Some Characteristics of Cryptocurrency
Understanding cryptocurrency is tough because altcoins are complex digital mechanisms.
In addition, journalists, promoters, cryptocurrency developers, speculators, and other self-appointed experts keep spreading confusing nonsense about altcoins. This nonsense drives people away from cryptocurrency because it is confusing, inaccurate, and often frightening.
To clear up this confusion, I will try to explain some characteristics of cryptocurrency. My idea here is offer a basic description of cryptocurrency and its attributes.
What is Cryptocurrency?
Basically, a cryptocurrency is an encrypted digital currency. They build most cryptocurrencies in blockchains or encrypted digital operating systems.
Remember, the blockchain is not cryptocurrency, and cryptocurrency is not the blockchain. Instead, cryptocurrencies are applications or programs that operate in the blockchain.
Thus, cryptocurrencies are really apps or applications. Hence, a good way to think of a cryptocurrency is as a payment application rather than money. You can describe cryptocurrency as a secure app that makes payment faster and more convenient.
Thus a cryptocurrency serves an accounting tool, a store of value, and a payment mechanism. Hence, a cryptocurrency is far more than a digital coin.
Today’s cryptocurrencies are becoming more complex all the time. For instance, some cryptocurrencies; called stablecoins, contained a digital mechanism that facilitates payment from bank accounts. The popular Tether (USDT) stablecoin; for example, pays people who receive its coins in US dollars.
The term cryptocurrency comes from the layers of encryption that make cryptocurrency hard to hack or steal. Ideally, the encryption will create a transaction record and proof of ownership that is permanent, secure, and tamper proof.
In reality, cryptocurrency is tamper-resistant, more secure, and longer-lasting than other digital coins. Additionally, cryptocurrency offers a higher level of privacy than other digital payment mechanisms. However, you can hack, track, and steal cryptocurrencies. You just have to work harder to hack, track, and steal cryptocurrencies.
The Attributes of Cryptocurrency
All cryptocurrencies have certain attributes that give them value. Those characteristics include:
Encryption: All cryptocurrencies have a high level of encryption. The encryption makes altcoins, big, clunky, slow, and hard to move. However, the cryptocurrency offers a higher level of security than digital payment solutions such as Apple Pay. The hope is that the encryption will make cryptocurrency more secure and private than other digital payments.
Robustness: Cryptocurrencies are big, strong, and tough. Therefore, cryptocurrenices are robust, which makes them stronger and more secure than other digital constructs. The hope is that cryptocurrency’s robustness will create a long-last record that is tamper-resistant.
Tamper-Resistant: The encryption makes it hard for criminals to penetrate cryptocurrencies. This makes cryptocurrency tamper-resistant and more secure. Despite the claims of its promoters, cryptocurrency is not tamper-proof, it is tamper resistant. Cryptocurrency discourages theft because you have to work harder to hack and crack it.
Applications: Most cryptocurrencies contain digital mechanisms that perform certain actions. For example, stablecoins contain mechanisms that will pay recipients in fiat currencies such as the U.S. dollar. Other cryptocurrencies contain mechanisms that generate new coins when you take a certain action. The Basic Attention Token (BAT) contains an app that pays people for online tracking, for instance.
The Characteristics of Cryptocurrency
Cryptocurrency has a variety of characteristics that can determine its value. Those characteristics include:
Scalability: Scalability is the ability to make a blockchain large enough to serve a mass market. To explain, today’s blockchain is so large it is slow, and clunky.
Bitcoin (BTC) for example only process around four transactions per second (TPS), Blockchain estimates. That means a Bitcoin payment mechanism could jam or crash if it tries to process over five TPS. Meanwhile, Ethereum (ETH) only processes around 20 TPS.
In contrast, Blockgeeks estimates Visa’s (NYSE: V) platform can process 1,667 TPS and PayPal (NASDAQ: PYPL) can process 193 TPS. Thus, if cryptocurrencies want to compete with mainstream payment systems, they will need a scalability rivaling that of Visa or PayPal.
Notably, cryptocurrencies such as EOS (EOS) and Ripple (XRP) offer more scalability and higher TPS rates. EOS; for example, was processing between 64 and 97 TPS on 19 September 2019, the EOS Network Monitor estimates. Additionally, EOS has processed up to 3,996 TPS.
However, EOS and Ripple achieve high scalability by reducing the encryption. Essentially, EOS sacrifices security for speed. To be fair, EOS has additional security measures. Notably, EOS has more monitoring of the system to detect hacking or cracking.
