Binly Keonakhone 1

Keonakhone, Binly

UWRT 1104

March 4, 2018

Professor Campbell

We all want to have a secured future whether it be a high paying job or an investment that

will constantly rise in value. However, with investments such as stocks, values tend to rise or fall

in a very slow manner making investors think of an alternative to gain money faster. This is

where cryptocurrencies come in as an alternative investment for those who want a quicker way

to earn money. The main question is; what will cryptocurrency look like in the future for

investors? The values of bitcoin have dramatically decreased making the future of

cryptocurrency looking very bleak. The values of a coin are affected by political changes and

events that dramatically affect investors such as hacks and the recent SEC regulation that

occurred that I will explain later. First, let me explain the history of cryptocurrency and how it

came about.

In 2009, Cryptocurrency already existed before that date however it was not as big as it is

now. During 2009, a group of people with an alias of Satoshi Nakamoto who were and still are

unknown to this date. They designed and created the first cryptocurrency with blockchain called

Bitcoin. Blockchain is simply database that records Bitcoin transactions that operates with user

to user, meaning that it is not operated by an authority figure. Bitcoin during that time was worth

0 dollars when it came out. Not long after that, the price of Bitcoin increased 900% in only three

months making itself worth 0.08 cents. Fast forwarding, nine months later you could see how big
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Bitcoin has become and how dominant it has become. The value of Bitcoin is now 7000 dollars

making it still the most dominant coin.

Cryptocurrency and Bitcoin during 2009 to 2017 looked promising with values

constantly going up. During the end of December 2017 Bitcoin was now worth $19,000 dollars.

However, at the beginning of 2018, the future of Cryptocurrency again looked ever so bleak. The

value of Bitcoin has decreased to a mere value of $7000 dollars compared to the end of 2017.

What had happened during that time, what caused the drop of value?

The history of cryptocurrency may be short and interesting however you may not know

all the technical prospects of it. How to earn, invest, and the process of trading is. Lets first start

with how to even earn a cryptocurrency. Let’s first start on mining and what it is. It all starts with

your computer and its graphics card or central processing unit. The bases of all cryptocurrency

rely on these two units to solve mathematical equations to be rewarded a small bit of the

currency of that cryptocurrency. Another way to explain it, is that you plan on going to a mine a

cave for gold. Your graphics or CPU is your pickaxe waiting to mine gold. NiceHash is a

program where you can start mining for your coin that you want to mine. Now after the mining is

done, a wallet is required to store it. This wallet provides two addresses, one for receiving coin,

and one that sends out coin. This is practically the bases on how to mine cryptocurrency.

Let me tell you the experiences I had with cryptocurrency and how I tried mining for

Bitcoin and Etherum. I first wanted to know how to get started. I already knew a powerful

computer is needed to mine Bitcoin and Etherum. What I did not know was what software was

needed to mine Bitcoin and Etherum. Apparently, you cannot use the same software to mine two

different coins. To mine Bitcoin, a software called NiceHash is needed to mine it. To mine

Etherum, a software called Geth is needed which does not look appealing compared to
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NiceHash. Now I tried mining Bitcoin, but I heard from the news that 75% of all Bitcoins have

been mined, so I went to Etherum, which looked more promising. Mining with only one graphics

card is considered an entry level miner. It would take six months to mine one Etherum coin,

which at that time was worth 1000$ U.S dollars. I decided to mine Etherum when I was not

home, and which at that time was seven hours’ worth of mining time. After three weeks of

mining, drum roll please, I only earned five dollars in that time. I decided that mining with only

one graphics card was not worth it. I also knew that electricity was a factor on estimating cost to

mine coin, so I decided these two factors were not worth mining coin. It would be a better choice

to buy coin and wait until the value go up.

On to the aspects about investments. There is a lot of prospects on the investment side.

There is risk into this side unlike its counterpart mining. This side is what I call the scary and

most convoluted side. The crypto market has about 1000 cryptocurrencies out there however

they are a handful of them that are relevant. The most dominant cryptocurrency out there again is

Bitcoin, and if Bitcoin’s value goes down there is a usually a following of other coins. There are

some processes to buy different kinds of cryptocurrencies. For one, you can’t buy all different

types of cryptocurrencies with one cryptocurrency exchange organizations. You must sign up

with different ones which makes the process a little difficult. Once that is done, you can either

buy cryptocurrencies or sell them. To sell cryptocurrencies, you can either go on an exchange

organization where you list the amount of currencies to sell, then a person buys it. There is an

alternative way to sell and that is peer to peer exchange by sending your wallet addresses to that

buyer. Now that you understand the process of investing, what affects the crypto market and

what is blockchain?
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The crypto market is very volatile as values could drop in an instant making it a risk for

investor. When investors see cryptocurrency, you would expect it to go up or down fast.

