Bitcoin is a cyber currency. Cyber currencies are global currencies without any central control from any governments or banks. Compare this to the Canadian Dollar, governed by the Bank of Canada, which controls distribution, security, and valuation through strict rules. All Bitcoin transactions are held in a public ledger (called a blockchain) stored across thousands of encrypted servers (computers) worldwide. Think of the bitcoin network as a series of bike rims with each bitcoin computer being a spoke in each wheel. Now multiple this by roughly 3.8 million servers, and you have a whole lot of spokes and wheels all connected. If one spoke goes offline or breaks down, the bitcoin system has multiple redundancies.
Who owns bitcoin servers? Anyone! Yes, anyone can set up a bitcoin server, connect to the bitcoin system using a peer-to-peer method. You can create (mine) your new bitcoin, but you will need technical knowledge, a powerful server, and electrical power. 142,498 kWh of electricity to create one bitcoin. That will cost you $20,000 in electricity along with $10,000 for computer hardware and a whole lot of time!
Currently, Bitcoin is valued at $75,468, with an absolute market limit is 21 Million bitcoins (total marked value 1.584 Trillion dollars). About 18.77 million bitcoins have already been created, leaving about 2.23 million bitcoins left to be created worth about $168.2 Billion dollars).
You can buy portions of a bitcoin ($75,468) through brokers, including major traditional investment firms such as Charles Schwab Brokerage, Morgan Standley and TD Ameritrade. Bitcoin is not the only cyber currency on the block. There are presently over 6,000 different cyber currencies on the market. The most common is Bitcoin, Bitcoin Cash (Quicker method of trading verse Bitcoin), Ethereum and Dogecoin.
How risky is investing in bitcoin? It is considered highly volatile. The Canadian Dollar is backed by physical gold or stocks. Apple shares backed by physical land, buildings, equipment, etc.), product patents, and audited financial results. Bitcoin is not backed by any physical asset.
What kind of returns can you see with Bitcoin? If you bought $100 of bitcoin five years ago, it would be worth $12,175. Instead, if you purchased $100 of Apple stock five years ago, it would be worth $539.
Some big players are looking at cyber currencies as a viable investment. Elon Musk from Tesla, Jack Dorsey (CEO of Twitter), Mark Cuban to name a few. But all of them only have a very small percentage of cyber currencies (all under 10%) of their net worth.
I believe that cyber currency has an important role in bringing new technologies to the market, and If cyber currencies can move into the lending side of the investment world (issuing loans and asset-backed mortgages), then it will lower its investment risk – but alas, that will mean its rate of return will also drop.
The top cyber currencies (at the time of publication) are the following:
1. Bitcoin (BTC)
- Market cap: Over $821 billion
Created in 2009 by someone under the pseudonym Satoshi Nakamoto, Bitcoin (BTC) is the original cryptocurrency. As with most cryptocurrencies, BTC runs on a blockchain, or a ledger logging transactions distributed across a network of thousands of computers. Because additions to the distributed ledgers must be verified by solving a cryptographic puzzle, a process called proof of work, Bitcoin is kept secure and safe from fraudsters.
Bitcoin’s price has skyrocketed as it’s become a household name. Five years ago, you could buy a Bitcoin for about $500. As of Sept. 30, 2021, a single Bitcoin’s price was over $43,000. That’s the growth of about 8,600%.
2. Ethereum (ETH)
- Market cap: Over $353 billion
Both a cryptocurrency and a blockchain platform, Ethereum is a favourite of program developers because of its potential applications, like so-called smart contracts that automatically execute when conditions are met and non-fungible tokens (NFTs).
Ethereum has also experienced tremendous growth. In just five years, its price went from about $11 to almost $3,000, increasingly more than 27,000%.
3. Tether (USDT)
- Market cap: Over $68 billion
Unlike some other forms of cryptocurrency, Tether is a stablecoin, meaning it’s backed by fiat currencies like U.S. dollars and the Euro and hypothetically keeps a value equal to one of those denominations. In theory, this means Tether’s value is supposed to be more consistent than other cryptocurrencies, and it’s favored by investors who are wary of the extreme volatility of other coins.
