Personal View: A primer on cryptocurrencies and the blockchain

NOV 22, 2021

There have been multiple headlines lately talking about the rising popularity of Bitcoin, NFTs and digital dog tokens. Where is this all coming from? Are these just a passing fad, or are we entering the next big technological era reminiscent of the dawn of the internet? For us to understand where this is coming from, we first need to understand how Bitcoin paved the way.

Just over 13 years ago, an anonymous person or group of people behind the pseudonym "Satoshi Nakamoto" released their white paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System." This paper detailed a form of electronic cash that would allow online payments to be sent directly from one party to another without going through a financial institution.

This technology would take the form of a ledger called a "blockchain" where every Bitcoin transaction would be recorded forever. This system would also be nearly impossible to hack by utilizing an enormous network of computers (Bitcoin miners) carrying out CPU-intensive math problems to verify transactions before they are recorded on the blockchain.

Bitcoin has received much attention in the media lately due to recently hitting a new all-time high and some financial institutions claiming it could be a superior store of value and inflation hedge than gold.

The programming behind Bitcoin makes it disinflationary by reducing the amount of Bitcoin that is paid to miners by halving the rewards every four years. Since this technology is completely decentralized, there is no governmental authority in the world that can destroy or control Bitcoin without either abolishing the internet entirely or acquiring billions upon billions of dollars of computing power.

Bitcoin and cryptocurrencies are here to stay with the increasing acceptance of the technology by U.S. companies and investors. Earlier this year, Coinbase became a publicly traded company that acts as one of the world's largest cryptocurrency exchanges. Just last month, the first Bitcoin Futures ETF started trading on the Chicago Mercantile Exchange. U.S. regulators are starting to lay the groundwork, so people understand the boundaries they need to play within when interacting with decentralized blockchain technologies such as Bitcoin. While the future for crypto may be bumpy, it is certainly looking brighter than it ever has before.

So where does Shiba Inu come in, and why is your nephew asking how he can get some? While Bitcoin is by far the world's largest cryptocurrency by market cap, many new tokens and cryptocurrencies have entered the scenes. These cryptocurrencies utilize other blockchain technologies with the most popular one being Ethereum, which Shiba Inu is issued on. Shiba Inu is considered a decentralized "meme" token where its community members decide the direction of the project. While it is difficult or nearly impossible to comprehend what a token like this should be worth, many are amazed by the incredible 1,000%+ gains it made from September to October this year. Crazy gains like these make it a dangerous and volatile asset that people should do heavy research on before thinking about being part of this ecosystem.

So why has it become so popular? Some think it's because people like to be part of a disruptive community that challenges the old ways of thinking, such as how the "Wall Street Bets" folks sent shockwaves through the stock exchange earlier this year by pumping up stocks like GameStop and AMC. Others think it's because Elon Musk, who enjoys the concept of cryptocurrencies, recently attained a Shiba Inu dog. Or maybe it really is as simple as … people just love cute dogs.

Yet another asset based upon blockchain technologies are NFTs, which stands for non-fungible tokens. Non-fungible means these tokens are completely unique from one another and cannot be copied, like baseball cards. Almost anything digital can be linked to an NFT on a blockchain, such as art, music or items in an online role-playing game. If you own an NFT in a digital wallet, you can be sure you're the only one in the world with that asset and you have the right to sell or trade it for whatever someone is willing to give you. This concept of verifiable unique digital collectibles has sent ripples through pop culture with pixelated profile pictures from collections such as "Cryptopunks" and "Bored Ape Yacht Club" fetching millions of dollars at world-class auction houses. There are also upcoming NFT-based video games and social platforms that are adopting the term "Metaverse" to define their environment. This may have even led to Facebook's recent rebranding to Meta which could show their intention of being a major player in this space.

With daily headlines and billions of dollars of venture capital money pouring into cryptocurrencies, NFTs and decentralized finance, we can be sure that this is not just a passing fad. It could even be that crypto will be the fastest growing and most widely adopted technology we see over the next 20 years. However, this space has historically been exceptionally risky and volatile, and it's likely that trend will continue. If you are investing money in crypto, please know you can easily lose what you put into it.

Genega is a certified cryptocurrency expert and certified blockchain expert by the Blockchain Council. The Blockchain Council seeks to provide education pertaining to crypto. Genega is not a financial adviser and nothing in his writings should ever be considered financial advice.