Liquidity:
Liquidity is a measure of a cryptocurrency’s spending power. Essentially, the more liquidity it is, the easier an altcoin will be to spend.
People accept cash because it is liquid. They know they can take cash over to the store and spend it fast. People distrust new kinds of money such as cryptocurrencies because they fear they are not liquid.
Therefore, cryptocurrency developers need to take efforts to ensure liquidity. For instance, Bancor (BNT) operates a liquidity network that backs altcoins with cash to ensure liquidity.
Convertibility:
Convertibility is the ability to convert or exchange currencies for other currencies. If you travel to the United Kingdom, you will exchange your dollars for pounds because pounds are easier to spend in the UK.
Likewise, you will want to convert your Bitcoin (BTC) or Ethereum (ETH) into something you can spend in the real world. For example, you will want the ability to take the currency down to the supermarket and buy food for your family.
I think convertibility is the biggest obstacle to mass adoption of crytpocurrency. However, stablecoins offer a partial solution to the convertibility challenge. To explain, a stablecoin releases payment in a fiat currency when you spend it. For instance, Tether (USDT) pays recipients in US dollars.
Security
Security is the most hyped attribute of cryptocurrency. Many cryptocurrency promoters emphasize high levels of encryption.
I think cryptocurrency promoters put too much emphasis on security. However, the emphasis on security appeals to a basic human emotion, namely fear, which explains Bitcoin’s (BTC) popular appeal.
To explain, many people fear loss, and Bitcoin promises freedom from financial loss. The encryption provides more protection from loss. However, the security makes Bitcoin slow and ineffective as a payment mechanism.
Predictably, Bitcoin’s appeal is strongest to people with the highest fears of loss. That includes residents of countries such as Venezuela, where hyperinflation is destroying the value of money. It also includes people from nations, with a history of government theft of private assets–such as Venezuela.
Permanence
Closely related to security is permanence; the ability to create a record that you cannot lose or alter One of the great fears of digital constructs is that they are ethereal and could disappear fast.
Cryptocurrency promoters make the dubious claim that their altcoins can create a permanent digital record of value or transactions. That attribute appeals to people who believe that digital records will disappear, leaving them with nothing.
Thus, those people fear loss of identity or their records. The belief is that they will lose digital records. Notably, many people obsessed with permanence have a hysterical fear of hacking and digital attack.
A related belief is that the lack of a permanent; or paper record, reduces an investment’s value. Thus some cryptocurrency wallets offer the fantasy of “a paper wallet.” To explain, some people believe a piece of code printed on a piece of paper is a permanent cryptocurrency backup. That’s nonsense because the cryptocurrency remains a digital construct in the blockchain. The code is a key that allows you to access the cryptocurrency stored in the blockchain, not cryptocurrency.
The Measures of Cryptocurrency Value
Determining a cryptocurrency’s value is easy because there are several popular measures of altcoin value. Websites such as CoinMarketCap, CoinBase, and the Bancor Network monitor those values.
The Measures of Cryptocurrency Value Include:
Coin Price: This is the measure of the price of an individual unit of a cryptocurrency. For instance, the price of a Bitcoin (BTC) or a Ripple (XRP) Coin. When you see news articles about cryptocurrency, the Coin Price is the usual focus.
Market Capitalization or Market Cap: This is an estimate of the value of all the units of a cryptocurrency for sale in the market. Speculators use the market cap as an estimate of a cryptocurrency’s total value.
24-Hour Market Volume: This is the amount of money paid for a cryptocurrency in the last 24-Hours. 24-Hour Volume is important because it shows how much money people are paying for a cryptocurrency.
Circulating Supply: This is the number of coins circulating in a market at a time. The Circulating Supply shows how many coins of a cryptocurrency people are using.
Maximum Supply: This is a limit on the number of coins of a cryptocurrency they can produce. Bitcoin, for example, has a maximum supply of 21 million. The idea behind a Maximum Supply is to limit inflation by restricting the supply.
Total Supply: This is the total number of coins of a cryptocurrency in existence. The difference between Total Supply and Circulating Supply; is that Total Supply contains coins outside the market. For instance, altcoins held as an investment or used as savings.
Speculators measure the circulating supply and total supply because they give hints of future prices. For instance, a high circulating supply could indicate a high demand for a currency.
If you want to understand cryptocurrency, you need to understand the measures, characteristics, and attributes of cryptocurrency.
