“You gotta get in, man. I just bought some for $600! Marc Andreessen, Peter Thiel, there are big tech people who say this is going to be huge!”
My college roommate had just bought his first bitcoin, whatever that was, back in early 2014.
But the more he tried to talk our other roommates and me into it, the more we made fun of the idea of a digital currency. None of us bought any.
He sold later — for a loss — when bitcoin dropped to $400.
But of course, the only way to make any money on something as new and unique as bitcoin in 2014 was to buy it and forget about it. And I’d argue that’s still the case.
The Importance of Blockchain
At this point, we’re still in the infancy stage of the crypto era.
And yes, it’s an era because we’re now starting to see the potential of just how amazing this technology is.
Just a few years ago, bitcoin was a punchline, and only a few self-informed people had actually looked into its underlying technology, blockchain.
Now, blockchain has gone from being completely unknown to having a real, desirable system that huge companies are testing for their own businesses.
In fact, the top 10 biggest companies in the world are testing it out. That includes Berkshire Hathaway and JPMorgan Chase, both of which have CEOs who have relentlessly bashed bitcoin and cryptocurrencies in general.
A recent survey taken by CNBC revealed that 84% of companies all around the world are now testing blockchain technology.
But what is blockchain?
I’ll do my best to explain blockchain — without using the word “ledger.”
The basic way to understand it is that it’s like a computer system that can securely track and store information.
What makes it different is that it doesn’t have a central point; nobody is in charge of it.
That makes it more appealing, because it keeps everything completely private. It’s like having information stored on a personal device.
But rather than trying to define it technically, which only makes it seem more confusing, I’ll give a couple examples of how it can be used.
Blockchain Use Cases
One way is with your personal records.
Things like passports, birth certificates and personal ID are easy to lose, and your identity can be stolen if they fall into the wrong hands. But if this information is stored on the blockchain, there’s no central party that owns it, and it’s only accessible to you.
Another way, which is more geared toward businesses, is through supply chain management.
Companies like IBM, Walmart and FedEx are all working on this. The goal is to be able to track everything, meaning a package’s location, who has it and its condition, at all times.
This will cut back on lost or incomplete packages, and disagreements on who’s responsible for any damages or shipment issues.
That could be especially important with regards to food quality management. In the United States, $165 billion of food is wasted every year.
But if we have a reliable system to track and measure our food’s freshness, it can be delivered to the appropriate places sooner.
Different Types of Cryptocurrencies
A misleading notion about cryptocurrencies is that they’re all just supposed to be used as money that you can go to the store and buy things with.
Why do we need 1,910 (and counting) different types of money? We don’t.
There are actually a wide range of purposes that these “currencies” serve. And like bitcoin, it’s really the underlying technology that gives them value.
For example, a company called Tron is using blockchain to make a “decentralized internet.”
This would cut out all of the middlemen, like Google and Facebook, that essentially control everything that we’re directed to online. There wouldn’t be any blocked content just because a company says so. Essentially, there would be no spam.
Right now, Tron is close to releasing its first app, which is called TronChat. And because it’s decentralized, your data would be only accessible and seen by you.
Tron has a cryptocurrency called TRX that would be used all over this social network. You can even earn it by doing things like opening messages and watching video ads.
Users can also make their content premium and charge a certain amount to see it, all within the app.
Of course, you wouldn’t be forced to do anything. The point is that instead of a big, central company making money off of you, you’d generate your own money.
Banking Done Better
Another example is a company called Ripple that’s working to revolutionize the banking industry.
Right now, it takes about a week to do a standard money transfer internationally. But with Ripple, these transactions can be done in a matter of seconds.
Its system is so popular that there are over 100 banks now testing the technology, including Bank of America.
It comes down to convenience. Who wants to wait a week for money that they could have right now? Especially if it’s for something important.
This could completely revolutionize the outdated and inefficient banking world, where trillions of dollars are sent and received every day.
It’s also a testament to Ripple that its technology is already being tested in huge banks like Bank of America in such a short time.
Of course, Ripple is also decentralized. That means that there’s not going to be a single point of failure that could cause the network to shut down. It also means that there wouldn’t be any fees created by middlemen.
And of course, there’s the benefit that the data in the network can’t be resold or mined by any central party.
There’s also a currency within the Ripple network called XRP.
The point of XRP is to give a medium of exchange when different currencies are transferred. So, if a U.S. bank uses Ripple’s system to transfer money to Japan, it can convert its dollars into XRP, which is converted into yen when it’s received in Japan.
Keep in mind that this transaction would be done in seconds and would get rid of big international transfer fees. In fact, the current system is estimated to cut out up to 70% of transfer fees.
A Growing Market of Investors
What makes this technology even more impressive is when you consider that it’s come this far in just 10 years, and most of these new “coins” are far younger.
So, if you can look past the mania that happened late last year, there are actually some really important developments going on.
It wasn’t hard to see that the crypto market was in a bubble last year. I think it’s safe to say that any 5,830% rally in 12 months will not be sustained.
But here’s another point: Hardly anyone owns cryptocurrencies.
This past July, a Gallup poll found that just 2% of U.S. investors own any bitcoin, which is, of course, the most popular investment in the crypto universe.
But now, bitcoin is gaining popularity with millennials, and especially Generation Z.
Say what you want about these generations. Sure, they spend too much free time in front of screens, but their jobs are heavily influenced by technology now as well.
With millennials expected to outnumber baby boomers as soon as next year, you can bet that there is going to be a gigantic market for this new asset class. The $237 billion crypto market is nothing when you consider that the global stock market is valued at over $91 trillion. That’s 384 times as big as crypto.
So we’re just beginning to see the potential of the technology behind bitcoin and other cryptocurrencies.
Without getting too technical, it’s easy to see that there are all sorts of ways it’s being used. And as the overall crypto market is down around 75% from its peak, it may not be a bad time to buy in.
If you’re interested, here’s a helpful article that gives instructions on how to go about buying bitcoin and other cryptocurrencies.
Editor, Rapid Profit Trader