1.1.0. Anatomy of Cryptocurrency Market
The stock market, forex market, money market, and indeed, all markets, are made up of three components: Articles of Trade, Trading Platform, and Traders.
In the same manner, the Crypto Market has three components:
• Articles of Trade
• Trading platform
• Crypto Traders
1.1.1. Articles of Trade of the Crypto Market
On 18th August 2008, the domain name bitcoin.org was registered by Satoshi Nakamoto. Seventy-four days later (on the 31st October 2008), Satoshi released a white paper that detailed the formation of a decentralized public ledger known as a Blockchain.
About 70 days thereafter (specifically on the 9th January 2009), the Blockchain released the first digital cryptocurrency called Bitcoin through a process known as mining.
At this time, people who knew about its existence disregarded Bitcoin as either an outright scam or just a figment of human imagination that would die off. But Satoshi Nakamoto, who invented Bitcoin, and a few people who saw a bright future in this invention decided to start building a market around it.
• 2010 to 2013 Articles of Trade
The first article of the Crypto Market was, therefore, Bitcoin. However, on the 15th August 2010, Bitcoin suffered a hack, thereby exposing a major vulnerability in its system.
As such, rival cryptocurrencies began to emerge to correct the seeming vulnerability in the Bitcoin system. On 18th April 2011, Vincent Durham effected a change on Bitcoin’s blockchain’s protocol to produce a different type of cryptocurrency. Such a fundamental change on a blockchain to produce a new type of coin is called a hard fork.
The new coin that was produced from this hard fork was called Namecoin, and it became the second article of trade of the Crypto Market. It was developed to increase privacy and security. Therefore, Namecoin was the first altcoin to be made. Altcoin is an acronym for “Alternative Coin” to Bitcoin. In other words, any other crypto besides Bitcoin is an altcoin.
A few weeks after the creation of Namecoin, Daniel Bruno and his team developed a cryptocurrency which they named SwiftCoin. Unlike Bitcoin, SwiftCoins cannot be mined, but can only be earned through trading or through owning a Solidus Bond. SwiftCoin is used as a method of payment for Solidus Bond redemption and as capital in the form of a coupon.
Furthermore, on 7th October of the same year (2011), Charlie Lee, a Google employee who later became Engineering Director at Coinbase, produced another altcoin called Litecoin through the process of a hard fork of the Bitcoin blockchain.
Thus, towards the end of 2011, besides Bitcoin, three additional articles of trade had emerged in the Crypto Market – Namecoin, SwiftCoin, and Litecoin. They were designed to be an improvement on the security of Bitcoin. However, the issue of speedy transactions was becoming problematic.
The following year (2012), an IT company, Ripplepay, founded as far back as 2004 by Ryan Fugger, a software developer, in Vancouver, Canada, was sold to Jed McCaleb, Arthur Britto, and David Schwartz, who renamed the company as OpenCoin. This company launched their crypto, named XRP, in June of the same year. XRP was designed to be faster in cross-border transactions than all the other cryptos.
The subsequent year (2013), OpenCoin was renamed Ripple Labs while at the same time McCaleb left the company and created a new blockchain, Stellar Lumens, through the process of a hard fork of the Ripple blockchain. The crypto being produced by Stellar Lumens was called Stellar.
Meanwhile, two months after the launching of XRP, Sunny King and Scott Nadal created a crypto by the hard fork process of the Bitcoin blockchain in August 2012. The new crypto was named Peercoin.
Still in early 2012, just before the launch of XRP, Yoni Assia minted Colored Coins, but did not link them to any tangible asset. Colored Coins were made of small denominations of a Bitcoin and they could be used to represent a multitude of assets with multiple use cases, such as company shares, properties, etc.
The minting of these Colored Coins marked the birth of Non-Fungible Tokens (NFT), which have now grown to be an important class of cryptos.
In the Tertiary SOC, you will learn how to mint NFTs and make financial fortunes from NFTs.
Despite the success made so far in creating articles of trade for the Crypto Market, many people still ridiculed Bitcoins and the altcoins.
In fact, on 6th December 2013, software engineers Billy Markus and Jackson Palmer, decided to create a payment system to make fun of the young Crypto Market. They decided to use the face of the Shiba Inu dog as the symbol of their coin, which adopted the name Doge, a slang for dog, thus, marking the birth of Dogecoin and the rise of another class of crypto known as memecoins.
A memecoin is a crypto created to mimic another crypto, usually with no specific function other than a mockery intention.
• 2014 to 2021 Articles of Trade
Interestingly, besides the hacking issue that occurred early with Bitcoin and the altcoins, another besieging problem was price volatility. Their prices fluctuated widely. Thus, Reeve Collins, along with his colleagues, Brock Pierce, and Craig Sellars, introduced a new crypto named Realcoin in July 2014.
On 20th November 2014, Reeve Collins announced that Realcoin was being renamed Tether, which was created to solve the issue of price fluctuation.
To “tether” is to tie something, especially an animal, to a post or other fixed place, with a rope or chain. Thus, to stabilise the price of Tether, the concept was to tie the price to a fiat currency.
