Where to start indeed…
Cryptocurrency, with bitcoin at the fore, has seen an astronomical surge in popularity throughout 2017.
For one reason or another, crypto has been seized upon by the masses and if you feel as though you’d like to be able to contribute next time you hear something along the lines of: “did you hear that bitcoin is now at £X?” then this article is for you.
Crypto emerged as a side project of its anonymous creator, Satoshi Nakamoto. Indeed, the mysterious Nakamoto never actually intended to create a currency, rather he was attempting to build an autonomous peer-to-peer electronic cash system.
Herein lies one of the key aspects of crypto; there is no central authority governing the currency – no central bank playing around with interest, foreign exchange or inflation. Instead of your cash sitting in banks and financial institutions, all transactions are entered into a massive database and recorded for all to see – known as the blockchain.
It is permissionless, that is to say, you don’t have to ask anyone to get involved; the software is free for everybody to download. After you install it, you can send and receive bitcoins or other cryptocurrencies. Each node (a computer connected to the network) gets a copy of the blockchain, which is downloaded automatically.
If the lack of governing authority has you wondering whether your money would be safe in this system, do not fear. Cryptocurrency funds are locked in a public key cryptography (crypto) system.
Only the owner of the private key can send cryptocurrency. Strong cryptography and the magic of big numbers makes it impossible to break this scheme. Seriously.
Furthermore, unlike the cash sitting in your account, cryptocurrency does not represent debt. Banking is ultimately a system of “IOU”; your hard-earned cash isn’t locked away in a vault Gringotts-style, it is spent, loaned and traded by your bank. If this is news to you, don’t be too alarmed, banks must abide by regulatory requirements that include holding reserves of cash so as to ensure if you do decide to withdraw your money and go elsewhere, you can do so. There’s a lot more we could talk about here but I’m trying my best not to bore you to tears.
So, crypto isn’t backed by debt – its value is based on the unit itself, much in the same way gold is, for example.
Furthermore, as mentioned above, crypto is traded between users without a central governing bank. This allows buying and selling crypto to be both incredibly fast and global.
Transactions are processed and confirmed within minutes, whether you are next-door neighbours or on opposing sides of the world – not that you would know; crypto is also “pseudonymous”, meaning transactions nor accounts are linked to real-world identities. You receive bitcoins on so-called “addresses”, which are random chains of around 30 characters. While it is usually possible to analyse the transaction flow, it is not necessarily possible to connect the real-world identity of users with those addresses.
Furthermore, and perhaps one reason for the meteoric rise in the value of bitcoin, is the fact that it is a controlled supply. Most cryptocurrencies limit the supply of tokens; it is forecast that bitcoin will reach its final number in 2140, for example.
So there we have it – a seriously high-level look at crypto. To add a little extra spice to the article, I’ll give you my opinion on crypto – specifically regarding bitcoin.
I think the value is currently artificially inflated due to the popularity of bitcoin (and various other currencies) amongst novice traders. I fully expect the bubble to burst on this particular cryptocurrency and the value to nosedive, probably at some point in 2018. At this point, if you have the money to spare (and possibly lose) I would buy.
In the words of Tony Robbins, after every crash, there is a bull market i.e. a market in which shares are rising, encouraging buying. I would speculate that after what I consider to be an inevitable crash, the market will bounce back and grow at a reduced rate before stabilising at a value much more reflective of bitcoin’s true value.
It remains a pretty interesting conversation as to the long-term future of decentralised cryptocurrency – you can guarantee that the government will do everything it can to retain its economic power. For example, Russia is currently working on a government-owned cryptocurrency and they’re not alone.
I think it’s worth mentioning the way in which I have learned (and continue to learn) about cryptocurrency – which has been via some highly recommended twitter accounts. Given that our newsfeeds are by and large our primary source of information and current affairs, it makes sense to upgrade our feeds so as to include constant titbits of information so that we can steadily absorb a concept over time – as well as read interesting and incredibly well-written articles such as this one.
Shout out to the following traders, well worth a follow: