CryptoCurrency: The Future of Digital Value
If you don’t want to read the full article, the video below goes over everything written.
The First Cryptocurrency
Cash, banks, power, control. What do these words all have in common? They are the opposite of what cryptocurrency stands to be. To understand how this came to be we need to take you all the way back in time to 1983 at the university of California, a man by the name of David Chaum is writing a paper on electronic cash. His concept included a token currency that could be transferred between individuals safely and privately. He then went on to invent a blinding formula which would be used to encrypt information between individuals. This was called blinded cash which allowed for the transfer between individuals, bearing a signature of authenticity and the ability to become untraceable. David Chaum then put his concept into use in 1989 when he founded Digicash, which had a new product called eCash, eCash was based upon the papers written by Chaum. Unfortunately digicash went bankrupt in 1998 and subsequently eCash wasn’t used anymore
The Building Blocks of Bitcoin
While Digicash was going under there were other competitors joining the market, most notably Bit-gold and B-money. Both of these early cryptocurrencies included concepts which eventually led to the creation of Bitcoin. Both were forms of electronic cash which valued the decentralisation of currency. Unfortunately they couldn’t quite nail down the concept and therefore have both been rendered obsolete. However while these currencies were being developed there was also a key piece to the puzzle of Bitcoin which was in development back in 1997. This key concept is called proof of work and comes in the form of a concept called Hashcash. A man by the name of Adam Back had written a paper which would include the model of proof of work. A decentralised consensus which requires members of a network to solve mathematical puzzles to prevent the security breach in the network. Hashcash actually used proof of work to limit email spam in a person’s inbox and can be used to stop ddos attacks to networks. Hashcash can still be used today but never developed into a currency.
Creation of Bitcoin
Many years went by since Hashcash was invented. However in 2008 a massive event happened across the world, the 2008 financial crash. With this saw the crash of the global economy where institutions borrowed way too much and had to start paying their loans back. House prices dropped and the bubble burst which led to the banks cutting lending even further. This event then inspired one man to create his own currency which would protect the people against the inflation which came along throughout the late 2000’s. This currency would be called Bitcoin, and was created by an anonymous creator who went by the name Satoshi Nakamoto. Bitcoin’s whitepaper outlined the need for secure, scalable and decentralised currency. Which nobody would have control over and could be used as a hedge against inflation. For example, in many unstable economies the currency tends to become worth less as time goes on. This happened in Germany around the time of world war 2, where the currency became so worthless that people had to stack notes into a wheelbarrow just to pay for bread. This type of inflation is called hyperinflation and at some point it can’t be stopped. However if you converted your money into Bitcoin before this inflation happened then it would change price relative to the price of your currency. Then you would be able to retain your wealth and you wouldn’t be hit by this hyperinflation. This is one of the main purposes for Bitcoin. In 2009 Satoshi started Bitcoin and at this time it had very few users but it was mainly cryptocurrency developers who used it. Then as time went on people started to adopt the technology and in 2010 the first real world transaction was processed on the blockchain. This was to buy a pizza and it cost the buyer 10,000 Bitcoin, which at the time wasn’t worth much but ten years down the line would be worth over $300 million. From 2009 to 2015 the price of 1 Bitcoin went from $0.40 all the way up to around $400, which by any means is a massive amount of growth given the timeframe. However this would be nothing compared to what the future would hold.
Bitcoin’s Brother — Ethereum
During the late 2000’s to early 2010’s there were many other cryptocurrencies being developed, but in 2013 a man by the name of Vitalik Buterin had a vision for a new coin that he would go on to create. He was previously writing articles for the Bitcoin magazine and first started his vision in 2013 for a coin he named Ethereum. Now many people ask what’s the point of another cryptocurrency if you already have Bitcoin. Well Bitcoin has limited functionality overall but the things it can do, it does really well. Ethereum on the other hand has major functionality but doesn’t do everything perfectly, It’s like a jack of all trades. Ethereum officially launched in 2015 and gained a fair amount of adoption early on. It rose from under $1 up to $10 per coin in the first year of launch. But in the next two years after the release of Ethereum, there would be an event that would completely change the space.
2017 Bull Run
In 2017 the new year started and the price of Bitcoin was just a little under $1000 per coin, however as the months went on into 2017 the price of Bitcoin started rising. The big reason was that Bitcoin supply was being limited as it just had a reward halving at the end of 2016. This scarcity brought in retail investors who saw the opportunity Bitcoin holds. By mid 2017 the price had doubled and this interested more people to start buying into Bitcoin. Then in the months that followed we saw an explosion of the crypto market with Bitcoin hitting an all time high of over $20,000 and Ethereum hitting $1,500 per coin. This bull run would open the eyes of the people to crypto and a lot of people discovered this new form of currency. However after all the hype in the market the bull run would start to decline into 2018 where the market bottomed out and the price stayed around the $5,000 range for a while. This bull run would also eliminate all the useless cryptocurrencies which had been created and allowed for the best ones to gain price and dominance in the market.
