Fiat currency is dead.
The days of coin and paper money?
This is the 21st century and most transactions are digital — either through debit cards, online purchases, or automatic electronic payments.
So, it only makes sense that our currency's digital, too.
Hence the rise of cryptocurrency...
I’m talking about Bitcoin, Ethereum, and others.
This next generation of currency is faster, safer, and more convenient. The currencies are decentralized, which means that they aren't subjected to the whims or credit of a government. They’re independent of central banks and can’t be traced or devalued.
In sum: They can achieve everything that normal paper dollars can and more.
Digital currencies can be broken up and sold off in pieces. They can be transferred digitally from one person to another with no third party.
And that’s why they’ve been successful.
In less than a decade, Bitcoin has evolved from an almost worthless curiosity to a widely accepted currency that’s now worth thousands of dollars.
Ethereum, the new kid on the block, has soared from less than $1 in value to $400 in less than a year.
And that’s just the start.
The market is rapidly expanding and more cryptocurrencies are coming.
So, this report is a look at what’s out there and how investors can take part in the currency revolution.
Bitcoin is the original cryptocurrency.
It launched in 2008 during a generational world financial crisis.
As I said, Bitcoin is convenient, anonymous, open-sourced, and completely independent from government or bank oversight. This made it crucial at a time when banks and debt-heavy governments were exposed as fraudulent, unstable, and unreliable.
Bitcoins aren’t printed. They’re mined through a complicated cryptographic process.
Bitcoin miners run special software that competes with other users to solve irreversible cryptographic puzzles. The first miner to solve each puzzle is awarded 12.5 newly minted bitcoins. The difficulty of each puzzle increases as the number of miners increases.
The amount of bitcoins that a successful miner receives is cut in half every four years. It began at 50 bitcoins and was last cut to 12.5 in July 2016. This will continue all the way through 2140 when the system reaches its absolute limit of 21 million bitcoins. More than half of the finite amount is already in circulation.
Once bitcoins are mined, transactions that involve the currency are logged in a massive online ledger. This is made possible by so-called “blockchain” technology.
Blockchain is a series of linked blocks or lists. Each block contains a record of time-stamped transactions — who paid whom, how much, and when. These blocks are all mirrored publicly across an open network so anyone can see them.
This new data system allows for transparency since blockchains store transactions and data without any central authority or repository. Ledgers can be compared by everyone who uses the system to avoid any illicit modifications or entries.
Through 2009 and early 2010, bitcoins had no actual value. The project was still in its infancy and there were no transactions taking place.
Today, however, a single bitcoin is worth roughly $3,000.
And with its finite supply, mainstream acceptance, and surging popularity, it’s all but sure to go even higher.
More than 100,000 businesses now accept Bitcoin as payment, including CVS, Overstock, Subway, Tesla, Expedia, Whole Foods, Home Depot, Apple, Macy's, Sears, JCPenney, Gap, Microsoft, and Dell.
A man in Canada recently listed his home for sale in dollars and bitcoins.
There are even ATMs that will exchange bitcoins for your cash on the spot.
Is there anything standing in its way?
Only new competition...
The Ethereum Revolution
With its technological innovation and subsequent success, Bitcoin blazed a trail that new competitors are following.
And right now, Ethereum is Bitcoin’s biggest threat.
You see, despite its advantages, Bitcoin has some flaws.
For one thing, it’s too rigid and limited. The Bitcoin network is capable of processing only seven transactions per second. That may work when there are only a few thousand users but not millions. For the sake of comparison, Visa processes thousands of transactions per second.
Furthermore, developers can’t build apps on Bitcoin. The system’s primary role is to safely transfer value — not to create software or add functions. This is intentional. Bitcoin was deliberately constrained to make it more secure.
Ether, which runs on the broader system called Ethereum, is more flexible.
In addition to creating and housing the cryptocurrency Ether, Ethereum also offers a way to create online markets and programmable transactions known as “smart contracts.”
Smart contracts function like software programs that use business logic. Meaning, rules about money transfers, stocks, interest payments, debt, and more. Ethereum also has a built-in programming language that lets anyone build apps.
Dozens of functioning applications have already been built on Ethereum, and hundreds more are in development.
One app lets farmers sell their produce directly to consumers. Another offers crop insurance that pays farmers if bad weather damages their harvests.
There’s an app for flight insurance. You send ether to a smart contract and if your flight is delayed, you receive an automatic payout in return. There are games and lotteries, as well. Sports fans can bet on competitions directly with ether automatically paid out to the winner as soon as the final score is reported.
There's an app that enables music distribution. And another that allows for a new kind of financial auditing.
Ethereum’s wide-open world of limitless possibilities has caught the attention of Fortune 500 companies like IBM, Microsoft, Wells Fargo, UBS, Samsung, and more.
Samsung and IBM have launched a project to make Ethereum the nexus of the “smart home,” or what’s often called the "Internet of Things” (IoT). They’re trying to coordinate all internet-connected devices, like washing machines, televisions, lights, heating, and more through an Ethereum-based network.
