Bitcoin… Dogecoin… Ethereum… Cardano… What on Earth is all of this and why should you care?
Wrapping your head around cryptocurrency can be a bit tough, since it’s easy to think that it’s some madness that tech nerds use to trade… tech nerdy stuff. And to a certain extent, that’s not too far off base …for now. If there’s one thing the boom of crypto has shown is that, while there are still many issues with this form of currency, it’s here to stay, so no matter how tech averse you are – sooner or later, you’ll need to understand it and maybe even be forced to embrace it. Thankfully, we’re here to ease you into the world of crypto in a way that won’t give you a migraine or a desire to run away and live in the woods. Hopefully.
While the concept seems daunting, cryptocurrency in and of itself is not that far off from regular currency we use every day. Once upon a time, we traded gold and silver for goods and services, because it was generally understood that these precious metals had intrinsic value. After that, we decided to simplify the agro of carrying sacks of heavy metal around and switched over to paper money. Obviously, that paper (or now, plastic) has little to no ACTUAL value, but it represents a certain amount as promised to be paid by the bank – for which the bank will have reserves, including good old gold, in a vault.
Aah banks, those evil monsters we invented. A bank, or lack thereof, is the fundamental difference when it comes to cryptocurrency. As we’ve entered the digital age, how often do you find yourself actually handling or using money anymore? Most shopping is now done either online or via debit or credit cards. So, simplified, most transactions are nothing more than entries on a spreadsheet. However, all “actual” money is nevertheless accounted for via the system of central banks. Every penny we spend, physical or otherwise, is tracked through your local banks and then the central banks, which are regulated by the government. The Man.
Cryptocurrency has nothing “actual” attached to it. The fact that so many of these currencies feature the word “coin” is a bit misleading, since there’s no physical value involved. Crypto exists purely in the digital world in the form of huge online ledgers. A plus in column A corresponds to a minus in column B, but on a huge global scale. These ledgers, that hold the record for every single transaction, are completely decentralised – in other words, The Man is not involved. The records are not kept by many individual banks or governments, they are all kept in one gigantic spreadsheet – one ledger for each cryptocurrency.
So there’s a bitcoin ledger, an ethereum ledger, a litecoin ledger etc. And unlike banks, this ledger is completely open to the public and there are thousands of copies of it – anyone part of a crypto-network has a copy of that exact same ledger. So when you make a transaction using, for example, Bitcoin, the digi-shop won’t just check with your ledger to see if you have enough for the purchase, but it will check against every single ledger in the network. But more on that later.
There are many pros for such a currency system. For one, convenience. Because your cryptocurrency isn’t actual money kept in a bank, you have no spending limits, no interest rates, no international fees and virtually no transaction fees. Plus, making international transactions takes no time at all, unlike via banks which can take hours or even days.
For another, all you need to get in on this is access to the internet. Many parts of the world won’t have access to traditional banks or worse still, since The Man is a big fan of keeping broke people broke, you’re not going to be rejected on application or denied an account. Many see this as the future of money and a good way of eliminating banks altogether – perhaps not the worst idea, especially after we all saw what happened in the 2008 meltdown. After all, banks are regulated by the government, which is hardly a trustworthy collection of people.
Another big plus of cryptocurrency is the fact that it’s comparatively very secure. We mentioned those gigantic ledgers earlier? Since every transaction is checked against every single identical ledger – of which there are millions – if someone tried to manipulate how much “coin” they have, they would need to hack every single one of those computers, which as you can imagine is nigh on impossible.
Moreover, getting into cryptocurrency doesn’t require any kind of personal data or verification – you’re assigned a unique identification code, but nothing that actually relates to you as a person. So as far as identity theft goes, that’s virtually impossible in the crypto world.
We’re about to introduce another deeply confusing term – blockchain. Blockchain is the reason why cryptocurrency is so hard to falsify, because, put very simply, it is a very secure way of keeping ledger entries. Every transaction made with a cryptocurrency is recorded as a, you guessed it, block. Each block contains data pertaining to that transaction – who was paid and how much, a reference hash (which is just a unique identifier) and the hash of the previous block in the sequence, ie the previous transaction.
