Setting the Stage - Too Big to Fail
On 15 September 2008, Lehman Brothers, a global financial institution with a 200 year history and over US$ 600 billion in assets, filed for Chapter 11 bankruptcy protection. The unthinkable had occurred. What was to follow would alter the course of history.
Fueled by greed and enabled by a disproportional distribution of power, risky and irresponsible industry-wide lending practices had led to a situation where many large global financial institutions were now teetering on the brink of collapse. The core of the global financial economy began tearing at the seams.
In what can only be described as the single greatest heist in the history, an injection of $700 billion of liquidity into the banking sector of public money prevented a total global financial meltdown – the bailout.
Although this period of global economic turmoil represents a dark and often painful moment in our history for many people and their families, it exposed the oligarchic nature of the global financial system to the public at large and primed public discourse to be more receptive to thinking about alternative financial systems.
This event set the stage for the introduction of a new financial system.
Genesis - The Blockchain Emerges
Perhaps it was coincidence or perhaps it was strategic. We may never know. On 31 October 2008, a little over a month after Lehman Brothers filed for bankruptcy, a white paper was published on a cryptographic mailing list entitled “Bitcoin: A Peer-to-Peer Electronic Cash System”.
The author, Satoshi Nakamoto – writing under an anonymous pseudonym, described a decentralized system that would enable “online payments to be sent directly from one party to another with going through a financial institution”.
Within a few days, an open-source project was registered on SourceForge – a community and collaboration website focused on the development and distribution of open-source software.
On 9 January 2009, two months after the SourceForge project was registered, version 0.1 of Bitcoin was released and the world’s first functioning blockchain was released.
Blockchain Fundamentals - A Quick Explanation for Beginners
The blockchain is the main technological innovation that Bitcoin introduced. From a currency investment perspective, a blockchain is a shared public ledger of all transactions that have ever been executed on any specific cryptocurrency network.
It is a database of every transaction that has ever occurred. The integrity and the chronological order of a blockchain are enforced with powerful cryptographic algorithms.
A blockchain consists of many blocks in which individual transactions are stored. A block is simply a data structure. Each time a block is completed, a new block is created. A unique hash from the last completed block is generated and stored in every new block. Each block is therefore guaranteed to come after the previous block chronologically because the previous block's hash would otherwise not be known.
This cryptographic architecture allows a blockchain to stand as proof of all transactions that have occurred on any given network. A blockchain is maintained by a network of computers (nodes). Each node downloads a full copy of the blockchain. The nodes communicate with one another and through varying processes of distributed network consensus, ensure that the data in their specific blockchain is true.
The Future will be Decentralized - Get With it or Get Left Behind
What I have mentioned above are the fundamentals of blockchain technology. Obviously each individual blockchain implementation has its own unique design, advantages & disadvantages - but the core principle remains the same.
In my opinion, blockchain technology is the single most important invention since the advent of the Internet itself. It has the most potential for fundamentally changing the way in which our society organizes itself and functions. The decentralized nature of blockchain technology has the potential to redistribute power and reshape our political-economic landscape.
Blockchain technology provides:
⦁ Scarcity of currency
⦁ Near real-time financial transactions across the globe
⦁ Super low transaction costs
⦁ Anonymity
⦁ Data security through cryptography
⦁ Smart contracts (Decentralized code execution)
⦁ Decentralized Applications
⦁ Distributed storage
⦁ Direct peer-to-peer transactions, this cuts financial institutions and governments out of the transaction lifecycle.
Blockchain technology is still in it’s infancy with Bitcoin having only been around for 8 years. Only now in 2015/2016 are we really starting to see more sophisticated applications of the technology with projects such as Ethereum, Lisk and Steem leading the charge.
No-one knows what future will look like but it will almost certainly be decentralized.
The Blockchain Landscape - More ways to Pay
Since the invention of blockchain technology in 2008/2009, thousands of new cryptocurrencies have been created. While many attempts have been successful and are still operational, many more have failed and ceased operation.
The top 10 blockchains by market capitalization (USD) at the time of writing this post are:
1. Bitcoin (US $ 10,679,441,067)
2. Ethereum (US $ 942,753,324)
3. Steem (US $ 258,221,347)
4. Ripple (US $ 230,744,165)
5. Litecoin (US $ 194,820,861)
6. The DAO (US $128,420,895)
7. NEM (US $ 69,198,570)
8. Dash (US $ 54,551,120)
9. MaidSafeCoin (US $ 34,184,859)
10. Lisk (US$ 32,106,000)
In my opinion, Bitcoin, Ethereum, Lisk and Steem present the best opportunities for investors looking to diversify into blockchain technologies.
Bitcoin - The First Digital Currency
Bitcoin has been tried, proven and is almost mainstream.
I still see Bitcoin as a fantastic investment opportunity. If you are like me, you missed the opportunity to get into Bitcoin while it was still relatively cheap. That being said, I don’t believe it is too late to get into Bitcoin from an investment perspective.
Although a single Bitcoin costs US $ 675.00 at the time of writing this article, I do not see why the price cannot increase even further as its mass adoption continues.
Keep in mind that a Bitcoin can be divided to the eight decimal places and that it will become exponentially more expensive to mine as time continues.
It also has the snowball and founder effect working in its favour. There is no reason why a single Bitcoin cannot become worth a million dollars in theory – I and many others believe it probably will eventually.
Ethereum - The First Decentralized Application Platform
While Bitcoin is a decentralized currency only, Ethereum is a decentralized application platform with its own Bitcoin-equivalent cryptocurrency – the Ether. It is sometimes referred to as the world computer as it is Turing Complete – meaning it can perform any logical step of a computational function. This ability creates a myriad of application possibilities.
