This article is co-authored by Suppakorn Araam-arunsri.
Currency is not money
Currency is not money. Money is what societies have used over generations as a medium of exchange and to store value. Currency is a creation (usually by governments) that represents money. One major difference is that the value of a currency can go to zero, whereas money cannot.
US currency is backed by nothing, but power
Nowadays, the power to issue currency is monopolized by governments. The biggest issuer by far is the US government with nearly US$2 trillion of Federal Reserve Notes (paper currency) in circulation and trillions more on computers at banks. Up until 1971, the US dollar was backed by gold, but since then it has been a fiat currency meaning it is backed only by the reputation of the US government.
Printing money usually causes its value to fall
In the world of finance, rare or scarce is valuable. The benefit of a currency being backed by gold was that a government needed to have the gold to create the currency. But nowadays any government can just print more of its currency. When this printing is slow and matches the growing demand for the currency then the value of the currency is stable. But when a country prints a large amount of its currency then the value starts to fall. Simple economics.
US dollar is the only real reserve currency in the world
There are two main reserve currencies in the world, with the US dollar being the largest by far. This is supported by recent IMF data that shows 61% of country foreign reserves are being held in U.S. dollars and 20% in Euros. This is followed by a much smaller 6% of Japanese Yen and 5% of Pound Sterling. The Chinese, Canadian, and Australian currencies each account for 2%.
Massive money printing poses a risk to the value of the US dollar
In both the 2008 US mortgage crisis and 2020 global economic shutdown the US pumped a massive amount of money to reflate a crashing economy. Many other countries with reserve status followed suit. From 2008 to 2020, when measured against a basket of currencies indexed at 100, the US dollar fluctuated between a low of 75 and a high of 100. Some fear that with all the printing of US dollars, the value of the US dollar will start to collapse. And this fear raises the interest in Cryptocurrencies as an alternative place to protect wealth.
Cryptocurrency arrived on the scene in 2009
Cryptocurrency is a digital asset that burst on the scene in 2009 with the launch of Bitcoin. It just happened to coincide with the US government’s massive money printing. Cryptocurrencies are decentralized, and users make a peer-to-peer transfer, meaning value can be transferred without the government as a middleman.
A chain of blocks
Cryptocurrencies have one thing in common: their transactions are recorded in blocks on the internet. These blocks are linked together, hence the name “Blockchain.” The blocks are connected in a serial manner, which means that past transactions cannot be altered (without changing every block that came after it, which is nearly impossible to pull off).
Decentralization means no more reliance on government
Cryptocurrencies are decentralized. In the old days, computer software was required to be downloaded onto a users’ computer. In modern times, much software exists on the internet rather than each computer (Google Chrome and Google Docs are two examples). The benefit is that when software that is housed on the internet is updated, that update is experienced by all users. The Blockchain’s distributed nature means it is a combination of both the whole software on each user’s computers, but also being connected and constantly up to date. So when a new block is created it is updated on every computer in the network. This means no one entity controls it.
All Cryptocurrencies are not solely currencies
Wikipedia describes a cryptocurrency as a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of a computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership.
Some Cryptocurrencies function only as a currency that allows value to be transferred between parties. Other cryptocurrencies have additional purposes. In fact, since the release of bitcoin in 2009, there have been more than 7,000 tokens or variants of bitcoin have been created.
Some terms to know in the crypto world
With the help of Wikipedia, I summarize a few critical terms below.
Miners: Miners use their computers to help validate and timestamp transactions, adding them to the ledger in accordance with a particular timestamping scheme. In cryptocurrency networks, mining is a validation of transactions. For this effort, successful miners obtain new cryptocurrency as a reward. The reward decreases transaction fees by creating a complementary incentive to contribute to the processing power of the network. The rate of generating hashes, which validate any transaction, has been increased by the use of specialized machines such as FPGAs and ASICs running complex hashing algorithms like SHA-256 and Scrypt.
Fixed quantity: Most (though not all) cryptocurrencies are designed to gradually decrease the production of that currency, placing a cap on the total amount of that currency that will ever be in circulation. Compared with ordinary currencies held by financial institutions or kept as cash on hand, cryptocurrencies can be more difficult for seizure by law enforcement.
Blockchain: The validity of each cryptocurrency’s coins is provided by a blockchain. A blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography.[ Each block typically contains a hash pointer as a link to a previous block, a timestamp, and transaction data. By design, blockchains are inherently resistant to modification of the data. It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.
Permanent: For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for validating new blocks. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires collusion of the network majority.
