You’ve probably heard about Bitcoin by now, as its value saw a whopping 20x increase last year, but that’s just the tip of the iceberg. From celebrity endorsements to stories of overnight millionaires, cryptocurrency (or crypto) has taken pop culture by storm. Crypto may be hot, but let’s be real, it’s not so simple. There’s a lot of fluff and overly complex information out there, so the goal here is to simplify, a lot, and strip everything down to the basics. In this post, we’ll cover the fundamentals of Bitcoin, blockchain, and other cryptocurrencies.
Bitcoin is not so easily defined (go figure). Basically, it’s two-fold: Bitcoin is both a digital currency and a payment system. The Bitcoin payment system allows you to make trusted transactions with people you don’t necessarily trust. Within this system are Bitcoins -- the digital, decentralized currency. What that means is Bitcoin is essentially computer code. There are no physical coins, like quarters, dimes or Chuck E. Cheese tokens, and there is no central bank, corporation or government creating or controlling this virtual currency. That’s what makes it decentralized.
So, why does Bitcoin have value? The simple answer: because people agree it has value, just like any other currency we use today. Some, including Twitter and Square CEO Jack Dorsey, are even speculating that Bitcoin could dethrone the dollar and become the single global currency. That said, there are quite a few technological bottlenecks that make using Bitcoin on a daily basis challenging. Among which, confusing exchanges and a plethora of digital wallet options make it a clunky headache.
While Bitcoin has some kinks to work out, the underlying technology that it’s built on, called blockchain, is of tremendous interest. Normally when you want to send money to someone a middleman (such as a bank or other centralized third party) verifies the transaction, which means delays and fees. In theory, transactions with Bitcoin or other decentralized currencies can be much faster, cheaper, and even more secure, because no bank is involved. In place of a bank, blockchain technology allows a record, or ledger, of every transaction, ever made to be stored across a vast number of interlinked computers around the globe, not just in one central place. This is part of what people mean when they say Bitcoin is decentralized. Once a transaction is completed, it’s like a fly trapped in amber--the information is preserved securely within the widely distributed ledger.
In fact, we can look back in the record to the dawn of the crypto era and see some of the earliest Bitcoin transactions. One of which shows someone offering 10,000 bitcoins for two Papa John’s pizzas. That’d be worth over $2,000,000 today--or more than 100,000 Hawaiian BBQ Chicken pizzas. Hold the pineapple.
Okay, we’re not going to go any deeper into the nuances of blockchain, so to wrap it up, the reason why people are so excited about this is because the decentralized nature of the process has a host of theoretical advantages, whether you’re sending money to friends, storing sensitive data, sharing files with coworkers or casting a vote: it can be fast and hard to hack, improving security, efficiency, and trust when transferring funds or information online. Essentially, it’s the complexity of this whole system that makes it so innovative...and hard to explain. If you’re still a bit confused about blockchain don’t worry. You’re not alone. Check out this video for some helpful visuals.
The crypto craze has led to the creation of nearly 1,600 cryptocurrencies to date. Just about anyone can create a coin, as evidenced by the wild array of names like HoboNickels, PandaCoin, PizzaCoin, and Cabbage. Companies can also create and sell a coin to the public to raise money, as an alternative to issuing stock or traditional fundraising. Sort of like a cross between an IPO and online crowdfunding. This democratized form of fundraising is called an Initial Coin Offering (ICO), and the coins created often act as tokens that can be used for services the company provides.
Thinking about investing?
We are not investment advisors, and we don’t pretend to be, but we cannot stress enough how important it is to be careful and understand the uncertainty that comes with investing in this space. There are some groundbreaking crypto projects that could restabilize economies in areas of devastating inflation, expedite the sending of donations to disaster relief organizations or help create a fair and indiscriminate reward system for service workers. On the flip side, there are projects out there that are...a bit out there, like Dogecoin. Started as a joke based on the meme of a Shiba Inu speaking broken English, Dogecoin’s market value reached over two billion dollars for no obvious reason. Dogecoin may be silly, but it isn’t a scam. It just goes to show that we can give anything value.
With so many coins out there, it can be hard to tell what’s real versus what’s fake. As a rule of thumb, just be sure to do your homework and research the teams behind any crypto project before gambling with your money. Increased regulation is beginning to weed out the scams, but it is still the wild west.
If you’ve gotten this far, you probably know more about the world of crypto than the majority of the planet (woo!). While the value of these digital currencies may be uncertain, your knowledge of the foundational systems and technology is priceless :) Too cheesy? Okay, well, if you want to chat further or learn about how the Skedaddle team is getting into crypto, ping us at firstname.lastname@example.org or join our Telegram fam!
Disclosure: This post is not intended and should not be taken as investment advice.