All right bitcoin blockchain dogecoin, Shib coin, Dot coin, Luna coin, Bnb coin, Ethereum everyone is talking about cryptocurrencies nowadays but what does all of it mean so in this article we will give you detailed knowledge to make you a crypto genius instead of a crypto noob. In this article, i will be explaining how does cryptocurrency works.
- what is bitcoin?
- why it’s becoming more famous & important?
- what I have personally invested in and the also dark side of crypto?
Here are 5 stages of Currencies
Okay in the early stages, there was nothing in the world that existed as money. Well at this stage the only way to buy something you have to go to someone who has your favorite clothes just to go and ask you about your clothes I will trade you, my shoes. But the issue was that you might be happy to give him your clothes to him you just might don’t want his shoes but if someone wants that shoe to trade with your favorite thing you have to just do it to get that.
So, to fix it currency came into existence in two coins gold and silver. Everyone just accepted it as a tradeable asset. Because you have that assurance from the government that you can trade that coin give it to someone else and buy something that you really want.
In this stage, banks became established and governments had control over currency they launched paper money which actually works the same as silver and gold but it was so convenient to carry paper currency instead of metals in your pockets. It just has a certain value like the government has declared 5 different papers and every paper has its own worth.
Really it was just a slip or proof that you own a certain amount of money that is tradeable and you can buy anything by exchanging it.
Know in stage 4 people are buying things online through their mobile phones and computers using eCommerce platforms and paying through credit cards know in this stage I don’t see our money anymore.
It’s not about coins or cash they keep a record on spreadsheets like when I buy something suppose shoes from Esty what happens is that my bank record it on a spreadsheet that Maina bought this for 5$ and knows she has 5$ less and Esty record it that know they have 5$ more in their reserve that’s how it works.
So, the reason I have given you this detailed knowledge is to give you context on how does crypto work. I think it’s the most convenient era of exchange now but don’t know about the features.
In this stage, the way to know cryptocurrency is that it’s virtual. Everyone should know how does cryptocurrency works I know the logo for bitcoin and Ethereum looks like a physical coin. It’s a digital coin but with crypto, there is no metal like silver or gold behind it or paper currency it’s just a transfer of digital assets which to transfer over the internet.
The core concept is exactly the same thing of them as literally just running spreadsheets of who’s paid what to who.
But instead of multiple banks keeping their own separate records with crypto, there is just one enormous spreadsheet of every transaction made using that currency and this is called a ledger that’s how cryptocurrency works.
How does cryptocurrency works?
Okay, we all have a good spreadsheet but what’s all the fuss about why is everyone going crypto crazy? Well, there are some distinct advantages to a currency system everyone should know how does crypto work like this one it’s decentralized which means that every transaction of a given cryptocurrency is recorded on the same ledger. There are many copies of that ledger and anyone who is a part of the network has one you might have heard of cryptocurrency mining or bitcoin mining. We’ll all that is someone who set up a computer to crunch through transactions on their copy of this ledger or spreadsheet. There are already about a million bitcoin miners around the world and bitcoin is just one type of cryptocurrency the reason they’re doing it well is if you dedicate your computer’s power to mining say bitcoin then you will earn some bitcoin as compensation. So, the result of this is that if I go into a store and spend five bitcoins on something then instead of just checking with one bank’s records the shop instead checks with every single computer on this network.
If I have enough and assuming I do each computer will give the go-ahead and then every single one will update their records independently so, because you end up having this many copies of exactly the same ledger. It becomes very easy to tell if anyone’s trying anything fishy did you who bought this if I try to hack into someone’s computer that’s on the network and give myself more money by adjusting figures on their copy of the ledger that’s how cryptocurrency works.
It’s not going to get through the system will realize that the copies on the ledger are saying one thing but one of them is saying something else so must have been tampered with. There’s a very clear organization to the system and I think people believe in it because they see the future as open traceable transactions much more than how does crypto work?