4. Cardano (ADA)
- Market cap: Over $67 billion
Somewhat later to the crypto scene, Cardano is notable for its early embrace of proof-of-stake validation. This method expedites transaction time and decreases energy usage and environmental impact by removing the competitive, problem-solving aspect of transaction verification present in platforms like Bitcoin. Cardano also works like Ethereum to enable smart contracts and decentralized applications, which are powered by ADA, its native coin.
Cardano’s ADA token has had relatively modest growth compared to other major crypto coins. In 2017, ADA’s price was $0.02. As of Sept. 30 2021, its price was at $2.10. This is an increase of over 10,500%.
5. Binance Coin (BNB)
- Market cap: Over $64 billion
The Binance Coin is a form of cryptocurrency that you can use to trade and pay fees on Binance, one of the largest crypto exchanges in the world.
Since its launch in 2017, Binance Coin has expanded past merely facilitating trades on Binance’s exchange platform. Now, it can be used for trading, payment processing or even booking travel arrangements. It can also be traded or exchanged for other forms of cryptocurrency, such as Ethereum or Bitcoin.
Its price in 2017 was just $0.10; by Sept. 30 2021, it had risen to over $382, a gain of more than 382,000%.
6. XRP (XRP)
- Market cap: Over $44 billion
Created by some of the same founders as Ripple, a digital technology and payment processing company, XRP can be used on that network to facilitate exchanges of different currency types, including fiat currencies and other major cryptocurrencies.
At the beginning of 2017, the price of XRP was $0.006. As of Sept. 30, 2021, its price reached $0.94, equal to a rise over 15,700%.
7. Solana (SOL)
- Market cap: Over $41 billion
Developed to help power decentralized finance (DeFi) uses, decentralized apps (DApps) and smart contracts, Solana runs on a unique hybrid proof-of-stake and proof-of-history mechanisms that help it process transactions quickly and securely. SOL, Solana’s native token, powers the platform.
Launched in 2020, SOL’s price started at $0.77. By August 2021, its price was almost $140, a gain of about 18,000%.
8. USD Coin (USDC)
- Market cap: Over $31 billion
Like Tether, USD Coin (USDC) is a stablecoin, meaning it’s backed by U.S. dollars and aims for a 1 USD to 1 USDC ratio. USDC is powered by Ethereum, and you can use USD Coin to complete global transactions.
9. Polkadot (DOT)
- Market cap: Over $28 billion
Cryptocurrencies may use any number of blockchains; Polkadot (and its namesake crypto) aims to integrate them by creating a cryptocurrency network that connects the various blockchains so they can work together. This integration may change how cryptocurrencies are managed and have spurred impressive growth since Polkadot’s launch in 2020. Between September 2020 and Sept. 30, 2021, its price grew 872%, from $2.93 to $25.61.
10. Dogecoin (DOGE)
- Market cap: Over $26 billion
Dogecoin has been a hot topic thanks to celebrities and billionaires like Elon Musk. Famously started as a joke in 2013, Dogecoin rapidly became a prominent cryptocurrency option, thanks to a dedicated community and creative memes. Unlike many other cryptos, such as Bitcoin, there is no limit on the number of Dogecoins that can be created, which leaves the currency susceptible to devaluation as supply increases.
Dogecoin’s price in 2017 was $0.0002. By Sept. 30, 2021, its price was at $0.20—a 101,800% increase.
For full disclosure, at the time of this article being published, Andre Choquette through individual and corporate holdings has investments in both cyber currencies and stocks, This article is not to provide specific investment advice but instead to provide general information on both the cyber currencies and the specific risk associated with this type of investment.
Please provide to investment in the cyber currency that you understand the risk involved in the purchase of these investments.
Andre Choquette is an accountant in public practice and an author of over 30 books through Prentice Hall and other publishers. He is also a software developer of software apps and websites. Andre resides with his wife Wanda at Christina Lake.
