Chapter 3 Hot Cryptocurrencies Around the World – Understanding Cryptocurrencies

CHAPTER 3

Hot Cryptocurrencies Around the World

Is Bitcoin the Only Cryptocurrency?

Bitcoin is not the only cryptocurrency. Bitcoins are generated from the open-source code that anyone can modify. The bitcoin inspired many other alternative digital currencies (altcoins) to come in existence, which happened by changing the underlying algorithm. The framework offered by bitcoin still remains at the core for the newer altcoins. These altcoins are similar to bitcoins. Every altcoin has its own blockchain and consensus rules.

Altcoins differ from bitcoins in many ways. Some altcoins offer better privacy, and others may offer lesser privacy. Some offer different proof-of-work functions, while others may not offer any at all. There are many altcoins those have just updated some parameters in the original open free-source code and those may not be that important. Most of the available altcoins today can be called bitcoin clones, where an insignificant parameter such as transactions speed, distribution method, or hashing algorithm are updated, adding not much value to this new altcoin.

In fact, increasing the number of overall coins in an altcoin is similar to effects produced by increasing the printable currency, that is, it becomes readily available, hence becomes lesser in value. The consensus rules and the computational problems to be solved further decide the value of an altcoin. Some people may think that they have missed the wave of a bitcoin, and start investing in some obscure altcoin, that is very risky.

What Are Other Cryptocurrencies?

Currently, there are more than 1,000 altcoins in place. Anyone can create a new altcoin anytime. A bitcoin is the most known digital currency with maximum market capitalization and the largest blockchain. Next to bitcoin are Ethereum, Ripple, Bitcoin Cash, Litecoin, and many more.

It must be noted that the digital currencies have captured market worth more than 250 billion U.S. dollars. This has potential to disrupt the conventional financial world where the government-issued currency is dominant. Decentralization would also mean that the control will not be in the hands of government or big corporations, instead the control will be in the hands of a common person. For survival of big corporations, sooner and later, they have to adopt to the blockchain framework. Even if some countries have banned cryptocurrencies, still its mass adoption in technological giants are making them stronger.

Bitcoin certainly has the advantage of being the first cryptocurrency that is also the most known and widely accepted one. Bitcoin alone has captured market worth more than 100 billion U.S. dollars. The immediate next one is Ethereum with market capitalization of more than 45 billion U.S. dollars. Also, bitcoin has the most value compared to the altcoins. The year 2017 really captured the attention worldwide where the bitcoin price soared super high. For bitcoin value, compare its value of 800 U.S. dollars in January 2017 with approximately 18,000 U.S. dollars in December 2017. That is where bitcoin captured so much attention, and everyone wanted to know about this biggest technological breakthrough after the Internet. No other commodity, including gold or stock, has soared so high in value in so less duration.

The list of other cryptocurrencies called altcoins apart from bitcoin continues to change at a rapid speed based on various factors, including market capitalization. Regardless, Ethereum, Ripple, Litecoin, Dash, NEM continue to be in the top 10 of the list.

Why So Many Cryptocurrencies?

After bitcoin in 2009, Namecoin was the first altcoin produced in 2011. It is interesting to note that, even if more cryptocurrencies may seem not adding value to the world of cryptocurrencies, still these further solidify the idea of decentralization. This allows developers to experiment with more and more features or functions. The bitcoin community may decide to pick up anything useful from those new experiments, making bitcoin innovating, stronger, and secure.

Many altcoins came into existence due to the availability of free open-source code of bitcoin. These altcoins appeared by presenting themselves as better variants of bitcoin that may not be the case in reality. Various cryptocurrencies have declared their own focus as well. Various identified goals are such as smart economy based on digital assets, smart contracts, cheaper international handling of funds, decentralization application platform. All such goals lead to the creation or existence of currently available cryptocurrencies. General market opinion is that such big market capitalization may be based on speculation only, and not necessarily due to the technology factor.

