Cryptocurrency with Chris

A Blog about Crypto from a Curious fellow named Chris! Here to explain all things Cryptocurrency!

Category: Blockchain

CoinDesk State of Blockchain 2018 – Q1

Hello once again! Yesterday, CoinDesk released their research on the State of Blockchain 2018 for the first quarter. If you are not familiar with CoinDesk, I would highly recommend adding them to your bookmarks. Coindesk is a news and information site working to inform, educate, and connect the global Cryptocurrency community. I have found that they provide very thorough research, interesting insights, and relevant news throughout the day.  Their ‘State of Blockchain 2018’ is a great presentation that provides their research regarding market trends, data, and events so far in 2018 and how they compare to past years. Today, I wanted to talk about what I think were some key topics presented!

Bear Market of the First Quarter

To start, CoinDesk presents quite a bit of data regarding the ‘Bear Market’ of the first quarter. They don’t necessarily present any conclusions as to the cause or potential length, but the data they give is quite interesting.  I think we can definitely draw some of our own conclusions from it. The overall Cryptocurrency market is down 58% in the Q1 or about $350B. Over the course of this time, overall transactions on the most popular Blockchains have consistently declined. Google Searches for popular Cryptocurrencies have also consistently declined throughout the first quarter. Finally, Bitcoin also seemed to reassert its dominance as it returned to 47% of the market from 37% at the beginning of 2018 suggesting people returning to the more ‘safe’ investment in Bitcoin. To me, these all show a pull back in usage, interest, and investing risk.

So what was the cause of this market decline to start 2018? Well, since they don’t provide any outright suggestions, I’ll take a guess and say two reasons: overbought and underprepared. By overbought, I believe it was a simple case of a rapid rise that got out in front of technicals.  Cryptocurrency was purchased more rapidly than what the technology and currencies justified and could sustain. People were purchasing because of the market momentum, not because it was a strong buy or a long-term hold. This is further justified by the fact that, for the first time ever, the number of Coins on exchanges exceeded the number of Coins on respective chains. This shows investors were joining exchanges to ride the price, not to adopt or invest long-term.

I also believe that the Cryptocurrency market in general was underprepared for the large interest and awareness it received in January. The technology and implementation ability across the board did not yet support the Market Caps that most coins had risen too. Do I think those prices are forever too high? Of course not. But I think many Coins and Tokens need more time to develop their product and platform to justify higher prices to the outsider looking to get into Cryptocurrency for the first time. In the end, I think it’s a healthy pull-back from an unsustainable rise given where the technology is at right now.

Community is Growing

Another promising takeaway is the fact that the Cryptocurrency developer community is growing.  The number of differentiated technologies and new platforms is increasing faster than ever. Despite the consistent market decline of the first quarter, developers with new technologies and ideas still seem to be flocking to Cryptocurrency. Not only are the number of new ICOs rapidly increasing in 2018, the total investment in initial ICOs from Venture Capitalists and regular investors is also at an all-time high. This shows both investors and developers are still quite excited about Cryptocurrency and are willing to support new Cryptocurrencies. In my mind, this supports the eventual feasibility and adoption of Cryptocurrency as well as supports the idea we are currently experiencing a healthy pullback. If people are willing to invest and develop, it means people believe there is a real chance of eventual success.

Another topic I want to mention is their idea of ‘Calculated Interest’. CoinDesk uses their own methods to estimate various types of interest including Developer, Price, Social, Network, and Exchange for each Cryptocurrency. The big takeaway from these slides is that Ethereum has the largest interest by far in the Developer and Network categories. This makes sense based on the number of tokens being developed on their Network, but I think this shows fundamental use and necessity for Ethereum and its network. This, in turn, is a strong support for Ethereum investments in my opinion. In addition, all the other major protocols on which Tokens are developed saw growth in the first quarter as well. NEO, Waves, and Stellar Lumens all showed growth in platforms being developed on their protocol. In my mind, new protocols providing increased competition for Ethereum is very healthy for the market and those individual coins.

Community Notes from Surveys

Finally, CoinDesk also provided some cool statistics it has collected from its readers through surveys on slides 56 to the end. While I don’t think there’s anything too insightful to pull from this information, I do think the results show some good insight into where we are the Rogers’ adoption curve here:

Rogers’ Product Adoption Curve

The adoption curve illustrates what percentage of people adopt a successful product over time. Looking at CoinDesk’s survey information, I think that the main users and investors in Cryptocurrency are strong and fervent supporters of the technology. Based on the fact that a large percentage stated they would never sell their coins even if the value plummeted and that the market is generally undervalued right now, I think the current owners are those that fundamentally believe in the future and use cases of Cryptocurrency. Taking this a step further, I think this shows we have not reached the average investor or adopter yet. This is consistent with those that make up the Early Adopter phase in the adoption curve. They are adopters who are strong supporters before the technology or product has fully proven itself. If that curve holds, we should hit the Early Majority soon which begins adoption by the average consumer. There is still a ways to go, but it is certainly an exciting future to think about! To those of you who want to join the Early Adopters while you still can, learn the basics first and then check out my beginner guide here!

