Cryptocurrency Overview ¶
By: GreenandPleasantLand on June 21, 2021, 11:58 a.m.
Cryptocurrencies are a new and very important technology which is set to be a game changer for how we store value and carry out transactions, enabling freedom loving people everywhere to engage in a totally free market without the interference of the state. Two of the biggest limitations for achieving mass adoption is a lack of understanding and the perception that it is very complicated to get involved in. With this article I aim to give you a basic overview of the technology so that you feel more confident in giving it a try.
Blockchains and Cryptocurrencies
Blockchains are a decentralised type of database, or ledger, where the data is grouped together in blocks. Each block has a unique immutable cryptographic signature called a hash. Once a block is filled up, it is then chained to the previous block via the hash of the previous block, hence the name blockchain. When a transaction has been added to the blockchain, then the ledger will be updated on all of the computers on the network and is given a timestamp.
If the data in a block was tampered with, then the blocks hash will change, thus making the next block not recognise it, as the hash of the previous block would no longer be the same. This would make all of the blocks after the tampered block invalid.
The blockchain is stored on nodes, which are computers that people have installed the blockchain’s node software on. There are a few different types of nodes, such as a full node, which contains the whole of the blockchain starting with the very first block (called the Genesis block) and a lightweight node, which only stores the most up-to-date blocks but can request older blocks if needed.
The most widely known about type of node is a mining node. The purpose of miners in the network is to verify the transactions and then add them to the blockchain, as well as helping to prevent tampering of the blocks through a mechanism called proof of work. Miners compete with each other by having their computers (called mining rigs) solve a complex mathematical puzzle, the answer of which is the hash. Once the puzzle is solved, then a new block is created and the transactions within the new block are confirmed. The incentive for the miners to do this comes from both the transaction fees for validating transactions and a chance of gaining a block reward for adding a new block to the blockchain by being the first to solve the mathematical puzzle.
Proof of work is used to slows down the creation of new blocks, in the case of Bitcoin it takes around 10 minutes, meaning that the time it would take to recalculate all of the blocks would be massively increased, therefore making the time and electricity costs of tampering unviable.
A further way of preventing tampering lies within the decentralised network itself. As all of the nodes have a copy of the blockchain, any new blocks that are created will be added to all of the computers on the network. This creates consensus by agreeing which blocks are valid and which ones aren’t.
Cryptocurrencies are a digital means of exchange that is stored as data on the blockchain and were created in order to bypass the centralised financial institutions. The first cryptocurrency is Bitcoin, which was created by the anonymous individual or group known as Satoshi Nakamoto. There are now thousands of different cryptocurrencies that have been created and while most will disappear, there are quite a few very exciting projects that have the potential to be very useful for us.
One of the big misconceptions with cryptocurrency wallets is that that is where a person’s crypto is stored. Crypto is actually stored on the blockchain, with a person’s private key acting as ownership rights so that it can be sent, sold or exchanged. The wallet is used as a way of storing the private keys, generating public keys and in most cases (with the exceptions of a brain or paper wallet) provides an easy and convenient way of managing your crypto, for example checking your balance and sending and receiving crypto.
Here are the most important parts of a wallet:
Public Key – The public key is used to encrypt transactions.
Private Key – The private key is used to decrypt the transactions. It is used as a way of validating that you have ownership rights over the crypto.
Wallet Address – The wallet address is a hashed (shortened) version of the public key and is used to send and receive crypto to and from your wallet. They can come in two different forms, either an alphanumeric string (a combination of letters and numbers) or a QR code.
Seed Phrase – The seed phrase are 12 to 24 words from a list of 2048, that are in a specific order and is derived from your private key. It is used to recover your wallet if something should happen to your device.
The public key, private key and wallet address are all mathematically related. The public key is derived from the private key and the wallet address is a hashed version on the public address.
Private key → Public key → Wallet Address
Here is a list of some of the different types of wallets that are available:
Custodial Wallet – A custodial wallet is one where the private keys are held by a third party. An example of a custodial wallet is a wallet that is automatically created when you create an account on an exchange such as Coinbase or Kraken. These are the least secure as they are a big target for hackers and fraudsters as the wallets are held on the companies centralised servers, which are always connected to the internet and even the government can have your crypto seized. As the saying goes, if you don’t hold the private keys, then you don’t own crypto.
Software Wallet – A software wallet can either be downloaded onto your desktop or mobile, or accessed via the cloud. As they are connected to the internet they are considered “hot” wallets. They are free and very easy to use so are very good for beginners and for people who use crypto on a daily basis. As they are connected to the internet, it is best not to store large amount of crypto on them over the long term.
Hardware Wallet – These wallets look like a USB stick with a little screen and as they aren’t connected to the internet they are considered “cold” wallets. These are a very secure form of wallet however they are also the most expensive. These are one of the best options for storing large amount of crypto on.
Paper wallet – This is a piece of paper which has your public and private keys on it, which is in the form of both the alphanumeric string and the QR code. You can generate these keys by using a wallet generator website such as walletgenerator.net or myetherwallet.com. This type of wallet is very secure as it is offline, however you will need a to use a block explorer website in order to find out your crypto balance.
