What is Cryptocurrency?

What is Cryptocurrency?

Cryptocurrency is a revolutionary digital technology created and issued by non-government or banking entities that will change how information is stored and communicated. It has also been described as digital gold and used as a store of wealth. The speed of development in this technology is breathtaking, with more than 7000 projects currently in existence. Some projects are of high quality, while others are not, so do your research before investing.

What is the opportunity here? Well, crypto technology is like the rise of personal computers. If you had invested a thousand dollars in either Apple or Microsoft in the 1980s/1990s, you would be pleased with the returns.

We aim to provide a basic overview of Cryptocurrency on this page. As the site develops, we will add blogs and links that will expand on the topics discussed here, along with links to third-party providers we have used for many years. Crypto is not going anywhere; the rabbit is out of the hat, and the wise among us will learn about it and invest a little. There are many so-called experts out there. Be cautious about whom you trust and avoid following wild claims of increased wealth. Our trusted partners have been at the forefront of Crypto and have proven track records. Still, the more significant your education, the safer you will be. This site aims to educate you. Enjoy the journey.

Bitcoins are used to buy a house in Texas.

On September 18, 2017, a brokerage firm reported the first recorded purchase of a home in the United States using Bitcoin. Many people believe that this was the first of many such transactions to come.

Who created the first cryptocurrency?

In 2008, Satoshi Nakamoto issued a white paper detailing the creation of Bitcoin and the first blockchain database, a public record. However, it is still unclear whether he is the creator or if this was the creator's pseudonym.

All crypto projects stem from this creation; how exciting this technology was born in our lifetime.

What is a Blockchain?

Blockchain is a triple-entry system that cryptographically records information in a way that makes it difficult or impossible to change, hack, or cheat the system. A blockchain is a digital ledger of transactions duplicated and distributed across the entire network of computer systems on the blockchain. Unlike double-entry accountancy systems today, the third entry is a digital receipt.

Smart Contracts

We are all used to contracts for everyday transactions and agreements in modern life. Blockchain technology, the platform on which Crypto is built, can process complicated agreements in seconds. This ability alone will revolutionise day-to-day business.

Use as a currency of exchange.

The Texas house purchase demonstrated how cryptocurrency can be used as a method of exchange. Cryptocurrency transactions are peer-to-peer (Wallet to Wallet) without needing a middleman (The Bank), saving money in fees and time, adding a higher level of privacy and cutting out a third party.

What is the difference between cryptocurrency and bank currencies (Fiat)?

Cryptocurrencies are limited in supply; for example, Bitcoin has a maximum supply of 21 million, which is expected to be reached by 2140. After 2140, the miners can no longer produce more.

Bank currency (Fiat), such as dollars, Pounds, euros, and Yen, has an infinite supply, as central banks print new currency on demand for governments. Before 1971, the printing of Fiat currency was limited by the value of gold held in the banks' vaults. With more Fiat money in circulation, chasing fewer goods and services results in higher prices; this phenomenon is referred to as inflation. With cryptocurrency, as there is a limited supply, this should avoid inflation.

Inflation

Inflation is another form of tax which devalues the dollar in your pocket. If today a loaf of bread costs one dollar, but tomorrow it costs two dollars because more dollars are in circulation, that's inflation! A simplified example, but I'm sure you get the point.

Cryptocurrency risks

Cryptocurrency prices can fluctuate wildly compared to traditional stock market shares. However, Bitcoin rose from $357 in November 2015 to $64,400 in November 2021, then fell to $30,587 by June 2023. You enjoyed some serious gains if you were lucky enough to have invested in November 2015 and sold in November 2021. But if Lady Luck was not on your side, you could be nursing a loss. However, many recognise the long-term value potential and hold (Hoddle). The values have not stabilised as the technology is new and has yet to be widely adopted.

For comparison, let's look at the US dollar, the world's current reserve currency. If you had $1 million in 1990, to have the same spending power in August 2023, you would need $2,334,422.34. To put this into context, if the $1 million were under a mattress in 1990, it would have lost over half its actual value (spending power).

So what's less risky, fiat currency or cryptocurrency? An excellent question for you to ponder.

If fiat currency declines due to banks continually printing more, it will always lose its real value. And history supports this. See Argentina, Venezuela, Zimbabwe and the old Weimar Republic. In contrast, currency with a limited supply will always retain its value.

Cryptocurrencies are digital assets stored on electronic devices, unlike physical assets such as precious metals or cash. This could also pose a risk if the internet were to stop working or a massive power outage were to occur.

What types of cryptocurrency are there?

• Stablecoins aim to maintain a stable value, mirroring that of individual fiat currencies, such as the US dollar.

• Alternative Currency Coins - This type of Cryptocurrency aims to be a fungible medium of exchange or a store of wealth, similar to gold.

• Smart Contract Crypto - Smart contracts can perform various functions, from creating stablecoins to facilitating lending/borrowing of digital assets without the need for an intermediary.

• Oracles - This type of Crypto gathers real-time information and communicates with smart contracts (A source of truth).

Together, the various technologies and cryptocurrencies help form a financial and storage ecosystem. Many of the technologies are in use in today's economic system.

Where are cryptos purchased?

Cryptocurrencies are usually purchased from exchanges, directly from the Cryptocurrency issuer's website, or from a private individual. Unless you are very experienced, I would always buy from a reputable exchange. Avoid holding your cryptos on any exchange, as they are not yours, as we have seen when exchanges have gone out of business.

How to hold Crypto safely?

"Not Your Keys, Not Your Crypto", I want you to memorise that statement.

You are best to store your Crypto in a 'Wallet'. The wallet is your private bank; only you can access your Crypto. Unless you share your username and password or someone gets hold of your keys, often referred to as a seed phrase. If someone gains access to your Crypto, it's gone, and you can do nothing. Don't store your keys on your computer or other device. Write them down and save copies in safe places. If you're more tech-savvy and know how to encrypt a document, this approach may also work; just be cautious about the name you give it. Don't store any sensitive information in Notes on your smartphone; your Crypto is gone if it's stolen or hacked.

There are three types of wallets:

1. Paper

2. Online

3. On your PC

Not all wallets accept all 7000 plus cryptocurrencies, so if you hold multiple, you will likely need more than one wallet.

What are Central Bank Digital Currencies (CBDC)?

Central Bank Digital Currencies (CBDCs) are digital currencies proposed to be issued by central banks. They are unlikely to be secured against any tangible asset, such as gold. Eventually, the plan is to replace cash. The European Union have already banned transactions of over one thousand Euros. So this is the direction of travel.

Based on information from various sources of influence, the technology will give governments and central banks the power to direct and control spending, as well as limit the amount of money people can save. For savings, a $ 20,000 limit has been discussed, along with a time limit before the funds must be spent by law. Additionally, if the authorities believe you have spent too much money in a particular area, your transaction may be declined.

They suggest that CBDCs will be embedded on a chip inserted under the skin of the hand, similar to how microchips are used to identify our pets. On the positive side, you would not have to worry about forgetting your wallet. But would a thief steal your hand instead? Some food for thought!

CBDCs are unlikely to have a limited supply, unlike cryptocurrencies, so governments and central banks can issue additional currency as needed. As stated above, this results in a currency devaluation and fuels inflation.

A recent consultation by the British government received 50,000 responses, with many objecting to a Sterling CBDC. As people become aware of the authoritarian nature of CBDCs, they tend to reject the proposals.

National governments and central banks are concerned about the development of cryptocurrency and blockchain technology, as this could reduce their influence and potentially lead to the end of Fractional Reserve Banking.