What Cryptocurrency is Not
Cryptocurrency first captured the public’s eye in 2017, during the beginning of the market bubble that ended in Q4 of 2017. The myths surrounding cryptocurrency played a part in the bubble formation. What is a cryptocurrency and what is it not?
Cryptocurrency is not magic, it’s not completely anonymous, it’s not a Ponzi Scheme and it’s not an investment for the faint of heart. It’s not a solution to all your problems and it’s not something devoid completely of investment fundamentals or analysis. Put simply, it is a new and evolving digital-asset class that is establishing itself around the world today.
First, let’s define what a “cryptocurrency” is. According to Investopedia, a cryptocurrency is “a digital or virtual currency that uses cryptography for security”. Cryptocurrencies use various methods to ensure the security and accuracy of their underlying “ledger” and have various features to differentiate themselves. Some cryptocurrencies are mined, some are staked and others have more exotic methods of ensuring the public record of their transactions are maintained and accurate. Another myth perpetuated is that cryptocurrencies are anonymous. Most are not, and transactions can be tracked on the public ledger. Coins can be tracked as they move from wallet to wallet.
The Initial Coin Offering (ICO) bust and scam period, in which up to 80% of ICOs were fraudulent, took a lot of the wind out of cryptocurrency’s sails. Scammers used the “magic” of cryptocurrencies and the public’s ignorance of investments and cryptocurrencies to defraud thousands of people. Scammers used the idea that investment fundamentals and project value did not matter. Returns were guaranteed, and investors lost thousands. A myth around cryptocurrency is that they are immune from market and business fundamentals, which is patently false. Miners of each cryptocurrency must be paid to ensure they support the coin’s market, and if there is no product, the coin will wither to nothing.
There are more than 2,000 cryptocurrencies in existence today, and many are abandoned projects or have a businesses plan or product that will not pan out. Today, the cryptocurrency functions like the OTC stock market due to low volume and marketcap. The total cryptocurrency marketcap is around $300 billion, with Bitcoin’s share of approximately 70%. As the cryptocurrency market evolves, the myths of cryptocurrency will be dispelled.
Picture from Pixabay.