Types of things called cryptocurrency

In the category known as virtual currencies, the following exist:

・Virtual Currency 1.0

・Virtual Currency 2.0 (Bitcoin 2.0)

・Electronic money

・In-house issued points

are cited.

As characteristics of virtual currencies,

・They use blockchain technology

・A secure system using a P2P network

・Easy transfer and receipt processing, with low fees

・Available for use worldwide

・Exchanges and money exchangers allow conversion to real-world money

The differences between Virtual Currency 1.0 and Virtual Currency 2.0 lie in

whether it exists as a currency by itself

whether it is a platform that enables the use of virtual currency

that is,

Bitcoin, Dash, etc. are classified as Virtual Currency 1.0.

Systems that use Ethereum and smart contracts are classified as Virtual Currency 2.0.

Additionally, there are cases where no virtual currency mechanism is used at all, simply labeling in-house issued points or electronic money as virtual currencies and selling them.

Why do virtual currencies exist? What purpose do they serve?

Are their mechanisms actually being used?

By confirming these two points, you can determine suitability.

◯ What is electronic money?

Electronic money is

・Only a replacement of cash into electronic form

・Can be held in only a specific currency

・There is a limit to the deposit amount

・Managed by a specific company (central organization)

For example, Suica is operated by JR East. By pre-loading and charging in advance, it becomes an IC card that can be used up to a deposit limit when boarding trains or paying at convenience stores.

(＊Except when it is integrated with a credit card)

Usage history data is managed by JR East, and the electronic money used for settlements returns to JR East each time to prevent double spending and other fraud.

Because you can use services without cash, it is very convenient for users, but since operation costs are high, electronic money businesses cannot rely on profits alone and must be combined with other businesses, so the number of entities able to operate is limited.

Additionally, if merchants accept electronic money, high fees are borne by the merchants, so in the future prices may reflect user costs.

In other words, since it does not use P2P and blockchain technology, it will not be classified as virtual currency.

◯ How much activity exists across virtual currencies overall?

According to Crypto-Currency Market Capitalizations, which lists market size and various virtual currency information,

as of February 1, 2016,

market size was $6,333,446,084

24-hour trading volume was $48,362,614

as of April 21, 2016,

market size was $8,315,460,495

24-hour trading volume was $83,077,952

as of July 19, 2016,

market size was $12,957,271,569

24-hour trading volume was $91,341,056

in total.

Among them, Bitcoin accounts for more than about 80% of the share, by far.

Two high-volume virtual currencies include

Ethereum

Steem

Litecoin

The DAO

NEM

Dash

and others rank accordingly.

Coins created to imitate Bitcoin are called altcoins or alternative coins (Altcoins), and it is said there are over 1,000 worldwide.

The reason many similar coins are created is that Bitcoin’s system is open source and publicly available on the Internet, so anyone can build the same system.

It is easy to create them, but to become widely adopted and traded like Bitcoin, they must address Bitcoin’s drawbacks or have superior features; otherwise widespread adoption is difficult.

◯ Ripple’s (XRP) mechanism is different

Like Bitcoin, Ripple is often cited as a virtual currency.

The major differences are

・There is a development/operating entity called Ripple Labs Inc.

・It exchanges IOUs, which are receipts or warrants

In everyday currency exchange, you hand money from A to B to C.

In Ripple, the transfers from A to B and B to C are not actual cash transfers but involve exchanging IOUs, and only the transfer from A to C involves actual cash movement, based on the idea of moving only the numbers on the IOUs rather than moving coins.

IOUs are digital, not paper, and are called IOUs (I owe you).

Because IOUs are exchanged without actual cash movement, fees are reduced.

Furthermore, the virtual currency XRP is destroyed immediately after use, so there is no double-spending issue, and transaction confirmation takes only a few seconds (whereas Bitcoin’s transaction confirmation time is about 10 minutes).

Also, because it takes the form of IOUs, the recipient can approve and thus transfer any currency, asset, or commodity, including money, goods, or virtual currencies, which is another major feature.

Initially, 100 billion XRP were created, and 80 billion XRP were allocated to Ripple Labs Inc.

What to watch out for when trading Ripple is that there are official and unofficial variants.

Those who promote Ripple or operate gateways are called “Gateways.” If a Gateway deposits the issued IOUs with Ripple Labs Inc., it becomes official, but there are only about ten such Gateways worldwide.

All others are unofficial and do not officially have IOU value, so there is a risk they cannot be cashed.

Also, Ripple is not positioned as coins like Bitcoin; it aims to expand a lending/borrowing network, so some say XRP’s price will not fluctuate, although in reality XRP’s price does fluctuate. When engaging with XRP, you should recognize this direction.

In fact, XRP’s price does fluctuate, but when dealing with XRP, you should keep this orientation in mind.

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