The Cryptocurrency business (Bitcoin and other electronic currencies) feels a lot to me like the Internet did back in 1995. Everybody was talking about it, but most people had no idea how to use it, or go about setting up a website on it. It was obvious though it had big growth potential. Also, the Internet back then had a hacker feel, just like Cryptocurrency currently does.
It took me many months to get around to setting up my CheapFlowers.com site to accept Bitcoin (see my blog posting about this), because I knew it would be a long, complicated process, and I was unsure if there was even much benefit to doing it. But, I expect this will change over the next few years, just like things did in the early days of the Internet.
However, after 19 years in the website/domain business, I am eager to try something new. I would never go back to trying to make money offline, but there is much more to the Internet than just building websites. Cryptocurrency is one of the few opportunities I have been excited about, in terms of the money making potential. Other big technologies have emerged over the years, but they just weren’t right for me:
* Web Phone calls and video calls – I tried making phone/video calls back in 1999 but the whole thing just sucked, especially on dial-up internet. And, most recipients did not have the ability or knowledge to take the calls anyhow. Even 10 years ago it still sucked, so it was too early to do anything with that market. Skype eventually got big, but they were losing lots of money until Microsoft bought them.
* Online Videos – Back in the late 90s I watched some music videos by downloading the files from a website, and it was absolutely amazing. But, it was torture downloading the huge files on dial-up, and streaming them was too slow. I knew online videos were the future, but there was not much to do about it. In 2006 Youtube got popular, but they were also losing huge amounts of money on server/bandwidth costs, and might have gone out of business had they not been bought out by Google.
* Mobile Apps – Mobile was an obvious growth area when smartphones started getting popular, even before the iPhone, but there was no easy way to capitalize on that. I could have made a ton of apps like I churned out websites, but I am not sure those apps would have done any better than my websites did. Also, I used a Blackberry for many years, so because of that I was not an expert on apps and what mobile phone users needed.
* Social Networks – I could tell this would be a big business, but it was not something I was personally into at the time, and also sites like Friendster and Myspace totally failed, so it turned out not to be a great business for anyone other than Facebook.
* The Cloud – As I described in my posting from 2 years ago about cloud hosting, it is basically just Web Hosting 2.0. The differences between cloud hosting and old-fashioned web hosting are way more technical than what the vast majority of customers want to know, so it basically boils down to that cloud hosting is a better way to host your website or data. Everything is moving to the cloud not because it is something new, but because it is much cheaper and easier than the alternatives (like having your own data center). That is all great for the customer, but the problem is that running a cloud hosting company is still just as much hassle as running a regular hosting company. There are non-stop technical problems and there are non-stop complaints from customers, plus the technology is constantly changing so you need to always be investing time and money in new things while the prices for your service go lower and lower. There are of course other ways to be in the cloud business without being a web host, but those opportunities are not that different from what was out there when was just regular hosting available.
* 3D Printers – Many people think printing items/products in your home will disrupt the entire manufacturing industry. But, it involves things like blueprints, CAD/CAM, engineering, product design, and manufacturing, all of which are areas I am not that knowledgeable about or interested in.
* Virtual Reality – Oculus Rift (VR headsets) was recently bought by Facebook for $2 billion, and Google Glass (augmented reality glasses) will soon be available to everyone, so this business is set to explode. I look forward to trying these devices myself, but it all based on complex programming and expensive hardware, so it is not an easy market to enter. I did test the waters back in 2009 by creating an augmented reality area (at a cost of around $1000) on my Adoptme.com website, where users could print out the page and then using their webcam watch an Adoptme pet come to life on their desk, but it did not get me any extra traffic or publicity.
Online payment systems/currencies on the other hand, are something much more up my alley. I dabbled in that business when I started Digicredit, and have an extensive background in finance (stock market, bonds, options, futures, etc.). I am not sure Bitcoin is the future, but there seems to be a lot of opportunity out there. Here’s some of the more interesting cryptocurrency related technologies:
- Ripple – A peer-to-peer payment network that is a cross between Facebook, Paypal, and Western Union. It supports almost any currency or commodity, and has almost no fees.
