CryptoCurrency

Is this the new way for investing your money?


What is a Cryptocurrency?

Cryptocurrency is a form of digital money that is designed to be secure and, in many cases, anonymous. It is a currency associated with the internet that uses cryptography, the process of converting legible information into an almost uncrackable code, to track purchases and transfers. Cryptography was born out of the need for secure communication in the Second World War. It has evolved in the digital era with elements of mathematical theory and computer science to become a way to secure communications, information and money online.

Bitcoin is the first decentralized digital currency. Bitcoins are digital coins you can send trough the internet, compared to other alternatives they have a number of advantages:

  1. They are transferred directly from person to person via the net without going through a bank or a clearingouse. It reduces the fees
  2. You can use them in every country
  3. Your account cannot be frozen
  4. There are no prerequisites or arbritary limits

Bitcoin mining is the process by which transactions are verified and added to the public ledger, known as the block chain, and also the means through which new Bitcoin are released. During mining, your computer performs cryptographic hashes (two successive SHA256s) on what is called a block header. Because the target is a cumbersome number with a lot of numbers, a simpler number is usually used to express the current target.

This number is called the mining difficulty. The difficulty of mining is calculated by comparing how difficult it is to generate a block compared to the first block created. This means that a difficulty of 70000 is equivalent to 70000 times more effort than necessary for Satoshi Nakamoto to generate the first block.

At the time when the mining was much slower and poorly optimized. The difficulty changes every block. The network is trying to assign the difficulty so that the global computing power takes exactly 14 days to generate 2016 blocks. This is why the difficulty increases with the power of the network. In general the participant who first solves the puzzle gets to place the next block on the block chain and claim the rewards. The rewards, which incentivize mining, are both the transaction fees associated with the transactions compiled in the block as well as newly released Bitcoin.

Bitcoin was created in 2009: A software developer called Satoshi Nakamoto proposed Bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.

Nowadays, there are many more like:

Litecoin 2011:
Provides fast, 2.5 minute transaction confirmations and uses scrypt-based proof-of-work to target everyday computers. Litecoin, created by an ex-Google employee, Charlie lee, is often considered the silver to Bitcoin's gold.

Ripple 2012:
Real-time peer-to-peer settlement network. Ripples aren't mined and each transaction destroys a small amount of XRP. The net effect is a delfationary asset.

DASH 2014:
Aims to be a privacy-centric cryptographic currency with unlinkable transactions using the PrivateSend system. Blockchain governance is carried out via the MasterNode system.

Ethereum 2015:
Is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference.

For the computation of our differents graphics we have used several sources to fetch our datasets. For the stocks datasets we used the API of Quandl that provides the stocks of any americain compagny that is on the stock market. As for the dataset concerning the cryptocurrencies we have used the API REST of the cryptomarket site to contruct our different dataset. Finaly for the last graphic we also used an API REST from Icowatchlist which is containing the data about the new ICO's that can be found on the market nowadays.

The following interactive line graph shows the evolution of these cryptocurrencies on the stock market.

Playing a bit with the graph above. We can see that prices in 2017 have literally exploded. We strongly felt the infatuation by investors for cryptocurrencies. Cryptocurrencies are becoming more widespread around the world while internet payments are accepted by many companies. Cryptocurrencies are changing the payment and investment assets, just as the way people invest in gold, silver, market shares, real estate, mutual funds these days. More and more investors are interested in investing money on these crypto-currencies in 2017 and will be more in 2018. With the increased demand for crypto-currencies its prices have greatly increased.

Why has the Bitcoin price risen so fast in the last month ( 11.2017) . Bitcoin is a very unpredictable cryptocurrency but there are some factors that we know are contributing to that climb.
As the Bitcoin reaches 2000$ a trend of investors is rising and clamoring for crypto-currency of all sorts. Only a few years back digital money was seen as the province of cranks and computers geeks, it has now become so mainstream that investors see it as a new asset and are creating hundred million dollars hedge funds to acquire it.

That kind of behaviour was unimaginable a couple of years ago. Other people see digital currencies as an asset like gold, which can hold its value even with a instability of a government. Recent political reveals in Brazil and the United States, which led to drops in the dollar and the brazilian currency, may have contributed to the recent uptick in Bitcoin buying.Finally, Bitcoin may be gaining indirectly from a recent explosion in the value of other digital currencies like for example Ethereum and Litecoin. As it is possible to buy these currencies with dollars or other traditional currencies, it's often simpler or more convienent to use Bitcoins to buy them.

So to say that there is likely chance that more people may be buying Bitcoin as transferring currency in order to acquire other less known cryptocurrencies This year in Japan where the Bitcoin has been born, new rules has been brought where the new currency is being treated inside the banking system in asia , mostly china has become more permissive for using Bitcoin as currency for exchanges between U.S and China. This also a key factor in the Bitcoin related investment that are leading of the price increase

Comparaison between CryptoCurrency & standard stock

On the graph below we have the stock prices of the four most prominent IT companies in the world ( Microsoft, Amazon, IBM and Apple) between 2000 and 2010. We can firstly admit that they have been more consistent and less fluctuating that the cryptocurrencies. That is due to the fact that their structure is very different and more stable. Theses companies have built their reputation over many years and have earned people's trust. Apple’s stock is the one which had the most visible increase during that time because of the success of their product which inspired people and the way they saw the digital world. They all have suffered during the crisis of 2008 which caused many people to lose faith in the market. But gladly for these companies, computers and phones were always in high demand and therefore had no problem to regain their potential and their stock prices

Now let's have a look at the stocks of the compagnies like GAFA (Google, Apple, Facebook and Amazon) which are the most influencal compagnies in the world nowadays. In the following graph you will see the average price of the stocks combined between the 4 compagnies that we named before and the 4 most known crypto-currencies (Bitcoin, Ethereum , Dash and litecoin).