After the 2017 bull run, Bitcoin and Ethereum cemented their place in the cryptocurrency market. However there were other coins which started to show promise in the space and one of the biggest innovations that came through were stable coins. These coins were linked and backed by actual currency, it was a way to bring fiat currency into the crypto markets. These coins would allow for the trading of Bitcoin or Ethereum into currencies around the world. Most notable of these stable coins were usdt and usdc, which were stable coins which acted as the dollar in the market. These two coins would eventually sit at 3rd and 4th place by market cap among all cryptocurrencies, however this would take some time. So through 2018, 2019 and 2020, all cryptocurrencies experienced a crypto winter. This is where prices of crypto are low and there wasn’t much profit to be made. However in this time there were a lot of new developments being made in the crypto space which would come to bear fruits down the line in 2021. However before that it must be noted that Bitcoin had another halving in late 2020, just as they did in 2016 before the massive bull run in 2017. And as it would seem, history was about to repeat itself. After the halving of Bitcoin the supply reward decreased further and there was less bitcoin available on the market, subsequently this would start to drive the price upwards. Now while the price of bitcoin was rising slowly in late 2020 the world would also be given a whole lot of money from governments to fund their lives while their countries were shut down. This meant that a lot of people had spare money left over in which they could spend on investments, and spend they did.
2021 Bull Run
Going into early 2021 the money started to flow massively into the whole crypto market. An estimated $2.3 trillion was added to the market. Any coin you invested into in 2020 would have at least tripled in price. Bitcoin hit a new all time high of around $60,000, however a lot of coins would take people from poor to millionaires overnight. Doge coin, Solana, Cardano and many others were making people filthy rich. Everything even remotely connected to crypto would see gains. We had an explosion of NFT markets which were mainly run on Ethereum. The biggest NFT marketplace called Opensea saw trading volumes in the hundreds of millions through minting and selling of this digital art. Metaverses saw huge adoption and so did the coins that they run off, coins like Sandbox and Decentraland had upwards of 1000% increase in price. Crypto exchanges made billions in trading fees and these crypto exchanges also had their own native coins which benefited from the increased trading. Huge adoption came from mainstream industries. Banks, countries and Fortune 500 businesses all started to hold cryptocurrency on their books. The biggest investment came from Elon Musk and Tesla as they invested a billion dollars into bitcoin which they still hold today. Eventually like any other market, it had to fall from the highs it reached. That brings us to the present day where the market has slumped into another crypto winter. Bitcoin and other top coins dropped over 70%. Ethereum had their long awaited merge earlier this year which switched the coin from mining to staking, we briefly saw a little spike due to this but wasn’t notable enough. The one good thing to come out of this is that the price for all these cryptos are very low and it’s probably a good time to start buying into crypto. The industry as a whole hasn’t fallen apart and many people are still bullish but the major adoption has left and this is how all markets tend to flow. The next few years will see prices at lows for a while but there will eventually come a time where the next bull runs will happen.
The Future of Cryptocurrency
The next bull run is something that will come in the future but the time it happens may be harder to pinpoint. If we look back at history the two previously mentioned bull runs happened within a year after the having of Bitcoin. The halving of Bitcoin reduces the supply hitting the market, and subsequently the demand goes up and the cost to mine one Bitcoin doubles. This means that if miners keep mining they need more incentive, this comes in the form of Bitcoins price going up. With this knowledge it would make sense that the next run would happen after the next Bitcoin halving. That would be in 2024, therefore the next bull run should happen in 2025. But obviously it’s nobody can really tell when the next run will happen. This next bull run could also be the catalyst for the flippening of Ethereum over Bitcoin. This is where Ethereum takes over Bitcoin by market cap, at present time Ethereum holds around 18% of the whole market cap and bitcoin holds around 40%. So Ethereum has to double their market cap with Bitcoin not increasing at all in the future. This probably isn’t likely but if Bitcoin falls off then the possibility is there. So after this bull run I don’t think we will see much more massive price spikes because I think cryptocurrency will start to settle to their respective prices. Now looking very far into the future we will probably see a very different landscape compared to today. I think we will see a lot of central banks digital currencies as they have started to implement these already and whether you like it or not they will be using them. I also think we will see large metaverses which everyone in the space will start to use in their day to day, this could be in the form of game metaverses or just social metaverses. I still think the big coins like Bitcoin, Ethereum, Monero, Tether and the others in the top ten right now will still be around and they will have a lot more dominance over other coins. My most hopeful coins for the future are Kadena and Flux coin, these are relatively new coins but show so much potential to create a name for themselves in the market. Overall cryptocurrency is here to stay and will see more adoption as time goes on.