Crypto-Clear Things Up Guide (with a focus if you are not so interested)
To begin, what is crypto?
Until recently, it was often used to denote cryptography.
But now it's more with bitcoin.
Blockchains are the distributed ledger systems that fuel digital currencies like Bitcoin and serve as the underlying layer of technology for things like NFTs, web3 apps, and Defi trading protocols.
You can refer to this entire system as crypto.
Blockchains. Can you tell me what they are without getting into too much detail?
Blockchains are decentralized databases that securely store and verify data.
A blockchain is similar to a Google spreadsheet, except it is maintained by a global network of computers instead of being hosted by Google.
These machines (also known as miners or validators) are in charge of backing up the database, adding new entries, and protecting it from hackers.
It is decentralized, first. It doesn't require Google's oversight.
The network computers conduct all of that work using a consensus mechanism — a sophisticated algorithm that enables them to agree on what's in a database without a neutral arbiter.
According to supporters, to hack or update the information in the ledger, a hacker would need to get into multiple computers simultaneously, making blockchains more secure than conventional record-keeping methods.
Unlike a Google spreadsheet, a public blockchain's code and transaction history may be seen by anyone. (Private blockchains exist but are less relevant.)
Third, unlike a Google spreadsheet, data contributed to a blockchain is usually permanent and cannot be erased or modified.
These are open, permanent databases that nobody owns.
The Blockchain and Cryptocurrencies tell me more.
Blockchains didn't exist until 2009 when a mysterious programmer called Satoshi Nakamoto published the code for Bitcoin, the world's first cryptocurrency.
A blockchain tracked transactions in Bitcoin. Anyone could send and receive money over the internet for the first time without using a central authority like a bank or an app like PayPal or Venmo.
According to CoinMarketCap, there are already around 10,000 distinct cryptocurrencies in circulation.
But many blockchains can also hold non-fiat tokens (NFTs), self-executing code (smart contracts), and applications without a central authority.
But nobody I know uses Bitcoin for rent or groceries. So it's a currency not for daily use?
Today, few people pay with cryptocurrency. Partly because most shops still don't accept crypto payments and because transaction costs may make spending tiny amounts of bitcoin difficult.
Because popular cryptocurrencies like Bitcoin and Ether have historically increased in value, using them for physical purchases is hazardous.
For example, in 2010, a man purchased two pizzas using Bitcoin, valued at around $40 but worth nearly $400 million.
Although most individuals don't use cryptocurrencies daily, their value has increased dramatically from the early days of Bitcoin.
Part of the increase is speculative, with investors purchasing crypto assets to sell for a profit. Partly because newer blockchains like Ethereum and Solana have broadened the possibilities of this technology.
Some crypto enthusiasts feel that Bitcoin's price will ultimately settle, making it more viable as a payment method.
What are the real-world applications of crypto beyond trading?
Currently, many successful crypto applications are in banking or closely related industries. For example, families use crypto to transmit money to relatives overseas, while Wall Street banks use blockchains to settle international transactions.
The crypto boom has inspired new initiatives outside of finance. You can find crypto-powered wifi networks and crypto-powered social groups.
However, they are still restricted. But crypto enthusiasts frequently argue that the technology is still new, much as the internet took decades to grow.
Many investors believe that blockchains will one day be utilized to store medical information, monitor streaming music rights, and possibly host new social media sites.
And developers are migrating to the crypto ecosystem, a good indicator for any new technology.
Is it true that some skeptics feel cryptocurrency markets are fake?
They say crypto markets are essentially fraudulent, either because early investors profit at the cost of late investors (a pyramid scam) or because crypto ventures seduce naive investors with promises of secure profits, only to implode once new money stops flowing (a Ponzi scheme).
Crypto has several instances of pyramid and Ponzi scams. Virgil Sigma Fund, controlled by a 24-year-old investor pled guilty to securities fraud, was sentenced to seven and a half years in jail.
But these aren't the situations detractors generally bring up. They claim crypto is an exploitative scam with no real-world value.
I am still not sure whether it is a scam.
Let us attempt to comprehend their argument.
They argue that purchasing a cryptocurrency is more like betting on the success of a concept than buying shares in a company like Apple. People that believe in Bitcoin purchase, and prices rise. If individuals lose faith in Bitcoin, they sell, and prices fall.
