Bitcoin has thrust cryptocurrencies into the mainstream conversation, alongside Blockchain, hackers and the dark web.
Cryptocurrencies like to sell themselves as the technological solution to financial and world ills, opening up the world to the unbanked. They offer people the chance to control their money, and not be in thrall to governments.
According to coinmarketcap, there is over 350 billion capital in cryptocurrencies (Sep 2020), of which 60% is Bitcoin.
Cryptocurrency has colossal potential. It accounts for around $350 billion in market capitalisation. That sounds a lot, but it is just under two per cent of the global equity market, which was worth $71 trillion at the end of 2019. That’s without mentioning the debt market or real estate.
The numbers cannot be ignored, and neither can crypto’s jargon, which can make it abstract and unfathomable to beginners. There are thousands, and these are the basics you need to know.
What is a cryptocurrency?
A cryptocurrency is a form of digital money. Users store the currency and send and receive money directly between themselves. They avoid traditional moneymen like banks and governments, making cryptocurrency a fast and affordable way to move value.
Blockchain works as a digital ledger, keeping a record of all transactions. This information is public and stored by anyone on their computer. Many people hold this data, making sure that transactions are permanent and secure.
Everyone can see payments being made and sent, so there is no need to trust a bank to carry out the transaction for you. In other words, it is a ‘trustless’ system. Counter-intuitively, trustless means you can trust it. The absence of trust refers to you having to trust someone else. There is no need, as it establishes trust through the shared agreement of transactions.
I’ve concentrated on my Top 10 Crypto words, based on how best to understand the concepts behind cryptocurrency. (Blockchain has a separate Top 10 blog).
What would you add?
1. Bitcoin (BTC)
Bitcoin is the original, most famous and most significant of all cryptocurrencies.
Bitcoin was invented in 2009 by Satoshi Nakamoto, a mysterious character (or characters) who developed Blockchain technology on which to run Bitcoin.
There will only ever be 21 million bitcoins in circulation, and some 18 million have already been mined. Its scarcity has helped to push up its value, which today sits at around $10,500–12,000 (Sept 2020), a far cry from its early days of almost worthlessness. Bitcoin’s price fluctuates wildly, often by several hundred dollars within minutes.
The name Satoshi now describes tiny currency units within Bitcoin. Sending 0.00001 Bitcoin is referred to as 1,000 Satoshis or Sats.
You get Bitcoin maximalists, devoted to the cause, who see Bitcoin as a saviour to the world.
2. Etheruem and Ether (ETH)
Ethereum is second in crypto importance after Bitcoin, touching $50 billion in capitalisation, and came into existence in late 2013. It is the brainchild of programmer Vitalik Buterin.
Ethereum itself is an open-source Blockchain, so anyone can use it to develop a cryptocurrency, albeit you need advanced Blockchain computing skills. Ethereum’s cryptocurrency is called Ether (ETH). People use Ether to buy Ethereum’s services, such as smart contracts. Ether is traded like any other cryptocurrency.
It aims to be more versatile than Blockchain, using innovative technology to provide flexibility to its users. An example is an Etheruem smart contract, which offers the flexibility that humans require. A smart contract can carry out actions or payments once certain conditions are met. Winning bets could be paid out after a football match, or money sent to a store once you confirm receipt of your delivered goods.
One of crypto’s favourite slang words, hodl came to life thanks to a typo in a Bitcoin forum message in 2013.
Around December 17, Bitcoin’s value surged towards $20,000 per coin. Five days later, it had fallen to $13,800 and by February the next year was at $6,200. A supposedly drunk poster typed ‘I AM HODLING’ in reference to the price crash. Hodling now refers to staying invested in Bitcoin (or other cryptocurrencies), no matter what happens to the prices — Hold On for Dear Life.
HODL spawned other popular acronyms such as FOMO, fear of missing out (on money gains) and FUD, meaning fear uncertainty and doubt. It’s common to see HODL, FOMO and FUD plastered on social media posts. The intention push people to act irrationally with their investments, especially when there are fluctuations in cryptocurrency values.
Some technical language
Miners receive cryptocurrency coins for adding a block of transactions to a cryptocurrency’s Blockchain.
