Cryptocurrencies – A bubble or future?

Is it the future of economy or a bubble that can burst soon?

Cryptocurrencies were designed as an alternate to centralized banking systems. The first currency was created in 2009 named bitcoin. It was slowly followed by namecoin, litecoin and other currencies. These were all created with different hashing algorithm, some used proof-of-work and some used proof-of-stake schemes. The currencies kept on popping up, all with their own advantage or unique selling point over others.

However, over past couple of years, the currencies are increasing at a rapid rate. Currently, we have over 1000 cryptocurrencies. Most of them started with ICOs. In July there were around 30 ICOs and August saw a launch of more than 50 ICOs, all for their own cryptocurrencies.

Having got thousands of cryptocurrencies, have the concept of unique digital currency gradually wearing away? Bitcoin still leads the chart with ethereum, ripple, bitcoin cash and Litecoin in top 5 with respect to market cap. But you can’t really go on to invent your own currency every day?

New Currencies:

Every now and then we come across new cryptocurrencies. A presale is occurred in form of ICO. Usually, the ICO is used to sell new currency shares (that is not even developed) in exchange to a developed currency like Ethereum , Bitcoin and Litecoin. Some of them turn out to be frauds, a lot of them keep in “Under Development” stage for years. Some of them get developed really quickly, and get listed in exchanges on Poloniex , Bittrex , GDX etc.

Recently, JP Morgan CEO, James Dimon called Bitcoin a fraud. Is it a fraud? I’d say no. But the altcoins and newly created coins might turn out to be a fraud anyday.

Bitcoin is in the market for around 7 years, Ripple for around 6 years, Litecoin for 5 years and Ethereum for 2 years. All of these currencies have a superb marketcap right now and they have developed and delivered as promised in whitepapers. Hence, we cannot call the top currencies as frauds. However, smaller currencies and newly developed currencies may burst as a bubble.

If new currencies are volatile, why people buy it?

In short, it is a hope to become millionaire. People bought bitcoin for almost free in 2009, and bought it for a maximum of $0.39 in 2010. Even small investments of $100 turned into millions of dollars today as the price reaches more than $5000.

In July 2015, the price of ethereum was less than 1$, within just couple of years it has reached to more than $300.

These kind of jumps and huge profits have got the attention of people all around the globe. Now, people are willing to invest in ICOs and early stages of the coin and wait for years in hope for them to go to the moon. Tezos, a few months ago, started ICO sale and brought in $232 million worth of ethereum as primary investment but now a fight has started

But do these new currencies have the fate of bitcoin and ethereum and more importantly will they deliver what they promise in whitepapers?

I strongly doubt it, just because there is a strong monopoly of these top currencies in the market and no other currency will reach these heights so quickly.

Market Crashes:

The cryptocurrency world is very volatile. The market can crash anytime due to several factors. It can either be an exchange being hacked, or any country banning cryptocurrencies, just like China banned exchanges few weeks ago. As soon as china announced exchanges ban the market crashed as below:

Market Crash After China Bans Exchanges

Such news end up in market crashes. The general trend shows that if one of the big 5 goes down, it impacts several new currencies and altcoins as well.

Supply – Demand Analysis:

All the blockchain based currencies are usually decentralized and mined using ASIC based hardware or GPUs. As the difficulty increases for mining a certain currency, the prices do start going up as the demand is more than the generated supply. However, if newer currencies become easier to mine, the miners change their attention to those currencies and hence the market as a whole shakes up.

“The possibility of limitless supply of different cryptocurrencies creates the risk of further collapses in value. If a new cryptocurrency were created which is easier to ‘mine,’ and which allows more transactions to take place more quickly, demand for that cryptocurrency might naturally increase,” UBS analysts said.

Real World Usage:

These currencies were developed for real world use. These were developed to cut down transaction costs, and provide a secure hassle free transaction method that does not involves banks. However, currently these currencies are being used for speculative gains instead of real world transactions. Majority of the currencies are being used for trading.

With bitcoin going from $600 to $6000 in just 1 year, we strongly believe this cryptocurrency world is just a speculative bubble which can burst anytime sooner or later. The top currencies may stay there for a while. However, altcoins have to real time significance, and once traders are done with them, they might burst.

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