What Crypto Isn’t
If you’re still confused about what cryptocurrency is, it might be a good idea to figure out what it isn’t
You have me today, Tomorrow you’ll have more;
As your time passes, I’m not easy to store;
I don’t take up space, But I’m only in one place;
I am what you saw, But not what you see.
What am I?
Memories
Riddles can be funny things. The more you look at it, the more contradictory and confusing it gets, until you finally figure it out and the answer is so simple you can’t believe you missed the answer. Sometimes understanding cryptocurrency can feel like deciphering a complicated riddle. It can seem like such a complex, moving puzzle, it’s hard to get a handle on what it is and what it isn’t.
As I’ve learned more about cryptocurrency, the key I’ve discovered to unlocking the puzzle is understanding that cryptocurrency coins don’t actually exist. This creates an interesting dynamic in understanding crypto, because it completely changes the way we think about money. In the decentralized, software-driven world of cryptocurrency, those physical tokens we associate with money just aren’t there anymore. If we’re too caught up on understanding where our coins are, we miss the real beauty of cryptocurrency, which is the blockchain.
The Blockchain
The blockchain is the ledger of all the transactions that have happened since the creation of the currency. The “coins” used in crypto are created by people (well, actually computers) called miners. Starting with the genesis block (the very first block in the blockchain), miners combine a group of transactions between other users of the coin to form a block, transform the block into a cryptographic puzzle, and then solve the puzzle (they do this to make sure the block is accurate and there’s no double spending). After the puzzle is solved, the block is added to ledger of all the other transactions, called the blockchain.
The first miner to solve the puzzle is rewarded by the system for his or her work with newly “minted” coins. While we refer to people having accounts and wallets full of coins, what they really have is just an address on the blockchain. If you add up all the transactions associated with that address, you’ll know how many “coins” that address has.
Now let’s look at an example. Let’s say there’s a miner named Sam, who wants to send the coins he just earned to his friend Megan. To access his coins, Sam needs two things. He needs to know both his public and private keys. His private key is like the password to get to his coins, Then he sends the coins to Megan through her public key, which is like the address of her account.
If Megan wants to use the coins Sam sent her, she needs to use her own private key to access the amount.
Wallets
The purpose of a cryptocurrency wallet isn’t to store coins (because those don’t really exists). What the wallet stores is your keys. By protecting your public and private keys (especially your private key), it allows you to have control over the coins in the account recorded on the blockchain. Wallets come in many different shapes and sizes. Some, like paper wallets, just store your public and private keys. Other wallets (like software and hardware wallets) are more complex. These wallets can show you your balance, help you send transactions, and create a recovery seed for your private key (a random phrase of 12 words or so to help you recover your private key if you lose it).
So the “coins” you have are really just a balance of all the transactions that ever happened with your account. Wallets compute this balance by searching the entire blockchain for every time your public key was involved in a transactions, and combining all those accounts together to get a final balance.
Conclusion
Now that we understand how cryptocurrency transactions work a little more, it’s much easier for us to see how to keep crypto from getting into someone else’s hands. In the following articles, I discuss the different types of wallets you can use, and some simple tips for keeping your crypto safe.
Neuryx Club
Cryptocurrency investment is an exciting world of opportunity, growth, and potential, and represents the future. Entering the cryptosphere is as much about learning as it is investing, and the important thing is not to invest more, but to invest smarter.
Neuryx Club is an AI-powered crypto trading assistant that offers exclusive analytics and advanced trading tools to help you stay on top of your crypto game and trade smarter.
