What is Cryptocurrency, Bitcoin, and Ethereum?

Disclaimer: None of this should be taken as financial advice. Whatever you do with your money, you do so at your own risk!

The past week has been a crazy roller coaster ride. If you’ve been busy living your life, it’s possible that you might have missed the historical significance of what’s going on right now. There is a new cryptocurrency in town, and it’s taking the online world by storm. Not only that, but it was officially launched on July 30, 2015 so as of when this article was published it hasn’t even been for out a year. What does this mean for you? Potential to make plenty of money! (or none).

The Current State of Your Currency

In your wallet you probably have a few bills laying around. You also might have some credit cards as well. All of these are controlled by various banks, and governments. Now the way the current banking system works is that when you deposit your hard earned cash, you assume it’s for safe keeping, and will be there when you need it. In reality the banks are loaning out your money to other customers who are ‘withdrawing’ funds, and charging them processing fees to do so.

This is how banks make their money. Do you know what would happen if a small percentage of banking customers all decided to withdraw 100% of their funds at the same time? The banks would probably shut down, simply put they don’t have enough money to cover everyone. The bank controls your money, and if this happen you wouldn’t be able to do a single thing about it. This is where cryptocurrency comes into play.

What is Cryptocurrency?

Cryptocurrency is a decentralized form of digital currency. It operates independently of a central bank, and is nearly always created using open source code. Open source code means that when the cryptocurrency program was written, anyone is able to view the code, and see how it was made. Because of this transparency, if someone tries to modify any part of the program (to try make themselves rich for example), the whole network will be alerted and can prevent this from ever happening. Because it is decentralized you are in full control of your money, and always have access to it at anytime. And because you have full control of your money, there is no way for another person to even know you any cryptocurrency at all.

How Do you Use it?

When I first got involved with cryptocurrency, the biggest question I had was how do I buy, or spend this? It is very similar to services such as PayPal, in the way that you just type in an address, and the amount of money you want to send to a person. You hit send, and off your money goes to it’s destination. However it differs in the respect that usually you don’t have your identity tied to your address. If you are using a cryptocurrency your address will resemble something like this 1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2.

There is no name, no address, nothing associated with that. You just tell another person to send you a payment to that address, and you receive it. Sending it is the same, you just type in an address and send a certain amount of money to that address. It is instantly transferred from one account to the other, and usually only costs pennies in transaction fees (versus 2.9% + .30 which is the current base standard).

Where Do You Store it?

Your cryptocurrency is stored in what’s referred to as a ‘wallet’. The most common way to have a wallet is to use a website to house your funds. Of course those sites usually require you to login with an e-mail address, and proof of identity so the currency can be linked to your identity. This in my opinion is partly acceptable. I say this because websites such as CoinBase (this is what I use) make purchasing cryptocurrency super easy for most of us. But there is another layer of security that I recommend you also partake in.

The Hardware Wallet

A hardware wallet is an actual physical device (think of a small usb flash drive) that has it’s own cryptocurrency address. There is no name, or identity attached to this physical device, so for all intensive purposes it doesn’t even exist. There is a hardware wallet called the Ledger Nano S (it will be shipping July 29,2016) that accepts both bitcoin, and ethereum cryptocurrency. I already have a couple on order for myself.

The Transaction Process

So how do you go about getting yourself some of this cryptocurrency? Just visit a website such as CoinBase , set up your account and make your purchase. Once your account is credited with the cryptocurrency of your choice, you can then send the majority of it to your hardware wallet for safekeeping. That way you maintain full control of your assets. That’s the ultimate goal, to keep your money in your control, and out of the control of others right?

What is Bitcoin?

Bitcoin has always been the main cryptocurrency to buy into. It’s been around since 2009 and the value seems stable overall. Bitcoin was the first cryptocurrency, and it still considered the best. It is ranked number #1 amongst all cryptocurrencies. When Bitcoin was first released you could purchase 10,000 bitcoin’s for only $1.00 USD.

