Have cryptocurrency and/or cryptoassets become a proper asset class in the financial world? It's hard to answer. But, sitting at the end of the first 1/5th fo the 21st Century, it seems like crypto is on its way to becoming a real asset class if it's not already there.
There isn't some special or sacred list in finance houses in London's financial district or on Wall St. in NYC that has a list of all asset classes - it doesn't work that way. What's considered a proper asset class and what's regarded as an alternative asset class (and further distinctions at various levels of granularity) is more based on collective consensus.
Common consensus may make sense, but whose consensus are we talking about. Generally speaking, whether a financial instrument is considered a proper primary asset class (like stocks, bonds, and cash) is determined by the conglomeration of the following people's/org's opinions:
It's the interplay between individuals in each of the above categories that determine whether an asset class is going to be considered a core/primary asset class in the general conception.
Another critical thing to think about is the size of the crypto market. The market cap of all cryptos can be viewed against the market cap of individuals asset classes and the entire finance industry as a whole. Questions like the following might be asked to understand better how big the overall crypto market is relative to all other finance-related markets:
Although there's no hard and fast way to determine whether anything is a core asset class definitely, crypto seems on its way to getting there. It seems likely that one day, gold will remain an alternative asset, but crypto will be a core part of most people's long term investing and retirement portfolios. One day, financial advisers may even find it imprudent to not include crypto as part of a proper diversified investing strategy.
Ripple is a blockchain-based startup that is different from most others as it is not a decentralized open ledger network but a centralized one with an aim that is not quite perfectly aligned with the aims of most other decentralized cryptocurrencies and cryptoassets available on the market today. Ripple unlike Bitcoin and other altcoins (such as Ethereum and Litecoin) is focused on complimenting the present financial industry and providing it with tools to deliver better and faster services - this is different from Bitcoin's quasi-unstated goal of uprooting and transforming the global financial landscape.
Ripple is a payment system which seeks to take international payments that banks regularly engage in out of the Dark Ages (where it can take up to 3 to 5 days for payments to clear) and to create a system built on modern technology and built for the 21st century. On the Ripple network, anything of value (including fiat currency, commodities, other cryptocurrencies, or even mobile credits) can be transferred from one corner of the earth to another in a matter of seconds in the form of tokens - all this in a secure and very inexpensive manner using Ripple token (eg. tokens that can be used on the Ripple network) called XRP.
Ripple vs. Bitcoin
Ripple is starkly different from most cryptocurrencies like Bitcoin and other altcoins. Some of these key differences include:
How to acquire XRP tokens?
Since the Ripple network is generally a private thing, mining is not currently an option for acquiring XRP tokens for use on the Ripple network. Instead, one has to purchase XRP token outright from an exchange - many reputable exchanges currently provide the ability to purchase XRP tokens.
Ripple is already making waves in the financial industry
Ripple is not just a concept - many large global financial and non-financial firms have already dived into Ripple (either actually using the Ripple network or researching how it can be used). Top global financial firms such as the following are already members of the Ripple network:
Although there's room to grow (the list of Ripple users is yet to add the largest and most complex global financial powerhouses), the current membership list for the Ripple network goes a long way towards demonstrating how effective Ripple is today and how powerful it can become in the future.
Why you should have bought Bitcoin in 2015, and a way to approach any similar crypto purchases (Monesh Pabrai's Dhando way)
The below is a dated article from 2015 regarding Bitcoin. The analysis is an unsophisticated binary analysis that relies more on qualitative explanations than on quantitative approaches/methods. Crypto has come a long way since the article - it was written pre-crytpo proliferation, when Bitcoin was basically the only cryptocurrency really around.
I wrote about Bitcoin previously. You can see my original article Bitcoin here. I have learned more about Bitcoin, more about investing, and I have been able to look at Bitcoin through a different lens since writing that article.
