How does Cryptocurrency work? What is it?
How Cryptocurrency works.
Good day everyone. I’m sure you’ve heard of Bitcoin, Blockchain, Dogecoin, Ethereum, NFTs, etc. Every person is speaking about cryptocurrencies today however wow, what does all of it imply? Here I will take you from crypto noob to cryptogenius.
I’ll explain what it is, why it keeps become more significant, what I have truly put in myself, and its negative aspects. Okay, so there wasn’t any money back before the dawn of civilization. This will be stage one. The only method to purchase something from someone else was to approach them and express interest in their horse. I’ll give you my pet in exchange. The problem with such a system is that even while you might be willing to part with your horse, you might not want to part with a pig, therefore that trade will never take place. Coins, however, were introduced as money in stage two. Everyone simply assumed that they had value because they were made of valuable materials like gold and silver.
You must be familiar with the British pound. As a result, in a trade, it doesn’t matter if you don’t want my pig, as long as I have coins; we can still trade for your horse even if you have no use for the silver; because it is a precious metal, you have the assurance that you can take that coin, give it to someone else, and trade for something that you do want. Therefore, the reason they are called pounds is because one pound literally just used to be one pound of silver.
Is that convenient? However, once banks were founded and governments gained control, this transitioned to stage three. We came to understand that we might stop carrying blocks of precious metal in favor of something even more practical: paper money, as long as there was faith in the system. The same thing happens, but because the currency is comprised of pure silver, it no longer has any value. It is only valuable because the government deems it to be so.
similar to a UK 10 pound note. The actual note is composed solely of plastic. However, if you look closely, you can see that what this really is is the Bank of England pledging to give the bearer of this note 10 pounds. They updated it lately since it is more durable. This is merely a receipt, in reality. However, as technology advanced even further, humans discovered even more practical ways of storing and exchanging our possessions.
We are currently at stage four, when more consumers than ever are making credit card purchases online. In fact, once you reach that point, we no longer see our money. It’s just spreadsheet entries; it has nothing to do with currency, bills, or pets. similar to when I purchase a blouse on Amazon. All that is taking place is that my bank updates my spreadsheet with an item stating that Patty now has ten dollars less, and then Amazon’s bank updates the spreadsheet with an entry stating that they have ten dollars more. Therefore, the entire purpose of this introduction was to set the stage for the discussion about cryptocurrencies. Many people consider this to be the most practical exchange era ever.
In the fifth stage, consider a cryptocurrency as 100 percent virtual. I am aware that the bitcoin logo resembles a real coin in several ways. It really is only a digital asset transfer at this point; there is no physical gold, silver, or paper; it is basically just a bit coin.
The fundamental idea is exactly the same. Imagine them as nothing more than running spreadsheets that show who has received what payments from whom, but with crypto, there is only one sizable spreadsheet that lists every transaction made with that currency, and this is referred to as a ledger. This is in contrast to multiple banks maintaining their own separate records. Why all the fuss when we all have excellent spreadsheets? Why is everyone obsessed with cryptocurrencies? Well, a money system like this one has several clear benefits. Because it is decentralized, everyone who is a part of the network has a copy of the ledger, even though all transactions involving a particular coin are recorded on the same ledger.
The terms bitcoin mining and cryptocurrency mining may be familiar to you. That person simply set up a computer to process transactions on their own copy of the ledger or spreadsheet. Even though bitcoin is only one kind of cryptocurrency, there are now about a million miners operating worldwide. The rationale for their actions is that if you use your computer’s processing power to mine, let’s say, bitcoin, you will be compensated with some bitcoin. As a result, if I go into a store and spend five bitcoins on something, the shop will check with every computer connected to this network rather than just one bank’s records.
Each computer will give the all-clear if I have enough, and assuming I have, each one will then update its records individually. So it becomes very simple to detect any suspicious activity because you end up with this many copies of the exact same ledger. It won’t work if I try to break into someone else’s networked computer and change numbers on their copy of the ledger to give myself more money. The system will recognize that 99.9% of the copies on the ledger are stating one thing, but one copy is saying something different, indicating that the ledger has been tampered with. The system is really well organized, and I feel that people trust it because they anticipate open traceable transactions rather than having different parts of the record in different places in the future.
I understand that it appears complicated at this point, but as we continue, I believe you’ll see that for many individuals, it actually is simpler. There are many places in the world that do not have access to traditional banks, which require a lot of paperwork and documents, but do have internet connectivity, which is all you would need for cryptocurrency.
The fundamental benefit of crypto is that you no longer need banks because everything is stored by the users of this ledger, as I’ve already hinted at a little bit. With no expenditure restrictions, you can make foreign payments almost instantaneously as opposed to requiring a half-day. Additionally, you are free from the stress of exchange rates. You don’t need to be concerned about interest rates, and for some cryptocurrencies, even transaction costs are almost nonexistent. However, this is when the fun really starts.
People frequently misunderstand the term “cryptocurrency,” which refers to cryptocurrencies that are secured by cryptography. Blockchain is one example of this, and many of the biggest cryptocurrencies, including bitcoin, use it. Bitcoin is not blockchain. The blockchain is not a kind of money. Simply said, blockchain is a safe kind of ledger.
Do you remember that large spreadsheet that everyone has for keeping track of transactions? Blockchain is merely a method of organization. surprisingly, into blocks. Therefore, each time I use bitcoin to make a purchase, that transaction is added to a block. The foundation of this system is the fact that if anything in a block is changed, the hash of that block will change. Each block contains transaction data such as 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.
