What You Need To Know About Investing in Bitcoin and Ethereum

in #bitcoin6 years ago (edited)

Interview with Geir Solem, Cryptor Trust
Geir Solem is the founder and Chairman of Cryptor Trust group of companies and Chief Editor of Bitcoin Investor. Geir is also the founder of Elliott Wave Technician and Cornupia Capital Ltd.  He is also President of the Cryptor Foundation. His specialties include analysis of the financial market using demographics, economic cycles, and Elliott Wave theory / technical analysis. Geir focuses on investment in long-term trends around the world. He engages in trading of digital assets, currencies, stocks, bonds and commodities. 

About the Cryptor Trust Group
Cryptor Trust is the first and still one of the few investment groups in the world to introduce a formal capital structure based on Bitcoin, holding Bitcoin and blockchain related investments as its main assets as well as expanding into decentralized, blockchain based finance.

Geir Solem, founder and Chairman of Crypto Trust Inc., has seen the rise of cryptocurrencies and the evolution of blockchain technology from the beginning. Geir Solem has guided investors through the changing narrative of profits and pitfalls in the fast-paced cryptocurrency market for years. 

Solem gives advice to long-term investors of Bitcoin and Ethereum. He cautions, There is more risk with Ethereum value related to the technology due to the high number of coins and how decentralized it is. In addition, they are not exactly comparable. Bitcoin is more like a currency and Ethereum is a platform for building an ecosystem of applications, as well as a currency to purchase tokens.”

Concerning the intricacies of applications that Bitcoin and Ethereum can be used for, Solem describes why it should matter when choosing either cryptocurrency as an investment. He breaks it down into a list of in-depth considerations.

Simply put, Solem explains that these are some of the differences:

  • Bitcoin is basically a currency with a limited edition of 21 million coins. It is the most secure and tested crypto/digital currency out there at present which is important when you use it as a store of value and/or transfer large amounts of money. 
  • As the number of users has been growing you now have scaling and cost issues with Bitcoin. Bitcoin is too expensive for micropayments. There is a question if it is possible to improve the technology so these issues are alleviated.
  • Tools to develop applications and using smart contracts are offered to some extent by 3rd party vendors creating an ecosystem around Bitcoin. There are developments underway that will add further additions to the Bitcoin ecosystem.
  • Ethereum has a much larger edition of 92.500.000 coins and is a platform for the development of applications where you can use smart contracts and other tools that are part of the platform. Ethereum transactions are much faster than Bitcoin. However, when it comes to running it as a platform for applications built upon the platform, it is facing scaling and capacity issues.
  • Ethereum looks like it is almost as widely used as a currency as Bitcoin, but the truth is that a good part of the transactions done using Ethereum is related to the use as currency to buy ICO token. Ethereum is used to buy token in the ecosystem built around Ethereum.
  • In order to buy an ICO token, you will first have to purchase Ethereum to enter ICO’s smart contracts.  It appears as if people are trading Ethers, but in reality, they are only entering the token market and often do not care about Ether itself. These token transactions are a major part of the transactions done using Ethereum.
  • Ethereum is more inflationary and less scarce than Bitcoin.
  • By adding complexity at the protocol level, Ethereum presents a larger attack surface to adversaries. This heightened risk of attack makes Ethereum an inferior store of value compared to Bitcoin.
  • There are estimates from May 2016 that put the number of bugs per line of contract at 1 to 10 at that time. As seen with the draining of The DAO and numerous minor incidents, investing in such contracts without proper code review can lead to a serious loss. Since then, the coding has been considerably improved. However, there are still issues. More improvements are required to secure smart contracts before than can be reliably underwritten for new ways of doing business.
  • There is an issue with Ethereum being truly decentralized, which is related to what happened with the DAO hack. The people behind Ethereum decided to fork and create a second version of the token/cryptocurrency in a ‘war’ with the hacker/s. Isn’t this supposed to be impossible in a truly decentralized system?

Furthermore, Solem describes “technological issues” with Ethereum regarding its architectural design which already “looks redundant.” Solem asks, “Is anyone familiar with IBM’s mainframes and Virtual Machine launched in the 70’s which is the real origin of the technology used in Ethereum Virtual Machine (EVM)?” According to Solem, here are some of the issues:  

  • EVM, by design, is like Java Virtual Machine. It has modified several advanced languages in order to write smart contracts. The most commonly used is solidity, a Javascript-based modified limited grammar set.

- Advanced languages are converted into command languages via a compiler and runs in the EVM. The bottom layer for the commands is still a stack frame, in and out. The general running environment is an independent sandbox.

