Our CEO Dr Prash P pitched the solutions that Caleb & Brown provides at the 2018 Stockbrockers and Financial Advisers Association Conference. Speaking about cryptocurrency, blockchain and our current financial markets.
When the term ‘cryptocurrency’ is mentioned, those who have had some sort of exposure to the markets can relate it to blockchain technology. However, in reality, how many people actually know what blockchain technology is?
It is important to visualise how the concept of a blockchain actually works:
In the case of Bitcoin, blocks are generated every ten minutes, and therefore there is a new addition to the existing blockchain every ten minutes. An easier way to interpret this would be to think of a simple metal chain, but instead of links replace them with blocks. Once the blocks are processed and added to the chain, the data cannot be changed, and therefore blockchain technology operates on a non-editable ledger.
Upon the generation of a blockchain, all possible public addresses and their private keys are generated. Therefore, when we open new wallets on Jaxx, MyEtherWallet and other wallet applications, we are not ‘creating’ a wallet, instead we are being assigned an address and the respective private key. Mathematically speaking, it should be next to impossible for you to be assigned an address and key which has an existing balance.
Because of the misunderstandings surrounding the above concept, many seem to think that wallets created on Jaxx can only be accessed with the Jaxx wallet, when they actually can used with any wallet app. Wallet apps only provide a means to access the blockchain, and therefore an Ethereum wallet assigned on Jaxx can also be accessed using MyEtherWallet.
Wallet applications all connect to the same network and therefore public addresses and private keys are generic across all wallet apps.
Always verify that the wallet provider you are using/planning to use is confirmed to be safe. It is best to stick to the wallets which are confirmed legitimate. This is to protect the security of your funds.
Some Potential Use Cases for Blockchain:
With most cryptocurrencies, there is no central governing body. Therefore, no single entity can approve of any upgrades to the network. What is required is consensus; over fifty-percent of the mining network must agree with the changes. Most of the time, there is no conflict when it comes to minor tweaks, but when there are some major implementations, contributors to the mining network will not unanimously agree. In the case that the community is divided when it comes to making a decision, a ‘hard fork’ may take place.
If you have invested in Bitcoin, perhaps you have heard of another asset called Bitcoin Cash. Bitcoin and Bitcoin Cash are completely different projects, but if you held Bitcoin on August 1, 2017, you probably now also hold Bitcoin Cash. As confusing as it may sound, Bitcoin Cash was a hard fork of the Bitcoin blockchain. What exactly does his mean?
There are two components to sending a Bitcoin transaction: the transaction details and the transaction signature. The more transactions there are being broadcast to the network, the more block capacity is filled. Blocks are generated every 10 minutes, and given that blocks do have a size limit, if the current is full, other transactions need to wait 10 minutes to ‘hop on’ the next block. You can think of the Bitcoin network as a train station where there are trains every 10 minutes which give priority to passengers who are willing to pay more. Therefore, if you pay a high transaction fee, your transaction will be prioritised for the next block.
Bitcoin’s scaling issues were brought to light when the new influx of investors in late 2017 caused processing times to take hours, and transaction fees of up to $50. The feasibility of such a protocol becoming a future world currency was questioned, and developers working on Bitcoin with foresight of these problems proposed different solutions.
This is how Bitcoin Cash was created.
This process is when people in the mining network disagree with the proposed changes, and therefore continue to mine the old chain without the changes, whereas the remaining miners begin mining the new chain with the implemented changes. There now exist two blockchains, each of which have branched out from an old blockchain, hence the term ‘fork’.
Bitcoin Core’s (Current Chain) Solution:
Bitcoin Cash’s (Side Chain) Solution:
Because the Bitcoin Core team and Bitcoin Cash team could not come to a common consensus, the two parties decided to work on their own proposed solutions. Therefore, on August 1, 2017, the Bitcoin Core chain underwent a hard fork and saw Bitcoin Cash split off.
The reasoning behind Bitcoin Cash is fairly simple:
Binance, the largest cryptocurrency exchange by trading volume, announced that it is officially developing a public Blockchain to create a new decentralized exchange, according to a statement on March 13.
