Synopsis: This article provides an in-depth cryptocurrency introduction. It answers questions like “what is cryptocurrency”, “why is cryptocurrency valuable”, and “why is there suddenly so much interest in cryptocurrency?”. The article concludes with information about my new book, “How To Crypto” – including why I decided that a book like this was so urgently necessary.
The New Digital Assets – A Cryptocurrency Introduction
Cryptocurrency is red-hot right now. The media is giving it unprecedented airtime, while the general public have been captivated by the staggering price rises exhibited. Just look at the performance of the oldest and best-known cryptocurrency – Bitcoin – which ballooned in price by nearly 14x over the course of 2017.
Beyond the tremendous increases in crypto value, cryptocurrencies have become such a huge part of the discussion because of the challenging questions they have has raised about the lifeblood of human civilization – money. Growing up, banknotes and coins seemed to be the only thing that money could ever be – after all, we had never known any other way in our lifetimes, nor in the lifetimes of our parents or grandparents.
There are those who are convinced that cryptocurrency is destined to replace government-issued money, in the same way that email replaced the fax machine. If this vision is correct, the implications are hard to overstate.
Even so, these are still very early days. The general public finds cryptocurrency to be, well, cryptic. Even among those who have heard of it, very few properly understand how crypto works. And many people are highly skeptical. There is a great deal of strident Bitcoin criticism among the financial commentariat. This cryptocurrency introduction seeks to help a newcomer understand this phenomenon and what it means.
So, What Is Cryptocurrency?
Let us begin this cryptocurrency introduction with a definition from Wikipedia.
Cryptocurrencies are digital assets designed to work as a medium of exchange using cryptography to secure its transactions and control the creation of additional units.
Cryptocurrencies are entirely digital – as in, they exist only as computer code. You can’t withdraw cryptocurrency and hold it in your hand like you can withdraw a $20 bill from a bank account. Cynics have understandably expressed reservations about a currency they can’t touch. They complain that this “digital currency” seems a little too much like make-believe.
But this is where it becomes interesting. Is money really fake just because it is digital? We send and receive digital messages in the form of email all the time, and they are real enough. In the same vein, cryptocurrency is a digital form of communicating value. If, like an email, it can do the job it was designed for, it doesn’t matter whether it is digital or not.
Besides, as many in the cryptocurrency community point out, we already use digital money – albeit in a different form to cryptocurrency. Operating without “tangible” banknotes or coins is already familiar to anyone who gets their earnings deposited into a bank account, who uses online banking to pay their rent and utilities, or who uses a credit card to make purchases.
Using cryptocurrency – an entirely digital asset – therefore isn’t such a huge leap from the status quo. In many ways, cryptocurrency feels a lot like making an online payment. What distinguishes cryptocurrency from government-issued money is what happens in the background – just as petrol cars and electric cars feel the same to drive, but under the hood have engines that run differently. This cryptocurrency introduction will help you to learn cryptocurrency and reveal how the engine works, so that you are fully confident before you get behind the wheel.
What Gives Cryptocurrencies Their Value?
It is common for newcomers to ask “is Bitcoin real?”. But to put it bluntly, the fact that Bitcoin (and other cryptocurrencies) are “nothing more than computer code” is no reason to dismiss it. Equally, traditional money is “nothing more” than printed paper and non-precious metals – or more commonly these days, the numbers on a screen that appear when a user accesses their account via the database controlled by their bank (i.e., the money in your bank account is also “nothing more than computer code”.
If you are concerned that cryptocurrencies aren’t backed by anything “tangible”, then the same concern must be leveled at government-issued money. In 1971, Richard Nixon took the US dollar off the gold standard, meaning US dollars could no longer be converted into the equivalent quantity of gold. Since then, the only thing that backs the US dollar is “the full faith and credit” of the US government.
With the US federal government many trillions of dollars in debt, a claim like “full faith and credit” must be questioned. Trillions of dollars is an enormous amount of money, even given the vast size of the United States. To it in context – the GDP of the entire United States economy was around $18.6 trillion in 2016. While government-issued money has the millstone of debt around its neck, cryptocurrencies are completely debt-free.
Here’s a key thing to realize within this cryptocurrency introduction: What gives cryptocurrencies their value is exactly the same thing as government-issued money – the trust people have invested in it. Money is a social construct of communicating value between people. All around the world, people trust the US dollar because they trust the US government not to debase their currency. But as we will see, there may be strong reasons to instead place trust in the clean, decentralized, neutral software of cryptocurrencies, rather than a system where value can be controlled and manipulated by powerful central institutions. This decentralization is at the heart of why so many have decided to start investing in cryptocurrency.
Cryptocurrencies are not government-issued, and nor are they stored in banks. Instead, cryptocurrencies are decentralized, which means they do not exist in one place and are not control by any single authority. This is critical. Computer code governs everything to do with cryptocurrency – including the amount in circulation. In theory, this renders it technologically immune from interference by banks or governments.
Cryptocurrency means that value can be transferred in the same way that the Internet has enabled information to be shared; instantly, at minimal cost, without the need for third-party approval, and without censorship.
The decentralization at the heart of cryptocurrency has a clear parallel with the Internet – a technology whose impact on the world has already been profound. Like the Internet, cryptocurrencies exist as a borderless, networked system of connected computers. The Internet is made up of every computer that it is connected to. For all intents and purposes, this makes the Internet and cryptocurrencies impossible to shut down or outlaw. This cryptocurrency introduction has to make the following point very strongly: No-one can point to a certain building where cryptocurrency resides, and march in, and turn it off.