The end goal is for devices to maintain themselves autonomously. Home appliances could signal operational problems and retrieve software updates on their own. They could communicate with other nearby devices to facilitate “power bartering” and increase energy efficiency. They could even take over mundane tasks, freeing up more time for people.
For example: According to the company’s research, a Samsung washing machine could recognize that it’s low on detergent, order new supplies from a retailer, and use Ethereum smart contracts to pay for it.
Imagine that for a second. You get home from work one day and there’s a package of detergent that's waiting on your doorstep because your smart washing machine recognized that you were out, ordered some more, and paid for it on its own. The same might also be true of the dishwasher or an electronic pet feeder.
That’s the kind of future that Ethereum makes possible, and it’s just the tip of the iceberg.
Banks are interested in using blockchain technology to make trading and money transfers faster, safer, and more efficient.
They’re also exploring ways that they can use Ethereum to create, manage, and sell new financial products.
Bitcoin is simply Bitcoin. But Ethereum could accommodate a vast array of financial derivatives.
Eleven of the world’s biggest banks ran a financial services pilot program last year with Ethereum.
Tech companies are pushing forward with their own Ethereum initiatives, too. Microsoft is working on several projects that use Ethereum on its Azure computing cloud.
“Ethereum is a general platform where you can solve problems in many industries using a fairly elegant solution — the most elegant solution we have seen to date,” Marley Gray, a director of business development and strategy at Microsoft, tells The New York Times.
The improvements Ether has made over Bitcoin have already led to a huge trend reversal that many call “The Flippening” — a tidal shift of users from Bitcoin to Ether.
Bitcoin now accounts for just 39% of cryptocurrency market cap, down sharply from 87% just months ago. And Ethereum now makes up 31% of the total market cap, up from just 5%.
Since it started closing the gap, the big question has been: Will Ethereum overtake Bitcoin?
And right now, it looks like it will.
Bitcoin and Ethereum are by far the biggest and most established cryptocurrencies out there.
But there are other upstarts that are looking to win their share of the market. These are known as “alternative cryptocurrencies” or "altcoins."
Dash — An instant peer-to-peer cryptocurrency. Dash payments are anonymous, private, and untraceable. They appear only to the person on the other side of the transaction. For that reason, the currency was originally known as Darkcoin.
Litecoin — Like Bitcoin, Litecoin has been around for several years (since 2011). In fact, it’s often referred to as silver to Bitcoin’s gold. It can generate blockchains faster and thus handle a higher transaction volume. It’s also easier to mine and uses passwords for added security.
Monero — Another private and untraceable currency, Monero uses a special technique called “ring signatures.” With this tech, a group of cryptographic signatures appears, including at least one real participant. However, since all the signatures appear valid, the real one isn’t known.
QuarkCoin — While cryptocurrencies that are more prominent require high-powered computers, just about anyone can mine quarkcoins with a standard CPU. It’s secure, instant, and peer-to-peer.
Ripple — Set up as a payment network for multiple currencies, and as an automated system for currency trades, Ripple lets banks settle cross-border payments in real time and with lower costs. It’s already attracted millions in venture capital, including from Google Ventures. In contrast to Bitcoin, there is no mining of ripples.
Buying and Selling Cryptocurrency
Capitalizing on the advantages of a government-proof and bank-proof currency means that you need to take full responsibility for some of the work the security governments and banks provide for traditional currencies.
First, you have to set up a digital wallet. This wallet is a collection of password-protected data that includes a public and a private key.
The public key is used as an address to which others can send currency. The private key is used to decrypt and access the public key. Securing and protecting your private key is absolutely essential. If the private key for an address is not kept secret, the currency can be stolen.
A few known desktop wallets include Bitcoin Core, MultiBit, Armory, Hive OS X, and Electrum. You can also get a mobile digital wallet on your smartphone. Bitcoin Wallet, Hive Android, and Mycelium Bitcoin Wallet offer mobile wallets.
Once you have a wallet, you can purchase digital currency on an exchange, such as Coinbase or Kraken. Cryptocurrency exchanges are websites where you can buy, sell, or exchange cryptocurrencies for other digital currency or traditional dollars.
There are basically three different types of exchanges:
- Trading Platforms — Websites that connect buyers and sellers and take a fee from each transaction.
- Direct Trading — Websites with direct person-to-person trading where individuals from different countries can exchange currency. These don’t have a fixed market price, but rather each seller sets their own exchange rates.
- Brokers — Websites that anyone can visit to buy cryptocurrencies at a price set by the broker, similar to foreign exchange dealers.
Of course, going through a website exchange will require you to enter your bank account information — or your credit or debit card details. So, you’ll want to make sure it’s reputable.
But that’s really all there is to it.
Buying and selling cryptocurrencies is just like buying or selling anything else.
The sooner you learn to do it, the better off you’ll be. Cryptocurrencies are the future. And if you get in early as an investor, they can deliver huge rewards.
Call it like you see it,
Founder and Publisher, Outsider Club