Miners use programmes on their computers to solve complex maths puzzles to add a block.
Lots of miners are competing to add a block at any one time — one bitcoin was worth $11,500 at the time of writing (Sep 2020). Their computers are trying to find the one ‘solution’ to a puzzle that means they get to add the block. It’s like an enormous game of bingo — everyone takes part, but only one person can shout house and win the prize pot.
Mining is vital to most cryptocurrencies. A miner receives crypto coin once they successfully add a block, adding more crypto coins to the circulation. They help to keep Blockchain information secure and keep adding value, via more coins, to cryptocurrencies.
Not all cryptocurrencies have miners — Ripple is a famous example that uses a centralised blockchain to process its transactions.
A hash is the bingo ticket that miners use to try to win the house prize. There are billions of hashes, which is why it’s hard to win the game to create a block by finding the winning hash.
Technically, a hash is a computer programme that takes information and then uses an algorithm to produce an (almost certainly) unique and new set of data. This new data is like a data fingerprint. It takes miners billions of attempts to find the hash (bingo) to complete a block.
Blockchains, and cryptocurrencies, take a bit of information from previous transactions to create new hashes. All transactions are interlinked; the latest hash made is dependent on information in previous blocks. It’s almost impossible to work backwards and ‘undo’ a transaction that has gone through the hash process. Imagine my full name had gone through a hash algorithm, and it gave you my initials only: TCS. It would be almost impossible to guess my full name from this information.
The hash system provides security and confidence that a cryptocurrency’s transactions are valid.
6. Decentralised Finance (DeFi):
Decentralised Finance offers a fresh way to ‘do’ finance.
The current banking system is centralised and closed, leaving 1.7 billion people’ unbanked’ e.g. without access to a bank. Decentralised Finance (DeFi) promotes the use of financial systems on Blockchain, providing transparency and with almost no transaction fees.
Many DeFi platforms offer cryptocurrency trading. DeFi platforms can branch out into providing savings, loans, and more financial products through the use of smart contracts. Binance is the world’s largest crypto exchange and pushing the boundaries. https://www.binance.com/en
DApps (decentralised applications) mean this fast-moving sector may evolve and reach into technology, art and many more areas than finance.
DeFi may have enormous implications for the world if people move into DeFi and away from traditional middlemen like banks and agencies.
7. DYOR — Do your own research
Cryptocurrencies are becoming much more mainstream. A convenient cryptocurrency may soon appear that helps people’s day-to-day affairs, such as paying for your shopping or transferring money to friends.
In the interim, there are hoards of crypto traders that will promise to make you rich in days. Ignore all these signals. Look at trading charts, read, follow experts and make informed decisions. You can make money through cryptocurrencies, but it’s effortless to lose it, too. See below.
Mooning, or to the moon, describes when a cryptocurrency’s price is rising sharply and rapidly.
It’s another phrase many traders use to foment excitement in the market. Some influencers have a vested interest and declare a cryptocurrency is mooning to try to force up the price so they can make a profit on their holdings. This type of mooning is known as ‘shilling their own bags’.
9. Wrecked or REKT
Crypto traders have adopted this gamer’s word and acronym, REKT or wrecked. Unsurprisingly, this refers to a severe financial loss, a coin’s loss of value or the market itself.
You may have HOD L’d for years and then be REKT by a crash in a coin’s value. Being REKT can occur through your poor judgement or an unforeseen market shift.
10. And finally, what does crypto mean?
The crypto definition of cryptocurrency often goes overlooked.
Cryptography aims to make information unreadable. Encryption is converting information or data into a code, mainly to prevent unauthorised access.
People have used it in many forms since the times of the Egyptian pharos and their hieroglyphs to the Enigma machine of World War II fame.
- Authenticate the sender
- Keep information confidential
- Prevent theft and alteration
- Authenticate the receiver
With cryptocurrency, information is sent in scrambled, encrypted form. This information can then be unlocked and made readable using a code also known as a key.
So crypto is short for cryptography — computer technology used for security, hiding information, identities and more.
Currency means a system of money currently in use.
Let me know your thoughts!