The worlds most valuable resource is no longer oil, but data.
Evidently, there has been a lot of commotion going on in the world of cryptocurrency. So what are cyptocurrencies really? If you take away all the noise around cryptocurrencies and reduce it to a simple definition, you find it to be just limited entries in a database no one can change without fulfilling specific conditions. This may seem ordinary, but, believe it or not this is exactly how you define a currency.
Personally, I’d like to think of crptocurrencies as digital gold – sound money that is secure from political influence.
The first form of cryptocurrency was created by Satoshi Nakamoto (an unknown, unidentified person) with the creation of Bitcoin in late 2008. Satoshi announced it as “… a new electronic cash system that uses a peer-to-peer network to prevent double-spending. It’s completely decentralized with no server or central authority.”
After several years of its existence, it has risen more than 300% year-to-date (YTD) reaching all time highs. People who had bought Bitcoins soon after its inception have soon realised its gains and become multi-millionaires, whilst others (like me) are banging their heads against a wall wishing we took on a position in 2009/10.
Ethereum, has ascended to second place thus far in the hierarchy of cryptocurrencies. It is the brainchild of crypto-genuis Vitalik Buterin and is not just a digitial currency. Alongside Bitcoin its blockchain (a continously growing list of records) does not only validate a set of accounts and balances but of so called states. Essentially, Ethereum can not only process complex transactions but complex contracts and programs.
Is Ethereum similar to Bitcoin?
Sort of, but not really. Similar to Bitcoin, Ethereum is a distributed public blockchain network. There are technical differences between the two, but the main distinction is that both cryptocurrencies differ substantially in purpose and capability.
Bitcoin offers one particular application of blockchain technology, a peer-to-peer electronic cash system that enables online Bitcoin payments. While the bitcoin blockchain is used to track ownership of digital currency (bitcoins), Ethereum blockchain focuses on running the programming code of any decentralized application.
In the Ethereum blockchain, instead of mining for bitcoin, miners work to earn Ether, a type of crypto token that fuels the network. Beyond a tradeable cryptocurrency, Ether is also used by application developers to pay for transaction fees and services on the Ethereum network.
My personal view
A lot of people still feel the need to pick between Bitcoin or Ethereum (I am a culprit of this), because one of them “has” to outperform the other at a given stage. This isn’t the case by any means, as individually both are trying to do things differently.
At the same time, the Ethereum price is still linked to the Bitcoin price. When Bitcoin goes up, Ethereum will often go down a bit until it stabilizes. As Bitcoin declines in value, Ethereum either goes down along with it, or sees a small gain. These values often correct themselves within mere hours, though. Right now, Bitcoin is clearly the bullish currency of the two, whereas Ethereum is trying to stabilize. All cryptocurrencies depend on what Bitcoin is doing, and Ethereum isn’t an exception.
Whilst I am not personally worried about the scalibility of Bitcoin, Ethereum makes me lose sleep at night. As I write this, Ethereum has seen an increase of 2981% since 01 January 2017, and I personally see a more consistent growth potential for this cryptocurrency underdog. Recently, I learnt that its founder Vilatik Buterin met with Russian President Vladimir Putin signaling that the country may be looking to use the blockchain. If this isn’t enough, Ethereum has been backed by the EEA (Enterprise Ethereum Alliance) which includes JP Morgan, Santander, UBS, BP, BNY Mellon, National Bank of Canada and many more.
I have myself taken on a long position with Ethereum, with a view to it moving forward and looking to a bright future. By providing a user-friendly platform that enables people to harness the power of blockchain technology, I think that Ethereum is speeding up the decentralization of the world economy and decentralized applications have the potential to profoundly disrupt hundreds of industries including finance, real estate, education, insurance, healthcare and the public sector amongst many others.
In the same way the internet has heavily infiltrated our lives, Ethereum will probably have the same pervasive influence on our communications and entire information/data infrastructure.
A little heavy but any questions/comments welcome!
P.S. Investing in cryptocurrencies is highly speculative and the market is largely unregulated and therefore I would strongly recommend those investing be prepared to lose their entire investment.