Today’s technology boom is leading to a new generation of investors. The first generation of internet investors were people who were lucky enough to get rich in the dot com era without understanding finance, and then their luck ran out. The second generation of internet investors were people like me, who understood finance well enough to invest in startups but not well enough to make much money.
This time around we’ll see an entirely new type of investor: people who understand both finance and technologies, and are willing to put a lot of money at risk to make some profits. This is a trend that has already begun, with the rise of cryptocurrency investors.
After reading this you should be able to better understand what cryptocurrencies are, where they came from and how they will impact our daily lives.
Cryptocurrencies were the original instance of the technological innovation known as blockchain. However, blockchain is not a cryptocurrency; it is a distributed database that allows for the secure transfer of value without the need for a third party.
Cryptocurrencies are an entirely new category of financial technology that are revolutionizing how money moves around the world. They are one of the latest in a long line of inventions that have forever changed how we interact with our finances, from cash to checks to credit cards to PayPal to cryptocurrencies and more.
The introduction of cryptocurrencies into mainstream consciousness has caused some confusion, however. For those who do not understand what cryptos are, here’s a quick primer: Cryptocurrencies are decentralized digital currencies which allows for instant and irreversible transactions without the need for a third party or centralized authority. This means there is no central bank or governing body that controls or issues your currency, which makes them very attractive to those who want complete autonomy over their money.
Cryptocurrencies aren’t just new fad technologies aimed at making the world’s financial system run faster (although they can do that too); they’re also being used by hackers who want to steal money from companies and governments alike. And as governments begin to recognize their power, it’s only a matter of time
Cryptocurrencies are a new form of money that allows you to make and receive payments without the need for a bank or centralized administrator. This allows you to make “micro-payments” with very small amounts of money, and be paid in return by the recipient by simply scanning a QR code.
Most cryptocurrencies are decentralized, which means that no central party controls them, but they’re all controlled by people who use them as currency.
Cryptocurrencies can be used to pay for products and services, or exchanged with other people to buy things. There are also a number of companies in the process of developing their own cryptocurrencies. They will essentially be their own banks – holding onto customers’ funds, issuing new currencies and holding balances, investing in other companies, etc.
Many people already have portfolios with cryptocurrencies such as Bitcoin or Ethereum. And many people use online exchanges to trade between cryptocurrencies such as Bitcoin and US dollars.
We tend to think of cryptos as a new thing, but they have been around for decades. In fact, they are based on the same idea that was applied to online banking in the late 1990s: the use of cryptography to verify transactions and prevent fraud.
Cryptocurrencies were all the rage in the early 2000s, when the term “bit” was still in wide use. The main competing currency was called “E-Gold.” It was popular with people who wanted to defend themselves against government threats of prosecution, which at that time included threats of prosecution for drug possession.
The idea behind both crypto-currencies and e-gold is that there will be a whole new system of money, separate from government-issued currencies. This system won’t have a central currency-issuer; instead it will be run by computer networks all over the world. Transactions within this system will be verified and recorded by computers in an open ledger; any computer can access it, and anyone can check how many different currencies are involved in any particular transaction.
Cryptocurrencies are a kind of digital money
I had intended to write a post about the technical merits of Bitcoin, but I quickly found that it was just too complicated. So instead, I thought I’d try to explain why the whole thing has me so excited.
Bitcoin is a peer-to-peer electronic currency, which means that it does not have a central bank or clearinghouse. Instead, transactions are made directly between users, without going through any third party (banks). The most popular use for Bitcoin is sending money from one person to another.
I don’t know if you’ve ever bought something on Amazon with bitcoins, but it’s pretty awesome. You just put in the amount, and then type in your shipping address. The site will show you the total cost of all three items and calculate the shipping fee, and then give you an address to send bitcoins to (the original currency used in this transaction is called “bitcoins”, and they’re just like dollars or euros or rubles or yen. In fact, they’re digital cash–you can send them to anyone anywhere in the world).
When you go to pay for your order, all Amazon asks for is your name, email address, credit card number and expiration date. The next thing you know (after a short wait) a message
A lot of people have heard about Bitcoin, but few understand what it is, what it’s really like, or how it works. And yet that’s how many currency systems work.
Cryptocurrencies are new currencies. They are not money. Cryptocurrencies are ways of keeping track of who owns what. They can be used to pay for goods and services, or they can be converted into real money.
Bitcoin was the first cryptocurrency; its value is based on supply and demand rather than a government decree. If people decide to buy Bitcoins today instead of dollars or euros tomorrow, Bitcoins will become more valuable by comparison.
We think of dollars and euros as money because we trust central banks to make sure they have a fixed value that won’t fall out of favor with the public. But that’s not how money works at all. The dollar has value only because everyone believes the Fed will keep it stable.
Instead, money comes from the belief that everyone else will accept it as payment for something they’re willing to sell (say, your computer). The dollar has value because everyone agrees that if I go to Wal-Mart and put $15 in my pocket, they’ll give me back change worth $15.
Central banks decide how much paper money to print