- Colored Coins – Uses “sidechain” technology, allowing you to mark Bitcoins with additional information so they can be used to trade more than just currency. You “color” each coin to represent one of your assets such as a car, house, gold, stock, bond, etc. Anyone can then trade these colored coins anywhere, just like how bitcoin works. It also has the security of piggybacking on the existing Bitcoin network and protocol.
- Ethereum – Allows financial contracts on top of its cryptocurrency, kind of like an automated escrow service. Each Ethereum transaction is recorded in the Ethereum cryptoledger and can have its own scripting code (providing the automation part).
- Mastercoin (and also Counterparty) – Uses the Bitcoin blockchain to store data, so it has the security of Bitcoin, but creates a different currency than Bitcoin. The extra data can be used to create smart contracts to enable the electronic exchange of assets such as stocks, bonds, real estate, and intellectual property. In addition, you can create your own currency with it.
- Open Transactions – An open source financial cryptography software that can be used to create an online financial market and banking system. You can also use it to create their own cryptocurrency backed by hard assets such as gold, silver, dollars, euros, stocks, oil futures, and more. In addition, it can be used for things such as issuing stock, virtual currencies for online games, paying dividends, sending and receiving digital cash, and escrow using scripted custom agreements.
- Coinffeine – A game theory based Bitcoin exchange (a place where people buy and sell their Bitcoin, kind of like a stock exchange), where there are no fees since it is peer-to-peer (person to person, with no central intermediary). The “game theory” part involves a zero-trust exchange algorithm which forces users to cooperate in several micro-transactions until the entire transaction is complete. If users pull out of the transaction early, they lose money.
- HolyTransaction – A universal cryptocurrency wallet. Typically if you want to buy 10 different cryptocurrencies (Bitcoin, LiteCoin, Dogecoin, NameCoin, etc.) you need to have 10 different wallets, which makes it hard to manage. HolyTransaction solves this problem, plus it comes with currency exchange features so you can easily convert one cryptocurrency to another.
- Crypto::Stocks – A crowdfunding site that operates like a stock exchange for cryptocurrency businesses. Unlike traditional crowdfunding sites where consumers pre-order a product or provide loans or venture capital to a company, at CryptoStocks.com people invest Bitcoin in companies to make money via weekly dividends which are paid out in Bitcoin. You can also speculate by buying and selling shares, since each stock is traded like a “real” public company. As of right now, this is legal because Bitcoins are not considered currency and no fiat currency (like US Dollars) changes hands, so are not subject to the massive SEC rules that a company normally has to follow to go public. This might change though once the government looks into this more.
- NXT – An improved version of Bitcoin, written entirely from scratch in Java. It has all the abilities of Bitcoin, but also can handle colored coins, includes a decentralized asset exchange (i.e. you can buy and sell things with no 3rd party needed), includes a built-in encrypted messaging system, and has the ability for anonymous payments. It also uses much less electricity for mining than Bitcoin does (it can be mined using a mobile phone, Raspberry Pi, or any PC), due to the use of “proof-of-stake” instead of “proof-of-work” protocol.
These are just a few examples of current cryptocurrency technology, and keep in mind the industry is in its infancy. Unlike the Internet back when it first started to take off (around 1995), the currency market is not something totally new. It took many years for the Internet to really catch on, due to slow dial up access, ineffective search engines, complex web hosting, expensive programming costs, and lack of great content. Cryptocurrency, on the other hand, is disrupting the already existing financial markets. The foreign exchange market (people converting money from one currency to another to make payments) alone has over $5 trillion a day in volume, and that does not include the millions of dollars a day that is transferred within each country via wire transfers, ACH, and services such as Western Union and Paypal. Add to that the $500 billion a day traded on the global stock and commodity markets, and this total dwarfs the amount of business that is done on the Internet. This means there are fortunes to be made in cryptocurrency just by grabbing even a very small slice of the financial market economy.