Binance’s vision that “centralized and decentralized exchanges will co-exist in the near future, complementing each other” inspired them to develop the Binance Chain, which will be used for the transfer and trading of Blockchain assets. The move will also push the cryptocurrency exchange toward transforming from a company into a community.
Binance is one of the leading crypto-currency exchanges providing access to hundreds of digital currency pairs on our leading exchange platform while maintaining security, liquidity and high-speed.
Binance strives to give our users access to some of the latest blockchain/DLT technologies with new cryptocurrencies being listed all the time.
Binance stands for “Binary with Finance”, integrating digital technology with finance. Just as the name suggests, we are digital currency enthusiasts having more than 20 years of combined finance, security and development experience with top exchange platforms at companies including Tokyo Stock Exchange, Morgan Stanley, Accenture and other Top 100 companies all over the world.
It has been an interesting past month for Bitcoin, although the markets do seem less quiet than the period of rapid decline in February. This is to be expected, as a large portion of investors who unfortunately entered the market at December highs may have panic sold. Our fall from $20,000 (USD) saw a bottom at $6,000 (USD), before a run up/recovery to $11,800 (USD). It is important to acknowledge that as much as a parabolic rise isn’t sustainable, neither is a decline of the same magnitude.
Moving on, let’s focus on what’s going on with Bitcoin right now (14/03/18). From a technical perspective, we completed a double top formation with a peak of $11,700, causing a volatile dip into the low $8,000s (USD):
On a smaller scale, the dip was succeeded by a double bottom at around $8,400 (USD), and currently has recovered to the low end of the $9,000 (USD) range. Although from a technical perspective the rejection from the local top twice as shown above is a textbook bearish indicator, it was by no means a natural rejection.
A double top formation is only validated when the price breaks below the neckline, which is the level of the local bottom in between the two peaks (in this case ~ 9,200 USD). Although we do see a decline from the second peak, the selling pressure really increases on 07/03/18.
What happened on 07/03/18?
A bankruptcy trustee for MtGox, an exchange that was hacked for 750,000 BTC in 2014, released public reports which stated that almost 40,000 BTC were sold in December 2017 and January 2018, and had 166,000 BTC remaining which were awaiting the court decision.
Understandably, the idea of so many Bitcoin being potentially dumped on the market in the future, spread fear among investors and traders, causing them to drive the price down. However, in the short-term, the reaction may be excessive, and here’s why:
That being said, all technical indicators should be taken with a grain of salt as the release of news can skew these indicators, take MtGox for example.
In the short-term, expectations for a full-blown recovery may be disappointed as public interest continues to decline. However, it is usually times like these where accumulation is the best course of action. If the top Bitcoin addresses in terms of holdings have been accumulating (they are), it just means that there will be less public supply in the future.
Right now, the market is in a no trade zone, the bears and bulls seem to be at a stalemate which leads to a build up of volatility, and being caught on the opposite side of the result will result in heavy losses. Instead, it is better to wake for the market to make a decision on which direction it will be moving in, and follow that path. A break below $8,800 USD would most likely result in further decline, whereas a break above $9,600 and then $9,800 USD could push us up to test the $11,700 USD range once again.
Although it’s anyone’s guess when it comes to short-term movements, cryptocurrencies as an asset class are only just beginning. Pioneering the exposure and adoption of cryptocurrencies, Bitcoin was merely known as a ‘joke’ currency which was exchanged exclusively by ‘tech geeks’ and internet nerds’ back in 2011. Now, Bitcoin trades just below $10,000 (USD). The digital behemoth’s functionality as decentralised tender and computerized gold appealed to many over the years, and when briefly exposed to the general public, saw heights of $20,000 (USD).
You may hear a lot of diehard cryptocurrency investors criticize banks at any given chance, they’ll also tell you how great Bitcoin is. Yes, Bitcoin is great, but there probably is, and definitely will be something better. Blockchain technology is too innovative to only be applied to payments.
