What is Cryptocurrency and Why is it a Thing? (My zero-to-expert journey, Part 1)

Whether you are looking to “buy the dip” or simply dip a toe in the ocean of crypto, if you don’t know what it is or where to start it can feel overwhelming – at best. Or perhaps you know the gist but now you’re simply struggling to separate the ridiculous from the innovative and the legitimate from the hype.

You are not alone. I was in this very place earlier this year when the price of bitcoin (BTC) rapidly dropped from its (previous) all time high of $64k down to $29K. My opportunistic (“buy the dip”) brain told me that this was the opportunity to dive in – and I haven’t looked back since.

Having deep dived into the world of crypto, I have come up for air convinced that cryptocurrency, or rather the technology that makes cryptocurrency possible, is the future of everything! The learning curve was VERY steep – and lucky for you, dear reader, tackling steep learning curves is my superpower (LEARNER being my top StrengthsFinder strength).

And so, in this series, I will share what I have discovered on my zero-to-expert journey so that you might be as bullish about this crypto-future as I am!  In this first post of the series, we’ll start with a crawl (and I’ll have you running in no time.)

First up — fundamental concepts of crypto:

  • Crypto, a currency – but wait, there’s more! (the basics)
  • Crypto, a movement – my fellow social justice warriors should love this! (the ideology)
  • Crypto, a technology – a glimpse into the future of everything (the innovation)

Crypto, the currency – but wait, there’s more!

For crypto newbies, cryptocurrency is a general term that describes a special type of digital value exchange (or currency). Unlike with physical currency or even bank transactions, the cryptocurrency unit of value – a cryptocurrency’s token (its coin) – contains a record of current and historic token ownership embedded in its data. Basically, an ever-growing record of ownership transfer that is appended to the coin each time it is part of a new transaction.

While this may seem invasive – creepy even – the data is encrypted (and therefore practically anonymous) to everyone except those who have the encryption password (the “private encryption key”).

To everyone else, the transaction data looks like this:

No alt text provided for this image

The elegance of cryptocurrency is that it is designed in a way that it is extremely secure (it is near impossible to change the historic ownership records and thus near impossible to steal), extremely transparent (anyone one who wants to see the history of transactions can go look … again, not readily by the “who” but by the “when and how much” perspective), and it’s extremely reliable (there is a beautifully designed validation process built into cryptocurrency transactions so that we can all trust the data that we see).

Bitcoin is the original cryptocurrency, and it is completely decentralized (meaning it’s not a currency that is issued by any one entity, but rather created by a community of individual computers “miners” across the globe. These computers basically record and validate all of the transactions involving bitcoin and build new space to this data recorder (ledger) for more data as needed.

The value of bitcoin (and all cryptocurrency) is similar to the value of a US dollar or other currency … it’s set at whatever value the community of users believes it is worth. What you can buy for a US dollar is basically set by what someone will give you in exchange for that dollar.

No alt text provided for this image

Crypto, the ideology

Bitcoin – the original cryptocurrency and born from fire – so to speak. The concept was introduced to the world by Satoshi Nakamoto (a pseudonym) via a whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” (still well worth the read). The introduction of bitcoin was reportedly a direct response to (what was decried as egregiously inequitable) too-big-to-fail bank bailouts following the 2008 financial collapse in the US.

No alt text provided for this image

In the whitepaper, Nakamoto describes inherent flaws in the existing financial system:

“Merchants must be wary of their customers, hassling them for more information than they would otherwise need. A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments over a communications channel without a trusted party.”

Since its publication, many have embraced the idea of decentralized peer-to-peer electronic financial transactions (i.e., bitcoin) as symbol of democracy. It signifies freedom from the authority of (and fees imposed by) unnecessary financial intermediaries.

Bitcoin represents a stripping away of power and profit from large (and frequently corrupt) institutions that benefit from powerful friends in Washington, smoky backroom deal-making and ramped opportunistic backscratching. It represents freedom from short-sighted government decisions that protect the interests of political doners and campaign contributors, and it restores the power and recirculates the value created back into the community of bitcoin users.

