Intro to Crypto
While discussing so much about blockchain, it is almost an obligation to make at least small trip to the crypto market. Cryptocurrencies are one of the first applications built on blockchain. From the 2009 launch of Bitcoin the market has grown immensely; now circulating about $200 billion, with more than 2000 different tokens and counting, a myriad functions and specialties.
In today's article we are going to talk about what do we mean by the crypto market, the volatility, and how do we perceive value in crypto.
What is the Crypto Market
The crypto market is the market of digital currencies built on blockchain technology. In this market we can find all tokens, altcoins, the companies who issued them, crypto-exchanges, and cryptonomics: the economy of crypto markets. This is a new market, which has shown a huge growth at the end of 2017, and is currently valued at $202 billion.
Most of the applications on the market are from decentralized projects- p2p networks with distributed ledgers built on blockchain technology. What makes it the crypto market special, is that pretty much anybody with an internet connection can enter. Besides the applicable country regulations there are no huge restrictions yet. Because of this, and the huge waves in the market which makes it an appealing opportunity for the bold ones, and a risky deal for the more cautious crowds.
One of the most common terms used is regards of the crypto market is volatility: this means that the value of the currencies can quickly change to the slightest of indicators. Movements of even 50% in a few hours are not uncommon on the crypto market- whereby for example with regular stock even a change of 10% is a blue-moon event. The volatility is not surprising- any new market without regulations experiences huge swings. These huge ups and downs are caused by the changes in the perception of value in the crypto market. Let's see some factors which contribute to the volatility of crypto!
Perception of value
There are 2 ways to view value for currencies. As store of value- how much this asset will be useful in the future, how much will I be able to save and exchange it for assets and services. Or we can see it as a method of value transfer- transmitting property in the forms of assets from one party to another.
For example, Bitcoin's store of value at this moment is unclear- we are not sure how useful will Bitcoin be in the future. On the other hand, it is an excellent method of value transfer, with frictionless transactions.
Perception on the market means how much people believe that a certain platform, service, or currency will be used successful in the future. A good community, where people are supporting the developments and a future of a project go a long way with influencing the value of a coin.
Supply and Demand
As with each and every market, supply and demand highly influence the price of a coin. High supply means, that there are a lot of people selling a certain currency, which pushes the prices lower. While in high demand we have more buyers, and the prices surge up. This basic economic principle perfectly applies to cryptocurrencies as well.
Indeed the crypto market is currently largely unregulated- different countries are developing substantially diverse approaches towards crypto. Banning or allowing the use of crypto, the applicable taxes to exchanges in a certain country can change greatly the perceived value of an exchange or coin. Have a look at the map below, showing the regulatory status of cryptocurrencies at this moment!
Major organizations starting a collaboration with a blockchain company, famous executives coming and going, large investments and so on. All of the news have an effect towards where the market is going. A huge deal with a major company for a blockchain startup can push their prices sky-high, while a leading personality leaving can make the people lose belief and sell, dropping the value of the currency.
As blockchain is a budding new technology, and we are still waiting for more technological updates, use cases and completed milestones. These have a huge effect on the value of the currency. For example, here is an article about Ripple announcing its commercial application going live, which made the price grow 50% in the span of 24 hours.
Although blockchain is claimed to be secure, and uses excellent technologies to provide safety and security- hackers are creative too. Hacking attacks reduce the belief in crypto, bring scepticism towards the safety and future of the technology. I believe, that the hacking attacks can be somewhat associated to the ingenuity of the hackers, and even more to the beginner's mistakes in building the first decentralized networks. You can read about the 5 biggest hacks in crypto so far here.
What is sold on crypto?
On the crypto market we can buy and sell 3 types of assets: coins, altcoins and tokens.
We will differentiate these based on their use:
Payment coins: it is a digital currency, which possesses a store of value or method of value transfer, for example Bitcoin. Altcoins are coins which are similar to bitcoin, and function as a digital currency, but are built on a different blockchain, with diverse characteristics.
Utility token: a utility token gives you access to a service on a certain blockchain. These might be services, which will be launched in the future, commonly distributed on ICOs. This is for example a Binance coin, which you can use for a discounted transaction fee on the Binance exchange.
Asset token: or security tokens, represent participation in a company, an asset, much like a stock, bond or equity.
All of these currencies and tokens are tradeable, and their value is defined by market needs.
Let's look at the crypto market right now!
We can see that Bitcoin is leading the cap with total market capital at $111 billion, more than half of the total market cap. We have Ethereum, which is much more than just a cryptocurrency- a platform for many decentralized applications (read more about it here). XRP, the coin of Ripple, has made a huge jump in the previous days, now to be consolidating in the last 24 hours. We have Bitcoin cash, which is a hard fork of Bitcoin, and an exceptionally centralized network. EOS, an infrastructure for decentralized applications competitor to Ethereum, currently on the 5th place with a much smaller market share.
The list goes on and on with 2000 coins, tokens and counting.
Each token represents a unique value, utility and community behind, and plenty of them would deserve an article on their own.
If you would like to know more, ask questions, or explore a specific topic- get in touch!
In the next article we will continue with the crypto topic, and see how people earn money on crypto.