Each cryptocurrency has its own motive. Due to the huge success and presence of bitcoins, other people started their own digital currencies as to become rich quickly. They may have presented almost similar coins, and kept many coins with them in the beginning, with a hope that their coin would get popular and they will hit the jackpot too. Not to forget, even a fraction of market capitalization of bitcoin has the potential of making people millionaires in the quickest way possible.

On the other hand, the altcoin may be really good one, in which the developers are experimenting with new ideas, functions, or parameters. They have far better motives than the ones mentioned in the previous paragraph. Again, there is a hope that those altcoins will get popular one day, and the creators reap the benefit out of those, even if a fraction of those by bitcoin.

Ethereum stands apart from other altcoins, as it focused on fixing the problems with bitcoin. The bitcoin blockchain has already gone so far, that one cannot go back to fix those. On that note, Ethereum has presented smart contracts, and offers Ethereum virtual machines (EVMs). This way, it is much more than an altcoin. Stated correctly, Ethereum offers a decentralized platform to run smart contracts. These offer applications without the need of a complex business logic, downtime, fraud, or third-party interference.

The digital currencies literally exploded in 2017. Also came the concept of initial coin offerings (ICOs). The start-up companies offering new cryptocurrencies raise funds using the ICOs. The venture capitalists have their rigorous process of fund raising that gets bypassed by the ICOs. In short, it is viewed as an unregulated means by the startup venturing into new cryptocurrencies.

Is This a Scam?

Currently, bitcoin investment is very volatile. On that note, investment in the altcoins is even more volatile, making those riskier alternatives. Similar to stocks, big players may invest heavily in some new altcoin, giving an impression that its value will increase more in the coming time. This attracts the people who may think that they missed the bitcoin boat. When this hype works for an altcoin, it brings in money from lots of investors. One fine day, the scammer altcoin disappears after looting this collected money. This makes very important to avoid any such hype and do due diligence on your own. As they say, it is not wise to invest more than what one may afford to lose.

There is a huge rise in new cryptocurrencies after the huge success of bitcoin and other altcoins. With the digital currencies, cryptocurrency exchanges also started rising. Their selling factor is security and transaction fees. Unfortunately, there are not many such exchanges those can be trusted. Many claiming to be solid exchanges disappeared overnight taking the user coins with them. Imagine a bank offering lucrative products to attract a huge number of customers who deposit their assets there. And when millions or billions of funds get deposited in the bank, the bank disappears overnight! And there goes all the deposits by the users who trusted that bank. Unfortunately, some users lost their life savings as well.

Is This a Bubble About to Burst Anytime?

Many analysts worldwide have predicted bitcoin as a bubble and extended that prediction to altcoins as well. This means a prediction of their collapse in the near future. As many as eight Nobel laureates have mentioned bitcoin and altcoins as economic bubbles. A professor even went on to say these as mother of all bubbles.

Nobel laureate Robert Shiller defines a bubble as:

a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increases, and bringing in a larger and larger class of investors who, despite doubts about the real value of an investment, are drawn to it partly by envy of others’ successes and partly through a gamblers’ excitement.

Many experts have criticized cryptocurrencies repeatedly. These have been compared with Ponzi schemes where one gains returns for a short period of time, and the actual owners are benefitted based on the trust and investments by the users. American investor Warren Buffett continues to repeat his stand against bitcoin by calling them non-productive assets.

Regardless, market has seen a great rise in the price of bitcoin and alt-coins during 2017, and it has been continuously increasing, though with unpredictable slumps in between. People tend to compare the blockchain with dot-com bubble. During the dot-com period, many people made enormous money, while many more lost huge amounts. Still, it led to a technological evolution on which we stand today. Considering this argument, even if time proves blockchain as a bubble that collapses, still, one must not forget about the revolution it has created in terms of the idea of decentralization and ownership coming back into the hands of end users.

The rapid increase in the number of altcoins and their arbitrarily fluctuating price is a big risk. A user may not understand how a blockchain or altcoins work and may invest in these, which are strongly not advisable, considering the digital currencies are yet to mature.