reasons why internet money beacome so popular

Why Did Cryptocurrency Become So Popular all of a Sudden?

With all the buzz surrounding crypto today, it's hard to remember that just a few short years ago Bitcoin et al. were just something tech geeks occasionally told jokes about over their mocha latte frappuccinos. Today those tech geeks each own more than 100 Bitcoins and spend all their waking hours mining for more while the guy next door who wouldn't know a USB from an HDMI just bought some crypto through his account on the exchanges. What's going on here? What unholy series of events has led to cryptocurrencies suddenly becoming the hottest commodity on planet earth?

It's Better in the Bubble

a brief gistory about bitcoin

In January of 2009 a programmer calling himself/herself Satoshi Nakamoto made a very low visibility announcement that he/she had solved the problem of repeat spending and launched a decentralized cryptocurrency he/she called Bitcoin." No one took it very seriously at the time, mostly because nobody knew about it. But over the ensuing months and years, word of mouth spread and Nakamoto's work began to be hailed as the long-awaited breakthrough virtual currencies had been waiting for. Thus the start of the popularity.

By 2011 a single Bitcoin that had entered (virtual) existence worth less than a penny was worth more than $10. In January 2017 eight years after being floated the value was a robust $1,000 and by December that same year the price was nearly 18,000. Whereas it took Bitcoin 6 years to go from$10 to $1,000 it took less than one year to go from $1,000 to $18,000 (although prices have fallen back in recent weeks to about $11,000). If it seems like a bubble to you, you're probably right. The question, however, isn't "Is it a bubble?" the question is "How did it happen?"

Explaining the Popularity of Cryptocurrencies

cryptocurrencies become hypes on all media platforms

So what has been behind the recent surge in cryptocurrency valuations? Climate change? Brexit? Boredom? All of the above? None of the above? Actually, it's none of the above. Skyrocketing valuations can likely be pinned down to 2 main causes: trust and speculation along with something commonly called "mob psychology."