If you were smart enough to do that, today your $1.00 USD investment would have turned into $6.5 million dollars! For that reason people became multi millionaires simply by investing into Bitcoin. Since then Bitcoin has become experienced some volatility, but has been overall stable. With Bitcoin nobody knows if there will be another opportunity to become super rich. If there is another opportunity, the price of admission this time is at $657 USD per Bitcoin, so good luck trying to buy 10,000 of those. But guess what? A new cryptocurrency has popped up, named Ethereum.

What is Ethereum?

For the past week it’s been all about Ethereum. Ethereum is a brand new cryptocurrency/programming language that is going to make the future a wonderful place (if it takes off). The goal of Ethereum is to provide a platform for creating decentralized programs. These programs run off of a fuel called Ether. The fuel (Ether), is the cryptocurrency that you can purchase.

Ethereum hasn’t even been out for a year yet, (It will be one year on July 30, 2016!) and it’s already ranked #2 in cryptocurrencies, second only to Bitcoin. Because it’s so new there is a lot of hope that people can become filthy rich off of it just as people previously had with Bitcoin. The majority of course are in it for the money, but there are those that also believe in the primary goal of Ethereum.

The Controversy Behind Ethereum

A very smart hacker found a loophole in an investment program that was installed on top of the Ethereum platform. This hacker ended up pulling sixty million dollars worth of Ether out of there. Because of this, the development team had an open discussion for over a month on what steps should be taken to address this issue. More than 85% of the entire Ethereum community voted to close the loophole, and program the sixty million worth of Ether back into the system as if it had never happened. So the developers did just as the majority voted.

Because of this another group started rebelling. This group claimed that by modifying the code, and taking action, they violated the whole point of a cryptocurrency which is to be decentralized. Decentralized meaning that no one can govern over it and control the way things work. For this reason this group decided to copy the open source program code of Ethereum and create their own version of it (the code was copied to before the loophole was plugged.) This new version of Ethereum was dubbed Ethereum Classic.

Ethereum Classic

Followers of Ethereum Classic say that they are using the pure unchanged version of Ethereum, and are supporting Ethereum Classic because it remains decentralized. This movement started to catch on, and more people started purchasing Ether Classic (Fuel for Ethereum Classic). The strange thing is that there is no development behind this. Followers of Ethereum Classic say that if there are any positive developments added Ethereum, they will just copy the code and implement it into their Ethereum Classic. How exactly is copying code going to innovate and further the goal of Ethereum? They aren’t contributing anything here. There has to be something more to this.

The Real Reason for Ethereum Classic

What has been going for the past week is this. The price for one Ether Classic (aka ETC), was about 50 cents a few days ago. So people ended up purchasing large amounts of ETC. This drove the price of ETC up, and so more people started purchasing it so they could acquire it before the price rose any higher. Once the price of ETC reached upwards of $2.80 the original purchasers sold all of their ETC and made a hefty profit. Let’s put this into perspective.

Let’s say you purchased $10,000 worth of ETC at 50 cents. This would give you 20,000 Ether Classic Coins. Now say the price shot up to $2.80 for one coin, so you sell all of your holdings and end up with $56,000! So you turned that $10,000 investment into $56,000 just like that. Everyone caught onto this opportunity, and they began “pumping, and dumping” the market ringing it for all it’s worth. Those who didn’t realize what was going on lost a lot of their money. So it appears that the real reason for Ethereum Classic is a cover, so some savvy people can get filthy rich.

What Lies Ahead

Currently we are still in the pump and dump phase. People are investing tens of thousands of dollars, into the market and making away with mass profits. This won’t last forever, and sooner rather than later a lot of people are going to get burned for playing this risky game with Ethereum Classic. Overall Ethereum has not been phased much by this and it’s just a matter of time in my opinion before they all dies down and Ethereum can continue to move forward and bring forward a new technological movement to our world. I look at cryptocurrency as what it is, another way to secure your assets (of course with some volatility), and stay in control of your funds. If you want to manipulate the system, good luck with that game. I just want to see Ethereum prosper, if it’s value goes up, well that’s just a bonus for me.