Owners of crypto have a reasonable motivation to sell to others. And if you don't believe bitcoin technology is valid, you could assume that it's all a pyramid scam where you earn money by encouraging people to join.
Even though there are numerous scams and frauds in crypto, and many investors like recruiting others to join, many investors say they are entering with open eyes.
They say that a decentralized blockchain will appeal to all types of individuals and enterprises in the future. They'd say they're betting on the product, not the concept, similar to purchasing Apple shares because you believe the next iPhone will be popular.
Is crypto legal?
Just a little. Bank Secrecy Act mandates them to gather certain information about their clients. In some instances, such as in China, stricter laws have been enacted.
Comparatively, crypto is a low-risk investment. For example, the Internal Revenue Service hasn't issued clear guidelines on taxing crypto investments like "stablecoins" whose value is tethered to government-backed currencies." Decentralized finance, for example, is practically unregulated.
Partly, it's because it's early and establishing new norms is slow. Much of the blockchain technology was meant to be impossible to manage by governments.
Will bitcoin replace the dollar?
The dollar is the world's primary reserve currency, and moving it would be a vast, expensive undertaking. (every financial transaction denominated in dollars must be re-denominated in Bitcoin, Ether, or another cryptocurrency.)
Cryptocurrency must also overcome technological obstacles ever to replace fiat money. Bitcoin and Ethereum are today's most popular blockchains, yet they are sluggish and inefficient. (The Ethereum blockchain, for example, can only handle roughly 15 transactions per second, but Visa claims to execute thousands.)
For a cryptocurrency like Bitcoin to replace the dollar, you would have to persuade billions of people to adopt something with no official backing and can be stolen easily.
Is the bad guy into crypto?
Some. People who wanted to avoid the conventional financial system were attracted to cryptocurrencies since they could purchase and sell them without disclosing their identity or having a bank account.
They included criminals, tax evaders, and drug dealers. They included political dissidents and radicals, some of whom had been banned from PayPal and Patreon.
So, how do you utilize crypto? Is it like paying online?
Yes. A crypto exchange like Coinbase may connect to your bank account and convert your US dollars (or other government-issued cash) into bitcoin.
But many crypto users prefer to create their own "wallets" – safe locations to keep their cryptographic keys.
The method is simple:
Enter the recipient's crypto wallet address.
Pay any transaction fees.
Wait for the money to settle.
Buying and selling NFTs is more complex, yet making a payment to someone takes just a few minutes.
NFT means nonfungible token. But, what does it mean?
Let us start with the words. In economics, "fungible" refers to items that may be swapped for identical items.
The dollar is fungible, meaning you and a buddy may change $1 notes and still have the same purchasing value. A Bitcoin is a Bitcoin, and it doesn't matter which one you hold.
But most physical goods, like automobiles and homes, are nonfungible, meaning they have distinct attributes and cannot be exchanged for like items. This means you'd want to know the condition of the other automobile before agreeing to a deal.
Tokens are value units kept on a blockchain. Bitcoin, Ether, and Dogecoin are all tokens, but not all tokens are money. Tokens may be connected to actual products — Nike, for example, is testing crypto tokens related to shoe ownership — or intangible goods like private chat room access or cloud storage space.
I keep hearing "web3" everywhere. So, what is it?
Cryptocurrencies like Bitcoin and Ether employ decentralized blockchains — shared ledger systems — to build new kinds of internet services.
The word has been around for a while but has recently gained popularity. Web3 is "the internet owned by the builders and users, managed using tokens," according to investor Packy McCormick.
Decentralized social networks, "play-to-earn" video games that reward players with crypto tokens, and NFT marketplaces that let individuals purchase and trade digital culture are possibilities for web3. Optimists claim web3 will revolutionize the internet, dismantling existing gatekeepers and ushering in a new, middleman-free digital economy.
A rebranding attempt for crypto, say some critics, designed to remove some of the industry's cultural and political baggage and convince people that blockchains are the inevitable next step of computing. Others think it's a dystopian picture of a pay-to-play internet where everything is a financial asset.
So, what is Defi?
Decentralized finance (dee-fye) It's a catch-all phrase for the crypto community working to create a new internet-native financial system with blockchains replacing existing intermediaries and trust mechanisms.
Sorry, Yet you covered a lot, and it was a good read.