However, they are reasons for this drop of value for Bitcoin. With new regulations from both

corporations and political agencies, the market of cryptocurrency can either drop or rise

depending on the type of policy they establish. For example, there were some new regulations

from the Security Exchange Commission or SEC for short that established new rules for Coin

Exchange groups to talk to regulators to register with them. The state of Arizona considers

establishing a new regulation that is beneficial for investors to pay taxes using Bitcoins as an

alternative payment. Currently the bill right now is not finalized until all of Arizona House of

Representative vote upon it. This may be irrelevant to this inquiry project however the CTFC or

Commodity Futures Trading Commission allows employees to invest in Cryptocurrencies if they

do not receive inside information. The biggest and probably the worst outcome for

cryptocurrency is the attempt of China to ban foreign currency trading options as China already

banned domestic currency exchange organizations. South Korea has been in talks on how to

regulate cryptocurrency trading. After some talk with other political regulators, they have

decided to allow cryptocurrency to be traded as long investors use “real-name bank accounts”,

according to Cheang Ming from CNBC. In Japan, two cryptocurrency industry groups have

agreed to merge to accelerate the establishment of regulations. The scene of regulations can be

fearful for investors however it does not stop there. The hacks and scams can lead potential

investors away from the scene.

In recent 2017, there were tons of hacks and scams, however it probably will not stop

there as hackers will try to find solutions. According to Nikhilesh De, he has provided ten events

that dealt with hacks and scams. Let’s first start with CoinDash. CoinDash was an incident that
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made investors lose $7.3 million dollars. The incident started when a hacker was able to access

the database of CoinDash and change the address where they receive all the initial coin offering

or ICO for short. An initial coin offering is a donation from investors to an organization to

basically start up a new cryptocurrency to compete against other currencies. The Parity Wallet

breach was a wallet breach that had a bug resulting in loses of $30 million dollars during that

time. The Enigma project scam was about fraudsters launching a fake token pre-sale that resulted

in lost of more than 1,500 Etherum that was worth $287 each during that time. In November, a

user found a bug in Parity wallet that resulted a freeze of $275 million dollars’ worth of Ether.

The Tether Token hack during late November resulted in $31 million worth of tokens were taken

from their storage unit and sent to an unknown bitcoin address. The Bitcoin gold scam was about

Bitcoin investors wallets being drained after using a service that supported the development

team, however this was not the case. Bitcoin Gold’s development stated that they have no

relationship with the group and warned investors to stay weary about this type of services. The

NiceHash market breach was about a hack that resulted in loss of about 4,700 Bitcoins. During

that time, it was approximately worth $78 million dollars. The company revealed that there was a

compromise in one of their employee’s computers allowing the hacker to gain access to the

company’s accounts. During this period, it allowed developers and organizations that markets to

strengthen their security protocols which is a benefit for investors and a lesson learned for them.

What is blockchain? Eric Golman creator of, “Cryptocurrency and Blockchain Explained

+ Two Cryptocurrencies to Watch in 2018”, explains that blockchain is basically the “backbone

technology that powers cryptocurrencies.” He also explains in layman’s term that, it allows

“digital information to be distributed but not copied.” Whenever you would want to make a

transaction blockchain technology would essentially leave no money trail. He also gave an
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example on what it would look like in a real-world transaction. “For example, when we

withdraw or deposit money into a bank, there are intermediary people and steps between the

money being in your hand and in the bank.” Golman explains what other alternative coins such

as Etherum and Ripple are. However, I will not explain them, they are essentially alternative

coins that have different functions.

In December 2017, Bitcoin has reached an all-time high of $20,000 and stayed there for

one month. The investors and news went crazy after seeing that Bitcoin was on the rise and

investors started to jump on the craze. This craze however suddenly started to fade after more

regulations from government agencies and corporations started to be enacted. The recent

Facebook policy banned all advertisements that promoted cryptocurrencies and ICOs. The reason

for this policy was to prevent user from getting mislead and scammed. The recent South Korean

regulation that was stated previously also account for the down fall of Bitcoin. These two were

factors that stemmed the downfall of the peak Bitcoin value and indicated how volatile the

cryptocurrency market is.