  • The Role of Trust - Since currencies are no longer backed by precious metals they only have value if people believe they do. This is the trust factor you often hear about in crypto related conversations. The blockchain technology behind today's digital currencies has proven its metal in the heat of financial battle and proven itself time and again to be both flexible and incorruptible. As a result, cryptos have stopped being regarded as a nerdy diversion and started being regarded as a safe haven. And investors love them some safe havens.The trust factor has been both confirmed and bolstered by a slew of government attention of late. Rather than getting turned off by the notion of regulators at the door investors are flipping things a bit upside down and saying "Gee if Uncle Sam is worried enough to start threatening regulation they must have assessed that this is a concept with real legs." It's a way of looking at things that may or may not be sound, but it's nonetheless something we're hearing from investors with increasing frequency these days. So there must be something to it.
  • The Role of the Centralized Exchange - The current spike in valuations would not be possible without the millions of new players brought to the table by way of the centralized exchange. Centralized exchanges provide people with no knowledge of or interest in mining a ready platform through which they can obtain all the Bitcoin or other coins they want and can afford. Unlike orthodox crypt-onians who shudder at the idea of handing control over transactions to a third party, these new speculators are typically not the kind of people who lose sleep over the fact that the exchange takes a fee. In fact, they expect it and take it in stride.
  • The Role of the Mob - Not that there's anything wrong with mob rule (within reason), but it has as much to do with rising valuations as anything else. Some people see other people doing something and decide to join them to learn what all the fuss is about. Others see this increased activity (doesn't really matter what it is) and want in. While still, others who've been waiting on the fence for any signs that something might be hot, take note of the increased buzz around them and hop off the fence join the fray. Before you know it, you have critical mass and a full-fledged bubble is underway. Once the feeding frenzy begins, it can be nearly impossible to stop it. Sellers are simply trying to find a bidder smitten by the activity who won't care about things like fundamentals. And most of the time, they find them. But speculators are like schools of fish. As soon as one fish decides it's time to turn they all follow suit. When this happens, the bubble can be said to have effectively burst.
What are Centralized Exchanges?Cryptocurrencies have sent shock waves through the old economy not seen since the invention of the personal computer. Every day brings tales of fortunes made and lost, more businesses adapting to the virtual currency model and more stories about pending regulation and contradictory stories about a rosy, regulation free future. It's tough to know what to believe, but one thing is certain: at the moment crypto is the hottest commodity on earth. And in spite of some rough patches, it doesn't seem like it's going to cool down anytime soon. As such one of the most common questions swirling around the cryptocurrency revolution is this: How do I get some?Obtaining Bitcoin and Other CryptocurrenciesThere are two ways you can acquire Bitcoin or any of the nearly 1,400 copycat cryptocurrencies in circulation today. You can either ?mine? them, or you can acquire them through an exchange. Mining is an incredibly involved process that requires you to:Purchase one of the latest ?mining rigs? (computer hardware built especially for the job).Obtain a ?wallet? where you?ll be able to store the public and private keys that both protect your coins and enable their use.Find a ?mining pool? to join so you can combine your processing power with others to harvest more Bitcoins (you could go it alone but believe us you don?t want to).Pick up the latest mining software and install it on your computer.Hook the rig up to your computer and get to work.The thing about mining is that it devours electricity like anteaters devour ants. You may even find that you?re spending so much on electricity that it?s impossible for you to mine enough Bitcoin or other cryptocurrency to make your efforts profitable. On the plus side, you get to keep what you mine without having to pay any fees or join any exchanges.Exchanges, on the other hand, are like a warm summer breeze compared to mining. Just set up a wallet, open an account and start buying and trading. The advantage of the exchange is its simplicity. The disadvantage is that you'll be charged fees and exchanges are vulnerable to hacks, which could wind up cleaning you out.The Decentralized ExchangeA decentralized exchange is the more complex to interact with but also more secure. With this type of exchange, the private and public keys never leave your computer until the transaction commences. There's no reason to have a third party act as an intermediary holding your crypto: all transactions are person to person. As such it's much less likely you'll lose money to a hack although transactions, as we said, tend to be more complex and take longer to process.ProsLess prone to hacks these days than centralized exchanges.The user maintains direct control over their crypto funds.A fairly high degree of anonymity (though this may be changing).No trading fees so more in keeping with the crypto guiding principles.Typically no personal identification needed.ConsA pretty steep learning curve for the uninitiated.A small number of features.Not able to accommodate fiat currencies.Your personal computer is more vulnerable to being hacked.The Centralized ExchangeAt the other end of the spectrum are centralized exchanges. Centralized exchanges are popular for a very simple reason: they?re easy to use and incorporate traditional fiat currencies into the equation. You can exchange your dollars or euro directly for Bitcoins or Litecoins or whatever and vice versa; you can exchange your Bitcoins for dollars or whatever currency you prefer. The problem most cryptocurrency users have with centralized exchanges are that they tend to be contrary to the anything goes, no fee principles behind the birth of cryptocurrencies.Centralized exchanges are openly for-profit enterprises that charge transaction fees for among other things, providing access to the blockchain. Still, if people didn't appreciate how convenient they made transactions, they'd fold up pretty quick. But they don't because less orthodox crypto fans don't really give a tinker's cuss about egalitarianism. They want to turn a profit. And centralized exchanges provide them with more ways to do that than decentralized exchanges, which only allow crypto to crypto transactions. So until something better comes along the centralized exchange is likely to slog on, absorbing criticism while they count their money.ProsPlenty of ways to trade including the use of fiat currencies.Relatively easy to use for the average tech-savvy person.Lots of advanced tools.Plenty of liquidity.Most will assume at least some liability for hacked funds.ConsThe exchange exerts control over your funds.You?ll probably have to produce identification to join.Fees, fees, feesA low level of anonymity.More prone to hacking these days than decentralized exchanges.Possibility of downtime because of the centralized structure.Did we mention fees?The Security IssueThere?s one significant downside to centralized exchanges that calls out for more elaboration it is their troublesome habit of being hacked and losing everyone's money. For instance, in January 2018 a centralized exchange in Japan called ?Coincheck? acknowledged it had been hacked and that approximately $500 million worth of a cryptocurrency called NEM was stolen from customers. The company has said it is investigating and has suspended some services on the site.In fairness though, it?s not just centralized exchanges that have been hacked. For instance, a Bitcoin exchange called Mt. Gox was hacked in 2014 with the cyberthieves making off with $450 million worth of the cryptocurrency ($7 billion using today?s valuations). The Mt. Gox hack was a wakeup call for many decentralized exchanges and since then security has been significantly tightened with most hackers now going after centralized exchanges, personal wallets and even mining hardware via malicious downloads.ConclusionThe centralized exchange will likely linger as a fixture of the crypto universe for some time, especially if they can get their security act together. By providing the ability to exchange crypto for fiat they provide a means of acquiring cryptocurrency decentralized exchanges simply can't. Not yet anyway.

The Bottom Line

cheers for bitcoin and other cryptos

It's sometimes hard to put your finger on the exact causes for a bubble, but if you look closely enough, you're likely to discover a spark or two that set the flame. And virtually all bubbles at some point are given over to mob rule. Since valuations rose more than 1,000% during the past year, there's no other way to describe what's been going on as anything other than a bubble and that's alright, as long as everyone knows what they're getting into.

Cryptocurrencies have come a long way since Satoshi Nakamoto launched Bitcoin in 2009. More merchants are agreeing to accept them every day, new cryptocurrencies are being created on a weekly (and even daily basis), and valuations, while they went through a bit of a retrenchment in January, have rebounded to some extent. The only word of caution we'd throw in is don?t buy because someone else is buying. Buy because it's a good investment.

About the Author Aaron Grubbs

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