Wallet: A cryptocurrency wallet stores the public and private “keys” or “addresses” which can be used to receive or spend the cryptocurrency. With the private key, it is possible to write in the public ledger, effectively spending the associated cryptocurrency. With the public key, it is possible for others to send currency to the wallet.
Oracle: Well-known crypto enthusiast, Alexander Egberts explains as follows: You could think of an Oracle as a “gateway” between the Blockchain and the real world. Just like in ancient Greek mythology, an Oracle connects two realms: While being a smart contract itself, the Oracle would be contacted by other smart contracts in order to retrieve information from the “real world”, meaning any information that is not yet stored on the Blockchain, in order to put it onto the Blockchain for further use.
Smart contract: According to Wikipedia, a smart contract is a computer program or a transaction protocol that is intended to automatically execute, control, or document legally relevant events and actions according to the terms of a contract or an agreement.
8 Cryptocurrencies that matter most
Though there are 7,000 Cryptocurrencies, only a handful have made it into widespread use and have enough size and volume to be investable for institutional investors. In addition, many participants in the crypto market write off the majority of “coins” as a scam. After careful consideration and discussions with various crypto experts, we identify eight Cryptocurrencies that you should know.
1. Ripple (XRP)
- Founded in 2012 by Chris Larsen, a co-founder of Prosper peer-to-peer lending marketplace, and E-LOAN, a publicly-traded online lender.
- Founders saw the opportunity to apply blockchain technology to make global finance more efficient, faster, and more reliable.
- According to the Ripple website, “In the US, a typical international payment takes 3-5 days to settle, has an error rate of at least 5% and an average cost of $42. Worldwide, there is $180 trillion worth of cross-border payments made every year, with a combined cost of more than $1.7 trillion a year.”
- They aim to accelerate the Internet of Value, a world where money moves as fast as information sharing and communication does.
What is Ripple?
- Ripple is a blockchain business developing decentralized financial solutions for large financial institutions, remittance services, and payment providers from over 55+ countries.
- Provides access to liquidity solutions and helps improve payments services worldwide.
- Alternative to the international payment system like SWIFT.
Why should you own Ripple?
- Unlike Bitcoin and Ethereum, Ripple is a centralized version of decentralized technology.
- Its transactions are controlled by large financial institutions, including RBC, RBS, and Westpac.
- Another appealing aspect of owning Ripple is the small price per token (recently $0.5), meaning it has relatively high liquidity compared to Bitcoin and Ethereum. So, you can begin investing with a small amount.
- Ripple transactions are much quicker and cheaper than those on Bitcoin and you can trade any cash, goods, or gold with low commissions.
- “We are proud to be the first bank in Asia to use Ripple’s leading blockchain network solution to power real-time payments for our customers, whose families oftentimes depend on the availability of these funds for basic needs—time is of the essence to them.” – Arak Sutivong, Chief Strategy Officer at Siam Commercial Bank
2. Ethereum (ETH)
- Vitalik Buterin created Ethereum after being intrigued by blockchain technology when he got involved in Bitcoin as a 17-year-old programmer in 2011 and co-founded Bitcoin Magazine.
- Vitalik started to develop a platform that went beyond the financial use cases like Bitcoin.
- He then released a white paper in 2013 demonstrating what would finally become Ethereum using a general scripting language and eventually launching it in 2015.
What is ETH?
- Ethereum is an open-source distributed blockchain platform that simplifies smart contract scripting. It is ranked the second most popular cryptocurrency based on market cap after Bitcoin.
- ETH supports its currency exchange and different tokens, including ERC-20, another blockchain-based asset stored and sent using Ethereum addresses and transactions.
- It can support developers in building decentralized applications or dApps.
- This platform helps users make agreements and payments directly with each other without any downtime, fraud, control, interference from a third party, and so-called Smart Contracts.
- Value exchange is the primary use case of Ethereum blockchain, often via the Blockchain’s native token, ether.
- Like Bitcoin, ether is a digital bearer asset (like security or bond issued in physical form). Just like cash, it doesn’t require a third party to process or approve a transaction.
- But instead of operating as a digital currency or payment, ether seeks to provide “fuel” for the network’s decentralized apps.
- While this might sound complicated, you can think of a more concrete example of how tokens might power a user experience.
Why should you own ETH?
- Ethereum could have more applications than Bitcoin by offering more promise to both developers and currency enthusiasts.
- ETH is backed by multiple fortune 500 companies, with over 200 strong members included in the Enterprise Ethereum Alliance (EEA). This group includes large firms like Microsoft, Intel, JPMorgan, BP, and Thomson Reuters.