The main part of my increased knowledge about Bitcoin has come from one of my favorite, if not my absolute favorite, podcasts called EconTalk. On an episode of EconTalk, host Russ Roberts interviewed Bitcoin evangelist and Xapo CEO Wences Casares. The interview was both interesting and informative. You can access the interview as well as a good amount of extra learning material here. I highly recommend that you listen to the interview and read some of the material on the website if you are interested in Bitcoin or are planning to make a purchase.
In the interview, Casares discusses many things but what I want to focus on here is Casares's postulation that purchasing Bitcoin is a very low-risk/high-reward endeavor. Casares believes that there is a non-trivial chance that Bitcoin will grow in popularaity and become a global currency. Even if 1% of global trnsactions are done in Bitcoin, Casares argues rightly that Bitcoin's value will grow immensely in value. This is easy to understand. If 1% of global transactions will be done in Bitcoin at some point in the future, the total value of all Bitcoin in existence wold equal (0.01)(x), x being equal to the total value of all of the transactions done in that future year. If we include black market transactions, the value of Bitcoin will be even higher. It is important to remember that an inherent property of Bitcoin that separates is from every other national currency in existence is that Bitcoin are generated at a predictable pace and after a certain year, no more Bitcoins will ever come into existence. Therefore, Bitcoin cannot be deflated like the US Dollar, the Euro, the Yen, or any other national currency can. We can see that as the value of global transactions rises, the total value of all Bitcion in existence should rise (assuming Bitcoins comprise a stable percentage of all global transactions). So, if Casares is correct in saying there's an non-trivial chance of Bitcoin taking off and becoming a means of exchange for a significant (even 1% is significant) portion of global transactions, the value of each individual Bitcoin will rise tremendously. Casares believes that in the next few decades a single Bitcoin could be worth $1 million USD. That definitely sounds crazy in 2015, but it isn't at all crazy if Bitcoin takes off.
Of course Bitcoin has a very high probability of not taking off. Casares acknowledges this, but this acknowledgement doesn't stop him from recommending that individuals should purchase a few Bitcoin. He argues that purchasing a few Bitcoin will cost less than $1000 as of the writing of this post (this will obviously change as Bitcoin fluctuates on a daily basis). A person who takes Casares's advice now has two possibilities for his or her future as depicted by the tree below.
The above options are different than investing in stocks, real estate, or commodities. Investing in those things requires a large up-front investment and historical growth rates for those investments are nothing spectacular. With Bitcoin, a very small investment is more than sufficient to position you to take advantage of a potential meteoric rise in the value of Bitcoin. If Bitcoin takes off, it will be much more valuable than it is today. It could potentially make you a millionaire off a $1000 investment in a decade or two. Thinking about it this way reminded me of great investor and author Monesh Pabrai and his book The Dhando Investor. In it Pabrai describes the concept of Dhando, a concept that echos Warren Buffet's investing style. The concept of Dhando mean taking calculated risks that have extremely limited downside potential while having extremely amazing upside potential. By using the concept of Dhando with skill an investor can take risks that are of a very particular variety, the kind where making a mistake doesn't mean disaster. To be Dhando is to be like Pabrai or Warren Buffet. To be Dhando is to take those risks that have very little downside but very big upside potential.
Casares's recommendation had Dhando qualities. It is a recommendation that is geared toward a Bitcoin investor entering into a position where his or her downside is limited but where the upside is great. Although the chances of winning here are slim, it is Dhando because it preserves your wealth and positions you into a place to profit should things go well.
This is now how I view investing or purchasing Bitcoin. I don't know much about Bitcoin mining and I almost have no use for Bitcoin for use in making transactions at this stage. I view Bitcoin as a Dhando endeavor where I can place my bet and think of it no more. In a decade or two I'll either be rich or I'll be indifferent about it. It takes a small amount of time and about $1000 for me (for you it might be a different amount - BUT it should always be an amount that allows you to remain Dhando - meaning an amount that you will be pretty much indifferent about losing should Bitcoin fail totally).
