Why do we need 19 000 cryptocurrencies? As of today, there are 18 774 cryptocurrencies, 505 exchanges and a market cap of US$ 1.98Trillion. What do they do that is different from one another? Are there broad categories that separate them one from another? The answers to that question are many and varied, but if we really look at things clearly, it appears that there are four main categories:
- Bitcoin – BTC
- Ethereum – ETH which is the base for most DeFi and platform for many Crypto’s
- Stable coins, some based on US$, some on gold, some on other currencies
- And then there is the use of Crypto’s to house businesses, where instead of using complicated, expensive listing mechanisms on Stock exchanges, a Crypto is used to house a business. E.g. Theta.
I remember when IBM first came out with Lotus 1 2 3. After a few years there were three or four competitors, gradually the market sorted itself out and Microsoft became the standard. That is not nearly the same, but most of the Crypto’s are improved me too’s.
I would imagine that the Crypto market will also experience a consolidation and shake-out, until there are a few main players.
The next thing I imagine happening, is that after the role of Blockchain is understood and experimented with, and the surge of take-up of this new VERY improved technology is adopted (and a lot of money is made by those of us who are second stage adopters (the early adopters have already made a great deal!), is that prices will stabilize.
At this time, it looks as if FIAT monies will already have died, or significantly transformed. My view is that national currencies time is over, and blockchain will take the role of international money. All sorts of structural changes will become apparent, to enable this change.
At present exchanges are a dismal shadow of what they need to become, before anything worth anything can really deal with the needs of this new market place.
There are 505 exchanges operating today. The South African ones only have a fraction of the Cryptos in their offerings. In November 2020 I had a great deal of difficulty buying DigiByte, because very few Exchanges dealt in them. Eventually we used Binance to buy them. Then in March 2021 SARS in South Africa made it illegal to use non-South African Exchanges!!! [ I doubt that the even understood how the Crypto markets worked!?]
Why do we need exchanges anyway? The South African Exchanges are so rudimentary that if I want to sell BTC and buy ETH, I have to convert my BTC into ZAR and then use the ZAR to buy ETH!!! How clumsy!
If I however want to do that from my wallet, it is possible (if the wallet caters for the kind of Crypto I want to buy). If they do, the costs can be many multiples of the costs in Exchanges. Some of those costs cannot be seen at all, and can vary greatly. If they are using the ETH base, gas fees must also be paid, which can only be paid for in ETH (which you obviously must hold for the trade to be possible!!) Until ETHII the gas fees are rather steep!!
Steps in a transaction
I now want to look at the crude diagram I have attached.
Obviously most of us have existing bank accounts, without which we cannot operate, in the current world.
Then we joined a Crypto exchange, when we bought Cryptocurrencies, unless we used operations like Revix to manage our Crypto’s for us.
Once we had bought our Crypto’s we gradually became aware that those crypto’s were effectively in someone else’s safekeeping, and if the Exchange went insolvent, we could lose the crypto’s lodged there. In fact a South African Crypto exchange did go insolvent!!
We were advised to create our own wallet, to be totally safe. Then we found out that there are “soft” and “hard” wallets. They both work the same, except that the soft wallet is only on our computers, and if the code gets stolen (because we stored the info on our computer – and it was hacked) we can lose our Crypto. The Hard wallet is an external key or disk, that if not plugged into a computer cannot be hacked by anyone.
Both have downsides, which I will not go into here. The purpose of this article is to describe the number of stages needed to complete transactions.
So far here are the steps we have taken;
- Open a FIAT bank account and put money in it.
- Open a Crypto exchange account and transfer some money into it from your FIAT bank.
- Buy a Crypto currency
- Create a wallet. Move the Crypto from your Exchange wallet to your private wallet.
If we want to buy/sell something to/from someone else, and the agreed payment is in a Cryptocurrency, we could easily, instantly make payment at no cost to the other entities wallet or exchange.
The counter party now has to go through the reverse of the four steps just described above.
Why is that necessary? Where is the Peer to Peer?
True peer to peer
In El Salvador the whole country ONLY uses BTC, so we have pure peer to peer. I go into the market place and point my cell phone at a QR code and make a payment using BTC (much like I do when paying with Snapscan or Zapper in South Africa), except there is no credit card behind the scenes actually paying, just my Crypto Wallet!
How do we get that to work for us?