When you decided to play in the trading Market with your money , you have to expect some volatility regardless of the investment stock you choose. Both cryptocurrency market and stock market has seen some wild swings during their period of existence. Volatility is not necessarily a bad omen, however. A market without ANY volatility is stale and boring, and even more importantly, not profitable.
In reality we know that a high volatility yields towards high profits or high losses. The key point is positioning yourself on the ride side of the slope to benefit even when others are feeling the pain. In theory it is easier with cryptocurrency than with stocks. In order to make an educated decision in the stock market, you have to take into account many factors so that your decision will be the most accurate such as. PE ratios, 52 week high/low, 50 day moving average, 200 day moving average, dividends, and many others. All of them must be analyzed in order to find the best choice for your hard earned buck. Bitcoin, on the other hand, continually ignores technical indicators and does what it wants. Gadly what Bitcoin wants is to climb higher.

They have been many bad news for the cryptocurrencies during the middle of the year such a ban from china for all the ico’s and ban all the exchanges in Bitcoins. The crypto market has been markedly resilient. Playing with the graphic above shows us that after the middle of the 2017 year the average price of the cryptocurrency has gone higher than the GAFA compagnies. All the facts that we explained so far are a direct cause of such an increase. The mining community has gone so large that the creation of the volume has incresead and therefore the use of it.

And now let's talk about new ICO

ICOs are similar to IPOs and crowdfunding. Like IPOs, a stake of the startup or company is sold to raise money for the entity’s operations during an ICO operation. However, while IPOs deal with investors, ICOs deal with supporters that are keen to invest in a new project much like a crowdfunding event. But ICOs differ from crowdfunding in that the backers of the former are motivated by a prospective return in their investments (ROI), while the funds raised in the latter campaign are basically donations. For these reasons, ICOs are referred to as crowdsales.

Ethereum is one of the most know ICO. In 2014 it raising 3,700 BTC in its first 12 hours, equal to approximately $2.3 million dollars (just for fun the actual value of this amount (01.12.2017) -> $37 million).

In this wild west investment market , no need for a thick form from a bank or green light from the authorities. It is enough to present its project on a web site, by specifying the price of the token which one is about to emit and the rights, advantage which it provides.

These digital assets are acquired and traded against cryptocurrencies, usually the best known as Ether or Bitcoin. But in reality, the value of the issued tokens proves even more unstable than during a traditional IPO. It's like the gambling inside a casino.

Many ICOs see their price drop 80% or 90% but can rise sharply when the project starts delivering its first content. While some projects struggle to get started, others appear doubtful from the start. Let’s take a situation that could potentially happen, after the fundraising, no news from the trading platforms. Nobody answers and we have no chance to see our money again.

While the fake ICOs are multiplied on the net and their campaigns is becoming more and more visible, the main financial regulators increased the warnings. Notably with China and South Korea who have totally banned the creation of ICO on their territory since mid-September.

The following graph illustrates well the phenomenon. Each circle represents a completed ICO. The radius represents the percentage of return on investment and the color defined if it is positive (green), negative (red) and if there is no color there is no return on investments. The abscissa represents the time as for the ordinate indicates the price of the ICO in mid-November.

This graph shows several correlations. Indeed, we can notice a sharp increase in the number of ICO from June 2017 exactly at the same time when the average Cryptocurrencies (Bitcoin, Ethereum, Dash, Litecoin) had exceeded the average shares of large companies present in the GAFA (see stock vs crypto gaphic).

We can say that 2017 has really seen the explosion of cryptocurrencies. More and more people are aware of this virtual world and want to dive into the investments courtyard. Imagine for a moment to believe Stratis token (big green round) by investing a certain amount. A few months later we end up with an ROI of over 48000%. Who would not dream about that phenomen?

As time goes by we see more negative ROIs appear. It can be assumed that partners have no idea what to think with the growing number of ICOs. The various warnings emited by the authorities could also calm the ardor of the invertors.

What it is the futur for the crypto-currencies

the big question is what is going to happen next?

Well we think it will probably crash soon and then stabilize itself and then go up again as people want to have part in a world where the banks are not at the center of any transactions. Some people think that these cryptocurrencies are a fraud and still remain very skeptical.

From our personal view the Bitcoin and the submerged cryptocurrencies will continue to grow.In simple words it may be a poker move either it will arise as a new standart currency or it will disapear. It is in our interest since we have invested some capitals in them and are following closely their evolution.

If you liked this page you can find all the datasets and code on the following repositories:
https://github.com/CoolPolishGuy/TWEB-GitHub-Digital-client
https://github.com/Grem25/TWEB-StoryTelling-Data

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Edited by Wojciech Myszkorowski and Jérémie Zanone