- ETH is being incorporated by many large financial institutions, such as the Bank of America. At the same time, Bitcoin is a bit of a villain in the banking society.
3. Bitcoin (BTC)
- In 2008, Satoshi Nakamoto, a pseudo name for a developer or team, published a nine-page white paper containing bitcoin’s first-ever mention, calling it a “peer-to-peer electronic cash system.”
- A few months later, Nakamoto released Bitcoin’s first software and worked with developers and coders online to improve it.
- This collaborative environment continued until 2011 when, without warning, Nakamoto vanished.
- The inventor of Bitcoin remains anonymous possibly to avoid adverse legal consequences, to raise intrigue, or to continue to secretly contribute to the currency’s success.
What is Bitcoin?
- Bitcoin is a digital currency offering fast peer-to-peer transactions, worldwide payments, and lower transaction fees than conventional online payment methods.
- It is run by a decentralized public authority, unlike government-issued currencies.
- By market cap, Bitcoin is the world’s largest and highest-priced cryptocurrency. One Bitcoin has a value of $18,500 (as of 9 December 2020).
- Its balances are kept on a public ledger, so it is a publicly transparent and accessible system verified by massive computing power.
- Principle of Bitcoin written by Satoshi Nakamoto
- According to An Ode to Satoshi Nakamoto, The Legend of Our Times “What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”
- The Bitcoin concept is to create an alternative to the banking system by offering lower transaction fees than traditional online payment systems.
Why should you own Bitcoin?
- Bitcoin offers private and secure transactions anytime with fewer potential fees.
- It helps users to reduce the time and potential expense of any transaction.
- Its transactions do not contain personal information, which removes the risk of consumer information being taken for fraudulent purchases or identity theft.
- The number of Bitcoins is fixed. With the current 18.6m Bitcoins mined out of 21 million total supply; Bitcoin has the potential for an immense increase in its price.
- Some investors, traders, and speculators bet that greater trust and more widespread use will follow once bitcoin matures. Thus, bitcoin’s value will grow.
- Bitcoin can avoid traditional banks or government interference. After the financial crisis and the Great Recession, some investors were keen to find an alternative and decentralized currency.
- Bitcoin is essentially outside the control of regular banks, governing authorities, or other third parties.
4. Chainlink (LINK)
- Created in September 2014 by CEO Sergey Nazarov and Steve Ellis.
- Chainlink got its start when its parent company, SmartContract.com, aimed to create a bridge between external data sources and the public Blockchain.
- The team finally developed Chainlink, which enables smart contracts to retrieve data feeds from any web API and data source.
What is Chainlink?
- Chainlink is a decentralized oracle
- It aims to serve as middleware between smart contracts on smart contracting platforms and external data sources, allowing smart contracts to securely access off-chain data feeds.
- The goal is to connect smart contracts on any blockchain to data providers, web APIs, enterprise systems, IoT devices, cloud services, events, payments, and more without compromising the security and reliability guarantees inherent to blockchain technology.
Why should you own Chainlink?
- Chainlink offers some significant benefits to the network through decentralized exchanges (DEXs) using oracles to find the price of cryptocurrencies without offering an order book.
- Chainlink has a huge growth opportunity with wider use and strategic partnership with many large organizations.
- It gained significant recognition in 2019 when Google Cloud started to use the technology.
- In 2020, Chainlink partnered with Hdac Technology, a blockchain startup founded by Dae Sun Chung, CEO of software firm Hyundai BS&C. The firms plan to create a system for delivering off-chain data on Blockchain collectively.
- Chainlink partnered with Oracle to empower startups to trade their data.
- Thomson Reuters also started collaborating with the team on a proof of concept (PoC) concerning their internal services and smart contracts and incorporating SWIFT.
5. Filecoin (FIL)
- Founded in 2014, a project initiated by Protocol Labs and its CEO Juan Benet.
- Protocol Labs has developed the InterPlanetary File System (IPFS), a protocol and peer-to-peer network for storing and sharing data in a distributed file system.
- It also developed libp2p which is a modular system of protocols, specifications, and libraries that enable the development of peer-to-peer network applications.
- The company was initially financed by prominent investors, including Digital Currency Group (CoinDesk’s parent company), Naval Ravikant, Union Square Ventures, Winklevoss Capital, and Y Combinator.
What is Filecoin?
- Filecoin was developed to serve users and storage providers with an open data-storage network.
- It enables users to buy and sell available storage on a free market using its native cryptocurrency, Filecoin (FIL).
