It’s not often that us girls are confused by new trends. We are usually the ones schooling our men on this new fashion forward look, and that new trendy concept. But, we have to admit that when we hear the words ‘Bitcoin’ and ‘crypto’ come out of their mouths (which is much too often), we can’t help but feel a little out of the loop. We are all asking ourselves the same questions – ‘When did they learn about this, when did they become Bitcoin gurus, and where was I when all of this was going down?’
Seeing as most of us girls are in the same boat, we thought it was time we took one for the team and asked the tough questions. So, in an attempt to understand the world of Bitcoin and crypto, we dug deep – real deep. And let me warn you, this crypto thing is super complex. So complex, that if we really delved into the nitty gritty of the space, we’d have to write a book – not a post. However, familiarizing yourself with the basics is more than good enough. And, let’s be honest; most of the world only know the basics – no matter how much they think they’re gurus.
Decoding the Lingo
The word crypto stands for ‘cryptocurrency’, which is, in layman’s terms, a ‘digital’ currency. The word ‘crypto’ refers to the encryption (codes) that are used to generate the currency.
Bitcoin is one of many digital currencies, however, the reason it has caused such a stir is because it was the first cryptocurrency to be developed; it has skyrocketed in value since its inception – and, no-one is sure who created it. Satoshi Nakamoto is said to have created Bitcoin, however no one knows if this is a real person, or if it’s an alias for an individual, or perhaps even a group. Even though Bitcoin’s existence is one of mystery, there is no denying that it continues to lead the way in the world of crypto. Bitcoin is worth a lot more than any of the other currencies, and its value increases impressively, on a day to day basis.
Decentralized is a word closely associated with Bitcoin, as well as some altcoins. It refers to the way in which it is ‘regulated’. Decentralized means that all transactions are completely transparent, and the network is not controlled by any one institution, for example: governments and banks. Whereas currently, these institutions hold the power when it comes to the world financial markets.
Because Bitcoin is a decentralized technology (not owned by anyone), the way in which it’s controlled is through global networks of computers. All of these computers (which can be owned by anyone who sets them up to mine, or facilitate the blockchain), jointly manage the records of Bitcoin transactions. Essentially, the blockchain is a list of records called blocks, managed by these computers.
There are around 700 cryptocurrencies, also known as coins. This number increases daily as almost anyone can create a new type of coin. The other cryptocurrencies, however, are ‘knock-offs’ of Bitcoin, collectively known as ‘Altcoins’. They are worth much less and take longer to increase in value compared to Bitcoin. The most well known Altcoins are: Ethereum, Litecoin, ZCash and Ripple.
The Real Questions
Why do people buy Bitcoins, or any cryptocurrency?
There are many reasons why people invest in cryptocurrency. One of the biggest factors is because of its incredible growth, which has created an opportunity for people to invest small amounts of money and make great return on that investment, in a short space of time. For example: if you had purchased just one Bitcoin in 2016, when it was valued at $630, a year later (2017), you would have made yourself a few thousand dollars if you had sold your coin, as the price rose to just over $3900. Today it is worth $13900. People also trade the coins, buying one coin and selling it for another; making profits on the trade. Another reason is due to the decentralization of the currency. This makes it much easier, and cheaper, to transfer money all over the world as there are no limitations in terms of regulations, verifications or interference from governments and banks.
Why Do People Trust Cryptocurrency?
Bitcoin was created in 2008, after Occupy Wall Street came out with the shocking revelations of how banks around the world were rigging the system, squandering money, poorly handling borrowers’ money, and controlling the world financial markets. This sent many people into financial problems, with debt being the consequence. The world was in need of a technology that made transparency a driving force, and shifted control from institutions, to individuals. This was done by creating a currency (Bitcoin), which cut out the middleman and cancelled out fees, putting the buyers and sellers in control – all so that the problem with corruption and poor handling was solved. This is why Bitcoin is a decentralized system – it’s the main advantage of owning cryptocurrency, and the reason why people trust in it.
Can I use this form of currency to purchase things?
There are some places that allow you to pay with Bitcoin, although that’s not why one invests in it. Paying with virtual currency for mundane things doesn’t make much sense, especially when you’re aware of how much the value of your coin could increase. It shouldn’t be used as a means of payment, rather a means for investing and transferring money around the world.
Who determines the price of the currency?
No one determines the value, or price of Bitcoin, it relies solely on supply and demand. If the demand increases, the value will increase. It’s important to know that there is a limited number of Bitcoins in circulation, and new Bitcoins are mined at a very slow pace. Even so, the demand needs to be consistent in relation to the inflation (the amount of new coins being created), in order to keep the price stable.