Do You Actually Know What Bitcoin Is?



In the startup world you can barely go a few hours without hearing someone blurt out jargon.  Sometimes this jargon can be legitimate as when a well-funded company is negotiating terms of their latest investment, but just as frequent is the use of fancy terms like vestment schedules, contract waterfalls/cliffs, etc. by individuals who do more hoping than working.  While most realms of the tech world have various languages that are Greek to most, the bitcoin and cryptocurrency world is by far the least understood.

If you ask most people about bitcoins and cryptocurrency, they may have heard the term and know a back-of-the-envelope description about the currency, but it is rare to meet someone who truly understands what bitcoin is, where it comes from, the nature of the cryptocurrency industry/market, and what this all means for macro trends.  The point being that far too many people do not actually know and comprehend what is driving value in the tech industry, especially when it comes to cryptocurrency.

For those who might not be as read up on the subject, Bitcoin is for most intents and purposes the first cryptocurrency.  This of course means that Bitcoin is also not the only cryptocurrency; all with different valuations, purposes, ideologies, and code behind them.  The most popular are Bitcoin, LiteCoin, and DogeCoin, but some of the others include CasinoCoin, Coinye, and NameCoin.

What all of these currencies have in common are that there is a limited amount of “coin” that are just a specific set of data or “hash code”, almost as if each dollar bill were numbered.  In order to earn coins, you “mine” them by running a “hash algorithm” on your processors.  This hash algorithm is currency specific and verifies if any coin used in a transaction is actually real.  Using this method of having the community verify transactions is how the currencies get away without needing a centralized verification like governments serve for their currencies.  As means of preventing a limitless supply of coins or an extremely brief lifespan of the coin a timeline is set up that gradually reduces the reward of hashing transactions as the supply increases.

The lifespan of a coin thus is a large player in determining market actions.  Early stage coins feature a small market, high numbers of coins earned at a small value, and a low level of computing power needed.  Late stage coins feature huge markets, small number of coins earned at a high value, and a high level of computing power needed.  In this sense evaluating the value of currencies uses a similar mindset as with investing in companies; early stage coins are startups and late stage are blue-chip stocks.

Every coin, just as every company, has a philosophy and market history, each of which plays into its value.  A large part of the people who make claims about cryptocurrencies do not understand either of these components, and so are speaking about the direction of something they do not even understand.  Cryptocurrencies are one of many subsections of the tech start-up world.  After ‘The Social Network’ and the increased interest in startups alongside the new image of startups having no barriers to entry, cryptocurrencies are not the only markets filled with many people making unfounded decisions.

In order to ensure a brighter future for innovation and tech markets as a whole there needs to be an emphasis on understanding the value and value drivers of industries.  If a person lacks an understanding of code they will never be able to accurately understand and predict a market’s behavior.



Image Credit: CC by jayneandd

About the author: George Beall

George Beall is a student at the Wharton School of the University of Pennsylvania. He has a deep admiration for true innovation and has been involved in multiple in technology startups. He is currently on the founding team of Everipedia and an angel investor in an entertainment VR company. In his spare time he enjoys horseback riding, discovering upcoming music, and binge watching Netflix.

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