Why Are There So Many Different Cryptocurrencies?

During my professional career we publishing software for graphic designers who wished to put barcodes in their graphics such as the barcode on the back of a paperback book or grocery box. In the process, we became experts at printing all of the various barcode types. Barcodes come in many different forms. Think of different barcode types the way you would think about different languages. If you print Code 39 and someone’s scanner reads Code 39 they understand each another. If you are shipping groceries in cartons you’ll need Interleaved 2 of 5. If you want to distribute coupons, you’ll need a GTIN number. The list goes on and on. There are hundreds of barcode types and they have all been optimized to do something well whether it be easily readable, large data content or small image. Each has been optimized to do something well. The same can be said for cryptocurrencies.

Each cryptocurrency has been optimized to do something well whether it be fast transactions, handling large values, being ultra-secure and so forth. As I read through the various schemes that have been designed in the cryptocurrency raison d’être some strategies are more compelling than others. At this early stage of development, it is difficult to see which problem being solved is the problem that makes the cryptocurrency that solves that problem famous. It’s worth taking a look at a few different strategies to see which resonate. For example, a couple of years ago a new crypto appeared called Electroneum.

Electroneum drew attention to the fact that cryptocurrency was a huge drain of energy. I read one statistic that said that all Bitcoin miners are now using the equivalent energy of the country of Denmark. In this day and age that’s not good. Electroneum was designed so that it could reside on a person’s smartphone, and, if there were enough smartphones with Electroneum, the app would use the smartphone in the background to mine Electroneum. By sharing the load with millions of smartphones the mining function could be done without an additional drain on precious resources. That sounded like a sensible approach to solving a real problem. Unfortunately, Electroneum, two years later, is still struggling to find a footing in the crypto space. Only one exchange that I know of actually trades Electroneum.

171026 Bitcoin Gold

bitcoin-goldsOn October 23, 2017, there was a Bitcoin blockchain fork.  A new cryptocurrency, Bitcoin Gold or BTG, was created cloning the existing blockchain of Bitcoin to get it started.  For every Bitcoin you own, you were given an equal sum of Bitcoin Gold.  The thinking behind Bitcoin Gold tries to solve the problems of Bitcoin mining.  Among other things, Bitcoin mining uses an incredible amount of energy and is very wasteful of computing power as well.  It remains to be seen what value Bitcoin Gold has.  It’s too early to know.  Moreover, it was reported that the site was down due to a denial of service attack.  We’ll know in a couple of weeks how it fares.

Remember how a shortened game of Monopoly was played, when you didn’t have a lot of time?  The properties were dealt out to all the players at the beginning of the game so that you didn’t have to go around the board, again and again, buying properties one at a time. Bitcoin Gold is sort of the same thing; Bitcoin with a jumpstart.

170818 Bitcoin Bubble

Why the bitcoin surge is not a bubble. Bitcoin has been around since 2009.  It was, by design, made to only have 21,000,000 bitcoins at its maximum including all coins that have yet to be issued to miners who will maintain the blockchain network behind Bitcoin.  16M are already in use.  The rest will be issued to miners for their work.  So, in a sense, bitcoin is very rare.  The designer, Satochi Nakamoto (maybe assumed name) laid out a plan that isn’t complete for 100 years.

How rare is Bitcoin?  Think about this. There are 5.5 billion ounces of golden the world.  There are 7.5 billion people in the world which works out to about 3/4 ounces of gold for every man woman and child on the planet.  If gold is about $1325. these days, that equals about $1000 in gold per person.  If the 21 million Bitcoins were to someday be as popular as gold in representing wealth, each person would have .0028 bitcoin.  If .0028 bitcoin equals $1000, then a whole bitcoin would equal $375,000.00.  Possible? xxxx xxxxx says bitcoin will be worth $100,000 by the end of 2018.  This gives you some idea of bitcoin’s potential worth.  Let’s say we were talking about US dollars.  How many dollars are there in the world? Including cash and certificates of deposit, I’ve seen some estimates of 25 trillion dollars.  That would be about $3333. per person on the planet.  Today, bitcoin at its current value is worth about 88 billion dollars, about half the value of General Electric Corporation.  Not bad for a startup. 🙂