https://bitcoin.org/bitcoin.pdfImagine your boyfriend invested his savings in Bitcoin for a year before buying you a diamond engagement ring.
If he invested his savings to buy 1 Bitcoin worth around R14 000 on 5 January 2017, he would have been able to sell it for R200 000 on 4 January 2018.
That’s a smart guy and a fancy rock on your finger.
This meteoric rise in the price of Bitcoin over 2017 has brought it and other cryptocurrencies into the limelight. Early adopters have now become Bitcoin millionaires and billionaires (you’re not crypto rich until you’re Lambo rich).
Latecomers who entered at the peak have also seen huge losses though. For example during December 2017 the price peaked over R300 000 and this January dropped to below R100 000 and is currently trading at around R120 000.
What is a cryptocurrency?
By now we have all heard someone mention the words “Bitcoin”, “blockchain” or “cryptocurrency” either at a party, at the salon or from our Uber driver. We probably also pretended to know exactly what they were talking about too because no-one wants to sound out of the loop, right?
So, let’s start at the beginning… what is a Bitcoin? Bitcoin is the first cryptocurrency created by the unknown Satoshi Nakamoto in 2010 (if you’re interested in the technical side and want to learn more, check out the white paper “Bitcoin: a peer-to-peer electronic cash system” here).
In May 2010, 10 000 Bitcoins were used to purchase two pizzas. Today 10 000 Bitcoins would be in the region of R1 billion (that’s a lot of pizza!).
So, if Bitcoin is a cryptocurrency - what is a cryptocurrency?
A cryptocurrency is a form of digital cash that allows you to transfer value anywhere in the world without using a third party like a bank.
Instead it uses a technology called blockchain and a network of people who verify transactions in a technical process called mining (mining involves solving complex mathematical problems using large amounts of computer processing power).
The “crypto” part comes from the word “cryptography” which is used to secure the transactions. All transactions are recorded in a public record which cannot be altered.
For example, if I want to send some Bitcoin to my friend Taiye in Ghana as a birthday present, all I need is her bitcoin wallet address and I can send Bitcoin directly from my Bitcoin wallet to hers.
The transaction is recorded on the Bitcoin blockchain. If I wanted to send the same value to the same friend using South African Rand, it would involve a foreign exchange transaction from ZAR to Ghanaian cedi , a few banks, cross-border payment intermediaries, SWIFT and fees for every party involved in facilitating the transaction, as well as a few days’ waiting time. (FYI: Cryptocurrencies have transaction fees too.)
There are now a crazy number of cryptocurrencies available but interestingly, they are all not currencies.
New companies being built on the blockchain are creating new coins as a means of raising funding in a process called an ICO (initial coin offering) for a variety of use cases, everything from applications dealing with healthcare, to gaming, to online identity are being built on the blockchain.
Fashion Coin is touted as the first crypto of the fashion industry which aims to “decentralise” the fashion industry by connecting the customer directly to the designer.
Anti-animal cruelty cosmetic company, Lush, started accepting Bitcoin as payment on its UK online store.
Blockchain technology may even be used to combat counterfeit luxury goods, especially prevalent in marketplaces and second-hand sales (no more fake Louis Vuitton).
Besides trading cryptos, there are aren’t too many ways for us to use blockchain today, but one way is to buy your very own digital cat. Welcome to CryptoKitties.io - where you can buy your own collectible, tradeable, unique digital cat (or a “CryptoCollectible”).
It's a great way to learn and interact with blockchain technology, which may soon be part of our everyday life.
Hype and scams
But it’s not all Lamborghinis and Kitties because so many people have made so much money from investing in cryptocurrency, it has become seen as a get-rich-quick scheme.
As it becomes more mainstream and more non-techie people are starting to get involved, scam artists are beginning to take advantage of the newcomers.
Some possible warning signs of a scam include guaranteed returns on investment, promises of higher returns if you recruit your friends and generally promises that sound too good to be true.
Many are setup similar to the old school Ponzi scheme type scams. It's really sad because it's often the people that don’t have money to lose who become the victims.
People also buy in and believe in the model because they market through telling stories about others who have made lots of money and changed their lives. Some have lost life savings in the process. If it sounds too good to be true – then it probably is. #StaySafeOnTheCryptoStreets
The high incidence of fraud and scams is also the reason Facebook recently placed a blanket ban on all cryptocurrency and ICO related ads.
Facebook’s algorithms can’t yet determine a scam from a legit ad yet, so they are banning everything related in the meantime.
They must have received many, many complaints about scams and other misleading ads to make them decide to enforce such a far-reaching ban.
How do I get involved?
So … If you’re ready to take the plunge, perhaps instead of those new pair of shoes you’ve being eyeing at Aldo’s, you should try your hand at crypto.
Remember: You should always do your own research before investing and you shouldn’t put in more than you can afford to lose.
Be wary of anybody offering you a get rich quick and easy scheme.
There is no such thing.
Investing in cryptocurrencies is a high risk as it is fairly volatile and sits in a regulatory grey area (therefore if something goes wrong, there is no one that can assist you).
In South Africa, you could use a Luno wallet to purchase Bitcoin or Ethereum, or the ICE3x exchange to purchase Bitcoin, Ethereum, Bitcoin Cash or Litecoin.
There are also numerous other global exchanges that give you access to a wider range of cryptocurrencies. Who knows, maybe your next shoe shopping trip will be at Jimmy Choo?
So is blockchain really going to revolutionise the world?
Cryptocurrencies and blockchain technology have the potential to impact the world and create change in a revolutionary way.
Advocates of the technology are not swayed by volatile prices and fearful headlines.
Many compare the current blockchain technology to the early days of the internet in the 90s, when we were listening to Boyz II Men, TLC and Backstreet Boys while browsing Yahoo and checking our Hotmail email accounts.
Back then we couldn’t even conceive internet use cases like social media and mobile payments.
Who would have guessed we would be spending all our time tweeting and #hashtagging selfies today?
In the crypto world, we have things like Bitcoin and cryptocurrencies today and can’t even yet conceive all the other revolutionary use cases for blockchain technology that will come tomorrow.
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