- The use of the network is to record transactions that occur among the storage miners and the users.
- Also, it records the proofs from storage miners to ensure that they are storing the files properly with a hypercompetitive price offering in an open market.
- With a limited supply of 2 billion coins, the system is run by the peers using secured channels to distribute information, share data, and discover other peers.
Why should you own Filecoin?
- As the underlying protocol of Filecoin, IPFS has a more impressive vision of supplementing or even switching the HTTP protocol and becoming the underlying layer of the whole Internet.
- Potential massive growth in the cloud storage market by having a strong developer team of 100 people from Stanford University, MIT, Harvard, and other technology companies like Google, IBM, and Oracle.
- The main network will be launched soon with strong support from large investment groups, including Sequoia Capital, DCG Group, Stanford University Foundation, Y Combinator.
6. ZCash (ZEC)
- Zcash initially started in 2013 as a project recognized as Zerocoin.
- This project was the work of Matthew Green, Ian Miers, Christina Garman, and Aviel D. Rubin, who were at The Johns Hopkins University Department of Computer Science, Baltimore, USA.
- Later it was launched in 2016 by Zooko Wilcox-O’Hearn and a group of experienced cryptographers and scientists.
What is ZCash?
- Zerocoin was created to tackle the most significant issue of Bitcoin privacy flaws.
- A Bitcoin transaction is entirely public; users’ confidentiality is shielded only by using pseudonyms.
- The team developed zero-knowledge proofs to validate and authenticate transactions.
- It is valuable for large businesses, and organizations that need a highly secure system, especially personal and confidential information.
Why should you own ZCash?
- Strategically partnered with JPMorgan to support distributed ledger and smart contract technology.
- Zcash has been established to be a leader in purely private transactions.
- Some, like Edward Snowden, have affirmed that Zcash is critical because it is one of the few privacy coins created by genuine cryptographers.
- “Zcash’s privacy tech makes it the most interesting Bitcoin alternative. Bitcoin is great, but if it’s not private, it’s not safe.” said Edward Snowden. Edward Snowden: Zcash Is ‘Most Interesting Bitcoin
7. Algorand (ALGO)
- Created in 2017 by Silvio Micali, a computer scientist, MIT professor, and Turing Award Winner.
- He created the Algorand platform with a worldwide established team of researchers, mathematicians, cryptographers, and economists.
What is Algorand?
- Algorand is built to enable developers to create new kinds of applications powered by cryptocurrency.
- It aims to make financial infrastructure to assist in a frictionless finance system through smart contracts, Algorand Standard Assets (ASAs), and Atomic Transfers.
- Open-source and permissionless Blockchain enables creating and exchanging value, establishing alternative financial tools and services, bringing assets on-chain, and offering responsible privacy frameworks.
- It has been used in copyright, real estate, microfinance, and other digital transactions.
Why should you own Algorand?
- Algorand helps developers to accelerate technological development with principles of decentralization, scale, and security.
- It is the first blockchain system to offer immediate transaction finality.
- Offers a low cost to participate, requiring minimal processing power and IT resources to enter, unlike mining other cryptos.
8. Near Protocol (NEAR)
- Created in 2018 by two founders: Alexander Skidanov, a former software engineer with over five years of experience at Microsoft, as the director of engineering at MemSQL; and Illia Polosukhin, an engineering manager at Google research department.
- Received $12.1M venture round supported by Metastable and Accomplice and with involvement from Electric Capital, Pantera Capital, and Amplify Partners.
- Further notable investors include Multicoin Capital, ACapital, Coinbase Ventures, IDEO Colab Ventures, Scalar Capital, and Ripple’s Xpring.
What is Near Protocol?
- NEAR is a decentralized application platform that runs atop the NEAR Protocol blockchain.
- This Blockchain, which runs across hundreds of machines worldwide, is organized to be permissionless and secure enough to build a strong and distributed data layer for the new web.
- Essentially, NEAR is a platform for running applications that have access to a shared and secure pool of money, identity, and data owned by their users.
- More technically, it integrates the features of partition-resistant networking, serverless computing, and distributed storage into a new kind of platform.
Why should you own Near Protocol?
- Near now asserts that its platform is better performing, more usable, and less costly than Ethereum, letting developers realize many of the original use cases.
- It addresses both the scaling and usability issues that have prevented existing chains from breaking out and caused fees to explode. Hence, apps finally have the potential to operate at a consumer scale with real consumers.
- NEAR Protocol’s system is like Ethereum and Bitcoin, but it has a much better scalability potential. It has a faster proof-of-work system and requires much less energy to build.