Answers to the Top 8 Questions Noobs Have About Cryptocurrency and Blockchain

You all submitted your questions and I answered them. Here are the top 8 questions on YOUR minds about cryptocurrency and blockchain.

What is the easiest way to explain blockchain to a confused non-tech nerd?

Imagine you are back in first grade.

Your teacher hands out gold stars for good deeds. The teacher makes one kid in charge of keeping a tally in her personal notebook of how many gold stars each student has.

You all grow uncomfortable with this…is she giving herself more gold stars? She was absent the day I got my gold star, was it recorded? What if her notebook gets destroyed on the playground?

You all decide to change the system from centralized to decentralized.

Everyone takes out their notebooks and copies down her account of the class’ gold stars. From now on EVERYONE in the class writes down when someone gets a gold star.

Now everyone has their own record of truth and no one can cheat and give themselves more gold stars because when their amount is compared to what everyone else has recorded then it will be proven as a faulty star.

This is the principle behind blockchain, it is an archive of actions that is spread across thousands of computers so that it is near impossible to tamper with the information.

What do blockchain and bitcoin have to do with each other?

Blockchain is to Bitcoin as Windows 10 is to Microsoft Office. Blockchain is the underlying technology of Bitcoin, and Bitcoin is the first and most well known example that utilizes blockchain technology, but blockchain can be utilized in countless other ways.

Why and how did cryptocurrency start to matter?

Cryptocurrency allows people to own their wealth without a central party, like a bank lording over it. It also presents exceptional ease of use both domestically and across borders that allows for rapid transfer of wealth. For example, for me to send a friend $100 it takes roughly 5 days for our banks to reconcile the transaction. With most cryptocurrency transactions it takes just a few minutes or hours to reconcile.

With the rise of ICOs (initial coin offerings) it allows companies to raise money through token sales with the public, where consumers can invest in companies and projects they believe in (think Kickstarter on a larger scale). This could highly benefit women entrepreneurs, and in fact we’ve seen several high-profile ICOs led by women, such as Propy and Paragon! ICOs present an alternative to VC funding, a group that has been shown statistically to be unconsciously biased towards giving funding to companies with male founders. ICOs present a new avenue to funding where biases and pedigree may become less pronounced.

If anyone can invent a cryptocurrency, how is it worth anything?

Since the invention of Bitcoin, people have discovered inefficiencies and limitations with the currency. Therefore many currencies have been created that are valuable due to additional utility, such as Ethereum allows logic to be programmed into transactions, called smart contracts. Cryptocurrencies can also represent an investment in a company or product, but ultimately the worth is based on the community collectively believing it has worth. Just like a diamond ring or a Louis Vuitton bag, they are priced so high because consumers value them. I do caution you all be aware of what you invest in because there are scams — artificially inflated tokens and dubious ICOs that are not good investments.

What does it mean to have a Bitcoin?

A misconception is that to have bitcoin you have to buy a whole Bitcoin, which discourages many new people from investing because they have sticker shock. But a Bitcoin can be split into one hundred million pieces. Therefore a person can invest any amount and still experience the ups and downs of the market. If you invest $200 when Bitcoin is at $13k and it goes up to $20k as we’ve seen, then your investment would have swelled to around $320. Not bad!

Why don’t we know who invented it?

Satoshi Nakamoto is the pseudonym of the person or persons who invented Bitcoin and their identities have never been revealed. The draw of Bitcoin, and blockchain at large, is that the technology utilizes a decentralized network so that no central party owns the information recorded on the blockchain, like a bank or an information aggregator like Facebook. At its core, there are no “leaders” or “owners” of the Bitcoin blockchain which is why an anonymous creator fits perfectly with the mission.

Why is stock in Bitcoin worth so much?

First of all, I want to dispel the misconception that buying Bitcoin is similar to buying stock in a company. There are no underlying business fundamentals to Bitcoin — no stream of cash flow that you can discount to present value. There is no “Bitcoin Corp.” The value is based on the community collectively believing it has value. Bitcoin effectively combined the attributes of scarcity and utility to create a “digital gold” for the internet age.

Bitcoin is scarce because it is an deflationary currency, in that only 21 million bitcoins will ever be in circulation. There’s 12.5 bitcoin released approximately every 10 min, and that amount halves every four years until we hit the ceiling of 21 million. It has utility because bitcoin allows individuals to have full and uncensored control over their own wealth, by converting it and securing it digitally on the Bitcoin blockchain. Bitcoin, and cryptocurrencies in general, also facilitate the nearly instantaneous and inexpensive transfer of value anywhere in the world, 24/7.

If someone wanted to invest in Bitcoin or another kind of cryptocurrency today, would that be a smart move?

In short, absolutely, it can be a smart move. Do your research and only invest money that you would be willing to lose. The invention of cryptocurrency has given rise to a wild and unregulated new capital market for investors. There are incredible opportunities there, but you need to carefully research the underlying technologies in order to confidently ride out the incredible volatility that cryptocurrencies experience every day. Values have been known to increase by over 100% a day, and decrease by 95%+ in the same time span.