What Are Cryptocurrencies? A primer on what Bitcoin is.
Cryptocurrencies or ‘Cryptos’, are a new form of currency, known as ‘digital currencies’.
Unlike traditional currency (Fiat) which is printed by the government and inflationary by nature, digital currencies are not. They are created and maintained by a decentralized network of computers around the world. They solve complex mathematical algorithms and are protected by powerful encryption.
Another difference is that anyone can buy, store, or sell these currencies. They can be sent anywhere, regardless of national borders, and you can convert them to regular currencies.
The value of cryptocurrencies is determined by the global crypto market — what people are willing to pay for that crypto. This is completely different than a currency like the US dollar which the value is controlled by the government and based on many factors: inflation (money printed by the government), the trading value, the economy, interest rates, etc.
Crypto is an honest currency — its value is what other people around the world will pay for it. The more people want it, the higher the value goes.
There are over 1000 cryptocurrencies on the market now and the market cap of Bitcoin (most well-known crypto) is 114 billion. As we enter 2018, the market cap of cryptos will increase exponentially.
Crypto is near the tipping point of disrupting the “old” world monetary system (payment remittances/money transfers between countries, banking, identity verification, property ownership/investing, and a lot more).
What exactly is a cryptocurrency?
Intro To Bitcoin & The Blockchain
The first and most famous of all the cryptocurrencies is Bitcoin. It was created in 2008 and released right after the economic collapse by Satoshi Nakamoto. He is still to this day an unknown person.
Some main points about Bitcoin:
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Bitcoin is not backed by governments. It’s an economic system that supersedes government control. It is not influenced by the political climate of the government or the value of the country’s currency.
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Bitcoin is deflationary: there will only ever be 21,000,000 bitcoins. In other words, unlike fiat currency, which the government can print at will, there will only be a limited number of bitcoins. So as the demand for bitcoin increases over time, the value of it will continue to rise.
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Bitcoins are added to the circulating supply by Bitcoin mining. Mining is not so much ‘mining’ as in the traditional sense, but rather computers across the world confirming the Bitcoin transactions that occur (i.e. when people send bitcoin from one address to another) and adding those transactions to the public ledger (called the blockchain). All computers on the bitcoin network hold a copy of the blockchain and synchronize it.
If you want to get more in-depth into the technicalities of how Bitcoin works, watch this 5 minute YouTube.
The Blockchain Public Ledger — The Disruptive Idea Behind Crypto
At the core of every cryptocurrency is the Blockchain — a public ‘ledger’ (a database of sorts) that’s shared by every computer connected to the network supporting that crypto. Every transaction can be traced and accounted for.
This idea of a ‘trustless’ system where no third party is needed to oversee transactions between two parties is what’s revolutionary about crypto and why it can be applied to so many different areas outside of just sending money between two people.
In our society, we need a third party to handle any sort of transaction between two parties:
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sending money (a bank + middle-men)
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buying property (notary + banks +middle-men)
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Freelancing (a website that handles the payments)
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Betting (a website/third party that takes the bets and pays out to the winners)
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Identity Verification (a third party that stores and handles this)
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Credit Checks (big companies like Equifax maintaining your credit score)
The idea of the blockchain is that any transactions can happen directly between two people without the middle-man to verify (and charge more for this). It’s a fair system and far more efficient, cheaper and faster.
Now the truth is that Cryptocurrencies are a bit of the wild west right now. Most people don’t know too much about Cryptos other than Bitcoin, the grandfather of all cryptocurrencies.
Recently, cryptos have been getting a lot of press because Bitcoin has been smashing records. Just 1 year ago, bitcoin was about $1000 per coin. Now, Bitcoin is in the $8000’s and in my opinion, well on track to beat $9,000 by January.