I’m sure every one of us has heard of ‘crypto’. Some have dived into it, and have developed expertise and done extremely well from it. Others have jumped in and lost a fortune in it. Yet, for many, it remains a scary unknown. So, what is this ‘crypto’ thing? As with most things, start studying it systematically, and it does not need to remain a scary unknown. Let’s take a look.
This blog is the start of a series I am writing on and around crypto.
Cryptocurrency, or crypto for short, is a type of digital asset that uses encryption techniques to secure transactions and to control its environment. Unlike traditional currencies, which are backed by governments and regulated by financial institutions, cryptocurrencies operate independently of any central authority. This decentralised nature is one of the key features that sets cryptocurrencies apart and has led to their increasing popularity in recent years.
The first and most well-known cryptocurrency is Bitcoin, which was created in 2009 by an anonymous individual (or group) using the pseudonym Satoshi Nakamoto. Since then, thousands of other cryptocurrencies have been created, each with its unique features and uses. It is interesting to see how his 9-page whitepaper has had such a huge impact on the world as we know it. (You can download a copy here, if you are interested.) Another significant cryptocurrency is Etherium, conceived in 2013 by Vitalik Buterin. A key feature that Etherium introduced was smart contracts. Today, CoinMarketCap reports that there are over 22,000 cryptocurrencies in existence. This is quite astounding, given that Bitcoin (the first one) only launched in 2009. We discuss all of this in a later blog.
One of the defining features of cryptocurrencies is their use of blockchain technology. A blockchain is a decentralised, digital ledger that records transactions in a secure and transparent way. Each block in the chain contains a list of transactions, and once a block is added to the chain, it cannot be altered. This makes the blockchain an immutable record of all transactions that have taken place, providing a high degree of security and transparency.
Cryptocurrencies can be bought and sold on a variety of online platforms known as exchanges. These exchanges allow users to buy and sell cryptocurrencies using traditional currencies, or fiat money, like the US dollar or Euro. Some exchanges also allow for the trading of one cryptocurrency for another. Common exchanges you might hear included Binance, Coinbase, Kraken and crypto.com. We go into this in more detail in a later blog.
In addition to buying and selling, cryptocurrencies can also be used to make purchases and payments. Many merchants now accept cryptocurrencies as a form of payment, and some even offer discounts for customers who pay with crypto. Common payment gateways include big names like Shopify, Stripe and Paypal. We go into this in more detail in a later blog. All of crypto, but especially this area, is changing and developing rapidly.
Much like you hold your physical paper money (fiat) in a wallet, you store and hold cryptocurrency in a digital wallet. There are many different kinds and ways of using these wallets. It is really important to use these digital wallets safely. We go into wallets in more detail in a later blog.
One of the main advantages of cryptocurrencies is their potential to disrupt traditional financial systems. Because they operate independently of banks and other financial institutions, cryptocurrencies can provide a way for people to bypass the fees and restrictions associated with traditional banking. They can also provide a way for people in countries with unstable currencies or limited access to banking services to participate in the global economy.
However, cryptocurrencies are not without their challenges. The decentralised nature of cryptocurrencies can make them difficult to regulate and can create opportunities for illegal activities like money laundering and tax evasion. The high volatility of cryptocurrency prices can also make them risky investments.
In conclusion, cryptocurrencies are a type of digital asset that operates independently of traditional financial institutions. They use blockchain technology to provide secure and transparent transactions, and can be bought, sold, and used to make purchases and payments. While they have the potential to disrupt traditional financial systems, they also face challenges related to regulation and volatility. As with any investment, it's important to do your research and understand the risks before getting involved in the world of crypto. We look at all of this in more depth in later blogs.
In talking about this space, there is one point that is really important - risk management. There are a lot of opportunities in crypto, as well as a lot of risks. You have to understand what you are doing, why you are doing it, what the risks are and what the mitigation of those risks are. It is something like having a fast sports car with great acceleration but no brakes. Oh, and no steering wheel either. Maybe exhilarating at the start. But doomed. As with anything else, this is a skill you can learn. You can learn to manage the risks. We talk about all of this as we go.
The next blog will be introducing trading and investing in crypto. As you can imagine, it is a can-of-worms and easy to get wrong.
That wasn’t so scary, was it? Join me on the next adventure, as we dig deeper.
If you have any questions, or would like to know more, please be in touch.
Dale.Spence@GenesisGRC.co.uk / +44 (0) 777 560 4378