What is cryptocurrency?
For a while now I have been intrigued and interested in cryptocurrency, and its huge potential for growth and the solution to many problems. I now see it as inevitable (Like Thanos) but instead of wiping out half of the universe, cryptocurrency will revolutionise the banking system is only a positive way.
But when someone asks me questions and I try to explain my brain cannot find the words to instigate a proper sentence and structured retort and instead spits out random words that make no sense, before I give up and run away, the same thing would happen if somebody asked me to explain the workings of the pound or dollar but I don’t need to as people take that as a given without really understanding it, yet people are still fearful of cryptocurrency.
So, I thought in this series I would try and explain the terms in cryptocurrency and what they mean in the simplest of forms.
Our first attempt at explanation will be cryptocurrency as a term
What is cryptocurrency
Cryptocurrency in its very simplest term would be digital money.
As opposed to physical money like pounds and dollars or gold. You can hold it physically. With cryptocurrency you cannot, it exists only digitally.
This is often the first part that when I talk to people they look and say things like “well yeh see it is not REAL money then is it?”
Well, you could say the same thing for other digital things, for how long have we been buying digital music or books, are they not ‘real?’ ofcourse they are.
Similarly cryptocurrency is real for as long as people determine it valuable.
Right now this ‘digital money’ has considerable value and this is never going to change. As a result if you have some of this digital money which you own but don’t want it anymore, you will be able to exchange it for a different type of money or goods.
Therefore this currency is exactly the same as any other. Your pounds and dollars are only worth something for as long as other people think it is worth something.
It is that simple.
So I think we have sorted out what the currency part of this means but that crypto part what is that?
The crypto part however is a bit more difficult to understand but I will give it a go.
What is CRYPTOcurrency
Crypto refers to cryptography and cryptography means ‘secret writing’
Imagine this you have two people that want to send a secret message to each other, but they want to ensure that when they send that message that it cannot be picked up and read by someone not intended. So what they do is they create a code that only they will understand. There code is something simple like a = b b =c etc. The person sends a message to another but using the other persons code (public key) it changes what it says they intend to write ‘I love you’ but they want to use cryptography to hide their message so using the other persons code it turns the message into “J mpwf zpv” Now when they send that if it goes to the wrong person they will not be able to confirm what it says it is gibberish. But if it goes where it is intended the person who receives it can reverse engineer the message as they have a code (the private key) and they will find out a lovely heartwarming message. Hence you never share your private key. It is yours and gives you the power to the cryptocurrency sent to your address (public key)
In effect the cryptography allows the transaction to be sent from one person to another, It allows the transaction to be sent to one person in an encrypted form. Then on the receiving end, that transaction is confirmed and decrypted by using the code to convert it to its original message. This is public private key, you give the person sending you the public key (your address) this encrypts the transaction – but it is only the private key (that you wont tell anyone) that can encrypt that message and receive it.
The two keys the public and private one are linked. Because your public and private keys are linked, the network knows that your bitcoin belongs to you – and will remain yours as long as you have your private key.
This is how cryptocurrencies work by validating their transactions. But the codes that they use are far more complex with difficult mathematical algorithms that computers need to work out. Meaning that no one can hack the code, the public and private keys are both very long meaning that they are impossible to hack or guess as the possibilities are huge and therefore the transaction is safe, can’t be duplicated or forged.
Cryptocurrency means digital money in effect that it exists on a computer. It is secured by cryptography or public and private key encryption, which means you share your public key, which encrypts the transaction then when you receive it your private key that only you have access to. You are the only one who can decrypt the message and gain access to it.
What does this mean
There are some things to take away from this which I think are valuable and show the value of crypto currency.
- It can’t be hacked (as it would be impossible to do so)
- You can’t forge a transaction
- A transaction can not be duplicated
- It cannot be returned. This is why if you send to the wrong address it is gone.
- Because you have the private key, you hold all the power over your money. (Unless it is in an exchange)
When starting with cryptocurrency and trying to understand what it meant. I looked at lots of different articles before it made any sense. So if this didnt work for you, try something else. Investopedia has a good explanation as well as coinbase.
Coinbase also has some great learn and earn opportunities, and earnathon has some great videos to learn about cryptocurrency and get started with a new token for free.
The best way to start on your cryptocurrency learning journey is to get some for free.
With Luno and my code, you can do exactly this and get £10 absolutely free
Sign up process
To get the £10 worth of free bitcoin, you must be new to Luno, must be over 18 with a suitable ID and resident in the UK. The signup process is really quick and easy.
- Just download the app on the app store or google play
- Verify your details
- Then on the rewards tab enter code BPJEVANS (Make sure you are verified before you use the code)
- Then make sure to join the next webinar to learn about bitcoin - Link here
Next, we will look at what the hell a blockchain is, but for now, have a little lie-down and be content in the knowledge that you know what cryptocurrency is