Ethereum was conceptualized by Vitalik Buterin. From my research and what I have read from people who have met him personally, this guy is the Einstein of blockchain technology – he is simply brilliant. Move over Steve Jobs and Elon Musk. Crazy fact: he is only 22. Ethereum became the fourth highest crowd funded project to date with backers investing over US $ 18 million in the project.
This combination of Ethereum’s decentralized cryptographic architecture and Turing Completeness could allow for previously unimagined applications.
I expect the price of single Ether to increase much faster than Bitcoin’s price did. This is because, although they are still in their infancy, there are already operational decentralized applications (DAPPS) that are powered by Ethereum’s cryptocurrency, the Ether.
Ethereum also introduces the idea of a smart contract – that is a contract that is written in code and executes in the Ethereum blockchain. A contract can move around funds based on certain conditions. This allows for applications like decentralized escrow, rental contracts and property deeds.
The sky is really the limit for Ether. It was only released last year (in 2015) and it already has the second most valuable blockchain by market capitalization.
Seriously, buy Ether now if you haven't already. At the time of writing this post, a single Ether is trading for about US $ 11.00.
Lisk - Ethereum Killer or Dead-End Copy Cat
Like Etherium, Lisk is a decentralized application platform that was forked from the Crypti project. Lisk is competing with Etherium in the DAPP space. Etherium is currently ahead by quite a bit. Etherium and Lisk may end up in two very different application spaces but for now I would suggest that it is best to consider them competitors.
For me personally, Lisk represents the biggest investment opportunity in the blockchain space because Lisk coins are currently cheap as chips. At the time of writing this post, a Lisk is trading at about US $ 0.33. The more coins one has, the great the effect of an increase in market price on ones portfolio as a whole.
There are some interesting details about Lisk that are worth noting:
1. While Etherium is governed using an NGO model (Etherium Foundation based in Switzerland), the founders of Lisk have chosen to go with a start-up model (Lisk.IO). A start-up may have advantages over an NGO in terms of making quick decisions.
2. The entire Lisk application platform runs on Node.JS and is written in JavaScript. Lisk blockchain applications and smart contract are also written in JavaScript and executed by Node.JS.
As a developer, this is both a good and a bad thing. I know how awesome Node.JS and JavaScript can be for writing apps in terms of speed and productivity. I also know that JavaScript has not been designed to be executed in a decentralized blockchain environment. There may be dragons here. Time will tell.
3. Lisk introduces the ability of creating side-chains. Side-chains should theoretically help with scaling should Lisk succeed and need to scale.
Lisk has the potential to be an Etherium-killer. If you invest in Etherium, you should invest in Lisk. Even if you aren't interested in Lisk, this is simply a case of hedging bets.
Steem - The Great Unknown
For me, Steem is the most fascinating of the blockchain technologies because I just found out about it and am currently in the process of investigating it. In fact, the cats out the bag - Steem is the very reason I have written this post (and the reason you may be reading it). I want to see how a post filled with unique high-quality content performs in the Steem application.
Steem is a blockchain -based social media platform. It appears to be a decentralized take on Reddit - possibly a Reddit-killer if it becomes successful. People are rewarded for creating and curating content. This specific blockchain implementation appears to have been optimized for the fast retrieval and storage of content.
Steemit.com has a beautiful UI and appears to be making traction. I will report back after I get some quality data back.
How to get Coins
Getting coins can be tricker than it should be, especially if the cryptocurrency is new.
There are four ways to get coins:
1. Mining / forging rewards
These are coin rewards that are designed to incentivise miners / forgers for creating new blocks in the blockchain. Depending on the price/difficulty/ability, this may be more or less expensive than simply purchasing coins from a supplier that takes credit card payments.
For example, Lisk only allows the top 101 delegates to forge new blocks thereby excluding other people from being elligible for forging rewards. At Ethers current marketprice and at the scale I am aquiring them, its cheaper for me to simply purchase coins with a credit card as I get more bang for my buck so to speak.
2. Trading on a coin exchange
Cryptocurrency coin exchanges work more or less like foreign currency exchanges. The marketprice of a given coin is determined by these trades. With coin exchanges, you need other cryptocurrencies to trade.
They do not have credit card facilities usually (or I can never find it). If you are going to use a coin exchange, ensure that it is a reputable exchange like Kraken.
3. Buying with a credit card
This is the option I usually use. It just makes sense at the scale I am aquiring at. I use CEX.IO. They are reputable, and sell Bitcoin and Ether. They charge a 2% fee on all purchases and pass on the credit card processing fees to you the purchaser.
4. Using a third-party conversion service
There are lots of conversion services that convert one cryptocurrency to another, for a small fee of course. I use changer.com. They are really good. I converted Ether into Lisk.
One of my conversion transactions failed on their system. I sent an email to their support address and within 20 minutes they actioned the transaction.
Storing Coins
Storing established coins has become frictionless! For Bitcoin and Ether, I recommend Jaxx. Jaxx is an app that is available for both iOS and Android. It is feature rich and updated regularly. From what I have read, it is secure enough too.
Lisk does not yet have a mobile wallet. Lisk.IO does however provide a really good web wallet on their website. I am using that until a native mobile wallet is available. I am hoping Jaxx will include it one day.
Steemit.com has a web wallet that can be accessed by clicking on your profile in the top right of the website.
I hope my insights and research into the strange new world of the blockchain technologies has been useful to you.
Please upvote this post if you found it useful!