crypto

Is there more than one Bitcoin?

| roger nunn

Most people have heard of Bitcoin and maybe that it was created in the wake of the financial crisis that started around 2007.

Bitcoin is now 12 years old, but it didn’t get much visibility (perhaps notoriety) until after 2013. The name Bitcoin is unfortunate as it gives the idea that there is a physical manifestation of the technology. However, as no better name was found everyone uses coins.

In the meantime the idea of basing value on the security of the blockchain spawned a multitude of other coins, like Etherium and Ripple. Bitcoin was seen to be insufficiently flexible to be used for contracts, so Etherium includes a form of programming that allows for “smart contracts”.

The existence of smart contracts has in turn spawned a large number of Tokens, which are payment transfers built on the Etherium blockchain using smart contract possibilites.

The number of new tokens expanded dramatically since the first bitcoin frenzy in 2017 and there are now over 5,000 of them. As the transfer of value on the blockchain requires keeping track of large numbers, there are now a multitude of software wallets make it easy to store and transfer crypto currencies. At the same time, there are a number of exchanges that are used as market-places to trade crypto.

Each of the paragraphs above gives just an idea of the subject matter, something that needs to be studied in depth just to get a feel of what crypto really is.

I often get asked how it can be real if it is just a string of numbers stored on a computer. Answering the question means studying the history of non-crypto currencies first and realising that even the “normal” currency that you have in your account is also only a string of numbers. The hardest point to understand is often that there is no central authority for Bitcoin, it is controlled by many thousands of computers around the world, all competing to maintain the system.

The real strength of Bitcoin is that there is no central authority and therefore no one to create inflation or to simply take money from your account.

Crypto use cases

| roger nunn

I like that we live in times of change, financial change I mean.

Throughout history we have had large changes, things that caused great upheaval in society and industry. Major changes include the invention of the steam engine and all the industrialisation it brought, the the invention of the internal combustion engine and airplanes. These brought huge changes in wealth and working practices. The biggest change was the development of computers and most recently the proliferation of the internet to the current stage of being in everyone’s pocket.

Now we are on the cusp of the biggest and most disruptive change of all, being the replacement of paper money issued by governments with a store of wealth that is independent of national borders and specific currencies.

I am fascinated and look forward to the developments that are on the way, disruptive as they will certainly be.

The blockchain based coins and tokens are the first wave of change. Already, I find that the transfer of money (fiat money) through banks feels as though it should be abandoned for being so slow, expensive and inefficient.

Already there are financial instruments based on Bitcoin, Etherium and other coins. I can transfer value between different organisations in a matter of minutes and start earning interest that is paid in a cryptocurrency.

At the time of writing, Jan 2021, banks are now planning to pay negative interest rates. In normal language that means that you have to pay a fee to keep your money in the bank. My crypto coins pay me interest (daily) and are currently increasing in value.

In the long run I expect the coins to more or less stabilise in value, something the official currencies have never been able to do. Bitcoin has been constructed so that there is no potential for inflation, something that is so good at the moment that even large organisations have started to buy it to avoid the inevitable inflation that will follow the current huge increases in liquidity.

So, my thought for today is that simply by buying some bitcoin I have stopped inflation from eroding the buying power of my money. It is called Hodling, a work coined by a typo.

This is one use of crypto, there are many more that I will talk about, there are others that I know little about and others still being developed. Exciting times!

What is crypto?

| roger nunn

Cryptocurrencies and token are a way of keeping a permanent record of transactions. Sounds boring and gives rise to the comment, ok, so what!

This explanation sounds as though it could have been written to put you off the idea. A better explanation is that it is a new technology that uses mathematical certainties to ensure that all transactions cannot be altered and that passes via the internet.

There are so many parts to crypto that is it difficult to know where to begin, especially as it’s uses and new developments are taking place at an ever increasing rate. A simple example is Bitcoin. Most people have now heard of it (currently trading at over US $ 34,000 each) but they are completely unaware that there are actually thousands of other coins or tokens being traded, with new ones and new uses coming online every day.

Transferring money seems to be the best known use of the blockchain (the name of the tech behind crypto currencies), and often vilified because it can be used for nefarious purposes. Oh Dear! I believe that cash is used in nefarious purposes all the time. The real benefit is that you can transfer money virtually instantly, anywhere in the world and at almost no cost. I remember going to the bank and filling in paper forms to send money abroad, money that would only get there a few days later, after paying transfer and currency conversion costs.

If I want to pay in a crypto currency, the person i’m paying needs to have only a phone and internet access. Nothing else.

Money transfer is only scratching the surface for crypto, it has a myriad of uses, I will talk about some of them another time.