One of the main ways to get crypto is to use an exchange. There are three different types of exchanges that you should be aware of, each with their advantages and disadvantages. These are listed below:
Centralised Exchange – These are government regulated businesses that offer fiat-to-crypto and crypto-to-crypto exchange services. They are the easiest way to buy crypto, however they do require you to give personal identity information. As they are a centralised business, they are more prone to things like hacking, therefore it is important that you transfer any crypto bought there into a wallet that you own the private keys for.
Decentralised Exchange (DEX) – These are open source services that only offer crypto-to-crypto exchanges and are not controlled by a centralised company. Due to being decentralised, governments cannot shut them down and have a hard time regulating them. They are anonymous, however they are more complicated to use and their fees tend to be higher than with a centralised exchange.
Peer-to-Peer Exchange (P2P) – This type of exchange allows you to talk with the person who you are going to be exchanging with. Once both parties have come to an agreement, the crypto/fiat is held in escrow until it is ready to be exchanged and then either a fixed fee or a percentage will be charged. Some P2P exchanges require your identity in order to create an account, whereas others don’t and therefore allow for anonymity. A downside can be that some sellers may only be willing to accept certain payment methods.
As cryptocurrencies are such a new and complicated technology, it is understandable that people have a lot of questions and concerns about it’s use, especially those that are aware of the WEF’s The Great Reset and the UN Agenda 21/30. Here I hope to address some of these concerns.
1) What if the electricity/internet gets shut off:
While it is true that if the electricity and/or the internet goes off, you will lose access to your cryptocurrency until it is back online, there are two things to keep in mind. The first one is that electricity and the internet are so pivotal to the technocratic agenda that it would do more harm to them than it would to us, so they wouldn’t turn them off. Second, if he electricity/internet did go off, then having a means of exchange would be the least of our worries.
2) Blockchain is going to be used for a global identity system, therefore we shouldn’t use it:
We know that blockchain technology is going to be used for a global identity system and probably central bank cryptocurrencies as well, however choosing not to use it because of this is like choosing not to use a powerful weapon because your enemy is using it. All it does is leave us at a great disadvantage. The technology can be a game changer for us, therefore we should embrace it.
3) A cashless society is part of the agenda, therefore we should use gold/silver coins and bartering instead:
The threat of a cashless society lies in all of our transactions being recorded and analysed in order to predict and manipulate our behaviour in a specific direction, in line with a social credit system, in addition to eradicating black markets. However, if this centralised control is removed, then a cashless society makes sense, as it is much more convenient way of conducting transactions. With privacy coins (cryptocurrencies with strong privacy features as a default), we can not only gain the convenience and practicalities of cashless payment methods, but also gain a completely anonymous method of carrying out transactions with each other.
Gold and silver coins have been used as money for the last 5000 years up until recently, so they definitely have stood the test of time. However, in our current situation there are a few problems with trying to use them as a means of exchange. Firstly, due to them being physical coins, we will be limited to using them in a local context. It would be unfeasible to order things online and send coins in the post as payment. Secondly, it would require a large amount of people to purchase a quite a large amount of coins in order for them to be used as a viable means of exchange in a local area because if there isn’t enough then it won’t be feasible.
Bartering is another thing that gets brought up, but this too isn’t feasible outside of the odd exchange between individuals in a local community. This is because people might not want to accept what you have to offer as payment, for example they might not want the item, have too much of the items or have one that is working perfectly and therefore not in need of another. These are some examples of why humans started trading with commodities and later invented money.
4) Volatility in the price of cryptocurrencies, especially as a result of high net worth individuals such as Elon Musk:
Over the short history of cryptocurrencies, we have seen extreme levels of volatility which can be a big concern for people who are thinking about keeping their savings in crypto rather than in a bank. First it is important to discuss why there are extreme levels of volatility before I address the concern directly.
Price volatility exists in all markets and represents people buying and selling based on things like industry developments, government policies, availability etc. With crypto, this is also the case but at a much more extreme level. There are a few reasons for this, including people speculating on the “shiny new asset” in order to try and make short term gains, a lack of big investors and institutions buying large amounts and holding for a longer term (although this has been changing) as well as a thing called FUD (Fear, Doubt and Uncertainty), which especially comes into play with concerns surrounding legislation.
People like Elon Musk can have such a huge effect on crypto at the moment due to the combination of the above. They hold large amounts of crypto, typically Bitcoin, so there is the threat that they will sell it all off at once, with the resulting fear of lower prices causing a snowball effect of more and more people also selling their crypto in order to try and prevent losses.
While no one can say for sure what will happen to crypto in the future, the extreme volatility should become rarer when there is mass adoption, especially as an alternate means of exchange rather than for speculation, alongside more businesses accepting crypto for payment and more high net worth individuals and institutions buying and holding crypto in their portfolios. Also, the regulatory landscape will become known, which will further help to remove the uncertainty surrounding if governments decide to regulate or not, as well as to what extent.
If you are feeling inspired to give cryptocurrencies a try but don't know where to start, then this the article for you. I go through a completely free way to start earning some crypto and walk you through setting up your first wallet and carrying out your first transactions. Please click the link for more details: Getting Started with Cryptocurrencies