If anything in a block is changed, for instance, the amount, the unique identifier hash will also change. If this happens, the next block won’t have a matching hash anymore and thus the chain is instantly broken – every subsequent block becomes invalid. So trying to commit fraud on such a level has a huge cascade effect that is insanely difficult to get around. You’d not only have to falsify that transaction’s entire blockchain, but also every ledger that has access to it!
Basically, any jerk that steals your credit card or tries to get a bank account in your name or hacks your banking app can do so with relative ease compared to the fail-safes in place when it comes to crypto.
While all that sounds like peaches and cream, there are a lot of risk factors when it comes to crypto – although mostly from scammers taking advantage of newbies – so well done for reading! You can celebrate the lack of involvement of banks, but it also means no real regulation or policing. Without even going down the road of how the boom of NFTs has led to a new form of money laundering (but that’s a headache for another time), the digital asset ownership market is a breeding ground for people getting conned.
Part of the problem being that the value of some of these NFTs is astronomical based on… seeming insanity. CryptoPunk are literally pixelated images of heads… of the quality something a 5 year old would draw in an old Microsoft Paint package… and they’re worth millions. And that’s millions of actual money, not “digi” money. Obviously, everyone wants to get in on the frenzy since a simple JPEG could earn you a fortune, but how this worth is assigned is still, to many, beyond comprehension. Remember the GIF of the cat with the rainbow coming out its bum – go ahead and google how much its NFT sold for. We’ll wait.
So what do you actually do with cryptocurrency? Many sceptics still disregard crypto as anything to take seriously, since for the most part – cryptocurrency can’t buy you anything real. While there are a few companies that have started to accept bitcoin payments, when it comes to our day to day needs, no regular person will pay their mortgage, buy fuel or go food shopping with cryptocurrency. So what’s the point of it, you ask? Well, this whole crypto deal is about exchanging digital assets and hoping to score a profit on the trade.
When people buy crypto with “real” money, the hope is that the value of that particular cryptocurrency will go through the roof. Not unlike regular trading on the stock exchange. However, while traditional currencies have an understood value based on the trust in their respective governments (for instance, how likely is the UK to suddenly fall apart compared to say, Colombia?
Not very, hence the pound is worth more than the peso), the value of cryptocurrency is based on perception, which, in a market with little real liquidity, is very easily shaken and the standard concept of supply and demand – there is a finite amount of bitcoin, so as demand for it continues to rise, naturally so does its value. There are now thousands of different cryptocurrencies and they all try to offer something new to the table, be it faster speed or better algorithms, so how is a layman supposed to know which one of these currencies might “go to the moon” and which ones will be an utter failure?
So – one of the biggest drawbacks with crypto is that this market is insanely volatile. Because it’s still such a new thing and crudely put “it’s make believe money that can’t buy anything real, but is sometimes worth a lot of actual money for reasons few people understand”, something as simple as a negative tweet from someone famous can send the value of a crypto crashing down to oblivion.
Like it or not, gold is still gold, while digital currency in the ether of internet cables is not yet something the average person is going to put more faith into. But there is clearly a lot of potential for the proliferation of the crypto market. Consider, Dogecoin – the shiba inu thing – started out as a joke… and now their market capitalisation is $21.7 Billion and is favoured by Elon Musk …which isn’t to say it won’t collapse tomorrow.
So, clearly there is a pretty penny to be made, but if you’re a newbie to the crypto market, it’s important to go in with a level head and not invest any more than you’re comfortable losing. The best way to dip your toe and get comfortably familiar with crypto is to use platforms like AQRU, which offer a very user friendly way of investing and making trades with a relatively low level of risk and easy access to your money – crypto or otherwise – if you want to pull out.
Without getting too existential, but with the development of the Metaverse, which is certainly going to be a major thing in the future, cryptocurrency is likely to play a very big part in not only how we buy and sell, but perceive which assets have value in the future.
It’s worth noting that due to all the processing power required for cryptocurrency, it presents a huge negative impact on the environment, but we may move more and more towards renewable energy sources and create a more sustainable way of powering our digital networks. As we step further and further away from the tangible life experience, it stands to reason that so will our currency.