2017: The Year Cryptocurrencies Went Mainstream | The Market Mogul

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Unquestionably, 2017 has been the year of bitcoin. Whether the grandfather of cryptocurrencies’ rise was the product of the global population spotting a world-changing technology or sheer blind faith is a different matter. Bitcoin’s Monumental Rise For many, 2017 was the first time they heard about bitcoin, the once-mysterious cryptocurrency favoured by dark web marketplaces,…

Unquestionably, 2017 has been the year of bitcoin. Whether the grandfather of cryptocurrencies’ rise was the product of the global population spotting a world-changing technology or sheer blind faith is a different matter. Bitcoin’s Monumental Rise For many, 2017 was the first time they heard about bitcoin, the once-mysterious cryptocurrency favoured by dark web marketplaces, drug dealers and money launderers that has become practically mainstream. Bitcoin first emerged in 2009 in the wake of the 2007/2008 global financial crisis. The true identity (or identities) of the designer of bitcoin’s original reference implementation and the world’s first blockchain, the elusive Satoshi Nakamoto, remains unknown even in 2017 (although a fantastic rumour that Elon Musk is Nakamoto did the rounds this year).

Not true. A friend sent me part of a BTC a few years, but I don’t know where it is.
— Elon Musk (@elonmusk) November 28, 2017
According to bitcoin’s early developers, Nakamoto handed over the reins to bitcoin to Gavin Andresen, an American software developer in mid-2010. In the years since Nakamoto took leave of his bitcoin project, the virtual currency has minted countless millionaires; $100 of bitcoin bought during 2010’s lows of $0.003 would be worth around $540m today at bitcoin’s current price of $16,200 (on the morning of December 27th).

Bitcoin has gained 1,500% this year alone. He may have succeeded in developing the world’s most successful virtual currency to date, but has Nakamoto realised his (or her/their) vision of a decentralised peer-to-peer transaction network? Irrespective of the wider potential of blockchain technology, bitcoin’s early ambitions of being used for remittance and as currency are stuck in the mud. Nine years after its release, there is not yet a single enterprise or government that regularly uses the bitcoin blockchain. Worse still, whereas Nakamoto intended bitcoin to be inherently disintermediary, it seems that the opposite has happened.

Coinbase, the world’s most popular cryptocurrency exchange, is also the world’s most highly funded startup in the crypto space. However, rather than facilitate peer-to-peer transactions, Coinbase acts more like a bank that allows its users to hoard (or HODL) digital currencies with the specific intention of not using them.

This runs counter to what Nakamoto envisaged. However, the greatest blow to his dream is probably the release of bitcoin futures by two of the world’s largest exchange providers, Cboe and CME Group. Although Wall Street has been cautious about bitcoin’s prospects, the release of bitcoin derivatives facilitates the entrance into the bitcoin sphere of the very same intermediaries that Nakamoto wanted to purge the financial system of. Another problem (or advantage, depending on how one looks at it) posed by bitcoin’s open source nature are hard forks.

When bitcoin’s developers decide to change bitcoin’s software protocol and users agree to the change, the bitcoin blockchain “forks”, leaving holders of bitcoin with their existing holdings and a proportional amount of the new digital currency. Two major forks – bitcoin cash and bitcoin gold – have occurred on the bitcoin blockchain so far this year. Another, Segwit2x, which aims to speed up transaction speeds, has been tabled and is currently occupying bitcoin’s developers. For now, though, bitcoin’s upward trend has been unfazed by the release of bitcoin futures or its various forks.

Nor does the news that only 1000 people own 40% of bitcoin (so much for decentralisation) resemble the proverbial pin to the digital currency bubble.

However, bitcoin’s meteoric ascension has not stopped other cryptocurrencies from making waves in the space this year. The Year of Ethereum? For savvy crypto investors, 2017 was really the year of Ethereum , which has piled on around 9,500% of gains in the last 12 months before settling at the $700 mark for the moment. Ethereum was started by Vitalik Buterin, a Russian-born polymath, who wanted to develop a “decentralised mining network and software development platform rolled into one”. Buterin was just 20 years old when he began work on Ethereum and is regarded as a once-in-a-generation prodigy by cryptographers. Ethereum differs from bitcoin in several key ways.

Firstly, it is a decentralised platform that allows the creation of “smart contracts” that facilitate decentralised applications, trustless crowdsales, democratic autonomous organisation and initial coin offerings (ICOs). These terms might sound abstract now but they could, like bitcoin, soon become mainstream if Buterin has his way. Indeed, over $3bn was raised over the course of 2017 by various ICOs that utilised the blockchain platform, prompting fears around the world of a new wave of financial fraud. For the moment, however, Ethereum faces the same problem that bitcoin does: slow transaction speeds deriving from the difficulty of scaling the underlying blockchain. Visa processes around 4,000 transactions a second but Ethereum is currently lagging with just 11.

5 transactions each second.

However, Ethereum’s developers are currently looking to solve the issue through Ethereum’s Casper protocol, the brainchild of Buterin’s colleague, Vlad Zamfir. Even if a node can process hundreds or thousands of tx/sec in a closed simulation, that does not imply that it can support a public blockchain that can process that much.
My Parity node can run >500 tx/sec on my laptop, but Ethereum main chain is only processing 11.5 tx/sec.

pic.twitter.com/H0UCD0FRTR
— Vitalik Buterin (@VitalikButerin) December 19, 2017 Presently, Ethereum uses a proof-of-work protocol, meaning that miners solve difficult cryptographic puzzles that secure consensus across the blockchain and are rewarded with ether. Casper intends to transform the Ethereum blockchain into a proof-of-stake protocol, which achieves consensus through “stakers” rather than miners. Stakers, those with large holdings of ether held in special wallets, will be able to propose the size of new ether blocks (rather than having to solve puzzles) in a manner proportional to their holdings of ether.

The goal for Ethereum Casper is long-term sustainable scalability. Bitcoin is unlikely to achieve mainstream adoption as a currency because each bitcoin transaction takes around six or seven minutes to execute. With Casper, Ethereum might overcome this hurdle.

For now, though, Ethereum is getting bogged down by a swarm of CryptoKitties . The Pack Aside from bitcoin, its various forks, and Ethereum, a number of so-called altcoins have performed exceptionally this year. Among them are Ripple, Litecoin, NEO, DASH, Zcash, Stella Lumens , Monero and Omise Go. In other words, too many to count. Ripple is one of the more interesting propositions in the cryptocurrency space. Unlike bitcoin and Ethereum, Ripple’s XRP is a payment system rather than a cash system.

It enables users to send virtually any asset across the network instantly and incredibly cheaply. Ripple, the company behind XRP, currently holds 50bn XRP tokens with a further 50bn circulating in the market. Ignoring the value of the yet to be released tokens, XRP’s recent rise to dollar parity has made it the third largest cryptocurrency. Looking east, NEO’s developers have also been hard at work this year. Often dubbed China’s Ethereum , NEO.

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