Many people are familiar with the terms “cryptocurrency”, “Bitcoin”, and “blockchain” as the latest hot topic buzz words, but the actual definitions of these concepts might seem difficult to describe. Often remind people of the techno geek or savvy investor, people who did not understand the virtual world of currency initially can be dismissed as a scam, risky or scary.
After all, it can’t exist if it can’t be seen, right?
In reality, cryptocurrency, Bitcoin and blockchain, have proven their value and for many experts, it is truly the “next big thing”, a great wealth opportunity. Therefore, it is good idea to learn about digital currency, since it is a new technology that can’t be ignored and it’s not going away.
Let me simplify and explain these buzz words in layman term, so we can slowly understand these concepts. If you are interested in investing into Bitcoin or altcoins, please do your further research and study. If you don’t know what you are doing, you can get wrecked.
What is cryptocurrency?
Cryptocurrency is a digital asset, unlike fiat currency or printed money that we use to buy things everyday. It is a form of exchange and savings, it can be traded and transferred like traditional funds, stocks and bonds. However, it uses cryptography for security, to control the creation of more units and to verify the transaction and ownership.
Imagine this is like you have a bank account, which is public and transparent, but no one has your password to access your funds or change the digit or to wipe out your wealth. And the account doesn’t have your name on it, the account name is a bunch of numbers so no one knows that Dominic has $55 million and Simone has $24.
Cryptocurrencies are appealing because they are decentralized, meaning that they are not tied to a single bank or institution. It can be sent user to user directly, from anywhere in the world, so there is no need for third party and pay extra fees to transfer your money to buy things or gift to others.
The most famous cryptocurrency is Bitcoin, which was invented in 2008 and officially offered in 2009. One of the main reason of why Bitcoin is so valuable because it has the total supply of only 21 million, written in its program, no one can print any more Bitcoin, ever.
This increases its rarity and scarcity, which in turn impacts its value. Often compared to gold, another alternative investment, Bitcoin is mined, digitally rather than physically.
In this case mining means that an individual is rewarded with a Bitcoin if they solves a mathematical puzzle, but they must supply “Proof of Work” in order to receive the Bitcoin. New Bitcoins are released every ten minutes, and this time frame corresponds to the difficult rate of the puzzles, hash rate.
Don’t worry if this is too deep, we just need to know the basic concept for now, tech companies will make it user friendly version for us to use. Like a smart phone, we just need to know how to use it; we don’t need to know what’s behind the CPU.
The blockchain is similar to a digital ledger to accompany the digital currency. Like its name, the blockchain consists of blocks or pieces of code that validate two party transactions. Although the block is public, the parties remain anonymous (in most blockchains); creating a transparent system that is also secure and confidential.
Connected to the process of mining, when a puzzle is solved, it creates a new block on the main chain. In this manner, the blockchain eliminates third parties, therefore challenging the economic most powerful of banks and countries borders. Because it is peer to peer directly, it is also meant to eliminate fraud and corruption, since it not only reduces the human factor, but it also remains in the public domain, it’s an open book for everyone to see.
We don’t have to trust a company to keep your money, the blockchain system is TRUST itself.
Cryptos are Growing
Cryptocurrency may appear to be overwhelmingly technical and detailed upon first introduction.
There are many additional aspects to it, including the cost of shares, the cost of mining and investment strategies, but there is little doubt that cryptocurrency and the blockchain has (and will continue to) revolve financial transactions and giving power back to the everyday people.
Like Web 3.0, it is new technology that has the power to change lives. It would be a shame to dismiss it merely as a passing trend or a pop culture gimmick.
In the beginning established economists were blinded to the power of the internet. The world of cryptocurrency
has the ability to replace the established financial system, which would be one of the biggest events in monetary history. We are still in the early days of cryptos, and it is time to become familiar with a powerful new force in the global economy.