Coinbase is a user-friendly, reputable, and seemingly secure way for purchasing Bitcoin and other cryptos
For my first foray into purchasing Bitcoin I decided to go with Coinbase. Coinbase is a Bitcoin wallet that also provides Bitcoin trading services and APIs for developers related to Bitcoin.
I chose Coinbase for primarily one reason - because it seems to be the most reliable based on the firms that back it. The two firms that caught my eye were the venture capital firm Andreessen Horowitz and the seed accelerator Y Combinator. These two firms are well-known and well-respected in Silicon Valley, having had top Silicon Valley tech firms pass through their doors (Facebook, Box, Airbnb, etc). I’ve heard about these firms before I heard about Bitcoin and when I knew that they were involved with Coinbase, I automatically put Coinbase above the many other Bitcoin and cryptocurrency wallets that exist. There are competitors which I find very interesting of course (notably Xapo - I will very likely try it out later), but Coinbase seems to be the most secure. I obviously am using a heuristic in deciding what Bitcoin wallet is most secure – unable to see what is happening behind the scenes and unable to fully understand all of the complex technology behind cryptocurrency, I must use some proxy or some heuristic in order to make my decision, and here I use perceived reputation or perceived reliability based on affiliation with other strong organizations.
Coinbase is not the cheapest Bitcoin wallet. Coinbase charges 1% to purchase Bitcoin but it is free to receive Bitcoin as long as you don’t convert into USD. I am aware that 1% isn’t cheap compared to other ways to purchase the cryptocurrency, but when it comes to such a new technology, security and reliability is primary for me. For that 1%, however, you get a trusted firm through which you can purchase your Bitcoin. The more tech-savvy individuals among you might choose a more do-it-yourself option, but I don’t have either the time nor the inclination ( (nor risk-tolerance) to choose that route. Those who do might be more well-served by doing it themselves, where they can save money on the fee, but more importantly have a chance at learning some interesting things about Bitcoin that one cannot learn by simply using a very user-friendly Bitcoin wallet such as Coinbase.
I have been impressed with the front-end security of Coinbase. To sign up you are required to upload a photo ID. This is antithetical to many of the reasons why people have been drawn to cryptocurrency and Bitcoin (privacy in making purchases online), but I am not so much concerned with privacy as I am with security and reliability. I primarily purchase Bitcoin as a form of speculations, not as a means of transacting. Therefore, the photo ID requirement didn’t deter me at all. Additionally, logging in to Coinbase requires two-factor authentication and it requires a third factor (email verification) when logging in from a new device or a new computer. This is impressive. I have only use the iOS app and it has a passcode and is compatible with Touch ID. I didn’t like that the passcode can only be 4 digits. Most banks have eliminated 4-digit passcodes for their lack of security (10 x 10 x 10 x 10 – 10 thousand possible combinations make it relatively easy to hack into). Since the app is always logged into your account (meaning your entire Coinbase account lies behind that 4-digit pin) and given the prevalence of Touch ID, I think a more secure passcode option might be a better idea (6-digits +).
Overall, I think Coinbase is an elegant, secure, and easy-to-use way to purchase Bitcoin for the average user. It might not please those that are very tech-savy and willing to take on a more hands-on approach with purchasing and securely storing Bitcoin.
And now, given the rise of cyrptocurrencies and crypto assets to quasi-mainstream financial assets, we're dedicated to providing quality, relevant, and interesting material on cryptocurrencies and cryptoassets. Articles on Bitcoin, Ethereum, Ripple, Cardano, and many more cryptocurrencies and cryptoassets can be found on Pennies and Pounds - all that in addition to a plethora of information on what cryptoassets are, how the entire crypto industry came to be, blockchain/immutable ledger technology, mining, proof of work, proof of stake, and how to prudently invest in crypto if you are so inclined (based on your risk tolerance and ability to withstand the volatility that will come with a crypto portfolio).