How Cryptocurrency Actually Works in 2022 Review Beginner Guide
let’s talk about crypto
All right bitcoin blockchain dogecoin ethereum nfts everyone is talking about cryptocurrencies right now. but good lord what does all of it mean so welcome to the article that will take you from crypto noob to cryptogenius I’m going to tell you what it is why it keeps becoming more important what I have actually invested in myself and the dark side of it.
okay, so when society was in its eassly stages there was no such thing as money. we will call this stage.
The only way to buy something off someone was to go up to them and be like oh I really like your horse I will trade you my cat for it. but the issue with a system like that is even though you might be perfectly happy to give up your horse you just might not want a cat so that trade will never happen but that is where currency came in.
Two coins which because they were made of precious materials like gold and silver everyone just accepted that they were worth something you have heard of the British pound right (GBP) well the reason they have called pounds is that one pound literally just used be one pound of silver and so all of a sudden in trade it doesn’t matter for you if you don’t want my cat as long as I have coins we can still trade for your house.
Even if you have no use at all for the silver because it’s a precious material you have that reassurance that you can take that coin give it to some else and trade for something that you want convenient right but then this evolved Next stage
As banks became established and the government had control we realized that as long as there was trust in the system we could move away from needing to carry blocks of precious metal towards something even more convenient paper money it does the same thing now the money doesn’t have value because it’s made of pure silver just have value because the government says it has value like this 10-pound note (IMG) here in the UK the note itself is just made of well it’s actually made of plastic they changed it recently because it’s more durable but if you look closely you can see that all this actually is the bank of England promising that they will pay the bearer of this note 10 pounds really this just a receipt a kind of proof that you own a certain amount of money.
But, as technologies system improved even further we found even more convenient ways of storing and trading our stuff.
Where more people than ever are buying things online and using credit cards and really when you are at that stage we don’t see our money anymore it’s not about coins or notes or cat it’s just entries on a spreadsheet.
Like when I buy a music album from Amazon all that’s happening is that my bank adds an entry in me a spreadsheet that says Aaron now has ten dollars less and the amazon’s bank adds an entry that says they have $10 more so, the reason I have given you this entire intro is to give you context. on where cryptocurrency sits it’s seen by many people as the most convenient era of exchange ever.
The way to think about a cryptocurrency is that it’s not 100% virtual I know the logo for bitcoin (IMG) kind of looks like a physical coin. but with crypto, there is no gold there is no silver there is no paper really just transfer of digital assets. The core concept is exactly the same thins of them as literally just running spreadsheets of who’s paid what to who instead of multiple banks keeping their own separate records with crypto there is just one enormous spreadsheet of every transaction made using that currency and this is called a ledger.
okay, we all have a good spreadsheet but what’s all the fuss about why is everyone going crypto crazy well there are some distinct advantages to a currency system like this one that is decentralised.
Decentralised which means that every transaction of a given cryptocurrency is all recorded on the same ledger there are many many copies of that ledger and anyone who is a part of the network has one you might have heard of cryptocurrency mining or bitcoin mining well all that is someone who set up a computer to crunch through transactions on their copy of this ledger or spreadsheet. there are already about a million bitcoin miners around the world and bitcoin is just one type of cryptocurrency, The reason that is doing it well is if you dedicate your computer’s power to mining say bitcoin then you will earn some bitcoin as compensation so the result of this that if I go into a store spend five bitcoins something then instead of just checking with one bank records the shop instead checks with every single computer on this network if I have enough and assuming I do each computer will give the go-ahead and then every single one will update their records independently so because you end up having this many copies of exactly the same ledger it becomes very easy to tell if anyone’s trying anything fishy did you who bought this like if I try to hack someone’s computer that’s on the network and give myself more money by adjusting figures on their copy of the ledger. it’s not going to get through the system will realize that 99.9 of the copies on the ledger are saying one thing but one of them is saying something else so must have been tampered with there’s a very clear organization to the system and think people believe in it because they see the future as an open traceable transactions mush more
So then having like some bits of the record over here and other bits over there and I know it seems complex at this point but as we go I think you will realize that lot of people in a way it’s simple there plenty of areas in the world that internet access which is all you’d need for crypto but doesn’t have access to traditional banks which require a lot of paperwork and documentation well two and I have kind of implied this already but the main perk of crypto is that you don’t need banks anymore because everything is stored by the people on this ledger you can make international almost instantly instead of it taking half a day with no spending limits. plus you don’t need to work about exchange rates you don’t need to worry about the interest rates and even transaction fees close to zero for some cryptocurrencies that is but this is where the real fun begins I’m fine at parties I promise that reason that cryptocurrencies called crypto. cryptocurrencies are because they are secured by cryptography and one example of this lot of the major cryptocurrencies like bitcoin use blockchain
now people often get confused by this blockchain is no bitcoin blockchain is not a cryptocurrency itself. blockchain is just a secure type of ledger. So, you know that big spreadsheet that everyone has that’s recording transactions blockchain is just a way of organizing it funnily enough into blocks
so every time I pay something whit bitcoin that transaction is recorded as a block each block contains transaction data like who was paid and how much a hash which is a unique identifier and the hash of the previous block in the sequence or the last transaction that was recorded and the piot on which this system rests is that if something in a block changed then that block’s hash will change.