Cheers! Chris

Cryptocurrency Terminology!

Hello readers! After continually seeing confusion and misunderstanding around the cryptocurrency world, I have created a basic glossary for many of the basic, yet very important Cryptocurrency and Blockchain terms. I will keep this up to date so feel free to let me know if there are any terms you want defined or think should be added! (Last updated: 5/14/2018)

General Terminology

Satoshi – smallest possible unit of Bitcoin, .00000001 BTC

Wei – smallest possible unit of Ethereum, 1ETH = 1e18 wei

Satoshi Nakamoto – mysterious founder of Bitcoin, identity is still unknown, could be one person or a group of people

Exchange – location on which one can buy and sell Cryptocurrencies like Coinbase or Binance

Fiat – Government issued currency

Coin – Cryptocurrency with its own implemented Blockchain or transactional network that derives its value from the network speed, cost, and reliability

Token – Cryptocurrency built on top of an existing Blockchain or network using smart contracts, most commonly on top of the Ethereum Blockchain

Altcoin – generally refers to any coin or token that is not Bitcoin. Some might argue Ethereum is no longer an Altcoin

Wallet – means of storing your cryptocurrency, can be purely software based or more securely on a hardware wallet

Private Key – unique sequence of characters that allows one to access tokens in a wallet, essentially a password and should be kept secure

Address – the targets or destinations used to send and receive transactions on a Crypto network

Cold Storage – moving all cryptocurrency offline to prevent hacking. Can involve a physical reference to a software wallet, a hardware wallet, or secure USB

Blockchain – technology on which Bitcoin and most Cryptocurrencies are built, a distributed ledger, secured by Cryptography that anyone can read but can’t edit. Decentralized and distributed amongst all users

POS – ‘Proof of Stake’ is a proposed algorithm for which people think Ethereum should operate on in the future. Different from current mining process and allows current Ether owns to vote by locking up their ether.

Sharding – proposed solution for Blockchain scaling problem, allows for users to only have partial copies of the complete blockchain as opposed to the entire chain in its current form. Helps increase overall performance and speed of the network

Fork – split of a Coin’s blockchain resulting in the original Coin and new Coin. Often occurs when there is update to the blockchains code resulting in a different technology and different Coin

Node – any user who holds a copy of the Blockchain and maintains it

DAG – directed acyclic graph, a cryptocurrency graph performing the same functions of a blockchain (recording, confirming, maintaining all transactions in the network), IOTA’s tangle is an example

Miners – users who willingly confirm transactions on the network and mine new blocks for the blockchain, are incentivized by a coin reward for each new block mined and the fees associated with the transactions they confirm

ICO/ITO – Initial Coin Offering, Initial Token Offering

White Paper – Academic paper outlining the details and specifics of a given coin or token and its underlying technology

Smart Contract – code executed on a Blockchain (usually Ethereum) that affects how the money flows (Transaction will only occur if a specific condition is met)

Whale – large volume investors who control enough buying power to potentially manipulate the market

Market Cap – total value of a Cryptocurrency, simply MC = Number of Coins x Price of a Coin

 Once again let me know if there is anything else you have a question about or want added! If you want a quick introduction in how to get started with your first coin or tokens, take a look at the guide I wrote up!

Cheers! Chris

Cryptocurrency: Coins versus Tokens!

Hello everyone! Today, I want to cover the difference between Coins and Tokens in the world of Cryptocurrency. While both Coins and Tokens are definitely considered Cryptocurrencies, I have noticed recently that many people, especially those newer to Crypto, use the two terms interchangeably. I don’t see anything wrong with doing so, but I want to make sure people are at least aware of the differences between the two and what they have grown to represent. The usage of each has grown and adapted as the cryptocurrency itself has matured and identifying the differences has not always been easy. Today, however, the nomenclature of coins and tokens has settled to represent two distinct entities and value propositions. So let’s take a look at the specifics of Coins and Tokens!

 

Three Largest Coins by Market Cap as of 5/10/2018

Coins

Let’s start out with Coins, since they are easier to define and rationalize in my opinion. To me, a coin is what you would traditionally associate with Cryptocurrency. Coins have their own network that is separate from every other coin. Whether this network is blockchain, a directed acyclic graph, or another means of tracking/confirming transactions, each Coin will have developed and implemented their own network. Some coins have copied Bitcoin’s blockchain technology and others have implemented different graphs like Iota. It is important to note, however, that Coins with similar Blockchains to Bitcoin will still have completely separate Blockchains from that of Bitcoin (Read here if you don’t know what I mean by Blockchain). This is why they are classified as a different coins .  Coins also focus more on the transaction speed, cost, and reliability of the actual Cryptocurrency network. The difference between two blockchain-based coins is often how they utilize the Blockchain to optimize one of those three categories. Finally, coins are almost always used as a means to transfer money between to people. Coins rarely represent more than a simple currency.

