A blog about the basic concepts of cryptocurrency. It is designed to be accessible to people who have no idea what a cryptocurrency is. If you already understand the basic concepts and have heard of Bitcoin, this is not for you. But if you’re starting out, it might help you understand other cryptocurrencies that are more popular.
It’s about as professional as a blog on the basics of quantum mechanics can get without being unseemly: https://techcrunch.com/2017/04/26/the-crypto-cubicle-one-mans-honest-guide-to-cryptocurrencies/.
Cryptocurrency is the hottest new thing. If you want to know more, you’re in luck. There’s a blog about cryptocurrency that’s been around for a while, and it’s worth reading. It’s called Next Big Coin .
The author of the blog is an investment banker who has been following cryptocurrencies since 2011. So far he has written about Bitcoin and Ethereum, two of the most interesting modern cryptocurrencies. He sees Bitcoin as a currency that isn’t dead yet, and Ethereum as a platform on which other currencies can be built.
His posts usually include links to articles by other people on similar topics, as well as original research. One of his most recent posts was an interview with someone at Coinbase; another was an analysis of how long it would take if you made one million transactions per second on the Bitcoin network (it turns out it could be done).
Bitcoin is the first example of cryptocurrency, a new kind of money that doesn’t rely on governments or banks. Bitcoin was created by an anonymous person who called himself Satoshi Nakamoto. The original concept was simple: bitcoins are essentially lines of computer code and they have value because people agree that they do.
In 2009, when Bitcoin was born, it was not clear to everyone what would happen to them. It seemed like a big risk, almost like gambling or speculating in stocks. But the price started going up fast and then it kept going up. That made the risk worthwhile; people who bought early got the most out of it.
The idea spread quickly through the internet and into lots of other places. There are now hundreds of cryptocurrencies beyond Bitcoin (it’s hard to keep up with them all). Some are based more on science than on speculation and risk taking: for example, Ethereum, which uses a cryptocurrency built on blocks in a blockchain database (like Bitcoin), but with more of an emphasis on smart contract technology than as an investment vehicle.
Cryptocurrency is still in its infancy and will probably take many years to mature, but there are already some interesting possibilities:
In order to understand cryptocurrency, your first thought might be that the technology is the main thing. Cryptocurrency is about the transfer and storage of value. Right?
Wrong. Cryptocurrency’s real significance lies in its social implications. The way it works has profound implications for our society and culture. The way it works has profound implications for how we think about money, friendship, community, competition, and ownership.
The only way to understand what cryptocurrency is, and why it’s important, is to understand how it works—and then how it doesn’t work.
One reason to learn about cryptocurrency is to learn about the general principles of economics.
The basic thinking here is that money (as opposed to things like cats or beer) has value because people believe it has value. But you can’t have a value without an assigner, and you can’t have an assigner without a thing that people assign value to.
Crypto currencies are assigners, which brings us to the first concept of economics: scarcity. When there is only one Bitcoin, no one can assign it value. So at the moment there is one Bitcoin, but no Bitcoin. At some point in the future there will be more than one Bitcoin, but no more than one Bitcoin at any time.
The second part of this statement is that scarcity doesn’t always make something valuable. If everyone already knew how valuable a thing was, it wouldn’t be valuable anymore. But if everyone didn’t know how valuable a thing was yet, that might be all right: it would still be valuable because it had value.
Where scarcity makes money valuable is where it’s scarce enough that someone might want to buy the thing with it. And where scarcity doesn’t make something valuable is where there’s not enough of it for anyone to want to buy it, or not enough
There are lots of things you can buy with cryptocurrency, but the most interesting and profitable ones are what I call “tickets” – tokens that represent a right to access something or a future right to be paid for. Tokens can represent all sorts of things, including services and ownership.
Bitcoin is the most popular cryptocurrency, but there are many others. Some currencies have more theoretical value than others, and some have more practical value; in future posts I’ll talk about how to pick which is which.
Bitcoin has had a brief but remarkable history. It’s an experiment in what economists call “crypto-anarchy.”
Crypto-anarchy is an attempt to create a digital currency that isn’t controlled by any central authority. The idea is that the only way to stop a bad actor from doing something harmful is to make it more expensive for them to do it, and the only way to make it more expensive for them is for their loss to be very public.
In practice this rarely works. If you want your message to be heard, you need to pay someone. In the crypto-anarchist world, there’s no one you can pay, so it doesn’t matter what you say. Cryptocurrency is not fiat money: unlike dollars or euros or yen, there’s no central authority (like the U.S. Federal Reserve) backing it up. It’s just a piece of software in your computer. So if there’s nothing you can pay someone with, then people will ignore what you say, like they do with all software that runs on top of lightweight protocols like HTTP and TCP/IP. You can make noise and get a lot of attention by writing code, but if the network won’t take your calls then they’ll just ignore you