Contrary to the popular belief that this crypto community is flush with scamming hackers and nefarious cybercriminals, I have found the crypto community to be much less shadowy outlaw and much more power-to-the-people anarchist. The community at large seems to promote the proliferation of a trust-less (intermediary-less) financial system, privacy, security, and equity. Very American Dream.


Crypto, technology – the future of everything

My last big lay-of-the-land revelation about crypto is how profoundly transformational it will be. Because there is so much packed into the technological possibilities, I will introduce a few fundamentals here and explore components of my takeaways in my upcoming posts.

When it comes to cryptocurrency, one of the first things to recognize is that bitcoin is just the tip of the iceberg.

Bitcoin (BTC) was the first.

From the OG BTC token came an entire universe of “altcoins” – cryptocurrency tokens initially developed as an alternatives to bitcoin, which quickly took on lives of their own. Today, there are well over TEN THOUSAND different cryptocurrencies — and not all tokens are created equal.

No alt text provided for this image

Where bitcoin was designed to be a digital form of value exchange built on blockchain technology (i.e., all that stuff that makes it decentralized, secure, and transactionally transparent, yatta, yatta, yatta), other coins, starting with Ethereum, were designed to actually do things.

Ethereum is materially different from bitcoin in that it is more of a platform than a financial instrument. Both bitcoin and Ethereum (and generally all cryptocurrencies, for the most part) are built using blockchain technology and use cryptography to keep token owner data private while maintain the transaction history (the distributed ledge) publicly access able to enable that blockchain validation. Ethereum, however — with its native token ETH, was designed with a set of inherent protocols (rules with which all ETH transactions comply). This, in essence means that ETH is a programable cryptocurrency. And this paves the way for “smart contracts” — the REAL game changer.

Consider that story of King Arthur and his sword, Excalibur? Smart contracts are similar the sword that couldn’t be removed from the stone until specific conditions were met … and then only Arthur was allowed to wield it because he was the rightful owner.

No alt text provided for this image

Imagine being able to cast similar spells on money. Conditions are preestablished and transactions can only take place when conditions are met. This is basically a smart contract – programmable money!

But it goes way beyond this. Ethereum is a “layer one” protocol – it sets foundational rules about how transactions can work. Think operating system on your phone or laptop. There is a whole universe of layer two tokens used to create additional functionality based on the protocols set by Ethereum. An Ethereum is just one of dozens of “layer one coins” … Algorand (ALGO), Cardano (ADA), Solana (SOL), Polkadot (DOT) – all layer one cryptocurrencies … that is, these are all “platform tokens” on which cryptocurrency-based applications can be built. The world has just gotten A WHOLE lot bigger!

… and this is understandably where, if you aren’t the nerd-out-on-big-picture-concepts type like I am, I will start to lose some folks. But its ok. If you have learned enough to clear some of the mystique away from the cryptic world of crypto — #winning! And, if you’re as intrigued as I was, check back in soon because I promise there is SO much more to follow!

WDY think? Ready to cash in your chips for some cryptocoin or still not ready to fall for the cyberhype? Did you learn something? Did I miss something? What’s your take on the cryptoverse? Feel free to comment if you have adds or corrections, message me if you have questions, or feel free to share with others if you find this informative.

Also check out additional zero-to-expert postings from this series as I share more from deep inside the rabbit hole.

1 Comment. Leave new

Leave your thoughts

Your email address will not be published.

Fill out this field
Fill out this field
Please enter a valid email address.
You need to agree with the terms to proceed

Coming up:

  • Crypto, an ecosystem (web3 and dApp stuff)
  • Crypto, a disruption (policy, geopolitical and defi stuff)   
  • Crypto, a brave new world (NFT and metaverse stuff)
  • Crypto, a solution (equity and wealth redistribution stuff)