Cryptocurrency How to Invest For Fun and Profit 2018: Executive Briefings On Blockchain, Digital Money, 30 Cryptocurrencies, Investment Strategies

By Mark Rabkin

Our lives are becoming more and more digital everyday. This is true for money as much as anything else.

In 2017, cryptocurrencies have moved from something a small-dedicated group of people paid attention to into a much larger public view. As with any new society changing technological advance there are investment opportunities that can an

• Language: English
• Publisher: Mark Rabkin
• Release date: Dec 22, 2017
• ISBN: 9780999765814

Book preview

I - A Brief History of Money

Cryptocurrencies are a form of digital money that are created and supported by non-governmental entities.  The first such cryptocurrency to gain mindshare in the public’s eye is Bitcoin. Chances are you are reading this book because you have heard of Bitcoin. However, there are over a thousand cryptocurrencies in existence today. Before getting into understanding what cryptocurrencies are, how they work, the vocabulary, the pros and cons of some of the more popular ones, and why you might consider investing in them, it is important to place cryptocurrencies in a historical context.

When people first began to gather in community they needed a way to exchange goods and services. This began with barter or simply swapping of goods and services. In other words, I will feed your animals if you will give me so many eggs a day. As populations grew this system was not able to work for all the transactions necessary.

Communities would find something that was a bit rare, took time to acquire or find and the society would place value on it.  This was usually something like grains or livestock, or precious metals such as copper, silver or gold. In every society there was a generally accepted value of the medium of exchange, or several, for common transactions.

As populations continued to grow and transactions became more complex and more rapid this system became unwieldy as well. Governments produced coins that would be used as the primary (although not exclusive) medium of exchange. The first record of a government defining a standardized currency as a form of money was in 700 BC in Greece.

The first large departure from an object being used as money having an innate value was the introduction of paper money in 11th century China. Approximately a hundred plus years later paper money was introduced into Europe. It is worth pausing to think what a huge leap that must have been. If you are used to receiving a valued precious metal, or livestock, or food and instead are now offered a piece of paper that has no intrinsic value beyond the issuing government’s backing and society’s acceptance; this requires a complete shift in how one thinks about money.  This is similar to what is happening today with the initial introduction of cryptocurrencies.

Jumping forward quite a bit, as nation-states were formed and international trade began to become more commonplace in order to provide confidence in a particular currency, countries would keep precious metal reserves in proportion to or in the same value as their currency, most often gold. For example, from the mid-1800s until 1971 the United States government would stock enough gold that every dollar issued was backed by a dollar’s worth of gold.  This was known as the Gold Standard and was one of several reasons that the United States dollar was considered to be the worlds most trusted currency. The United States stopped supporting the Gold Standard in 1971.

The next big step in the modernization of money began near the advent of the computing era. When IBM first introduced computers, banks were some of the earliest adopters.  Banks and corporations were the first users of electronic money transfers as a way of cutting costs and creating efficiencies in conducting monetary transactions and concluding the settlement of these transactions. The first digitization of money in this manner happened in the 1950s. It was not long before these advances appeared in the consumer market.

Visa was launched in 1958 and MasterCard in 1976. By the 1970s there were over 100 million credit cards issued in the United States. A credit card transaction is a hybrid physical world/digital event. The process of carrying a traditional credit card, taking it out, providing its information and putting it back into your wallet is a physical event. The transmission of the data, the approval of the transaction, the payment to the credit card processor, and to the merchant has always been digital in the credit card ecosystem. In other words, credit cards represented the first form of digital money used by consumers. Just as the move to paper money solved problems with coins at that time, the move to credit and debit cards solved a similar but different problem at a different time.

The next significant change in how money is exchanged occurred as the Internet became popular. PayPal was launched in 1998. It enabled businesses and people to easily send money to one another via email. PayPal is still massively popular today. It’s worth noting that a dozen or so of early PayPal employees are considered some of the most influential people in Silicon Valley today including Reid Hoffman (founder LinkedIn), Chad Hurley (co-founder YouTube), Dave McClure (founder 500 startups), Elon Musk (founder Solar City, SpaceX, Tesla) and Peter Thiel (Venture Capitalist).

Over the last two decades a cultural shift has occurred from believing that conducting financial transactions over the Internet is risky and unsafe to it being commonplace. Again, PayPal was one example of how new technologies were adopted to enable participants in the financial system to solve the problem of wanting to complete transactions and have them settle quickly in a trusted manner in the digital age.

The advent of the Internet made it easy and fast to send money to others. It digitized many of our most common interactions with money. For example, many of us very rarely receive an actual check from our employers. We receive an image of a check and the statement of wages, withholding for retirement and taxes. The actual financial transaction is handled between our employer’s bank and our bank. If we need to write a check to someone and it is rare to write a physical check, most of us use some form of online bill pay provided by our bank or something like PayPal or Venmo.

In other words, money in the developed world today is already more digital than not. This would have been a surprising concept to most people as recently as the early 1990s. In countries with less developed economies often the mobile phone is used as both payment and purchasing mechanism. The digitization of money is not limited to developed economies. The more money becomes a function of the digital age the more it can have smart functionality attached to it like the software applications we use everyday in our personal and professional lives. In other words, digital money can have functions that are automated, useful and integrated with the use of the currency. This brings us to where we are today, an era where cryptocurrencies are being introduced and being adopted. To understand cryptocurrencies, it is important to understand the vocabulary of cryptocurrencies.

II - The Vocabulary of Cryptocurrencies

As defined by Andy Greenberg of Forbes a cryptocurrency is a digital asset designed to work as a medium of exchange using cryptography to secure the transactions, to control the creation of additional units, and to verify the transfer of assets. The first successful cryptocurrency and the most talked about is Bitcoin, which is based on blockchain technology.

What is Blockchain?

Blockchain is a digital ledger (similar to an excel spreadsheet) where transactions and the data associated with them is recorded on servers. Each blockchain is designed to add new transactions through automated processes, to be secure and shared publicly.  Only transactions that have been validated by multiple participants on the blockchain can be added. These characteristics are meant to increase both security and trust.  The more liquidity, security and trust a currency has the more value it has. An example of this would be that the US Dollar is much more highly valued than the Greek Drachma based on having more of these desirable attributes.

Often when blockchains are referred to in conversation the assumption is the blockchain in question is open source, uses a distributed ledger and the system uses a decentralized architecture. An open source blockchain is one in which the underlying code is publicly available for distribution license and commercial usage at no cost.  A distributed ledger is a distributed database maintained and updated by each node (or participant) on a network. A distributed database is a database that runs across multiple interconnected computers and these computers may or may not be in the same physical location.

There are multiple servers maintaining the same blockchain (or ledger) that agree to use a particular consensus protocol to validate transactions and record them on the blockchain.  To have a decentralized architecture or system means that the servers maintaining the blockchain are operated by many different entities to ensure system