Very interesting article. Cyber currency is fraught with problems right now and tends to lean towards the criminal underbelly. The founder of bitcoin doesn’t seem to want much to do with it, very strange. Anyway, I think you’re right in that it represents future opportunity for entrepreneurs. Some one will get it right…
A large amount of regular US dollars are used for criminal activities also. And when CheapFlowers.com accepts Bitcoin for example, illegal use is not really an issue. If anything, with credit cards, I have a huge problem of people using stolen credit cards, and I have to take a loss on all the chargebacks, which does not happen with Bitcoin. People use the telephone, email, and websites for illegal stuff also, but that does not mean it is bad to use those things. Also, the people using Bitcoin illegally don’t really have any effect on the rest of the Bitcoin users. The bigger problem is that because cryptocurrency is unregulated, anonymous, and complicated, there are lots of scams and hackers. But, that only makes it harder for new cryptocurrencies to gain market share, it does not create a problem for Bitcoin.
I’m having fun with Dogecoin. Unlike Bitcoin, it’s easy to start with Dogecoin. Everyday I make a request and get few coins for free on my mobile phone. For me, it’s a good way to get used to virtual currencies.
Agreed, Eric. My biggest issue is how to have a wallet that can easily be moved from mobile phone to, say, a USB drive.
Nice article Eric, it certainly is an area with a lot of potential, not for the faint of heart and requires people to actually study, learn and keep on top of stuff.
Are you trading any crypto currencies yet ?
@Kassey how much Dogecoin do you own, I know the founder said he wants it to be the tipping coin for the Internet. Like if you like Eric’s article you tip him a few Dogecoin for example.
No, I have not traded crypto currencies, but I have looked at the various electronic currency exchanges trading that offer that, and at automated bots that execute various strategies like with the stock market.
No, I do not trade cryptocurrencies, but that seems like an exciting business. There are many bots out there for creating strategies for automated trading of cryptocurrencies, just like with the stock market and Forex markets.
Here is the next big thing:
IMF’s special drawing rights/sdr/SPEDRI as it becomes more commercially available and consumer friendly. Some would say that this has been in the works for 40 years or so.
Could this be the worlds next reserve currency in replacing the dollar?
That would be a big thing.
Excellent post Eric.. as usual on the ball and informative!
As everyone knows this is a crap shoot.. one of these crypto currencies is going to float “it’s the digital future”… but which one?
Don’t be fooled by the intermediary players because the big guys like PayPal and Google will soon step in once they sniff a runner…
If you invest “wisely”, make sure your money is safe when they are taken/bought out…..
Darkcoin is the 4th largest cryptocurrency and a serious competitor to Bitcoin given its enhanced anonymity features.
I am auctioning Darkcoin.com, check out http://www.darkcoin.com.
Cryptocurrencies are the future of money as we know it. I hold many crypto related domain names and am 90% finished building a platform to facilitate buying or selling crypto domain names with crypto coins.
Checkout my portfolio and list yours at http://cryptodomainnames.com
I also manage this other crypto reviews site that will help you get started if your a newb http://bestbitcoinreviews.com
Thanks for the information, Eric.
LiteCoin, Dogecoin, MaxCoin and BitCoin related domain names should do well, anyway.
Having invested in some, I’m heavily biased…
It’s good to know people are still discussing bitcoins at a stage where I thought my only domain related to bitcoins is of no use any more and am delighted that there is still some steam left…
Ps – As a UX designer I suggest you to push the submit button below the security answer
Thanks, I fixed submit button issue.
The next big thing is lenders and borrowers doing business using domains as pawn.
I sincerely can’t understand why that is not already a reality.
The domain pawn/loan business (domaincapital.com is a good example) has already been around for over 10 years, yet it has not taken off. For whatever reasons, very few people use this type of service. Back in 2003 I started my own domain name lending site at GetFunding.com (see a screenshot of how it looked at https://web.archive.org/web/20030203084950/http://getfunding.com/ ) and some potential customers contacted me, but I never did any loans because domains I was offered were all pretty much worthless.
Hi Eric, have you invested in any crypto-coins so far? usually when i read about crypto-coins the opinion is mostly biased because the poster has a considerable amount invested and is probably looking for an “exit” to his investment.
If i understand correctly from your article you are more interested in building services around the crypto-network rather than hoarding coins to resell them in a few years, is this correct?
I have never invested in any crypto coins and have no plans to do so. Yes, I would like to make money from something crytocurrency related, but nothing to do with speculating on the coins themselves.