So, then having like some bits of the record over here and other bits over there and I know it seems complex at this point but as we go through this, I think you’ll realize that for a lot of people in a way. It’s simpler there are plenty of areas in the world that have internet access. This is all you’d need for crypto but doesn’t have access to traditional banks which require a lot of paperwork and documentation well two and I’ve kind of implied this already.
But the main perk of crypto is that you don’t need banks anymore because everything is stored by the people on this ledger. You can make international payments almost instantly instead of it taking half a day with no spending limits plus you don’t need to worry about exchange rates.
You don’t need to worry about interest rates and even transaction fees are close to zero for some cryptocurrencies that are but this is where the real fun begins.
What is Blockchain?
I’m fine at parties I promise the reason that cryptocurrencies are called cryptocurrencies is that they’re secured by cryptography. One example of this which a lot of the major cryptocurrencies like bitcoin use is blockchain now people often get confused by this blockchain is not bitcoin. Blockchain is not a currency itself. Blockchain is just a secure type of ledger so you know that big spreadsheet that everyone has that’s recording transactions blockchain is just a way of organizing.
It funnily enough into blocks so every time I pay for something with bitcoin that transaction is recorded as a block. Each block contains transaction data like who was paid and how much a hash was. Which are a unique identifier and the hash of the previous block in the sequence or the last transaction that was recorded the pivot on which this system rests is that if something in a block is changed then that block’s hash will change.
You might be starting to see where this is going because each block also contains the data of the previous block. If the hash of the block here changes, then the next block will no longer have a matching hash with it and so every subsequent block after that one becomes invalid. So if you combine this with what we talked about earlier this whole idea of a million different users all having their own copy of the blockchain ledger then if I wanted to fraudulently create a transaction that says paid me money.
I’d have to not just tamper with a block and every single block after it but I’d also have to do this on at least half a million computers around the world. So that the majority of computers in the system are also consistent with the one. I’ve tampered with probably not gonna happen whereas just hacking into someone’s dollar account and sending myself money that does happen and it’s sometimes as simple as just literally guessing someone’s six-digit pin but there’s a massive jump between that and trying to hack into uncorrelated computers at once.
Okay so, cryptocurrencies have their issues I’m literally going to get to them in a minute but hopefully you can see why some people are excited about them and that brings me on to investments.
You’ve probably heard of people putting money into cryptocurrencies and all that means is that they’re exchanging normal currencies like dollars for cryptos like bitcoin they’re hoping that those cryptocurrencies become the next big thing and therefore suddenly shoot up in value at which point they can then either spend them or just exchange them back for more dollars than they bought them for.
There’s actually a term for cryptocurrencies that skyrocket like this going to the moon or mooning but that can mean something very different depending on who you talk to but the one decision that someone would have to make.
At this point is which cryptocurrency because we’ve talked about bitcoin. Bitcoin is just one of over 18000 different cryptos already and each of them has different properties.
For example, Ethereum which is the second most invested in can process transactions even faster than bitcoin there’s one called Cardano which is considered to be technologically superior there’s one called Litecoin which has a newer algorithm and if you are enjoying this article then a sub to our website would be delightful.
Which cryptocurrency is best?
Bitcoin and Ethereum are the most trustworthy crypto coins with the highest market cap as bitcoin is called the king of cryptocurrencies and Ethereum is called the queen of cryptocurrencies so it’s better to just invest your 60 to 70% portfolio in it for a safer run.
P2E Games (Play to earn)
It’s quite interesting in P2E games you can actually earn different cryptocurrencies while playing games that are on the blockchain. With entertainment you also earn money it’s really something very unique and interesting also I love to play and I also play P2E games to earn a handsome amount from it if you want to learn how? Then comment below I will let you know and will write a proper guide about it.
How do I invest in Cryptocurrency?
As I know what is cryptocurrency and how does cryptocurrency works let me show you what I’ve done disclaimer this is not in any way at all financial advice I’m not recommending this I’ve literally only put in a small amount of money that I am comfortable losing and to be honest the way I’m seeing it is more as an optimistic gamble as opposed to a strategic investment.
