The aim of this paper is to introduce crypto assets and motivate to include crypto assets in your portfolio. Blockchains and cryptocurrencies have become the buzzwords of this decade. From a practical point of view, however, their use cases are still not widely adopted. With over a thousand crypto assets on the market, only a select few have the potential to live up to the hype. Last year the industry went through a bubble cycle. In the past seven years, this pattern has occurred four times, once in 2011, twice in 2013, and once in 2017. The only difference being the time frames, market size and number of people involved.
What crypto assets are is as complex as a topic gets. As broadly and succinctly as possible: a crypto asset is a digital representation of value on a distributed tamper proof registry, that no single entity controls yet everyone has access to.
The Problem It Solves
To answer this, we introduce two concepts which are central to explaining why crypto assets are important:
1. Computers can copy digital things perfectly.
2. Anything of value that is easily copied is practically worthless.
When one combines these two facts it becomes apparent that having a digital currency that exists entirely on computer networks might have some drawbacks. After all, how can information on a computer not simply be copied? This is also known as the double-spend problem or the Byzantine Generals problem.
Ever since the entertainment industry went through its digital transformation, it has been involved in a never-ending battle with piracy. It simply cannot stop anyone from copying and distributing intellectual property (e.g. music and films). Once content has reached a computer outside of the industry’s control, it can be easily duplicated and redistributed. This form of reproduction and distribution, which is considered such a nuisance to the entertainment industry, is prohibitive to the existence of a digital currency. The essential difference between information and value, is that value cannot be in two places at once. As a result, the consequences of allowing unchecked copying and reproduction of value are dire for any monetary system.
Bitcoin as invented by Satoshi Nakamoto (the pseudonymous person or group that invented the blockchain protocol for Bitcoin) allows different untrusted parties to reach consensus on a common historical truth. Cryptocurrencies have different methods of reaching consensus and thus solving the double-spend problem. In this section we will outline the original design, best exemplified by the Bitcoin blockchain.
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