followed it, but apparently it has a decent volume and liquidity.
Some may wonder: isn’t bitcoin overpriced? And looking at my ROI from those two small transactions, it might be true. On the other hand, blockchain’s disruptive power is yet to be understood by the ordinary people, and from this point of view, bitcoin is the best candidate so far for mass acceptance. Other chryptocurrecies are most suitable for different type of operations and this specialization will become important for future blockchain in my opinion.
Future blockchain applications will almost certainly be able to cut a lot of “middle men” from exchanging currencies, and even to create so-called smart contracts, allowing transfer of property. And all is peer-to-peer.