As we all know, the Internet has turned out to be quite a big deal. There are few aspects of life and commerce it hasn’t touched. Entire industries have been killed off, and new ones have risen to take their place. The Internet has been particularly bad news for middlemen (travel agents), gatekeepers (newspapers), and those that failed to adapt (video rental stores). On the other hand, the Internet has removed huge layers of cost, enabled us to communicate far more efficiently, and given us free or near-free access to virtually all the information in the world.
Few people would wish to go back to the old way – and even if they did, there is no way to. Technology cannot be put back in a box. When people debate the cryptocurrency pros and cons, they often forget this. Opponents can be “against” cryptocurrency, but complaining is not a strategy. Just as traditional book publishers had to adapt to the world of the Kindle, e-books and Amazon.com, everyone needs to get used to the fact that cryptocurrency is here to stay.
Could cryptocurrency have similar world-changing effects? Its promise is incredible – to disrupt the antiquated financial services industry and the fees they charge, by providing instant, near-free transactions to anyone with an Internet connection. It’s impossible to say with certainty what the future of cryptocurrency holds, but a lot of very smart people are betting on it: from Silicon Valley, to Wall Street, to legions of volunteer computer coders, to early adopters using it for the purposes it has been designed for.
But this cryptocurrency introduction needs to admit: it hasn’t been all plain sailing – there have been some rather unfortunate episodes of cryptocurrency speculation. That is why it’s so important to understand the actual technology itself, and not become too fixated on the day-to-day price.
I Am Writing A Cryptocurrency Introduction
Despite crypto assets being all over the news, most of the coverage is dedicated to the day-to-day price movements, rather than the bigger picture. It is impossible to get into the nitty-gritty of a complex subject like cryptocurrency in a 3-minute segment wedged in-between the sports news and the weather. It is necessary to go into greater depth.
The serious books already published on the topic of cryptocurrency are either accounts of the technology’s history and potential impact (such as The Age of Cryptocurrency), or highly technical treatises, excellent for computer programmers (such as Mastering Bitcoin).
While these books are great, the literature was missing a high-quality practical guide, with all the information a beginner needs to get started. My book will help you understand cryptocurrency and, most importantly, show you how to try it for yourself.
The aim of my book will be threefold:
- Explain the need for cryptocurrency, along with the problems inherent with the status quo system of government-issued money, and the system of financial middlemen that presently control it.
- Demystify the bewildering terminology surrounding cryptocurrency – if you want to get to the bottom of the meaning of “cryptocurrency wallet”, “cryptocurrency mining” and “initial coin offering”, then you have come to the right place.
- Step readers through exactly what they need to do to get started. Most other books gloss over this, but my experience has shown that beginners find that their single-biggest stumbling block is navigating the specific steps they need to take; how exactly to register on an exchange, make a deposit, and what the differences between the major cryptocurrencies are.
The aim of this book is to introduce the moving parts of cryptocurrency and how they fit together, and to do so in a way which is accessible to non-technical readers. We will use relatable analogies (even if slightly imperfect), rather than resort to more precise, but less-accessible computer code. If your eyes glaze over when you hear terms like “SHA-3” and “distributed timestamp server”, then this is the book for you.
Although the book won’t go into overly-onerous technical detail, it also won’t shy away from taking the time to explain important concepts, even if they are tricky. Albert Einstein once said that everything should be made as simple as possible, but no simpler. That is the philosophy my book employs – a balance of making cryptocurrency easily understood, without oversimplifying.
It Is Not Too Late To Get Started
A common lament is that the best opportunities in cryptocurrency have already passed. In its short life, Bitcoin (the first and best-known cryptocurrency) has gone from being valued at well under $1 per unit, to many thousands of dollars. It is easy to assume that increases like this could surely never be repeated. But as we will see, there is far more to cryptocurrency than just Bitcoin. Literally hundreds of other cryptocurrencies have launched, and are currently jostling for position.
This cryptocurrency introduction disagrees. As of early 2018, cryptocurrency is 9 years old. If we looked at the Internet in, say, 1996, some of the largest Internet companies that dominate today’s landscape had barely taken their first steps. Amazon was an inconsequential web store that only sold books. Google was nothing more than an academic research project by two PhD students at Stanford. Facebook’s founder wasn’t even yet a teenager.
If cryptocurrency follows a similar development path, there are still plenty of fortunes yet to be made.
Most people still harbor a great many misconceptions about cryptocurrency. And only a tiny fraction of those who are aware of cryptocurrency have taken the necessary steps to try it for themselves. By investing in your education, and buying even a tiny sum, you will already be ahead of the vast majority of the population. Gain a cryptocurrency introduction now, and you still stand to be well ahead of the pack.
Additionally, by beginning now (and not earlier), you have avoided a lot of the problems that beset cryptocurrency when it was taking its formative steps. For example, Mt. Gox (one of the earliest online Bitcoin exchanges) had lax security procedures which, by its own admission, saw it succumb to a cryptocurrency hack.
If you had been dealing in Bitcoin in the early days, you would have had little choice but to trust an operation like Mt. Gox, but not anymore. The main cryptocurrency exchange options of today are well-funded, highly professional outfits with real expertise in making this new technology secure and user-friendly. Further, they need to compete to provide the best service. The initial teething issues have provided lessons which have made cryptocurrency stronger. By starting now, you get to avoid many of the pitfalls that plagued it in the past.
So, no – it is not too late to get started with cryptocurrency. The space is no longer run by cowboys, and we are just starting to see the first signs of mainstream adoption.
If there is one message that I want you to take away from this cryptocurrency introduction, then it is this: Now might just be the very best time to begin.