The largest and most widely known cryptocurrency is bitcoin, accounting for most of the total crypto market value. Over 10,000 cryptos are currently trading in the market with more being added every single day.
Bitcoin was released in 2009 by an individual (or possibly a group) known as Satoshi Nakamoto. It was the first “proof of concept” cryptocurrency. This means that Bitcoin proved that it’s possible to create, distribute, and support a completely decentralized and secure digital asset that doesn’t rely on any centralized authority. Bitcoin also proved that a limited digital asset, which cannot be copied, can be stored and transferred over the Internet.
The Crypto Ecosystem
Currently, all crypto assets seem to be lumped into a “cryptocurrency” box. But that’s deceptive and confusing. Most “cryptocurrencies” aren’t currencies at all. Just as many types of stocks exist, many types of cryptos exist as well. They have varying characteristics and purposes. Some provide the investor or token holder with a form of “utility.” This utility, for example, could be decentralized digital storage, or it could be identity verification. Others are like businesses or service providers.
They fall under the umbrella of crypto assets.
The yuan, yen, euro, and dollar are examples of currencies, which are mediums of exchange and hold value. They are fiat currencies. Cryptocurrencies also hold value and are a medium of exchange; however, they are completely digital. A handful of competing for digital currencies exist including Litecoin, Bitcoin Cash, and Bitcoin.
Bitcoin is the most popular cryptocurrency. It was created to store and move digital worth securely and transparently. Unlike fiat currency, it will eventually have no inflation. That is why bitcoin is considered “digital gold.”
The best way to understand a protocol is to compare it to the internet. Website addresses start with HTTP or HTTPS, not www. HTTP or Hypertext Transfer Protocol is the foundation for data communication on the web. It determines how messages are formatted and transferred and what actions web servers and internet browsers should take. The foundation of how emails are sent is determined by another protocol called SMTP or Simple Mail Transfer Protocol.
There are a handful of other protocols, but these two are the most widely known and the foundation of the Internet. They are the infrastructure (roads, sewage pipes, electric grid, etc.) of our worldwide digital economy. These protocols are worth trillions of dollars, but you can’t invest in HTTP or SMTP. All of this “value” has been captured by companies like Amazon, Google, and other Internet-based companies.
However, a new foundation of the Internet is being designed right now; it’s being built on blockchains. These blockchain protocols are what the next version of Amazon will be built upon. The internet is quickly changing as these protocols are developed. Every day the internet is becoming a blockchain-based internet.
The amazing news is that you can invest in these protocols by buying their tokens. The ones that succeed will be worth billions.
Blockchain technology and crypto protocols have led to new businesses being built and distributed to investors as crypto assets.
Crypto enterprise tokens provide investors exposure to particular businesses, which could be in the form of utility. For example, imagine if you could buy tokens to invest in a decentralized digital storage company that offers the same service like Dropbox. Perhaps the storage space you have depends on how many tokens you own. You could then perhaps rent out the extra space you’re not using to someone else in exchange for a cryptocurrency like bitcoin. Another way of receiving value for owning this type of token could come in the form of interest in the business.
These tokens provide a stake in an underlying business application, and these business applications built on one of the crypto protocols provides the following benefits:
- Completely transparent. All token holders can see everything. You don’t need an auditor for the business because everything is on the blockchain for all to see.
- Fully decentralized. There is no corporate structure. A decentralized application exists on the Internet and is run by its own community, outside of any jurisdiction.
As you can see, the term “cryptocurrency” can be misleading. Most cryptos are not currencies; they could be cryptocurrencies, crypto protocols, or crypto enterprises. The world of crypto assets is fascinating as it is disrupting so many industries. Think of it as the Internet 2.0. When the internet came along, our entire lives changed. In time, crypto assets will change life as we know it again. We are truly entering the digital age.