So, I’ve put 40% in Bitcoin 20% in Ethereum 20% in polygon 20% in Cardano in curtesy and this portfolio has basically gone up and then down and then up and then down, and then honestly you probably get more consistency. So crypto is in a pretty weird place right now and this brings me to its problems.
Which exchanges do I recommend for Cryptocurrency Trading?
There are a lot of exchanges in the market but I recommend Binance and OKx crypto exchange as these are the 1 exchanges in the world with maximum trading volume here are the links below to get it just click on the links signup and earn free rewards in form of crypto you can also convert it into your local currency and use it as well.
Related: Centralized vs Decentralized Exchanges | Best Exchange?
The dark side of Cryptocurrency.
The dark side one of the main ones is exactly this reason. I think a lot of people don’t take crypto seriously because they don’t know how does crypto work and its volatility matters because these currencies are so new and they’re completely digital unlike say the market for gold no one really knows what they should be worth and so you find that crypto prices are quite heavily speculative.
They’re tied to the news cycle when a glowing article comes out about them prices spiral upwards but then when Elon musk posts a tweet that puts them, Dow, they go way down
It’s a fact that they’re not really accepted as a form of payment in well most places like yes, I can now book holidays with crypto.
I can donate to Wikipedia with crypto but there’s been a lot of companies who are pretty back and forth with-it Microsoft tesla even burger king are examples of companies who said they were going to accept bitcoin and then they said that wasn’t going to accept bitcoin.
There can be an environmental concern see the whole reason why a lot of these cryptos are so secure is because of this concept of transactions being verified many times by many computers. So, I think it’s a fair criticism that that in itself creates a fundamental inefficiency that much computing power requires a lot of electricity.
But at the same time, you could counter this by saying that traditional banking uses more electricity. There are newer coins with better technology that are more efficient and that one day we’ll be able to get that electricity from renewable sources depends who you ask.
There’s also a pretty strong sentiment that there’s no real policing or regulation in many countries on crypto right now.
It’s like the perfect currency for criminals but to be honest. I think the data speaks for itself on that one according to chain analysis 0.34 percent of crypto transactions are criminal up to 5% of normal cash transactions are criminal and I think that’s because it’s a bit of a misconception that currencies like bitcoin are anonymous, they’re actually pseudonymous.
This means that even though your actual details aren’t visible to everyone your public key and your unique identifier will be permanently baked into the blockchain upon making transactions with it.
So, cash is just a better currency for most types of criminal activity because by its very nature, it’s untraceable don’t ask me how I know that but as well as the negatives there are also just some straight-up odd things that have come about because of crypto, for example, you might have heard of an NFT a non-fungible token.
NFT (Nonfungible token)
I don’t want to call it stupid but uh this one’s a head-scratcher so you know how now you can go into an art gallery and you can pay to own a painting. Well now thanks to the blockchain you can pay just to have digital ownership over something so it doesn’t stop anyone from using or sharing that thing but all it means is that you’d effectively be the owner of the original and they’d all be sharing copies of it. Even if for most intents and purposes they look and behave identically a lot of these NFTs are literally just jpeg images.
I think the reason some people find this stupid and kind of funny is that there’s a distinct difference between buying an NFT and buying the rights over something.
So, if you buy the right service something that’s a very legitimate purchase because you can create merch or sell licenses with an NFT you can’t.
The original owner still has all the reproduction rights over that piece. All it is that you’re using the blockchain to prove that you have some ownership over that asset but clearly just being able to say that has some value because an NFT of this Gucci ghost sold for the CEO of Twitter Jack Dorsey he sold the first tweet he ever made as an NFT for 2.9 million dollars five words I could do that any takers
This one just blows my mind this photo which is basically an overview of one guy’s pieces of art sold for 69 million dollars very nice.
To clarify this literally just gives the buyer some digital ownership over a jpeg image finally, you might have heard of dogecoin dirt coin is based on the same tech as Litecoin but it was created as a joke.
People started sharing it and putting a bit of money into it because they thought it was funny but that propelled its value to the point where now we have people who have actually become millionaires just because they bought dogecoin when it was cheap it an interesting world out there.
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