Tokens

Tokens, on the other hand, can cover a much broader range of cryptocurrencies. The two main differences from Coins is that they are built on top of another Coin’s blockchain and that they provide the ability to participate in some sort of activity.

Let’s start with that first difference since it is the more definite difference between the two. All tokens have been built to run on a Coins blockchain using smart contracts. That means that no token has implemented its own network of tracking and confirming transactions. Tokens take advantage of the Blockchain or network that has already been implemented successfully by another coin. Most tokens you will see are actually built using Ethereum’s Blockchain and Smart Contracts, therefore called ERC20 (Ethereum Request for Comment) tokens.

The second difference is that tokens often represent an asset or utility for some decentralized application. Often, the token grants the holder part ownership in a company or allows the owner to use some sort of application this token has implemented. While they are still traded and hold value, a Tokens value is generated by the underlying abilities the token grants or the asset it is representing (part ownership). Tokens are often a means of performing a Kickstarter-esque campaign. Companies or developer teams will hold a token offer to obtain the resources they need to implement some sort of decentralized technology. The token, then in turn, represents part ownership of the company, unlike a Kickstarter.

Conclusion

In conclusion, I want to reiterate some of the key fundamentals between the two forms of Cryptocurrency. Coins represent a Blockchain network or similar graph that is a means of moving value between users. Therefore, Coins obtain their value from the underlying network it has implemented and its ability to send those Coins reliably, quickly, and cheaply. Tokens, on the other hand, are built upon one of these networks using smart contracts and represent some sort of asset or ability to perform some action. Tokens still have value and are traded because so, but their value is derived from the asset or ability they represent, not the Blockchain on top of which it was built. If you want get started buying and eventually selling some of this Coins or Tokens, I put together a quick starter guide to get you off the ground quickly!

Cheers! Chris

Bitcoin Basics!

Hello everyone! Since this is my first post, I figured we would keep it simple and start out with the basics . So today, I want to talk about the basics of Bitcoin and the Bitcoin blockchain! If you are already familiar with Bitcoin and its technology, most of this will seem simple and redundant, but I think it is important for everyone to have a strong understanding of the basics before moving on to anything more complicated!

So what is Bitcoin exactly? Well, on a very basic level, Bitcoin is a peer-to-peer digital currency where all transactions are tracked on a public ledger and all users are simultaneously aware of all transactions whether they took part in that transaction or not. Now, this is a tough sentence to wrap your head around if you have no experience with Blockchain or Bitcoin technology so let’s break it down piece by piece.

By Peer to Peer, I mean that any Bitcoin or fractional bitcoin can be sent directly from one user to another without any third-party intermediary. This is quite unique compared to traditional monetary systems where usually a bank facilitates the exchange. I could send 1 BTC to my friend in China without worrying about exchange rates, government intervention, or tracking. This is the concept of decentralization and is one of the key advantages that cryptocurrency offers.

Basic Blockchain Diagram detailing contents of a basic block and the links that connect them.

The next aspect is the concept of recording all transactions on a public ledger. This is a big one. The ledger is a series of blocks where each block contains a reference to the previous block (creating a chain), a time stamp, and data about the Bitcoin transactions being added to this block (See above Diagram). This blockchain is encrypted using advanced cryptography and is incredibly hard (impossible more or less) to change the content of the block once it is written. This ledger is also public meaning it is distributed amongst all Bitcoin users so anyone can see past Bitcoin transactions. Anyone can see transaction amounts and addresses associated with such transaction, but not who the addresses belong to keeping the parties involved anonymous. This further supports the idea of decentralization because no one party is controlling or overseeing all transactions.

Finally, all users are simultaneously aware of all transactions. This derives from the concept of the distributed ledger and every user being aware of previous transactions. When a transaction is initiated, third-party miners confirm that the transaction is not a duplicate by reviewing the content of the ledger. This solves any duplicate spending issues without the need for centralized management because any person can mine and confirm these transactions. Miners are incentivized because they are given the transaction fees associated with the transaction as well as a reward for creating the next block in the chain.

Now you understand the very basics of Bitcoin and blockchain technology! One last thing I want to talk about is what exactly a Bitcoin is because this is often hard to rationalize. Bitcoin is not a physical coin or note. It exists purely in a digital world as data on a long public blockchain. Therefore, it really has no intrinsic value. Unlike traditional companies, there are no assets or intellectual property that creates value for the coin. It’s only value is what we as owners and users believe it is worth and what we are willing to pay for it. This is very key to understand because it is the nature of most criticisms of Bitcoin. Any day, at any moment, users could lose faith in Bitcoin because a flaw in the technology is exposed or because something faster or better is released causing the value to plummet or even go to zero. That is why Bitcoin is and should always be considered a risky investment until mass adoption is reached.

That is a very basic description of Bitcoin and blockchain technology. Unfortunately, it only scratches the surface of the intricacies of this technology, but in future posts I hope to go into each aspect in more depth as well as introduce different cryptocurrency technologies that are not blockchain based.

Cheers!

Chris