In an article by Arthur Linuma,” Why Is the Cryptocurrency Market so volatile: Expert

Take:”, he explains the reason why the cryptocurrency market is so volatile as explained from

the title. In this article he listed six reasons for why the market is volatile. The first reason he

stated that “cryptocurrencies don’t sell a product, earn revenue or employ thousands of people”.

With this being true, Linuma states that the only way is to rely on market sentiment that is

dictated by the market. The second reason he states that I already stated is the “lack of regulatory

oversight.” Cryptocurrency is still basically in its fundamental stages where rules and such are

being enacted. With these new laws and regulatory action coming out these changes will affect

the market’s value. The third reason is the “Lack of institutional capital”. The lack of
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involvement from huge venture capital such as banks leave the market to only one way of

investing. The fourth reason is “Thin order books”. With all the recent coin exchange hacks and

such, its basically a standard for investors to have an external wallet where companies do not

manage them. This could have a dramatic impact on market where it could cause a “slippage”,

according to Linuma. Slippage is basically a difference of an expected price of a trade, but

instead its different when its executed. The fifth reason is “Long term vs. short term”,

cryptocurrency is basically a market where you invest in to gain money in a short amount of

time. When you invest in stocks you would expect to take it out around when you’re like the age

of 60 years old. With cryptocurrency, its one different story. You would expect a month for the

cryptocurrency market to change dramatically. Take for example, Bitcoin, you seen how much it

was worth back in December or November. It was worth 20,000$ U.S dollars and now its worth

9000$ U.S dollars. This is a pure definition of cryptocurrency and its short-term investment. The

sixth reason is “Herd mentality”, cryptocurrency main investors are millennials who distrust the

government, according to Linuma. They invest in cryptocurrency mainly for how the last decade

investments wins were only achievable for the older generation. Linuma also states that the

millennials also have less disposable income due to poor economics and so as result less time

involved in long term investment. In conclusion, the clear majority of investors are millennials

who distrusts the government, who does not have long term investment experience as their

counterpart. They want earnings quickly as the new millennials have low tolerance for patience

including myself.

The Cryptocurrency market as we know it is very volatile and basically still in its own

fundamental stages. We know that the cryptocurrency market is affected by regulations and the

hacks and scams. However, the market of cryptocurrency foundation is still growing with only a
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couple years of growth. The cryptocurrency market has about 1000 cryptocurrencies out there

and more to come. The regulations may seem to come out fast and it does seem that way.

However, the hacks and scams seem to slow down with more developers upping their security.

The real main question is, Is Cryptocurrency the Future? I leave that up to you to decide.
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Works Cited Page

De, Nikhilesh. “Hacks, Scams and Attacks: Blockchain's 2017 Disasters.” Coindesk, 29 Dec.

2017, www.coindesk.com/hacks-scams-attacks-blockchains-biggest-2017-disasters/.

Golman, Eric. “Cryptocurrency and Blockchain Explained + Two Cryptocurrencies to Watch in

2018.” The Huffington Post, TheHuffingtonPost.com, 11 Jan. 2018.

https://www.huffingtonpost.com/entry/cryptocurrency-and-blockchain-explained-two-

cryptocurrencies_us_5a5515bde4b0cd114bdb36e3

Iinuma, Arthur. “Why Is the Cryptocurrency Market So Volatile: Expert Take.” Cointelegraph,

Cointelegraph, 2 May 2018, cointelegraph.com/news/why-is-the-cryptocurrency-market-so-

volatile-expert-take. https://cointelegraph.com/news/why-is-the-cryptocurrency-market-so-

volatile-expert-take

Neil Gandal & Hanna Halaburda, 2014. "Competition in the Cryptocurrency Market," Working

Papers 14-17, NET Institute. http://ideas.repec.org/p/cpr/ceprdp/10157.html

Rian Insights. “SEC And CFTC's Early Regulations On Cryptocurrencies Are Here: What It

Means For Market Participants.” Seeking Alpha, 8 Mar. 2018,

https://seekingalpha.com/article/4154800-sec-cftcs-early-regulations-cryptocurrencies-means-

market-participants.

Wren, Ian. “$400 Million Missing In Hack Of Japanese Digital Currency Exchange.” NPR, NPR,

26 Jan. 2018, www.npr.org/sections/thetwo-way/2018/01/26/581130968/-400-million-missing-

in-hack-of-japanese-digital-currency-exchange.
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