The popularity of cryptocurrency is higher than ever. More and more people are getting into this innovative and new market. The crypto market continues to develop into an increasingly diverse system that finds solutions to 21st century technology problems.
Cryptocurrency exchange and trading platform Coinbase is scheduled to go public April 14, 2021. In the run up to the event, crypto markets have been on the rise.
What is crypto?
Crypto is digital currency. It facilitates rapid transfers of value between entities using an accounting system known as blockchain.
Crypto currency is mainly used as an asset traded on market exchanges. It is also used with NFTs or non-fungible tokens.
Why do we need crypto, don’t we already have electronic payments?
Yes, but they rely on a third party operating during business hours.
Crypto is designed to allow an exchange between two parties without a third party intermediary. Think of it like giving $5 to a friend or random person on the street.
The most popular cryptocurrency is Bitcoin. Bitcoin emerged in 2009. It is the first and most widely known. It also has the highest price, largely due to its age.
However, Bitcoin has limitations that newer cryptocurrencies have attempted to remedy. These innovations include making cryptocurrency processing faster and more secure.
Fast and secure are two important qualities in the digital age. In terms of transactions per second, Bitcoin (BCT) comes in at the slowest with just 7 transactions per second (maximum). Compare this with second slowest crypto transaction time for Ethereum (ETH) which can complete up to 20 transaction per second. Ethereum came into existence in 2015.
Crypto operates through blockchain technology. This is another aspect of cryptocurrency that takes time.
Here, Bitcoin (BTC) blocks take 10 minutes to process. Ethereum (ETC) on the other hand processes blocks in just 15 seconds. Again, these are the two slowest.
What is blockchain?
Blockchain is a form of record-keeping. It is a means of accounting for the transfer of value between parties.
Every cryptocurrency has a history with a record.
Blockchain is a ledger of every transaction that has ever transpired for any particular cryptocurrency. The information is stored in chronological order and the technology is distributed across all computers that produce the crypto asset.
Technically, blockchain technology can be traced to every user that has handled it. At the same time, privacy and security often obscure who has had a stake in the blockchain record. It is anonymous. The information stored is linked to very specific information associated with digital wallets, where these digital currencies are held.
Digital wallets come in two basic varieties: hard wallets which are like a thumb drive and e-wallets that are electronic. E-wallets exist in an on or off line form.
The blockchain is an innovation that allows for wider application and cannot be reduced to a digital currency alone.
The significance of blockchain technology is that it can ensure privacy while using a scientific manner of accounting for transactions using a decentralized confirmation process that allows anyone to participate as long as they have access to a computer system that produces cryptocurrencies.
Coinbase Going Public
Coinbase goes public April 14, 2021. This means that Coinbase will be listed on United States stock exchanges as a tradable asset.
According to my searches, this investment asset is trading around $375 in the run up to the “IPO” on April 12, as of late April 13 that number dropped to $250. Of course, Coinbase is not really an initial public offering because they are doing a direct listing.
This helps them avoid certain fees and expenses. Their plan is to use their popularity as a selling point. And I surmise it is working.
“In a direct listing, there is no pre-set price decided by a group of investment bankers – the market on the initial trading day influences the starting price. On the day of initial trading, there is a 10-minute “display only” period in which interested buyers enter their bids and sellers (Coinbase’s existing shareholders) enter their offers.” -CoinDesk
Whereas with a direct listing the above method is used, with an IPO investment bankers determine the price of the asset before it goes public. This is an expensive process of campaigning your asset. It goes against everything crypto stands for in my assessment.
Coinbase’s public listing is somewhat different from other investment mechanism. How is it different? That is a subject for another post.
We await the United States government’s approval of the first crypto ETF.
Time will tell what the future holds for cryptocurrency. But, it looks like crypto is headed for the mainstream.
Crypto is largely an unregulated industry. As it moves toward the mainstream with public listings such as Coinbase’s, the industry should become more stable. Moreover, innovations are on the horizon.
This bodes well for investors. But always remember, cryptocurrencies are highly volatile assets. I like to think of it like gambling in a casino: Expect to lose, but if you win rejoice.
As the saying goes: invest early, invest often.