Then that block’s hash will change you might be starting to see where this is going because each block also contains the data of the previous block if the hash of the block here changes then the next block will no longer have a matching hash with it and so every subsequent block after that one becomes invalid. so if you combine this with what we talked about earlier this whole idea of a million different users all having their own copy of the blockchain ledger then if I wanted to fraudulently create a transaction that says paid me money. I’d have to not just tamper block and every single block after it but I’d also have to do this on at least half a million computers around the world. so that the majority of computers in the system are also consistent with the one I have tampered with.
Probably not go happen whereas just hacking someone’s dollar account and sending myself money that does happen and it’s sometimes as simple as just literally guessing someone’s six-digit pin but there’s a massive jump between that and trying to hack into 100,000 uncorrelated computers at once okay. so cryptocurrencies have there are issues I’m literally going to get to them in a minute but hopefully, you can see why some people are excited about them and that brings me on to investments you have probably heard people putting money into cryptocurrencies and all that means is that they are exchanging normal currencies it dollars for crypto like bitcoin they are hoping that those cryptocurrencies become the next big thing and therebefore suddenly shoot up in value at which point they can then either spend them or just exchange them back for more dollars than they bought them for there is actually a term for cryptocurrencies that skyrocket going to the moon or mooning but that can mean something very different depending on who you talk to but the one decision that someone would have to make at this point is which cryptocurrency because we have talked about bitcoin but bitcoin is just one of over 4000 different cryptos already and each of them has different properties
For Example:- ETHEREUM which is the second most invested in can process transactions even faster than bitcoin.
There is one called CARDANO which is considered to be technologically superior.
There’s one called LITECOIN which has a newer algorithm
So, let me show you what done and disclaimer this is not in any way at all financial advice I’m not recommending this I have literally only put in a small amount of money that I am confusing losing, and to be the honest way I am seeing it more like an optimistic gamble as opposed to a strategic investment.
So, I have 40% in ethereum 20% in polygon 20% in Cardano 10% in cartesi and 10% in litecoin, and this portfolio has basically gone up and then down and then up and then down, and then honestly you probably get more consistency from wish.com. So, crypto is in a pretty weird place right now and this brings me onto its problems the dark side one of the main ones is exactly this. the reason I think a lot of people don’t take crypto seriously is its volatility because these currencies are so new and they are completely digital unlike say the market for gold no one really knows they should be worth and so you find that crypto prices are quite heavily speculative they are tied to the news cycle like when a glowing article comes about them prices spiral upwards but then when Elon musk posts a tweet that puts them down they go away down.
Two is the fact that they are not really accepted as a form of payment in well most places like yes i can now book holidays with crypto I can donate to Wikipedia with crypto but there is been a lot of companies who are pretty back forth with it. Microsoft Tesla even burger king are examples of companies who said they were going to accept bitcoin and then they said they were not going to accept bitcoin.
Three, they can be an environmental concern see the whole reason why a lot of these cryptos are so secure is because of this concept of transections being verified many many times by many many computers so I think it’s a fair criticism that in itself creates a fundamental inefficiency that much computing power requires a lot of electricity but at the same time you could counter this by saying that traditional banking uses more electricity that there is a new coin with better technology that is more efficient and that one day we will be to get that electricity from renewable sources depends who you ask.
Four, there is also pretty strong sentiment because there is no real policing or regulation on crypto right now it is like a perfect currency for criminals but to be honest I think the data speaks for itself on that one according to chain analysis 0.34% of crypto transactions are criminal up to 5% of normal cash transactions are criminal and I think that is because it is a bit of a misconception that currencies like bitcoin are anonymous. There are actually pseudonymous which means that even though your actual details are visible to everyone your public key your unique identifier will be permanently baked into the blockchain upon making transactions with it. so cash is just a better currency for most types of criminal activity because its very nature is untraceable. But as well as the negatives there are also just some straight-up odd things that have come about because of crypto
For Example:-you might have heard of an nft a non-fungible token if you have not you might want to take a seat for this one.
So you know-how now you can go into an art gallery and you can pay to own a painting. well, now thanks to the blockchain you can pay just to have digital ownership over something. so it does not stop anyone from using or sharing that thing but all it means is that you’d effectively be the owner of the original and they’d all be sharing copies of it. even if for most intents and purposes they look and behave identically like a lot of these NFTs are literally just Jpeg images
I think the reason some people find this stupid and kind of funny is that there is a distinct difference between buying an NFT and buying the rights over something so if you buy the right service something that is a very legitimate purchase because you can create merch or sell licenses with an nft you can not the original owner still has the reproduction right over that piece all it is that you are using the blockchain to prove that you have some ownership over that asset but clearly just being able to say that has some value because an nft of this Gucci ghost sold for $3600the CEO of Twitter JACK DORSEY he sold the first tweet he ever made as an nft for 2.9million Dollars five words.