Due to the fact that each block also carries the information from the preceding block, you may be beginning to see where this is going. Every subsequent block following this one will be invalid if the block’s hash changes because the next block won’t have a matching hash with it. In light of this, consider the notion of a million separate users each having a copy of the blockchain ledger as well as what we previously discussed. Then, supposing I wanted to design a transaction that purported to pay me money. In order for the majority of computers in the system to be consistent with the one I’ve tampered with, I would need to alter not only a block and every block following it but also at least 500,000 computers globally. Most likely, that won’t happen.
In contrast, it could happen for someone to simply hack into someone’s dollar account and send themselves money. And while it can occasionally be as easy as guessing someone’s six-digit pin, there is a significant difference between that and attempting to simultaneously hack into 500,000 unrelated systems.
Okay, so there are problems with cryptocurrencies. In the meanwhile, I hope you can understand why some people are excited about them before I get to them. I’ll now move on to investments. You’ve probably heard of people investing in cryptocurrencies, which simply means they are trading fiat money, like dollars, for cryptocurrency, like bitcoin. They are betting that those cryptocurrencies will suddenly gain value and turn become the next great thing, at which point they can either use them or simply sell them back for more money than they paid for them. Going to the moon or mooning is a phrase used to describe cryptocurrencies that soar in price. However, depending on who you ask, it can indicate a number of different things. However, at this point, the only choice that would need to be made is which cryptocurrency to use. Although we have already discussed bitcoin, it is only one of more than 18,000 other cryptocurrencies, all of which have unique characteristics.
For instance, the second most popular cryptocurrency, Ethereum, processes transactions more quickly than bitcoin. There is one that is thought to be more advanced technologically, named Cardano. There is one with a newer algorithm, called Litecoin.
One of the major drawbacks of investing is its volatility, which is one of the key reasons why I believe many people don’t take cryptocurrency seriously. Since no one really understands what these currencies should be valued and because they are entirely digital, unlike, instance, the market for gold, you find that cryptocurrency prices are very speculative. The news cycle influences them. Prices rise, much like when a glowing article about them appears. But when Elon Musk tweets something negative about them, they immediately drop significantly.
The second is that, in most areas, they aren’t really accepted as a method of payment.
Yes, I can now book vacations using cryptocurrency. I can donate to Wikipedia using cryptocurrency, but a lot of businesses are hesitant to accept it. Companies like Microsoft, Tesla, and even Burger King are examples of those that first indicated they would accept bitcoin before changing their minds.
Third, there can be environmental issues. See, the idea of transactions being confirmed many, many times by many, many computers is the entire reason why many of these cryptos are so secure. Therefore, I believe it is fair to say that by itself, this leads to a fundamental inefficiency. A lot of electricity is needed for that much computer power, although you could also argue that traditional banking uses more electricity. Depending on who you ask, there are newer coins with better technology that are more efficient, and we’ll eventually be able to obtain that electricity from renewable sources.
Four, there is a strong belief that cryptocurrency is the ideal currency for criminals because there is now no meaningful regulation or police of it. But to be quite honest, I believe the statistics on that one speaks for itself. Chain research shows that 0.34 percent of cryptocurrency transactions and up to 5 percent of cash transactions are illegal. I believe this is because there is a slight misunderstanding about the anonymity of digital currencies like bitcoin. They are genuinely pseudonymous, which means that even though your true identity is hidden from others, the blockchain will permanently store your public key, or unique identifier, when you conduct transactions using it. Therefore, cash is just a superior form of payment for the majority of criminal activities because it cannot be tracked.
Along with the drawbacks, cryptocurrency has also resulted in a few purely bizarre developments. For instance, you may be familiar with the term NFT, or non-fungible token. Take a seat for this one if you haven’t already. I hesitate to call it stupid, but this one has me perplexed. You are aware of the fact that you may now visit an art gallery and purchase a painting there? As a result of the blockchain, you can now pay solely to have digital ownership over something. This doesn’t prevent anyone from using or sharing the item; rather, it simply means that you would effectively own the original copy and everyone else would be sharing copies.
NFTs are essentially just jpeg images, even if they resemble many of these in terms of appearance and behavior. The fact that there is a clear distinction between purchasing an NFT and purchasing the rights to something may be the reason why some people find this ridiculous and amusing. Because you can make merchandise or sell licenses with an NFT, you can’t if you acquire the proper service, which is a completely genuine purchase. All reproduction rights for that item remain with its original owner. You’re simply using the blockchain to demonstrate that you have some ownership interest in that asset. But given that an NFT of this Gucci Ghost went for 3,600, it is obvious that simply being able to claim that has some value.
Jack Dorsey, Twitter’s CEO. He received $2.9 million for the first tweet he ever made as an NFT. This one just blows my head. A simple five words, this image, which is essentially a collection of one man’s works of art, sold for $69 million. Nice. This essentially basically transfers some digital ownership of a jpeg image to the buyer.
And lastly, Dogecoin may be a name you are familiar with. Although it was developed as a joke, Dogecoin uses the same technology as Litecoin. Because they found it amusing, people began spreading it and contributing a small amount of money. However, that increased its value to the point that some users have actually made billionaires as a result of purchasing Dogecoin at a discount.
There is an interesting world out there.
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