You keep hearing about cryptocurrency “Bitcoin, Blockchain, Dogecoin, Ethereum…etc.”
Everyone is talking about cryptocurrencies right now, but OMG, what does all of this mean.
So welcome to the one article that will take you from crypto newbie to crypto-genius. I’m going to tell you what is cryptocurrency? Why does it keep becoming more and more important?
What are the bright side and the dark side of it?
Society early stages
Alright, when society was in its early stages, money didn’t exist.
Let me explain it.
Stage one: Trade
The only way to buy something from someone was to go up to them and be like “hey, I like your cow, I’ll trade you my camel for it”.
They might trade you, but the problem with a system like that is, even though the other person might be perfectly happy to give up their cow, they just might not want a camel, so the trade will never happen.
But that’s where currency came in.
Stage two: Coins
Because coins were made of valuable materials like silver and gold, everyone just accepted that because they were worth something.
You know the British pound, right? Well, they called it pounds because one pound used to equal one pound of silver (1 Pound = 0.45 Kg).
It doesn’t matter if the other person doesn’t want a camel, as long as you have coins.
Even if you have no use at all for the gold or silver, because it’s a valuable material, you have that reassurance that you can trade it for anything later and buy what you want.
Stage three: Banks
As banks became established and governments had control, we realized that as long as we believe in the system we could move away from carrying blocks of valuable metal, like silver or gold, towards something even more convenient, like paper money.
It does the same thing, but now the money doesn’t have value because it’s not made of silver or gold, it has value because the government says it has value.
If you look closely at England’s 10 pounds, you will notice a note “Bank of England promising that they will pay the bearer of this note”. It’s a kind of proof that you own a certain amount of money.
But as technologies improved more and more, we found even more convenient ways of storing and trading our stuff.
Stage four: Online trade
More people than ever are buying things online and using credit cards, we don’t see our money anymore. It’s not about coins or notes or camels, it’s just entries on a spreadsheet.
Like when someone buys a product from Amazon, all that’s happening is that this person’s bank adds an entry in their spreadsheet, that says this person now has $20 less.
Then Amazon’s bank adds an entry that says they have $20 more.
The reason I’ve written all of this historical intro is to give you a context on where cryptocurrency sits, as many people see it as the most convenient era of exchange.
What is Cryptocurrency?
The way to think about a cryptocurrency is just a transfer of digital assets, although the logo for bitcoin kind of looks like a physical coin.
With crypto, there is no gold or silver or even paper money. It is just the transfer of digital assets.
The concept of cryptocurrency is the same as banks, just running spreadsheets of who paid what to whom, but instead of multiple banks keeping their own separate records or spreadsheet, with crypto, there is just one huge spreadsheet of every transaction made using that currency.
It is called a “ledger”.
Alright, we all have a good spreadsheet, but what is it? Why everyone is going crazy about crypto?
Well, there are some special advantages to a currency system like this one. It’s decentralized, but What does this mean? While every transaction of a cryptocurrency is recorded on the same ledger, there are many copies of that ledger, everyone on this network has one.
You must’ve heard of cryptocurrency mining or bitcoin mining!
Well, it’s someone who set up a computer to torture it through transactions, to keep their copy of this ledger or spreadsheet updated.
There are more than a million bitcoin miners around the world, and bitcoin is just one type of cryptocurrency.
The reason they’re doing it is simple. If you devote your computer’s power to mining say bitcoin, then you will earn some bitcoin as compensation.
So the result is if someone is trying to buy something from a store for 5 bitcoins, instead of checking with one bank’s records, the shop will check every computer in this network to check if this person has enough.
Then every computer will update the one copy of ledger independently that “Person 1” paid 5 bitcoins to “Person 2”.
So, because everyone in this network ended up with this many copies of exactly the same ledger, it became harder for someone to hack it or change something.
For example, if I try to hack one of the miner’s computers or someone on this network to give myself money on their copy of the ledger, it’s not going to get through the system because I need to change all the copies of the one ledger in the whole network, which is impossible.
That is why people believe in it, and they see it as the future currency. Much better than having records in many places.
We won’t need banks anymore, with no exchange rates or interest fees, even transaction fees are almost zero.
It doesn’t even need a traditional documentation to sign up in a bank.
Why it called Crypto?
Cryptocurrencies are called crypto is because they are secured by cryptography, like Bitcoin.
They use a type of security called “Blockchain”, I know many people get confused about blockchain, like I did.
What is Blockchain?
First, Bitcoin blockchain is not a currency, it’s a type of Bitcoin’s ledger security.
How blockchain work?
Blockchain is a way of organizing transactions into blocks. So every time someone pay for a product or something with bitcoin, the transaction they did is recorded as a block. Each block contains transaction data, like who was paid and how much.
Blockchain is a system of recording transaction in a way that makes it impossible to hack, change, or do something fishy. It’s a digital ledger of transaction that duplicate across the entire network.
Each block contain the data from the previous block and each block has a unique hash. If the hash of the current block changes, then the next block will no longer have a matching hash with it, so every subsequent block after that block becomes invalid.
So if you remember what we talked about earlier, this whole idea of a million different
computers, all having their own copy of the blockchain ledger, is to keep it secure and safe.
So if I want to hack someone or play with the numbers, I have to change the current block and every block after it, but not just this! I need to change millions copies of ledger in the whole network.
Why people don’t take cryptocurrency seriously ?
Because cryptocurrencies are so new, and they’re completely digital, unlike the paper money, which people know is worth some amount of gold or silver.
No one really knows what they should be worth.
How many cryptocurrencies right now?
Nearly over 6,000 as of 2021.
The dark side of cryptocurrency
Lack of market regulations
It’s extremely difficult to track cryptocurrency, so some people often use it for dark trading or illegal things.
Yes, many websites accepts Bitcoins now. Some accept other cryptocurrencies, but you can’t use it for everything, and we’re talking about Bitcoin only! One of thousands of cryptocurrencies.
Some companies said that they’re going to accept Bitcoins for online trading like Burger King, Microsoft, Tesla.
Then they said they weren’t going to accept Bitcoin.