As such, Reeve and his team created three different Tether backed by three different fiat currencies:
• USTether backed by the United States dollars
• EuroTether backed by the European currency, Euros
• YenTether backed by the Japanese currency, Yen.
Therefore, Tether became the first set of new cryptos that were backed by fiat currencies or commodities, and this new group became known as stablecoins.
Thus, the number of articles of trade of the Crypto Market was increasing rapidly and new ideas kept springing up. One such idea was searching for how to produce a crypto that could perform many other functions other than just buying and selling.
Indeed, a year before Tether was created, the 19-year-old man, Vitalik Buterin, along with his friend, Gavin Wood, brought together a team of IT experts in 2013 to experiment on the possibilities of adding more features to cryptocurrencies.
The team built a blockchain from scratch and added extra features like lending, savings, insurance, gaming, etc. They named this blockchain Ethereum and it was launched on 30th July 2015.
However, due to a hack of a third-party project, Vitalik and his team created a new Ethereum blockchain version by the process of a hard fork of the old Ethereum blockchain. The goal of this hard fork was to erase the hack and cut off the theft. The new blockchain was then launched on 20 July 2016.
The old blockchain became known as Ethereum Classic, which produced Ethereum Classic (ETC) as its coin while the new blockchain retained the name Ethereum, which produced Ether (ETH) as its coin.
This new Ethereum blockchain has more functionalities than all the other ones that were built earlier; it has the ability to have smart contracts built on it so that activities like financial lending and borrowing, gaming, etc. can be performed through it without a centralised control. This brought a new way of running financial activities, known as Decentralised Finance (or DeFi, for short).
Since then, a number of cryptos have been produced, enriching the Crypto Market. In fact, as at the writing of this manuscript (August 2021) there were 12 670 different cryptos, bringing varieties to the articles of trade of the Crypto Market.
1.1.2. Trading Platform
Without a trading platform, an article of trade will not survive for too long. Thus, if the newly birthed Bitcoin was to survive, a viable trading platform would need to be developed. But who would want to spend resources to build a platform when there were no visible profits to be made?
That was the dilemma that confronted the early Bitcoin pioneers. However, some of these pioneers had faith in the emerging digital assets and could see a bright future with them. These pioneers started mining, sending and receiving Bitcoins via their phones and computers. Gradually, they started to sell the idea of crypto money to friends and colleagues.
The idea of a decentralised digital currency was quite captivating, and soon a number of people started to warm up to the idea.
Thus, in February of 2010, a Bitcoin enthusiast, DwDollar, created a portal called Bitcoin Market in which bitcoins could be bought and sold from person to person. This became the first known attempt to create a formal crypto trading platform.
By July 18, 2010, Jed McCaleb decided to improve on the Bitcoin Market by creating a crude Bitcoin exchange, where buyers and sellers of Bitcoin could meet and carry out transactions. Jed eventually sold his Bitcoin exchange to Mark Kerpeles on 6th March 2011.
Within two months thereafter, four new Bitcoin exchanges appeared with some improvements; some notable ones were Britcoin, that allowed the exchange of bitcoins to British Pounds and Brazilian currency (Real), and BitMarket.eu that allowed the exchange of bitcoins to euros.
By 2012, the following exchanges were established: Mt. Gox, Bitomat, MyBitcoin, TradeHill, Bitcoinica, Bitsamp, LocalBitcoins, CEX.io, Kraken, Coinbase, and Luno.
By 2013, many more exchanges were established. One notable establishment was the founding of the first Crypto Market Aggregator called CoinMarketCap in May 2013.
A crypto aggregator is a system that pulls trading data from all the big exchanges and displays the data on one platform. This guarantees liquidity and ensures uninterrupted trade 7 days a week even during holidays.
Soon after the founding of CoinMarketCap, another crypto aggregator, CoinGecko, was established in April 2014, and it was followed by the establishment of yet another one – CoinRanking.
Meanwhile, on 29th October 2013, the Automated Teller Machine for Bitcoin, simply known as Bitcoin ATM, had surfaced and was launched for business in the Waves coffee shop in downtown Vancouver, Canada. This first Bitcoin ATM, named Robocoin, would smoothen trading conversion between Bitcoin and Canadian dollars by allowing a person to purchase Bitcoin and other cryptos using cash or debit card!
About two months after the launching of Robocoin, Europe's first Bitcoin ATM was installed in Bratislava, Slovakia on 8th December 2013. This was immediately followed by the installation of another Bitcoin ATM in a cigar bar in Albuquerque, New Mexico, on February 18, 2014, the first one in the United States.
About three months later (May 2014), Africa had its first Bitcoin ATM known as ZaBitcoin ATM, installed in Johannesburg, South Africa.
Thus, the trading platform of the Crypto Market had started and was growing rapidly but with a marginal total market capitalisation of less than one billion USD, compared with the 236.4 billion USD market capitalisation of gold in 2012.