What makes blockchain technology so valuable is the concept of decentralisation. Currently, most if not all of the applications we use are centralised. This means that there is a central governing body which approves what we want to do, and effectively grants us the permission to do so. For example, when we send money to each other through bank transfer, we’re relying on the bank to honour this transaction. This also applies to other processes such as sending emails; we’re relying on our email provider to firstly have a working service, and secondly not to access our personal emails.
Blockchain technology can replace all of these applications through the use of smart contracts. Smart contracts effectively allow the processes previously entrusted to central entities to be operated by code. This concept offers security because the code that the process is built on will be publicly available, so that you know what exactly is happening.
Ethereum (ETH) is spearheading this movement.
Released in 2015, Ethereum arguably fuelled the intense cryptocurrency bull market of 2017. Many people viewed it as the next Bitcoin from an investment standpoint, with expectations that it would gradually overtake Bitcoin’s number one position.
Unfortunately, as a result of this profit-driven mentality, Ethereum’s technological aspects were forgotten and all that seemed to matter was how high the price could go.
The repercussions of this ‘mania’ were very evident when the whole cryptocurrency market took a sharp decline at the beginning of 2018. Similar to Bitcoin, Ethereum also experiences large volatility, and is currently sitting at $850 (USD) after peaking at $1400 (USD) earlier in 2018.
This is nothing to be worried about as since the inception of cryptocurrencies, boom and bust cycles are completely normal; think of any asset cycle but compressed into a smaller timeframe.
So, the question is, in preparation for the next cryptocurrency bull market, should you be holding Bitcoin or Ethereum?
There’s no right or wrong answer here, but the following are some historical events and future predictions based on fundamentals:
If you’ve heard of Bitcoin, chances are you’ve also heard of Litecoin. Created in 2011 by former Google employee Charlie Lee (former Coinbase engineer), Litecoin is a fork (or copy) of Bitcoin with a few tweaks to make it more suited for being a medium of exchange. The similarities between the two has been further enforced ever since Bitcoin rebranded itself to ‘Digital Gold’, whereby investors began calling Litecoin the silver counterpart.
To begin, here is a side by side comparison of Bitcoin and Litecoin:
So, why does Litecoin exist if it is essentially just a ‘knock-off’ of Bitcoin?
Bitcoin was designed to be a medium of exchange for peer to peer payments. It was envisioned that it would become the first world currency and be used for day to day payments. However, the poor scaling and slow transactions speeds associated with the currency make it unfit for its designed purpose.
Reasons why Bitcoin is NOT a good medium of exchange:
So, if Bitcoin isn’t suited to being a good currency, what can it be used for?
Bitcoin can be used as a store of value. The history and distribution of Bitcoin, in addition to its rarity make it a very decent substitute to gold. It’s certainly easier to transport in comparison to gold, and its mining (or generation) process caps the total supply at 21,000,000 (twenty-one million) and therefore is deflationary over time. In essence, it’s everything that gold is, but just more convenient; although this is a hard concept to accept due to Bitcoin not being a physical object, the fundamentals are there and its only a matter of time before society embraces it.
Litecoin was created due to the concerns surrounding Bitcoin’s scalability, and in its design maintains the same concept as Bitcoin but with a few tweaks to enable greater adoption. It has better scaling, faster transaction speeds and cheaper transaction fees.
Reasons why Litecoin is a BETTER medium of exchange:
Despite the clear contrast in viability of Litecoin and Bitcoin, this does not mean that Litecoin will overtake Bitcoin. Ultimately, the former will act as a medium of exchange while the latter will remain as a store of value. It is important to acknowledge that until there is greater adoption, these are all speculative assets and are very volatile. In the short-term, Bitcoin will most likely remain dominant when it comes to dictating the price movements of other cryptocurrencies including Litecoin, but this may change in the foreseeable future depending on real world use. We should also acknowledge that adoption is a lot closer than most of us expect, with the recent rollout of Litepay, a Litecoin payment system which is due to be launched in 41 countries.
Bitcoin moved up too fast on its initial run to $20,000 (USD), and peak buyers were punished heavily as the imminent pullback saw $6,000 (USD) as a floor. However, a parabolic rise followed by a sharp decline is not unusual, and investors should be cautious entering the market when the charts exhibit a vertical gradient (this applies for both directions).