  • Ethereum has a very different account balance mechanism than that of Bitcoin, so the recording of account status updates becomes necessary. The execution of each smart contract could cause an update in the general status. EVM also needs to be integrated with a status update and maintenance mechanism.
  • Being an advanced language supported and status maintenance supported sandbox is the reason for influences on performance when multiple functionalities are supported. 
  • EVM to this date has a weak performance, and according to the roadmap, the complicated high volume computing such as sig-validation and hashes will be realized by utilizing outside codes.

If you’re a new investor in the cryptocurrency market and you’re unsure as to the steps to take, Solem has some good advice. “Take the time to learn about the different cryptocurrencies as well as the ecosystem being built out there. In addition, [new investors] need to follow new innovation that surfaces in the digital ecosystem. That would be a good start.”   

In the next 5 years, Solem cautions investors when investing in Ethereum or any other cryptocurrency. Although Ethereum is gaining ground and competing with Bitcoin, there have been only modest gains. Regarding investing, Solem explains in detail what the distinctive differences are in cryptocurrencies and the risks involved. 

“I’m sure Ethereum has gained ground as a currency to purchase ‘Token’. However, when it comes to being a real currency, the gain is more modest. Most of the cryptocurrencies out there will disappear over the coming years. When I say most, I mean more than 90% of them will go extinct or be close to worthless so the risk is enormous. I would say that Bitcoin is the leading ‘currency’ while Ethereum is the leader when it comes to being a platform for applications, smart contracts, and tools.”  

As cryptocurrencies rise to new heights as an investment option reflected in the skyrocketing prices, the primary factors that affect the price increase are not much different than the standard stock market. The psychological factors behind investing are the same. When asked what these factors are, Solem bluntly affirms, “Human herding on new trends. They see friends join, learn from the media about the price increase, so they feel compelled to join themselves. Since most currencies and tokens will fail, many of the late comers will be burned and lose their money.”

Traditional investors are now joining the trend and investing in cryptocurrencies at an increasing rate. Solem even suggests that investing in cryptocurrencies will outpace investing in precious metals. “Cryptocurrencies will outpace precious metals as they are in a long-term rise. The leading cryptocurrencies will easily outpace USD 100 billion in the near future and that is just a start. There will in a few years be valuation beyond a trillion USD on the leading currency. Precious metals are in a long-term decline. You will have large rallies now and then but that would be bear market rallies. In the mid 2020’s the price will be lower compared to now.”

Surprisingly, Solem agrees that the rise of investing in the cryptocurrency market signals a reset of the current financial system, signaling the emergence of a more transparent economic system where Bitcoin and blockchain technology will be implemented. “Yes, it does,” he affirms.

The battle between centralization and decentralization rages on as groups of banks gather together to create their own Distributed Ledger Technology which is similar to blockchain but still controlled by the central bank, and as governments create their own digital currencies behind the scenes. It will have a big effect on the investor, especially if digital currencies overtake fiat currencies in the process.

Solem gives a shocking prediction when looking at the economic perspective long-term and describes the difference between centralization versus decentralization. “Banks and the central banks will fail in competing with the open source money systems. The reason for this among others is that the free open market will always improve systems forever by innovation and disruption. Banks are by their very nature more ‘saturated’ and they are victims of political will.”

The fiat currency system is just as volatile. “If you take a look at fiat money in a big perspective, they all go into extinction over time. Since the long-term value of state and private bank currencies is zero, you can of course not use it for storing long-term savings. Even as a currency there are risks related to currency control, freezing of bank accounts, the will of politicians, etc.” explains Solem.

As investors, whether you’re experienced or a beginner, it is vitally important to keep pace with the fast-moving cryptocurrency market and track the trend. Do your own research and continually educate yourself by keeping on top of the trend wave. Join forums and discussion groups. Since it’s a face paced continuous shifting platform because technology and innovation are involved, the evolution of cryptocurrencies as a market trend is changing at an unprecedented rate so it’s important to stay ahead of the curve.

Cryptor Trust LinkedIn Discussion Group 

Bitcoin Blockchain & FinTech Think Tank > Cryptor Trust

Links to interviews with Grace C. Visconti and Geir Solem can be viewed here:
How Cryptocurrencies and Blockchain Technologies Will Energize the Fourth Industrial Revolution, Part 1

How Cryptocurrencies and Blockchain Technologies Will Energize the Fourth Industrial Revolution, Part 2 

Cryptocurrencies To Fuel The Existing Shadow Economy Creating Growth 


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