The trading platform soon grew into two different systems – centralised and decentralised systems. The centralised system uses centralised exchanges while the decentralised system uses decentralised exchanges. Presently, there are about 400 centralised exchanges and about 250 decentralised exchanges.
Interestingly, these two systems use two different types of wallets to hold cryptos – the centralised system uses mostly custodial wallets as discussed in the Primary SOC while non-custodial wallets are utilised by the decentralised system.
This Secondary SOC focuses on centralised system while the Tertiary SOC deals with decentralised system.
1.1.3. Crypto Traders
As the news about Bitcoin, the first article of trade of the Crypto Market, spread and a number of people began to see the importance and convenience of the digital asset, an interest to acquire the coin mounted.
Like every article of trade, the price tag of the article must be known. In a free and liberal market, the best price is set by the traders (buyers and sellers).
When Bitcoin first came out, the price was little (0.0001 USD) as no significance was attached to it then.
Indeed, on 22nd May 2010, Laszlo Hanyecz, a Florida-based programmer, used 10 000 bitcoins, which he had mined, to buy two pieces of pizza from Papa John’s. The price of one Bitcoin then was 0.0041 USD and Laszlo’s 10 000 coins were worth approximately 41 USD.
This transaction established two facts:
• The price of Bitcoin had appreciated from 0.0001 USD in 2009 to 0.0041 USD in 2010, an increase of 4000%.
• Bitcoin was gradually becoming known as a means of payment.
Laszlo is known as the first person to use Bitcoin in a commercial transaction. By July of the same year (2010), bitcoin’s market price had appreciated to about 0.8 USD.
The price of Bitcoin continued to appreciate as many traders came into the market, reaching a record high of 1 200 USD in 2012.
By this time, Bitcoin was not just being accepted as a means of payment but it was actually being traded through the various crypto exchanges. It was being paired with the other cryptos and some fiat currencies like the USD, Euros, and Yen.
Thus, the Crypto Market was growing rapidly. The marginal total market capitalisation of about one billion USD at the end of 2012 had skyrocketed to 13.2 billion USD by 1st December 2013 with a total of 42 cryptocurrencies in the market as recorded by Coinmarketcap.
Interestingly, Bitcoin’s market capitalisation alone was 11.53 billion USD, which was about 87.32% dominance of the market, while Litecoin, XRP, Peercoin, and Namecoin were in the second, third, fourth, and fifth positions, respectively, by market capitalisation dominance.
However, the rapid spread of the Crypto Market with its decentralised nature was threatening the existence of some traditional financial norms. Some centralised authorities like governments and their banks felt uncomfortable with such sweeping changes and many of them were struggling to understand the usefulness of the technology to the modern economy.
Consequently, as early as 2013, Thailand banned Bitcoin, declaring that trading in cryptocurrency was illegal. The Bitcoin ATM that was installed in a cigar bar in Albuquerque, New Mexico, was removed after only 30 days, the action was not unconnected with the US government’s position.
It was in this same year (2013), that China’s first ban of Bitcoin took place in which all Chinese financial institutions were prohibited by the government from using Bitcoins, prompting a drop in the price of cryptos.
Nonetheless, still in 2013, Germany’s ministry of finance was more lenient, declaring Bitcoin as a “unit of account,” thereby paving the way for a future framework to tax Bitcoin-based transactions, although they would not accept it as an official currency.
Amidst such confusion and obnoxious position against Bitcoins and the altcoins, the Crypto Market continued to expand rapidly across the world as more and more people found this new money system to be more beneficial and even more profitable than the traditional fiat currency system.
1.1.4. Rapidly Growing Market – You Can Get a Piece of the Cake
Indeed, enormous wealth is being generated easily and at a rate that is faster than at any time in human history in the Crypto Market.
For instance, barely a decade after the first Bitcoin was released, the Crypto Market has skyrocketed to a 24-hour total trading volume of 200 billion USD and a total market capitalisation of over three trillion USD in April 2021. Never in human history has a market grown that fast!
Do you know what that means?
These trillions of dollars in the Crypto Market are in people’s pockets. You can get a piece of the cake.
In fact, as at April 2021, there were more than 100 million Bitcoin holders globally, owning more than 200 million Bitcoin wallets with about 53 million people actively trading the coin. Coinbase claimed to have more than 35 million Bitcoin accounts, Blockchain.com claimed to have 73 million wallets and many more existed in Binance and over 500 exchanges and platforms.
Therefore, you can see how active and dynamic the Crypto Market is and with an ever-increasing millions of traders that keep pouring into this global market.
Interestingly, by August 2021, the price of Bitcoin was above 40 000 USD. Imagine if you had bought Bitcoin at the time it was released in 2009 with just 100 USD and held onto it up till August 2021! Yet Bitcoin is in its early adoption phase.
Moreover, realise that Bitcoin dominance of the Crypto Market has decreased to about 45% as at the writing of this article. This means that the altcoins have been rapidly catching up as trillions of dollars continuously circulate in that category.
What this means is that anyone who understands the market and gets involved is certainly going to make huge financial profits. Of course, that is why the School of Cryptocurrencies was established!